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If you like paying fewer property taxes, you’ll like the homestead exemption. A homestead exemption, sometimes also called a primary residential exemption, is where you only pay property taxes on a portion of your home’s market value. Eligibility for the homestead exemption is usually dependent on the home being used as your primary residence.

To understand more about what the homestead exemption is and how it could affect your taxes, we’re covering the bases, including what a homestead exemption is and how it works, automatic vs. declared homestead exemptions, who qualifies for a homestead exemption, how to file for a homestead exemption, and which states have homestead exemptions.

By the end, you should have a better idea of how to reduce your taxes with a homestead exemption if it isn’t already applied to your property.

What Is a Homestead Exemption?

To clarify, there are two different scenarios that are both described as the homestead exemption.

1.    A homestead exemption can refer to a reduction in taxes offered when the property is used as a primary residence.

2.    A homestead exemption can also describe the amount of equity in a home legally protected from creditor liens. Read up on homestead exemption rules by state if you want to better understand this protection.

Both require the owner to live in the property as their principal residence, but they differ from there. The first applies to taxes and the second protects a homeowner’s equity from creditors during adverse life events. The first is the more common application and is the focus of this article.

How Does a Homestead Exemption Work?

At a very basic level, a homestead exemption works something like this:

1.    You live in the home as your primary residence.

2.    Apply for the homestead exemption (if your taxing entity doesn’t automatically apply it). Be sure to include all required documents.

3.    Receive a discount on your property taxes as determined by your taxing entity. The discount can be a percentage or a set dollar amount. If you have a home mortgage loan on your primary residence, remember that if your property taxes are included in mortgage payments, your mortgage servicer will pay this for you from your escrow.

4.    Continue receiving the homestead exemption. It renews automatically for most taxing entities.

Recommended: Best States to Retire in for Taxes

Automatic Homestead vs Declared Homestead

Automatic vs. declared homestead refer to two different things.

•   Automatic. Many taxing entities may automatically apply the homestead tax exemption when you purchase the home. If you do need to apply for the homestead exemption, you usually only need to do it once. It’s typically renewed annually after your first application.

•   Declared. A Declaration of Homestead is a legal document homeowners can file with their taxing entity to protect their home from creditors.

Who Qualifies for a Homestead Exemption?

Generally, homeowners who live in the home as their principal residence may qualify for a homestead exemption. Corporations or other entities that own properties do not qualify for a homestead exemption. If you have helped a family member purchase a home through a family opportunity mortgage, talk with a tax preparer about whether this property is eligible for the homestead exemption given that it is technically considered owner-occupied.

Other requirements may include:

•   Having all your vehicles registered in the county where you want a homestead exemption

•   Not having a homestead exemption for any other property

•   Sending in the homestead exemption application by the deadline

Examples of a Homestead Exemption

The amount of the exemption varies depending on your taxing entity. Here are a couple of examples of how the homestead exemption works in Texas and Florida.

•   In Texas, you may qualify for a $140,000 exemption. If your home is valued at $300,000 for tax purposes, you’ll only pay taxes on $160,000.

•   In Florida, you can receive up to a $50,000 exemption. If your home is valued at $400,000 for tax purposes and you qualify for the homestead exemption, you’ll only be taxed on $350,000.

Limitations of the Homestead Exemption

You cannot have a homestead exemption on more than one property. Also, if you move and plan on keeping the home as a rental property, it won’t qualify for the exemption. The homeowner bears the responsibility for notifying the taxing entity and it’s possible that the taxing entity can place a Homestead Tax Lien on your home.

How to File a Homestead Exemption

In many cases, you’ll be sent paperwork from your local taxing entity for the homestead exemption (usually your county assessor). If they do not send it, you can find the forms for filing for a homestead exemption on your local tax assessor’s website. Information that you can expect to provide includes:

•   Name

•   Property address

•   Identification, such as a driver’s license

•   Social Security number

•   Car registration (this is to help prove residency)

Recommended: First-Time Homebuyer Programs

States With Homestead Tax Exemptions

Most states offer some form of homestead exemption or credit. Only New Jersey and Pennsylvania do not offer an exemption at all.

Pros and Cons of a Homestead Exemption

If you’re able to qualify for a homestead exemption, it will reduce the tax on your property and may help make your home more affordable. This is a huge benefit and makes the pros and cons of the homestead exemption a very short list.

Pros

•   Reduces the amount of property taxes paid

Cons

•   You may need to file paperwork by a deadline

•   Second homes don’t qualify for the homestead exemption

Recommended: Pros and Cons of Buying a Starter Home

The Takeaway

The tax break you get with a homestead exemption could be substantial. If you qualify for it, make sure that you’re getting it. Be aware of when you need to file paperwork (if at all), and what you need to include with your application to ensure you’re paying the proper property tax rate for those living in it as their primary residence.

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 is the homestead tax credit in Iowa?

The homestead tax credit for Iowa is $4,850 of your primary residence’s taxable value.

How much does homestead exemption save in Georgia?

The amount saved in Georgia for the homestead exemption varies by county. The city of Decatur has an exemption amount of $40,000 while Fulton County and Atlanta offer $30,000 off assessed value on the County taxes, $2,000 off on the school taxes, and, if the resident is in the City of Atlanta, an additional $30,000 exemption for city operations, parks, and schools.

How does the Indiana homestead exemption work?

Homeowners in Indiana can qualify for a deduction of 60% of the property’s assessed value or a maximum of $48,000, whichever is less.

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Photo credit: iStock/fizkes

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.

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.

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.

SOHL-Q325-018

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After finding that big, beautiful house, you now have to find a big, beautiful mortgage. If the amount you need to borrow is over the Federal Housing Finance Agency (FHFA) conforming loan limit of $832,750 for most geographic areas, you’ll need to get a jumbo loan.

A jumbo loan is a little different than a conventional, conforming mortgage and has its own benefits and drawbacks. You can expect increased scrutiny from potential lenders, and possibly some increased costs.

Jumbo Loans: The Basics

Luxury homes, vacation homes, unique properties, and homes in high-cost-of-living areas may need a jumbo loan. A jumbo loan is different from a conventional home loan in that it isn’t guaranteed by Fannie Mae or Freddie Mac. This means the lender takes on more risk to issue a mortgage to the borrower. With the additional risk exposure, lenders have higher qualifications for borrowers. These may include:

•   A higher credit score

•   A larger down payment

•   Strong cash reserves — sometimes up to a year’s worth of mortgage payments

•   A higher income

•   A low debt-to-income ratio

•   More stringent loan-to-value requirements

While the qualifications and loan amounts may be different, lenders may offer an interest rate similar to what you would find for a conventional loan below the conforming loan limits.

Keep in mind the more stringent requirements shouldn’t dissuade you from looking into jumbo loans. On the contrary, let’s take a closer look at jumbo loan pros and cons to help you decide if you want to go this direction or not.

Recommended: Local Housing Market Trends

Benefits of Jumbo Loans

A jumbo loan may allow you to buy property you otherwise wouldn’t be able to. Some of the main benefits of a jumbo loan include:

•   Higher loan amount. A jumbo loan allows you to purchase property at a higher price point. If you’re looking for high-end property, a vacation property, or your dream home, a jumbo loan may be able to help you access the financing you need. Depending on where the property is located, the conforming loan limits are either $832,750 or up to $1,249,125.

•   Comparable Interest rates. You may be surprised to learn that interest rates on jumbo loans may be comparable to those of conforming conventional loans. Sometimes, they’re even lower!

•   Might avoid PMI. There are some lenders that allow you to forgo private mortgage insurance with a jumbo loan, especially if you put down at least 10% on a property. This can save you money every month.

💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.

Drawbacks of Jumbo Loans

While jumbo loans can afford you the loan you need for a higher-priced property, they do have some drawbacks you should be aware of.

•   More stringent qualifications. Jumbo loans are tougher to get. You need a higher income, a high credit score, and a big down payment. Lenders also want to see a debt-to-income (DTI) ratio lower than 43%, and the loan-to-value (LTV) ratio may max out at 80% of a property’s value.

•   Potentially higher rates. Jumbo loans are not guaranteed by Fannie Mae or Freddie Mac, so a jumbo loan can reduce a lender’s liquidity and expose them to more risk. In the past, jumbo loans have been offered at higher interest rates, though recently, many lenders are offering jumbo loans at a lower interest rate than a conventional mortgage.

•   Need to show cash reserves. For some of the best terms for jumbo loans, you may need to show anywhere from three to 24 months’ worth of cash reserves. Furthermore, jumbo loan lenders have different standards when it comes to what is considered a cash reserve. Some lenders may be able to count your 401(k) as part of your cash reserves, while others require money to be held in a more liquid account.

•   Fewer lenders offer jumbo loans. This doesn’t mean jumbo loans are uncommon by any means, but you do have to find a lender in your area that offers jumbo loans.

•   Higher costs. Because jumbo loans are so large, you have higher costs all around. Closing costs are based on a percentage of the transaction. With a higher loan amount, you’ll pay more for these services. You’ll also pay more for fixed-cost services, such as an appraisal or a home inspection, if your home is larger and has more to evaluate.

How Hard Is It to Qualify for a Jumbo Loan?

It’s true that fewer borrowers will be able to qualify for a jumbo loan. But if you know what lenders are looking for, your odds are good. Jumbo loan requirements may include:

•   Credit score of 700 or higher

•   Down payment of 20%, although some lenders allow as little as 10% down

•   LTV ratio around 80% or lower

•   DTI ratio of 43% or lower

•   Cash reserves equal to 6 to 12 months of the monthly mortgage payment

•   Higher income amount

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Jumbo Loan vs Conventional Loan

Technically, jumbo loans are conventional loans. A conventional loan is a mortgage that isn’t a government-backed mortgage. What’s different about a jumbo loan is that it is not a conforming conventional loan.

A conforming conventional loan is one where the loan amount is less than the conforming loan limit of $832,750 for most areas and $1,249,125 for high-cost areas. This distinction is important, but it’s also common to call a conforming conventional loan simply a conventional loan.

Recommended: What is the Difference Between Jumbo vs. Conventional Loans?

Aside from the loan amount, other major differences between a jumbo loan and a conventional conforming loan include the down payment amount, credit score requirement, LTV ratio, DTI ratio, income requirement, and cash reserve requirement. These key differences are outlined in the chart below:

	Jumbo Loan	Conventional Conforming Loan
Loan amount	Loan higher than $832,750 in most areas or $1,249,125 in high-cost areas.	Loan lower than $832,750 in most areas or $1,249,125 in high-cost areas.
Down payment	Down payment as low as 10%	Down payment as low as 3%
Credit score	700+	As low as 620
LTV	Around 80%	As high as 97%
DTI	43% or lower, 36% for some lenders	Up to 50%
Income	Higher	Lower may be acceptable
Cash reserves	As much as 12 months or more	Not required

Recommended: What is the Difference Between Jumbo vs. Conventional Loans?

The Takeaway

If you have your eye on a property that exceeds the conforming home loan limits for your area, a jumbo loan can make it happen for you. Prepare yourself for the more stringent salary, credit score, and cash reserves requirements and soon you may be able to call that home yours.

When you’re ready to take the next step, consider what SoFi Home Loans have to offer. Jumbo loans are offered with competitive interest rates, no private mortgage insurance, and down payments as low as 10%.

SoFi Mortgage Loans: We make the home loan process smart and simple.

FAQ

Who qualifies for a jumbo loan?

Borrowers with a high income, an excellent credit score, substantial funds on hand for a down payment (plus large cash reserves), and a low debt-to-income ratio may qualify for a jumbo loan. Check with lenders to learn their specific requirements.

How do you apply for a jumbo loan?

You can apply for a jumbo loan through any lender that offers a jumbo mortgage product.

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Photo credit: iStock/FOTOGRAFIA INC.

*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.

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.

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

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-Q325-012

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How does subleasing work? Whether you’re a current tenant thinking about subleasing your apartment or a prospective renter looking at a possible subtenant situation, you might be wondering if it makes sense to sublease an apartment.

Subleasing is like renting from another renter instead of the landlord. The rights of the original lease between the owner and the original tenant are transferred to the subtenant, yet the original tenant is still responsible for fulfilling contractual obligations of the lease. If the subtenant doesn’t pay, for example, the original tenant will likely still need to pay the landlord rent. (Note that subleasing is different from subletting, in which you let a new tenant take over your current lease and have a direct relationship with your landlord.)

Subleasing may be worth considering when a tenant needs to move out before their lease expires. It’s also common when a tenant needs to leave for a short time and wants to return to the apartment later.

What Is Subleasing?

Subleasing is a legal way for a tenant to rent out their property to another tenant (also called a subtenant). The original tenant remains on the lease and is expected to fulfill the obligations of that lease. They may be responsible for damages caused by the subtenant, for example, or their missed rent payments.

There are a number of scenarios where subleasing might make sense, such as when a tenant wants to rent out extra rooms or when the original tenant needs to leave the area for a new employment opportunity. Breaking leases can be quite costly, so if the landlord allows for a unit to be subleased, finding a subtenant can ease the financial burden on the original tenant. Likewise, if a tenant is able to rent out extra rooms, they can factor that into the money they have available to spend on rent and may be better able to afford the apartment.

How Does a Sublease Work?

A sublease only works if it is allowed by the landlord. Basically, a sublease creates a new landlord-tenant relationship between the original tenant and the subtenant instead of between the landlord and the subtenant.

The new tenant pays the original tenant and the original tenant pays the landlord. The subtenant must fulfill contractual obligations to the original tenant (who acts as landlord) while the original tenant must abide by the lease agreement made with the landlord.

Recommended: How Much Rent Can I Afford on $60K a Year?

When to Consider Subleasing

When canceling/breaking your lease is incredibly expensive, you’re probably looking at what it takes to sublease your apartment or home. Certain situations may make more sense than others when it comes to subleasing.

•   You are temporarily moving to a different location for work and would like to return to your apartment.

•   You have an opportunity to study or work abroad for a semester.

•   You bought a home and have a home mortgage loan to pay for and may need a subtenant to finish your lease for you.

•   You’re moving for a job opportunity and need a subtenant to finish your lease for you.

•   Your family has increased in size and you need a bigger apartment.

•   A personal situation, such as a sudden need to care for an elderly or disabled family member, makes it necessary to move.

Keep in mind that landlords may not allow subleasing. It’s usually specified in the original rental agreement if subleasing isn’t allowed. If your contract does not forbid it, you’re likely able to sublease your apartment.


💡 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.

Pros and Cons of Subleasing

Subleasing has some pros and cons to consider.

Recommended: First-Time Homebuyer Programs and Loans

Example of Subleasing an Apartment

Here’s an example of how subleasing an apartment works: Let’s say you take a hard look at whether you should buy or rent, based on your budget, and you decide to buy or build a house. You find your dream home more quickly than you expected. Paying for both rent and a mortgage is costly, so you want to find a subtenant to take your spot at the apartment.

You check your lease and there’s nothing in there that disallows it. You advertise, people call you, you meet, and you eventually find someone you think would be good. You get them to fill out an application and check their income, credit, and background.

Once everything looks good, you have them sign a sublease agreement with you. You move out of the apartment and into your new home. They move in, they pay you, and you pay the landlord. Once your lease is up, assuming you do not renew it, the subtenant will need to work out a new lease with the landlord if they want to stay in the rental.

How to Sublease Your Apartment

When it comes to the nitty-gritty details, the process looks something like this:

1. Find a subtenant. Since you’re assuming the role of landlord, you’ll want to advertise and vet the subtenant fully. A landlord will often complete a background check, credit check, and income verification on a potential tenant — you should do the same with your subtenant.
2. Sign a sublease. Creating a sublease that protects you is key. You’re still responsible for the lease agreement you signed with the landlord, so you’ll need to be as specific as possible about what the situation and rights of the sublease entail.
3. Collect rent from the subtenant. Now that you have a subtenant, you’ll need to collect rent from them and pay your landlord. You’re still responsible for filling the terms of your original lease, after all.
4. Continue paying rent to the landlord as per the original lease agreement. As the primary tenant, you’re responsible for rent to the landlord. If your subtenant doesn’t pay it, you may need to figure out a way to pay the landlord so you’re not in breach of your contract.
5. When your lease and contract ends, the subtenancy will end. The subtenant will no longer have any rights once your lease ends. In apartment complexes, it’s common for the subtenant to apply for a new lease with the landlord and become the tenant.

Recommended: How to Rent an Apartment with No Credit

Tips to Subleasing an Apartment Your First Time

Subleasing an apartment isn’t easy, but it may be the right choice to allow you to move on. If it’s your first time, you’ll want to keep these things in mind:

•   Make sure subleasing is allowed in your lease agreement. The last thing you want is to breach your contract. That gives your landlord justification for keeping your deposit and pursuing legal action against you. While this sounds extreme, it’s also not outside the realm of possibility.

•   Screen your subtenant carefully. Since you’re acting as landlord, you’ll want to ensure the subtenant is able to pay and maintain the property. Consider running a background check and credit check, and verifying income. Don’t go off your gut — every rookie makes this mistake — but instead, verify the information the prospective tenant gives you. A good subtenant will make your life 100% easier.

•   Get a professional to create a sublease contract. The contract between you and your subtenant should be strong, or you open yourself up to legal and financial trouble. A professional can help. Some items that may need to be included in the sublease are:

◦   Name of the sublessor

◦   Name of the sublessee

◦   Location of the property

◦   Beginning and end dates of the sublease

◦   Rent and deposit amounts

◦   Due date of rent

◦   Terms and conditions of the original lease

◦   The document should be signed by both parties and possibly by the landlord if it is required

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

The Takeaway

Subleasing can help you cover the cost of a lease you need to get out of, but it’s not easy and it’s not without risk. Even if you do a great job finding and screening the new tenant, there’s no guarantee they will pay and keep the property in tip-top shape. But it’s also possible you’ll find a great subtenant and that will help you get to the next stage of your life, whether it’s moving in with your partner or buying your first home.

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 difference between a lease and sublease?

A lease is a legal contract that grants rental rights for a tenant directly with the landlord. A sublease is a contract between the initial tenant and a second tenant.

Is subleasing easier?

With subleasing, you take on the role of landlord with a new tenant while maintaining a contract with your landlord, so it’s not an easy path. You collect rent from the subtenant and pay the landlord. Along with this, you assume the risk of another tenant damaging the property or not paying.

How does subleasing work in California?

In California, you can’t sublease legally without your landlord’s written permission. First, you’ll want to check your lease agreement to make sure subleasing is permitted. Then, if it is allowed, you’ll still need to get written consent from your landlord before subleasing.

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Photo credit: iStock/StockRocket

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.

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

This article is not intended to be legal advice. Please consult an attorney for advice.

SOHL-Q325-016

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A home title policy — also called title insurance — protects homeowners or lenders (depending on the type of policy) from problems stemming from title defects. Title insurance allows for a secure transfer of ownership from one party to another.

To address top questions surrounding home title policies, we’ve compiled this guide. You’ll learn:

•   What is title insurance for a home?

•   How does it work?

•   What are common title issues?

•   What does the home title policy cover?

•   What are the different types of home title policies?

By the end, you may still not be thrilled to pay this additional cost at closing, but you may understand better what it protects.

What Is a Home Title Policy?

A title policy on a home is an insurance policy that protects against title defects. Title issues aren’t common, but when they occur, the amount of money involved can be massive. Home title policies are required by lenders to protect their investment in your property. That’s right, just like mortgage insurance, it’s not really for you. In fact, these policies are also called lender’s title insurance policies.

Confusingly, you can also buy a home title policy that provides protection for you: This is called an owner’s title insurance policy. If you want to be completely protected as a homebuyer, you need to purchase both.

What could go wrong that necessitates this layer of insurance? If, for example, the seller didn’t have the full right to sell the property because there was another property owner and the title company missed this in its title report, the title company is responsible for the error. The title company could pay for litigation costs or payouts for property owners.

Title issues that could potentially arise include:

•   Existing mortgages

•   Undisclosed heirs that have claims on the property

•   Tax or construction liens

•   Property line disputes

•   Judgments involving the property, such as in the case of a divorce

•   Deeds, wills, or trusts with errors

•   Easements or encroachments that may restrict access and/or devalue the property

•   Notary mistakes

•   Errors in public records

•   Fraud and forgeries

💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

How Does a Home Title Policy Work?

There are two parts to a home title policy: a title search and a policy issuance. After real estate purchase contracts are written and the property is in escrow, homeowners select a title company to conduct a title search.

In the title search, the title company looks through public records for defects (or problems, like those listed previously). If the search turns up a mortgage lien issue, judgment, or other issue, it will need to be addressed before ownership can be transferred.

If the title search hasn’t revealed any issues, the title company will issue the policy when the transfer of ownership is recorded. The borrower pays a one-time fee for the home title policy in their closing costs.

Recommended: What Is Escrow?

What Does the Home Title Policy Cover?

The title search helps eliminate risk, but it’s still a possibility that title problems can arise. That’s where the title policy for a home comes in. After the policy has been issued, should any additional items come up, the title company will litigate those issues for the benefit of the lender — but only up to the amount of the loan. As the loan balance decreases, so does the amount of home title insurance coverage.

One important thing to note is the home title policy that you are usually required to get is a lender’s title insurance policy. What this means is the lender is protected against legal claims against the home. The borrower’s claim to the home — their equity — is not protected unless the borrower also purchases an owner’s title policy.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

Home Title Policy Requirements

Home title policies aren’t required by a governing body like a city or state — they’re required by the lender. When a borrower seeks funds for a home mortgage loan, the lender has certain requirements that the borrower must meet in order for it to issue that mortgage. One of these is a lender’s home title insurance policy. Borrowers must pay for a home title policy in order to close the loan. Lenders want to make sure the property the borrower selected can legally be bought and sold and their investment is protected.

Recommended: First-Time Homebuyer Programs

Pros and Cons of a Home Title Policy

It’s worth summing up the benefits and drawbacks of a home title policy.

Pros	Cons
The title search can reveal title defects before you close on a home.	Lender’s home title policies are required.
Lender’s title insurance can pay for litigation and other costs up to the amount of the mortgage if there is an issue.	They’re expensive.
Owner’s title insurance can protect the homeowner’s equity in the home.	If it’s a lender’s home title policy only, it won’t protect the equity in your home.

When buying a home, you’ll encounter lots of different types of insurance. It’s worth taking a few minutes to familiarize yourself with the definitions.

Types of Home Title Policies

As noted above, home title policies come in two types: lender’s title insurance and owner’s title insurance.

Lender’s home title policies protect the lender from losses that come from title issues or defects. If title issues arise, the title company will cover losses or litigate for the lender up to the amount of the mortgage.

Owner’s home title policies protect the amount of equity an owner has in the home. If someone has a claim or brings suit against the title of the home, it is possible that an uninsured homeowner could lose the amount of equity they have in their home.

Fees for these policies vary widely by state. But for a typical home valued at around $400,000, you can expect to pay about $3,000 to purchase both types of title insurance and pay for title fees. Fortunately, this is a one-time cost — unlike other types of homeowners insurance you might buy, you won’t have to renew your title insurance every year.

The Takeaway

It’s not exciting to pay for a home title policy, but the expense is more palatable once you understand what it protects. If you purchase both lender’s and owner’s home title policies, you’ll be well protected in the event of an unexpected claim or ownership dispute on your new home.

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

Is it worth shopping around for title insurance?

Title insurance can be costly so it is worth it to shop around. The insurer your lender typically uses might be an affiliate. So there could be a financial benefit to your lender if you use their partner company, but that doesn’t mean there will be a financial benefit to you. Comparison shopping could save you money.

What is the disadvantage of title insurance?

The chief disadvantage of title insurance is its cost, and the fact that it is usually required by a lender. Beyond that, keep in mind that lender’s title insurance only covers the lender in the event of a title problem — it doesn’t protect the equity that you have in the home. For that, you would also need an owner’s title insurance policy.

What is the difference between title and mortgage insurance?

Lender’s title insurance, which is paid for by the borrower, protects the lender in the event that a title dispute arises on the property. Mortgage insurance protects the lender in the event that the borrower defaults on the loan.

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Photo credit: iStock/Wasan Tita

*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.

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.

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

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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For most Americans, mortgages are a necessary part of life. Without them, we couldn’t afford the homes where we start a life and perhaps a family. To pay for that cost, most of us need a mortgage.

However, the cost of a mortgage goes well beyond the amount of the loan. There are both upfront and ongoing costs that will factor into the cost of the mortgage. In this article, we will look closer at a $400,000 mortgage and what the monthly cost might look like.

Total Cost of a $400K Mortgage

To determine the total cost of a $400,000 mortgage, we must consider more than just the $400K price tag. Upfront and ongoing costs are involved, and they are factors in what you ultimately pay.

💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for up to 90 days while you search for the perfect place to call home.

Upfront Costs

There are several upfront costs related to your mortgage. Common upfront costs include:

•   Closing costs: From mortgage origination fees and application fees to home inspection and appraisal, you must pay closing costs upfront. These are generally equal to 2% to 5% of the home purchase price.

•   Down payment: Different mortgage types have different down payment requirements. However, depending on the mortgage type, you might be able to put as little as 3% down. First-time homebuyers can sometimes put less down than repeat buyers.

•   Property taxes: You may have to pay at least some money toward property taxes at the outset. For example, you might be required to pay six months’ property taxes.

Long-Term Costs

Long-term costs will likely be the largest cost associated with your home purchase. Here are some long-term costs to consider:

•   Mortgage payments: This is the monthly payment against the loan that financed the home purchase.

•   Home maintenance: Homeowners often do work on their homes, from the purely aesthetic to the absolutely necessary. However, these projects can be costly.

•   Property taxes: In most states, you must pay property taxes to your state or municipality. Property taxes can run into the thousands per year.

•   Homeowners insurance: Homeowners insurance isn’t a huge expense, relatively speaking. But the average cost of Progressive’s homeowners policy is between about $91 and $279 per month.

Estimated Monthly Payments on a $400K Mortgage

The monthly payment on a $400K mortgage won’t always be the same. Certain factors like the down payment, annual percentage rate (APR), and term will affect how much you pay per month.

For instance, suppose you have a fixed 30-year $400K mortgage at 6.50% APR. In this case, your monthly payment would be $2,528. If you have a fixed 15-year $400K mortgage at 6.5% APR, your monthly cost would be $3,484. Keep in mind that these estimates don’t include escrow costs. There are also different types of mortgages, such as fixed and adjustable-rate. Your loan repayment may vary significantly depending on the type.

Monthly Payment Breakdown by APR and Term

Certain factors affect how much you pay per month on your mortgage. The biggest factors are typically your APR and mortgage term. Generally, a higher APR increases your monthly payment, as does a shorter repayment term. Use a mortgage calculator to estimate your monthly payment. Here are a few examples of how these calculations may vary depending on the APR and term:

Interest rate	15-year term	30-year term
5.00%	$3,163	$2,147
5.50%	$3,268	$2,271
6.00%	$3,375	$2,398
6.50%	$3,484	$2,528
7.00%	$3,595	$2,661
7.50%	$3,709	$2,797
8.00%	$3,823	$2,935
8.50%	$3,939	$3,076
9.00%	$4,057	$3,218

How Much Interest Is Accrued on a $400K Mortgage?

As mentioned, the interest accrued on a $400,000 mortgage depends on several factors. However, the most important are the mortgage term and the APR. Generally, a shorter repayment term will result in higher monthly payments but less interest overall. For example, when comparing a 15-year vs. 30-year mortgage, we see that the 15-year mortgage results in less interest, despite higher monthly payments.

Fifteen-year mortgages often have lower APRs than 30-year mortgages as well. A lower APR also means you pay less interest. However, 15-year mortgages typically have much higher monthly payments than 30-year mortgages.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

$400K Mortgage Amortization Breakdown

Once approved for a fixed-rate mortgage, you typically pay the same amount each month. However, most of the money you pay will go toward interest for the first few years. Eventually, you can expect to pay more toward the principal than interest. For instance, here is an example of a 30-year $400,000 mortgage with a 7.00% APR:

Year	Beginning balance	Interest paid	Principal paid	Principal paid
1	$400,000.00	$27,871.28	$4,063.24	$395,936.76
2	$395,936.76	$27,577.55	$4,356.97	$391,579.79
3	$391,579.79	$27,262.58	$4,671.94	$386,907.85
4	$386,907.85	$26,924.85	$5,009.67	$381,898.18
5	$381,898.18	$26,562.70	$5,371.82	$376,526.36
6	$376,526.36	$26,174.37	$5,760.15	$370,766.21
7	$370,766.21	$25,757.97	$6,176.55	$364,589.66
8	$364,589.66	$25,311.46	$6,623.06	$357,966.60
9	$357,966.60	$24,832.68	$7,101.84	$350,864.76
10	$350,864.76	$24,319.29	$7,615.23	$343,249.53
11	$343,249.53	$23,768.78	$8,165.74	$335,083.80
12	$335,083.80	$23,178.48	$8,756.04	$326,327.76
13	$326,327.76	$22,545.51	$9,389.01	$316,938.75
14	$316,938.75	$21,866.78	$10,067.74	$306,871.01
15	$306,871.01	$21,138.98	$10,795.54	$296,075.46
16	$296,075.46	$20,358.57	$11,575.95	$284,499.51
17	$284,499.51	$19,521.74	$12,412.78	$272,086.73
18	$272,086.73	$18,624.42	$13,310.10	$258,776.63
19	$258,776.63	$17,662.23	$14,272.29	$244,504.35
20	$244,504.35	$16,630.49	$15,304.03	$229,200.31
21	$229,200.31	$15,524.16	$16,410.36	$212,789.95
22	$212,789.95	$14,337.85	$17,596.67	$195,193.28
23	$195,193.28	$13,065.79	$18,868.73	$176,324.55
24	$176,324.55	$11,701.76	$20,232.76	$156,091.79
25	$156,091.79	$10,239.14	$21,695.38	$134,396.41
26	$134,396.41	$8,670.78	$23,263.74	$111,132.66
27	$111,132.66	$6,989.04	$24,945.48	$86,187.18
28	$86,187.18	$5,185.73	$26,748.79	$59,438.39
29	$59,438.39	$3,252.05	$28,682.47	$30,755.92
30	$30,755.92	$1,178.60	$30,755.92	$0.00

What Is Required to Get a $400K Mortgage?

Getting a $400K mortgage usually requires sufficient income and a large enough down payment. The average down payment is 18% (and the median is just 9% for first-time buyers). If your income is on the low end, you might be able to make up for it with a larger down payment. Likewise, having a higher income may help if your down payment is small.

It may help to use a housing affordability calculator. This will give you a rough estimate of what you can afford based on your income, monthly expenses, and your down payment.

Your credit score can also be important when applying for a $400K mortgage. Credit scores help lenders determine how likely you are to repay your debts. Thus, a higher credit score can increase your approval odds. There is no definite rule, but a credit score of at least 620 can help when applying for a conventional loan. If you want to learn more about this process, there are mortgage resources that can help.

“If you have multiple debts, you want to make your minimum payments so you don’t hurt your credit score,” Kendall Meade, a Certified Financial Planner at SoFi said. “If you have cash left over after that, you should develop a strategy for which debts to pay off first,” she suggested.

How Much House Can You Afford Quiz

The Takeaway

Buying a home is the largest purchase most Americans make in their lifetime. Many costs come with buying a home, including upfront costs like a down payment and ongoing costs like monthly mortgage payments. Your mortgage payment is likely to be the largest monthly expense you have, and it can vary widely depending on the APR and mortgage term. On a $400,000 mortgage, the monthly payment could range from $2,147 to $4,057, as you can see above.

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 house can I afford on a $120,000 salary?

How much house you can afford depends on several factors, and salary is just one of them. You must also consider your mortgage interest rate, down payment, and other debts. If you have saved $25,000 for a down payment, have an interest rate of 7.12%, and pay $1,225 per month on debt (not including rent), you may be able to afford a home up to about $441,000.

How do you calculate monthly mortgage payments?

To calculate monthly mortgage payments, you must know the loan amount, interest rate, and loan term. The easiest way to calculate your payment is to plug these numbers into an online mortgage calculator.

What is the average total monthly mortgage payment?

The national median monthly mortgage payment in the United States is $2,211 as of May 2026, according to the Mortgage Bankers Association.

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Photo credit: iStock/MihailDechev

*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.

⁺Lock and Look program: Terms and conditions apply. Applies to conforming, FHA, and VA purchase loans only. Rate will lock for 91 calendar days at the time of pre-approval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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.

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

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.

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

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