How to Leverage Home Equity to Pay Off Student Debt

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

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

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

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

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

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

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

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

Recommended: First Time Home Buyer’s Guide

The Elements of Equity

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

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

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

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

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

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

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

Deciding to Pay Off Student Loans with Home Equity

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

Benefits of Paying Off Student Loans with Home Equity

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

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

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

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

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

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

Recommended: Home Affordability Calculator

Downsides of Paying Off Student Loans with Home Equity

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

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

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

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

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

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

When It’s Time to Leverage Your Home Equity

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

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

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

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

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

Shop Smart

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

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

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

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



External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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
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SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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What is the Federal Family Education Loan Program?

If college seems more expensive than ever, that’s because it is. Tuition more than doubled between 1978 and 2015 and is now at an all-time high. Not surprisingly, most families can’t afford to pay these costs out of pocket.

The numbers show that students and their families end up borrowing from the federal government to pay for education. As of late 2018, federal loans represented more than 92% of all outstanding student debt; as of late 2019, borrowers owed the government more than $1.6 trillion.

One federal loan program you may have heard of is called the Federal Family Education Loan Program (FFEL). The program was launched by the Higher Education Act of 1965 and was the main source of federal student loans for decades.

It included several types of loans for undergraduate and graduate students: Subsidized and Unsubsidized Stafford Loans, PLUS Loans, and FFEL Consolidation Loans.

FFEL loans had a unique structure: They were issued by private financial institutions and state-level lenders. The federal government guaranteed the loans against losses if the borrower defaulted, became disabled, or in certain other situations.

The government also sometimes paid an interest subsidy to ensure a certain rate of return for lenders. However, the government did not directly originate these loans or provide the capital for them.

Does the Federal Family Education Program Still Exist?

No. Congress discontinued FFEL loans in 2010 as part of the Health Care and Education Reconciliation Act , and no new loans have been issued under the program since that July 1, 2010.

The reform took place after the Congressional Budget Office found that, if the government eliminated “middlemen” private lenders and just loaned the money directly, it could save up to $68 billion over 10 academic years.

At that point, FFEL was replaced by the William D. Ford Federal Direct Loan Program. Loans offered under this program are similar to the earlier ones, including Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

However, there are big differences in how the program is administered. The federal government itself now draws on its own capital to directly lend to students, while several federal contractors take care of originating and servicing the loans.

Even though no new FFEL loans are being issued, they are far from paid off. As of late 2019, nearly $271.6 billion of FFEL Loans remained outstanding. Borrowers of these loans are still responsible for making these payments, lenders are required to service them, and the federal government still insures them.

In 2015, the Department of Education banned debt loan holders from charging FFEL borrowers exorbitant interest rates on overdue student loans, as long as borrowers entered the government’s loan-rehabilitation program within 60 days of defaulting. However, the government rolled back those protections in 2017 . Here’s more info on what FFEL loans look like today.

Understanding Your FFEL Loan

If you have a FFEL loan, the biggest difference from a Direct Loan is the source of the money—you received it from a private lender instead of the federal government. Within the FFEL, you have one of four types of loans:

•   Stafford: A loan for undergraduate students where interest is covered by the federal government while the student is in school at least half-time, and during grace or deferment periods.

•   Unsubsidized Stafford Loan: A loan for undergraduate, graduate, and professional degree students where interest is charged during the entire life of the loan.

•   Federal PLUS Loan: This loan is available for either parents of dependent undergraduate students, or for graduate or professional students. Interest is charged for the entire loan period.

•   Federal Consolidation Loan: Designed for borrowers to combine multiple federal student loans into a single loan with a single payment. Interest is still covered by the government on subsidized parts of the loan if it’s in deferment.

If you’re not sure what type of loan you have, one place to look is the National Student Loan Data System . This database houses everything you need to know about your federal student loans, including your interest rate, balances, and payment plans.

Are FFEL Loans Eligible for Forgiveness?

With certain types of federal loans, eligible borrowers can opt for an income-driven repayment plan (IDR). As long as borrowers make on-time payments, which are tied to a share of their discretionary income, the balance is forgiven after 20 or 25 years.

Borrowers who are employed by a qualifying employer may be eligible under the Public Service Loan Forgiveness Program to have their loans forgiven after 10 years of payments, and those who qualify for the Teacher Loan Forgiveness Program could have up to a maximum of $17,500 in certain federal loans wiped away.

FFEL loans are generally not eligible for forgiveness through any of the above programs. At least not on their own. However, FFEL loans that are consolidated into a Direct Consolidation Loan may be eligible for forgiveness. Here are some details around that:

•   Subsidized and Unsubsidized Federal Stafford Loans, as well as FFEL PLUS Loans made to students and FFEL Consolidation Loans that did not repay any PLUS Loans made to parents, are eligible for the Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans.

•   FFEL PLUS Loans to parents, or consolidation loans that include these, are eligible for the ICR Plan only.

Can I Still Consolidate or Refinance My FFEL Loans?

Federal student loan interest rates are set by Congress annually and are fixed for the term of the loan. If you’re still paying on your original FFEL loan, it will have the same interest rate as it did on the date you took the loan out.

For borrowers looking to streamline their payments or potentially lower their interest on FFEL loans, or on Direct or private loans, consolidation or refinancing are options to consider.

Consolidation is a government program that combines multiple federal loans into one Direct Consolidation Loan. The new interest rate is the weighted average of all the interest rates rounded to the nearest 1/8th of a percent. As mentioned above, FFEL loans are no longer available and don’t qualify for federal loan forgiveness programs.
But if you consolidate your FFEL loans into a Direct Consolidation Loan, that loan may be eligible for the federal repayment programs described above.

However, consolidation has some drawbacks . Because the interest rate for a consolidated loan is the weighted average of all the loans you choose to consolidate—rounded up to the nearest one-eighth of a percent—there is a chance your interest rate may actually go up a bit.

And if your payments are lower under any repayment program, it is likely because your loan term has been extended, which means you may pay more interest over the life of the loan. Finally, private loans aren’t eligible for federal consolidation.

As an alternative, whether you hold FFEL loans, Direct Loans, or a combination of private and federal student loans, refinancing may be one option to consider. When you refinance your student loans, you take out a single new loan from a private lender and use it to pay off your existing loans.

Refinancing can allow some borrowers, especially those with a strong credit and employment history (among other factors that vary by lender), to get more favorable loan terms, such as a lower interest rate or a lower monthly payment.

Even though the FFEL program doesn’t exist anymore, borrowers with these loans still very much have to pay them off. If you decide refinancing is an option you want to pursue, you can apply to refinance these loans.

Quick note if you do: refinancing any federal loans with a private lender automatically makes them ineligible for the repayment programs mentioned above, Direct Consolidation Loans, and other federal protections and benefits.

If you qualify for a lower interest rate than you received on your initial student loan, refinancing may allow you to reduce the total amount you pay over the life of the loan.

See if refinancing your student loans with SoFi could give you a new, lower interest rate.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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The Basics of a Qualified Mortgage

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

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

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

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

What Is a Qualified Mortgage?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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What Is a Non-Qualified Mortgage?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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Money and Marriage: Common Stressors & Easy Solutions

Money and marriage go together like a horse and carriage—except that’s not exactly how the saying goes. In fact, it might be just the opposite.

Finances have long been considered one of the most frequent topics of argument in any relationship, and money problems in marriage may be one of the most common reasons couples fight. Unfortunately, unresolved fights over money can lead couples into counseling or possibly even divorce.

If you never address the problems at the heart of your marital finances, then they could just fester and grow.

Of course, this doesn’t have to be the case. It is possible to talk about money and marriage, and to make the conversation productive, not a fight.

While a lot of the arguments may boil down to communication and clear goal-setting, which we’ll get to later, there are some common money problems that could arise in almost all marriages. Here are a few tips on dealing with them.

Debt

Carrying debt makes a couple more likely to fight over money, and the fights they have are typically about that debt. And more marriages than ever now begin with money owed—seven out of 10 couples start out in debt.

While a lot of that is largely the high amount of student loans young adults are carrying with them, nearly one-third have wedding-related debt.

The average cost of a wedding is $38,700 (though you certainly don’t have to spend anywhere near that). Regardless, before you take on credit card debt to pay fo flowers or photographers, make sure your partner and you are on the same page, and explore your funding options.

Some debt can’t be avoided and may even be a choice that pays off down the line—student loans, mortgages, and, potentially, personal loans to cover emergencies or home improvements.

But taking on additional debt, especially from high-interest credit cards, can put extra stress on marital finances as you try to balance paying all the bills and planning for the future.

Another study from Fidelity, found that of those who brought debt into a relationship, 40% admitted it had a negative impact on the relationship.

If you talk through your financial stressors and come up with a plan to pay off debt, you might also find it makes sense to refinance credit card debt and save yourself some money and some stress.

Earning Differences & Control

Though gender stereotypes in marriages are changing, it’s still fairly common for one person to make more money than the other. When it comes to money and marriage, that may lead to feelings of resentment or insecurity—especially if one person feels they’re working hard to pay bills and the other gets to pursue their passions or chase dreams that don’t pay as much.

Or if one person feels like their work at home is going unpaid and unappreciated. Earning differences may also lead to one person feeling like they have more say in marital finances than the other.

While control issues are technically different than money problems in your marriage, questions around who controls the purse strings could be tied up in earning differences and who feels more responsible for the marital finances.

While it might make sense for you as a couple to set allowances or check in on your individual spending, trying to be overly controlling of the other person’s spending can be problematic and may lead to fights.

It may make sense for one person to be responsible for the bills and bank accounts, but both of you should have all the passwords and ability to access that information—if you have joint accounts and share finances. (Having entirely separate finances is also an option, but one you should both agree on.)

It is recommended to set clear expectations and talk about your goals, so you don’t build up resentments either for unpaid work at home or for making more at the office. Both partners should have a say in how money gets spent, but you can split up the roles and responsibilities; or you can split up the discretionary budget if that works for you.

Because one person may take on more unpaid work around the house, one idea is to allocate an amount of money each of those jobs “costs” so you can better appreciate what each of you is contributing to the household.

For example, in your household budget you could assign a value to doing the grocery shopping and making dinner—though the same person doesn’t have to do the same chores every time.

Raising Kids & Family Planning

When it comes to money outlays in marriage, kids can be one of the most expensive items. Childcare costs, medical bills, daycare, education—the expenses add up quickly in your marital finances. Medical costs for having a baby can fall anywhere between $5,000 and $14,000.

Yes, your medical insurance may cover many of the hospital bills, but it doesn’t cover things like preparing your house for the baby or the initial expenses of your newborn. And then you have to pay for everything that comes after.

The USDA has been tracking the cost of raising kids for decades. And, depending on where you live, the department’s most recent study, completed in 2017, determined that a family will spend about $12,980 per kid annually in a middle-income, two-parent/two-child household.

That adds up to $233,610 for food, shelter, and other necessities until the kid is 17 years old. That doesn’t even include the cost of college.

If you factor in college, then that can add another $30,000-$200,000 to your expenses, depending on how much you plan to pay towards your child’s tuition and where they plan to go.

It’s easy to see why these expenses can put a stress on family budgets and marital finances. On the other end of the life cycle, you might also need to move an aging parent into your household or pay for their care.

And if you’re one of the growing number of families who have both kids and parents they’re responsible for, then that can add up to a big expense in your budget.

Goals and Planning

When it comes to money problems in marriage, this is the big one: setting goals that are in sync. You don’t need to have the exact same goals, but planning properly for the future together can help iron out financial challenges that come your way.

SoFi recently teamed up with wedding planning experts from Zola to survey more than 1,000 newlyweds and found that 84% felt extremely comfortable talking about finances with their partners.

For many couples, there are a few reasons why it’s so hard to talk about marital finances, but one of the biggest issues might be differences in your underlying belief systems.

It is said that we inherit attitudes about money and spending from our parents and families, and that can affect how we view money in our marriages—whether we want to scrimp and save, or spend big.

There are probably lots of things you and your partner are totally different on and that’s good—but it’s also good to communicate those differences and set joint (and individual financial goals).

How to Get Help for Your Money and Marriage

Talking about money and marriage doesn’t have to be a fight. Here are some tips on how to talk about money and goal planning: First, take some time for yourself to figure out what’s important to you financially and what your financial goals are.

Then come together to schedule regular weekly or monthly meetings with a set timeframe to go over your marital finances. Try not to be resentful or judgmental, because open honest communication is key to clear setting of goals and planning.

To set goals and spending targets, you might want to start by figuring out what your joint net worth is and track your current cash flow or spending. Once you know what you’re spending on (and if that’s what you want to be spending on), then you can work out a flexible budget, with short-term and long-term goals.

Planning ahead helps you both agree on how much needs to be set aside for retirement or a down payment on a house and how much you each can allocate to spend as you individually see fit.

Many couples use professional financial planners or even therapists to help them sort out the money problems in their marriage. That’s always an option.

Another option is to first use budgeting and goal planning tools to see where you’re both on the same page and where your expectations diverge.

If you are looking for an account where you can track your spending and share with your spouse, check out SoFi Money®. SoFi Money is a cash management account where you can save and spend in one place.

Plus, SoFi Money offers joint accounts so you can share your account with your spouse and both have equal access and control of the account.

You and your spouse can get started with SoFi Money today.


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.
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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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
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Home Mortgage Loans: Is 20% Down Dated Advice?

Buying a home can be one of the biggest and most exhilarating purchases of your lifetime. Especially in a time when young people are having more difficulty locating affordable housing, finding yourself in a situation where you think you have finally saved up enough money for a down payment on your first home can be a huge milestone, but it can also bring up a lot of questions.

There can be times when simply figuring out how much money is required for a downpayment on any given loan program can put you into a tailspin. Though there are generally traditional numbers that many people stand by, there are many reasons to wonder if these guidelines still apply.

If you’re ready to buy your first home, you’ve likely heard that a 20% down payment on a mortgage has been the traditional standard. Generally speaking, putting 20% or more down on your new home can help lenders to view you as a less risky borrower, which may ultimately help you get a better deal on your loan terms.

But given that as of January 2020 the median home listing price was the U.S. is nearly $244,054, according to Zillow , 20% can be a substantial chunk of change for most people.

But is the 20% down sage advice or an opinion that’s no longer relevant? In the 2019 National Association of Realtor Profile Report , first time homebuyers financed 94% of their home and repeat buyers financed 84% of the purchase price. So, it seems that times are a changin’.

This article will review different loan programs and down payment options to hopefully provide clarity and demystify how different down payment options can impact your mortgage choices. These tips may help you better identify the loan programs that best fit your financial scenario to help put you on the road to owning your own home.

Why Does 20% Seem to be the Magic Number?

The simple answer is that there are some advantages to putting down that much. For example, it may be easier to secure a mortgage with better terms when putting down a larger amount.

A 20% down payment has traditionally been the gold standard for borrowing a mortgage. From a lender’s perspective, a borrower who can afford a 20% down payment is viewed as a less risky option from a credit perspective.

In addition, the amount of equity in the home allows for value fluctuations and the borrower is less likely to find themselves underwater or upside down on their mortgage in a declining market .

Plus, with a 20% down payment, you won’t have to buy private mortgage insurance (PMI). PMI benefits the lender in case of loan default which can cost anywhere from 0.140% to 2.33% of your total loan amount annually depending upon many factors.

Don’t confuse Private Mortgage Insurance (PMI) with FHA’s Mortgage Insurance Premium (MIP) which is government loan insurance, not private loan insurance.

And then there’s the most obvious perk: putting more money down up front means that you’ll owe less, which normally equates to lower monthly mortgage payments and less interest charges over the life of the loan.

But let’s face it: Even if you’re making a decent—heck, a pretty awesome—salary, saving up 20% of the total cost of a home can be difficult, especially if you’re paying rent, juggling student loans, and trying to reach other long-term goals, including saving up for a retirement. Today, it can seem that the goal of owning your home is close to impossible.

But think again.

There may be some very valid reasons why it might just be more beneficial for you to put down less than 20% on your dream house. Again, it will depend on your exact financial circumstances and long term goals, but it could be worth considering the following:

Preserving Your Nest Egg

Putting 20% down on a home might force you to rely heavily on funds you’ve worked hard to save, liquidating these funds, even for an investment, may not always be in your best interest.

Given the financial circumstances many people find themselves in, allocating a big chunk of change to put towards a house before you’ve covered your other important life expenses—such as an emergency fund, saving for retirement, and other important long-term financial goals— may not be the most prudent option for you in the long run.

Remember, you may be able to borrow money to pay for school, to buy a new car, and to buy a home, but you definitely can’t borrow money to pay for your retirement. So you may want to consider alternatives before you dip into your savings. And if there aren’t any other options available, you may want to check that all of your other financial bases are covered.

While you can withdraw qualified funds up to $10,000 from a traditional or Roth IRA without penalty to buy your first home, there are still taxes to consider.

With a traditional IRA, you have to pay taxes on the amount you withdraw, but with a Roth IRA, no taxes will be due if you’ve had the account for at least five years. This strategy could help you in the long run, especially if you expect income boosts as you make strides in your career.

If you are considering putting other financial goals on hold in order to buy your home, it might make sense to take a step back and look at your overall financial profile. This could help you see what makes the most sense for your circumstances. Our in-depth home buyers guide extensively covers such topics.

To be sure, there’s no hard and fast rule about how to manage your money since everyone’s situation is different. But if you’re considering buying a home, it is a good idea to find out how much home you can afford before starting the process. In addition, if you aren’t sure how to prioritize your other financial needs, taking the time to assess your unique situation could help you make the decision that satisfies your priorities now—without sacrificing the wellbeing of your future self.

Your Other Big-Ticket Goals Won’t be in Limbo

Buying a home can be tricky if you find yourself saddled with student loans or other debt. It’s important to keep in mind what is going to help you get the most stable financial footing possible, but arriving at this answer isn’t always straightforward.

By putting less money down on your home, you’ll likely be able to make more headway on other short-term financial goals, such as paying off student loans and credit cards, as well as your long-term goals, such as saving up for retirement or perhaps setting aside enough money to finally take that year-long sabbatical.

You may also be able to invest more, which could help you grow your hard-earned cash and, in turn, keep living expenses low during retirement.
If you have other important financial goals that need achieving, you may want to consider waiting until you’ve reached your other important goals before buying a home, or choosing to put less money down so that you don’t have to abandon your other important financial objectives.

Exploring All Of Your Options

The homebuying process can be tricky—especially if it’s your first time navigating the process. Buying a home can be a complex financial decision.

There are many nuances in each buyers’ financial situation, including the amount of existing debt they currently have, their income bracket, where they are at when it comes to other important financial savings goals such as retirement, and so much more.

One good place to start is to determine how much house you can afford by taking a look at your monthly income, your ongoing monthly expenses—which could include car payments, insurance premiums, credit card bills, and any other debts.

From there, you can determine what down payment amount would make the most sense for your circumstances and what loan programs you could potentially apply for using this amount.

Mortgage lenders, whether banks or mortgage brokers, are required to figure out a borrower’s ability to repay the loan before making it. Even so, lenders don’t normally take all monthly obligations into consideration when qualifying a borrower for a home loan.

You ultimately know your budget better than anyone else does, so it’s important to develop a firm understanding of where you are at financially and how much you want to—and are able to—pay every single month for a home until you own it outright.

Shopping for the loan program that’s right for you can be one of the most crucial steps in the home buying process.

Loan types determine things like—down payment amount, debt to income ratios, credit score and more. And though there are countless mortgage products out there, you’ll have to figure out what makes the most sense for your budget, lifestyle, and income.

The Magic Percentage Can Be Personal

Sure, 20% down payment might be the tradition. But looking at the current down payment percentages, we can see that it’s normally not a loan requirement. Certain circumstances could call for a larger down payment requirement from a lender, such as the type of property or the size of the loan.

Everyone’s financial picture looks different, and if you find yourself in a situation where you can’t afford to put down a full 20% but still want to purchase a home, there are numerous options.

To be sure, putting less than 20% down on a home isn’t for everyone. But if you’re in a great place in your career and still moving up, and have a lot of your other financial bases covered, there’s a chance that doing so may be right for you.

Be sure to explore the different loan programs and their criteria in order to help identify which programs best fit your personal situation. For instance, are you eligible for a Veterans (VA) loan which allows for 100% financing? Or a First Time Homebuyer loan which may allow for as little as 3% down .

Putting down a smaller down payment could allow you to get in the housing market if you live in a popular city where you pay high rent or where home prices have soared in recent years.

Renting in the Bay Area? Lower down payment options on a new home could be a path to homeownership. And just like when searching for the perfect home, when it comes to landing on the right loan program and down payment percentage, you’ll likely want to shop around in order to find your best fit—there’s no one size fits all.

So, no matter where you find yourself currently in your home-buying journey, it’s recommended to do your homework and weigh all the pros and cons to choose what works best for you.

Eager to get a jump on the home-buying process? Discover your potential rate on a SoFi mortgage loan in less than two minutes.

We’re on your side to put you in your dream home with down payment options of as little as 10% on loan amounts.


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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.
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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