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No matter which side of the home-buying process you’re on, it’s important to understand all the real estate terms and documents you’ll come across.

While you may be familiar with mortgages and contracts, one document that tends to be greeted with uncertainty is the house deed.

What is a house deed? Does it prove that you own your house? This guide will explain what a house deed is, why you may need one, and the role it plays in the home buying and -selling process.

What Is a House Deed and Why Do I Need One?

A house deed, sometimes referred to as a property deed, is a written and signed legal document used to transfer ownership of real property. Real property is land and any property attached directly to it, like a house.

In other words, a house deed is very important to the buying and selling process.

In fact, a home transaction can’t take place without a deed. It’s one of the things you need to buy a house. Both the buyer and seller of a property must sign the document for a transfer of ownership to take place. Every state requires that this be done in front of a notary and, in some states, before other signature witnesses as well.

Is a House Deed Different From a Title?

Though the two terms are often used interchangeably, a house deed and a title are very different.

It’s often assumed that a title refers to a document, but it’s actually more of a concept referring to your legal ownership of a home. A title grants you ownership rights, including possession, control, exclusion, enjoyment, and disposition.

Put simply, a title refers to your ownership of the property, your ability to use your property as you please, to choose who enters your property, to enjoy your property as you see fit, and to decide when and to whom you transfer ownership of your property to.

But because you can’t transfer a concept, a physical document is needed to symbolize and confirm a change in ownership. This is where a house deed comes into play. Closings can take time, but without a deed they can’t happen at all.

What Is On a House Deed?

Deed requirements vary by state. But generally speaking, a house deed should include:

•   Description of the attached property.
•   Details of the grantors (sellers).
•   Details of the grantees (buyers).

Once all parties are in agreement, a deed should also include the signatures of both grantors and grantees. The deed must then be delivered to the grantee by handing the document over and accepted.

Recommended: How to Get a Mortgage

Types of House Deeds

There are different types of house deeds to be aware of. They offer different benefits, and even a few risks, to buyers and sellers.

Here’s what you need to know about the most common types.

General Warranty Deed

A general warranty deed is designed to offer premium protection to the grantee (buyer). This type of deed involves the grantor (seller) making covenants, or a series of legally binding promises, to the grantee.

Such promises could include what’s called the covenant of seisin. This covenant guarantees that the grantor is allowed by law to transfer the property in question. Another is the covenant of quiet enjoyment, which guarantees that the new owner will not be disturbed on their property, even if the grantor had a defective title, such as a previous lien or judgment.

Quitclaim Deed

Unlike a general warranty deed, a quitclaim deed is designed to offer maximum protection to the seller.

Also known as a non-warranty deed, this type of deed does not include covenants for the buyer. Should the seller unknowingly have a defective title, the buyer will have no legal recourse should the deed be challenged.

Special Purpose Deeds

Though not as common as general warranty or quitclaim deeds, there are several types of special purpose deeds you may come across, especially if a seller has someone acting on their behalf.

Similar to quitclaim deeds, there is often little protection for the buyer but in some situations, a special purpose deed is the only legal option. Special purpose deeds include:

•  Gift Deed. A gift deed is used to convey a real property title that is given for no consideration, or without money exchanging hands. In some states, there is a time limit to record a gift deed or it becomes void. And despite money not being exchanged, transfer, records, and/or gift taxes are sometimes still required.
•  Tax Deed. If a property has fallen to delinquent taxes, a tax deed will be issued for the property transfer.
•  Administrator’s Deed. If the seller passes away without a will, an administrator’s deed may be used by the appointed administrator of the estate.
•  Executor’s Deed. If a seller passes with a will, an executor’s deed may be used by the estate’s executor to transfer the property.
•  Sheriff’s Deed. When property is seized by public office, an execution sale often takes place. A sheriff’s deed is then provided to the winning bidder to complete the transfer.

Recommended: Guide to Buying, Selling, and Updating Your Home

Obtaining or Transferring a House Deed

As a buyer, you’re not responsible for tracking down a house deed (though it is a critical factor in your house-buying timeline). But if you’re selling or taking out a second mortgage on your home, you’ll have to locate the document before moving forward.

Luckily, you can track down a house deed with just a few simple steps.

1. Determine your jurisdiction. A search for a house deed should always start by looking up your county recorder’s website
2. Search the database. Once you’ve found the correct database according to the location of your property, search for the record of your house deed. You may need your property index number, but the address of your home may be enough to track it down.
3. Conduct an accuracy check. Assuming you find a record of your house deed, take a few minutes to ensure that it’s accurate. If you do spot an error, call the recorder’s office to determine how the issue can be resolved.
4. Request a copy. If everything with your house deed is accurate, you can request a copy from the recorder. You may need to submit proof of your identity or pay a fee for both the copy and certification. But once you’ve met all the criteria of the office, you’ll have a physical copy of your house deed.

If you’re struggling to track down your house deed, you always have the option of hiring a third party to handle the process for you.

Once you have the deed, you can start the transfer process. Because this is necessary in every home-buying transaction, your real estate agent should be able to walk you through the following steps.

1. Prepare the deed. Even if you’re not using a real estate agent, it’s a good idea to hire a real estate attorney to prepare the deed. An honest mistake on your part could void the transfer or lead to serious legal issues down the road.
2. Review the deed. Both parties should review the deed for any inaccuracies. This includes full legal names, addresses, and the description of property. No one should sign until both parties verify all information.
3. Sign the deed. Both parties need to sign in front of a notary. Check your state law or ask your lawyer to see if other witnesses are required.
4. Record the deed. A signed deed should be presented to the local county recorder’s office where it will be filed and stored in their database. Be prepared to pay any associated fees and taxes at this point.

The Takeaway

Though legal requirements can vary, and different house deeds provide unique protections for sellers and buyers, a house deed is generally one of the most important documents to know about in real estate.

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.

FAQ

What is the meaning of “deed to your house”?

The deed to your house is a written and signed legal document that authorizes the transfer of real property (land and what’s permanently attached to it, like a house). That means that the deed to your house is the document that shows that the property was legally sold to you and that you now own it.

Who holds the deed to my house?

If you are the homeowner, you hold the deed to your house. You own the property, even if you have a mortgage. If you can’t find the physical deed, your county recorder’s or clerk’s office may be able to send you a copy for a small fee.

What happens if I lose the deed to my house?

If you can’t find the deed to your house, call or go to the website of your county clerk’s or county recorder’s office. Your deed should have been recorded there and the office should be able to provide you with a copy, though you will likely need to pay a small fee to get it.

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.

SOHL-Q225-166

USDA loans are available for certain properties with no down payment required and possibly a lower interest rate than conventional loans. However, eligibility for USDA loans largely depends on borrower income and home location.

While the four letters USDA, may conjure up images of prime beef or grain crops, this particular usage refers to a program that can encourage homeownership for those with lower incomes in rural and some suburban areas. These mortgages may also help people buy and repair homes in need of updating.

Here, you’ll learn more about what these loans offer, how they work, and who qualifies for them.

Note: SoFi does not offer USDA mortgages at this time, but we do offer government-backed FHA and VA loans.

What Is a USDA Loan?

USDA loans offer a loan option with no down payment for certain qualifying buyers who plan to purchase property in rural or some suburban areas. These mortgages are guaranteed by a division of the USDA known as the USDA Rural Development Guaranteed Housing Loan Program.

While partner lenders typically issue the loans themselves, the fact that the government is taking on some of the risk of lending funds has a big benefit. It allows these loans to often offer a considerably lower rate than you’d find at a commercial lender.

To qualify for a USDA loan, you may have to earn below a specific income limit and buy in certain areas. You may also purchase a property in need of repair.

If you are eligible, another perk of these mortgages is that private mortgage insurance (PMI) is not required, which is another way they present an affordable option for some buyers.

How USDA Loan Programs Work

USDA Rural Development’s housing programs give individuals and families the opportunity to buy or build a rural single-family home with no money down, repair their existing home, or refinance their mortgage under certain circumstances.

The USDA promotes homeownership for low-income households and economic development in rural areas.

USDA loans are available to eligible first-time homebuyers and repeat buyers for primary residences.

USDA Loan Requirements

Here are more details on who qualifies for a USDA loan.

Single Family Housing Guaranteed Loan Program

This program is the one that most people think of when they hear about USDA loans.

The USDA guarantees 30-year fixed-rate loans originated by approved lenders so that people in households with low to moderate incomes can buy homes in eligible rural areas. (You’ll need to search with an exact address.)

The income threshold is defined as no more than 115% of area median household income. In other words, your household income can’t exceed the area median income by more than 15%.

Buyers can finance 100% of a home purchase, get access to better-than-average mortgage rates, and pay a lower mortgage insurance rate.

That means no down payment, but borrowers still might want to look into down-payment assistance programs that also may help with closing costs.

A USDA loan can be used to purchase, renovate, or build a primary single-family home (no duplexes).

Single Family Housing Direct Home Loans

These subsidized loans, issued directly by the USDA, are available for homes in certain rural areas and for applicants with low and very low incomes.

The amount of the subsidy depends on the adjusted income of the family, and it reduces the family’s mortgage payment for a certain amount of time.

Adjusted income must be at or below what’s required for the geographical area where the house is located, and applicants must currently be without housing that’s considered safe, sanitary, and decent.

In addition, they must be unable to qualify for loans elsewhere; meet citizenship requirements (or eligible noncitizen ones); legally be allowed to take on a loan; and not be suspended from participating in federal programs.

The home itself must meet certain requirements for USDA loan eligibility. It must:

•   Typically have no more than 2,000 square feet

•   Not have an in-ground swimming pool

•   Not have a market value that exceeds the loan limit for the area

•   Not be used to earn income from the home.

Typically no down payment is required, although borrowers who have more assets than are allowed may need to use part of them toward the purchase. The rate is fixed and, when taking payment assistance into account, could be as low as 1%. The repayment term can be up to 33 years, or 38 years for applicants with very low income.

Funds can be used to purchase, build, repair, or renovate a single-family home. Once the title is out of the borrowers’ names or they no longer live in the house, they must repay part or all of the subsidies received.

Apply directly with your state Rural Development office .

This online eligibility tool can help potential borrowers see if they might qualify.

Single Family Housing Repair Loans and Grants

This program, also called the Section 504 Home Repair Program, is for homeowners with very low incomes who need a loan to improve, repair, or modernize their homes.

The program also offers grants if the applicants are 62 or older with very low incomes, and the money will be used to remove hazards to health and safety. The borrower must own the home and live in it. Prospective homeowners must not be able to find affordable credit through other venues.

Current limits on both the loans and the grants are as follows:

•   Maximum loan amount: $40,000

•   Maximum grant amount: $10,000

•   Maximum per person: $50,000, if they qualify for both the loan and grant

Loan terms can be up to 20 years, with a fixed 1% interest rate.

For details about how to apply, applicants may contact their state Rural Development office.

Homeowners of higher income levels who need to finance home repairs may want to look into home improvement loans.

Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.

What Is the Minimum Credit Score for a USDA Loan?

The USDA does not set a firm credit score requirement. However, you are most likely to be approved if your score is in the 640 and higher range.

Even with a lower score, however, you may qualify for a loan.

Recommended: Learn the Cost of Living by State

Pros and Cons of USDA Loans

This section will focus on the USDA guaranteed loan program.

USDA Loans Pros

•   Typically no down payment is required.

•   Lower rates than FHA and conventional loans on average.

•   There isn’t a minimum FICO® score to qualify, so a less-than-ideal credit history may not prevent the loan from going through, though lenders like to see a credit score of at least 640.

•   Lenders may also require a debt-to-income ratio (DTI) of 41% or under. Depending on other factors, a slightly higher DTI might be possible.

•   No private mortgage insurance (PMI).

USDA Loans Cons

•   Homes must be in eligible rural areas.

•   Applicants must meet income limits.

•   Only certain lenders offer the program.

•   USDA loans require a 1% upfront guarantee fee and a 0.35% annual guarantee fee, based on the remaining principal balance each year.

Other Types of Mortgage Loans

In general, if your household income is more than 115% of the area median income, you can’t qualify for a USDA loan. The income of the entire household is considered, even if someone isn’t going to be on the mortgage note. That’s just one reason you might need to seek another type of mortgage.

Three broad types are:

Conventional loans: These are provided by banks and other private lenders and are not government-backed loans. This is the most common type of mortgage today. Borrowers typically need to have a down payment of 3% to 20%, and the lender will look at the debt-to-income ratio and credit scores when deciding whether to grant the mortgage loan.

FHA loans: Lenders that issue these loans are insured by the Federal Housing Administration, and it can be easier to qualify for this type of loan than a conventional mortgage. Lending standards can be more flexible and, with a credit score of 580 or higher, the borrower might qualify for a down payment of 3.5%. Note that mortgage insurance for an FHA loan can be high.

VA loans: Veterans, active military members, and some surviving spouses may receive VA loans provided by banks and other lenders but guaranteed by the VA. Eligible borrowers can benefit from a loan with no down payment and no monthly mortgage insurance. Most borrowers will pay a one-time funding fee, though.

Different types of mortgage loans have benefits and disadvantages. As a homebuyer, it is beneficial to understand what is applicable to your situation.

First-Time Homebuyer Programs

Borrowers who qualify as first-time homebuyers can receive benefits. Loan programs include:

•   Freddie Mac’s Home Possible® program and Fannie Mae’s 97% LTV. The programs offer down payments as low as 3% for buyers who have low to moderate incomes.

•   The Fannie Mae HomeReady® mortgage program. Borrowers who undergo educational counseling can get help with closing costs.

•   Mortgages for qualifying first-time buyers, who can put as little as 3% down.

It can make sense for low- and moderate-income borrowers to contact their state housing agency to see what programs are available for first-time homebuyers.

Recommended: Find First-Time Homebuyer Programs and Loans

The Takeaway

USDA loans support rural homebuyers and homeowners who meet income limits and whose properties qualify. Others shopping for a mortgage will need to research home loans and find a choice that suits them. While SoFi does not offer USDA mortgages at this time, we do offer government-backed FHA and VA loans.

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.

FAQ

What are the basics of how a USDA loan works?

USDA loans are available with no down payment and potentially a lower interest rate to borrowers who are buying certain properties in qualifying rural areas, and who meet income limits.

What’s the difference between an FHA loan and a USDA loan?

These loans address different types of properties and have different qualifying requirements. With a USDA loan, there is no down payment requirement, there is no PMI, but borrowers must meet income guidelines and be purchasing properties in a rural or suburban area. With an FHA loan, there is a 3.5% down payment and a DTI requirement, but there is not the regional guideline for the property. However, PMI is assessed.

Is FHA better than USDA?

When comparing FHA vs. USDA loans, it’s not really a matter of one being better than another but of which one suits your needs and which one you qualify for. An example: If you are buying in a rural area, you might get a USDA loan requiring no down payment. If you are buying in a metropolitan area, you might instead qualify for an FHA loan with 3.5% down.

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.

SOHL-Q225-025

Other than possible lender-imposed waiting periods after a mortgage loan closes, you can generally refinance your home as many times as you like. But you’ll want to do the math first.

Homeowners choose to refinance for a number of reasons: to lower monthly payments, take advantage of lower interest rates, get better terms, pay the loan off more quickly, or eliminate private mortgage insurance.

Refinancing involves paying off the current mortgage with a second loan that has (ideally) better terms. Borrowers don’t have to stay with the same lender – it’s possible to shop around for the best deals.

Mortgage rates seem to be constantly in flux, moving mostly in parallel with the federal interest rate. In 2021, the average rate of a 30-year fixed mortgage was 2.96%. In 2022, as the Federal Reserve raised interest rates to try to tame inflation, mortgage rates began to rise and jumped to more than 7.00% in October. By mid-May 2025, the average rate of a 30-year fixed mortgage was 6.81%.

So is now the right time for you to refinance? Here are some things to consider before taking the plunge.

The Basics of Mortgage Refinancing

Because a homeowner who chooses to refinance is essentially taking out a new loan, the cost of acquiring the new loan must be compared with potential savings. It could take years to recoup the cost of refinancing.

As with the initial mortgage loan, a refinance requires a number of steps, including credit checks, underwriting, and possibly an appraisal.

Typically, however, many homeowners start with an online search for the rates they qualify for. (A lower average mortgage rate doesn’t necessarily translate to an individual offer—creditworthiness, debt-to-income ratio, income, and other factors similar to what’s required for an initial mortgage will matter.)

The secret sauce that makes up a mortgage refinance rate might seem like a mystery, but there are some common factors that can affect your offer:

•  Credit score: As a general rule, higher credit scores translate to lower interest rates. A number of financial institutions and credit card companies will give account holders access to their credit scores for free, and a number of independent sites offer a free peek, too.
•  Loan term/type: Is the loan a 30-year fixed? A 15-year? Variable rate? The selected loan repayment terms are likely to affect the interest rate.
•  Down payment: A refinance doesn’t typically require cash upfront, the way a first-time mortgage usually does, but any cash that can be put toward the value of a loan can help reduce payments.
•  Home value vs. loan amount: If a home loan is extra large (or extra small), interest rates could be higher. But generally speaking, the less the mortgage amount is compared with the value of the home, the lower the interest rates may be.
•  Points: Some refinance offers come with the option to take “points” in exchange for a lower interest rate. In simplest terms, points are discounts that lower your interest rate in exchange for a fee you pay upfront.
•  Location, location, location: Where the property is physically located matters not only in the determination of its value but in the interest rate you might receive.

What Types of Refinance Loans Are Out There?

As with first-time home loans, consumers have a number of refinance mortgage options available to them. The two most common types involve either changing the terms of the original loan or taking out cash based on the home’s equity.

A rate-and-term refinance changes the interest rate, repayment term, or sometimes both at once. Homeowners might seek out this type of refinance loan when there’s a drop in interest rates, and it could save them money for both the short term and the life of the loan.

A cash-out refinance can also change the terms or interest rate, but it includes cash back to the homeowner based on the home’s equity.

Within those two basic types of refinance options, conventional mortgages from traditional lenders are the most common. But refinancing can also happen through a number of government programs.

Some, like USDA-backed loans, require the initial mortgage to be a part of the program as well, but others don’t, such as the VA loan program, which has a VA-to-VA refinance loan called an interest rate reduction refinance loan and a non-VA loan to a VA-backed refinance. That’s why it’s important to shop around to find the best option.

How Early Can I Refinance My Home?

If a home purchase comes with immediate equity — it was purchased as a foreclosure or short sale, for example — the temptation to cash out immediately with a refinance may be strong. The same could be true if interest rates fall dramatically soon after the ink is dry on a mortgage. Especially for conventional loans, it may be possible to refinance right away. Others may require a waiting period.

For example, there can be a six-month waiting period for a cash-out refinance. Or, refinancing via government programs like the FHA streamline refinance or VA’s interest rate reduction refinance loan can require waiting periods of 210 days.

Lenders can require a waiting period (also called a “seasoning period”) until they refinance their own loans for a number of reasons, including assurance that the original loan is in good standing.

For a cash-out refinance, some lenders may also require that the homeowner has at least 20% equity in their property.

Questions to Ask Before You Refinance

Just because you can refinance doesn’t necessarily mean you should. First, ask yourself these questions.

What Is the Goal?

Identifying the endgame of a mortgage refinance can help determine whether now is the right time. If a lower monthly payment is the goal, it can be wise to play around with a refinance calculator to see just how much a lower interest rate will help.

For years, it has been a general rule that a refinance should lower the interest rate by at least two percentage points to be worth it. Some lenders believe one percentage point is still beneficial, but anything less than that and the savings could be eaten up by closing costs.

What Is the Total Repayment Amount?

It’s important to remember that a lower monthly payment—even if it’s significantly less—doesn’t necessarily equal savings in the long run.

If a mortgage with 20 years remaining is refinanced to lower the monthly payment, for example, the most affordable option could be a 30-year mortgage. But is the lower monthly payment worth it if you’ll be paying it off for 10 additional years?

Will I Need Cash to Close?

One of the biggest differences between a first-time mortgage and a refinance is the amount it costs to close the loan. Many times, closing costs for a refinance can be rolled into the loan, requiring no cash at the outset.

Closing costs typically come in at 2% to 5% of the loan amount, and although they can be rolled into the loan and paid off over time, that could mean the new monthly payment isn’t as low as planned.

One way to make sure the investment is worth the cost is to consider how long it would take you to reach the break-even point, which is when you recoup the costs of refinancing. For instance, if it takes you 24 months to reach the break-even point, and you plan on living in your home for at least that long, refinancing may make sense for you.

The Takeaway

Technically, you may be able to refinance your home as many times as you like. But there are potential limiting factors, like waiting periods with some loan types and lenders, and lender’s preferences, for instance. Additionally, having to pay multiple sets of closing costs can limit the financial benefits of refinancing. That said, if you do your homework, a refinance can be a smart, strategic choice.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Is there a downside to refinancing multiple times?

Typically, the biggest potential downside to refinancing multiple times (or even once) is the cost of closing, which usually runs between 2% and 5% of the loan amount — each time you refinance. Additional downsides are losing equity in your home and, depending on the kind of refinance you get, potentially extending the period of time during which you have to make payments.

How frequently can you refinance a mortgage?

Technically, there is no limit on the number of times you can refinance your mortgage, assuming that you can find a lender willing to accommodate you. Bear in mind that each refinance will typically come with its own set of closing costs, so it’s important to calculate whether a given mortgage refi will make sense financially for you.

Does refinancing hurt your credit score?

Applying to refinance your mortgage could potentially result in a small, temporary dip to your credit score. That’s because the lender usually performs a hard inquiry to check your credit. Also, refinancing involves closing your old loan and taking on a new one, which can also affect your credit score slightly.

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.

SOHL-Q225-165

People who find that they can no longer make their mortgage payments have options to explore, including a short sale, which is when a home is sold for less than the borrower owes.

A short sale is a way to avoid foreclosure. It works much like a traditional home sale, except that the lender must approve the offer.

The Short Sale, in Short

If the borrower is able to negotiate a short sale, the lender agrees to take the money from the sale proceeds — even though that sum is lower than the balance of the loan — in lieu of foreclosing on the home.

Short sales were common a decade and a half ago, when the housing crisis and the Great Recession left many homeowners underwater on their mortgages. Since then, the percentage of short sales has dropped significantly, as housing values and employment rates have risen.

During a mortgage foreclosure, a lender repossesses and sells a property to satisfy outstanding debt.

In a short sale, the lender agrees to allow the borrower to sell the property for less than the mortgage balance and costs of the sale.

How Does a Short Sale Work?

A short sale may be a viable option if the remaining balance on a home loan is greater than the amount the property can fetch on the open market. Otherwise, a borrower could repay the full amount of the mortgage by selling the home.

Here’s how the short sale process generally goes:

1.   Borrowers typically send their lender a hardship letter proving that they are facing a long-term financial challenge.

2.   The lender decides whether to approve the sale or work out a plan, like extending the loan term or allowing the borrower to make interest-only payments for a set amount of time.

3.   If a short sale plan is accepted, the homeowner works with the lender to determine the schedule for the sale. If the lender is already on the path to foreclosure, a short sale will typically need to happen quickly.

4.   The sellers and their real estate agent will review the number of liens (such as a home equity line of credit or second mortgage) against the property. Having several of these can sometimes get in the way of a short sale, since all lenders must approve the sale. Buyers should be sure to ask about liens, as well.

5.   The owner puts the home up for sale and selects among competing offers. Once an offer is chosen, the lender must approve the sale and agree to accept the sale price in lieu of full payment of the loan.

Who Benefits from a Short Sale?

For the buyer, a short sale can be an opportunity to get a home at a fair market price or lower.

And because the lender has an incentive to sell the property quickly and prevent further costs, the lender might offer attractive financing to the buyer, such as a lower interest rate or credit toward closing costs.

For the seller, a successful short sale can mean avoiding foreclosure and the challenges that come with it.

Are There Drawbacks to a Short Sale?

Mortgagors may want to look at a short sale as a last resort. Short sales still have a significant negative effect on an individual’s credit, affecting the ability to take out a home loan or other forms of credit in the short term.

It may be difficult for potential lenders in the future to tell the difference between a short sale and a foreclosure on a credit report, according to the Federal Trade Commission. Both can stay on the record for up to seven years, but generally a borrower’s credit can recover faster from a short sale.

Short sellers may want to get written confirmation of the sale from their lender, along with a copy of the final settlement statement, in case future lenders have trouble distinguishing a short sale from foreclosure or have questions about amounts or dates.

Someone with a foreclosure on their record generally needs to wait two to seven or more years before qualifying for a new mortgage, depending on what kind it is.

Is the Deficiency Completely Forgiven?

After a short sale, in some states, the lender can seek a personal judgment against the borrower to recover the deficiency amount (the difference between the outstanding loan amount and the proceeds from the sale of the house). If a lender agrees to waive the deficiency, that provision must be included in the short sale agreement

How a Short Sale Affects Buyers

A short sale can be risky for buyers as well. Home sales are usually closed “as is.” If a property inspection did not catch a needed repair, that can lead to unpleasant surprises.

Buyers may also be responsible for fees they wouldn’t pay during a typical sale. For example, if the seller employs a short sale negotiator to reach a deal with the lender, the buyer may be asked to pay this charge.

How Long Does a Short Sale Take?

Short sales can be time-consuming transactions, taking anywhere from a few weeks to a few months or more.

It can take a while for lenders to review a buyer’s short sale application for approval, especially if multiple lienholders are involved.

How Often Do Short Sales Fall Through?

Because short sales are often slow and complicated, with many steps before a house can be sold, they fall through fairly frequently.

For example, a lender may reject a borrower’s qualifications or the price offered by a buyer. Foreclosure proceedings or a declaration of bankruptcy could throw a wrench into a short sale. Or sellers could get their finances in order and decide they want to keep their house and continue paying their mortgage.

The sale can also fall apart if the seller declines to pay certain fees in order for the lender to approve the transaction.

Both sellers and buyers in a short sale may want to practice patience when entering into this kind of transaction and bear in mind that all their hard work could come to naught.

The Takeaway

If a mortgage becomes too heavy a burden, a short sale can be a lifeline. Still, leaving a lender short will hurt a borrower’s credit and can be a drawn-out process. An option short of a short sale might be refinancing the mortgage with a more favorable interest rate or better loan terms.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Is a short sale good or bad for the buyer?

A short sale offers the buyer some benefits. They have the chance to buy a property at a good price from a very motivated seller. However, there are disadvantages, too. The property will likely be sold “as is,” and there may be fees involved that wouldn’t be part of a conventional sale.

Why do sellers choose a short sale?

If they can’t pay the mortgage, homeowners may choose a short sale over a foreclosure. A short sale will have a negative impact on their credit, but typically not as much as with a foreclosure, and there is the possibility with a short sale that the lender may waive any remainder of the debt.

Do you still owe money after a short sale?

That depends on your agreement with your lender. Ideally, you would be able to get debt forgiveness, meaning that even if your house sold for less than what you owe on the mortgage that difference (or “deficiency”) would be forgiven by the lender. If you don’t have that assurance from your lender, you could be on the hook for that money.

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

If you’re like many Americans, you’ll need to take out a home mortgage to buy a house. A home of your own will likely be one of the biggest purchases you’ll ever make, and the terms and interest rates you will end up paying can have big financial consequences.

That’s why it’s important to do what you can to find the best mortgage rates, from having a healthy credit score to comparing lenders to hitting the negotiating table to find the best deal.

Putting Your Financial House in Order

Before you start shopping for a mortgage, take a look at your credit score. A low credit score may be a signal to lenders that lending to you is risky. Those with a lower credit score may find it difficult to get a mortgage — running into limited options — or may be offered loans with higher interest rates.

Generally speaking, the higher your credit score, the easier it will be to get a mortgage. You may be offered better rates, and you may have an easier time negotiating with different types of mortgage lenders. In general, you’ll need a credit score of 580 and the ability to make a 3.5% down payment to qualify for a Federal Housing Administration (FHA) loan. A conventional loan will typically require a credit score of at least 620, but requirements may vary by lender.

Thankfully, an individual’s credit score isn’t set in stone. Those interested in maintaining a good credit score have a few options. First up is requesting your credit report from the three major credit reporting bureaus: TransUnion®, Experian®, and Equifax®. Review each report for errors and contact the appropriate credit bureau if you spot anything that’s incorrect. Credit reports can be ordered from each of the three credit bureaus annually, for free.

Other strategies for building a credit score include paying down credit cards to lower your credit utilization ratio, and making on-time payments for bills and other loans.

Considering a Bigger Down Payment

As a general rule of thumb, lenders may require borrowers to make a 20% down payment when they buy a home. However, many lenders require much smaller down payments, some as low as 3%. And if you qualify for a VA loan, you may not need a down payment at all.

If a borrower makes a down payment smaller than 20%, their lender may require them to purchase private mortgage insurance that will protect the lender in case the borrower fails to make mortgage payments. A larger down payment could potentially help borrowers avoid paying PMI.

As you’re shopping for mortgages, carefully consider how much money you can afford to put down, as a larger down payment can also have an impact on your interest rate.

Typically, a larger down payment translates into a lower interest rate, because taking on a larger stake in a property signals to lenders that you are less risky to loan money to.

Understanding Fixed-Rate vs. Adjustable Rate Mortgages

When shopping for a mortgage, you will typically be offered one of two main financing options: fixed-rate and adjustable-rate mortgages. The difference between the two lies in how you are charged interest, and depending on your situation, each has its own benefits.

Fixed-Rate Mortgage

A fixed-rate mortgage has an interest rate that stays the same throughout the life of the loan, even if there are big shifts in the overall economy. Borrowers might choose these loans for their stability, predictability, and to potentially lock in a low interest rate. Fixed-rate mortgages shield borrowers from rising interest rates that can make borrowing more expensive.

That said, fixed-rate mortgages may carry slightly higher interest rates than the introductory rates offered by adjustable-rate mortgages. Also, if interest rates drop during the lifetime of the loan, borrowers are not able to take advantage of lower rates that would potentially make borrowing cheaper for them.

Adjustable-Rate Mortgage

Interest rates for adjustable-rate mortgages (ARM) can change over time. Typically ARMs have a low initial interest rate. (One popular ARM is the 5/1 adjustable-rate mortgage, which is fixed for the first five years.

However, as the Federal Reserve raises and lowers interest rates, interest rates may fluctuate. That said, there may be caps on how high the interest rate on a given loan can go.

ARMs don’t provide the same stability that their fixed-rate cousins do, but lower introductory interest rates may translate to savings for borrowers.

Once you have a sense of whether a fixed- versus adjustable-rate mortgage is for you, you can narrow your field and start looking at lenders.

Comparing Lenders

When choosing a lender, start your search online, taking a look at a variety of lenders, including brick-and-mortar banks, credit unions, and online banks. The rates you see on lenders’ websites are typically estimates, but this step can help you get the lay of the land and familiarize yourself with what’s out there.

As you shop for mortgage lenders, consider contacting them directly to get a quote. At this point, the lender will generally have you fill out a loan application and will pull your credit information. Many lenders will do a soft credit pull, which won’t impact a potential borrower’s credit score, to provide an initial quote.

Borrowers can also work with a mortgage broker who can help identify lenders and walk them through any transactions. Be aware that mortgage brokers charge a fee for their services.

Recommended: The Mortgage Loan Process Explained in 9 Steps

Taking Additional Costs into Account

When choosing a home mortgage loan, interest rates aren’t the only cost to factor in. Be sure to ask about points and other fees.

Points are fees that you pay to a lender or a broker that are frequently linked to a loan’s interest rate. For the most part, the lower the interest rate, the more points you’ll pay.

The idea of points may feel a little bit abstract, so when talking to a lender, ask them to quote the points as a dollar amount so you’ll know exactly how much you’ll have to pay.

If you plan to live in a house for the long term, say 10 years or more, you may consider paying more points upfront to keep the cost of interest down over the life of the loan.

Home loans may come with a slew of other fees, including loan origination fees, broker fees, and closing costs. You’ll pay some fees at the beginning of the loan process, such as application and appraisal fees, while closing costs come at the end. Lenders and brokers may be able to give you a fee estimate.

When talking with a lender, ask what each fee includes, since there may be more than one item lumped into one fee. And be sure to ask your lender or broker to explain any fee that you don’t understand.

Recommended: How Much House Can I Afford?

Negotiating

Once you’ve gathered a number of loan options, you can choose the best deal among them. There may also be room to negotiate further. When you send in an application, lenders will send you a loan estimate with details about the cost of the mortgage.

At this point, the loan estimate is not an offer, and borrowers have time to negotiate for better terms. Negotiating points may include asking if interest rates can be reduced and if there are other fees that can be lowered or waived.

A strong credit score or the ability to make a bigger down payment could be leverage. It may also help to let the lender know if you do other business with them.

For example, a bank may waive certain fees if you are already a customer of theirs. Also let lenders know if you have other options that offer better rates. Lenders may try to match or beat competitors’ rates to attract you as a customer.

If you negotiate terms that you are happy with, request that they are set down in writing. Lenders may charge a fee for locking in rates, but it may be worth it to eliminate uncertainty as you settle on the right deal.

As you prepare to buy a home, it’s critical to shop around for lenders that offer the best deals, examine the fine print, and then put matters into your own hands, negotiating the details to settle on the deal that’s right for you.

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 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.

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