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Before most house hunters can close the deal, they need to qualify for a mortgage. Learning how to apply for a mortgage in advance — and breaking the process down into digestible steps — can help applicants feel better prepared and avoid any unpleasant surprises during the process. (Good news: The mortgage application process is one of those things that is more complicated to explain than to experience!)

Ready to learn how to apply for a home loan? Here are the nine steps in the mortgage process, including moves you can make that may expedite your approval.

1. Estimate Your Budget

Before any mortgage application, your first step should be figuring out how much house you can afford. Being realistic about your budget — factoring in income, debts, monthly spending, down payment savings, and more — can keep you from shopping outside your budget.

Certain budgeting guidelines can help you determine what kind of monthly mortgage payment you can afford. You’ll also want to figure in homeowners insurance, property taxes, and (possibly) private mortgage insurance, or PMI. Some popular methods for calculating your mortgage budget include:

•   The 28% rule: No more than 28% of your gross monthly income should go to a mortgage payment.

•   The 35% / 45% guideline: Your total monthly debt should be no more than 35% of your pre-tax income or 45% of your post-tax income.

When calculating your budget, don’t forget the down payment. A higher down payment can yield a lower monthly payment — and putting down 20% or more could help you avoid PMI — but don’t drain your savings for a down payment. You want to have savings on hand should you need to cover emergency home repair costs down the line.

💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*

2. Choose a Mortgage Type and Term

There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle.

Some choices you’ll need to make at this stage of the mortgage process are:

•   A conventional home loan or government-insured loan (FHA loan, USDA loan, or VA loan)

•   A fixed-rate or adjustable-rate mortgage

•   Your repayment term: typically 15, 20, or 30 years

•   A conforming or nonconforming loan (such as a jumbo loan)

•   If you should opt for an interest-only mortgage

A good lender will walk you through your options, whether it’s a HUD home requiring an FHA mortgage or a high-priced home with a jumbo loan.

3. Get Preapproved

At this stage in the mortgage application process, you can shop around for multiple mortgage lenders and even get prequalified. Look for lenders that not only offer you a great rate but that are also willing to help you navigate the mortgage process. Here are a few questions to ask a lender to narrow down your list.

Found the perfect lender? Then it’s time to get preapproved. During the mortgage preapproval process, you’ll complete a full mortgage application. The lender will perform a hard credit inquiry and issue a letter confirming your ability to borrow a certain amount of money.

In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates. But in general, you’ll need a minimum 620 credit score to buy a house.

A preapproval letter, usually good for up to 90 days, can improve your odds of winning over a seller in a bidding war. In competitive markets, having a preapproval letter may even be a requirement.

Getting preapproved requires some work on your part. You’ll need to furnish the lender with proof that you can afford the mortgage, which typically includes the following documents:

•   Bank statements

•   Paystubs

•   Tax returns

•   W-2s

•   Retirement account statements

•   Gift letter (if you received help from a family member to fund your down payment)

•   Identification

Mortgage lenders prefer borrowers who have stable, predictable incomes. A steady employment history signals to the lender that you have regular income coming in to make the monthly payments of a mortgage. That’s why it’s easier to get approval as a W-2 employee than as a self-employed worker.

In general, lenders like to see two years of employment on a loan application. Self-employed individuals will submit two years of tax returns.

Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?

4.Find a Property and Make an Offer

Your real estate agent will guide you through the process of finding a property and making an offer on a house. The offer is typically written by the buyer’s agent on a standardized form.

Only make offers on properties that fall within the amount you’ve been preapproved for. Otherwise, the lender will need to re-process your full application again. If you don’t qualify for the new, larger amount, you may not be able to secure any loan on the property.

Your offer will typically include earnest money — a good-faith deposit you’re making on the house. It’s usually 1% to 3% of the offer price, and it’s meant to make your offer more attractive to the buyer.

If your offer is accepted, you’ll send the signed paperwork to your lender.

5. Submit a Mortgage Application

Lenders are required to do a second credit check before final mortgage loan approval and will likely ask for further documentation. If you’ve opened a new account, changed jobs, or made a major purchase since preapproval, those actions will have to be vetted.

Responding quickly to your lender’s requests for documentation can help keep your application on track. Your lender likely has most of the required forms from your preapproval application, but in general, you’ll need:

•   Documentation of income: W-2s or 1099s, profit-and-loss statements if self-employed, paystubs, Social Security and retirement account info, information on alimony and child support, etc.

•   Documentation of assets: Bank accounts, real estate, investment accounts, gifted funds, etc.

•   Documentation of debts: Any current mortgage if you own a home, car loans, credit cards, student loans, etc.

•   Information on property: Street address, sale price, property size, property taxes, etc.

•   Employment documentation: Current employer information, salary information, position/title, length of time at employer, etc.

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

6. Be Patient and Avoid New Debt

The average time between submitting a mortgage application and closing is 50 days. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, auto loans, or take on any other new debt. And, of course, make sure to pay all your bills on time.

If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let them know.

It can be tough feeling like your life is on hold while you’re waiting for your mortgage application to be processed. Try to be patient and just let the process play out. Now is a good time to reach out to friends and family who have been through the mortgage loan process before and commiserate. Consider this your orientation into the homeownership club.

Recommended: What’s a Mortgage Commitment Letter?

7. Get a Home Inspection

Home inspections may not be required — but they’re a crucial part of the mortgage loan process. Hire an inspector (your real estate agent may have recommendations, but you can shop around) to thoroughly check the property inside and out for undisclosed problems. If the inspector uncovers expensive issues, you may negotiate for a price reduction or back out of the deal without penalty.

Inspectors will look for a wide range of issues, but some inspectors are more thorough than others. Review this home inspection checklist to make sure your inspector will cover all the bases. In some cases, a general home inspector may find an issue that requires a more specific expert to take a look (and yes, that’ll cost more money — but it may be worth the cost).

Don’t let the infatuation with your dream home blind you. If there are serious issues that come up during the inspection and the sellers won’t budge on price (or agree to fix them before closing), seriously consider walking away. You won’t recoup the money you paid for the inspection — a home inspection costs between $300 and $500 — but if it keeps you from investing in a money pit, it’s money well spent.

8. Go Through the Mortgage Underwriting Process

A major part of mortgage loan processing is the underwriting process. But what is underwriting? The underwriting process begins after you complete your mortgage application and ends after all the documentation has been completed and includes the appraisal. During this process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance.

An appraisal is an independent property evaluation of a home’s value. It will describe the home and what makes it valuable. Factors that affect the appraisal value include the location, condition, amenities and features, and market conditions in the area.

A lender requires a home appraisal to ensure that it isn’t lending more than the property is worth. If the appraisal comes in too low, the lender won’t lend extra money to cover the gap. Buyers will need to cover the difference with their own money or renegotiate the price with the seller to match the appraisal.

Once the appraisal is complete and all documentation has been reviewed and verified, the underwriter will recommend approval, denial, or pending. A pending decision is given when information is incomplete. You may still be able to get the loan by providing the documentation asked for.

After underwriting approval with a “clear to close,” you’re set to close on your loan.

Recommended: Local Housing Market Trends

9. Close on Your New Home

Closing day is when all parties sign the final documents, and ownership is legally transferred from the sellers.

In the days prior to your close, the lender should provide a final list of closing costs. Closing costs are typically 3% to 6% of the mortgage principal and consist of:

•   Lender fees

•   Appraisal and survey fees

•   Title service

•   Recording fees

•   Home warranty costs

•   First year’s premium of PMI

You can pay closing costs by wire transfer a day or two before, or by cashier’s check or certified check the day of closing.

Before arriving at closing, however, you’ll want to do a final walk-through of the property. During this walk-through, confirm that the sellers have made all the repairs agreed to — and that the buyers haven’t removed anything, like appliances, that were meant to be left, per the purchase agreement.

In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork at closing. In recent years, remote online closings have become more common.

The Takeaway

Applying for and securing a home mortgage loan follows a simple process that can seem complicated the first time you do it. But if you reply to questions promptly and are organized with your documents, it’s actually pretty simple — even if it does involve a little waiting time.

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 first steps of applying for a mortgage?

The first step when applying for a mortgage is estimating how much house you can actually afford. Once you have an idea of your budget, you can research mortgage types and lenders and get preapproved for a loan.

What are the steps of mortgage loan processing?

During mortgage loan processing, an underwriter will first review your personal information and information about the sale property to determine approval. The potential lender will request an appraisal of the home, and also request additional documents from you as needed. Finally, the underwriter will recommend approval or denial of the loan.

How long is a mortgage loan in processing?

It takes a little under two months from the date you submit your mortgage application and close on the house — the average timeline is 50 days. In some scenarios, you may be able to close in as little as 30 days.

How do you know when your mortgage loan is approved?

Your mortgage loan officer will contact you when your loan is approved. They may call you to give you the good news, but you’ll want to see it in writing so watch for an email as well.

What should I avoid after applying for a mortgage?

You want to keep your financial situation as stable as possible during the mortgage application process. That means don’t open new credit accounts, and keep your credit utilization down (no extra swipes on those credit cards). Don’t fall behind on any bill, either.

Photo credit: iStock/MicroStockHub

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

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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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Researching the most affordable places to live might be on your to-do list if you’re hoping to move to an area with a lower cost of living. Reducing household expenses can be one of the best ways to start building wealth, or at the very least, create some financial breathing room.

We’ve put together a list of the most affordable places to live in the U.S., based on things like housing costs and overall value for the money. Keep reading to learn which cities are rated as the most budget-friendly places to call home.

Most Affordable Cities in the US

If you’re considering how to move to another state and are interested in finding the most affordable places to live in the U.S., it helps to know what makes one city better than another. Things like housing costs, the cost of utilities, and what you’ll spend on food, transportation, and entertainment can all factor into your decision if you’re planning a move.

Keep in mind that the cost of living is not static, which can affect how affordable a city is at any given time. Additionally, the cost of living by state can vary dramatically based on factors like the size of the population, demand for housing, availability of jobs, tax laws, and average household incomes.

💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

How We Found the Cheapest Places to Live

We compiled our list of the most affordable places to live in the U.S. based on the cost of living as it relates to housing. Specifically, we considered median rents for a one-bedroom apartment and median home sale prices for individual metro areas across the country. The cities that had the lowest cost of living in the U.S. overall, based on those criteria, are the ones that made the list.

What are some characteristics of the most affordable places to live? In general, the list includes:

•   An accessible housing market that isn’t pushing homeowners or renters to the limits of their budgets

•   Utility prices that are at or below the national average

•   Lower tax rates, including income tax, sales tax, and property tax

•   Pricing for groceries and fuel, as well as other goods and services, that align with the typical household income

Do the cheapest places to live always check all of these boxes? Not necessarily. But the most affordable places to live typically offer a cost of living that’s below the national average.

With that in mind, here are 10 of the cheapest places to live in the U.S.

1. Hickory, North Carolina

Median home price: $288,000

Median rent: $879

Hickory may be an ideal place to live if you love the outdoors. There’s plenty of access to hiking and biking trails and mild temperatures are perfect for kayaking or tubing down the Catawba River. In terms of affordability, Hickory offers housing and rental prices that are well below the national average. Plus, the city offers the additional advantage of being close to both Asheville and Charlotte.

2. Brownsville, Texas

Median home price: $225,500

Median rent: $700

Brownsville offers the dual advantages of moderately priced housing and being located in a state with no income tax. Home prices rise the closer you get to the Gulf of Mexico, but there are still plenty of budget-friendly options to choose from. Cold weather is a rarity here, which is a plus if you’re looking to move to a warmer climate. Keep in mind, however, that hurricanes and tropical storms occasionally pay visits to the Texas coastline.

3. Fort Wayne, Indiana

Median home price: $230,300

Median rent: $1,149

Fort Wayne could be ideal for home buyers looking for affordable housing. Renters don’t fare quite as well, as median rental prices are higher than some of the other cities included in our rankings. Overall, however, Fort Wayne has a low cost of living, and it offers a quiet place to call home while still having plenty of the amenities you’d expect to find in a bigger city.

4. Dayton, Ohio

Median home price: $207,600

Median rent: $736

Dayton is one of the most affordable places to live for both homeowners and renters alike, with home prices and rents that are well below the national average. The city of Dayton could be a good fit for families who are looking for access to a strong public school system, or for single people and childless couples who desire a relaxed pace. There are plenty of outdoor spaces to enjoy, as well as numerous options for dining and entertainment.

5. Sioux Falls, South Dakota

Median home price: $354,500

Median rent: $815

If you’re looking for an area with a low cost of living that experiences all four seasons of weather, Sioux Falls might be on your list. Housing is a little more expensive here compared to some of the other cities in our rankings, but rent prices may be appealing if you’re not quite ready to buy. There’s a thriving job market, and Sioux Falls offers plenty to do, including aquariums, museums, and parks.

6. Knoxville, Tennessee

Median home price: $395,000

Median rent: $1,256

The city of Knoxville attracts a diverse mix of people who are looking for an affordable place to live, including families, young professionals, college students, and retirees. Housing prices are on the higher side here, but the overall cost of living remains low. Knoxville offers plenty to do and see, which is great for people who are hoping to maintain a more active lifestyle. It’s also just over an hour away from the Great Smoky Mountains in case you want to get away from the bustle of city life for the weekend.

7. Erie, Pennsylvania

Median home price: $177,500

Median rent: $750

Erie boasts affordable housing for both renters and homeowners, along with lakefront views and access to good schools. Erie has low levels of crime and rates well for livability. Its population isn’t growing as quickly as other comparable cities, though whether that’s a pro or a con for you might depend on whether you prefer a larger city or a smaller one. Keep in mind that slower job growth can be a side effect of lower population growth, which is something to consider if you’re moving to Erie to explore career opportunities.

8. Huntsville, Alabama

Median home price: $350,000

Median rent: $975

Huntsville has a burgeoning economy, with plenty of opportunities for job-seekers. The cost of living is low overall, though a home may cost you a little more here compared to other cheapest cities on the list. Huntsville has a number of attractions to take in, including the U.S. Space and Rocket Center, along with some eye-catching natural scenery. One thing to note about the weather is that northern Alabama is often prone to seeing tornadic activity during the spring months.

9. Peoria, Illinois

Median home price: $120,000

Median rent: $695

Peoria might make your shortlist of possible candidates for a new place to live if you’re looking for affordability, good schools, and access to housing. There are plenty of young professionals and families living here, though the population isn’t so large that you’ll feel like you’re getting lost in the crowd. If there’s one potential downside to consider it’s crime. Property and violent crime rates are both above the national average.

10. Kalamazoo, Michigan

Median home price: $195,000

Median rent: $895

Kalamazoo is something of a cultural hotspot, with plenty of theaters, museums, and live music venues. The city hosts numerous community events year-round that always draw a crowd. From a cost perspective, Kalamazoo is highly affordable, and it attracts a lot of young people who are looking to start a career. There are a few downsides, however, including harsh winters and high poverty rates.

Recommended: 10 Most Affordable Cities Based on Cost Per Square Foot of Homes

Other Factors to Consider Before Deciding Where to Live

Cost can be a major concern when planning a move. For example, you might be debating the merits of renting vs. buying, or what you might pay for things like childcare if you’re a parent or health care if you don’t have insurance.

While the financial side of things is important, there are some other things to weigh when deciding where to move. That can include things like:

•   Job opportunities if you’re moving without a job lined up

•   Access to daycare and quality schools if you have kids

•   Crime rates and overall safety

•   Access to public transportation if you’re not taking a vehicle with you

•   Climate and whether the area is vulnerable to things like tornadoes, hurricanes, or wildfires

•   Population size and seasonality (for example, a beach town could get crowded once summer rolls around)

•   Recreation and entertainment

Last but not least, consider how much money you might need for the move itself. If you don’t have cash on hand to cover a moving van, security deposits, or other expenses, you might need to look into financing options. For example, getting a relocation loan for moving could make it easier to get settled in your new place.

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

The Takeaway

Keeping your budget in check — whether you’re relocating across the country or across town — is important when a move is in the works. For example, if you’re planning to buy a home in your new city, using an online home affordability calculator can help you pinpoint what price range you should be looking in for properties.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What determines cost of living for a city?

Cost living is influenced by several factors, including how affordable housing is in a given location, what people pay for transportation and food, and the cost of entertainment and recreation. Areas that have a higher cost of living may also offer a higher median household income, though the two don’t always go hand in hand.

How can I lower my cost of living?

Cutting expenses is a good way to reduce your cost of living. That might include making smaller cuts to your budget, or larger ones, like downsizing your home or moving to a cheaper city. Making a move might seem impractical, but it could yield significant savings if your cost of living in your new city is much lower than it was in your previous location.

Can I borrow money to move?

Moving loans can put cash in your hands that you can use to cover the expenses of relocating. For example, you might use a moving loan to hire professional movers, rent a moving truck, pay for shipping costs, or fund deposits if you’re renting a new place. You could also use a moving loan to help cover your expenses as you get settled in until you find a job.

Photo credit: iStock/Ridofranz

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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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Government-backed mortgages can be easier for potential homebuyers to qualify for as these loans are insured by the federal government, which brings down the risk for lenders. There are three main types of government-backed mortgages that can help consumers — and especially first-time homebuyers — reach their goal of homeownership.

Let’s take a closer look at these different types of government-backed mortgages and how these government-backed insured mortgages work.

What Is a Government-Backed Mortgage?

Essentially, a government-backed mortgage is a mortgage loan that a federal government agency insures. These types of mortgages are typically easier to qualify for than conventional home loans, as the lender takes on less risk due to the government insurance that forms the safety net underpinning the loan.

Of course, consumers can also apply for non-government-backed mortgages, so it’s important to do your research before applying for home loans to see which mortgages best suit your financial needs.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

How Do Government-Backed Mortgages Work?

Let’s take a closer look at how government-backed home loans work. To start, they are insured by one of three different federal agencies.

•   Federal Housing Administration (FHA loans)

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

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

The way this works is that if the borrower defaults on the loan, the government repays the lender instead. This greatly reduces the risk that the lender faces, which means they can in turn extend more favorable interest rates to borrowers who may not normally qualify for low interest rates. Many government-backed loans also don’t require a down payment.

Most of these loans are not issued by the government. Consumers still have to apply with private lenders and it’s a bit hit or miss which (if any) types of government-backed loans a private lender might offer.

A government-backed loan works differently than a conventional loan. To start, conventional loans don’t have any government backing and therefore have stricter eligibility requirements. Typically, government-backed loans also have different mortgage insurance requirements than conventional loans and may charge more upfront fees.

Borrowers who choose a government-backed loan also have to meet different eligibility requirements than borrowers who choose a conventional loan. For example, only members of the military or select family members can qualify for a VA loan.

Different Types of Government-Backed Mortgages

There are three different types of government-backed mortgages: FHA, VA, and USDA loans. Each type of mortgage is designed to meet the unique needs of different borrowers. Some consumers may qualify for all three loan types or they may meet the requirements and qualify for just one type of mortgage-backed loan. In some cases, a borrower may not qualify for any of these loans.

•   FHA loans This loan type is backed by the Federal Housing Administration and it tends to be much easier to qualify for than USDA and VA loans. FHA loans are popular with first-time homebuyers. Having a credit score of at least 580 is a must and a down payment of 3.5% is necessary. Those with a credit score in the 500 to 579 range can still qualify, but only if they make at least a 10% down payment. The main disadvantage of FHA loans is they require mortgage insurance initially. If the borrower makes a downpayment of 10% or more, after 11 years the lender can remove the mortgage insurance requirement, but many borrowers need to refinance to escape this insurance.

•   USDA loans Low- or moderate-income borrowers looking to buy a home in a rural area or select suburban areas may qualify for the USDA’s Rural Development Guaranteed Housing Loan Program. There are a few different types of USDA loans and which one a borrower can qualify for depends on their credit score and income. There are no down payment requirements with USDA loans, but there are mortgage insurance requirements. There is no way to remove mortgage insurance from the loan, however the insurance payments are typically lower than those for conventional or FHA loans.

•   VA loans VA loans are only available to active-duty service members, veterans, reservists, National Guard members, and certain surviving spouses. There are no credit score requirements for VA loans or down payment requirements, although some lenders may have their own credit score requirements. There are no mortgage insurance requirements for VA loans, but there are some extra closing costs that can equate to 1.4% to 3.6% of the loan amount.

Pros and Cons of Government-Backed Mortgages

There are some unique advantages and disadvantages associated with government-backed mortgages:

Pros

•   Can be easier to qualify for than conventional loans

•   Lower down payment requirements (or no down payment at all)

•   Lower credit score requirement (or no requirement at all)

•   Potentially lower interest rates

Cons

•   VA and USDA loans can be hard to qualify for

•   You may need to pay mortgage insurance for the life of the loan

•   Not all lenders offer government-backed mortgages

Examples of Government-Backed Mortgages

There are three types of government-backed mortgage. They are USDA loans, VA loans, and FHA loans. Here is how a USDA loan might work: Let’s say you are home-shopping in an area with a population under 20,000. If you have an average or only slightly above-average salary for the area and a credit score of 640 or higher, you might qualify for a USDA loan. (So, for example, if the median annual income in the area is $62,000, you could qualify with a salary of $71,300 or less.) If you borrowed $100,000, you would have a $1,000 mortgage insurance cost upfront, and you would pay about $29 per month for mortgage insurance after that.

If your military service history makes you eligible for a VA loan, you would likely need a credit score of at least 580 to go with a VA loan. You wouldn’t need a down payment or mortgage insurance, but you would pay an upfront funding fee of between 0.5% and 3.6% of the loan amount unless exempt. Your purchase would need to be a primary home, but unlike with the VA loan, there are no restrictions on where that home could be located or what your annual income might be.


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

Is a Government-Backed Mortgage Worth It?

Whether or not a government-backed mortgage is worth it depends entirely on the borrower’s other home loan options. It’s generally a good idea to shop around with different lenders for the best possible deal. Spend some time comparing potential interest rates, fees, and mortgage insurance requirements to see which loan will cost the most in the long run. First-time homebuyers often find government-backed mortgages especially attractive, in part because it can be difficult to come up with a down payment for a first home.

The Takeaway

Government-backed mortgages can be a great option for borrowers, especially those who don’t qualify for a conventional mortgage. While these government-backed mortgage loans can be hard to qualify for if the borrower doesn’t meet unique requirements (like being a military member or buying a home in a rural area), they can have more relaxed credit score and down payment requirements than those of conventional mortgages.

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 government-backed mortgages?

Government-backed mortgages are mortgage loans insured by a select federal government agency. There are USDA, FHA, and VA loans available to eligible borrowers. Because these loans are insured by the federal government, the private lenders who issue them take on much less risk and can work with borrowers who wouldn’t traditionally qualify for a home loan.

What are the benefits of a government-backed mortgage?

Often, government-backed mortgages are much easier to qualify for than conventional mortgages. They typically have lower credit scores and downpayment requirements. Because these loans are insured by the federal government, lenders can work with “riskier” borrowers to whom they may not normally offer a conventional home loan.

What are the three types of government-backed loans?

The three main types of government-backed loans are FHA, VA, and USDA loans. The Federal Housing Administration offers FHA loans, the U.S. Department of Agriculture backs USDA loans, and the Department of Veterans Affairs is responsible for VA loans.

Photo credit: iStock/Prostock-Studio

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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

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Buying a house with your partner? You’ll need to make many decisions during the process — like figuring out who gets to use that sweet spare room as a home office or what your landscaping will look like. But one of the most important choices is how the two of you hold the title of the house. It might sound like a no-brainer, but there are actually a few different legal ownership designations to know and understand.

Both joint tenancy and community property with right of survivorship are ownership structures that can be used by partners buying a home together. But community property with right of survivorship is specifically reserved for married couples, and is only available in certain states. Community property with right of survivorship offers certain tax benefits in the event that one spouse dies before the other, but both of these ownership structures confer joint ownership over the property to both people whose names are on the title.

Let’s take a closer look.

What Is Joint Tenancy?

In order to fully understand community property, it’s helpful to first understand joint tenancy, which is the ownership structure that came first. In fact, community property with right of survivorship is a fairly new legal designation; it was invented by the California legislature back in 2001.

Before that time, joint tenancy was one of the most common ways that couples — or other parties holding an asset together — designated their ownership. Joint tenancy basically states that everyone has equal ownership over the shared asset, be it a piece of real estate or a joint brokerage account. Conceptually, it helps to think about each person owning 100% of the asset, rather than each holding a proportional amount (50/50, 33/33/33, etc). If you and your spouse are first-time homebuyers on the market, understanding this legal jargon is an important step in the journey.

Joint tenancy could be shared between more than two people under certain circumstances — like if you and two friends bought a vacation home together. But because everyone in the agreement owns 100% of the asset, nobody can sell their share of it or will it to their heirs after their death. That’s the “right of survivorship” part: Any surviving parties automatically have ownership rights over the asset if one of the owners dies.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

What Is Community Property?

Community property works very similarly to joint tenancy, but is reserved specifically for married couples. (That’s why it’s also sometimes known as marital property.) Community property is only a legal designation in a handful of U.S. states, including:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

Three additional states — Alaska, South Dakota, and Tennessee — allow couples to decide whether or not they’d like to opt into a community property ownership structure — whereas in the other states listed, community property is the default status for shared ownership of assets between married couples. It is, however, always possible to opt out of the community property system with a prenuptial agreement.

Under community property, each partner has equal joint ownership over shared assets — which, again, can range from a piece of real estate to bank accounts and even to debt (like a mortgage). This means that, in the event of a divorce, all assets are required to be split 50/50 — which is part of why some partners in those states might opt to sign a prenup ahead of time, if they want to hold onto an asset no matter what.

However, community property also comes with the added bonus of some tax incentives for spouses — which is part of why it was created in the first place.

Recommended: The Cost of Living By State

The Difference Between Joint Tenancy and Community Property With Right of Survivorship

The most salient difference between joint tenancy and community property with right of survivorship comes down to taxes.

That’s right: This ownership structure is really all about how much a surviving spouse stands to owe Uncle Sam if their partner passes away.

What Are the Tax Benefits for Surviving Spouses in Community Property States?

In a joint tenancy situation, even with right of survivorship, a property sold after the death of a spouse would be subject to capital gains taxes — taxes levied against earnings on an asset like a home or an investment.

Part of the reason buying a house is considered such a good financial move is because homes tend to appreciate, or grow in value, over time. With the capital gains tax, a surviving loved one would be required to pay taxes on that appreciated value if they chose to sell the home after their spouse’s death.

Community property with right of survivorship, however, allows these proceeds to be exempt from the capital gains tax — which can ease the overall financial burden in an already difficult time.

What Is the Right of Survivorship in Real Estate?

Now let’s take a look at the piece that both joint tenancy and this type of community property have in common: right of survivorship.

Right of survivorship in real estate pretty much does what it sounds like — it confers the surviving partner, in the event of the other party’s death, the right to continue to live in the house. Again, this can ease the burden for a surviving spouse in an incredibly difficult emotional time, when there are already other significant financial planning steps to take. However, it also means that couples under this ownership structure are unable to give the home to an heir, or anyone else, in their will. The property will instead automatically be under the ownership of the surviving spouse.

Recommended: How Home Ownership Can Help Build Generational Wealth

How Does a Right of Survivorship Work With a Will?

So what happens if a person sharing community property — or joint tenancy, for that matter — with right of survivorship tries to leave some or all of their property to an heir in a will?

While every legal case is different, in most cases, the right of survivorship will take precedence over wishes stated in a will. So if Rebecca and Ann share a home under community property with right of survivorship, and Rebecca writes into her will that she’d like to leave her share of the home to her grandson Pete, it’s very likely this wish will be superseded by Ann’s right to survivorship in the event of Rebecca’s death.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Community Property vs Community Property With Right of Survivorship

It’s important to understand that the right of survivorship part of this kind of agreement is separate from the community property part.

Community property basically states that assets acquired in a marriage are evenly shared between the partners, 50/50 — and must be distributed that way in the event of a divorce. But without the right of survivorship, a partner would still be able to will their 50% of the home to whomever they want, which may or may not be their surviving spouse. Those few extra words make a big difference!

The Takeaway

Community property with right of survivorship is a legal ownership structure that confers ownership rights and possible tax benefits to married couples, while also creating rules as to how assets are distributed in the event of a divorce. You’ll need to decide on your preferred ownership structure when purchasing a home, along with other important decisions you’ll make.

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 difference between joint tenancy and community property with right of survivorship in California?

Although the designation of community property with right of survivorship was originally invented in California, couples can own property there under either ownership structure — and indeed, many maintain joint tenancy. Community property requires couples to split assets 50/50 in a divorce, which is not the case with joint tenancy. However, in both cases, right of survivorship confers the surviving spouse the right to ownership over the home, and other assets, in the event of one spouse’s death.

What is the difference between joint tenancy and community property in California?

In California, as in all states, the most salient difference between joint tenancy and community property is how a property is taxed in the event it is sold after one party’s death. In addition, community property is an ownership structure only available to married couples.

What are the disadvantages of community property with a right of survivorship?

While every type of shared ownership structure has both benefits and drawbacks, one drawback of community property with right of survivorship is that neither owner can choose to will their share of the property to an heir — instead, ownership is automatically conferred to the other party in the event of their death. Additionally, community property must, by law, be split 50/50 in the event the couple divorces, whereas in other cases there’s more flexibility about what constitutes an “equal” dispersal of assets.

Photo credit: iStock/andresr

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

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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.

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

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

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