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An annual income of about $76,000 should put you in the position to afford a $250,000 mortgage, assuming you have relatively little other debt. But exactly what amount you’ll need to earn will depend on your interest rate, loan term, and debt level, among other factors. If you’re considering buying a new home, let’s take a closer look at how much you’ll need to earn to qualify for a $250,000 mortgage.

Income Needed for a $250,000 Mortgage

The exact income needed to afford a $250,000 mortgage loan can’t be nailed down without more information, but what we can get pretty close to is the P&I payment, which stands for principal and interest, and represents a majority of your monthly payment. However, even this calculation won’t give you an exact income number until you know your interest rate and desired loan term (15, 20, 30 years).

Other factors that will influence your monthly mortgage payment are:

•   Property taxes: Lenders often collect a portion of your property taxes each month and pay the local government on your behalf. And even if you don’t pay the taxes through your lender, you’ll need to include them in your budget.

•   Home insurance: Assuming you have a mortgage, your lender will require you purchase home insurance. Depending on the house and location, you may also be required to purchase earthquake insurance and flood insurance.

•   Loan specific fees: Different types of mortgage loans have unique fees that may increase the cost of your monthly mortgage payment. For example, the guarantee fee with a U.S. Department of Agriculture (USDA) loan, or mortgage insurance premium with a Federal Housing Administration (FHA) loan.

•   Homeowners association (HOA) fees: Since you’ll likely pay the HOA directly, these fees should not increase the cost of your mortgage payment, but they will increase your monthly expenses. Keep this in mind while house hunting.

Moving forward, let’s assume you choose a 30-year loan term and receive a 7.00% interest rate.

How Much Do You Need to Make to Get a $250K Mortgage?

Using a mortgage calculator, it’s easy to get some quick numbers for the P&I payment (principal and interest) on a $250,000 mortgage. If you’re willing to estimate, a mortgage calculator with taxes and insurance included will get you a little closer as to what to expect.

If we assume you take out a 30-year mortgage and have a 7.00% interest rate, the monthly P&I payment on a $250,000 mortgage would be $1,663. Assuming your lender wants you to have a maximum 28% housing-to-income ratio, then the minimum income you would need to make for your P&I payment would be $71,271 a year or $5,939 a month. Add in your property tax, home insurance, and private mortgage insurance (PMI, which a lender will require if your down payment is less than 20% of the home’s sales price) and you’re likely looking at a monthly payment of $2,234.

Another thing you may want to try is determine how much banks are likely to lend to you. If you know your exact gross income and monthly debts, try out a home affordability calculator. Another option is to move forward with a mortgage preapproval process so you know exactly how much you have to work with.

What Is a Good Debt-to-Income Ratio?

Ideally, lenders want borrowers to stick to a 36% debt-to-income (DTI) ratio, with a maximum of 28% going toward housing costs. However, depending on your income and credit score, some lenders may accept higher DTIs.

If we consider the cost of living by state, 28% may be too much when you account for daily expenses, such as food and gas, which can skew the income needed for a $250K mortgage. Therefore, if your job and lifestyle allow you to be flexible on where you live, you might consider checking out a ranking of the most affordable states.

What Determines How Much House You Can Afford?

Lenders look at a variety of factors when determining how much house a borrower can afford, but the big four are:

•   Income

•   DTI ratio

•   Credit score

•   Down payment amount

What Mortgage Lenders Look For

If you’re a first-time homebuyer, lenders look at the following variables for each borrower:

•   Employment history

•   Income

•   DTI ratio

•   Credit score

$250,000 Mortgage Breakdown Examples

How much income is needed for a $250,000 mortgage is significantly influenced by your rate and term. Let’s take a look at the various P&I payments you can expect with different rates and different terms:

Term	Rate (APR)	Monthly P&I Payment:	Minimum annual gross income needed to cover P&I:
15	6.00%	$2,110	$90,429
15	6.25%	$2,144	$91,886
15	6.50%	$2,178	$93,343
15	6.75%	$2,212	$94,800
15	7.00%	$2,247	$96,300
20	6.00%	$1,791	$77,014
20	6.25%	$1,827	$78,300
20	6.50%	$1,864	$79,886
20	6.75%	$1,901	$81,471
20	7.00%	$1,938	$83,057
30	6.00%	$1,499	$64,243
30	6.25%	$1,539	$65,957
30	6.50%	$1,580	$67,714
30	6.75%	$1,622	$69,514
30	7.00%	$1,663	$71,271

Pros and Cons of a $250,000 Mortgage

Buying a house comes with both benefits and drawbacks. Here are some things you should consider:

Pros of a $250,000 Mortgage:

•   Each monthly payment builds equity

•   Home can be used as collateral for low rate loans

•   More freedom to make changes to home

•   Homeownership provides a hedge against inflation

Cons of a $250,000 Mortgage:

•   Homeowners are responsible for all repairs and maintenance

•   Must save up for both down payment and closing costs

•   Must purchase home insurance

•   Must pay property taxes

How Much Will You Need for a Down Payment?

If $250,000 is the purchase price, the lowest down payment a first-time borrower could make with a conventional loan is $7,500. If you choose an FHA loan, the lowest down payment you can make is $8,750. VA loans (from the U.S. Department of Veterans Affairs) and USDA loans don’t require down payments. It’s worth noting that even if you have owned a home before, you might qualify as a first-time homebuyer from a lender’s perspective if it has been at least three years since you had ownership in a principal residence.

Can You Buy a $250K Home With No Money Down?

Yes, both USDA loans and VA loans don’t require a down payment. VA loans are for qualified active and retired military and surviving spouses, while USDA loans are for homes bought in certain rural areas the USDA has deemed to be in need of economic development.

Can You Buy a $250K Home With a Small Down Payment?

If you use a conventional loan, the lowest down payment a first-time homebuyer can make is typically 3%. The lowest down payment with an FHA loan is 3.5%. USDA and VA loans don’t require a down payment, but they do have eligibility requirements.

Is a $250K Mortgage with No Down Payment a Good Idea?

Whether skipping the down payment on a home is a good idea depends on your long-term goals and what you hope to do. If you want to save money over the life of the loan, making a down payment will save you money in interest. If you need the money now for other endeavors, there’s nothing wrong with choosing a loan that doesn’t require a down payment.

Can’t Afford a $250K Mortgage With No Down Payment?

If you can’t afford a $250,000 mortgage, there are some things you can do to make homeownership a little easier.

Pay Off Debt

Paying off your debt will lower your DTI, improve your credit score, and give you more cash to work with each month. Because there are so many benefits, it may be worth your time to pay down as much debt as possible before applying for a mortgage.

Look into First-Time Homebuyer Programs

There are many first-time homebuyer programs across the United States. Assistance can come in various forms. It may be a low-rate loan, a forgivable loan, or a grant. It often comes as a forgivable loan, which doesn’t require any form of repayment as long as certain conditions are met. Assistance is often first come first served, so apply early if you’re interested.

Build Up Credit

The lower your score, the higher your interest rate. Strengthen your credit score, and you could qualify for a better interest rate that would lower your monthly payment and save you money in interest over the life of the loan.

Start Budgeting

Take steps to eliminate unnecessary spending so you can put as much as you can toward your savings. Monthly subscriptions and dining out, for example, may need to be put on the back burner as you work toward your savings goals.

Also, any lump payments you receive throughout the year could be put toward savings. For example, an end-of-the-year bonus or tax refund should be tucked away as soon as it’s received. Currently, the average federal tax refund is $2,869. That’s 33% of an $8,750 down payment.

If you’re new to the world of mortgages and financing, check out our home loan help center where we go in-depth on everything you need to know about buying your first home or moving forward with a mortgage refinance.

Alternatives to Conventional Mortgage Loans

It depends on the seller, but some sellers are open to lease-to-own or seller financing. Another option may be to pursue a portfolio loan with a local bank or credit union.

Mortgage Tips

Here are some tips to qualify for a mortgage:

•   Pay down your debts

•   Pay close attention to your credit score

•   Save up for a down payment

•   Stick with your current employer

•   Gather all supporting paperwork needed for your mortgage application

The Takeaway

For a 30-year loan on a $250,000 mortgage with a 7.00% interest rate, you’ll need a gross income of around $76,000 a year. But exactly how much income you would need to have depends on several factors that are specific to you, including your existing debts, your credit score, and what loan term you choose and what interest rate you qualify for.

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

How much income do you need to qualify for a $250,000 mortgage?

To cover the monthly mortgage payment on a $250,000 mortgage, you’ll need an income of around $76,000 a year. For the most accurate estimate, you will need to know your exact interest rate, property taxes, home insurance, and home loan term.

Can I afford a $250K house on a $50K salary?

It would be difficult to afford a $250,000 house on a $50,000 annual salary unless you are able to make a large down payment, which would reduce your monthly mortgage costs to a manageable level. If you earn $50,000 a year and have minimal debts, you could probably qualify for a mortgage loan of around $150,000.

What is the monthly payment on a $250K mortgage?

The monthly principal and interest payment on a $250,000 home mortgage loan ranges from around $1,500 to $2,250, depending on the loan term (15 vs. 30 years) and interest rate (6.00% to 7.00%, although a higher or lower rate might be possible). The shorter the term and the higher the interest rate, the greater your monthly payment will be.

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Photo credit: iStock/yavorskiy

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.

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 requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.

Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.

SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.

If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.

Reward is valid for 18 months from date of enrollment. After 18 months, you must re-enroll to be eligible for a reward.

SoFi loans subject to credit approval. Offer subject to change or cancellation without notice.

The trademarks, logos and names of other companies, products and services are the property of their respective owners.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†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.

SOHL-Q224-1906836-V1

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The income needed for a $450,000 mortgage varies based on a few factors, but generally speaking, an income of $130,000 would put you in the position to afford a $450,000 mortgage. You can estimate how much you need to make by focusing on principal and interest. Together, these two factors account for a majority of a home’s monthly mortgage payment and reveal an approximate income you’ll want to bring in.

For a more accurate monthly payment estimate, you’ll need to know the home’s property taxes, home insurance costs, as well as which type of home loan you plan on using. Certain loans come with monthly fees that will increase your monthly housing costs.

If you’re thinking about borrowing $450,000 to buy a home, here’s what you need to know.

Income Needed for a $450,000 Mortgage

The income needed to qualify for a $450,000 mortgage varies on a few factors. However, the principal and interest (P&I) payment for a $450,000 mortgage would be $2,996 for a 30-year term with a 7.00% interest rate. For a 15-year term, the payment is $4,047. Keep in mind that these calculations do not include other fees that will increase how much you actually pay.

Many lenders want borrowers to stick to a 28% housing cost, meaning that they will not approve loans that take up more than 28% of the borrower’s gross monthly income. A mortgage calculator can do the math for you, but for a payment of $2,996 each month to equal 28% of your monthly income, you would need to earn about $10,800 per month, or about $130,000 per year. However, these calculations do not factor in other fees that contribute to your monthly mortgage payment.

To get a more accurate monthly payment, use a mortgage calculator with taxes and insurance included.

Recommended: First-Time Homebuyer Guide

How Much Do You Need to Make to Get a $450K Mortgage?

The income needed for a $450,000 mortgage varies based on:

•   Loan term

•   Interest rate

•   Property taxes

•   Home insurance

•   Loan-specific fees

However, the loan term and interest rate determine a majority of the costs for any monthly mortgage payment.

What Is a Good Debt-to-Income Ratio?

The maximum debt-to-income (DTI) ratio lenders often accept is 36%, with a maximum of 28% going toward housing costs. Some lenders have higher margins, and some are willing to work with borrowers who have unusually high incomes and amounts of debts.

What Determines How Much House You Can Afford?

The two biggest factors that determine how much house you can afford are your income and DTI ratio. Regardless of your debts, the mortgage payment cap is often 28% of the borrower’s gross income.

What Mortgage Lenders Look For

Mortgage lenders typically look for a low DTI ratio, a strong credit score, a history of stable employment, and a high income. All of these factors suggest you are not only responsible enough to take on a mortgage but are financially capable of repaying your debts.

$450,000 Mortgage Breakdown Examples

When determining a home’s affordability, compare loan terms. A 30-year loan may enable you to buy a more expensive home, but increases the amount you pay in interest. For example, if you borrow $450,000 with a 30-year mortgage at 7.00%, over the life of the loan you will pay about $628,208 in interest in addition to the $450,000 principal. Borrow the same amount at the same rate but pay it back over 15 years and your interest charges shrink to around $278,236.

Remember, the above calculations do not include property taxes, home insurance, and loan-specific fees.

Pros and Cons of a $450,000 Mortgage

A $450,000 mortgage loan comes with its share of pros and cons. Here are a few things to consider:

Pros:

•   You build equity with each monthly payment

•   Equity can be used to secure a low rate loan

•   Fixed housing costs

•   Freedom to make changes to the property

Cons:

•   Yearly home maintenance costs

•   Large down payment

•   Large closing costs

How Much Will You Need for a Down Payment?

The minimum down payment a buyer can make for a conventional loan is 3%, and this low rate is often only available to first-time buyers. Assuming your mortgage is for $450,000, this means the purchase price must be $463,918. A 3% down payment would be $13,918.

Can You Buy a $450K Home With No Money Down?

It’s possible to buy a $450,000 home with no money down using a loan from the U.S. Department of Agriculture or the U.S. Veterans Administration (a VA loan). All other traditional mortgages require a down payment. However, other options do exist.

Can You Buy a $450K Home With a Small Down Payment?

USDA and VA loans do not have down payment requirements. The lowest amount needed for a conventional loan for some buyers is 3% of the purchase price. FHA loans require a 3.5% down payment.

Is a $450K Mortgage with No Down Payment a Good Idea?

It certainly can be. For example, if you use a loan that doesn’t require a down payment, such as a USDA loan, you could use the money for something else. If you were to fix up the home and sell it after a few years, those renovations might bring in a good return on your investment.

Ultimately, however, it depends on the monthly payment. As long as you can comfortably afford the monthly payment, whether the mortgage requires a down payment or not doesn’t matter too much.

Can’t Afford a $450,000 Mortgage With No Down Payment?

You may want to consider lowering your maximum purchase price if you can’t afford the P&I payment.

If housing prices are high where you live, another thing you may want to consider is looking in another area. Consider looking at the cost of living by state with data that rates the most affordable states. You may find moving to a new location deserves some consideration.

You may also consider the following tips.

Pay Off Debt

Debts like student loans, credit cards, and car loans eat up your monthly income. As they are paid off, three things happen:

•   You free up cash

•   You lower your DTI ratio

•   You cultivate a better credit score

Once you do this, you may be approved for a higher loan amount or the monthly payment on a $450K mortgage will become more manageable.

Look into First-Time Homebuyer Programs

First-time homebuyer programs help homebuyers with down payments and closing costs. They often come in the form of grants, forgivable loans, or low interest loans. Many programs can be found through HUD and are first-come-first-served. Apply early if you’re interested.

Build Up Credit

The stronger your credit score, the more confidence lenders have in you. This will likely result in a lower rate, and may also result in a higher loan limit. However, your lender will still likely want you to stick to a 28% DTI for housing costs.

Start Budgeting

Create a monthly budget to intentionally track how much you spend and save. See if there are places where you can cut back to help save up for a larger down payment.

Alternatives to Conventional Mortgage Loans

There are alternatives to conventional mortgage loans, but they involve working with a seller who is open to nontraditional financing methods. Some nontraditional methods include seller financing and lease-to-own options.

Another option is a portfolio loan, which some banking institutions offer. A portfolio loan is a loan lenders don’t sell to another institution. Instead, they keep it in their own books, which enables them to allow for looser eligibility requirements.

Recommended: Home Loan Help Center

Mortgage Tips

Here are a few quick tips to qualify for a mortgage:

1.    Get preapproved as early as possible: The mortgage preapproval process helps with a lot of things, and it will tell you how much house you can afford.

2.    Use a mortgage calculator when shopping online: This will help you quickly crunch some numbers. There are many types of mortgage calculators online, including home affordability calculators.

3.    Compare loan types: There are many different types of mortgage loans, each of which comes with different requirements and different fees.

4.    Pay down your debts: The fewer debts you have, the more room in your budget you’ll have for a higher mortgage.

5.    Know that you can always refinance in the future: A mortgage refinance will take a fresh look at your credit score and income, and will also include your existing home equity when determining your new rate.

The Takeaway

You’ll need an annual income of around $130,000 if you want to be in a good position to make payments on a $450,000 home mortgage loan. Remember that your payments will likely include principal and interest, but also homeowners insurance and property taxes. Getting preapproved by a lender can help make your search less stressful.

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

How much do you need to make to qualify for a $450K mortgage?

Just considering the P&I payment of a $450K mortgage, the minimum you would need to make is around $130K a year. This is for a 30 year mortgage with a 7.00% interest rate.

What would my mortgage be on a $450,000 house?

How much money you would have to borrow to buy a $450,000 house would depend on the size of your down payment. First-time homebuyers can sometimes put down as little as 3% ($13,500). In this case, you would need a home mortgage loan for $436,500. If you put down 20% ($90,000), you would need a mortgage loan for $360,000.

Can you buy a house with a $40,000 salary?

Yes, but it depends on the purchase price of the home. The gross monthly income is $3,333, which means the maximum amount spent on housing should be $933. This puts the purchase price around $140,000.

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Photo credit: iStock/FreshSplash

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.

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 requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.

Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.

SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.

If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.

Reward is valid for 18 months from date of enrollment. After 18 months, you must re-enroll to be eligible for a reward.

SoFi loans subject to credit approval. Offer subject to change or cancellation without notice.

The trademarks, logos and names of other companies, products and services are the property of their respective owners.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†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.

SOHL-Q224-1906859-V1

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It’s tough to afford a home these days. If you’re looking at a $275,000 mortgage, you’ll have a monthly payment of around $2,400 with today’s interest rates at 7% on a 30-year loan. You’ll need an income of about $80,000 per year to afford this mortgage.

This can change if you have a significant amount of debt, a low down payment amount, or a less-than-perfect credit history. We’ll run through a few scenarios to show you how much income is needed for a $275K mortgage.

Income Needed for a $275,000 Mortgage

The income needed for a $275K mortgage is around $80,000. If you have more debt, the lender will need to factor that in before calculating how much income you’ll need to afford the $275,000 mortgage. For example, if you have $400 in debt payments each month, you’ll need to earn more money each month to be able to afford the $275K mortgage and still stay within the 36% debt-to-income ceiling most lenders prefer. A closer look:

$2,402 (mortgage) + $400 (other debt payments) = $2,802 total debt payments per month

For $2,802 to be 36% of your monthly income, you would need to make $7,783 each month, or $93,400 per year to qualify for the $275,000 mortgage. This estimate is based on a mortgage calculator with taxes and insurance. If you would like to see what a lender can do for you, explore getting prequalified for a home mortgage loan.

How Much Do You Need to Make to Get a $275K Mortgage?

How much income you need for a $275K mortgage also depends on your debt-to-income (DTI) ratio, down payment, loan type, lender, and credit score. Let’s take a look at these each in detail.

What Is a Good Debt-to-Income Ratio?

The gold standard for debt-to-income ratios is <36%. However, there are lenders who are able to originate loans for borrowers with a DTI ratio up to 45%. Lenders who fall outside the norm in DTI and credit score requirements will influence how much you need for a $275K mortgage.

What Determines How Much House You Can Afford?

Home affordability isn’t a simple equation. There are a number of factors that go into a lender’s decision about your loan.

Income

Reliable income is the largest determinant in loan approval. The more you make, the more you have to work with each month. However, your income and home affordability are affected by how much debt you have.

Debt

Your lender will take into account any monthly debt obligations you have. These will be added to the maximum DTI. If you have debt, your monthly mortgage will need to be lower.

Down Payment

A larger down payment can afford you a larger mortgage. If you’re able to put down 20%, you won’t need to pay for private mortgage insurance (PMI), which saves you money every month. However, 20% could be a big chunk of change to come up with, and most loans accept lower than a 20% down payment to start. See this mortgage calculator for examples.

Loan Type

Home affordability is also affected by the different types of mortgage loans. Fixed-rate loans will have a different monthly payment than adjustable-rate loans, for example. Likewise, the monthly payment on a 15-year mortgage is far different from the payment on a 30-year mortgage.

Lender and Interest Rate

Interest rates will vary from lender to lender. You may also see a different acceptable DTI ratio from lender to lender. When a lender is able to offer a lower interest rate, you’ll see your home affordability improve. When a lender has a higher acceptable DTI ratio, you may be able to qualify for a higher mortgage amount.

Recommended: Cost of Living by State

What Mortgage Lenders Look For

Worried about qualifying for a $275K mortgage? Here’s what your lender will look for during the mortgage preapproval process. These are right in line with home affordability requirements.

•   Income Your income needs to be reliable and sufficient to qualify for the loan you want.

•   Credit score A good credit score helps with approval and lower interest rates.

•   Debt-to-income ratio Too much debt could prevent you from securing the loan you want. Before you apply for a loan, work on paying off debt as best you can.

•   Down payment A higher down payment can help you qualify for a larger purchase price on a home. A down payment over 20% can help you avoid the monthly mortgage insurance payment as well.

•   Loan-to-value ratio Lenders also want to be sure the property you’re buying qualifies for a loan. They don’t want to loan more on the property than it’s worth.

$275,000 Mortgage Breakdown Examples

Your individual situation will influence the income needed for the mortgage you want. Here are a few examples created with a home affordability calculator to show you how this works. In each case, the interest rate is 7% on a 30-year mortgage.

With no debt

•   Principal and interest: $1,830

•   Taxes and insurance: $573

•   Total monthly payment: $2,403

Income needed to afford the monthly payment: $6,672 per month, or $80,064 per year.

Assumptions: 20% down payment. The original purchase price would be $343,750 to get a $275,000 mortgage with a 20% down payment.

With $1,000 per month in debt

•   Principal and interest: $1,830

•   Taxes and insurance: $573

•   Total monthly payment: $2,403

Add monthly debt obligations to the monthly mortgage payment. $2,402 + $1,000 = $3,402 monthly debts.

Income needed to afford the monthly payment: $9,450 per month, or $113,400 per year.

Assumptions: 20% down payment. The original purchase price would be $343,750 to get a $275,000 mortgage with a 20% down payment.

With no down payment and $600 in monthly debt payments

•   Principal and interest: $1,830

•   Taxes and insurance: $458

•   PMI: $252

•   Total monthly payment: $2,540

Add monthly debt obligations to the monthly mortgage payment. $2,540 + $600 = $3,140

Income needed to afford the monthly payment: $8,722 per month, or $104,664 per year.

Assumptions: No down payment. The original purchase price would be $275,000.

Pros and Cons of a $275,000 Mortgage

Pros

•   Lower mortgage payment than for the median home price in the U.S.

•   Lower income requirement than a higher-priced mortgage

Cons

•   Few homes can be found for $275,000

•   May still be unaffordable for many families

How Much Will You Need for a Down Payment?

If you’re deciding how much of your hard-earned money to put down for a down payment on a property that you plan to buy with a mortgage of $275,000, here’s how it breaks down by loan program.

Program	Minimum down payment percentage	Amount for $275,000
VA, USDA	0%	$0
Conventional	3% or more	$8,250 or more
FHA	3.5% or more	$9,625 or more

Keep in mind, when you make a payment lower than 20%, you’ll need to pay PMI each month. For some loans, like the Federal Housing Administration (FHA) mortgage, you’ll need a mortgage refinance to get rid of PMI.

Can You Buy a $275K Home With No Money Down?

Yes, you can buy a $275K home for no money down. The two main programs that don’t require a down payment include:

•   VA (U.S. Department of Veterans Affairs) mortgages

•   USDA (U.S. Department of Agriculture) mortgages

Beyond these two programs, you may also find local housing programs that offer down payment assistance that may be able to help get you into a home with no money down (or close to it).

Can You Buy a $275K Home With a Small Down Payment?

Since a $275K mortgage loan falls under the conforming loan limits, it qualifies for loan programs with lower down payment requirements. These include conventional financing with a minimum 3% down payment for qualified first-time buyers, FHA with a 3.5% minimum down payment, as well as VA and USDA loans which have no down payment requirement.

Recommended: Best Affordable Places to Live

Is a $275K Mortgage with No Down Payment a Good Idea

It’s possible to get a $275K mortgage with no down payment. It also may help you get into a home that you otherwise wouldn’t be able to.

If you’ve run your numbers through a mortgage calculator and have worked closely with a lender to determine if the monthly payment is affordable for you, you shouldn’t hesitate to get a mortgage with no down payment.

The major downside to getting a mortgage with no down payment is the amount of mortgage insurance you’ll pay every month. That will need to be factored in when the lender determines how much mortgage you’ll be able to afford.

Can’t Afford a $275K Mortgage With No Down Payment?

If you still have a little work to get qualified for a $275K mortgage, especially if the cost of living in your state is high, there are some smart moves you can make to help your odds of approval.

Pay Off Debt

You may qualify for more house by paying down debt. Let’s take a look at our previous examples:

With no debt, a $275K mortgage will cost $2,402 per month, and you’ll need to earn $6,672 per month, or $80,064 per year.

With $1,000 monthly debt obligations, a $275K mortgage will have a total of $3,402 monthly debts and you’ll need $9,450 per month, or $113,400 per year to afford a $275K mortgage.

With a reduced debt load of $600 instead of $1,000, and a $275K mortgage, you’ll have a total debt load of $3,002. You’ll need $8,339 in income per month, or $100,067 per year to afford your debt load. This is much less than the previous example where the debt load was $1,000 per month.

Look into First-Time Homebuyer Programs

Most states and local housing programs have some type of first-time homebuyer program. It may be a down payment assistance program or a forgivable second mortgage that helps cover closing costs.

Build Up Credit

There’s nothing you can do about the current interest rates, but you can work on your credit to get the best rate you can. A better credit score translates into a better interest rate almost every time, which helps immensely with affording a $275K mortgage.

Start Budgeting

Good old-fashioned budgeting can help you zero in on your goals and save a large enough down payment to afford a $275K home. It helps to think of budgeting as a tool for achieving goals, rather than a punishment or restrictive way of life.

Alternatives to Conventional Mortgage Loans

If you’re not able to qualify for one of the different types of mortgage loans just yet, you might want to look into the following alternative financing methods:

Seller financing Seller financing is where the seller agrees to carry the mortgage and acts as lender. Usually, it’s a short-term agreement and the seller may charge a higher interest rate than what a traditional lender would. The details of the arrangements are made between buyer and seller, and can be quite complex. But it also avoids many closing costs and can be a faster transaction than a traditional sale.

Private lending A private lender is any lender not associated with a bank or lending institution. They may be more flexible with qualification and offer a wider range of lending tools, such as bridge loans to help you get from one house to another.

Recommended: Home Loan Help Center

Mortgage Tips

Getting a mortgage is intimidating at first. Once you’re done reading tips to qualify for a mortgage, you’ll want to start talking to lenders. Here’s what you’ll do to find the best rate.

1.    Shop around for a loan. Shopping around for a loan within a 45-day window only counts as a single credit inquiry on your credit report, so you can check out as many mortgage lenders as you want. This can help you find one with a great deal and terms that work for you.

2.    Compare loan estimates. A loan estimate is a document that outlines the different loan costs the lender charges. You’ll be able to compare origination fees, underwriting fees, and other closing costs in determining which loan will work best for you.

3.    Don’t get caught up in analysis paralysis. After you’ve looked at a handful of lenders, it’s time to pick one. Make a decision and go forward with excitement about moving into your home.

The Takeaway

Affording a home in today’s economy seems hard, and the amount of income needed for a $275K mortgage may feel like a heavy lift. But it’s not impossible to qualify for the mortgage you want. Even after you’ve worked out all the numbers online, you’ll still want to talk to a lender. They may have more options than you’d expect, and it’s worthwhile to start the process sooner rather than later.

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

Can I afford a $275K house on a $60K salary?

If you have a large enough down payment, you may be able to afford a $275,000 house on a $60,000 salary. For a $5,000 monthly income, you’ll need your mortgage amount to be around $1,800. To get to that payment, you’ll need a 20% down payment ($55,000) and a 6% interest rate (if rates don’t drop to that level, you can buy down your rate by paying mortgage points to your lender).

How much does a $275K mortgage cost over 10 years?

With an interest rate of 7%, a $275,000 mortgage will cost $383,158 over 10 years. So your total interest paid on this loan will top $108,000.

What credit score is needed to buy a $275K house?

Your credit score is only one factor in determining whether or not you can afford to buy a $275K house. FHA loans, for example, allow borrowers with credit scores as low as 500 (with a 10% down payment) and 580 (with a 3.5% down payment) to apply. Lenders also look at your debt-to-income ratio, income, employment history, and loan-to-value ratio.

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Photo credit: iStock/FG Trade Latin

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.

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 requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.

Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.

SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.

If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.

Reward is valid for 18 months from date of enrollment. After 18 months, you must re-enroll to be eligible for a reward.

SoFi loans subject to credit approval. Offer subject to change or cancellation without notice.

The trademarks, logos and names of other companies, products and services are the property of their respective owners.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†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.

SOHL-Q224-1878500-V1

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As a homeowner, chances are you’ve worked hard to build equity in your property — and if you’re facing a big purchase or unexpected financial need, it may make sense to convert that wealth into cash. But there are a variety of ways to go about it, each with their own benefits and drawbacks. In this article, we’ll walk you through the differences between a Home Equity Conversion Mortgage (HECM) and a Home Equity Line of Credit (HELOC), so you can determine which, if either, is right for you.

Note: SoFi does not offer HECMs. However, SoFi does offer home equity loan options.

What Is an HECM?

Let’s take a look at HECMs first. An HECM is a type of reverse mortgage that allows homeowners aged 62 or over to take out a lump sum against the value of their home. (There are other types of reverse mortgages on the market that may be available to younger applicants, but these are privately offered and not backed by the Department of Housing and Urban Development, or HUD, as HECMs are. There’s also such a thing as an HECM for purchase, which helps those 62 and over finance a principal home.)

For some seniors, HECMs are especially attractive because the loan and its interest don’t need to be repaid until the last surviving borrower permanently vacates or sells the home (or dies). While there are usually upfront fees involved, for some borrowers, this arrangement can feel like free money.

However, because interest is building over time and not being repaid, HECMs can eat into the equity you’ve built in your home, which may be less than ideal if you’re planning to pass it on to an heir as an asset. Along with receiving a less valuable investment, your heirs will also be on the hook to pay the loan in full upon your death — or otherwise surrender the title to the lender.

What Is a HELOC?

A home equity line of credit, or HELOC, works differently than an HECM. A HELOC is kind of like a secured credit card, except it’s secured with your home’s equity. In fact, in some cases, it may literally come with a card — or a checkbook — attached to the account.

A HELOC allows you to borrow money against the value of your home, but doesn’t require you to take one large lump sum. Instead, you can borrow what you need through the HELOC’s draw period, and then repay it during the repayment period that follows. This arrangement may help some people borrow less overall, which in turn could mean paying less for the loan by way of interest. Some HELOC users borrow and repay money repeatedly during the draw period.

However, a HELOC is still a loan — and it still comes with costs. Some HELOCs allow borrowers to make interest-only payments during the draw period. However, once the principal comes due during the repayment period, the monthly payments will be much larger.

Key Differences

While HECMs and HELOCs are similar in some ways, there are some important differences that set them apart — and which may help you determine which is best suited to your needs.

Borrower Age Requirements

HECMs are only available to homeowners aged 62 and over.

HELOCs, on the other hand, don’t have any borrower age requirements — but they do have minimum equity requirements, and the lender will also check out your credit score and proof of income to qualify you for the loan. (Your credit history and other financial information will be part of the lending qualification decision for both HELOCs and HECMs.)

Collateral Requirements

Both HECMs and HELOCs are secured by your home, and you’ll need to have built up home equity in order to have value to borrow against.

Every lender has different specific requirements, but for a HELOC, you’ll generally need to own at least 15% or 20% of your home’s value. For an HECM, you’ll usually need to own a substantially greater portion of your home: 50% is a general rule of thumb, and some lenders may require you to have even more equity than that.

Repayment Requirements

Finally, as discussed above, there are substantial differences in HECM vs. HELOC repayment policies.

HECMs have upfront costs, but the loan principal and interest don’t come due until after the last surviving borrower sells the property, permanently moves out of the home, or dies.

HELOCs, on the other hand, are split into a draw period and a repayment period. During the draw period, when you can borrow against your home’s value, you may be able to make interest-only payments; both principal and interest will come due in the repayment period. The draw period is often 10 years long, and the repayment period may be another 10 or even 20 years.

Pros of an HECM

So, what are some of the benefits of a reverse mortgage?

•   Money up front with no interest until later. For seniors who are planning to live in their home until they die — and don’t necessarily want to pass the property on to heirs — an HECM can provide an additional income stream that doesn’t require repayment during their lifetime.

•   HECM funds aren’t taxable. Because money you borrow with an HECM isn’t considered income, you don’t owe income taxes on it.

Cons of an HECM

And now, some HECM drawbacks:

•   You’ll decrease your home’s value as a personal investment. Because an HECM is borrowed against your equity and repayments don’t begin until after you move out or die, it will decrease the value of your property as an investment for you and your family.

•   You’ll probably still have to pay upfront fees. Even for those who see HECM funds as “free money,” origination fees and other upfront costs can still add up to a sizable amount.

•   Your home could be foreclosed if you fail to make other payments. Property taxes, homeowners association fees, and homeowners insurance premiums will all still be due regularly, and if you don’t pay them, your HECM lender could take possession of your home.

•   Your heirs may face a challenging decision. If you don’t repay your HECM during your lifetime, your heirs will either have to repay the loan in full or surrender the property to the lender — and they’ll be forced to make that decision fairly soon after your death as the transaction typically needs to happen within one to six months.

Pros of a HELOC

Now, let’s take a look at the best reasons to consider a HELOC in the question of HECM vs. HELOC.

•   Lower interest rates than other forms of credit. Because a HELOC is secured by your home, it may offer lower interest rates than comparable types of loans like unsecured credit cards.

•   Borrow only what you need. HELOCs allow you to flexibly borrow only what you need during the draw period, rather than taking out a lump sum.

•   HELOC interest may be tax-deductible if you are using the funds you borrow to make improvements on your home.

Cons of a HELOC

There are drawbacks to HELOCs, too, to be aware of. For instance:

•   Variable interest. Most HELOCs have variable interest rates, which means your monthly payment can be unpredictable as market conditions change.

•   Decreased equity. Like any loan taken against your home’s value, a HELOC can decrease the amount of equity you own — which in turn decreases the value of your home investment (until the loan is repaid).

•   HELOCs open you up to foreclosure. If you fail to make your HELOC payments, the lender can foreclose on your home (even if you’re still making payments on your primary home mortgage loan).

HELOC vs HECM: Which Option Is Better?

In the end, only you can determine which of these loans makes the most sense for your personal situation — or if it would be better to find another way entirely to meet your financial needs. Both HELOCs and HECMs put your home on the line and decrease the equity you’ve worked hard to build in your property.

For those age 62 and over who are eligible to apply for an HECM — and who don’t plan on leaving the home to heirs — a reverse mortgage could offer access to cash without many costs in the short term.

For those who are looking for a more flexible way to borrow against their home equity, a HELOC may help you convert your home value to cash at a lower interest rate than other types of loans. However, variable-rate interest can make payments unpredictable, and if you choose interest-only payments during the draw period, you may be stuck with much higher bills later on when repayment comes due.

The Takeaway

HELOCs and HECMs can help eligible borrowers use the value they’ve built in their home to their advantage by converting some of it to cash in the short term. However, both are forms of debt, and therefore costs and risks are involved. One major advantage of HELOCs is that anyone with sufficient equity in their home can apply for a HELOC, whereas HECMs are only for those age 62 and over.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

What are the differences between HELOC and HECM?

An HECM is a type of reverse mortgage. It is a loan available solely to homeowners aged 62 and over. With an HECM, the principal and interest payments don’t become due until the borrower moves out of the home or passes away, which can make them attractive for some seniors (but challenging for those hoping to pass on the home to heirs). A HELOC, on the other hand, is a more flexible line of credit that allows you to borrow money as needed, up to the maximum amount you qualify for, against your home’s equity. Unlike HECMs, HELOCs do not have age eligibility requirements.

What are the downsides of an HECM loan?

HECMs lower the equity you own in your home, and since interest and principal are building up unpaid over time, the value of your ownership can decrease dramatically over the course of the loan’s lifetime. Furthermore, the entire sum of the loan becomes due when the last surviving borrower vacates the home or passes away, which means your heirs will need to pay up — or they will forfeit the property to the lender.

Is there an age requirement for a HELOC?

Unlike HECMs, HELOCs do not have age requirements. However, your lender will still assess your creditworthiness, and there are also minimum equity requirements to ensure you own enough of your home’s value to borrow against.

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Photo credit: iStock/VioletaStoimenova

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.

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 requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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A reverse mortgage is a popular way for retirees to supplement their retirement income. A home equity conversion mortgage (HECM) is the Federal Housing Administration’s reverse mortgage program, which allows borrowers to withdraw some of the equity in their home. It has stricter eligibility requirements than other reverse mortgages, but it is also the only reverse mortgage insured by the U.S. Government.

Here’s a look at the unique aspects of an HECM compared to a traditional reverse mortgage, the pros and cons, and the all-important fees that come with reverse mortgage financing arrangements.

Note: SoFi does not offer home equity conversion mortgages (HECM) at this time. However, SoFi does offer home equity loan options.

What Is a Reverse Mortgage?

A reverse mortgage loan is a way to obtain financing using your home as security. In most cases, the home must be your primary residence. You, as the borrower, receive either a lump sum or an amount each month. You accrue interest and pay fees based on the amount you receive, and the amount you owe the lender increases over time. As your loan balance increases, your home equity decreases. You pay back the loan when you sell the house, permanently move away, or pass away.

When someone with a reverse mortgage dies, the heir who has inherited the house settles the loan balance, either by repaying the outstanding loan amount, selling the home and keeping any remaining proceeds after settling the loan, or signing over the deed to the lender.

What Is an HECM?

A home equity conversion mortgage (HECM) is one type of reverse mortgage. It is the most popular type of reverse mortgage, but it is only available to people aged 62 and older. This is the only reverse mortgage insured by the U.S. Government and is only available through a lender approved by the Federal Housing Administration (FHA). (It’s not to be confused with an HECM for purchase, which allows homebuyers aged 62 and older to purchase a home with the loan proceeds from a reverse mortgage.)


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Key Similarities

HECMs and other types of reverse mortgages share similarities. One is that they are a popular way for seniors to supplement their income if they have significant equity in their home. Another is that borrowers remain responsible for paying the property taxes and homeowners insurance for the life of the loan.

Key Differences

There are always reverse mortgages pros and cons. But there are also key differences when you examine an HECM vs. a reverse mortgage.

•   Age of borrowers: A reverse mortgage is an option for anyone aged 55 or older. An HECM is only available to those aged 62 or older.

•   Payout options: Reverse mortgages typically only offer a lump-sum payout. An HECM has more options, such as a lump sum, monthly payouts, or a credit line.

•   Stricter eligibility requirements: The HECM property must be a primary residence, the homeowner must have a certain amount of equity, and the homeowner must have the ability to pay property taxes and homeowners insurance.

•   FHA-insured: The HECM is the only reverse mortgage insured by the U.S. federal government and is only available through an FHA-approved lender.

•   Mortgage insurance: This may not be required for a proprietary mortgage, but it is for an HECM.

•   Lending limits: For an HECM the lending limit is $1,209,750 for 2025. Lending limits may be higher for other reverse mortgages.

Pros of an HECM

The main advantages of an HECM are that monthly payments are not required because the loan is paid back when the home is sold. Also, lenders do not set a minimum credit score to qualify. The table below lists the pros of an HECM.

Pros of an HECM

No required monthly payment	Borrowers can pay down the principal each month, pay just interest, or pay nothing at all until the home is sold.
No minimum credit score	Lenders do not look for a minimum credit score, but they may do a credit check to look for federal tax liens or loan delinquencies.
FHA-insured	The FHA protects you if your mortgage is more than your home’s value.
No spending restrictions	You can spend the money from an HECM on whatever you like.
No income taxes	The money from an HECM is not subject to income tax.
Guaranteed income	As long as you stay in your home, you are guaranteed the income from an HECM.
Home ownership	When it is time to sell your home, any remaining equity after paying off the mortgage belongs to you or your heirs.

Cons of an HECM

In the HECM vs. reverse mortgage equation, the cons of an HECM are mostly related to the strict eligibility requirements listed in the table below.

Cons of an HECM

Age requirements	You must be at least 62 years of age. This applies to your spouse also if you are applying together.
Home maintenance	You must live in the home as your primary residence and maintain it appropriately.
Free of debt payments	You must be free of debt payments and up-to-date on your insurance and property taxes.
Scams are rife	Some HECMs are scams. It’s wise to consult a financial advisor before signing anything so that you understand the terms and consequences of the loan.
Potential loss of aid	The IRS does not consider an HECM as income, so you do not have to pay taxes on the financing. However, the money may affect any Supplemental Security Income or Medicaid you may be eligible for.

Comparing Costs and Scenarios

A reverse mortgage does not require a monthly payment, but you will pay origination, servicing, and third-party fees, property taxes, and insurance. These fees are paid back when you sell your home, move, or pass away.

The amount that you can borrow through a reverse mortgage will be less than the full value of your home to cover the cost of insurance and origination fees. Also, the younger you are the less you can borrow because you are expected to live longer, giving the loan more time to grow before the debt is paid. If you’re thinking about a reverse mortgage, it might be wise to also look at a home equity line of credit (HELOC), which is another way to borrow based on the equity you have in your home. HECM vs. HELOC is worth considering as there are costs and benefits in each case.

Insurance Premiums

For an HECM, you will likely pay a mortgage insurance premium (MIP) at closing and an annual MIP for the life of the loan. The MIP charge at closing is based on the home’s appraised value or the HECM loan limit, whichever is less. Insurance fees are typically 2% of your home’s appraised value upfront, and then you will be charged an additional 0.5% of the total loan value annually. There will also be an origination fee of around 3% of the loan value.

The HECM loan limit is $1,209,750 for 2025.

Origination Fee

Your lender will charge an origination fee for processing your HECM loan. According to the U.S. Department of Housing and Urban Development (HUD), the lender can charge 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000 or $2,500, whichever is the greater amount. However, the lender cannot charge more than $6,000.

Here are a few scenarios for an HECM loan with different home values and the associated costs. Note that not all lenders charge the maximum fee, so it pays to shop around.

1.    Home value: $100,000

The home’s value is less than $125,000 so the lender will charge $2,500.

2.    Home value: $175,000

Since the home is valued at more than $125,000 but less than $200,000, the lender will charge a maximum of 2% of the home’s value, or $3,500.

3.    Home value: $350,000

Since the home is valued at greater than $200,000, the lender may charge up to 2% ($4,000) plus 1% for the remaining $150,000 ($1,500), for a total of $5,500.

Servicing Fee

The servicing fee covers the cost of calculating and sending statements and making sure taxes and insurance premiums are up to date. If the interest rate is fixed or annually adjusted, the monthly fee may be around $30. If the interest rate is adjusted monthly, the fee might be slightly higher and around $35. At closing, the lender may set aside the servicing fee and add the cost to your loan balance each month.

Third-Party Fees

Third-party fees are closing costs and include survey and appraisal fees, title and title insurance fees, and credit checks. These are likely to be in the range of $1,000 to $2,000.

Interest Rates for HECMs

Reverse mortgage interest rates are another factor to consider. It’s not easy to find the interest rates for HECMs. However, you can find recent average rates on the HUD website. The interest rate will vary between private and HECM loans, but the latter tend to have lower interest rates because they are backed by the FHA.

Fixed vs. Adjustable Interest Rate

Most lenders offer monthly adjustable interest rates. The lender calculates an adjustable HECM by including an index and setting a margin. The margin does not change after the loan is originated, but the index fluctuates according to the market. Reverse mortgage borrowers can’t typically predict how much interest they will ultimately pay because the term of the loan is uncertain and interest continues to mount over the life of the loan. How much interest will ultimately accrue is somewhat uncertain for both variable and fixed rate reverse mortgages, so it is wise to discuss the pros and cons with a lender and with a financial advisor as well.


💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.

The Takeaway

An HECM is a type of reverse mortgage. It has stricter eligibility requirements compared to other reverse mortgages. To qualify for an HECM, you must be aged 62 or older and should be relatively free of debt.

There are benefits to an HECM. For example, it is FHA-insured and you don’t have to pay tax on the payouts. However, an HECM may affect your eligibility for Supplemental Security Income or Medicaid. Also, the lending limits are lower for an HECM. Seekers of a reverse mortgage or an HECM should be careful not to fall victim to a scam and a fraudulent loan — do your research carefully and only work with a lender that has a good reputation. Consider asking a trusted financial advisor for a recommendation.

FAQ

Is an HECM the same as a reverse mortgage?

An HECM is a type of reverse mortgage. However, it is only available to people aged 62 and older. An HECM is insured by the U.S. federal government and is only available through a Federal Housing Administration (FHA)-approved lender.

What are the main differences between an HECM vs. reverse mortgage?

The main differences between an HECM and a reverse mortgage are that an HECM is only available to those aged 62 or older. An HECM is also FHA-insured. The payout options are often more flexible for an HECM, whereas a private reverse mortgage might only offer a lump sum payout.

Are the qualifications the same for an HECM and reverse mortgage?

No. For an HECM, you must be 62 years old or older, whereas other reverse mortgages are available to those 55 and over. For an HECM, the property must be your primary residence, and the equity requirements might be higher for an HECM than a private reverse mortgage. Also, the lender will want to see that you can pay property taxes and homeowners insurance.

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Photo credit: iStock/LordHenriVoton

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