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If you’re 62 years or older and are looking to move, a Home Equity Conversion Mortgage (HECM) for Purchase could help you pay for your new home. An HECM for Purchase is a government-insured reverse mortgage that you can put toward buying a house. With an HECM for Purchase, you won’t have to make mortgage payments as long as you keep up with property taxes and other obligations.

However, this type of reverse mortgage can come with high closing costs and insurance premiums, so it may not be your most affordable option for financing a home. Read on for the full story of the HECM for Purchase program, along with its pros and cons.

What Is an HECM?

An HECM is a type of reverse mortgage — specifically, the kind that is insured by the Federal Housing Administration (FHA). HECMs allow people 62 and older to convert the equity in their home into cash. (The chief HECM vs. reverse mortgage differentiator is the FHA’s involvement in HECMs.)

You’ll need to own your property outright or have a good amount of equity built up to qualify for an HECM. Eligible borrowers can turn that equity into cash and won’t have to pay back the home mortgage loan until they move, sell the home, or die. In those events, the HECM must be paid back in its entirety, along with any interest charges.

Recommended: Reverse Mortgage Pros and Cons

What Is an HECM for Purchase?

An HECM for Purchase is a type of HECM that allows homeowners to borrow against their current residence and pay for a new one in one transaction with one set of closing costs. It’s designed for homeowners who are looking to move into a new primary residence. You can’t use an HECM for Purchase to finance a vacation home or an investment property.

Like other HECMs, an HECM for Purchase does not require repayment during the borrower’s lifetime while they (or their surviving spouse) are living in the house. However, borrowers can pay down the loan’s principal and interest if they choose. They also must meet other payment obligations, including property taxes, homeowners insurance, and maintenance costs.

The HECM for Purchase will become due if the borrower moves or dies. As a non-recourse loan, however, the HECM for Purchase will never charge more than the value of the home it was used to finance.

HECM for Purchase Requirements

There are several requirements you’ll need to meet to qualify for an HECM for Purchase. Here are the main ones.

Age Requirement (62+)

HECM for Purchase loans are exclusively offered to borrowers who are age 62 or older. By contrast, traditional mortgages don’t have an age restriction, apart from the age of majority in your state (typically at least 18).

Income and Credit Qualifications

You’ll also need to meet income and credit requirements to qualify for an HECM for Purchase. While there’s no stated minimum credit score, having debts in delinquency or default could be an obstacle to qualifying.

Lenders also consider your residual income, or the amount of income you have after subtracting certain expenses. You’ll need to show that you have sufficient residual income to keep up with living expenses.

Financial Assessment

A lender will also assess your overall finances to ensure you can meet the financial obligations of the HECM for Purchase loan, which include paying property taxes and homeowners insurance. Plus, you’ll need to make a sufficient down payment on the new property, typically around 50%.

How HECM for Purchase Works

An HECM for Purchase lets you draw on the equity of your current home to finance the purchase of your next home. It combines two transactions — a reverse mortgage and a new mortgage — into one to simplify the home purchase process.

You won’t have to make payments on your HECM for Purchase while you live in your house, but you will have to keep up with payments of property taxes, homeowners insurance, maintenance expenses, and any homeowners association fees.

HECM for Purchase loans are backed by the FHA, so you’ll need to work with a lender that specializes in these loans to get one.

Down Payment Amount

To use an HECM for Purchase, you’ll need to sell your original home and use the proceeds to make a sufficient down payment on your new home. Then you can finance the remaining amount with your HECM loan. The required down payment may range from 45% to 62% of the home’s purchase price, depending on the borrower’s and spouse’s age. If you have money left over after making the down payment, you can receive it as a lump sum or as fixed monthly payments.

Recommended: Getting a Mortgage in Retirement

Pros of HECM for Purchase

There are several benefits to taking out an HECM for Purchase loan.

•   No mortgage payments: With an HECM reverse mortgage for purchase loan, you won’t have to make principal and interest payments while you live in the house and only cover essential charges, like taxes. A conventional mortgage, by contrast, requires monthly repayment.

•   More purchasing power: An HECM for Purchase could increase your purchasing power and bring your goal of buying a new home within reach, especially if you’ve built up a good deal of equity in your current property.

•   Avoid dipping into savings: By using an HECM for Purchase to buy a home rather exhausting your savings, you can avoid draining your retirement funds or other accounts to buy a house.

•   Debt won’t exceed home value: As noted above, an HECM for Purchase is a non-recourse loan, so the debt you or your heirs owe will never exceed the home’s value, even if the property value dips in the future.

Cons of HECM for Purchase

At the same time, an HECM for Purchase loan has some downsides to consider before you borrow.

•   Charges interest, closing costs, and premiums: The HECM for Purchase can come with high closing costs, which include origination fees, title insurance, and appraisal fees. It also charges annual Mortgage Insurance Premiums and accrues interest based on the reverse mortgage interest rate you’re given at the outset of the loan.

•   Requires you to pay property taxes and other expenses: You’ll need to pay property taxes and homeowners insurance to keep the loan in deferred repayment, as well as maintain the property to acceptable standards.

•   Demands that you live in the new home full-time: Your home must be your new primary residence. If you move or sell, you’ll have to pay back the HECM for Purchase loan.

•   Calls for a large down payment: This loan program is reserved for borrowers who can make a large down payment, sometimes 50% or higher, for their new home.

Alternatives to Consider

Before applying for an HECM for Purchase, it’s worth considering alternative financing options, such as:

•   Traditional mortgage: A conventional mortgage typically requires a credit score of at least 620, a down payment (though not as high as 50%), and a debt-to-income ratio below 50% — and sometimes as low as 43%. You’ll also need to have sufficient income to qualify.

•   Home equity loan or home equity line of credit (HELOC): Homeowners can also tap into their equity with a home equity loan or HELOC. You could use this “second mortgage” to finance another home, but be cautious about over-borrowing. A lender can foreclose on your home if you miss payments.

•   Proceeds from home sale: Selling your home is another way to finance the purchase of a new one, especially if you’re downsizing to a more affordable place. In this case, you might have extra money left over to put into savings or invest.

Recommended: The Best Cities for Retirees

The Takeaway

The HECM for Purchase program can simplify the home-buying process for seniors who want to use a reverse mortgage to buy a new house. As long as you keep up with property taxes, homeowners insurance, and other required costs, you won’t have to make any mortgage payments on your HECM while you reside in your new home. At the same time, HECM for Purchase loans come with closing costs and premiums. Consider all your options to determine the best type of financing for your next home purchase.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What types of homes qualify for HECM for Purchase?

The following types of homes qualify for the HECM for Purchase program:

•   Single-family homes

•   2- to 4-unit homes where the borrower occupies one unit

•   HUD-approved condo projects

•   Individual condo units that meet FHA single-unit approved requirements

•   Manufactured homes that meet FHA requirements

The property must also meet all of the FHA’s property standards and flood requirements.

How long can I stay in the home with HECM for Purchase?

You can stay in the home you finance with an HECM for Purchase loan indefinitely. The loan will become due when the last borrower (or the borrower’s spouse) moves, sells the home, or passes away.

Are there limits on HECM for Purchase loan amounts?

An HECM for Purchase is limited to the appraised value of the home or the sales price of the new home, whichever is lower. It cannot exceed the HECM FHA mortgage limit, which is $1,249,125 for 2026.

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Photo credit: iStock/FG Trade

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

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

*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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, 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.

SOHL-Q126-078

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The monthly payments on a $400,000 mortgage could range from about $2,300 to more than $3,700, depending on the loan’s interest rate, term, and other factors. But hopeful homebuyers would be wise to consider how much that mortgage could cost over time as well as what the monthly payments might be.

Read on for a breakdown of what some of your home-buying costs might be, and how they could affect the total cost of a $400,000 mortgage.

What Will a $400,000 Mortgage Cost?

There are several different costs you may run into when taking out a mortgage. Most of the time, they can be divided into three main categories.

Closing Costs

Closing costs are expenses you’ll pay upfront when you get a loan. They can include things like loan processing fees, third-party services such as appraisals and title insurance, and government fees and taxes. You also may decide to pay mortgage points (also called discount points) upfront on your loan to lower the interest rate.

Closing costs can vary significantly from one loan type and lender to the next, but they generally range from 3% to 6% of the mortgage amount.

Monthly Payments

Monthly mortgage payments, which are paid over the life of your loan, typically include two main parts:

•   Principal: This portion of your mortgage payment goes directly toward paying back the amount you borrowed.

•   Interest: This is the fee the lender will charge you for borrowing money. The amount of interest you pay each month will be calculated by multiplying your interest rate by your remaining loan balance.

Escrow

Some homebuyers may also have a third amount, called escrow, included in their closing costs and/or monthly payments. Lenders often collect and hold money in an escrow account so they can be sure critical bills like homeowners insurance and property taxes are paid on time. (Curious about the most budget-friendly places to buy? Check out this list of the most affordable cities in each state.)

What Would the Payment Be on a $400,000 Mortgage?

We’ll keep things simple and eliminate the costs associated with an escrow account to calculate what the payment on a $400,000 mortgage’s monthly payments might be.

Let’s say you wanted to purchase a home for $500,000, and you had $100,000 for a down payment. If your lender offered you a 7% annual percentage rate (APR) on a 15-year loan for $400,000, you could expect your monthly payment — principal and interest — to be about $3,595. If you had a 30-year loan with a 7% APR, your payment could be about $2,661.

Here are some more examples that show the difference between a 15-year loan vs. a 30-year loan, using SoFi’s Mortgage Calculator:

APR	Payment with 15-year Loan	Payment with 30-year Loan
5.5%	$3,268	$2,271
6.5%	$3,484	$2,528
7.5%	$3,708	$2,796

Where Can You Get a $400,000 Mortgage?

Homebuyers may have a few different options when deciding where to go for a mortgage, including online banks and lenders, and traditional banks and credit unions. Because the rates and terms lenders offer may vary, it can be a good idea to shop around for a mortgage that’s the right fit for your individual needs.

Before you start looking for quotes, though, you may want to sit down and review the different types of mortgages you can qualify for. How would a 15-, 20-, or 30-year mortgage affect your monthly payments? Are you looking for a fixed or adjustable mortgage rate? Would you be better off with a conventional mortgage or a government-backed loan? (Some loans may have more flexible requirements for down payment amounts or a borrower’s credit score.)

Once you start comparison shopping, you can note the pros and cons of various offers and narrow down your choices. You also may want to read some online reviews of the lenders you’re considering.

Recommended: 2026 Home Loan Help Center

How Much Interest Will You Pay on a $400,000 Mortgage?

The interest rate your lender offers can make a big difference to the overall cost of your mortgage. So can the mortgage term you choose.

On a $400,000 mortgage at a 7% APR, for example, your total interest costs could range from $247,156 to $558,036, depending on the length of the loan you choose (15 vs. 30 years).

Spreading out your mortgage payments over a longer term can lower your monthly payment, but you can expect to pay more for the loan overall. Your financial circumstances at the time you take out your loan may dictate which is a priority for you. (If you go for a longer loan, and your situation changes, you may decide to refinance your home mortgage to a shorter term down the road.)

How Does Amortization Work on a $400,000 Mortgage?

Though your payment will remain the same every month (if you have a fixed-rate loan), the amount you’ll pay toward interest vs. principal will change over the life of your home loan. In the first years, the majority of your payment will go toward interest. But as your balance goes down, more of your payment will go toward principal.

Your lender can provide you with a mortgage amortization schedule that shows you how the proportions will change as you make payments on your loan.

Here’s what the amortization schedules for a $400,000 mortgage with 30- and 15-year terms might look like. (Keep in mind that your payments may include other costs besides principal and interest.)

Amortization Schedule, 30-Year Loan at 7% APR

Year	Amount Paid	Interest Paid	Principal Paid	Remaining Balance
1	$31,934.52	$27,871.28	$4,063.24	$395,936.76
2	$31,934.52	$27,577.55	$4,356.97	$391,579.79
3	$31,934.52	$27,262.58	$4,671.94	$386,907.85
4	$31,934.52	$26,924.85	$5,009.67	$381,898.18
5	$31,934.52	$26,562.70	$5,371.82	$376,526.36
6	$31,934.52	$26,174.37	$5,760.15	$370,766.21
7	$31,934.52	$25,757.97	$6,176.55	$364,589.66
8	$31,934.52	$25,311.46	$6,623.06	$357,966.60
9	$31,934.52	$24,832.68	$7,101.84	$350,864.76
10	$31,934.52	$24,319.29	$7,615.23	$343,249.53
11	$31,934.52	$23,768.78	$8,165.74	$335,083.80
12	$31,934.52	$23,178.48	$8,756.04	$326,327.76
13	$31,934.52	$22,545.51	$9,389.01	$316.938.75
14	$31,934.52	$21,866.78	$10,067.74	$306,871.01
15	$31,934.52	$21,138.98	$10,795.54	$296,075.46
16	$31,934.52	$20,358.57	$11,575.95	$284,499.51
17	$31,934.52	$19,521.74	$12,412.78	$272,086.73
18	$31,934.52	$18,624.42	$13,310.10	$258,776.63
19	$31,934.52	$17,662.23	$14,272.29	$244,504.35
20	$31,934.52	$16,630.49	$15,304.03	$229,200.31
21	$31,934.52	$15,524.16	$16,410.36	$212,789.95
22	$31,934.52	$14,337.85	$17,596.67	$195,193.28
23	$31,934.52	$13,065.79	$18,868.73	$176,324.55
24	$31,934.52	$11,701.76	$20,232.76	$156,091.79
25	$31,934.52	$10,239.14	$21,695.38	$134,396.41
26	$31,934.52	$8,670.78	$23,263.74	$111,132.66
27	$31,934.52	$6,989.04	$24,945.48	$86,187.18
28	$31,934.52	$5,185.73	$26,748.79	$59,438.39
29	$31,934.52	$3,252.05	$28,682.47	$30,755.92
30	$31,934.52	$1,178.60	$30,755.92	$0

Amortization Schedule, 15-Year Loan at 7% APR

Year	Amount Paid	Interest Paid	Principal Paid	Remaining Balance
1	$43,143.76	$27,504.57	$15,639.19	$384,360.81
2	$43,143.76	$26,374.01	$16,769.75	$367,591.06
3	$43,143.76	$25,161.72	$17,982.04	$349,609.02
4	$43,143.76	$23,861.80	$19,281.96	$330,327.06
5	$43,143.76	$22,467.90	$20,675.85	$309,651.21
6	$43,143.76	$20,973.24	$22,170.51	$287,480.69
7	$43,143.76	$19,370.54	$23,773.22	$263,707.47
8	$43,143.76	$17,651.97	$25,491.79	$238,215.68
9	$43,143.76	$15,809.16	$27,334.59	$210,881.09
10	$43,143.76	$13,833.14	$29,310.61	$181,570.48
11	$43,143.76	$11,714.28	$31,429.48	$150,141.00
12	$43,143.76	$9,442.24	$33,701.52	$116,439.48
13	$43,143.76	$7,005.95	$36,137.80	$80,301.67
14	$43,143.76	$4,393.55	$38,750.21	$41,551.47
15	$43,143.76	$1,592.29	$41,551.47	$0

How to Get a $400,000 Mortgage

If you’re feeling intimidated by the whole home-buying process, breaking it down into some manageable steps may make things a little less overwhelming.

1. Determine What You Can Afford

Reviewing your income, debts, monthly spending, and how much you’ve saved for a down payment can be a good place to start. This will help you decide how much of a down payment you can handle and how much house you can afford.

2. Compare Different Loans and Lenders

Once you know what you can afford, you can start looking for the loan type, interest rate, loan term, and lender that meet your needs.

3. Consider Getting Preapproved

If you’ve decided on a loan and lender, it can be a good idea to go through the preapproval process. Getting a letter from your lender that says you’re preapproved for a certain loan amount lets sellers know you’re a serious buyer. (And it can come in handy if you get into a bidding war for your dream home.)

4. Get Ready to Go House Hunting

When you have your loan lined up, you can look for and potentially make an offer on a house. And since you already know how much you can afford, you can target homes in that range.

5. Submit a Full Mortgage Application

Once your offer is accepted and you’re ready to move forward, your lender will ask you to complete a more formal loan application and provide additional financial information and documentation.

6. Prepare for Closing

While you’re waiting for a final loan approval and a closing date, you can shop for homeowners insurance, get a home inspection, and make sure you have all the money you need for your down payment and closing costs.

7. Take Ownership of Your New Home

At the closing you can sign all the necessary paperwork, hand over the funds needed to make the purchase, and — congratulations! — get the keys to your new home.

Recommended: First-Time Homebuyer Guide

The Takeaway

Researching the different costs you might have to pay if you plan to take out a $400,000 mortgage can help you stick to your budget and avoid unpleasant surprises.

The choices you make about the type of loan you get, the interest rate, loan term, and other costs, will all play part in how much you pay every month — and over the length of the loan. So it can be a good idea to run the numbers before you decide on a particular lender or loan.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much is a $400,000 mortgage a month?

The monthly payment for a $400,000 mortgage could range from about $2,300 to more than $3,700, depending on several factors, including the interest rate and loan term.

How much income is required for a $400,000 mortgage?

Lenders will look at several factors besides your income to determine if you can afford a $400,000 mortgage. You can expect to be asked about your debt, credit history, assets, and the down payment you plan to make.

How much is a down payment on a $400,000 mortgage?

Your down payment may vary depending on the price of the house you choose, the type of loan you get, and if you want to avoid paying private mortgage insurance as part of your borrowing costs. Traditionally, lenders like to see a 20% down payment, which on a $500,000 home would be a $100,000 down payment and a $400,000 mortgage. But many lenders accept lower down payments.

Can I afford a $400,000 mortgage with a $70,000 salary?

Since your housing costs (monthly payments, insurance, etc.) would likely be more than half your monthly salary, it could be a challenge to afford a $400,000 mortgage on a $70,000 salary.

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Photo credit: iStock/svetikd

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

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

*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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, 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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOHL-Q126-073

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If you’re looking at a $550,000 mortgage, you’ll need some solid numbers to help you afford the home you want. Assuming a 7% interest rate, you’ll need to make around $160,000 per year to afford the roughly $4,800 monthly payment on this loan.

This amount includes an estimate for taxes and insurance by Fannie Mae and a 36% total debt ratio. This number also assumes a higher purchase price of $687,500 with a 20% down payment to get the $550,000 mortgage with no private mortgage insurance (PMI).

We’ll run through a few scenarios to help you understand how different factors affect how much you’ll need to make to meet the requirements for this mortgage. As with any advice, it’s best to talk to a good lender, who can help you along the path of home affordability.

Income Needed for a $550,000 Mortgage

It requires a significant amount of income to pay for housing costs around the country. According to the most recent data from the U.S. Census Bureau obtained from the Federal Reserve Bank of St. Louis, the national median housing price is $410,800 in the second quarter of 2025. If you have no debt, you’ll need to make around $130,000 for the average house.

For a $550,000 mortgage loan, the amount needed is around $160,000. We arrived at this number by calculating the monthly payment on a $550,000 mortgage with a 7% APR, assuming at least a 20% down payment was already made on the purchase price to eliminate the cost of mortgage insurance. This number is just for the mortgage with taxes and insurance and assumes you have no other debt.

If you have debt, though, you need to account for that in determining how much money is required to afford your $550,000 mortgage and your debt obligations. Here’s how to do that.

How Much Do You Need to Make to Get a $550K Mortgage?

You need to make a reliable annual income of $160,000 to $200,000 (give or take, depending on your debt level) to get a $550,000 mortgage. When interest rates were lower, it may have been possible to get a $550,000 loan on a smaller income. Now, given that interest rates have risen, you need to lower your debt, increase your income and savings, and have a high salary to afford a $550,000 mortgage.

What Is a Good Debt-to-Income Ratio?

A good debt-to-income ratio is as low as you can get it. Lenders favor levels below 36%, but you may be able to find a lender that allows for a debt-to-income (DTI) ratio around 45%.

What Determines How Much House You Can Afford?

How much house you can afford is determined by a number of factors. To give you a general idea of how they work together, consider the following:

Income

How much you make is the biggest factor in determining how much you can afford. But it’s also the predictability of the income that’s important to a lender. If you’re in business for yourself, but don’t have two years worth of tax returns, it’s hard to prove income, and the lender is less likely to want to lend you money.

Debt

Your debt obligations take away from how much home you can afford. More debt = less money available for a house payment = lower mortgage amount.

Down Payment

If you have a larger down payment, you’ll be able to afford a more expensive home. A down payment of 20% is ideal because you can avoid PMI (private mortgage insurance). However, if you have good credit and a good lender, you may be able to find a loan type that doesn’t require 20% down and still get a good rate. Use a mortgage calculator to see how a down payment affects your home affordability.

Loan Type

The different types of mortgage loans affect how much house you can afford, since your monthly payment will vary. For example, a 15-year mortgage will have a higher monthly payment, which means you’ll have to choose a lower-priced home. You’ll also see your home affordability change when choosing between fixed-rate and adjustable-rate mortgage, especially if you compare 5-year ARMs vs. 30-year fixed mortgages.

If you need a loan that exceeds the conforming loan limits for your area, you’re looking at a jumbo loan, which has different requirements (such as a higher credit score and down payment) that will affect home affordability.

Lender and Interest Rate

The lender you choose can also affect home affordability. This is because lenders offer different rates and have different risk tolerances. For example, if you have a lender that’s willing to underwrite loans with a 45% DTI ratio, you’ll qualify for a larger mortgage than you would with a lender that’s only willing to accept a 36% DTI ratio. That’s one of the many reasons it’s important to shop around for a loan and a lender.

Recommended: Cost of Living by State

What Mortgage Lenders Look For

For a $550,000 mortgage, lenders will look at the following factors in making a lending decision about you.

•   Credit score: Your credit score evaluates how risky your behavior with credit is. The higher, the better. If you make your payments on time, every time, you’ll be well on your way to a solid credit score.

•   Debt-to-income ratio: Lenders want to know that you can meet your monthly obligations. If you have lower amounts of debt, you’ll likely be approved for a larger mortgage amount because you can afford the monthly payment.

•   Income: You need to make enough steady income to qualify for the loan.

•   Down payment: A higher down payment reduces the risk to the lender. They may be able to offer better rates and terms to you if you have a significant down payment. However, even if you have a lower down payment amount, you may still qualify for great terms and rates.

$550,000 Mortgage Breakdown Examples

Below are mortgage examples with different down payments, debt levels, and interest rates that can help you see where you may fall. These numbers were taken from Fannie Mae’s mortgage calculator and include an estimate for taxes and insurance.

$550,000, 30-year mortgage with 20% down payment and 7% interest

•   Principal and interest: $3,513

•   Taxes and insurance: $1,100

•   Total monthly payment: $4,613

$550,000, 30-year mortgage with zero down payment, and PMI, at 7% interest

•   Principal and interest: $3,659

•   Taxes and insurance: $917

•   Mortgage insurance: $504

•   Total monthly payment: $5,080

$550,000, 15-year mortgage with 20% down, at 6.5% interest

•   Principal and interest: $4,599

•   Taxes and insurance: $1,100

•   Total monthly payment: $5,699

Pros and Cons of a $550,000 Mortgage

A $550,000 mortgage has some pros and cons you’ll want to consider.

How Much Will You Need for a Down Payment?

Here’s what you’ll need for a down payment for a roughly $550,000 mortgage on a home costing $567,000.

Loan type	Minimum down payment	Amount for a $550,000 loan
Conventional	3% (first-time homebuyers)	$17,010
Federal Housing Administration (FHA)	3.5%	$19,845
U.S. Department of Veterans Affairs (VA)	0%	$0
U. S. Department of Agriculture (USDA)	0%	$0

Keep in mind, if you’re able to put down 20% ($110,000), you won’t need to include PMI in your monthly mortgage calculation, which will help you afford more home.

Recommended: Best Affordable Places to Live

Can You Buy a $550K Home With No Money Down?

It is possible to buy a $550,000 home with no money down, especially if you’re able to take advantage of one of the following loan types. These options have 0% down payment requirements for borrowers who qualify.

0% Down Payment Mortgages

•   VA mortgages: For qualified veterans and servicemembers, VA mortgages offer excellent rates along with no down payment requirement. Veterans must obtain a certificate of eligibility (COE), which is based on service and duty status.

•   USDA mortgages: If you live in a rural area and make a moderate income, you’ll want to look at a USDA mortgage. This type of mortgage doesn’t require a down payment and the interest rate is similar to what you would get with a conventional loan. There are even some options where the USDA directly services the loan and provides payment assistance to make it more affordable for the borrower.

Can You Buy a $550K Home With a Small Down Payment?

If you’re looking to keep as much cash in your hands as possible, you might be wondering if you can buy a home with a small down payment. The answer is yes, it is possible to buy a $550,000 home with a small down payment.

•   Conventional mortgages: Since a $550,000 mortgage falls under the conforming loan limits, you can qualify for conventional financing, which first-time homebuyers can obtain for as little as 3% down. You will need to pay mortgage insurance (PMI), but if you can afford the monthly payment and it allows you to get into a home, it may be worth it to you.

•   FHA mortgages: It’s possible to get an FHA mortgage with as little as 3.5% of the purchase price. You also need to pay mortgage insurance on an FHA loan, and it can be expensive. Consider refinancing your mortgage once you have 20% equity in your home to eliminate PMI.

The other options for 0% down payment mortgages mentioned previously, VA loans and USDA loans, are also available here.

Is a $550K Mortgage with No Down Payment a Good Idea?

If you desire to move into a home of your own and can afford the higher monthly payment on a $550,000 mortgage with no down payment, don’t let anything hold you back. A 20% down payment is a great idea, but it can be incredibly hard in reality, even in the most affordable states. If you’re in a strong financial position, but don’t have a down payment, talk to a lender to see if you can make it work.

How to Afford a $550K Mortgage

There are things you can do if you can’t afford a $550,000 mortgage. Take a look at our tips to help you qualify for a mortgage. You can also try the following:

Pay Off Debt

Paying off debt can make it easier to afford a mortgage by improving your debt-to-income (DTI) ratio, which lenders use to determine how much you can borrow. With fewer monthly obligations like credit cards or car loans, more of your income can go toward housing costs, potentially qualifying you for a larger loan or a better interest rate.

Look into First-Time Homebuyer Programs

Look for first-time homebuyer programs in your area. They’re different from state to state and city to city, but in general, most areas have a program that can help with down payment and closing costs assistance, homebuyer education, and rate buydowns.

Care for Your Credit Score

There are some strategic moves you can make to build your credit history, including:

•   Check your credit report. You’ll want to know what is in your report and what your score is. You can fix errors, pay off balances, or find out what negative items are impacting your score.

•   Consider opening a credit account. If you’re new to credit, you may need a credit account to build your credit history. Look for secured or student credit cards with low limits. Use it for a few purchases and pay the balance in full every month.

•   Automate your payments. If you’re not using autopay or your bank’s bill pay, get it set up. It’s an easy and stress-free way to build your credit history, which is what most of your credit score consists of.

Start Budgeting

Even if you know what you’re doing when it comes to managing your money, going back to the basics of budgeting can help tremendously. You’ll get laser-focused on the areas you can adjust so you can save money and meet your goals.

Alternatives to Conventional Mortgage Loans

Conventional mortgages aren’t the only ways to finance a home. If you’re looking for nontraditional funding sources, you’ll want to look here:

•   Private lending: A private lender isn’t associated with a bank and offers their own terms and conditions (usually a higher interest rate and a shorter term). Qualifications may also be more flexible.

•   Seller financing: Seller financing is another alternative where the seller acts as the lender. In an arrangement like this, the seller and buyer agree on the details, such as purchase price and payments.

•   Rent-to-own: Similar to seller financing, rent-to-own arrangements are made where the buyer agrees to lease the property before they’re able to buy it.

Mortgage Tips

If you want a great mortgage, you’ll need to do a little homework. A home loan help center is a good place to start, but here are some additional tips:

•   Shop around: Interest rates and terms vary by lender.

•   Compare loan estimates: A loan estimate is a standard form where the lender estimates the fees, interest rates, closing costs, and other terms of the loan you want. By submitting the same information to each lender, you can get a good idea of what each loan would cost during the mortgage preapproval process.

•   Choose a lender who communicates well: A lender who can communicate effectively with you will make the process go much smoother. Ask for recommendations from friends and family and interview prospective lenders.

The Takeaway

To get a $550,000 mortgage, you’ll need enough income, an appropriate DTI ratio, and strong credit. Low- and zero-down-payment mortgages can help you qualify for a mortgage of this size faster, but they do come with a large PMI payment added to your monthly mortgage payment.

FAQ

How much does a $550,000 mortgage cost over 10 years?

If you borrow $550,000 at a 7% interest rate, you can expect to pay out a total of $766,316 over the decade of payments.

Can I afford a $500K house on a $100K salary?

If your interest rate is low, you have a large down payment, and you have little or no debt, a $100,000 salary may just be enough to afford a $500,000 house in the eyes of some lenders.

How much is a down payment on a $550,000 house?

A down payment on a $550,000 house depends on the loan type. A 20% down payment would be $110,000, helping you avoid private mortgage insurance. Some loans allow lower down payments, such as 3% to 5%, which would range from $16,500 to $27,500.

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

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 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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, 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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOHL-Q126-090

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A home is a place to live, but it is also a significant asset that often increases in value over time. Until a sale or an inheritance, this value typically remains unrealized. However, a home equity conversion mortgage (HECM) is a tool that can help unlock some of a home’s equity for those who are experiencing unforeseen expenses or want financial flexibility in retirement.

What are home equity conversion mortgages, and how do they operate? We’ll delve into the complexities of HECMs in this article, going over their advantages, requirements for qualifying, available repayment plans, and any drawbacks.

What Is a HECM?

Knowing how to safely utilize home equity can be a game-changer in an environment where traditional retirement funding may not be sufficient and the cost of living is rising. With the help of HECMs, homeowners 62 years of age and over have a way to turn a portion of their equity into cash without having to worry about making monthly mortgage payments or refinancing.

A home equity conversion mortgage is a specific kind of home loan that allows homeowners 62 years of age and over to access a portion of their home equity. The loan is insured by the Federal Housing Administration (FHA).

With a HECM, the lender pays the borrower instead of the borrower making monthly payments to the lender as is the case with standard home loans. These funds may be obtained in the form of a line of credit, monthly installments, a lump sum, or in any combination of these.

One of the key characteristics of a HECM is that repayment is usually postponed until the borrower either stops using the house as their principal residence or defaults on other loan responsibilities, like upkeep, property taxes, and insurance.

How HECMs Work

With HECMs, qualified homeowners 62 years of age and over can convert a part of their home equity into cash without having to sell their house or pay a monthly mortgage. A homeowner who obtains this type of home equity loan has the choice of receiving money in one of several ways: as a lump sum, as monthly installments, as a line of credit, or as a mix of these. A number of variables, including the borrower’s age, the home’s appraised value, and the current interest rate, affect how much money is available through a HECM.

Borrowers are still liable for upkeep, property taxes, homeowners insurance, and any relevant homeowners association dues, and they must continue residing in the home.

Usually, the borrower must make loan repayments when they sell their house or move out permanently.

If the owner dies, his or her heirs are responsible for repaying the remaining loan total, which includes all accumulated interest and fees. (The funds to repay the total might be recouped through the sale of the house.)

With the help of this financial tool, retirees can access their home equity and keep ownership and occupation of their residence, giving them more financial stability and freedom in their later years.

Home Equity Conversion Mortgage Requirements

There are several requirements to quality for an HECM:

Age

To qualify for a home equity conversion mortgage, applicants must be aged 62 or older.

Homeownership

Homeownership is a prerequisite for obtaining a HECM, and the property must be the borrower’s primary residence.

Equity

Sufficient equity in the property is required for eligibility. Typically the borrower must have at least 50% ownership.

Financial Assessment

Lenders perform a rigorous financial review before approving a HECM to make sure borrowers can afford regular costs like property taxes and insurance. Although there are no stringent income or credit restrictions for HECMs, borrowers still need to show that they can afford their debts.

Property Type

The eligibility for a home equity conversion mortgage depends on the property type. It must be a single-family home, a two-to-four-unit dwelling with one unit occupied by the borrower, or a HUD-approved condominium or manufactured home meeting FHA requirements.

Repayment

Repayment of a HECM typically occurs when the borrower sells the home, moves out permanently, or passes away, at which point the loan balance, including accrued interest and fees, is repaid either through the sale of the home or by the borrower’s heirs.

Compliance

Compliance with all FHA guidelines and requirements throughout the life of the loan is essential for borrowers of a home equity conversion mortgage.

Recommended: How to Use a HECM to Buy a Home

Pros and Cons of HECMs

While there are many benefits to a HECM, there are also some downsides to be aware of.

Pros of HECMs

•  Financial flexibility: Retirees who qualify for HECMs can use their home equity as a source of additional income without having to pay a monthly mortgage.

•  Retain homeownership: During the loan period, borrowers may continue living in their house and retain ownership.

•  Delayed repayment: To provide borrowers and their family peace of mind, loan repayment is normally postponed until the borrower sells the house, moves out permanently, or passes away.

•  Flexible payment options: To accommodate different financial needs and preferences, HECMs offer a range of payment options, such as lump sum payments, monthly installments, a line of credit, or a mix of these.

•  FHA insurance: The FHA insures HECMs, providing lenders and borrowers with extra security against possible losses.

•  Non-recourse loan: Since HECMs are non-recourse loans, as long as the property is sold to pay off the debt, borrowers or their heirs are not liable for any shortfall in the event that the loan total exceeds the value of the home upon repayment.

Cons of HECMs

•  Accrued interest: As interest is applied to the loan balance over time, it may decrease the amount of equity that is available to borrowers or their heirs when the loan is repaid.

•  Costs up front: The money obtained from the loan may be reduced by upfront expenses associated with HECMs, such as mortgage insurance premiums, origination, closing, and servicing fees.

•  Impact on inheritance: Using a HECM to access home equity may cause the borrower’s estate to lose value, which may have an impact on the inheritance that heirs get.

•  Strict property restrictions: Eligibility is restricted to specific types of properties, which may prevent some borrowers from using this financial instrument.

•  Effect on government benefits: One may not be able to obtain means-tested government benefits like Medicaid or Supplemental Security Income (SSI) if they get funds from an HECM.

•  Potential default: Should the borrower or their heirs neglect to fulfill the loan obligations — which include upkeep of the property, payment of taxes, and maintenance of insurance coverage — they run the risk of going into default and losing the house.

Home Equity Conversion Mortgage vs Reverse Mortgage

Although they are sometimes used interchangeably, reverse mortgages and home equity conversion mortgages differ in a few important ways. Both let homeowners 62 and older access their home equity without having to pay a monthly mortgage. A mortgage with particular standards and protections that is guaranteed by the Federal Housing Administration is known as a HECM. Conversely, private lenders may provide reverse mortgages, which may have different terms and qualifying requirements. Here’s a quick look at the differences:

Feature	HECM	Reverse Mortgage
Insurer	FHA	Private lenders
Eligibility Requirements	Strict FHA guidelines	Lender-specific criteria
Costs	FHA mortgage insurance premiums, fees	Vary by lender
Repayment	Deferred until borrower moves	Varies (e.g., lump sum, monthly payments)
Property Requirements	FHA-approved properties	Vary by lender
Government Benefits Impact	Potential impact	Potential impact

Each type of mortgage has benefits and drawbacks. HECMs have upfront charges and property restrictions, but they also provide government insurance, more stringent qualifying requirements, and protection against default.

Private lender reverse mortgages could be more flexible and have fewer initial expenses, but there might be risks and alternative terms for the borrower. Before making a choice, homeowners should carefully weigh their options and speak with a financial advisor.

Alternatives to HECMs

There are other options to take into consideration. One option is a cash-out refinance, in which homeowners can obtain cash for the difference when they refinance their current mortgage for a bigger sum than what they presently owe.

Another choice is a home equity line of credit (HELOC) or a home equity loan; these enable homeowners to take out a loan with fixed or variable interest rates and repayment conditions based on the equity in their house.

A homeowner who wants financial freedom, without the hassles of a HECM or reverse mortgage, can look into alternative retirement income options like investments or annuities or downsize to a smaller, more inexpensive house.

Before choosing one of these options, homeowners should carefully weigh their options, taking into account things like fees, payback terms, eligibility restrictions, and long-term financial objectives. Speaking with a financial advisor can also offer insightful advice on how to choose which course of action is appropriate for one’s particular circumstances.

Home Loan Rates

A number of economic factors, such as market demand, monetary policy decisions, and inflation, affect home loan rates. Mortgage lenders typically modify their rates in response to changes in the overall interest rate environment. With a fixed interest rate that stays the same for the duration of the loan, fixed-rate mortgages give borrowers stability and predictable monthly payments.

Adjustable-rate mortgages (ARMs), on the other hand, may start off with lower rates and come with the ability to change them at any time depending on the state of the market. This could result in changes to the monthly payment amount.

Individual mortgage rates are also influenced by loan terms, credit score, and size of down payment; consumers with higher credit scores typically obtain lower rates. It is possible for borrowers to obtain reasonable rates that are customized to their financial situation by staying up to date with market developments and looking into choices with various lenders.

The Takeaway

A homeowner age 62 or over who wishes to stay in their house but also wants to unlock some of the equity in the property to cover expenses may find a Home Equity Conversion Mortgage is worth a look. But an HECM isn’t the only option, so weigh the pros and cons and consider a home equity loan or line of credit as well.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

What is the downside of a HECM loan?

The drawbacks of a HECM loan are the possibility of accumulated interest, upfront expenses such mortgage insurance premiums and taxes, and potential effects on the borrower’s eligibility for government benefits or on the value of their estate.

What is the difference between a HECM mortgage and a reverse mortgage?

A HECM mortgage is a subset of a reverse mortgage that is insured by the FHA, providing specific protections. Reverse mortgages can be offered by private lenders and may have different terms and eligibility criteria.

What is the homeowner requirement to qualify for a home equity conversion mortgage?

To qualify for a home equity conversion mortgage, the homeowner must be aged 62 or older and have sufficient equity in the property, which must serve as their primary residence.

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

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.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, 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.

SOHL-Q126-079

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Thinking about refinancing your mortgage? Even in a tough interest rate environment, there are scenarios where refinancing makes sense. In each instance, you’ll want to do your research to ensure the changes to your mortgage meet your financial goals.

To help clarify your goals with refinancing your mortgage, we’ve compiled the following questions to ask when refinancing a mortgage. These questions can help you determine whether or not a mortgage refinance makes sense for you.

20 Questions to Ask When Refinancing a Mortgage

1. Should I switch lenders?

It’s possible another lender could offer you better rates and terms, but it’s a good idea to check with your current lender first. Your current lender will want to keep your business and may have incentives to offer you. In any case, shopping around when you’re refinancing is a good idea, and will only count as a single inquiry on your credit if you can do it within 45 days.

2. Can I switch loan types?

Changing your loan type could be an advantageous move. If you have an FHA loan, for example, you’ll always be paying mortgage insurance. A mortgage refinance to a different loan type may eliminate the mortgage insurance payment and save you money.

You do have to counter that with the possibility that the interest rate may be higher than your current mortgage rate, offsetting the savings. Be sure to do the math to make sure it’s a smart move.

3. What’s my new interest rate?

Refinancing a mortgage loan means you’ll get a new interest rate, which could be higher or lower than your current mortgage rate. You may have heard it only makes sense to refinance when interest rates are lower than what you currently have. In many cases, that’s true, but if you need a large sum from a cash-out refi, need to remove a borrower from the loan, or have another situation where refinancing is necessary, you’ll still want to shop around to get the best interest rate possible.

4. What is my interest rate type?

When you refinance, you’ll have the option to change your rate type. The choice is usually between adjustable-rate mortgages (ARM) and fixed-rate interest types. With an adjustable-rate mortgage, you may initially have a lower rate, but the rate can change with market conditions. A fixed-interest rate mortgage stays the same for the life of the loan.

5. What’s my new term length?

Refinancing a loan could bring a new term length. If you want to pay your mortgage off faster, a 15-year mortgage could work. If you need to keep your monthly payment low, you may want to opt for a 30-year mortgage. If you can manage a slightly higher monthly payment, the 15-year mortgage is a great way to save money long-term.

6. What’s the new payoff date?

Take a look at the proposed new payoff date. Where do you imagine yourself being in your life at that point? Are you comfortable if you have to stretch the payoff date further into the future? Or does a quicker payoff fit better with your future plans? Consider how much the change will cost and whether you’re willing to accept that.

7. Will I be paying mortgage insurance?

Private mortgage insurance (PMI) is one of the fees on your mortgage you should get rid of as soon as you can. It only serves the lender, and if you have 20% equity or more, you should be able to drop PMI (sometimes without a refinance, depending on your loan type). If you’re refinancing and don’t have 20% equity, you’ll get a new mortgage and still need to pay mortgage insurance.

8. What closing costs will I pay and how much will they be?

You might be wondering what the fees for refinancing will be, or even, “Can I refinance for free?” The best answer lies with your lender. When you’re comparison shopping, get a loan estimate, which will disclose the interest rate, monthly payment, closing costs, and estimated costs for taxes and insurance for your new loan.

There are lenders that offer no-closing-cost loans, but these are usually in exchange for higher interest rates. Compare these expenses to closing costs to see which is a better deal.

9. What will my new payment be?

Your mortgage payment will likely change, sometimes significantly depending on the interest rate you qualify for and the term that you choose. To get a good estimate of how that could change, use a mortgage calculator.

10. Can I afford the new payment?

Evaluate how the new payment fits in your monthly budget. If it’s easily affordable, you may want to consider a 15-year loan. If it’s too much of a stretch, consider whether you really want or need to make a change.

11. Will I save any money?

The only way to know if you’re going to save any money on a refinance (if that’s your goal) is to:

•   Calculate how much the mortgage is going to cost in total. The Consumer Financial Protection Bureau (CFPB) advises consumers to look at the cost savings of your monthly payment versus how much the loan will cost you in total. Even if you can get a lower interest rate and lower monthly payment, you could end up paying more for the mortgage if the mortgage term is longer.

•   Calculate your break-even point. You can do this by dividing the closing costs by the amount you’ll save every month. If your closing costs are $4,000, and you’ll save $200 every month, then your break even point is 20 months. If you plan to stay in the home at least 20 months, then the amount is probably worth it if the total cost is also acceptable to you.

12. Can I refinance if I have less than 20% equity?

You can refinance if you have less than 20% equity, but your options may be limited. You may need to pay private mortgage insurance, accept a higher interest rate, or qualify for a government-backed program like an FHA or VA refinance.

13. Can I refinance without a credit check?

There are programs that offer refinancing without a hard credit check in all loan types, including: conventional, FHA, USDA, and VA loans. Take a look at the chart below for details on programs, qualifications, and what limitations you may encounter:

Program name	Who and what qualifies?	Limitations
FHA Streamline	FHA-insured properties that are not delinquent	Cash out limited to $500, may have higher interest rate
Fannie Mae RefiNow (no minimum credit score requirement, but credit still pulled)	One-unit primary residences for borrowers at 100% or less of the area median income with up to 65% debt-to-income (DTI) ratio	Cash out limited to $250, fixed-rate loans only
Freddie Mac Refi Possible (no minimum credit score requirement, but credit still pulled)	One-unit primary residences for borrowers at 100% or less of the area median income with up to 65% DTI ratio	Cash out limited to $250, fixed-rate loans only
USDA Streamline Assist	USDA mortgages with no delinquent payments for 12 months prior	Income limits, must reduce the monthly amount by at least $50 to qualify
VA IRRRL	For existing VA loans that have been owner-occupied at one point	No cash out, cannot pay off a second mortgage, may pay closing costs

14. Can I refinance multiple times?

It is possible to refinance multiple times, provided the numbers work out. You’ll need to qualify with your income, debt-to-income (DTI) ratio, and credit score each time. Keep in mind that the cost of refinancing each time may not make sense, so be sure to work out the numbers and consult with your lender on a solution that works for you.

15. How do I prepare for a refinance?

The best way to prepare for a refinance is by getting your finances in order. Check your credit score, your home’s value, and pay off debt where you can. Your personal qualifications are the biggest factor in getting a refinance with the best rates and terms.

16. What’s the purpose for the refinance?

You may be considering a refinance for any number of reasons, including to secure a lower interest rate, consolidate your debts, take a cosigner off the loan, pay off the loan sooner, get rid of mortgage insurance, change loan types, or change interest rate types. If you are refinancing to pay for major expenses, a home equity line of credit (HELOC) may be another option.

Recommended: How to Remove a Cosigner from a Mortgage

17. What are you sacrificing for this refinance?

Are you sacrificing a low interest rate so you can remodel the kitchen (and is that OK with you)? Are you pulling equity out of your home to give your monthly budget some breathing room? How much more will you pay over the life of the loan if you refinance? When you understand how amortization affects what you pay for the whole mortgage, it can help you make decisions that are better for your long-term financial health.

18. How does refinancing bring you closer to your financial goals?

A refinance should help you with your money or life. If there’s no benefit, you can walk away. If your goal is to separate your finances from a former partner, a refinance is essential to getting you closer to your goals. If your goal is to update your home, a refinance may be able to help you do that. Think about your goals, financial and otherwise.

19. Do I need cash out?

If you want cash refunded to you when you refinance with a new mortgage, you’ll want a type of loan known as a cash-out refinance. You can use the cash to pay off debt, finish your basement, cover the costs of adoption, start a business, buy a boat, or nearly any other purpose you can think of. The CFPB does advise consumers to be judicious when taking cash out of their home equity.

20. Is this the right time to refinance?

There’s never going to be a perfect time to refinance, even if interest rates drop. But if your finances qualify you for a refinance and you’re ready to meet your next financial goal, then it might be a good time to refinance.

Why Asking These Questions Is Important

By asking questions, the refinance process will go more smoothly when you begin to work with your lender. You’ll be able to:

•   Understand what options are available to you

•   Grill your lender on important details

•   Comparison shop and get the best deal

•   Understand how a refinance will affect your finances

Deciding Whether to Refinance Your Mortgage

Refinancing your mortgage can be a great financial move, but it’s not right for everyone. Even after figuring out what you need and evaluating the options, you still might be worried about whether you’re making the right decision.

That’s normal. A good lender can help answer any additional questions you have when refinancing your mortgage. They can help you see the different options available to you and what financial implications they may have.

Recommended: How to Refinance a Home Mortgage

The Takeaway

It can sometimes feel like there are as many reasons to refinance your mortgage as there are lenders willing to give you a loan. Asking yourself these questions can help you pinpoint whether a refinance is right for you, right now, given your specific financial and life circumstances.

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

A new mortgage refinance could be a game changer for your finances.

FAQ

What is not a good reason to refinance a mortgage?

A poor reason to refinance is simply to extend your loan term without long-term savings, as this can increase total interest paid. Refinancing also may not make sense if closing costs outweigh the benefits or if you plan to move before reaching your break-even point.

What is a good rule of thumb for mortgage refinancing?

A common rule of thumb is that refinancing may be worth considering if you can lower your interest rate and you plan to stay in the home long enough to recoup closing costs through monthly savings.

What should you look out for when refinancing a home?

When you’re refinancing a mortgage, ideally you want it to benefit you financially. Bear in mind that a new mortgage with a lower monthly payment could still cost you more over time if you extend the loan term.

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