Inexpensive Ways to Refresh Your Home Room by Room

Home Office Tax Deductions: Do You Qualify?

Millions of employees work from home at least part time. They’ve carved out dedicated office space and plopped laptops on kitchen counters and in closets. They almost never can declare the home office tax deduction.

Millions of self-employed people also have created workspace at home. If they use that part of their home exclusively and regularly for conducting business, and the home is the principal place of business, they may be able to deduct business expenses.

Why the difference? The Tax Cuts and Jobs Act nearly doubled the standard deduction and eliminated many itemized deductions, including unreimbursed employee expenses, from 2018 to 2025.

What Is a Home Office Tax Deduction?

The home office tax deduction is available to self-employed people — independent contractors, sole proprietors, members of a business partnership, freelancers, and gig workers who require an office — who use part of their home, owned or rented, as a place of work regularly and exclusively.

“Home” can be a house, condo, apartment, mobile home, boat, or similar property, and includes structures on the property like an unattached garage, studio, barn, or greenhouse.

Eligible taxpayers can take a simplified deduction of up to $1,500 or go the detailed route and deduct office furniture, homeowners or renters insurance, internet, utilities needed for the business, repairs, and maintenance that affect the office, home depreciation, rent, mortgage interest, and many other things from taxable income.

After all, reducing taxable income is particularly important for the highly taxed self-employed (viewed by the IRS as both employee and employer.)

An employee who also has a side gig — like driving for Uber or dog walking — can deduct certain expenses from their self-employment income if they run the business out of their home.

Am I Eligible for a Home Office Deduction?

People who receive a W-2 form from their employer almost never qualify.

In general, a self-employed person who receives one or more IRS 1099 tax forms may take the home office tax deduction.

Both of these must apply:

•   You use the business part of your home exclusively and regularly for business purposes.

•   The business part of your home is your main place of business; the place where you deal with patients or customers in the normal course of your business; or a structure not attached to the home that you use in connection with your business.

Regular and Exclusive Use

You must use a portion of the home for business needs on a regular basis. The real trick is to meet the IRS standard for the exclusive use of a home office. An at-home worker may spend nine hours a day, five days a week in a home office, yet is not supposed to take the home office deduction if the space is shared with a spouse or doubles as a gym or a child’s homework spot.

There are two exceptions to the IRS exclusive-use rules for home businesses.

•   Daycare providers. Individuals offering daycare from home likely qualify for the home office tax deduction. Part of the home is used as a daycare facility for children, people with physical or mental disabilities, or people who are 65 and older. (If you run a daycare, your business-use percentage must be reduced because the space is available for personal use part of the time.)

•   Storage of business products. If a home-based businessperson uses a portion of the home to store inventory or product samples, it’s OK to use that area for personal use as well. The home must be the only fixed location of the business or trade.

Principal Place of Business

Part of your home may qualify as your principal place of business “if you use it for the administrative or management activities of your trade or business and have no other fixed location where you conduct substantial administrative or management activities for that trade or business,” the IRS says.

Can You Qualify for a Home Office Deduction as an Employee?

Employees may only take the deduction if they maintain a home office for the “convenience of their employer,” meaning the home office is a condition of employment, necessary for the employer’s business to function, or needed to allow the employee to perform their duties.

Because your home must be your principal place of business in order to take the home office deduction, most employees who work part-time at home won’t qualify.

Can I Run More Than One Business in the Same Space?

If you have more than one Schedule C business, you can claim the same home office space, but you’ll have to split the expenses between the businesses. You cannot deduct the home office expenses multiple times.

How to Calculate the Home Office Tax Deduction

The deduction is most commonly based on square footage or the percentage of a home used as the home office.

The Simplified Method

If your office is 300 square feet or under, Uncle Sam allows you to deduct $5 per square foot, up to 300 square feet, for a maximum $1,500 tax deduction.

The Real Expense Method

The regular method looks at the percentage of the home used for business purposes. If your home office is 480 square feet and the home has 2,400 square feet, the percentage used for the home office tax deduction is 20%.

You may deduct 20% of indirect business expenses like utilities, cellphone, cable, homeowners or renters insurance, property tax, HOA fees, and cleaning service.

Direct expenses for the home office, such as painting, furniture, office supplies, and repairs, are 100% deductible.

Things to Look Out for Before Applying for the Home Office Tax Deduction

If you’re an employee with side gigs or just self-employed, it might be a good idea to consult a tax pro when filing.

To avoid raising red flags, you may want to make sure your business expenses are reasonable, accurate, and well documented. The IRS uses both automated and manual methods of examining self-employed workers’ tax returns. And in 2020, the agency created a Fraud Enforcement Office, part of its Small Business/Self-Employed Division. Among the filers in its sights are self-employed people.

The IRS conducts audits by mail or in-person to review records. The interview may be at an IRS office or at the tax filer’s home.

A final note: Taking all the deductions you’re entitled to and being informed about the different types of taxes is smart.

If you’re self-employed, you generally must pay a Social Security and Medicare tax of 15.3% of net earnings. Wage-earners pay 7.65% of gross income into Social Security and Medicare via payroll-tax withholding, matched by the employer.

So self-employed people often feel the burn at tax time. It’s smart to look for deductions and write off those home business expenses if you’re able to.

To shelter income and invest for retirement, you might want to set up a SEP IRA if you’re a self-employed professional with no employees.

Recommended: First-Time Homebuyers Guide

The Takeaway

If you’re self-employed, the home office deduction can be helpful at tax time. If you’re an employee working remotely, the home office tax deduction is not for you, right now, anyway.

Whether you’re a remote employee or a sole proprietor, a big home office might sound good — in your first home or a different home.

Maybe you’re looking for a single-family home, condo, townhouse, or investment property. SoFi finances all of them. Watching mortgages? Know that SoFi’s are competitive.

It’s quick and easy to check your rate.

FAQ

How much can I get written off for my home office?

Using the simplified method of calculating the home office deduction, up to $1,500. Using the original method, whatever you calculate as direct expenses and as indirect expenses as a percentage of your whole home.

If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses. If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.

Can I make a claim for a home office tax deduction without receipts?

The simplified method does not require detailed records of expenses. If using the regular method, you should be prepared to defend your deduction in the event of an IRS audit.

The IRS says the law requires you to keep all records you used to prepare your tax return for at least three years from the date the return was filed.

What qualifies as a home office deduction?

Things like insurance, utilities, repairs, maintenance, equipment, and rent qualify as tax deductions.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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

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

What Is a Mortgage Payoff Statement or Letter? All You Need to Know

You might request a mortgage payoff statement if you’re thinking about refinancing or paying off your mortgage early. It is different from your current balance because it includes interest owed until the payoff date and any fees due.

Here’s a look at what a mortgage payoff statement, or letter, is and when you might need one.

What Is a Mortgage Payoff Statement?

Starting with mortgage basics, a mortgage is a loan used to purchase different types of real estate, including a primary home. A bank or other lender agrees to lend money, which the borrower commits to pay back monthly for a set period of time and with interest.

The different types of mortgage loans include conventional and government-insured mortgages and reverse mortgages.

There are jumbo loans, which exceed the dollar limits set by the Federal Housing Finance Agency, and home equity loans.

Let’s say you have a mortgage and want to know exactly how much you’d need to pay to satisfy the loan. A mortgage payoff letter will tell you. Unlike your current balance, the payoff amount includes interest owed up to the day you intend to pay off the loan. It may also include fees that you’re on the hook for and haven’t paid yet.

Your monthly mortgage statement only shows your loan balance and the amount due for your next monthly payment.

How Does a Mortgage Payoff Statement Work?

You can request a payoff statement from your loan servicer at any time. Note: Your mortgage servicer may be different from your lender. The company that manages your loan handles billing, accepts loan payments, keeps track of your principal and interest, and fields questions from borrowers.

You may request a payoff statement for any type of loan, including mortgages, student loans, personal loans, and auto loans. However, if you need your mortgage payoff statement, go to your mortgage servicer directly. The name and contact information of your mortgage servicer is included in your monthly statements.

When you make the request, you’ll need to provide your name, address, and phone number, as well as your loan number and the date you want your payoff to be effective if you’re seeking to pay off your mortgage early.

Asking for a payoff statement does not necessarily mean that you intend to pay off your loan immediately. You may simply be determining whether or not paying off your mortgage early is feasible, for example. The request itself does not initiate the prepayment process.

Traditional lenders, such as banks, may mail you a paper mortgage payoff statement. Online lenders may send a payoff statement online.

What Information Do Mortgage Payoff Letters Contain?

All mortgage payoff letters tend to contain similar information, including:

•   Payoff amount: The amount of money that would satisfy the loan.

•   Expiration date: The date through which the payoff amount is valid. The letter may also include an adjusted amount should you pay before or after the expiration date.

•   Payment information: The letter will tell you who to make the final check out to and where to mail it.

•   Additional charges: You will be alerted to any additional fees and charges that you’ll need to include.

Do You Need a Mortgage Payoff Statement?

There are a few common situations in which you might need a payoff statement.

•   Refinancing a mortgage: When you refinance your mortgage, your chosen lender pays off your old home loan with a new one, preferably with a lower interest rate and possibly a new term. When you seek to refinance, your new lender may ask you to provide a payoff statement on your current loan.

•   Prepaying a mortgage: It’s possible to pay off a mortgage early. A payoff statement will show you exactly how much you’d need to pay to do so. Most prepayment penalties for residential home loans that originated after Jan. 10, 2014, are prohibited. Still, check before you decide to prepay.

•   Working with a debt relief company: If you’re having trouble managing your debts, you’ve fallen behind on payments, or you otherwise need mortgage relief, you may choose to work with a debt relief company that can help negotiate with your lenders. The company will need to see payoff statements to get an idea of the scope of your debt.

•   Collections and liens: A lender might send you a payoff statement if you’ve fallen behind on your payments and they are sending your debt to collections. In this case, the payoff statement may tell you how much you need to pay to stop the collection action.

   If your lender decides to seize your home to recoup unpaid mortgage payments, they may place a lien on the property. They may send a payoff statement that alerts you that your property will be seized if the specified amount isn’t paid in full.

There are other ways to figure out how much you owe on your mortgage loan. You can talk to your lender and ask for a verbal payoff quote. This will provide an estimate, but understand that it is not a legal agreement and isn’t binding.

The Takeaway

If you have a home loan, you may want to request a mortgage payoff statement, especially if you’re thinking about refinancing or paying off your mortgage early. Requesting the mortgage payoff letter does not initiate any formal processes, so it’s fine to think of it as an information-gathering exercise.

Speaking of information gathering, head to SoFi’s home loan help center for a wealth of mortgage-related topics.

Are you shopping for a mortgage or looking for a refinance? SoFi offers both.

A good first step is to find your rate by visiting SoFi Mortgages.

FAQ

How do I get my mortgage payoff statement?

Contact your loan servicer to request your mortgage payoff statement.

When should I get my mortgage payoff statement?

Request your mortgage payoff statement when planning to prepay your mortgage, refinance, or consolidate debt.

How long does it take to get a mortgage payoff statement?

Generally speaking, you should receive your mortgage payoff statement within seven business days of your request.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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

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

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Building Generational Wealth Through Homeownership

How Homeownership Can Help Build Generational Wealth

One of the tried and true ways to build wealth and financial stability is by buying real estate, which appreciates over the long term and may provide cash flow.

Owning your own home not only affords you a place where you enjoy living, but it will likely turn out to be a good investment, one that can help build generational wealth in your family.

What Is Considered Generational Wealth?

Generational wealth refers to assets passed on from one generation to another within the same family. Assets is a broad term that includes cash; stocks, bonds and other securities; a family business; and real estate, including the family home.

Because of the high rates of appreciation in the past several decades, real estate can be one of the most valuable assets passed down from one generation to another.

How Does Homeownership Build Wealth?

Homeownership can help build wealth directly through price appreciation. When the value of a home rises, owners are able to sell for that higher price, sometimes moving into a new, larger home. For homeowners who aren’t selling, price appreciation adds to their home equity and overall financial assets.

Of course, if home values decline, as they did in the 2007-2009 Great Recession, the opposite can happen and owners may find they owe more than the home is worth. But real estate has proved to be one of the most reliable assets in the long term.

The bottom line: A person’s home is often their largest financial asset, the benefits of which are often passed on to the next generation.

Good to know if you’re just getting started: A first-time homebuyer can be anyone who has not owned a principal residence in the past three years, some single parents, and others.

Recommended: First-Time Homebuyers Guide

Direct and Indirect Building of Wealth

Inheritance

Inheriting appreciated capital assets like real estate, stocks, bonds, ETFs, cryptocurrency, or a small business has a big tax benefit, thanks to the “step-up in basis.” The value of the inherited asset is “stepped up” to the fair market value on the date the original owner dies.

If the heir sells the property, the step-up in basis will greatly reduce capital gains taxes due or make them moot if there is no gain. Any capital gain from the sale of inherited property is considered long-term. Current long-term capital gains taxes are 0%, 15%, or 20%, depending on your income and filing status.

For married couples, the death of one spouse results in a partial step-up in most states, but here’s a simplified example. Let’s say you inherit your grandmother’s home, purchased in 1940 for $10,000. The home is valued at $450,000 on the date of her death, which is the stepped-up basis. If you sell the home for $450,000, you’ll pay no capital gains tax. If you sell for a higher sum, capital gains tax will apply only to the amount over $450,000.

Imagine using the stepped-up basis provision over more than one generation of a family. An heir could sell a phenomenally appreciated asset and pay a minimal amount in capital gains tax or none at all, as long as the asset was included in the decedent’s estate.

Recommended: What to Do With Inherited Money

Indirect Benefits

Heirs of homeowners may well inherit the actual real estate, but generational wealth can also be more indirect. Homeowners are often more financially secure than renters, passing that security on to children.

Homeowners are able to borrow against the equity to improve the home (and often boost its value) or take care of other financial needs.

In addition, many homeowners are located in districts with high-performing schools, enhancing overall opportunities for their children.

Down the line, the equity in a home can help finance retirement and health care needs, shielding adult children from that financial burden. All of these factors can positively affect the next generation and add to their wealth.

How Discrimination Can Affect Generational Wealth

When housing discrimination occurs, it can keep people of color, women, and families with children, immigrants, and people with disabilities from living in the place they want. Importantly, it can also have a serious impact on generational wealth.

Considering the following census statistics from the fourth quarter of 2021:

The homeownership rate for non-Hispanic white households overwhelmingly led the pack, at 74.4%. Asian, Native Hawaiian, and Pacific Islander families came a distant second, at 61.2%. Hispanic families of any race had only a 48.4% homeownership rate, and African American households logged in at 43.1%, the same rate as in 1970.

A number of factors have contributed to the race gap in homeownership; not the least is the legacy of race-based discrimination in the housing market.

When homeownership lags among a certain group because of housing discrimination, so does the possibility for generational wealth.

Understanding Home Appreciation and Home Equity

To understand how homeownership can build wealth, it’s important to understand the concepts of home appreciation rates and home equity. The increase in the value of a home over time is known as appreciation or the appreciation rate.

Home equity is the property value minus the outstanding balance of mortgages, liens, or other debt on the property.

Your first contribution to home equity is your down payment.

In addition, every time you make a monthly mortgage payment, you are paying down the amount you owe and slowly paying part of the principal on your loan, which builds equity. Price appreciation and home improvements can also add to home equity.

Most people purchase real estate with the expectation that their home will increase in value over time. But many things come into play when it comes to home appreciation and the amount of home equity you can build. Some you can control and some you can’t. Let’s take a closer look.

Recommended: How Much Is a Down Payment on a House?

The Economy

Housing prices can be affected by several economic indicators. When a recession hits, unemployment rises, or inflation jumps, the real estate market often declines.

Interest rates are also vitally important. Low mortgage interest rates can fuel demand, which can increase home prices in many areas. Conversely, a rise in mortgage rates can have a cooling effect on buyer demand.

The correlation between the housing markets and the rest of the economy can be surprising at times. During the initial stages of the pandemic, when economic indicators were showing signs of trouble, the nation saw a giant rise in home prices. This was particularly true in rural and suburban areas as urban dwellers sought more room and fewer crowds.

Recommended: How Rising Inflation Affects Mortgage Interest Rates

Laws and Regulations

Federal legislation can have a big effect on the U.S. housing market. Government tax credits, deductions, and subsidies aimed at certain homeowners can fuel the housing markets.

Local policies and regulations can also affect housing appreciation. Local investments in infrastructure or new schools and parks can increase your home’s value. Local zoning laws can also have an effect, positive or negative.

Home Improvements

This encompasses everything from an extensive addition to a fresh coat of paint. All kinds of improvements can add to the resale value of your home and, importantly, enhance your life while you’re living there.

Whether you decide to remodel a kitchen, a bathroom, or a remodel a living room, updated appliances and décor and energy-efficient improvements are often valuable upgrades.

To fund them, some homeowners use home improvement loans.

Is Homeownership a Smart Investment?

The answer to that question isn’t always straightforward. First, your home is the place where you live, of course, and hopefully you derive happiness from that. In that sense, the costs associated with your home and your mortgage payment can be considered living expenses, not necessarily an investment.

On the other hand, appreciation and home equity can be seen as the return on your investment in your home.

The sweet spot is often a combination of the two: a lovely place to live and a profitable investment.

Still, homeowners’ net worth far outpaces renters’. Every three years, the Federal Reserve issues the Survey of Consumer Finances, which compares the net worth of homeowners and renters. The latest report shows that homeowners had a median net worth of $255,000; renters, $6,300.

Keeping your expectations realistic can effectively put your home value into the context of your overall financial wellness and estate planning. To do that, you may need to keep in mind the total costs of owning and maintaining real estate. Too often people subtract their purchase price from the expected sale price and figure the difference is the return on investment. But there are many more costs involved in homeownership.

To calculate your true return, you’ll want to add up your down payment, closing costs, mortgage points, any mortgage insurance, maintenance, improvements, total mortgage payments, taxes, any homeowners association fees, and estimated selling costs. That total is the number you want to compare against home appreciation to determine your actual return.

The Takeaway

How does homeownership build generational wealth? In direct and indirect ways. Buying real estate can build a foundation for a family for a generation and beyond.

If you’re a first-time homebuyer, SoFi may allow a down payment as low as 3%. Others may put 5% down.

SoFi offers a range of fixed-rate mortgages that can help you unlock the door to homeownership and build a legacy.

SoFi also finances second homes and investment properties.

Find your rate today.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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

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

Photo credit: iStock/Capuski
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Should I Lock My Mortgage Rate Today?

Should I Lock My Mortgage Rate Today?

When applying for a mortgage, you have some control over the mortgage rate, as lenders will consider your credit score, income, and assets to determine your risk as a borrower. On the other hand, mortgage rates change daily based on external economic factors like investment activity and inflation.

If you’re in the midst of the home-buying process and want to secure your rate, you may be able to do so with a mortgage rate lock.

A small change in rates can lead to thousands in savings or additional costs over the life of a mortgage. Given this volatility, you may be wondering, “Should I lock my mortgage rate today?”

Read on to learn how a mortgage rate lock works and the potential benefits and consequences of using this approach.

What Is a Mortgage Rate Lock?

A mortgage rate lock is an agreement between a borrower and lender to secure an interest rate on a mortgage for a set period of time. Locking in your mortgage rate safeguards you from market fluctuations while the lender underwrites and processes your loan.

Interest rates can rise and fall significantly between mortgage pre-approval and closing on a property.

Remember that in the home-buying process, when you’re pre-approved for a mortgage, you will know exactly how much you most likely can borrow, and then you can shop for a home in that range.

So when can you lock in a mortgage rate? Depending on the lender, you may have the option to lock in the rate any time between pre-approval and when underwriting begins.

Before pre-approval and locking in, it’s recommended to get multiple offers when shopping for a mortgage to find a competitive rate.

How a Mortgage Rate Lock Works

Mortgage rate locks are more complicated than simply securing a set rate in perpetuity. How the rate lock works in practice will vary among lenders, loan terms, different types of mortgages, and geographic locations.

Once you lock a mortgage rate, there are three possible scenarios: Interest rates will increase, decrease, or stay the same. The ideal outcome is securing a lower rate than the prevailing market interest rate at the time of closing.

So how long can you lock in a mortgage rate ahead of closing? When you choose to lock in your rate, it’s stabilized for a set period of time — often 30, 45, or 60 days — though shorter and longer periods may be available based on the lender.

If the rate lock expires before closing on the property, the ability to extend is subject to the lender.

According to the Ellie Mae Origination Insight Report, it took around 50 days on average to close all loan types in 2021, underscoring the importance of timing a mortgage rate lock with your expected closing date. Otherwise, you could face fees for extending the rate lock or have to settle for a new, potentially higher rate.

Whether borrowers are charged for a rate lock depends on the lender. It could be baked into the cost of the offer or tacked on as a flat fee or percentage of the loan amount. The longer the lock period, the higher the fees, generally speaking.

Lenders have the discretion to void the rate lock and change your rate based on your personal financial situation. Say you take out a new line of credit to cover an emergency expense during the mortgage underwriting process. This could affect your credit and debt-to-income ratio, causing the lender to reevaluate your eligibility for the offered rate and financing.

Lenders also determine the mortgage rate based on the types of houses a borrower is looking at: A primary residence vs. a vacation home or investment property, for example, would influence the interest rate.

Recommended: A Guide to Buying a Duplex

Consequences of Not Locking in Your Mortgage Rate

There are risks to not locking in a mortgage rate before closing.

If you don’t lock in a rate, it can change at any time. An uptick in interest rates would translate to a higher monthly mortgage payment. While a slight bump to your monthly payment may not require mortgage relief, it could cost thousands over time.

For example, the monthly payment on a $300,000 loan at a 30-year fixed rate would go up by $88 if the interest rate increased from 4% to 4.5%. This would add up to an extra $31,611 in interest paid over the life of the loan.

You can use a mortgage calculator tool to see how much a rise in rates could affect your mortgage payment.

Furthermore, a higher monthly payment might potentially disqualify you from financing, depending on the impact on your debt-to-income ratio. After a jump in interest rates, borrowers may need to make a larger down payment or buy mortgage points upfront to obtain financing.

Even if you lock in a mortgage rate early on, you could face these consequences if it expires before closing. Deciding when to lock in a mortgage rate should account for any potential contingencies that could delay the process.

If you’re unsure, ask your lender when you should lock in.

What to Do if Interest Rates Fall After Your Rate Lock

The main concern with mortgage rate locks is that you could miss out on a lower rate. In most cases, buyers will pay the rate they are locked in at if the prevailing interest rate is less.

A float-down option, however, protects you from rate increases while letting you switch to the lower interest rate at closing.

Float-down policies vary by lender but generally cost more than a conventional rate lock for the added flexibility and assurance. It’s also possible that a float-down option won’t be triggered unless a certain threshold is met for the drop in rates.

It’s worth noting that borrowers aren’t committed to the lender until closing, so reapplying elsewhere is an option if rates change considerably.

Pros and Cons of Mortgage Rate Lock

Back to the big question: Should I lock my mortgage rate today? It’s important to weigh the pros and cons to decide when to lock in a mortgage rate.

Pros

Cons

Locking in a rate you can afford lessens stress during the closing process A rate lock might prevent you from getting a better deal if rates fall later on
You could save money on interest if you lock in before rates go up If a rate lock expires, you may have to pay for an extension or get stuck with a potentially higher rate
Lenders may offer a short-term rate lock for free, providing a window to close the deal if rates spike but an opportunity to wait it out if they drop

The Takeaway

A favorable interest rate can make a difference in your home-buying budget. But when to lock in? It’s important to choose a lock period that gives the lender ample time to process the loan to avoid extra fees or a potentially higher rate.

Buying a home is a major financial and life decision. Check out SoFi’s help center for mortgages for resources and tips about the home-buying process.

Are you in the market for a mortgage? SoFi offers mortgage loans with competitive rates and flexible terms.

Find your rate in minutes.

FAQ

How long does a rate lock period last?

Rate locks usually span 30 to 60 days, but can be shorter or longer depending on the agreement. It’s not uncommon for lenders to offer a free rate lock for a designated time frame.

Should you use a mortgage rate “float-down”?

If you’re worried about missing out on low interest rates, a mortgage rate float-down option could let you secure the current rate with the option to take a lower one if rates drop. Take note that these agreements usually outline a specified period and minimum amount the rate must drop to activate the float-down.

How much does a rate lock cost?

Lenders don’t always charge for a rate lock. If they do, you can expect costs to range from 0.25% to 0.50% for a 60-day lock period. A longer lock period or adding a float-down option typically increases the rate lock cost.

What happens if my rate lock expires?

If your rate lock expires before you’ve finalized the deal, you can choose to extend the lock period (usually for a fee) or take the prevailing rate when you close on the loan.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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

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

Photo credit: iStock/Vertigo3d
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Can You Get a Home Loan While on Maternity Leave?

Can You Get a Home Loan on Maternity Leave?

Yes, it’s possible. Say you got pre-approved for a mortgage and now you’ve started maternity leave. Your lender will verify your “temporary leave income,” if any, your regular income, and your agreed-upon date of return.

While you focus on honing your mad parenting skills, the lender cares only about your income, assets, and liabilities — as at any other time. Anyone on a standard temporary leave is considered employed, whether the absence is paid or unpaid.

A lender may approve the mortgage if your employer verifies in writing that you will return to your previous position or a similar one after your maternity leave.

Buying a House While Pregnant

Hey, why not take on two of the biggest life stressors at once? Sometimes it just happens this way, with parents preparing for a baby and a new home and mortgage.

If the move can’t be avoided because of a job relocation or other circumstances, it may be important to find a home before baby arrives. However, if it can wait, it may lead to less stress overall during the pregnancy. Plus, the added pressure of a deadline may lead to hasty decision-making that buyers could regret.

Saving for a down payment could interfere with goals like saving for a child’s college tuition.

And unless an employer is covering moving expenses, add that sizable cost to all the rest.

However, there are benefits to buying a house while pregnant, as the relocation could lead to a better school district or area to raise a child.

Ultimately, the decision to buy a house while pregnant is personal.

What Is the FMLA?

The Family and Medical Leave Act gives eligible employees job protection and up to 12 weeks of unpaid leave a year in the event of:

•   Childbirth

•   Adoption or foster child care

•   Care for a spouse, child, or parent with a serious health condition

•   A personal serious health condition

•   Qualifying exigencies arising from covered active duty or “call to covered active duty status”

The FMLA guarantees that the employee can return to their job or an equivalent one and that they’ll receive health care benefits during their leave.

Employees are eligible if they work for a company that has 50 or more staffers and have completed at least 1,250 hours of work in the previous year.

In addition to the FMLA’s 12 unpaid weeks off, more and more states are enacting paid family leave laws. And your employer may cover your pregnancy, childbirth, and recovery thanks to short-term disability insurance. Your benefit would be a percentage of your normal earnings.

Recommended: How Much Does it Cost to Adopt a Child?

How Maternity Leave Impacts a Mortgage

Before diving into the nuances of maternity leave and its impact on qualifying for a mortgage, let’s take a refresher on the home buying process.

Mortgage approval from a lender primarily hinges on two factors:

•   Creditworthiness. How likely is the borrower to pay back the loan, based on their credit history?

•   Ability to pay. Does the borrower generate enough income, and have a certain debt-to-income ratio, to make the monthly mortgage payments?

The lender may contact an employer to verify a borrower’s employment status and income.

Why could getting loans for pregnant mothers prove a challenge? Income.

As long as the lender can verify that the borrower is employed — and remember, someone on temporary leave is considered employed — and generates enough income to cover the mortgage, that could be enough. Expectant borrowers aren’t legally required to disclose their pregnancy to a lender. However, the employer can tell the lender about impending maternity leave when they call to verify employment status.

If a borrower is going on unpaid leave, they may need to disclose it to the lender. That’s because the period without pay may qualify as a financial hardship, which a borrower is required to inform a lender of.

But the lender can’t assume the mother-to-be won’t return to work after maternity leave. Lenders consider that the mother will return to work after maternity leave and continue bringing home paychecks.

Before approval, the lender will ask the borrower for written notice of her intent to return to work, and may ask for an expected return date. The lender may request a tax slip from the last calendar year if the borrower is a salaried employee.

The lender will also consider the timing of the first payment.

According to Fannie Mae and the Department of Housing and Urban Development, if the borrower will have returned to work when the first mortgage payment is due, the lender can consider regular income in qualifying for the mortgage.

If the borrower will return to work after the first mortgage payment due date, the lender must use the borrower’s temporary leave income (if any) or regular employment income, whichever is less, and then may add available liquid financial reserves.

Recommended: First-Time Homebuyers Guide

Should I Buy a Home While on Maternity Leave?

For those who qualify for a mortgage while on maternity leave, the question is, “Should I buy a house while on maternity leave?” not “Can I buy a house while on maternity leave?”

As mentioned, moving can be an incredibly stressful process, pregnancy or no pregnancy. And even if you made a budget for a baby, life has a way of throwing in surprises.

Homeownership can also come with financial surprises. In one survey, 77% of homeowners reported paying for an unexpected repair within the first year.

Having a child and buying a home both require saving some significant cash. By budgeting, doing the two simultaneously is possible.

Does it make more sense, though, to apply for a mortgage before even conceiving a child or to have a baby and apply after you and your partner have gone back to work? Only you can answer that.

Not taking the double plunge could give you time to review what you need to buy a house.

Home Loans With SoFi

Buying a house while pregnant sounds charming and … laborious. Pregnancy is not a legal limiting factor in a mortgage lender’s eyes, but getting a home loan while on maternity leave will depend on your income, savings, work return date, and credit history.

Whether you’re on a temporary leave or not, take a look at home loans with SoFi. SoFi offers a range of fixed-rate mortgages with as little as 3% down for qualified first-time homebuyers.

Find your rate in minutes, with no obligation.

FAQ

Does being on maternity leave affect getting a mortgage?

It can, but only in the sense that maternity leave can affect a homebuyer’s reported income. If buyers anticipate an unpaid maternity leave, they may need a sizable savings account.

Should you buy a home on maternity leave?

Buying a home while on maternity leave depends on your family’s needs and finances. But moving can be stressful, and adding infant care can be a lot to handle.

Who does FMLA cover?

The Family and Medical Leave Act provides 12 weeks of unpaid, job-protected leave per year for eligible employees in the case of the birth or adoption of a child or placement of a foster child, and for other reasons.

The employee must have worked for the employer for at least 12 months, have at least 1,250 hours of service in the 12 months before taking the leave, and work at a location where the employer has at least 50 workers within 75 miles of the employee’s worksite.

Then there’s the Federal Fair Housing Act, which prohibits discrimination in a residential real estate lending transaction if an applicant is pregnant or on maternity leave.

A mortgage lender cannot delay closing a loan until the woman returns to work. Temporary leave still means “employed.”

A lender is not permitted to ask whether you are pregnant. If you’re not on temporary leave, the lender cannot ask if you intend to take leave.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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

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

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