Budgeting for Buying A House

The American Dream — buying your own home — is sometimes perceived as an Impossible Dream, but it can be achieved if you have a plan and stick with it.

When planning a budget for buying a house, you might ask yourself the following questions:

•   What are the costs/fees to consider?
•   How can I create a budget in order to reach my goal?

Remember that life goes on while you are saving for your new house. You’ll likely have other priorities and monthly obligations while trying to fit those new home costs into your existing budget.

Consider this priority list when planning ways to budget for a house:

Upfront Expenses

Once an offer on a new home is accepted, there are certain costs the buyer needs to pay right off the bat, and in most cases, out of their own pocket. These are called upfront expenses. Here are a few:

20% Down Payment

You may have heard of the traditional 20% down payment guideline, which helps you avoid paying private mortgage insurance (PMI) on applicable loan programs. Additionally, a higher down payment can sometimes result in better loan terms which may translate into lower monthly mortgage payments.

Yep, it’s a lot of money to try to save, but if you can swing it, in the long run, applying a 20% down payment will likely save you from paying thousands of dollars in additional mortgage interest over the life of the loan
The 20% down is a guideline.

The minimum down payment for a First Time Homebuyer on a conventional loan can be as low as 3% and an FHA government loan that is open to everyone requires a down payment of at least 3.5%.

Sometimes exceptions can be found to minimum down payment requirements such as with Veteran VA loans or government USDA loans which will allow eligible borrowers to finance up to 100%.

In these instances, even if you save for a lower down payment, buying may still significantly reduce your overall expenses, compared to your current rent and real estate market conditions.

2-5% Closing Costs

You can likely expect to pay an estimated 2-5% of your home price for closing costs, and save accordingly. For example, if you buy a home that costs $150,000, you may be required to pay between $3,000 and $7,000 in closing costs.

Some costs are fixed and not tied to the price, so the percentage can be higher for the lower range and lower for the higher purchase price range. Keep in mind that there are alternatives to paying the closing costs out-of-pocket, such as requesting a seller credit, requesting a lender credit, or a down payment/closing costs assistance loan program.

Moving Costs

According to the American Moving and Storage Association, the average intrastate move is $2,300, and the average move between states is $4,300.

Costs can vary widely, so you might want to comparison shop for moving companies and factor this expense into your budget.

If you are moving for work reasons, check with your company to see if they offer a relocation package to help cover some or all of the moving costs.

New Furniture and Appliances

Your new house may not have the same dynamics, dimensions, and overall feel of your old house. That could mean that you need to buy new furniture, appliances, and even items you may have never considered, like shower rods.

You might want to start a savings account for these types of adaptations—some of them may be unexpected.

Ongoing Expenses

PITIA (principal, interest, property taxes, homeowners insurance, and other assessments) is an acronym describing all the components of a mortgage payment. The principal is the “meat” of the payment—paying down the principal will reduce the loan balance.

Interest is what you are charged for borrowing the money. Taxes refer to your property taxes. The insurance represents both your homeowners and mortgage insurance, if applicable. The other assessments refer to things that may be applicable to the home you purchase such as Homeowner Association Dues, Flood or Earthquake Insurance, and more.

HOA Dues

HOA stands for Homeowners Association. These dues usually apply to a condo, co-op, or property owned in a planned community.

The charge is usually monthly (but it could also be charged quarterly or annually), and it typically goes to maintaining the community (landscaping, garbage collection, repairs, and upgrades).

Ask the Homeowners Association for a complete HOA questionnaire so you can view how healthy the association is, whether there is any outstanding litigation due to structural or other issues, etc.

Maintenance and Lawn Care

Your budgeting probably won’t stop once you’ve moved and settled into your new home. Expenses will likely continue to knock on your door—landscaping, roof repair, and water heater replacement are just a few items that might require ongoing financial consideration.

You may want to budget for 1%-2% of the cost of your home in maintenance each year—however, deferred maintenance costs may depend on the age, quality of construction, where you live, and more.

Pest Control, Security, Utilities

Cost for electricity, gas, water, and phones may differ from market to market. This is also true with pest control, and making sure your home is secure and safe. You could find yourself paying more (or even less) for these services in your new home.

Planning Ahead

Do your research on the different types of mortgage loan programs and how much home you can afford. Find which programs may best suit you so you can start to budget for any down payment while taking care of current bills and other financial obligations.

Calculating After-Tax Income

Here’s how: subtract out all non-housing expenses that occur both now and that will occur in the future. Include savings goals; for instance, retirement contributions. Include any other debt that may be paid off before the house purchase.

Whatever is left over after this subtraction is what may be put toward housing costs.

What Are Your Savings Goals?

Once you determine which loan program(s) you may qualify for, you can begin to put together an estimate on how much money is needed to be saved each month in order to meet the target date of a home purchase.

What Are Your Priorities?

Take care of your current obligations first, especially if they have to do with the money you owe. Ridding yourself of debt may help you achieve your goals.

This may also help improve your financial profile so that the best loan deal may be more available.

You may also want to establish an emergency fund that, in a pinch, can keep you from using your credit card and running up even more debt.

Ready to Buy?

Once you have your savings set, you can begin to look for different mortgage loan options. SoFi for example, offers competitive rates, no hidden fees, and as little as 10% down. It takes just minutes to start your application online.

Ready to purchase your dream home? Find your rate with SoFi.


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

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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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5 Things to Consider When Choosing a Mortgage Lender

Buying a home is likely one of the biggest moves you’ll make in your personal and financial life, and your home may represent one of your largest assets.

If you take out a mortgage loan to help you buy it, you will end up making mortgage payments—and if your lender ends up servicing your loan after closing—you will make payments to that lender, possibly for decades. This is one possible reason you may choose to shop around before committing to a mortgage lender and loan program that’s right for you.

Today, borrowers have more choices on ways to apply. With the rise of online and marketplace lenders, there’s increased competition, which fuels improvements in process, service, and cost—and can mean a much better experience for you.

That said, there may be different factors each individual wants to consider when on the lookout for a lender. If you want to avoid getting stuck with a not-so-great lender, take the time to shop around. Asking questions could help you evaluate your options. Here are some of the questions you may be looking for answers to:

1. Does the lender offer competitive interest rates?

First things first, it’s generally recommended to get the lay of the land by looking at various lenders and the rates and fees they advertise. Taking this step may help you understand what the market looks like overall and who may be offering competitive rates.

Remember that the rates and programs you are ultimately eligible for will likely depend on the lender you choose along with your needs and financial situation, yet this initial comparison can give you a baseline to start working from.

Try taking a look at the common loan types offered. Interest rates for fixed-rate loans do not change over the life of the loan. Interest rates for adjustable-rate mortgages can change over the life of the loan and are influenced by the Federal Reserve boosting or lowering their benchmark rate which in turn causes movements in the indexes tied to ARM rates, such as the LIBOR .

Hybrid Adjustable-rate mortgages are mortgages that offer an initial fixed rate for a certain period of time. These hybrid ARMs are commonly offered and typically come with a low introductory rate for either 1, 3, 5, 7 or 10 years. These introductory rates may be one element that entices borrowers to use them.

Another element may be that some hybrid ARMs offer an interest-only payment option for a specified period of time such as 10 years.

When the initial fixed-rate period is over, the interest rate is normally reviewed on an annual basis for adjustment. Although the index tied to the ARM rate may have moved much higher, these loans offer yearly and annual interest rate caps to control rate and payment fluctuations.

When talking to a lender about their mortgage offerings don’t just ask about interest rate, also ask about APR, or annual percentage rate . This figure takes into account certain fees like broker fees, points, and other applicable credit charges, giving you an easier way to compare loan offers.

2. Does the lender offer loan products with terms that suit your needs?

Your needs and financial situation can play a large part in which mortgage programs you choose and are eligible for. For example, some lenders require a 20% down payment to qualify for a mortgage.

If you can’t pay 20%, lenders may require that you have private mortgage insurance, which covers them in case you default on your mortgage payments. Mortgage insurance premiums vary depending upon many factors.

Ask your chosen lender how much insurance payments will add to your monthly payment and keep in mind that in certain circumstances private mortgage insurance does not apply, such as with some Jumbo loan programs and in other cases, can be eligible for removal from your home loan later if certain criteria is met.

If you can’t afford a 20% down payment, you can look for lenders who offer more flexible down payment requirements. Also, consider what term—the length of time you’ll be paying off your loans—works best for you. See what kinds of terms lenders offer and the interest rates that accompany those terms.

A shorter-term will likely come with higher monthly payments, but lower interest rates that result in lower interest charges over time. Not everyone can afford those higher monthly payments, however, in which case a longer term may be preferable. Note that longer terms usually mean that you end up paying more in interest over the life of the loan.

Once you’ve found a loan with rates and terms that work for you, you can obtain a rate lock from your lender, generally for the time it takes to close on the transaction, such as 30 or 45 days.

You may have to pay a fee if you want to lock in the rate for a longer extended period of time, but once you do it will guarantee that you have access to the mortgage at a specific rate during the lock-in period even if interest rate rises while your loan is being processed.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


3. What type of origination, lender, and other fees might you be responsible for?

We’ve already alluded to the fact that you’ll likely be on the hook for other costs in addition to your down payment. One good idea is to request a Loan Estimate (LE) for any mortgage you’re considering to see a solid estimate of what costs you may be on the hook for.

Keep your eye out for things like:

•   Commissions: Mortgage brokers are paid on commission, which is either paid by you, your lender, or a combination of both.
•   Origination fees: These fees may cover the cost of processing your loan application.
•   Appraisal fees: Appraisal fees cover the cost of having a professional come in and put a value on the home you want to buy. You must have a property valuation of some type in order to borrow money to buy a home and in most cases a full appraisal is required.
•   Credit Report Fee: Covers the cost of the bank obtaining your credit report from the credit reporting bureaus.
•   Discount Points: Optional fee the borrower can pay to reduce or buy down their interest rate.

The added fees will typically impact the overall cost of buying the home if the borrower does not receive a seller or lender credit towards closing costs, so doing your research and reading the fine print up front might pay off.

Depending on the loan terms and fees charged, some will be paid upfront at the beginning of the application process such as credit report and appraisal, while other fees might be paid at loan closing such as lender fees, title insurance and more.

In some cases, under certain loan programs, you can borrow the money to cover these fees, which will increase your overall mortgage payment(s). Therefore, having a clear understanding of what fees you’ll owe is critical to understanding how much you’ll end up paying.

Request from your lender a quote on all the costs and fees associated with the loan. A Loan Estimate (LE) is a typical form used to disclose loan fees to a borrower. Ask questions about what each fee covers. Have your lender explain any fees you don’t understand, and then find out which ones may be negotiable or can be waived entirely.

4. How much of the process is online vs. on paper or in person?

How much facetime you have to put in to apply for a mortgage can vary by lender. Some online banks will have you complete the process entirely online, while brick and mortar banks may require an in-person visit.

In the past, applying for a mortgage required a lot of physical paperwork. But much of this has now been replaced by online interactions. For example, you are now likely able to send your financial information like bank statements and W-2s electronically.

Lenders who complete much, or all, of the mortgage application process online may be able to offer lower rates or fees, since they don’t have the cost of brick and mortar bank locations and their employees to maintain.

That said, if you’re someone who likes face-to-face help, you may consider a lender that allows you to apply in person or a lender who utilizes facetime.

5. How quickly can the lender close once you’re in contract?

Once you’ve found the home you want to buy and you’re under a purchase contract with the seller, the amount of time it takes to close on a loan can vary. Depending on the situation you may have to wait for inspections, appraisals, and all sorts of paperwork to go through before you can close.

However, your lender may offer you ways to speed up the process. For example, you may be able to get preapproved for a loan, which takes care of a lot of potentially time-consuming paperwork upfront before you’ve even started shopping for a home.

Ask your lender how much time their closing process usually takes and what you can do to expedite it. Especially if you’re crunched for time, their answer can have a big impact on which lender you choose. After all, the faster you’re financed, the sooner you’ll be able to move in.

SoFi offers loan options with as little as 3% down for qualifying first-time homebuyers and 5% down for all other borrowers.

On the path to homeownership?

We’re right there with you. Download the SoFi Guide to First Time Home Buying to get valuable tips on these topics and more. Our guide also demystifies modern mortgage myths around down payments, the pre-approval process, student loans, rising interest rates, and more.

Ready to buy a home? Check out mortgages with SoFi Home Loans.


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

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

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

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How to Leverage Home Equity to Pay Off Student Debt

Student loan debt can be difficult to manage. Trying to make ends meet when you are saddled with a monthly payment from your education can be a challenge. The burden can become overwhelming once you add a mortgage, a car, and other financial obligations. Stare at your owed balances long enough and you may start wondering just how illegal robbing a bank really is.

Fortunately, there’s another option available—that won’t end with you in handcuffs.
Fannie Mae offers a way for you to use the excess value of your home to pay off student loan debt directly. Some families may benefit from consolidating student loan debt into their mortgage with a new lower fixed rate applied and consolidated into one loan with one monthly payment.

It’s good to note that although the rate and payment may be lower, the term of the debt may be lengthened which would result in higher interest payments over an extended period of repayment.

Mortgage interest rates can run lower than student loan interest rates. Some homeowners may be able to use that to their advantage. Paying off multiple student loans with one loan means making only one payment per month, which not only simplifies life, but could also save borrowers money.

How much you can potentially save depends on things like the difference in interest rates —depending on your loan terms, it can be said, the bigger the gap, the better the savings.

For example, if you’re paying 7.08% interest on a Direct PLUS student loan for 25-years, but can lower the rate on your 30-year mortgage at say a 4.00% interest rate, you’ll not only pay off your student loans with less interest over the life of the loan, but can also refinance your mortgage to a lower rate, possibly saving you significant mortgage interest in the long run.

Working with SoFi, you can consolidate your student loans with your existing mortgage, refinance the total amount at a lower rate, and simultaneously pay off those student loans.

Under the student loan cash-out refinance program, student loans would be paid off directly through escrow after the loan funds which allows this loan program to avoid any additional pricing bumps for cashout to the borrower. Loans must be paid in full, no partial payments are allowed.

Recommended: First Time Home Buyer’s Guide

The Elements of Equity

Some cash-out refinance loans such as a student loan cash-out refinance is priced to be used for a specific purpose, consolidating your student loan debt and mortgage into better loan terms.

You can also take cash out of your home for most any reason with a vanilla cash-out refinance type loan or if you already have a low rate on your mortgage, you can opt for a 2nd mortgage such as a home equity line of credit (HELOC.)

When your home’s market value is higher than what you owe on your mortgage(s), you have equity in your home. The equity you earn in your home can be utilized as an asset. That means if eligible under the loan program you choose, you can draw upon the available equity, for a variety of reasons (e.g. to pay off your student loans).

You can gain equity in two ways. The first is by making payments on the mortgage; as you pay back what you owe the principal amount owing on your loan is reduced, and if your home’s market value doesn’t decline, your equity increases. Say that you purchased a home for $350,000 and you took out a $250,000 mortgage 10 years ago, and have since paid back $50,000 of what you owe.

If your home value remains the same as when you purchased it, you may have $150,000 in available equity for an in-ground pool for the kids, a new car, or, best of all, to consolidate and refinance your student loans. The amount of equity that can be utilized will depend upon many factors, such as the lender, loan program, qualifying, etc.

Sound good? It may be even better. The second way to earn equity in your home is through price appreciation, so as your home gains market value, you earn equity.

If you’re a ladder-climbing professional, who’s great at financial planning, it’s possible that you bought that dream home in a growing market, and it’s now worth $400,000 or more. As of 2018, untapped home equity reached an all-time high in the United States, reaching about $14.4 trillion . If your home’s equity is part of that sum, it could be used as a tool to help you further your financial priorities.

Deciding to Pay Off Student Loans with Home Equity

Using the equity you’ve earned in your home to pay off your student loans may sound like an easy fix. But before you commit to refinancing, you may want to weigh the decision carefully. While it may make sense for some, a student loan cash out refinance won’t work for everyone. Here are a few pros and cons to consider as you make your decision.

Benefits of Paying Off Student Loans with Home Equity

Like most financial decisions, paying off your student loans with the equity you’ve earned on your home is a multifaceted decision. Here are some of the ways you could find it beneficial.

Securing a lower interest rate is potentially the most appealing reason to use the equity in your home to pay off student loans. As part of your decision-making process consider reviewing mortgage options at a few different lenders. While reviewing rate quotes from each lender do the math to determine if paying off student loans with home equity will truly reduce the amount of money you spend in interest.

If there are any fees or prepayment penalties, try to factor those in. Doing this leg work can help you determine if going through the process is worth it in the long run.

As you are reviewing options, consider the term length of the mortgages. The standard repayment plan for student loans has a 10 year term unless you consolidated them already, in which case you could have a term of up to 25 years. With a mortgage, term lengths can be as long as 30 years .

While repaying your debt over a longer time period could lower monthly payments, it may also mean you pay more in interest over the life of the loan, which could factor into your decision-making process.

Another benefit may be reducing the number of monthly payments you need to keep track of. Instead of paying your mortgage and each of your student loans, those bills have all been consolidated into a single payment. Streamlining your payments could help you stay on top of your payments and make your finances a little bit easier to manage.

Recommended: Home Affordability Calculator

Downsides of Paying Off Student Loans with Home Equity

There are a few potential negatives that could impact your decision to pay off student loans with your home equity. Firstly, using your home equity to pay off your student loans could potentially put your home at risk.

You’re combining your student loans and mortgage into one debt, now all tied to your home. That means if you run into any financial issues in the future and are unable to make payments, in severe cases, such as loan default, your home could be foreclosed on.

Second, when you use your home equity to pay off your student loans, you’ll still owe the debt (now as a part of your mortgage), but you’ll no longer be eligible for borrower protections that are afforded to borrowers who have federal loans.

These benefits include deferment or forbearance, which could allow you to temporarily pause payments in the event of financial hardship, and income-driven repayment plans, which tie a borrower’s monthly payment to a percentage of their discretionary income.

If you are pursuing student loan forgiveness through one of the programs available to federal borrowers, for example Public Service Loan Forgiveness, consolidating your student loan debt with your mortgage would eliminate you from the program. If you’re currently taking advantage of any of these options it may not make sense to use the equity in your home to pay off your student loans.

As you weigh your options, you might consider comparing the available equity in your home to the amount you owe in student loans. In some cases, you may owe more in student loan debt than you have available to use in home equity under the various loan guidelines.

When It’s Time to Leverage Your Home Equity

Cashing in on your home equity isn’t as easy as withdrawing money from your checking account, but it’s also not as difficult as you might think.

A good first step is to contact a mortgage lender, who will order an appraisal of your home and get you started on the paperwork. It could also be a good idea to check your credit score.

To secure a cash-out refinance lenders’ guidelines will likely require a credit score of 620 or higher. The minimum score required depends upon many factors such as credit, income, equity and more. If you don’t meet the minimum fico score requirement for your chosen program, you might want to make a few changes to improve your credit score before applying for a cash-out refinance.

At the very least, you’ll likely need your latest tax filings, pay stubs, and bank statements. Lenders use those documents to evaluate whether you have the savings and cash flow to pay back a fatter mortgage, and they may ask for them every time you try to refinance. So it can be helpful to keep them handy.

When utilized responsibly, home equity can be a useful tool in helping to improve your overall finances. Home equity can be used for almost any purpose such as consolidating higher interest credit card debt, student loan debt or home improvements.

Named a Best Student Loan Refinance Company
by U.S. News and World Report.


Shop Smart

Interested in using your home’s equity to pay off your student loan debt? Take a look at SoFi. This student loan cash-out refinance option offers qualified borrowers competitive rates with no cash-out pricing add-ons applied.

Pre-qualifying takes just two minutes online, so you can get an idea of the rates and terms available to you. Loans are usually approved in about 30 days.

Unlike taking your chances with the lottery, the odds could be more in your favor when you leverage your home equity responsibly. Explore your rate and term options, and then get in touch with us to start the refinancing process. Learning is a lifetime commitment; student loan debt doesn’t have to be.

Learn more about borrowing a student loan cash-out refinance with SoFi.



External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended to December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since in doing so you will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave up to $10,000 and $20,000 for Pell Grant recipients unrefinanced to receive your federal benefit. CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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

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The Basics of a Qualified Mortgage

In the 2015 Academy Award–winning film The Big Short, there’s a scene in which actress Margot Robbie sips champagne in a bubble bath and explains the origins of the 2008 financial crisis. At the root of the crisis, she explains, was the practice of banks bundling an increasing number of subprime mortgages into bonds. “Whenever you hear subprime, think ‘shit,’” is how she puts it.

To help prevent history from repeating itself, Congress passed a rule in 2010, as part of the Dodd-Frank Act , to clamp down on the excessive risk-taking in the mortgage industry prior to 2008. The rule, which went into effect in January 2014, created something called a “qualified mortgage.”

Basically, a qualified mortgage is a type of loan that has certain, more stable features that help make it more likely that the borrower actually is able to repay their loan. This means the bank has to do some more in-depth work to make certain that a borrower can repay the loan, such as analyzing the borrower’s “ability to repay .”

It doesn’t necessarily mean more work for the borrower, but it does mean lenders will take a deeper dive into a potential borrower’s finances to better determine whether the mortgage they applied for is considered affordable for them under the guidelines. The rule is intended to protect consumers from harmful practices, but it may also make it harder to qualify under certain loan programs. Unfortunately, not everything in the financial world comes with a Margot Robbie explanation. Since the terminology around qualified and non-qualified mortgages can get confusing, here are a few basics.

What Is a Qualified Mortgage?

Qualified mortgages follow three basic tenets, as outlined by the Consumer Financial Protection Bureau (CFPB):

1. Borrowers should be able to pay back their loans.

2. A qualified mortgage will likely be easier for the borrower to understand.

3. The qualified mortgage should be a fair deal for the borrower.

Based on these simple ideas, the CFPB created stricter guidelines for loans not sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC) to ensure that borrowers could repay loans. FNMA and FHLMC are government-sponsored entities (GSEs)—this designation allows them a special pass on QM rules, commonly referred to as the “QM GSE Patch .” The conforming loans that follow GSE guidelines are normally input by lenders and approved in the automated underwriting systems set by FNMA and FHLMC.

For QM loans not approved and sold to FNMA or FHLMC, there is a limit on how much of a borrower’s eligible income used for qualifying can go toward debt. In general, total monthly debts cannot exceed 43% of gross monthly income, this is referred to as a debt-to-income ratio or DTI.

Limiting the amount of debt a borrower can take on can make them a safer bet for banks and less likely to default on their mortgage. Instead of granting a mortgage that’s possibly not affordable, keeping the loan within a reasonable DTI ensures a borrower is not borrowing more money than they can repay.

Next, the loan term must be no longer than 30 years. Once again, this is in place to protect the home buyer. A loan term beyond 30 years is considered a riskier loan because of the extended loan term with longer payback and additional interest. In addition, a qualified mortgage is barred from some other risky features, such as:

•   Interest-only payments. Interest-only payments are payments made solely on the interest of the loan, with no money going toward the paying down the principal. When a borrower is only paying interest, they don’t make a dent in paying off the loan itself.

•   Negative amortization. Amortization means “paying off a loan with regular payments, so the amount goes down with each payment.” In the case of negative amortization, the borrower’s monthly payments don’t even cover the full interest due on the mortgage. The unpaid interest then gets added to the outstanding mortgage total, so the amount owed actually increases over time. In some cases, depending upon market conditions, a borrower could end up owing more than the home is worth.

•   Balloon payments. These are large one-time payoffs due at the end of the introductory period of the loan, historically 5 or 7 years. These loans are fully amortizing during the full term and are unlikely to carry any sort of prepayment penalty.

In this example, we will refer to points as origination discount points. Origination discount points can vary based on many things such as lender, loan program, rate chosen, but a qualified mortgage will have a cap on the number of total points allowed to be charged to the consumer.

According to the Consumer Financial Protection Bureau , effective in 2017, the maximum total points and fees a borrower could be charged are limited to the following without being referred to as a high priced mortgage which carries additional guidelines:

•   For a loan of $100,000 or more: 3% of the total loan amount or less
•   For a loan of $60,000 to $100,000: $3,000 or less
•   For a loan of $20,000 to $60,000: 5% of the total loan amount or less
•   For a loan of $12,500 to $20,000: $1,000 or less
•   For a loan of $12,500 or less: 8% of the total loan amount or less

Lenders also verify a borrower’s ability to repay the loan. The ability-to-repay rule encompasses different aspects of a borrower’s financial history that a lender must review. The ability-to-pay rule means the lender is likely to review items such as:

•   Income
•   Assets
•   Employment
•   Credit history
•   Alimony or child support, or other monthly debt payments
•   Other monthly mortgages
•   Mortgage-related monthly expenses (PMI, HOA fees, taxes)

Under some circumstances, lenders might not have to follow the ability-to-repay rule but still count the loan as a qualified loan. These lenders and institutions may include:

•   Groups certified by the U.S. Treasury Department to provide mortgage services to underserved populations
•   Nonprofit service groups that receive aid from HUD to make down payments affordable in developing communities
•   Small nonprofit organizations that lend to a select number of low- to moderate-income consumers each year
•   State agencies that provide low rates and down payment assistance
•   Any loans made through the assistance of the Emergency Economic Stabilization Act

In addition to the protections provided to borrowers, the rule also grants lenders safe harbor through verification of the borrowers ability to repay by limiting the ability of borrowers who can’t pay their mortgages from suing the lender. Qualified mortgages offer safe harbor to the lender if ability to repay rules were properly adhered to when qualifying the borrower(s) for the requested loan program.

In these instances, borrowers cannot sue based on the claim that the institution had no basis for thinking they could repay their loans. They also make it harder for borrowers to buy more home than they can afford.

While qualified mortgages include a more involved process, they’re ultimately meant to protect both the lender and the borrower.

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What Is a Non-Qualified Mortgage?

A non-qualified mortgage (non-QM) is a home loan that does not meet the standards required for a qualified mortgage.

But a non-QM loan is not the same as the subprime loans available before the housing market crash. Typically, with a non-QM loan, lenders confirm that borrowers can repay their loans based on reasonable evidence, which can include verifying many of the same information as QM loans such as assets, income, or credit score.

Non-QM loans allow lenders to offer loan programs that don’t necessarily meet the strict requirements of qualified mortgages. Because non-QM loans don’t have to adhere to the same standards, it means the underwriting requirements like the QM DTI limit for instance, can be more flexible and provide eligible borrowers with more loan program choices.

Non-qualified loans can also vary by lender, so borrowers who take this route should research their options carefully.

Not all lenders are built the same, similar to borrowers. In some situations a non-QM loan might be the right choice for a borrower.

When Could a Non-QM Loan Be the Right Option?

Many lenders offer non-QM loan programs because they have more flexible loan features. This type of loan may be right for borrowers who can afford to pay but don’t conform to additional qualified-mortgage requirements.

Examples of borrowers who might seek a non-qualified mortgage are:

•   The self-employed. Borrowers with streams of income that might be difficult to document, like freelance writers, contractors, and others, might consider a non-qualified mortgage.

•   Investors. People investing in real estate properties, including flips and rentals, might choose to apply for a non-qualified mortgage because they need funding faster, or have a challenging time proving income from their rental properties.

•   Non-U.S. residents. People who are not U.S. residents can be challenged by qualified mortgages, because they may have a low or nonexistent credit score in the U.S.

Qualified mortgages have safeguards in place for both the lender and the borrower, but in some circumstances, it can make sense for a borrower to choose a non-qualified mortgage. In some instances, this type of loan may be chosen because of property issues such as a condo that doesn’t meet certain criteria, property type, etc.

If you are looking for a mortgage to fit your financial needs, you could check out SoFi’s home loans. Borrowers can put as little as 10% down for loans up to $3 million, and with competitive rates and dedicated mortgage loan officers, applying for a new home might be easier than you think.

While the nitty-gritty of qualified mortgages versus non-qualified mortgages might not be as fun or thrilling as a Hollywood blockbuster, deciding the route to take as a borrower is an essential and important step of the home-buying process, so do your research and ask your chosen lender questions about the different loan programs available.

Understanding the differences between the qualified and non-qualified mortgage programs might make choosing the best loan fit for your needs easier. The process of securing a mortgage has changed considerably in the past decade, but policies have been put in place to ensure better protections and in turn, a better experience for the borrower.

If you’re considering financing a home and are ready to learn more about qualifying for a mortgage, visit SoFi Home Mortgage Loans today.


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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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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. Equal Housing Lender.

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How to Update a Fireplace

Even in the age of furnaces and smart thermostats, the fireplace is still a focal point of the home. It’s not necessarily keeping you toasty in the cold months, but it is serving as the visual frame of reference in a living space.

So when your fireplace is boarded up, or drably dated, remodeling it can breathe new life and warmth into the entire area.

Not only that, it could bring you some extra cash. An Angie’s List survey of real estate agents revealed that more than 68% believe that having a fireplace in the home increases its value.

So before you try to board it up or knock it down, explore trends and tips for how to remodel a fireplace.

Your fireplace might be housed in a brick wall, meaning you have not only the fire box to contend with, but an entire brick wall to reimagine. While exposed brick is on trend, it can also make a room feel dark or small.

Reimagining your brick wall and brick fireplace may seem daunting, but there are several ways to update the brick, or remodel over it for a fresh new look.

Before you commit to a remodeling plan for your fireplace, consider the following questions:

•   Do I mind if this is permanent? Some fireplace updates won’t be reversible, so you may want to sleep on it before you dive into something you’re not in love with.

•   Do I want wood, gas or both options? Some areas or individuals prefer gas over wood burning options. Wood burning can add to poor air quality in some cases.

•   How much do I want to spend on the project? Materials, installation, and time can be costly, and some updates are more affordable than others.

•   Are you updating the fireplace for potential sellers or yourself? Answering this question might give you a better idea of how much you want to spend, and which style might appeal to a future buyer.

Depending on what you have in mind for your hearth, options for updating may vary. Warm yourself up with these fresh takes on the fireplace.

Painting the Fireplace

Painting your fireplace is likely the most affordable way to give the room an update. Paint can cost anywhere between $30 to $100 per gallon , depending on where you live and what type and brand you go with.

1. Applying a coat of paint to the fireplace shouldn’t take more than an afternoon, but some professionals recommend you prep with these steps beforehand:

2. Brush the wall to clear off mortar or debris.

3. Vacuum the debris from the brick.

4. Clean and degrease the fireplace brick with a sponge.

5. Choose indoor, latex, heat resistant paint (200 degrees).

There are seemingly endless colors and types to choose from, but many designers recommend a neutral black, gray, or white.

A white or neutral tone can have a space-opening effect, making the room seem larger. Some colors will make the room look smaller, and might turn off potential buyers in the future. Flat, semigloss or gloss can be used.

Remodeling the Mantel

Adding a mantel or remodeling your existing one can change the entire look of a fireplace. Your mantel could include additional built-ins around the fireplace, or a simple minimalist board above the firebox.

Switching up your mantel is typically an easy remodel since it’s just a frame for the fireplace itself. The costs associated with it are likely tied to how ornate your plans are. Out-of-the-box mantel kits start around $180 , and can be assembled and installed in a day by a DIY novice.

If you have more ambitious plans for your mantel, it’ll likely cost you. Stone and marble mantels start at $3,000 , and a custom mantel costs a similar amount. The more complicated the design, the higher the price of creation and installation.

Mantel installation can be pricey, but in many cases it can also be reversed, making it an appealing option in the event that you decide to sell the home down the line.

Tiling Over the Existing Fireplace

If you’re looking to refinish your fireplace, tiling might be the right choice for you. Try a white subway tile for a sleek, modern finish, or a printed tile for a unique pop of color in your space.

The cost of remodeling your fireplace with tile will vary widely based on the size of your fireplace, as well as the cost of tile per square foot.

Tile installation averages around $1,500 for a project this size. However, depending on the condition of your fireplace, you might choose to consult with a brick mason in addition to a tiling professional.

A mason can let you know if its possible for the brick to be covered evenly. But, be warned—once you start tiling over your fireplace, you likely can’t reverse the process.

Covering Your Brick Fireplace with Stone

If you’re looking for a natural but updated treatment on your fireplace, stone might be the right fit. However, if your brick is already painted, it’s likely the mortar required to attach the stone won’t adhere. Consult with a masonry professional to see if your brick is porous enough to cover over.

If your fireplace is a good candidate for stone work, you’ll want to install a cement board over the existing brick as a template for the stone. The resurfacing process costs on average, $1,100 for labor , but depending on which stone you use, expenses can balloon.

•   Artificial stone veneer is the most common choice for most fireplace projects. Although it might look like real stone, it’s not as heavy as the real thing. Installation is similar to that of real stone, but on average, it costs less than real rock.

•   Natural stone veneer is the priciest and trickiest stone to install. It’s heavy, hard to come by, and expensive. Additionally, since it’s more difficult to work with than the alternatives, you may want to work closely with a professional.

•   Faux stone is affordable, lightweight, and has no actual stone. Instead of installing piece by piece, faux stone can be installed in larger panels. However, unlike artificial stone veneer, faux stone bears less resemblance to the real thing and is often hollow.

Drywalling Over the Fireplace

You might be done with brick entirely, and just want a white wall to work with. In that case, drywalling over most of the fireplace might be the solution for you.

With drywall, you can choose to cover all, or a portion of the brick wall and fireplace. You might choose to reveal some bricks, but minimize the overall look of exposed brick in the space.

To drywall around the fireplace, you’ll use two-by-fours and attach sheetrock to them. From there, you’ll paint and have a new wall.

But, be warned, this method can leave your room slightly smaller. Work with a contractor to get a better idea how room dimensions might change. Typically, installing drywall costs $1.50 per square foot, and jobs cost $1,711 on average .

Financing Your Fireplace without Burning up Your Budget

Depending on the route you choose to take, updating your fireplace could turn into a pricey venture.

Remodels can sometimes take longer and creep outside your budget. If you don’t have wiggle room in your savings, you might consider an installment loan with SoFi.

SoFi offers unsecured personal loans for loan amounts up to $100K, it won’t be a lien against your property and you could receive the funds you need in as little as 3 days. With low rates and no fees, you can focus on your focal point for the fireplace of your dreams.

Getting ready to remodel your fireplace? Check out SoFi personal loans to fund your rehab project.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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. Equal Housing Lender.

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