SoFi

Home equity financing lets a homeowner borrow against the equity in their property. The term can refer broadly to several types of home equity borrowing, including a fixed-rate home equity loan, a home equity line of credit (HELOC), and a cash-out refinance.

The answer to what types of home equity financing are available generally includes these three options:

•   Fixed-rate home equity loan: Provides a lump sum with a fixed interest rate and predictable payments.

•   HELOC: Provides a revolving line of credit that the borrower can use as needed, usually at a variable interest rate.

•   Cash-out refinance: Replaces the existing mortgage with a larger mortgage and gives the borrower the difference in cash.

The right choice depends on the amount and timing of the cash needed, the borrower’s current mortgage interest rate, comfort with payment changes, and total borrowing costs.

How the Three Options Compare

A home equity loan and a HELOC are additional loans on top of your mortgage loan that are secured by the home. A cash-out refinance replaces the current mortgage with a new loan.

Feature	Fixed-rate home equity loan	HELOC	Cash-out refinance
Access to funds	One lump sum	Withdrawals as needed up to a credit limit	One lump sum from a new mortgage
Interest rate	Usually fixed	Usually variable, although some products may offer fixed-rate conversion options	Usually fixed or adjustable, depending on the new mortgage
Payments	Fixed principal-and-interest payments	Payments can change based on the balance and interest rate	Payments follow the terms of the new mortgage
Draw period	None	Usually a set draw period, often 10 years	None
Existing mortgage	Stays in place	Stays in place	Replaced by the new mortgage
Number of mortgage- related payments	Existing mortgage plus home equity loan payment	Existing mortgage plus HELOC payment	Usually one new mortgage payment
Common use	One-time, known expense	Ongoing or uncertain expenses	Large cash need when refinancing also makes financial sense
Main risk	The home secures the loan	The home secures the line, and payments may change	The home secures the larger replacement mortgage

Home Equity Loan vs HELOC

The difference between a home equity loan and a line of credit is the way the borrower receives and repays the funds:

•   A home equity loan provides the full approved amount at closing. The borrower typically makes equal monthly payments at a fixed interest rate.

•   A HELOC provides a credit limit. The borrower can withdraw money during the draw period and generally pays only interest on the outstanding balance.

A home equity loan may suit a borrower who knows the exact amount needed and wants predictable payments. A HELOC may suit a borrower whose costs will occur over time or remain uncertain.

Refinance vs Home Equity Loan

The difference between a refinance and a home equity loan is what happens to the existing mortgage:

•   A home equity loan is a second loan. The borrower keeps the current mortgage and adds a separate payment.

•   A cash-out refinance pays off the current mortgage and replaces it with a new, larger mortgage. The borrower receives the difference between the new loan amount and the old mortgage balance in cash.

A home equity loan may be preferable when the existing mortgage has a low interest rate. A cash-out refinance may make sense when the borrower wants one mortgage payment and can qualify for a lower interest rate.

Cash-Out Refinance vs Home Equity Loan

A cash-out refinance and a home equity loan both provide a lump sum secured by the home. Their interest rate, payment, and closing-cost structures can differ:

•   A cash-out refinance offers one consolidated mortgage payment and usually a longer repayment term.

•   A home equity loan leaves the existing mortgage unchanged but creates a second payment.

•   A cash-out refinance may be more attractive when the borrower can qualify for a lower interest rate.

•   A home equity loan avoids replacing a low-rate first mortgage, but the second loan will have a different interest rate, fees, and repayment term.

When deciding between the two options, compare your new mortgage payment, existing mortgage payment, home equity loan payment, closing costs, and total interest over the full repayment period.

How Much Can a Homeowner Borrow?

The amount available usually depends on the home’s value, the current mortgage balance, the requested loan amount, credit history, income, and the lender’s maximum combined loan-to-value ratio.

Calculating CLTV

Combined loan-to-value ratio, or CLTV, compares all loans secured by the home with the property’s appraised value:

CLTV = (Current mortgage balance + New loan or line amount / Appraised home value) x 100

Many lenders set a maximum CLTV, often up to 85%, although the limit depends on the lender, equity borrowing option, property, and borrower. A home equity loan calculator can help estimate potential borrowing capacity. It works similarly to the home affordability calculator used during the home-buying process.

Fixed-Rate Home Equity Loans

A fixed-rate home equity loan provides a lump-sum payment that the borrower repays over a set period. The interest rate and scheduled principal-and-interest payment generally remain the same for the life of the loan.

This structure answers the question how do home equity loans work differently from HELOCs: The home equity loan funds the entire amount at closing, while the HELOC allows multiple withdrawals during its draw period.

Fixed-rate home equity loans often have terms ranging from five to 30 years. The loan usually must be paid in full if the home is sold.

Home Equity Loan Example

Suppose a borrower needs $24,000 for a $20,000 garage addition and a $4,000 medical bill. A $24,000 home equity loan would provide the full amount upfront. The borrower would then make scheduled monthly payments until the balance is repaid.

A fixed-rate home equity loan may be suitable for:

•   A renovation with a known price

•   Debt consolidation

•   A major one-time expense

•   A borrower who wants predictable monthly payments

•   A homeowner who wants to keep their current mortgage with a low interest rate

The borrower should ask lenders about closing costs, appraisal fees, and other third-party charges before accepting an offer.

Recommended: What Is a Fixed-Rate Mortgage?

HELOCs

A HELOC is revolving debt, much like a credit card. The lender approves a credit limit, and the borrower can withdraw funds as needed during the draw period. As the borrower repays principal, that amount generally becomes available again.

Draw and Repayment Periods

A HELOC usually has two stages:

•   Draw period: The borrower can access funds up to the credit limit. This commonly lasts 10 years. (The draw period for a SoFi heloc is 3 years.)

•   Repayment period: The borrower can no longer withdraw funds and repays the outstanding balance over a specified period.

For example, a 30-year HELOC could have a 10-year draw period followed by a 20-year repayment period. Depending on the agreement, the borrower may make interest-only payments during the draw period or payments toward both principal and interest.

HELOC Example

Suppose a borrower has a $10,000 HELOC and initially withdraws $7,000. The borrower has $3,000 of available credit. If the borrower pays $5,000 toward the principal, the available credit may increase to $8,000 during the draw period.

A HELOC may suit a borrower who needs money for an ongoing project, such as home improvements. Other potential uses include education expenses, wedding costs, and business startup costs.

How HELOC Interest Rates Work

A HELOC generally has a variable interest rate that can change with market conditions. The monthly payment can change when the interest rate changes or when the balance changes.

During the draw period, the borrower pays interest on the amount withdrawn. During repayment, the borrower pays principal and interest on the balance and typically cannot withdraw additional funds.

A HELOC interest-only calculator can help you compare interest-only payments with payments that reduce the principal balance.

Cash-Out Refinancing

Mortgage refinancing replaces an existing mortgage with a new loan. A cash-out refinance increases the new mortgage balance above the amount owed on the current mortgage and provides the difference to the borrower in cash. More information about the mechanics appears in How Cash-Out Refinancing Works.

Cash-Out Refinancing Example

Suppose a home is appraised at $400,000 and the homeowner owes $200,000 on the mortgage. If the homeowner needs $30,000 for repairs, a cash-out refinance could replace the current mortgage with a $230,000 mortgage, subject to lender approval and applicable costs. The borrower would receive the $30,000 difference in cash.

A cash-out refinance may suit someone who:

•   Needs a large lump sum

•   Wants one consolidated mortgage payment

•   Believes the new mortgage interest rate or repayment term would be better than the current one

•   Has enough equity and income to qualify for the larger mortgage

Common refinancing goals include:

•   Securing a lower interest rate

•   Changing the repayment term

•   Lowering the monthly payment

•   Accessing cash for a major expense

A longer repayment term can lower the monthly payment while increasing total interest over the life of the loan. A cash-out refinance also has closing costs and may have higher upfront costs than a home equity loan.

Advantages and Disadvantages

Potential cash-out refi advantages:

•   Provides a lump sum of cash

•   May provide a lower mortgage interest rate

•   Can change the repayment term

•   Usually creates one mortgage payment

Potential cash-out refi disadvantages:

•   Replaces the existing mortgage

•   May eliminate a favorable current interest rate

•   Adds debt secured by the home

•   Requires closing costs

•   May increase total interest or extend the repayment period

Fees, Rates, and Tax Considerations

Home equity loans and HELOCs may include closing costs and fees. These costs can range from 1% to 5% of the loan amount, although the amount and structure vary by lender and product.

HELOCs may have ongoing charges such as:

•   Annual fees

•   Transaction fees

•   Inactivity fees

A lender generally provides disclosures for certain fees, including application fees, discount points, annual account fees, and transaction fees. Borrowers should ask about other charges, such as returned-payment fees, before signing the agreement. The Consumer Financial Protection Bureau provides a loan estimate explainer to help borrowers review loan terms and fees.

Comparing Interest Rates

Home equity loan interest rates are often lower than rates for unsecured borrowing because the home secures the debt. The rate may still differ from the borrower’s first-mortgage rate, personal loan rate, credit card rate, or HELOC rate.

When comparing rates, make sure you review:

•   The APR, or annual percentage rate, which includes the interest rate plus lender fees

•   Whether the interest rate is fixed or variable

•   The length of the repayment term

•   The total interest over the loan term

•   Closing costs and recurring fees

A lower interest rate does not always produce the lowest total cost if it comes with higher fees or a longer repayment period. Current market conditions, the borrower’s credit profile, the CLTV, and the loan type all affect the offer. Borrowers can review current home equity loan rates when beginning the comparison.

Tax Treatment

Interest on a home equity loan or HELOC may be deductible when the borrowed funds are used to buy, build, or substantially improve the home securing the loan. Tax treatment depends on the borrower’s circumstances and applicable tax rules. A tax professional can explain how the loan may affect a specific tax return.

Comparing Offers

To compare home equity loan offers from different lenders, borrowers should review the full cost and payment structure rather than comparing the advertised interest rate alone.

A useful checklist includes:

1.    Compare APR and interest rate. The APR includes certain fees beyond the stated interest rate and can help you understand the full cost of borrowing.

2.    Review fixed versus variable rates. A fixed-rate home equity loan provides more predictable payments. A variable-rate HELOC can change over time.

3.    Add all fees. Include origination fees, appraisal charges, application fees, annual fees, transaction fees, and closing costs.

4.    Check the loan amount and CLTV limit. Confirm that the lender’s maximum borrowing amount meets your needs.

5.    Compare repayment terms. A longer term may reduce the monthly payment but increase total interest.

6.    Review HELOC payments. Check the payment during the draw period and the expected payment during repayment.

7.    Ask about penalties and recurring charges. Review prepayment terms, annual fees, and inactivity fees.

8.    Consider the existing mortgage. A home equity loan or HELOC leaves the first mortgage in place. A cash-out refinance replaces it.

9.    Compare total repayment costs. Calculate the interest and fees over the expected time the debt will remain outstanding.

10.    Confirm how payments are calculated. Ask whether payments include principal and interest, and whether a HELOC payment can change.

The lender’s interest rate quote, loan estimate, or comparable disclosure should provide the figures needed for this review. Borrowers should ask each lender for the same loan amount and repayment term to make offers easier to compare.

Qualification Requirements

Lenders typically review the borrower’s equity, credit profile, income, debts, and payment history. Requirements vary by lender and type of home equity product.

An application may require:

•   Proof of income, such as pay stubs, tax returns, or bank statements

•   Information about the existing mortgage and other debts

•   Permission to review your credit history and credit score

•   Documentation of homeowners insurance

•   Property details and an appraisal or other valuation

•   Evidence of a reliable repayment capacity

•   Information about your payment history and recent delinquencies

Many lenders look for at least 20% equity after accounting for the new loan, a credit score of at least 620, and a debt-to-income ratio no higher than 43%. These figures are general benchmarks, not universal requirements. A lender may apply different standards based on the loan type, property, your income, credit history, and CLTV.

The borrower’s home secures the debt. If the borrower cannot make the required payments, the lender could begin foreclosure proceedings.

Recommended: How Does a HELOC Affect Your Credit Score?

Choosing an Option

A fixed-rate home equity loan may make sense when:

•   The borrower needs a known amount upfront.

•   The current mortgage interest rate is low.

•   Predictable payments fit your budget.

•   The expense is one-time or has a defined cost.

Potential uses include consolidating high-interest debt, paying for a major renovation, or covering a large purchase.

A HELOC may be appropriate when:

•   The borrower needs funds over multiple stages.

•   The total cost is uncertain.

•   The borrower wants to withdraw only what is needed.

•   The borrower can manage a variable rate and changing payments.

A cash-out refinance may be worth considering when:

•   The borrower needs a large lump sum.

•   The existing mortgage interest rate is high.

•   The new mortgage rate and term may improve your financial profile.

•   One consolidated mortgage payment is a priority.

Before choosing, the borrower should compare the new debt with the existing mortgage and assess whether the monthly payments remain affordable if rates or expenses change.

The Takeaway

The three main types of home equity financing are:

1.    Fixed-rate home equity loans

2.    Home equity lines of credit (HELOCs)

3.    Cash-out refinances

A fixed-rate home equity loan provides one lump sum with predictable payments. A HELOC provides flexible access to funds, but the interest rate and payment amount can change. A cash-out refinance replaces the current mortgage with a larger mortgage and provides cash from the difference.

All three options use the home as collateral. The borrower should compare the APR, fees, repayment term, payment structure, CLTV, and total repayment cost before applying.

SoFi offers both home equity loans and home equity lines of credit (HELOCs) to help you leverage your home's value. Access up to 85% of your equity (up to $750,000), to fund renovations, consolidate high-interest debt, or cover significant expenses. Both options offer competitive rates compared to other loan types. Plus, you’ll be paired with a dedicated SoFi Mortgage Loan Officer who can help you find the right fit for your needs.

Unlock your home’s value with a home equity loan or HELOC from SoFi.

FAQ

What is the downside of a home equity loan?

The primary downside is that the home secures the debt. If the borrower cannot make the payments, the lender could pursue foreclosure. A home equity loan also provides a lump sum. Borrowers who are unsure how much they need may prefer the flexibility of a HELOC, provided they can manage a variable interest rate and changing payments.

How much does a $50,000 home equity loan cost?

The exact cost depends on the interest rate, loan term, fees, and lender. For example, a $50,000 loan at a 7.50% interest rate with a 10-year repayment term would have an estimated monthly payment of $594 and total interest of $21,221 over the life of the loan, before fees.

Can you use a home equity loan for anything?

A home equity loan can typically be used for many purposes. Common uses include:

•   Consolidating higher-interest debt

•   Paying medical bills

•   Funding major home repairs or upgrades

•   Covering a large purchase

Because the home is collateral, the intended use should justify the risk and repayment cost.

How do I qualify for a home equity loan?

A borrower generally needs sufficient home equity, acceptable credit, manageable debt, reliable income, and a history of making payments on time. The lender may also review your:

•   Credit score and credit report

•   Debt-to-income ratio

•   Mortgage balance and CLTV

•   Proof of income

•   Homeowners insurance

•   Property value

•   Recent payment history

Requirements vary by lender. A borrower should confirm the lender’s minimum equity, credit score, income, and debt-to-income ratio requirements before applying.

What is the difference between a HELOC and a cash-out refinance?

A HELOC is a revolving line, similar to a credit card, that is secured by your home. The borrower can withdraw funds up to a set limit during the draw period, then repay the outstanding balance during the repayment period. The existing mortgage remains in place.

A cash-out refinance replaces the existing mortgage with a new mortgage for more than the borrower currently owes. The borrower receives the difference as a lump-sum cash payment and repays the new mortgage under its terms.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SOHE-Q326-071

Read more

Most people consider a “good” mortgage rate to be the lowest average current rate available. But here’s what they may not realize: Not everyone will qualify for the lowest rates out there.

So what is a good mortgage rate? As of September 17, 2026, the average 30-year fixed rate was 6.95%, according to Freddie Mac, so a rate at or below that may be considered good. But it can be different for every borrower, depending on their financial situation and credit score.

Many factors go into determining the mortgage rate you can get. Once you understand what these variables are, the better equipped you’ll be to navigate the mortgage market and find a loan that fits your situation.

What Is a Mortgage Interest Rate?

If you’re a first-time homebuyer, you may have a lot of questions about mortgage interest rates. The interest rate on a loan is the cost you pay to borrow money. You pay the interest each month as part of your regular payments for your loan.

There are different types of mortgage rates. With a fixed rate mortgage, your interest stays the same over the life of the loan. This means your monthly payment will always be the same.

An adjustable-rate mortgage (ARM) starts with a fixed rate for an initial period, commonly three, five, seven, or 10 years. After that, the rate adjusts periodically based on a benchmark index, such as the Secured Overnight Financing Rate (SOFR), plus a set margin. This could potentially make your payments much higher, depending on the state of the economy.

How Do Mortgage Interest Rates Work?

So what is a good mortgage interest rate? Interest rates are always changing. A variety of factors determine mortgage rate changes. Some you have control over, and others you don’t.

One of the critical factors that’s outside your control is what’s happening in the economy. Major economic events have a significant effect on interest rate fluctuations. For instance, a strong job market can add to inflation pressure, which may lead the Federal Reserve to keep interest rates higher.

Inflation, which limits consumers’ purchasing power, also plays a role. The Federal Reserve (the Fed) raised its benchmark rate in 2022 and 2023 to fight inflation, then cut it in late 2024 and 2025. In September 2026, with inflation still elevated, the Fed raised its rate again. The Fed’s rate influences mortgage rates, but it doesn’t set them. Mortgage rates tend to track longer-term rates, like the 10-year Treasury yield, more closely.

Your personal financial situation also affects the interest rate you get, as outlined below.

How Lenders Determine Your Mortgage Rate

In addition to the economic factors and the influence of the Fed, your unique financial situation will help determine the mortgage rate you qualify for.

Here are a few key factors lenders typically consider when determining your rate.

Credit Score

Most lenders review your credit history to determine if you’re eligible for a mortgage.

With this in mind, it can help to check your score regularly. Paying your bills on time and keeping your credit balances low are two habits that can affect it.

Credit report agencies will assign you a credit score by evaluating these factors. The most common model is the FICO® credit score, which ranges from 300 to 850.

Usually, if you have a credit score of 800 or higher, it’s considered exceptional, whereas a credit score between 740 and 799 is considered very good.

A credit score of 739 to 670 is good, and a score between 669 and 580 is fair. A score of 579 and lower is considered poor. A low credit score indicates that a borrower represents a higher risk. Borrowers with these credit scores may have trouble getting approved for a loan.

It’s important to note that specific credit score requirements may depend on the loan you apply for.

Income and Assets

Your income is another important factor lenders use to determine if you’re eligible for a mortgage. Lenders prefer borrowers with a steady income. To determine if you qualify, lenders evaluate your income and other assets, such as investments.

Also, your debt-to-income ratio (DTI) is essential information. Your DTI indicates what percentage of your monthly income is used for debt payments. This number gives lenders an idea of how well you’re doing financially.

If your DTI ratio is high, it may show that you’re not in a position to take on more debt. A lender might give you a higher interest rate or deny your mortgage application altogether.

Down Payment Amount

Sometimes your down payment amount can lower your interest rate or even determine what loans you’re eligible for. Lenders may see you as less of a risk if you put more money down.

Putting 20% down on a conventional loan generally lets you avoid private mortgage insurance, and it may help you get more favorable interest rates.

However, if you’re applying for a government-backed loan, you may not need such a big down payment. For example, a Veterans Affairs (VA) purchase loan may not require a down payment as long as the sale price isn’t higher than the home’s appraised value. A Federal Housing Administration (FHA) loan requires as little as 3.5% down for borrowers with a credit score of 580 or higher.

Also, some conventional home loans do not require 20% down.

Loan Term and Type

The loan term you select, such as 15 or 30 years, can also make a difference in the interest rate you receive. In general, a shorter-term loan will have a lower interest rate than a longer-term loan. However, your monthly payments will be higher with a shorter-term mortgage.

There are also several types of mortgage loan categories, including conventional, FHA, USDA, and VA loans. Each loan product may have very different rates.

Finally, as discussed, with a fixed-rate mortgage, your interest rate will remain the same for the life of the loan. But if you choose an adjustable-rate mortgage, your interest rate will vary after an initial fixed rate.

Before you take out any loan, it’s important to compare all of your options to find a competitive rate.

Location

Where your property is located can also play a role in the interest rate you receive, since many lenders offer slightly better rates depending on the state. For instance, the cost of living in California tends to be higher than it is in some other locations.

You can check the cost of living by state to see how your state ranks.

Other Factors That Determine Your Mortgage Rate

In addition to your financial situation and location, and the type of loan you’re applying for, there are some other things that may influence the mortgage rate you get. They include:

The Lender You Choose

Different lenders offer different mortgage rates and terms. Shopping around can help you find a competitive rate you can qualify for.

Broader Market Conditions

This factor is out of your control, but it’s good to understand how it works. Mortgage rates tend to track longer-term interest rates, such as the 10-year Treasury yield, more closely than they track the Fed’s benchmark rate. Knowing what’s happening in the broader market when you’re shopping for a home loan can help prepare you for what to expect.

What Is Considered a Good Mortgage Rate

As of September 17, 2026, the average rate on a 30-year fixed-rate mortgage was 6.95%, according to Freddie Mac. That average reflects conventional loans for borrowers who put 20% down and have excellent credit, so the rate you’re offered may differ. A rate below or close to the current average might be considered good.

But again, what’s a good mortgage rate for you depends on your financial situation and many other factors. A good rate is what you can qualify for. Comparing rates from different lenders can help you find a competitive deal.

As you’re comparing your options, it can help to look at the loan’s APR (annual percentage rate). An APR gives borrowers a broader measure of the cost to borrow money than the interest rate alone does.

The APR includes the interest rate, any points, mortgage broker fees, and other charges you pay to borrow money. So when you’re comparing options, you’ll want to review each lender’s APR to indicate the true cost of borrowing.

How to Get a Good Mortgage Rate

Now that you know the answer to the question, what is a good interest rate for a mortgage?, it might be a good idea to look for a competitive rate. Making sure your finances are in order before you apply for a mortgage will likely help you obtain a better interest rate and loan terms. Here are some ways to do that.

•   Pay off higher-interest debt. If you have debt like credit card debt, you’re likely paying a lot of money in interest. That money could be going toward other things like a mortgage payment. Second, carrying a large amount of debt means you lower your chances of approval for a home loan. Paying off as much of your debt as you reasonably can may help.

•   Save more for a large down payment. Buyers who put down less than 20% may end up paying for private mortgage insurance (PMI), which Freddie Mac says typically costs $30 to $70 per month for every $100,000 borrowed.

•   Review your credit history and check for errors. You can get a free copy of your credit report from the three major credit bureaus or from AnnualCreditReport.com. If you spot any errors, consider alerting the credit bureaus right away. Correcting any mistakes may help improve your ability to get a home loan.

The Takeaway

What is a good interest rate on a mortgage? Your financial health, the health of the economy, the loan type and term, and other factors help determine the actual rates you’re offered. What you can do is work to strengthen your financial situation and pay down debt you have, such as credit card debt.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is the 30-year mortgage rate right now?

As of September 17, 2026, the average rate on a 30-year fixed-rate mortgage was 6.95%, according to Freddie Mac. Freddie Mac updates this average weekly, and the rate you’re offered will depend on your finances and the type of loan you choose.

What is a good interest rate for a mortgage now?

A rate at or below the current average may be considered good. As of September 17, 2026, the average 30-year fixed rate was 6.95%, according to Freddie Mac. But a good mortgage rate can be different for every borrower, depending on their financial situation and credit score, as well as the type of home loan they’re applying for, among other factors.

Is 5.50% a good rate for a mortgage?

As of September 17, 2026, a 5.50% rate would be well below the 6.95% average for a 30-year fixed-rate mortgage, according to Freddie Mac, so it could be considered a good rate. Whether that rate is available to you will depend on factors like your credit, down payment, and loan type.

---

About the author

---

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOHL-Q326-066

Read more

When preparing to buy a home, understanding the early steps in the mortgage process can make the search more focused and effective.

Two common terms are prequalification and preapproval. Each gives lenders and home sellers information about a buyer’s borrowing potential, but they differ in how they evaluate finances and how much confidence they provide in the ability to secure a loan.

Knowing the difference helps buyers set a realistic budget, compare lenders, and submit stronger offers.

What Does Prequalified Mean?

Getting prequalified is an early way to estimate how much a buyer might borrow for a home and what the monthly payments could be.

Where to Get Prequalified for a Mortgage

A buyer can request prequalification from:

•   A mortgage lender or bank

•   An online mortgage lender

•   A credit union

•   A mortgage broker that compares multiple lenders

Many lenders allow buyers to start online. The application typically asks for the estimated purchase price, down payment, your annual income, employment information, existing debts, and contact details. Some lenders may also request a Social Security number and date of birth.

The lender uses this information, which may not be verified, to estimate a potential loan amount, interest rate, and monthly payment. Prequalification is often free, although buyers should confirm whether a lender charges an application or credit-report fee.

Lenders may use a soft credit inquiry for prequalification. A soft inquiry does not affect your credit scores. The process can be completed quickly when the buyer has the required information available, but timing varies by lender and application.

Buyers can request prequalification from several lenders to compare estimated payments and interest rates, which vary by repayment term. Because the information has not been fully verified, prequalification is not a loan commitment or a guarantee that the lender will approve the mortgage.

You can use a home affordability calculator to estimate a comfortable purchase price before requesting prequalification.

What Does It Mean to Be Preapproved?

Mortgage preapproval is a more detailed review of a buyer’s finances. The lender may verify income, employment history, debts, assets, and credit history before conditionally approving a specific loan amount.

A buyer can seek preapproval from a bank, credit union, mortgage broker, or online mortgage lender. Buyers can also review SoFi’s mortgage loan options.

Online, Fixed-Rate, Conventional, and First-Time Buyer Preapproval

A buyer seeking an online preapproval can usually begin by completing a lender’s digital application and uploading financial documents. The same process may support a fixed-rate purchase mortgage, a conventional purchase loan, and a mortgage for a first-time homebuyer, if the lender offers that loan type.

First-time buyers generally provide the same core financial documents as other applicants. A lender may also request information about down payment assistance, gifts, housing history, and homebuyer programs. FHA financing is another option some buyers compare when they have a smaller down payment or different qualification needs. Buyers can review FHA home loan information before discussing available options with a lender.

A preapproval for a fixed-rate mortgage confirms the lender’s preliminary assessment for that loan structure. It does not lock the interest rate unless the lender separately provides a rate lock. Buyers should ask whether the preapproval applies to a conventional, FHA, VA, or another type of purchase loan.

Documents Lenders May Request

When seeking preapproval, buyers will likely complete an application and provide some of the following:

•   Social Security number and card

•   Photo identification

•   Recent pay stubs

•   Tax returns, including W-2 statements, for the past two years

•   Two to three months of checking and savings account statements

•   Recent investment account statements

•   A list of recurring debts

•   Residential addresses from the past two years

•   The planned down payment and a gift letter when applicable

The lender may request additional documentation for certain income types. Freelancers may need to provide 1099 forms, a profit and loss statement, a client list, or work contracts. Rental property owners may need to provide lease agreements.

Approval can take longer when documents are incomplete, income is difficult to verify, assets have unexplained deposits, or credit reports contain negative information. Buyers can reduce delays by submitting legible documents and explaining unusual account activity promptly.

A buyer can review free credit reports before applying at AnnualCreditReport.com. A credit report lists balances, payment history, and derogatory information, but it does not include credit scores.

Getting a Preapproval Letter

After reviewing the application and supporting documents, the lender may issue a preapproval letter. The letter generally states the estimated loan amount and describes conditions that must be met before final approval.

A buyer can ask the lender for a preapproval letter as soon as the lender completes its initial review. The time required depends on the lender, the completeness of the application, and the complexity of the buyer’s finances. A fast preapproval is more likely when the buyer has current documents ready and responds quickly to follow-up requests.

The letter can strengthen an offer, especially when a seller receives multiple offers. Some sellers may disregard an offer without a preapproval letter, although requirements vary by market and seller.

A preapproval letter usually remains valid for a limited period set by the lender. Buyers should ask how long the letter lasts and whether the lender must update income, asset, or credit information before an offer is submitted.

Learn more about how long mortgage preapproval lasts before beginning your home search.

Credit-Score Impact

Prequalification may use a soft credit inquiry, which does not affect credit scores. Preapproval often includes a hard credit inquiry, but the exact process depends on the lender and the type of application.

Mortgage shoppers should ask each lender which credit inquiry it uses and which credit-scoring model applies. Multiple mortgage inquiries made within a short shopping period may be treated as a single inquiry by some scoring models, but the applicable period varies by model.

Buyers can learn more about how to check a credit score without paying before applying.

Choosing a Comfortable Loan Amount

A buyer does not have to spend the full amount shown on a preapproval letter. Preapproval identifies the maximum amount the lender may be willing to lend based on the information reviewed. It does not determine what the buyer can comfortably afford each month.

A lower-priced home may leave more room for:

•   Emergency savings

•   Property taxes and homeowners insurance

•   Maintenance and repairs

•   Retirement contributions

•   Other financial goals

Buyers should account for the down payment, closing costs, monthly debts, and expected housing expenses when setting a purchase budget. Review this guide to first-time home buying before setting a target price.

How Prequalification and Preapproval Compare

Prequalification and preapproval serve different purposes. Prequalification helps a buyer explore a price range early. Preapproval provides a more detailed lender assessment before the buyer makes an offer.

Consideration	Prequalification	Preapproval
Information supplied	Basic, often self-reported income, debt, asset, and down payment information	Financial information supported by documents
Verification level	Limited or none	More extensive review of income, assets, employment, debts, and credit
Credit inquiry	Often a soft inquiry, depending on the lender	May involve a hard inquiry, depending on the lender
Output	Estimated loan amount, interest rate, and payment	Conditional loan amount and a potential preapproval letter
Reliability	General planning estimate	More reliable estimate based on verified information
Use with sellers	Helps a buyer understand a budget	Often more useful when submitting an offer
Timing	Usually an early step	Usually completed before making an offer
Next step	Compare mortgage options and prepare documents	Shop for a home, submit an offer, and complete underwriting

The two terms do not have one universal definition. Some lenders use “prequalification” for a document-based review, while others use it for an automated estimate. Buyers should ask what the lender verifies and what the resulting letter represents.

When a Letter Is Needed

A buyer does not need prequalification to purchase a home. A preapproval letter is also not required for every offer, but an agent or seller may request one.

Preapproval can help because:

1.    It identifies a specific potential loan amount. The buyer has a clearer budget from a particular lender.

2.    It can prepare the buyer for underwriting. Mortgage underwriting is the lender’s final review after the buyer finds a home, agrees on a price, and submits a mortgage application.

3.    It shows that the buyer has completed an initial financial review. This can make the offer easier for a seller to evaluate.

The preapproval remains conditional. The lender still needs to review the property, confirm the final application details, and complete underwriting before issuing a final approval.

The Takeaway

Prequalification provides an early estimate based on basic financial information. Preapproval requires more documentation and usually gives the buyer a stronger estimate of the amount a lender may approve. A buyer can begin with prequalification to explore prices and compare lenders. Before making an offer, obtaining preapproval and a current preapproval letter can help the buyer move faster and present a more complete offer.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is mortgage prequalification?

Mortgage prequalification is an early estimate of how much a buyer might borrow. The lender generally uses basic financial information supplied by the buyer and may use a soft credit inquiry. Because the information may not be verified, prequalification is not a loan commitment.

What does mortgage preapproval mean?

Mortgage preapproval is a conditional assessment based on a more detailed review of income, debts, assets, employment, and credit. The lender may issue a letter stating the potential loan amount, but final approval still depends on the property, updated documents, and underwriting.

Who provides mortgage preapproval?

Banks, credit unions, mortgage brokers, and online mortgage lenders may provide preapproval. Buyers should ask about application fees, credit-report fees, appraisal fees, and other costs before applying.

Which lender offers the easiest home-purchase preapproval?

No lender has the easiest process for every buyer. Buyers should compare lenders based on the documents required, loan types available, rate and fee estimates, communication, online application options, and the time needed to issue a letter. A lender that clearly explains conditions and responds promptly may provide a smoother process for a particular buyer.

Is a preapproval a loan guarantee?

No, a preapproval is conditional and does not guarantee a mortgage. The lender must still verify the final financial information, evaluate the property, confirm the loan program, and complete underwriting.

How long is a preapproval letter valid?

The validity period varies by lender. Income, assets, debts, and credit may need to be updated if the letter expires before the buyer submits an offer or completes the loan application. Buyers should request an updated letter when their financial circumstances change or the lender’s stated validity period ends.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SOHL-Q326-134

Read more

A mortgage preapproval is typically valid for 60 to 90 days, although some lenders issue letters that expire after 30 or 45 days. The exact period depends on the lender, loan type, and terms stated in the letter. The clock usually starts on the letter’s issue date, so buyers should confirm the expiration date before making an offer.

A preapproval letter is different from an interest-rate lock. A lender may lock a rate for a specific period, but the preapproval and rate lock can have different expiration dates.

A mortgage preapproval can help buyers set a realistic budget and show sellers that a lender has reviewed their finances. The Consumer Financial Protection Bureau notes that lenders typically check credit before issuing a preapproval letter and that the letter usually includes an expiration date.

What Is a Mortgage Preapproval Letter?

A mortgage preapproval letter is a conditional statement from a lender that estimates how much the borrower may qualify to borrow. The lender reviews the borrower’s credit history, credit score, income, debts, and assets before issuing the letter.

The letter may include:

•   The estimated loan amount

•   The proposed loan type

•   The expected interest rate or rate assumptions

•   Conditions the borrower must satisfy

•   The date the preapproval expires

A preapproval letter shows sellers that a lender has reviewed the buyer’s financial information and considers the buyer likely to qualify for a mortgage. It does not guarantee that the lender will approve the final loan or that the buyer will receive the home.

A lender can still require an appraisal, title review, additional documentation, and a final underwriting decision. A buyer’s financial circumstances must also remain substantially consistent through closing.

Mortgage preapproval has become an important part of the home-buying process. Real estate agents and sellers often want to see a preapproval letter before accepting an offer, including from a first-time homebuyer.

Note: A SoFi Verified Preapproval Letter is valid for 90 days.

How the Mortgage Preapproval Process Works

The mortgage process often starts with an estimate of how much the buyer can afford. This allows the buyer to set their budget and house-hunting parameters according to an official determination of how much of a mortgage they can afford.

Steps to Get Preapproved

A borrower generally follows these steps:

•   Review loan options. Consider different types of mortgage loans, such as fixed-rate, adjustable-rate, conventional, FHA, VA, USDA, and jumbo loans.

•   Compare lenders. Review interest rates, APRs (annual percentage rates), lender fees, loan terms, closing timelines, and preapproval policies.

•   Submit an application. The lender requests personal and financial information.

•   Provide documentation. Documents may include:

○   Recent pay stubs

○   W-2 forms and tax returns, often covering the past two years

○   Bank and investment account statements

○   Information about current debts and monthly payments

○   Proof of additional income

○   Identification and employment history

○   Profit-and-loss statements and business records for many self-employed borrowers

•   Complete a credit review. Each lender may perform a hard credit inquiry.

•   Review the letter. Check the loan amount, loan type, conditions, interest rate information, and expiration date.

It usually takes seven to 10 business days to receive a preapproval letter after the lender receives all requested information. The time can increase when documents are missing or the application requires additional review.

Where to Get Preapproved

Buyers can seek preapproval from a bank, credit union, or mortgage lender (either online or bricks-and-mortar). A buyer may contact one lender or compare several lenders before choosing a loan.

When comparing lenders, review:

•   The interest rate and APR (which includes lender fees)

•   Origination charges and other lender fees

•   Loan programs available for the buyer’s situation

•   Minimum down payment and reserve requirements

•   The lender’s document and credit-review process

•   The preapproval letter’s expiration period

•   Whether the lender offers rate locks and how long they last

•   Communication, processing, and closing support

A preapproval from one lender does not obligate the buyer to use that lender. Buyers can compare loan estimates after making an offer and selecting a property.

Mortgage Preapproval and Credit Inquiries

Preapproval commonly involves a hard credit inquiry, which may cause a temporary decrease in a credit score. Multiple mortgage inquiries made within a 14- to 45-day period may be treated as one inquiry by commonly used scoring models, depending on the model and the timing. Buyers should ask each lender how it handles credit inquiries before submitting applications.

Recommended: How Mortgage APR Works

How Long Does Mortgage Preapproval Last?

Most mortgage preapprovals last 60 to 90 days. Some lenders issue letters for 30 or 45 days, while others may use a different period based on the loan program or borrower’s circumstances.

The expiration date normally appears on the letter and generally starts on the date of issue. Buyers should not assume that the letter remains valid for the full home search if the search takes longer than expected. Contact the lender before the expiration date to confirm whether the letter can be renewed or extended.

A preapproval can expire while the buyer is still searching for a home. In that situation, the buyer may need to provide updated financial documents and receive a new letter before submitting an offer. A lender may also review credit again.

A lender’s preapproval period and interest-rate lock period are separate:

Item	What it covers	Typical timing
Mortgage preapproval	The lender’s preliminary review of the borrower’s ability to qualify	Often 60 to 90 days, depending on the lender
Interest-rate lock	The period during which a lender agrees to honor specified rate terms	Varies by lender and transaction
Final loan approval	The completed underwriting decision for a specific property	After the buyer has an accepted offer and the lender completes its review

A preapproval letter does not automatically lock an interest rate. Buyers should confirm both dates and conditions with the lender.

Recommended: Home Mortgage Calculator With Taxes and Insurance

Mortgage Prequalification, Preapproval, and Final Approval

Prequalification and preapproval describe different stages of the mortgage process. Final approval occurs later, after the buyer chooses a property.

Stage	Information reviewed	Credit inquiry	What the buyer receives
Prequalification	Self-reported income, assets, debts, and other basic information	Often a soft inquiry, though lender policies vary	A preliminary estimate of borrowing capacity
Preapproval	Documents such as pay stubs, tax returns, account statements, and credit history	Often a hard inquiry	A conditional letter stating the estimated loan amount
Final approval	The borrower’s verified finances and the chosen property	Further review may occur	A final underwriting decision and conditions for closing

Prequalification is often available immediately or within a day or two. It helps a buyer estimate a price range, but it does not mean the lender has verified the information or committed to a loan.

The mortgage preapproval process requires more documentation. To determine whether a borrower may qualify for a mortgage, lenders generally review the following:

•   Income: Employees may provide pay stubs, W-2s, and tax returns from the past two years. Additional income, such as bonuses, may require separate documentation. Self-employed borrowers often provide business records and a year-to-date profit-and-loss statement.

•   Assets and liabilities: Bank statements, investment account records, property information, and debt statements help the lender assess the down payment, closing costs, and cash reserves. Buyers can review ways to afford a down payment on a first home.

•   Debt-to-income ratio: Lenders compare monthly debt obligations with gross monthly income to calculate the borrower’s debt-to-income ratio.

•   Credit history: The lender reviews the borrower’s credit history and score as part of the risk assessment.

Receiving preapproval from a lender does not guarantee final approval. The lender may approve the application, suspend it while requesting more information, or deny it.

Estimate the Mortgage Payment

Before seeking prequalification or preapproval, a buyer can use a mortgage calculator to compare estimated payments based on:

•   Down payment

•   Interest rate

•   Loan amount

•   Loan term

•   Property taxes and insurance

A lender’s maximum loan amount may exceed the payment amount that fits comfortably within the buyer’s budget. Buyers should consider the full monthly housing cost, including mortgage principal and interest, property taxes, homeowners insurance, mortgage insurance, homeowners association dues, and maintenance.

What to Do After Receiving a Preapproval

A preapproval letter helps the buyer focus on homes within the approved price range. After receiving one, the buyer should:

•   Confirm the letter’s expiration date and loan conditions.

•   Set a purchase budget below the maximum amount if needed.

•   Avoid taking on new debt or applying for unnecessary credit.

•   Keep employment and income information stable when possible.

•   Continue saving for the down payment, closing costs, and cash reserves.

•   Ask the lender how changes in income, assets, debts, or employment could affect approval.

•   Include the preapproval letter with an offer when the seller or agent requests it.

•   Notify the lender after an offer is accepted so underwriting can begin.

The preapproval amount is not the same as a required purchase price. Buyers can make an offer below that amount and should account for costs that the initial preapproval may not include.

What Happens When a Preapproval Expires?

Lenders set expiration dates because a borrower’s financial information can change. When a preapproval expires, the lender may request updated:

•   Pay stubs and employment information

•   Bank and investment account statements

•   Debt balances and monthly payments

•   Tax returns or self-employment records

•   Credit information

•   Down payment and reserve documentation

The lender may issue a renewed letter if the borrower still qualifies. It may also change the approved amount, interest-rate assumptions, loan program, or conditions if the borrower’s finances or market conditions have changed.

To reduce delays, buyers should contact the lender before the expiration date and ask:

•   Whether the existing application can be renewed

•   Which documents need to be updated

•   Whether a new credit inquiry is required

•   Whether the loan amount or conditions will change

•   How long the renewed letter will remain valid

A buyer who is no longer actively shopping may want to wait before requesting another preapproval. A renewal can involve another credit review, depending on the lender.

Finalizing the Mortgage

After a seller accepts an offer, the buyer can select a lender and complete the mortgage process. The lender may verify that the buyer’s financial situation has not changed since preapproval.

The mortgage underwriter reviews the borrower’s documentation and the property. The lender may order:

•   An appraisal

•   A title search and preliminary title report

•   Additional income or asset verification

•   Updated credit or debt information

•   Proof of homeowners insurance

The lender may approve the loan, suspend it while requesting more documents, or deny it. Final approval requires the borrower to satisfy the lender’s conditions and the property to meet the lender’s requirements.

A final commitment letter confirms approval for the specific transaction. The buyer can then schedule closing. It generally takes 42 days to close on a house, although some transactions close in as little as 20 days.

Buyers should avoid changes that could affect underwriting, such as applying for new credit, taking out a loan, missing payments, changing jobs, or moving money between accounts without documentation.

The Takeaway

Mortgage preapprovals are generally good for 60 to 90 days, although some lenders issue letters that last 30 or 45 days. The preapproval period usually begins when the lender issues the letter.

A preapproval letter can help buyers understand their budget and support an offer, but it does not guarantee final loan approval. Buyers should compare lenders, keep their financial information current, and ask about renewal requirements before the letter expires.

Looking for an affordable home mortgage loan? SoFi Mortgage offers home loans with down payments as low as 3% to 5% for eligible borrowers. Applications are available online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Does mortgage preapproval guarantee final loan approval?

No, mortgage preapproval is conditional and based on the information available when the lender reviews the application. Final approval depends on underwriting, property appraisal, title review, verification of income and assets, and confirmation that the borrower’s financial situation has not changed.

Can a mortgage preapproval be extended or renewed?

Often, yes. The borrower usually must provide updated income, asset, debt, employment, and credit information. The lender may issue a new letter, change the loan amount or conditions, or require a new credit inquiry. Renewal policies vary by lender, so borrowers should ask before the original letter expires.

How many times can someone get preapproved for a mortgage?

There is no universal limit on the number of times a borrower can seek mortgage preapproval. A buyer may compare multiple lenders and request a new preapproval after an earlier letter expires. Each application can involve a hard credit inquiry and additional documentation. Mortgage inquiries made within the applicable shopping period may be grouped for scoring purposes, but the timing rules depend on the credit-scoring model. Buyers should submit applications within a short period — from 14 to 45 days — and ask each lender how it reports inquiries.

How does mortgage preapproval affect a credit score?

A hard credit inquiry during preapproval may cause a temporary decrease in a credit score. Multiple mortgage inquiries made within a short shopping period may count as one inquiry under some scoring models. Buyers should avoid unnecessary credit applications and confirm the lender’s process before applying.

What can cause a mortgage preapproval to change or be revoked?

A lender may change or withdraw a preapproval if the borrower:

•   Takes on new debt

•   Misses a payment

•   Changes jobs or loses income

•   Provides different income or asset information

•   Moves money without documentation

•   Experiences a credit-score change

•   Chooses a property that does not meet the lender’s requirements

The lender may review these factors again during underwriting before issuing final approval.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SOHL-Q326-135

Read more

The U.S. Department of Veterans Affairs (VA) offers a mortgage financing program known as VA loans. It’s designed to help veterans, active-duty service members, and surviving spouses get financing for a home loan.

When applying for any mortgage, there are additional costs on top of the purchase price of the property. These costs can be complex to figure out for first-time homebuyers, so there are calculators available to help.

A loan closing costs calculator is used to estimate the closing expenses associated with a mortgage loan such as a VA loan. These costs can include appraisal fees, loan origination fees, title and homeowners insurance, recording fees, and property taxes. The calculator takes into account the amount of the loan, the term of the loan, the interest rate, and the purchase price.

This guide will help you understand these costs and calculate what these expenses might look like for your loan.

Why Use a VA Loan Closing Costs Calculator Table?

A VA loan closing costs calculator is a useful tool for anyone looking into applying for a VA loan. Because, yes, you do pay closing costs with a VA loan.

Although calculators only provide an estimate and not the final closing costs, you can enter the property and loan details and immediately get an idea about the total closing expenses you will be paying if you go through with the loan.

This helps with budgeting, comparing the cost of living in different locations, looking at different properties and loan options, and negotiation. It also helps educate borrowers about the loan process.

💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

How to Calculate Your VA Loan Closing Costs

Whether you are a first-time homebuyer or have been through the process before, it can be a good idea to acquaint yourself in advance with the fees you’ll pay when you get a home mortgage. The following are some of the common costs associated with VA loans:

•   VA funding fee: This is a required fee calculated as a percentage of the loan amount. The amount of this fee depends on factors such as the down payment amount and whether you’ve used a VA loan before. Worth noting: This is the one fee that you may be able to roll into the loan vs. pay separately.

Also, some people may be exempt from paying a funding fee, such as those who receive compensation for a service-related disability, among other scenarios.

•   Loan origination fee: This is a fee for processing the loan application (it’s charged by the lender, not the VA) and is generally a percentage of the loan amount. With a VA loan, it is typically 1% of the loan value.

•   Discount points: These are upfront payments that can be made to reduce the loan’s interest rate. Each percent of the loan amount is equal to one point.

•   Credit report fee: This is a fee for obtaining a credit report, which is used to determine the borrower’s creditworthiness. Having good credit is just one important part of qualifying for a home loan.

•   Appraisal fee: There is a fee for hiring an appraiser, who determines the value of the property being purchased.

•   Homeowners insurance: This is to secure the property against damage and losses. Borrowers generally pay the first year up front.

•   Real estate taxes: If there are any unpaid property taxes, some or all may need to be paid at closing.

•   State and local taxes: Some states or cities may impose taxes or property transfer fees.

•   Title insurance: Title insurance protects against issues with the property’s title and is generally required by lenders.

•   Recording fee: This fee covers the cost of recording the mortgage and any related documents with the government.

Worth noting: With VA loans, you can save big because private mortgage insurance (PMI) isn’t required for those putting down less than 20%, as it might be with other kinds of home loans.

💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

2026 VA Loan Funding Fee Calculator Table

Now that you understand the different fees that may be assessed when you take out a mortgage, take a closer look at what some of these fees look like for a typical VA loan. (Rates may differ for other types of VA loans, such as those for manufactured homes or that are part of the Native American Direct Loan program.)

Down Payment (%)	Funding Fee (1st Time)	Subsequent Funding Fee
Less than 5%	2.15%	3.30%
5% or more	1.50%	1.50%
10% or more	1.25%	1.25%

Examples of VA Loan Closing Costs Calculations

Below are a few examples of closing costs for a VA loan in 2026:

Example 1: First-time homebuyer with no down payment

Loan amount: $250,000
Down payment: 0% (no down payment)
Funding fee: 2.15% (first-time user)
Other closing costs: $5,000

Closing costs calculation:

Funding fee: $250,000 x 2.15% (0.0215) = $5,375
Other closing costs: $5,000
Total closing costs: $5,375 (funding fee) + $5,000 (other closing costs) = $10,375

Example 2: First-time homebuyer with a 5% down payment

Loan amount: $300,000
Down payment: 5% ($15,000)
Funding fee: 1.50% (first-time user)
Other closing costs: $6,500

Closing costs calculation:

Funding fee: ($300,000 – $15,000) x 1.50% (0.015) = $4,275
Other closing costs: $6,500
Total closing costs: $4,275 (funding fee) + $6,500 (other closing costs) = $10,775

Example 3: Subsequent homebuyer with a 15% down payment

Loan amount: $400,000
Down payment: 15% ($60,000)
Funding fee: 1.25% (subsequent user)
Other closing costs: $7,000

Closing costs calculation:

Funding fee: ($400,000 – $60,000) x 1.25% (0.0125) = $4,250
Other closing costs: $7,000
Total closing costs: $4,250 (funding fee) + $7,000 (other closing costs) = $11,250

Recommended: The Cost of Living in California

Reasons to Calculate Your VA Loan Closing Costs First

Calculating VA loan closing costs is beneficial for a few reasons:

1.    Financial planning: Calculating the closing costs for a VA loan up front helps with planning finances and budgeting to make sure you have enough money to afford purchasing a home. It prevents unforeseen expenses and reduces stress throughout the buying process.

2.    Analyzing affordability: Knowing the closing costs can help you determine whether you can afford a property.

3.    Comparison shopping: Calculating closing expenses also helps with comparing various home mortgage loans so you can choose the terms that work best for you and potentially save money. While VA loans are one option, there are many types of mortgage loan choices that may be a good fit depending on your individual circumstances.

4.    Negotiation: Understanding closing costs provides a starting point for negotiation. Certain fees or terms may be negotiable, and having this knowledge provides you, the borrower, with the information needed to get the best deal.

5.    Avoiding surprises: Planning ahead can help prevent unforeseen costs that may arise during the closing process. It also allows you to compare the estimate to the final closing costs to make sure they are all accurate.

Recommended: How Long Does It Take to Close on a House?

Tips on How to Save on Your VA Loan Closing Costs

Here are some tips for how to save on VA loan closing costs:

•   Shop around for lenders. Compare closing cost estimates from various lenders by requesting quotations from them all. It’s important to shop around for a mortgage and look into different options to find the best rates and terms.

•   Negotiate with the lender. Don’t hesitate to ask for lower fees and discuss terms. Eligible borrowers with good credit may be able to negotiate loan conditions.

•   Consider seller concessions. In some cases, it may be possible to persuade the seller of the home to cover some of the closing costs. Consult with the real estate agent during the negotiation process about this possibility to reduce costs.

•   Utilize VA loan programs and benefits. Take advantage of the benefits offered by the VA loan program. For instance, the VA funding fee can be rolled into the loan amount, and the VA has restrictions on fees which can help keep closing costs down.

•   Consider rate options. Evaluate different interest rate options and the impact they have on closing costs. For instance, a higher interest rate may offer lender credits that can be applied to closing costs. If one intends to live in the house for a long time, this may be a good option.

•   Read the Closing Disclosure (CD) carefully. The final closing costs are listed in the Closing Disclosure document. It’s important to carefully review this document to make sure there are no errors or unforeseen closing costs.

The Takeaway

VA loan closing costs include the financing fee, credit report fees, appraisal fees, title insurance, and other expenses associated with obtaining a VA loan. It’s important for borrowers to calculate their estimated closing costs in advance to compare loan options, negotiate fees, and prepare themselves financially for buying a home.

It’s also wise to consider a variety of loan options, from the VA or not, to make sure you are getting the right fit for your financial needs.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

Our Mortgage Loan Officers are ready to guide you through the process step by step.

FAQ

What is the VA funding fee for 2026?

The VA funding fees for 2026 are dependent on your down payment amount. For first use, if your down payment is less than 5%, the VA funding fee is 2.15%, after which it shifts to 3.30%. If your down payment is 5% or more, the rate is 1.50%, and if your down payment is 10% or more, the rate is 1.25%.

What percentage of closing costs can be included in a VA loan?

There is no specific limit on the percentage of closing costs that can be included in the loan amount, but the VA restricts the seller’s concessions. The VA has a 4% rule, which states that the total allowable closing costs and fees paid by the seller cannot exceed 4% of the home’s value.

What is an example of a VA funding fee?

The VA funding fee is a one-time fee paid by borrowers using a VA loan, and the amount is calculated based on factors such as the loan amount, down payment, and the borrower’s service category. For example, a first-time borrower with a $300,000 loan amount and no down payment may have a funding fee of 2.15%, resulting in a fee of $6,450.

---

Photo credit: iStock/Ole Schwander

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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

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

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.

SOHL-Q226-167

Read more