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How Does Housing Inventory Affect Buyers & Sellers?

For better or worse, the real estate market can fluctuate from year to year or even month by month. In recent memory, there’s been a pandemic-fueled buying frenzy that fueled bidding wars over the limited supply of properties. Now, as mortgage rates increase, it remains to be seen if the situation is evolving into a low-demand, high-availability market. Signs point to the market being a bit more forgiving for those shopping for homes.

For both buyers and sellers, real estate inventory is a key factor to note. Whether the housing inventory is high or low can carry advantages or drawbacks. It can also impact your strategy if you are hunting for a home or trying to get yours sold.

Here’s a closer look at how to gauge the local real estate market and navigate high and low housing inventory through the perspective of buyers vs. sellers. Read on for details.

What Is Housing Inventory?

An area’s real estate inventory can be thought of as the current supply of properties for sale.

The housing inventory will increase or decrease according to the difference between the rate of new listings on the market and the number of closed sales or houses taken off the market for other reasons.

Although this calculation can be done at any time, it’s common practice to assess the balance at the end of the month. Comparing monthly figures can show if housing inventory is trending up, down, or staying relatively stable.

If there appears to be a rapid trend in either direction, it may signal the need to take quick action on a purchase or sale, or take a wait-and-see position and hold off for a while.

Even within a town or city, real estate inventory can vary significantly. To better understand your local housing market trends, you can dig deeper into important indicators like average time on the market and average price of nearby homes or in your desired neighborhood. Next, we’ll delve into this in more depth.

High Housing Inventory

An area with a high housing inventory has more properties on the market than there are people looking to buy. This can also be referred to as a buyer’s market, since the larger selection of homes usually favors prospective buyers more than sellers.

These conditions may cause the price of homes to stagnate or, in more extreme cases, fall. Typically, the average property will also take longer to sell in this environment.

Still, there’s a huge variety of financial situations and unique property characteristics out there. Each case will be different, but here are some considerations if you’re buying or selling during a moment of high housing inventory.

If You’re a Buyer Amid High Housing Inventory

In many cases, shopping for a new home during high housing inventory can be a blessing.

•   Take it slow (or at least slower). You may be able to see multiple properties before making an offer and size up which home best suits you. High housing inventory means there are fewer buyers to compete with, so there’s less of a risk that homes will quickly get scooped up.

•   Shop around. Knowledge is power when it comes to making an offer. Having viewed comparable houses in the area firsthand could help when it’s your turn at the negotiating table.

•   Do your research. Other property details, such as price reductions and total days on the market, are potential indicators that sellers might be ready to accept an offer below asking price.

Although buyers can have a comparative edge when housing inventory is high, there is, of course, still a chance of multiple offers and bidding wars for well-priced homes. There are likely to be others who want to take advantage of what may be called a soft market in real estate terms.

💡 Recommended: A Guide to Real Estate Counter Offers

If You’re a Seller Amid High Housing Inventory

Putting a property on the market in a location with high housing inventory may require more time to find the right buyer. After all, you’re not the only game in town. However, there are several strategies at a seller’s disposal to unload a house without financial loss.

•   Fix it up. To stand out in a crowded field, it can help to address any persisting issues and accentuate your home’s best assets. Parts of the property in need of common home repairs — the foundation, electrical system, HVAC system, and so on — could discourage potential buyers. Instead of accepting lower offers or other concessions, sellers may save more money by handling the repairs before putting the house on the market.

•   Improve it. Making improvements can be helpful, too. A kitchen reno may be out of reach in terms of time and money, but doing a thorough cleaning and tidying up landscaping are easy fixes that could make a better impression on prospective buyers.

•   Declutter. It’s another way to enhance a house for showings and listing photos. It could also indicate a shorter turnaround for buyers eager to move quickly.

•   Price it right. When all is said and done, setting an asking price that’s not too far above similar properties may be necessary to keep your property on buyers’ radar.

Low Housing Inventory

Also known as a seller’s market or a hot housing market, an area with low housing inventory has a surplus of interested homebuyers and a shortage of available listings.

Usually, sellers in an area with low housing inventory can get a higher price for their property. Thanks to the abundance of buyers, It’s not uncommon to see multiple offers and bidding wars for any type of housing stock.

Let’s take a closer look at how to make the most of low housing inventory for either side of the deal.

If You’re a Buyer Amid Low Housing Inventory

Although the odds may not favor buyers in a low housing inventory environment, they still have some options to increase their chances of finding a dream home.

•   Think beyond price. In a multiple-offer situation, the highest price may not be the most advantageous deal for the seller. Being flexible on the closing date and limiting contingencies can affect an offer’s competitiveness.

•   Get pre-qualified or pre-approved. Doing the legwork, researching the different kinds of mortgages in advance, and getting pre-qualified can show that buyers are ready to go and financially eligible. Typically, lenders provide potential borrowers with a letter stating how much they can borrow, given some conditions.

◦   Pre-approval, which involves analysis of at least two years of tax returns, months’ worth of income history and bank statements, and documents showing any additional sources of income, can carry more weight and speed up the mortgage application process.

•   Consider cash. If you can swing it, a cash offer is often seen as advantageous because there’s no risk of the deal falling through from a denied mortgage loan.

•   Opt for an escalation clause, a method for beating out competing bids. The clause means a buyer automatically will increase their initial bid up to a specified dollar amount. For example, a buyer with an escalation clause could offer $250,000 with an option to bump up to $255,000 if another offer exceeded theirs.

•   Know what a place is worth. Even in a seller’s market, house hunters would do best to keep appraised values in mind. If buyers pay thousands more than the appraised value of a house, their home equity could take a hit.

If You’re a Seller Amid Low Housing Inventory

When the forces of supply and demand favor sellers, they have a better chance of fielding multiple offers on a property. Still, getting a great deal is not a sure thing. Here, some advice to help you take advantage of this scenario.

•   Spruce it up. The same conventional wisdom applies for cleaning and touching up a house to get more foot traffic at showings or open houses.

•   Set a reasonable asking price just below the market value — a figure based in part on comps, or comparables, which reveal what similar homes in the same area have sold for recently. This can be a good way to capture buyer interest. In a multiple-offer situation, this gives buyers room to outbid each other, potentially increasing the purchase price above asking.

•   Look past price alone. If faced with more than one offer, it may be tempting to go for the highest bidder. It can be beneficial to review each buyer’s finances and contingencies to lower the risk of a deal falling through.

•   Recognize that cash is king. Cash offers are generally the most secure. These have risen significantly in the current hot market, according to a National Association of Realtors® report. They made up 25% of sales in May of 2021.

•   Check contingencies. If there are offers with contingencies like the house passing an inspection, they could allow a buyer to back out of a deal vs. ones that waive such contingencies.

💡 Recommended: What Is a Mortgage Contingency? How It Works Explained

Other Considerations When Buying a Home

Housing inventory can be an important factor when looking for a new home and may impact your experience in a positive or negative way. Knowing how to negotiate both scenarios, whether as a buyer or seller, can help you get the best deal with the least amount of stress.

You’ll also have other considerations to keep in mind as you shop for your home. These may include:

•   How much you can put down

•   What type of mortgage works best for you

•   How much your mortgage will cost

•   What your closing costs will be

•   How much you’ll need for any necessary renovations

•   What the property taxes are

The Takeaway

If you’re a buyer, finding the right mortgage will also be a big factor. That’s where SoFi can help. SoFi offers mortgage loans with competitive rates, and as little as 3% down for qualifying first-time homebuyers. Mortgage Loan Officers are on hand to help you through the process and make your dream home a reality.

Get the scoop on a SoFi mortgage in just minutes.

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

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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Home Appraisals 101: What You Need to Know

Your home is often your most valuable asset. It’s not only a place where you and your family can congregate and enjoy your time together; it’s also an investment.

But over the years, things change. Perhaps you want to either refinance your mortgage at a lower rate or sell your home to make a profit. Or maybe you’re not yet a homeowner and are trying to purchase a house.

Before applying for refinancing, listing your house on the market, or buying a house, you’ll need to get a home appraisal. This is an important assessment of a property’s value, which matters to all parties involved: you, your buyer (if you’re selling), and a lender.

Here, learn the ins and outs of home appraisals so you understand the process and can manage it successfully. You’ll find out:

•   What is a home appraisal?

•   How long does a home appraisal take?

•   How can you prepare for a home appraisal?

•   What can you do if a home appraisal comes in low?

What Is a Home Appraisal?

A home appraisal is an objective and professional analysis of a home’s value. An appraisal aggregates an array of information including details on the home itself (the floor plan, amenities, and how big it is), a visual inspection, real estate trends in your area, and how much nearby homes in your area sold for.

Generally, an appraisal will be completed when someone is buying, selling, or refinancing a home. It will tell a homeowner whether or not the price they’re putting on the home is fair based on the condition of the home, its amenities, and its location.

Home appraisals will let those buying a home know if a home is a good price. (This can be especially reassuring for first-time homebuyers, who are new to the whole process.)

If you think it’s time to refinance and are getting an appraisal done, it shows the home mortgage lender that you, the borrower, aren’t receiving more money from them than the home is actually worth. The lender wants to know that they are loaning funds to a property that is holding the stated value.

According to a National Association of Realtors study from January 2022, appraisal issues led to 20% of real estate contract delays, so it’s important to get the appraisal right the first time around. That’s an important step in selling your home fast.

How Much Does a Home Appraisal Cost?

The home appraisal cost is typically several hundred dollars, and the borrower will most likely be responsible for paying it. Most people can expect to pay between $300 to $610 for a home appraisal, but it could be higher depending on the specific property. Some examples:

•   If the property contains a pond or lake, you can expect the home appraisal cost to be more.

•   If the appraiser is inspecting a larger home and/or a bigger overall property, then the home appraisal cost will go up. The same applies to jumbo loans, which are usually given to borrowers purchasing big luxury homes.

It’s worth noting that there are a few cases in which the seller will cover the cost. These include the following situations:

•   If a homeowner wants to get an appraisal and see what modifications they can then make to increase their home value when they’re ready to sell it, they would pay for it.

•   If a homeowner is going to sell their home to a family member or friend, an appraisal can help ensure that the parties involved are getting a fair price.

The cost of a home appraisal covers things like the appraiser’s training, licensing, insurance, and expertise. It also covers the time it’ll take for the appraiser to assess nearby sales and market trends as well as conduct a visual inspection.

You’re paying for the appraisal report (more on that in a minute), which will show how the appraiser came to their conclusion on the price and information about your home.

At the end of the appraisal, if it comes up lower than the amount for which you want to refinance or sell it, then you may need to work out a new deal with your lender or purchasing party. That topic is explored in more detail below.

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

What Is the Home Appraisal Process?

The appraisal process may seem complicated, and you may wonder about how long a home appraisal will take and how deeply your home will be scrutinized. Fortunately, trained appraisers will be able to explain and guide you through every step. But it’s worthwhile to keep reading so you can be ready and prepare a bit. Some points to know:

•   Generally, if a home is being sold, the appraisal happens after an offer on a house is accepted and within a week after an inspector has toured the home. Sellers have the option, should they wish to pay for it, to do a pre-listing appraisal so they have more information and are better prepared for negotiations.

•   In most cases, the mortgage lender will seek out a third-party appraisal management company to come up with an objective analysis of the home and the appraisal estimate. The lender will determine the cost of the home appraisal, with the borrower usually being responsible for covering the expense.

Next, how long does a home appraisal take? The actual on-premises inspection appraisal can take between one and three hours, depending on how big and complex the home is. Here’s how it typically goes:

•   The appraiser will usually bring a form to collect information about the home including things like measurements, nearby housing trends, the demographics of the neighborhood, the condition of your home, and how it compares to other properties in your area. (Some of this is research the appraiser will do back at their desk.)

•   The appraiser will also review things like the home’s location, quality of construction, parking situation, exterior condition, its age, its structure, the quality of the siding and gutters, and the square footage.

•   They will also research the appliances and mechanical systems, health and safety factors, the number of bedrooms and bathrooms, and the code compliance throughout.

•   The appraiser will usually take photos of the home as well as make notes. If you are the homeowner, try to avoid getting in the way when the appraiser is taking photos or interrupting them while they’re working.

•   The appraiser may ask questions about what has been done with the home to get a more accurate report. If the homeowner doesn’t want to be there for the appraisal, the real estate agent you’re working with can fill in to answer questions that may come up during the appraisal.

After the appraiser finishes, they’ll put together a report. This involves research into pricing and home values in your area, as well as prevailing market trends. The appraiser may need to check that you had permits to make upgrades, which could delay the process. Typically, however, the finished product is delivered within a week to 10 days.

The report is usually about 10 pages long, but it could be longer if a property is large or complex. It will show details about the home as well as local properties that are similar to it. Here’s how its content could impact your sale:

•   If the appraised value is around the same price as listed, then the sale could close shortly after that.

•   If it’s lower than expected, it may be necessary to get in touch with the lender to see if a mortgage will be approved. Keep reading for more details on this scenario.

What If an Appraisal Comes in Low?

If the appraisal comes in low versus what you think your home’s value is, you likely want to dispute that in some way. One option could be to print out a list of similar homes in the community and show that they were valued at a higher price than your home. You may have the option to appeal the appraisal, but note you’ll likely need to support your argument and the appraiser may not change their appraisal. If you are working with a Realtor, they may be able to provide examples of comparable homes being of higher value.

Each lender may have different criteria for formally disputing an appraisal, so should there be an issue, contact the lender to review their policies. In most cases, only the lender can request a second appraisal.

What if the appraisal is low but you don’t want to dispute it? In this case, if you might negotiate with the buyer, seller, or lender. They may be flexible on the price; all you have to do is ask.

💡 Recommended: Track the value of your home with this tool.

Home Appraisal Checklist

Before getting a home appraised, there are a few things you can do to help the process go smoothly.

1.    Declutter. While messiness shouldn’t impact the value of your home, if you get rid of clutter (perhaps donate to a local charity, Goodwill, or thrift shop), the appraiser can do their job more easily and quickly.

2.    Clean. Thoroughly clean the inside and outside of the home, including the yard. Break out the cleaning supplies or hire a professional cleaning team. It can improve the overall impression of a home’s condition.

3.    Make minor repairs. It’s also a good idea to repair any cracks in the wall, paint over paint that is peeling, and make any other visual repairs that may need attention.

💡 Recommended: What Are the Most Common Home Repair Costs?

4.    Check fixtures and appliances. Test the lights, faucets, ceiling fans, and security system, as well as confirming that the windows and doors open and close easily. Run appliances like the oven and dishwasher as well to guarantee there are no problems.

5.    Think curb appeal. The exterior of your home is among the factors that affect property value. Consider trimming hedges, getting rid of cobwebs, cleaning the gutters, pulling weeds, and mowing the lawn. Adding plants or flowers could help, too.

   Worth noting: Since the appraiser will be walking outside, avoid watering the grass on the day of the appraisal. This can help avoid mud or dirt being tracked through the house.

6.    Plan for pets. If you have pets, consider putting them in a designated room or taking them to a family member or friend’s home during the appraisal.

7.    Wrangle upgrade info. If possible, make a list of all the upgrades that have been completed on the home and attach permits and receipts detailing how much it all cost.

The Takeaway

Whether you’re buying, selling, or refinancing a home, a home appraisal is a key part of the process. Knowing what to expect can help ensure the process goes as smoothly as possible. It’s also a good idea to understand the factors that go into an appraisal so you can be prepared if the results are not in the range expected.

If you’re getting an appraisal because you’re ready to buy a new home or refinance your current home, take a look at SoFi. Our mortgage loans have competitive rates, and qualifying first-time homebuyers can put as little as 3% down. Plus, you can get pre-qualified online for a mortgage in just minutes.

SoFi: The smarter way to get a mortgage.


What will fail a home appraisal?

A variety of factors can cause a home appraisal to fail to come in at the desired value. Perhaps there were a number of deferred maintenance issues that led the appraiser to consider the house of lesser value due to its condition. Or it could be due to the local market: If home sales are declining in value in your area, that could cause your number to go down as well.

How should I prepare for a home appraisal?

If you’re hoping to buy the house, you simply sit back and let the appraiser do their job. If you are the seller, you can prepare for a home appraisal by cleaning up your property and making whatever repairs are required. These moves can both make the process go more smoothly and possibly enhance the home’s value.

Does messiness affect a home appraisal?

A messy or cluttered house should not impact a home appraisal. Licensed appraisers are trained to look past such issues and focus on the house, not its contents. That said, if your property is untended and in rough condition, that can take the home’s value down a notch because it means the property lacks the curb appeal that buyers seek.

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

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.

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.


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What Is a Fixed-Rate Mortgage?

Buying a house is one of life’s most exciting milestones — not to mention one of the biggest purchases. With the median U.S. home sale price sitting at $428,700 in mid-2022, most people acquire a fixed-rate or adjustable-rate mortgage to fund their new domicile.

But if you’re preparing to take the homeownership plunge, how do you know which kind of loan is right for you and what the most important features are?

This article can help. We’ll introduce you to the wide (and slightly wacky) world of mortgages. You’ll learn:

•   What’s the definition of a fixed-rate mortgage?

•   Pros and cons of fixed-rate mortgages.

•   When is a fixed-rate mortgage the right choice?

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage is, as its name suggests, a mortgage loan whose interest rate is fixed across the lifetime of the loan. The rate is stated at the time the documents are signed and does not change at any point throughout the loan term (provided that all payments are made in full and on time). Fixed-rate mortgage terms can be 10, 15, 20, or 30 years. A mortgage broker or online calculator can help you work through the different monthly payments for each and see what best suits your situation.

Fixed-Rate Mortgages vs Adjustable-Rate Mortgages

If you’re deciding between a fixed-rate vs. adjustable-rate mortgage (or ARM), the difference is that with ARM, the interest rate can move up or down according to the market. The rate is calculated according to the index and margin — the index is a benchmark interest rate based on market conditions at large, and the margin is a number set by the lender when the loan is applied for.

You may see options like a 5/1 ARM, which means the rate is set for the first five years of the loan and then adjusts annually after that.

Long story short: A fixed-rate mortgage offers you a predictable interest rate and monthly payment, whereas an adjustable-rate mortgage can shift over the course of the loan term according to external factors, like inflation affecting the APR.

It is, however, important to understand that your total monthly housing bill can still change, even with a fixed-rate mortgage, if, for example, your property taxes or homeowners insurance rates change or if you miss several payments.

Types of Fixed-Rate Mortgages

There are a few variables to fixed-rate mortgages.

•   Conventional Loans: Conventional fixed-rate mortgages are offered by banks, credit unions, and other lending institutions. They typically have stringent requirements about credit score and debt-to-income ratio (or DTI) that an applicant must meet.

•   Government-Insured Loans: FHA, USDA, VA: Government-insured loans, such as FHA, USDA, and VA mortgages (more on these below), tend to have less tough requirements and target certain kinds of homebuyers, like those with lower income, in the military (past or present), and living in rural areas. They may offer no or low down payment and other perks, too.

•   Conforming and Non-Conforming Loans: Mortgages can also be considered “conforming” or “nonconforming,” depending on whether or not they meet the guidelines established by the Federal Housing Finance Agency (commonly known as Fannie Mae and Freddie Mac). In 2022, the conforming loan limit for one-unit properties was $647,200, or $970,800 in areas deemed “high cost.”

Of course, homes costlier than these limits exist, and it is possible to take out mortgage to buy one. Those loans are considered “nonconforming” and are also sometimes called “jumbo loans.”

Because the loans are so large, eligibility requirements tend to be more stringent, with borrowers usually needing a down payment well above 3%, cash in the bank, and a solid credit score.

Example of a Fixed-Rate Mortgage

Here’s an example of how a fixed-rate mortgage might work. If you buy a house for $428,700 with 20% down and take out a 30-year fixed-rate home loan. Your mortgage principal will be $342,960, and at a rate of 6.72% with a solid credit score of 740+, your monthly payment (not including any taxes or insurance) will be $2,217.

As you make your loan payments, at first most of the money goes towards interest. This is because the interest is “front-loaded,” to use the industry lingo. Perhaps 90% of your payment will be paying interest and 10% will be applied to the principal. As you get to the end of your loan payment, these figures may well be reversed. That is, 10% of the $2,217 goes towards interest and 90% towards the principal.

Pros and Cons of Fixed-Rate Mortgages

Fixed-rate mortgages are more common among homebuyers because of the predictability they offer. Still, there are both drawbacks and benefits to pursuing this kind of home loan.

Benefits of Fixed-Rate Mortgages

Because homebuyers who take out fixed-rate mortgages will know their rates at the time they sign on the dotted line, these loans provide long-term predictability and stability — which can help people who need to fit their housing expenses into a tight budget.

Fixed-interest mortgages, and other types of fixed-rate loans, shield borrowers from potentially high interest rates if the market fluctuates in such a way that the index significantly rises.

Drawbacks of Fixed-Rate Mortgages

Although fixed-rate mortgages are more predictable over time, they tend to have higher interest rates than ARMs — at least at first. Sometimes an ARM might have a lower interest rate but only for a relatively brief introductory period, after which the rate will be adjusted.

If the index rate falls in the future, homebuyers might end up paying more in interest than they would have with an ARM.

Because the principal balance is generally chipped away at more slowly with a fixed-interest rate mortgage than with an ARM, it can take longer for borrowers to build equity in their home.

Because lenders risk losing money on fixed-interest mortgages if index interest rates go up, these loans can be harder to qualify for than their adjustable-rate counterparts.

How to Calculate Fixed-Rate Mortgage Payments

Now that you know what a fixed-rate mortgage is and how it functions, you might wonder how much it could cost you. If you are curious about what fixed-rate mortgage payments would look like at different home price points, for varying terms, you can break out pencil and paper or your phone’s calculator function and do the math.

However, this gets fairly complicated because it’s not a matter of simple interest (and basic multiplication and division) when you try to replicate how banks come up with their numbers. You’ll need to get involved in calculating how the loan amortizes (gets paid down) over time.

Unless you’re a math major, your best option may be to use an online mortgage payment calculator. With a few simple pieces of data and clicks, you’ll get the numbers you need.

When Is a Fixed-Rate Mortgage the Right Choice?

Fixed-rate mortgages offer long-term predictability, which can be a must for those who need budget stability.

Furthermore, fixed interest rates can be beneficial for those who plan to stay in their home for a longer period of time — say, at least seven to 10 years.

Here’s why: Homebuyers are less likely to miss out on building home equity, as they might if they sold the house after making higher interest payments for a shorter period of time.

Finally, if homebuyers suspect that interest rates are about to rise, a fixed-interest loan can be a good way to protect themselves from those increasing rates over time.

That said, there are some instances in which an ARM may be a better choice. If a homebuyer is planning to sell in a short amount of time, for example, the low introductory interest rate on an adjustable-interest loan could save them money. You’ll have sold the property before the rate can tick upward.

💡 Recommended: Guide for First-Time Homebuyers

The Takeaway

When you’re in the market for a home, shopping for the right loan is almost as important as shopping for the house itself.

Although there are many mortgage lenders to choose from, including government-insured options, SoFi® offers competitive rates on conventional, fixed-rate mortgages with terms ranging from 10 to 30 years.

SoFi® offers mortgage loans with a down payment as low as 3% for qualifying first-time homebuyers, and a Mortgage Loan Officer can guide you through what can be a complicated process. Members can rest assured that questions they have will be answered by professionals who are just a phone call away.

Ready to learn your rate? Check out SoFi fixed-interest home loans today.

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

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.

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.


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How Much Can You Borrow From Your Home Equity?

Many homeowners are flush with equity, and tapping 85% or so of it can be tempting. You’re in the money! Your house, though, will be on the line.

Here are things to know before applying for a home equity loan, home equity line of credit (HELOC), or cash-out refinance.

What’s the Most You Can Borrow With a Home Equity Loan?

Many lenders will let you borrow 85% of your home equity — the home’s current value minus the mortgage balance — for any purpose.

Lenders will calculate the combined loan-to-value ratio: the amount you’d like to borrow plus your mortgage balance compared with the appraised value of your home.

Most lenders will require your combined loan-to-value ratio (CLTV) to be 85% or less for a home equity loan or HELOC (although some will allow you to borrow 100% of your home’s value).

combined loan balance ÷ appraised home value = CLTV

Let’s say you have a mortgage balance of $150,000 and you want to borrow $50,000 of home equity. Your home appraises for $300,000. The math would look like this:

$200,000 ÷ $300,000 = 0.666

Your CLTV is 67%.

An appraiser from the lending institution determines your property value.

Three Ways to Tap Home Equity

You paid off a chunk of your mortgage or all of it, or your home value soared along with the market, but now a wedding, college, remodel, or something else has you wanting to put that home equity to use. Here are three ways to do that.

Remember that converting home equity to cash means you’ll be using your home as collateral.

Home Equity Loan

Home equity loans come in a lump sum. They are often useful for big one-time expenses like a new car or swimming pool and for borrowers who know how much they need and who want fixed payments.

Some lenders waive or reduce closing costs of 2% to 5%, but if you pay off and close the loan within a certain period of time — often three years — you may have to repay some of those costs.


A HELOC may be helpful for long-term needs such as home renovations, college tuition, or medical bills.

Borrowers who want flexibility when dealing with, say, a home addition may favor a revolving line of credit over a lump-sum loan.

Again, some lenders waive the closing costs for a HELOC if you keep it open for a predetermined period.

💡 Learn more: How Do Home Equity Lines of Credit Work?

Turn your home equity into cash with a HELOC from SoFi.

Access up to 95% or $500k of your home’s equity to finance almost anything.

Cash-Out Refinance

A cash-out refinance might be a good choice if you want to borrow more than you’d qualify for with a home equity loan or HELOC. A cash-out refi replaces your existing mortgage with a new mortgage for more than the previous balance. You receive the difference in cash.

Homeowners will often need to have 20% equity left in the home after refinancing. Some lenders will let them dip below that minimum but pay for private mortgage insurance on the new loan.

Some HELOC borrowers refinance before the draw period ends. In that case, the cash can be used to pay off the HELOC.

You can change the mortgage term and aim for a reduced interest rate with a cash-out refi. Closing costs will be required; it’s a new loan.

💡 Recommended: Cash-Out Refinance vs HELOC

What’s the Difference Between a Home Equity Loan and a HELOC?

A home equity loan, also known as a second mortgage, comes in a lump sum with a repayment term of 10 to 30 years. It typically has a fixed interest rate.

A HELOC is a revolving line of credit that lets a homeowner borrow money as needed, up to the approved credit limit. The credit line has two periods:

•   The draw period, when you can use the line of credit. It’s often 10 years. Minimum monthly payments usually will be interest only on the amount withdrawn.

•   The repayment period, often 20 years, when principal and interest payments are due.

Most HELOCs have a variable interest rate but cap how much the rate can rise at one time and over the loan term. (Some lenders, though, offer fixed-rate HELOCs or allow the borrower to fix the rate on a balance partway through the loan.)

Some HELOCs require you to draw a minimum amount upfront. Some have a balloon payment at the end of the draw period, when the loan principal and interest are due. Ensure that you understand your HELOC’s terms, and when the draw period ends and the credit line is closed.

How Is a HELOC Calculated?

Qualified borrowers are often able to access 80% or 85% of their equity with a HELOC.

Many HELOC lenders require that the homeowner retain at least 20% equity in the home, but a few are more generous.

Is Taking Out Home Equity Right for You?

If you’re aware of the risk, you’ve read all the fine print, and you forecast no job or income loss, tapping home equity can be extremely useful.

HELOCs usually have lower interest rates than home equity loans, but some people prefer the fixed rate and payments of the latter. HELOC rates tend to be a tad higher than mortgage rates, but you probably only have to pay interest on what you borrow during the draw period.

Most cash-out refinances result in a new 30-year fixed-rate mortgage.

Approval for a home equity product and the rate you’re offered will depend on your credit score, debt-to-income ratio, home equity, and home value.

Shopping around can yield the best offer.

💡 Recommended: Find out how much it would cost to renovate your home with SoFi’s Home Improvement Cost Calculator.

The Takeaway

How much equity can you borrow from your home? Homeowners who meet credit and income requirements are often able to tap 85% of equity and sometimes more with a home equity loan or HELOC. A cash-out refi is another way to make use of home equity.

SoFi offers a cash-out refinance as well as a flexible home equity line of credit. Access up to 95%, or $500,000, of your home’s equity with a SoFi HELOC.


How can I increase my home equity?

Paying off your mortgage faster, refinancing to a shorter loan term, making home improvements, and shedding private mortgage insurance are some of the ways to boost home equity. In a competitive market, your home value may just naturally rise.

How quickly can I get cash from my home equity?

It depends on the product, but closing can take place in as little as two to four weeks.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility 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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What Is a Conventional Loan?

There are few things as exciting as touring a house and thinking, “This is it! I’ve found my dream home.” Maybe the property has a fireplace or the perfect patio that has you imagining how great it would be to make it yours.
Then comes the less fun part: figuring out how to finance your home purchase.

For the vast majority of people, acquiring a new home means taking out a mortgage. For 90% of homebuyers, that means opting for a conventional 30-year fixed-rate mortgage.

Conventional mortgages are those that are not insured or guaranteed by the government.

But that doesn’t mean what is called a conventional home loan is right for everyone. Here, learn more about conventional mortgages and how they compare to other options, including:

•   How do conventional mortgages work?

•   What are the different types of conventional loans?

•   How do conventional loans compare to other mortgages?

•   What are the pros and cons of conventional mortgages?

•   How do you qualify for a conventional loan?

How Conventional Mortgages Work

Conventional mortgages are loans that are not backed by a government agency. Provided by private lenders, they are the most common type of home loan. A few points to note:

•   Conventional loans are offered by banks, credit unions, and mortgage companies, as well as by two government-sponsored enterprises, known as Fannie Mae and Freddie Mac. (Note: Government-sponsored and government-backed loans are two different things.)

•   Conventional mortgages tend to have a higher bar to entry than government-guaranteed home loans. You might need a better credit score and pay more in interest, for example. Government-backed FHA loans, VA loans, and USDA loans, on the other hand, are designed for certain kinds of homebuyers or homes and are often easier to qualify for. You’ll learn more about them below.

•   Among conventional loans, you’ll find substantial variety. You’ll have a choice of term length (how long you have to pay off the loan with installments), and you’ll probably have a choice between fixed-rate and adjustable-rate products. Keep reading for more detail on these options.

•   Because the government isn’t offering any assurances to the lender that you will pay back that loan, you’ll need to prove you are a good risk. That’s why lenders look at things like your credit score and down payment amount when deciding whether to offer you a conventional mortgage and at what rate.

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

Conventional vs Conforming Loans

As you pursue a home loan, you’ll likely hear the phrases “conventional loan” and “conforming loan.” Are they the same thing? Not exactly. Let’s spell out the difference:

•   A conforming loan is one in which the underlying terms and conditions adhere to the funding criteria of Freddie Mac and Fannie Mae. There’s a limit to how big the loan can be, and this figure is determined each year by the Federal Housing Finance Agency, or FHFA. In 2023, that ceiling was set at $766,550 for most of the United States. (It was a higher number for those purchasing in certain high-cost areas.)

So all conforming loans are conventional loans. But what is a conventional mortgage may not be conforming. If, for instance, you apply for a jumbo mortgage (meaning one that’s more than $766,550 in 2023), you’d be hoping to be approved for a conventional loan. It would not, however, be a conforming mortgage because the amount is over the limit that Freddie Mac or Fannie Mae would back.

Types of Conventional Loans

When answering, “What is a conventional loan?” you’ll learn that it’s not just one single product. There are many options, such as how long a term (you may look at 15- and 30-year, as well as other options). Perhaps one of the most important decisions is whether you want to opt for a fixed or adjustable rate.

Fixed Rate

A conventional loan with a fixed interest rate is one in which the rate won’t change over the life of the loan. If you have one of these “fully amortized conventional loans,” as they are sometimes called, your monthly principal and interest payment will stay the same each month.

Although fixed-rate loans can provide predictability when it comes to payments, they may initially have higher interest rates than adjustable-rate mortgages.

Fixed-rate conventional loans can be a great option for homebuyers during periods of low rates because they can lock in a rate and it won’t rise, even decades from now.

💡 Recommended: What Is a Fixed-Rate Mortgage?

Adjustable Rate

Adjustable-rate mortgages (also sometimes called variable rate loans) have the same interest rate for a set period of time, and then the rate will adjust for the rest of the loan term.

The major upside to choosing an ARM is that the initial rate is usually set below prevailing interest rates and remains constant for a specific amount of time, from six months to 10 years.

There’s a bit of lingo to learn with these loans. A 7/6 ARM of 30 years will have a fixed rate for the first seven years, and then the rate will adjust once every six months over the remaining 23 years, keeping in sync with prevailing rates. A 5/1 ARM will have a fixed rate for five years, followed by a variable rate that adjusts every year.

An ARM may be a good option if you’re not planning on staying in the home that long. The downside, of course, is that if you do stay put, your interest rate could end up higher than you want it to be.

Most adjustable-rate conventional mortgages have limits on how much the interest rate can increase over time. These caps protect a borrower from facing an unexpectedly steep rate hike.

Also, read the fine print and see if your introductory rate will adjust downward if rates shift lower over the course of the loan. Don’t assume they will.

💡 Recommended: Fixed-Rate vs Adjustable-Rate Mortgages

How Are Conventional Home Loans Different From Other Loans?

Wondering what a conventional home loan is vs. government-backed loans? Learn more here.

Conventional Loans vs. FHA Loans

Wondering whether a conventional or FHA loan is better for you? FHA loans are geared toward lower- and middle-income buyers; these mortgages can offer a more affordable way to join the ranks of homeowners. Unlike conventional loans, FHA loans are insured by the Federal Housing Administration, so lenders take on less risk. If a borrower defaults, the FHA will help the lender recoup some of the lost costs.

But are FHA loans right for you, the borrower? Here are some of the key differences between FHA loans and conventional ones:

•   FHA loans are usually easier to qualify for. Conventional loans usually need a credit score of at least 620 and 3% down. With an FHA loan, you may get approved with a credit score as low as 500 with 10% down or 580 to put down 3.5%.

•   Unlike conventional loans, FHA loans are limited to a certain amount of money, depending on the geographic location of the house you’re buying. The lender administering the FHA loan can impose its own requirements as well.

•   An FHA loan can be a good option for a buyer with a lower credit score, but it also will require a more rigorous home appraisal and possibly a longer approval process than a conventional loan.

•   Conventional loans require private mortgage insurance (PMI) if the down payment is less than 20%, but PMI will terminate once you reach 20% equity. FHA loans, however, require mortgage insurance for the life of the loan if you put less than 10% down.

💡 Recommended: Private Mortgage Insurance (PMI) vs Mortgage Insurance Premium (MIP)

Conventional Loans vs VA Loans

Not everyone has the choice between conventional and VA loans. Conventional loans are available to all who qualify, but VA loans are only accessible to those who are veterans, active-duty military, or surviving spouses of those who served.

VA loans offer a number of perks that conventional loans don’t:

•   No down payment is needed.

•   No PMI is required, which is a good thing, because it’s typically anywhere from 0.58% to 1.86% of the original loan amount per year.

There are a couple of potential drawbacks to be aware of:

•   Most VA loans demand that you pay what’s known as a funding fee. This is typically 1.25% to 3.3% of the loan amount.

•   A VA loan must be used for a primary residence; no second homes are eligible.

Conventional Loans vs USDA Loans

Curious if you should apply for a USDA loan vs. a conventional loan? Consider this: No matter where in America your dream house is, you can likely apply for a conventional loan. USDA loans, however, are only available for use when buying a property in a qualifying rural area. The goal is to encourage people to move into certain areas and help them along with accessible loans.

Beyond this stipulation, consider these upsides of USDA loans vs. conventional loans:

•   USDA loans can offer a very affordable interest rate versus other loans.

•   USDA loans are available without a down payment.

•   These loans don’t require PMI.

But, to provide full disclosure, there are some downsides, beyond limited geographic availability:

•   USDA loans have income-based eligibility requirements. The loans are designed for lower- and middle-income potential home buyers, but the exact cap on income will depend on your geographic area and how many household members you have.

•   This program requires that the loan holder pay a guarantee fee, which is typically 1% of the loan’s total amount.

Benefits and Drawbacks of Conventional Mortgages

Now that you’ve learned what is a conventional loan and how it compares to some other options, let’s do a quick recap of the pros and cons of conventional loans.

Benefits of Conventional Loans

The upsides are:

•   Competitive rates. Yes, mortgage rates have been rising steeply recently, but they are still far from their high point of 16.63% in 1981. Plus, lenders want your business and you may be able to find attractive offers.

•   The ability to buy with little money down. Some conventional mortgages can be had with just 3% down.

•   PMI isn’t forever. Once you have achieved 20% equity in your property, your PMI can be canceled.

•   Flexibility. There are different conventional mortgages to suit your needs, such as fixed and variable rate home loans. Also, these mortgages can be used for primary residences (whether single- or multi-family), second homes, and other variations.

Drawbacks of Conventional Loans

Now, the downsides of conventional loans:

•   PMI. If your mortgage involves a small down payment, you do have to pay that PMI until you reach a target number, such as 20% equity.

•   Tougher qualifications vs. government programs. You’ll usually need a credit score of 620 and, with that number, your rate will likely be higher than it would be if you had a higher score.

•   Stricter DTI requirements. It’s likely that lenders will want to see a 45% debt-to-income ratio (or DTI, your total monthly recurring payments divided by your monthly gross income). Government programs have less rigorous qualifications.

How Do You Qualify for a Conventional Loan?

Conventional mortgage requirements vary by lender, but almost all private lenders will require you to have a cash down payment, a good credit score, and sufficient income to make the monthly payments. Here are more specifics:

•   Down Payment: Many lenders that offer conventional loans require that you have enough cash to make a decent down payment. Even if you can manage it, is 20% down always best? It might be more beneficial to put down less than 20% on your dream house.

•   Credit score and history: You’ll also need to demonstrate a good credit history to buy a house, which means at least 620, as mentioned above. You’ll want to show that you make loan payments on time every month.

Each conventional loan lender sets its own requirements when it comes to credit scores, but generally, the higher your credit score, the easier it will be to secure a conventional mortgage at a competitive interest rate.

•   Income: Most lenders will require you to show that you have a sufficient monthly income to meet the mortgage payments. They will also require information about your employment and bank accounts.

💡 See what your mortgage payments would be using our mortgage calculator.

The Takeaway

A conventional home loan is a very popular option for homebuyers. These mortgages, which are not guaranteed by the government, have their pros and cons, as well as variations. It’s also important to know how they differ from government-backed loans, so you can choose the right product to suit your needs. Buying a home is a major step and a big investment, so you want to get the mortgage that suits you best.

That’s where SoFi can help. We offer fast, competitive fixed-rate mortgage loans with as little as 3% down for qualifying first-time homebuyers. Let us help make your dreams of homeownership come true.

It takes just minutes to get prequalified online.


What is the minimum down payment for a conventional loan?

What is a conventional home mortgage’s minimum down payment? In most cases, 3% of the purchase price is the lowest amount possible.

How many conventional loans can you have?

A lot! The Federal National Mortgage Association (FNMA, aka Fannie Mae) allows a person to have up to 10 properties with conventional financing. Just remember, you’ll have to convince a lender that you are a good risk for each and every loan.

Do all conventional loans require PMI?

Most lenders require PMI (private mortgage insurance) if you are putting less than 20% down when purchasing a property. However, you may find some PMI-free loans available. They typically have a higher interest rate, though, so make sure they are worthwhile given your particular situation.

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

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.

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.

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.


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