SoFi

In housing markets teeming with buyer demand, it’s not uncommon to put an offer on a home only to be outdone by a competing offer. If two or more potential buyers want a property badly enough, they may find themselves locked in a bidding war.

Some market watchers think that pent-up demand from homebuyers and increasing seller activity will make for a busy homebuying market in 2025. And let’s face it: Some markets are always competitive, and new “hot” markets are born regularly.

Here’s how to increase your chances of winning a bidding war so you don’t have to bid adieu to a home you really want.

1. Know How a Bidding War Works

Bidding wars usually take place in a seller’s market, when demand outpaces housing inventory. They also typically occur when there are multiple interested parties and when there is some sort of constraint, like timing.

When a seller’s agent receives offers for a property that has attracted a lot of buzz, the agent may set a date by which would-be buyers should make their “highest and best” offer. Sellers can accept the best offer, counter one offer while putting the others to the side while awaiting a decision, or counter one offer and reject the others.

This brings up a salient point: It’s true that you can buy a house without a Realtor® or real estate agent, but an experienced agent can guide you through offers and counteroffers, contingency snags, and more.

2. Line Up Your Financing

One of the best things you can do to be prepared for a potential bidding war — or really any time — is to get your finances, and financing, in order.

Be sure to know how much house you can afford, including a down payment and monthly payments.

Determine if you qualify for a mortgage by going through the prequalification with several lenders. Familiarize yourself with the types of mortgage loans that are available: government-backed loan or conventional loan, fixed rate or adjustable rate.

Taking the next step beyond prequalification and go through the mortgage preapproval process. Getting preapproved for a mortgage will give you a specific amount that a lender is tentatively willing to let you borrow. A preapproval letter shows sellers that you are a serious candidate to buy a home. Many experts recommend getting at least three preapproval letters from three lenders.

And a preapproval letter shows sellers that you are a serious candidate to buy a home. Many experts recommend getting at least three preapproval letters from three lenders.

3. Lessen or Drop Contingencies

Contingencies are certain conditions that must be met before a real estate deal becomes binding. Potential buyers can back out of a deal without penalty if the contingencies aren’t met.

A clean offer, one with as few contingencies as possible, is attractive to sellers in a competitive market.

In a typical real estate market, a common contingency is the mortgage contingency, or financing contingency, which allows homebuyers to exit the deal and have their earnest money returned if they cannot secure financing by the agreed-upon deadline.

Another is the inspection contingency. Based on the findings of a professional inspection, the buyer may be able to negotiate repairs or the price, which are known as seller concessions if the sellers are agreeable, or cancel the contract.

Waiving contingencies shows your eagerness to triumph, but it comes with risk. The biggest is losing your earnest money deposit if you hit a snag.

4. Be Quick About Any Remaining Contingencies

Sellers want to avoid spending a lot of time with a potential buyer only to have the deal fall through. If you’re including appraisal and inspection contingencies, do what you can to expedite them.

The real estate purchase contract includes any contingencies, the sales price, the closing date, and the date of the title transfer and possession. The contract is considered a working document until both parties agree on the terms.

5. Use an Escalation Clause

Unsurprisingly, one of the best ways to win a bidding war is by offering more money.

You may want to include an escalation clause in the contract if you assume there will be multiple offers. The clause asserts that if another buyer makes a competing offer, your bid will automatically increase by a certain amount, up to a limit, to exceed the offer.

Say you put a $400,000 offer on a home, with an escalation amount of $10,000 and a ceiling of $430,000. If someone else bids $410,000, you will automatically bid $420,000, up to your ceiling.

6. Stay Flexible

A willingness to be flexible can give you a leg up in the eyes of a seller.

For example, a seller might be moving across the country for work and need to close by a specific date. So if you can get the appraisal and inspection done swiftly, that could be a huge plus.

Alternatively, sellers may need to stay in the house for a while. Working with them on their specific needs could give you an edge.

7. Pay With Cash

If you are able to do it, buying a house with cash can be very attractive to sellers. The process is typically much faster than going through a lender, and sellers don’t want to worry about financing issues that might hold up the deal or cause it to fall through.

It’s even possible that a seller would choose a cash offer over a slightly higher offer backed by a mortgage.

8. Increase Your Deposit

There are timeless standards for how to make an offer on a house. One is determining the size of your earnest money deposit.

The deposit, held in escrow by the title company, secures the real estate contract. It tells the seller that you are serious about buying the house.

Earnest money is typically 1% to 3% of the purchase price but can be more in a competitive market. If you close on the home, the deposit will be applied to your closing costs.

9. Write a Personal Letter

When sellers are choosing a buyer during a bidding war, they’re often just looking at numbers on a page. Consider writing a offer letter, aka a love letter, to humanize the transaction.

You might want to make a case for why you’re the ideal candidate to buy the home, and note commonalities: You’re a ceramicist and noticed an artist’s studio in the backyard. You have dogs; they have a dog. That big elm reminds you of the one at your childhood home.

Be complimentary about the things you like about the house and how it has been maintained. And be concise.

The Takeaway

Whether you’re buying in a time of burgeoning bidding wars or not, it’s good to know how they work. The tactics help homebuyers understand the lay of the real estate land — contingencies, earnest money, escalation clauses, love letters — and use them to best effect.

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

Can a homeowner refuse to sell a house to a particular buyer?

Yes, a seller can refuse to sell a home to a buyer without penalty as long as there is no purchase agreement in place, and as long as the refusal is not a violation of the Fair Housing Act. The act prohibits housing discrimination based on sex, race, color, familial status, or national origin.

When should you walk away from a bidding war?

You’ll know you should walk away from a bidding war when you run the numbers on a home mortgage calculator and determine that the monthly payments just aren’t feasible (or are doable but will keep you awake nights). Other reasons to walk away include: The home was pricey for the market or a stretch for your budget at its initial asking price; there are multiple bidders; or the house wasn’t your dream home to begin with.

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

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

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If you’re thinking about refinancing your home loan or paying off your mortgage early, you might request a mortgage payoff statement. The amount due on this document is likely to be different from your current balance because it includes interest owed until the payoff date and any fees due.

Read on to learn more about what a mortgage payoff statement or letter is and when you might need one.

What Is a Mortgage Payoff Statement?

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

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

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

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

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


💡 Quick Tip: You’ve found an award-winning home. Enjoy an award-winning mortgage experience, too. SoFi has knowledgeable Mortgage Loan Officers to guide you through the process.

How Does a Mortgage Payoff Statement Work?

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

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

When you make the request from the company that handles your mortgage servicing, you’ll need to provide the following details:

•   Your name

•   Address

•   Phone number

•   Your loan number

•   The date you want your payoff to be effective if you’re seeking to pay off your mortgage early.

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

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

Recommended: 5 Tips for Finding a Mortgage Lender

What Information Do Mortgage Payoff Letters Contain?

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

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

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

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

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

💡 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.

Do You Need a Mortgage Payoff Statement?

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

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

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

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

“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.

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

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

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

The Takeaway

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

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

How do I get my mortgage payoff statement?

Contact your loan servicer to request your mortgage payoff statement.

When should I get my mortgage payoff statement?

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

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

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

Photo credit: iStock/Vadym Pastukh

*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.

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If you’re shopping for a home loan, you may be wondering if using mortgage points to “buy down” your interest rate is a good move for you.

The answer is … it’s complicated.

Whether you’re buying or refinancing your home, purchasing mortgage points from your lender can lower your monthly payment and reduce the overall amount of interest you’ll pay on your loan. And that’s certainly an appealing prospect.

But it’s important to understand how points work — how much they can cost and how much they might save you over the life of your loan — before you decide to hand over that extra cash up front at your closing.

What Are Mortgage Points?

Mortgage points, also known as discount points, may be used by a borrower to prepay some of the interest on a home loan in exchange for a lower mortgage rate. The borrower pays more up front (the points are paid as a fee at closing) but can end up saving money over time because the interest rate is then reduced for the life of the loan.


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

How Do Mortgage Points Work?

Lenders typically base their interest rate offers on several factors, including a borrower’s credit profile and current market rates. But once you receive that initial offer, your lender also may give you the opportunity to buy down your rate through the use of mortgage points. (If the lender doesn’t bring it up, you can ask.)

Every point purchased reduces the interest rate a borrower pays by a predetermined percentage, which can vary from one lender to the next. But let’s say your lender offers you an initial rate of 3.25% and provides a 0.25% rate reduction if you purchase one discount point. If you decide to buy the point, your rate would then be 3%.

Each point you buy typically costs 1% of the amount you’re borrowing, and that money is due up front. So, for example, if your loan is for $200,000, a point will cost $2,000 at closing. If that seems too steep, you may be able to purchase a fraction of a point. A half-point in this scenario would cost $1,000, or three-quarters of a point would be $1,500.

How Do Points Affect Your Mortgage?

Here’s a hypothetical example to illustrate how buying one point could reduce the cost of a 30-year, fixed-rate $200,000 mortgage. (This is a bare-bones example, so the payment amount includes principal and interest only.)

Keep in mind that the borrower in this scenario would have to stay with the loan for the entire 30-year term to get the full savings — and that can be rare these days. Homeowners only stay in a home for an average of eight years, and many refinance their home loans.

That’s why it’s important to factor in your “break-even point” — when the savings from the lower mortgage cost offset what you paid for the discount points — before you make your decision.


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

What Is the Break-Even Point?

Paying points on a mortgage can lower your monthly payment and save you thousands of dollars — if you keep the same loan long enough to recover the money you paid up front. If you plan to move or refinance before you reach and pass that threshold, paying points may not make sense.

To calculate the approximate point at which you would get back what you spent on prepaid interest, you can divide the amount you paid for any points by the amount you’ll save each month on your payment. For example, as noted in the chart above, if you purchased one point for $2,000 at closing, you’ll save $27 each month. Divide $2,000 by $27 and you’ll see you can expect to break even in 74 months — or about six years. If you plan to stay in your home much longer than that, buying down your rate could be worth considering.

Can You Buy Points for an ARM?

You can buy points if you decide to go with an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. But it may not be worth it if the points apply only to the ARM’s initial interest rate, which typically lasts for three, five, seven, or maybe ten years. If the rate goes up after that and you decide to refinance, you could lose out on the savings you hoped to get when you paid for the points.

Recommended: How an Interest-Only Mortgage Works

Are Mortgage Points Tax Deductible?

Discount points, which are considered prepaid interest, may be deducted as home mortgage interest if you itemize deductions on Schedule A of your Form 1040. But you’ll need to meet certain criteria in order to deduct mortgage points and you may not be able to deduct all of the mortgage interest and points in the year you paid them.

It’s important to note that only discount points, which represent prepaid interest, are tax deductible. “Origination points,” which also may be referred to as mortgage points, are not tax deductible. These points, which you’ll also pay at closing, refer to the various fees lenders may charge in preparing your mortgage (such as processing, underwriting, administration, or document preparation costs).

Your accountant or tax preparer should be able to answer your questions if you aren’t clear about the amount you can deduct on your annual return.

Is There a Limit on the Points You Can Buy?

The maximum number of points you can purchase to reduce your interest rate may differ based on factors like the financial institution, type of loan you choose, or how much you need to borrow. According to a survey of lenders performed weekly by Freddie Mac, the average number of points reported on 30-year, fixed-rate conventional loans in 2022 was 0.9.

Benefits and Risks of Mortgage Points

Here are some things to consider when you’re deciding if buying points makes financial sense for you.

How Long Do You Plan to Stay in the Home?

If you run the numbers and think you’ll keep your loan past your break-even point, it could be worth paying extra up front. But if it’s a starter home, or you expect to relocate for your career, buying points may not be prudent.

Do You Have Plenty of Money Saved?

Homeownership can be expensive. Are you certain you have enough saved to make a decent down payment, pay for points as well as other closing costs, and still have funds in reserve for the inevitable expenses related to homeownership? If not, you may want to reconsider the benefits of buying down your interest rate.

Did the Seller Agree to Pay Some Closing Costs?

If the seller agreed to pay some or all of your closing costs, you may be able to negotiate discount points as part of that offer.

Do You Plan to Make Extra Payments?

Paying for points could be a smart strategy if you expect to hold on to the same loan for a long time. However, if your goal is to pay off your mortgage early — perhaps by paying more toward the loan principal whenever possible — points may not offer the savings you expected.

Would the Money Be Better Spent on Your Down Payment?

If you have plenty of money saved and you’re trying to decide between increasing your down payment or buying points, you may want to run the numbers to determine which choice will give you a better return on your investment.

If your time horizon is short, you may save more by making a bigger down payment. If you plan to stick around for several years at least, you may choose to put your money toward discount points.

Remember, depending on the type of loan you have, if you make a down payment that’s less than 20%, your lender probably will require that you purchase private mortgage insurance. PMI could add about 0.3% to 1.5% to the cost of your mortgage. And you’ll likely have to pay it every year until your equity in the home reaches 20%.

Pros and Cons of Mortgage Points

Ready to Go Rate Shopping?

Make sure when you shop rates, you’re comparing apples to apples. Some lenders may offer an interest rate that appears lower than others but has a fraction of a point or a point tied to it. If two lenders are offering a 3% interest rate on a 30-year, fixed-rate loan, but one is charging a point to get that rate and one isn’t, the one that isn’t charging the point is offering you a more affordable deal.

Be cautious when comparing mortgage rates: If it isn’t clear how much you’ll pay to borrow, you can ask a loan officer to walk you through your loan estimate and/or to calculate your costs based on different time frames. Lenders are required to disclose information about their products in a way that allows borrowers to make meaningful comparisons.

The Takeaway

What’s the point of mortgage points? They allow homebuyers to reduce their loan’s interest rate by paying some of the interest up front. Buying discount points can save you money on interest over time, but only if you keep the loan long enough to recover the upfront cost.

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.

Photo credit: iStock/Prostock-Studio

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

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

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When you’re ready to buy a house and need a home loan, a mortgage broker can help you shop for a mortgage, or you can go straight to a direct lender such as a bank or credit union and get the mortgage on your own.

Which way of shopping for a mortgage is better? If you have credit issues or other needs, using a broker to see an array of options might make sense. But if your financial health is solid and you want to save time and money, applying with a direct lender could be a good course of action.

In any case, it’s smart to get a few quotes and compare offers for the same type of loan and term.

What Is a Mortgage Broker?

A mortgage broker is like a personal shopper for home loans and serves as an intermediary between the mortgage seeker and lenders, including banks, credit unions, and private mortgage companies.

With a single application, a broker will provide you with access to different types of mortgage loans and, if you choose one, will walk you through underwriting.

Mortgage brokers are licensed and regulated. You’ll want to ensure that any broker you’re interested in working with is credentialed by checking the Nationwide Multistate Licensing System & Registry consumer access site. You can also check platforms like the Better Business Bureau and Yelp to see what past clients say.

Brokers are compensated by the borrower or lender. Borrower fees typically range from 1% to 2% of the total loan amount. Lender commissions may range from 0.50% to 2.75% of the total loan amount, but lenders usually pass the costs on to borrowers by building them into the loan.

How to Find a Mortgage Broker

You could ask your current lending institution, friends, family members, or real estate agent for a referral to a mortgage broker. After checking licensing, you may interview more than one broker before deciding on one. You might want to ask about their fees, lenders they work with, and experience.

What Is a Direct Lender?

In the mortgage broker vs. lender dichotomy, a direct lender is the bank, credit union, or mortgage company that originates, processes, and funds mortgages.

Mortgage loan officers, processors, and underwriters work for the company. Loan originators usually work on commission.

A loan officer may offer a mortgage at various price points, from a loan with discount points for a lower rate to a no-closing-cost loan, which is when the lender agrees to pay the closing costs in exchange for a higher interest rate.

Recommended: First-Time Homebuyer Guide

How to Find a Direct Lender

Most people have a relationship with a bank or credit union, so you can always start by getting a quote there. But there are myriad online mortgage lenders and it’s worth considering these options. Pulling up the day’s mortgage rates online will conjure a list of direct lenders advertising their rates.

What Are the Pros of Working With a Mortgage Broker?

Because they are able to offer a variety of quotes from different sources, brokers can be useful if you’re looking to easily compare mortgage options.

They may offer specialized loans, and because loan brokers set their own profit margins, negotiating could be easier.

A broker could be useful if you have concerns like a fair or bad credit score or student loan debt.

What Are the Cons of Working With a Mortgage Broker?

Brokers may have preferred lenders that don’t necessarily offer the best interest rate. If paid by lender commission, a broker could be tempted to steer a borrower to a more expensive loan.

If paid by lender commission, a broker could be tempted to steer a borrower to a more expensive loan.

Brokers’ loans may take longer to close.

Broker fees tend to be higher, but that could be because the mortgages offered are sometimes more complex. And mortgage brokers may charge borrowers directly (the fee of 1% to 2% of the total loan amount).

What Are the Pros of Working With a Direct Lender?

By working with a direct lender, you’ll skip the broker fees, and you may get a better rate with lower closing costs (although both lenders and brokers can offer “rebate pricing” — a higher interest rate in exchange for lower up-front costs).

A direct lender typically does all the loan processing, underwriting, and closing in-house.

You may be able to negotiate underwriting or origination fees.

What Are the Cons of Working With a Direct Lender?

Comparing rates and terms on your own from a sample of lenders takes time.

You’re limited to the loan programs of the institutions where you decide to shop.

What Works for My Situation?

You’ve probably toyed with at least one home affordability calculator and gotten preapproved for a loan.

Once you’ve found a home and your offer has been accepted, it’s decision time on a lender. You are not required to stay with the lender you used for pre-approval.

If you have a sparse credit history, subpar credit, or other challenges, a mortgage broker might be able to find a loan program that’s a good fit.

But if you have solid credit, a strong income, and assets, you may be able to save time and money by working with a direct lender.

What about rates? In weighing mortgage broker vs. bank, there might be no difference to speak of. The rate you’re offered depends more on your qualifications than on the lender.

The mortgage loan process can seem mysterious, and a broker or a loan officer at a direct lender can act as a loan seeker’s guide.

That guide should be willing to answer all of your mortgage questions, including those about points, fees, mortgage insurance, and the closing timetable.

You’ll receive loan estimates after applying. When comparing mortgage offers, it’s important to look at more than the interest rate. Be sure to compare annual percentage rates, or APRs, as well.

Look at the fees in the “loan costs” section, and compare closing costs.

The Takeaway

If you’re in the market for a mortgage, you might think the choice comes down to mortgage broker vs. direct lender. But you may get loan quotes from both and compare them. It’s called shopping, and a home is a rather important purchase. And as with any form of shopping these days, it’s easily done with a phone or computer, from the comfort of your couch.

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

Is it better to use a broker or a direct lender?

If you have a challenging credit score, or limited credit history, or other financial complexities, a broker might be the way to go. But if your finances are solid you may find going the direct lender to be the most cost-effective way to obtain a home loan.

Why use a mortgage broker instead of just going to a bank?

A mortgage broker can research possible rates from a wide range of lenders, which could save you time. And if you have a challenging financial situation or credit history, a broker might be able to steer you to a lender who will work with your profile.

Does a mortgage broker charge a fee?

Yes. A borrower may have to pay a mortgage broker’s fee of 1% to 2% of the loan amount. When the lender pays a broker a commission, it may range from 0.50% to 2.75% of the total loan amount and these costs are passed on to the borrower by being built into the loan.

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

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

Third-Party 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.

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.

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A low-income home loan is designed to make it possible for borrowers with lower income levels to meet their goals of homeownership. Typically, low-income mortgage programs help borrowers overcome a variety of barriers. Alongside those with a low income, these programs can help if someone has a poor credit score, large amount of debt, or a small down payment.

This guide takes a closer look at such details as:

•   How home loans for low-income borrowers work

•   Examples of these programs

•   How to buy a home when someone has a low income.

What Is a Low-Income Home Loan?

When it comes to home loans with low income requirements, these programs tend to have more relaxed income, credit, and down payment requirements than conventional loans. Other advantages of these programs can include lower interest rates, discounted mortgage insurance, and reduced closing costs.

Many low-income loan programs actually have income limits that prohibit those with higher incomes from qualifying. These programs can make it much easier to qualify for a mortgage when someone has a lower income, but they do still need to be able to afford the cost of their monthly payments.

Some of these programs are specifically designed to help first-time homebuyers, and there can be grants, tax credits, and other types of assistance available to new homeowners.

An April 2024 SoFi survey of 500 would-be homeowners suggests that there is significant need for programs for low-income buyers, yet not enough people are aware of them: Respondents named home availability in their price range as their top concern, and one in five people (19%) said they were not at all optimistic that they would find a home in their budget within the next six months. Yet when asked about their awareness of financing options for buyers with lower incomes, there was widespread lack of knowledge, with one in eight buyers not aware of any of the programs.


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

Examples of Low-Income Home Loans

There are a few different types of home loans for low-income borrowers. Here are a few popular examples:

•   United States Department of Agriculture (USDA) loans. Even with a low income, it’s possible to qualify for a USDA loan if the borrower plans to buy a home in an eligible rural area. As a bonus, this program doesn’t require a down payment.

•   Federal Housing Administration (FHA) loans. These government-backed loans tend to come with lower credit score requirements than conventional loans and only require a 3.5% down payment, no matter what the buyer’s income level is.

•   Veterans Affairs (VA) loans. Active service members, veterans, and potentially surviving spouses can use a VA loan to buy a home without making a down payment.

How Do Low-Income Home Loans Work?

How low-income home loans work depend entirely on the specific loan program the borrower is applying to. For example, with FHA low-income home loans, borrowers must make a 3.5% down payment, but income levels don’t make borrowers ineligible for a loan.

VA loans on the other hand don’t require a down payment at all. It’s best for mortgage seekers to do careful research on each loan program to confirm if they qualify for a mortgage or not.


💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

Pros and Cons of Low-Income Home Loans

Home loans for low-income families come with some unique advantages and disadvantages worth keeping in mind.

Pros of Low-Income Home Loans

First, consider the upsides:

•   Low to no down payment requirements

•   Easier to qualify for than conventional loans

•   Less strict credit score requirements

•   May have more favorable interest rates.

Cons of Low-Income Home Loans

Next, review the downsides of these loan programs:

•   May only work for specific applicants (like VA loans)

•   May require ongoing mortgage insurance

•   Can be harder to find low-income loan programs.

Are Low-Income Home Loans Worth It?

Low-income loan programs can be worth it if the math makes sense. It’s generally a good idea to shop around with different lenders to see which mortgage loan will be the most beneficial. It can be a good idea to compare different interest rates, mortgage insurance requirements, and fees to see which loan will cost the least.

Borrowers can research a variety of loan programs to see which may best suit their needs. For example, home loans for low-income single mothers, home loans for low-income seniors, or low-income home improvement loans are designed for different borrowers.

Steps for How to Buy a House With a Low Income

When a borrower has a low income, there are steps they can take to make buying a house easier.

•   Build one’s credit score. The higher someone’s credit score is, the easier it can be to qualify for a home loan. It’s a good idea for borrowers to check their credit score to see where they stand and if there are any mistakes on their credit report that might be harming their credit score. Consumers will want to consistently pay their bills on time if they want to help build their credit score before buying a home.

•   Pay off debt. Another technique that can help build a credit score is to pay off debt. This can be beneficial to one’s score, and the less debt someone has, the easier it can be to qualify for a home loan. Lenders take a borrower’s debt-to-income (DTI) ratio into account when deciding how much money to lend them and the lower this ratio is, the better.

•   Save for a larger down payment. The larger someone’s down payment is, the less money they need to borrow. When someone has a low income, it’s easier to qualify for smaller loans. Conventional wisdom may be that they will put down at least a 20% down payment, even if the low-income mortgage loan program doesn’t require that large of a down payment.

Recommended: What Is a HUD Home?

Low-Income Home Loan Tips

If someone is struggling to qualify for a low-income home loan, these are some steps they can take to make the process easier.

•   Find the right program. To start, finding a niche program designed to meet the applicant’s specific needs can help. For example, a single mother may want to look into low-income home loans for single mothers, as well as more general loan programs.

•   Use a cosigner. If someone’s credit score or income makes it challenging for them to qualify for a mortgage, they can apply with a cosigner who has the qualifications lenders are looking for. The cosigner needs to know they will be responsible for making payments if the main borrower defaults on the loan.

The Takeaway

While income is a major factor that mortgage loan lenders take into consideration, having a low income doesn’t need to disqualify someone from qualifying for a mortgage loan. There are low-income loan programs that can help consumers meet their goals of homeownership.

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

Can I buy a house if I make $25k a year?

Whether or not someone can buy a house with only a $25,000 a year income depends on a few different factors. The overall cost of the house, their down payment amount, and the lender they choose to work with can all impact if their income will make it possible to qualify for a loan.

What’s the lowest score you can have to get a home loan?

Generally borrowers need to have a credit score of at least 620 to buy a home. All lenders and loan programs have different requirements though, so it’s worth researching the loan programs that work for each applicant’s credit score.

Is there an income limit for first-time homebuyers in California?

Some first-time homebuyer programs in California have income limits. These limits exist to stop buyers who have high-income from taking advantage of programs designed to support low-income buyers.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

*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.

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