Understanding Property Valuations

If you’re thinking of taking out a mortgage, you probably expect lots of paperwork. The lender will likely take a look at your income, debt, credit history, employment, and assets, among other factors. There’s another loan element the lender will consider that may be less familiar: a home valuation.

It makes sense that a mortgage lender would want to know how much the property you intend to buy is worth. A seller can choose any listing price he wants—whatever they think someone is willing to pay, however, if the buyer needs financing then the selling price must be supported by market value (what like for like homes have sold for in the area)

Of course, most sellers keep in mind what comparable properties are going for, but there’s no requirement that the listing price reflects a reasonable value. And sellers usually have an incentive to inflate the price.

An independent property valuation helps the lender mitigate risk by ensuring that the home is actually worth at least the amount of the contract sales price.

The purchase price of a home is usually spelled out by the lender as being the contract sales price or the appraised value whichever is less.

If the home is appraised for less than the sales price, the seller would either lower the sales price to the appraised value.

If the seller does not want to lower the purchase price, the buyer would be asked to make up the difference. The kind of valuation required depends on many factors.

These may include the type of home you’re looking to buy, the type of loan you’re applying for, the amount of equity in your home, your credit score, and more. Here are some of the common ways that lenders may value homes.

Home Appraisals Explained

The most common kind of property valuation is an appraisal.

How Does a Home Appraisal Work?

An appraisal can be an interior/exterior inspection, exterior only or drive by just to confirm the property is still there. But a full interior/exterior appraisal is an independent estimate of the home’s value by a licensed real estate appraiser and is based on a detailed inspection of the property.

The appraiser looks at factors like the location of the property, the condition of the home (both inside and outside), the size and layout of the home (including the number of bedrooms and bathrooms), the year it was built, and any renovations that have been done.

As part of the standard appraisal process, an appraiser will also consider the prices that similar homes have recently sold for in a specific area, as well as the value estimate used by tax assessors, zoning and more.
The appraisal will determine a market value that is either “as is” or “subject to” certain conditions, such as completion of repairs or upgrades.

Lenders rely on the appraiser’s market value to come up with the loan-to-value ratio of a property, which influences the amount they’re willing to lend and the terms of the loan.

When Does an Appraisal Happen, and How Much Does It Cost?

Lenders usually require a full interior/exterior home appraisal when issuing a new mortgage—though there are some exceptions, as you’ll see below.

The Mortgage Bankers Association recommended leveraging technology to eliminate manual appraisals on mortgages below $400,000.

Most lenders still order a full appraisal even though 68% of all homes fall under the $312,500 threshold. Jumbo loans—those that exceed the conforming loan limits set by Fannie Mae and Freddie Mac—generally require a full appraisal.

The appraisal typically occurs once the seller has accepted an offer on the property, subject to whatever contingencies are in the contract. Because home valuation is part of the loan approval process, the appraisal is normally performed within the loan contingency date of the purchase contract, usually 21 days.

This loan contingency is the contract clause that states the buyers offer is contingent upon securing financing
The buyer is the one usually responsible for paying for the appraisal ordered through the lender and is entitled to free copies of the final document.

The average cost of an appraisal is dependent upon many things such as type of property, location, etc and runs an average of $334, with fees ranging from $250 to $450, according to a national survey from HomeAdvisor, an online platform for home services professionals.

What If You Get a Low Appraisal?

If the appraisal finds that the property is worth as much as the selling price or more, that encourages the lender to move forward with the loan (assuming the other aspects of the property and your application are in order).

If the appraisal finds that the home is worth less, the lender may reduce the amount of the loan they’re willing to offer.

As the buyer, you can either opt to contribute the difference in cash or try to get the seller to reduce the price. Sellers may be willing to negotiate since other potential buyers are also likely to run into a low appraisal.

If you or the seller believe the appraiser made a mistake, the seller can dispute the appraisal with the lender or ask for a second one. The buyer can also choose to pull out of the purchase if the contract included a loan contingency.

Alternatives to a Home Appraisal

In certain situations or stages of the home buying process, you may not need to go through a full formal home appraisal. Here are some alternative methods used by lenders for home valuations.

Automated Valuation Model

An automated valuation model (AVM) is a value estimate for a property using mathematical models. The algorithms take into account the size of the home, the number of bedrooms and bathrooms, recent sales of like for like properties sold in the area, and other factors.

Some lenders of conventional mortgages using Fannie Mae or Freddie Mac’s automated underwriting systems may receive a waiver for a full appraisal.

This may be due to the strong data on robust sales in the neighborhood to support the purchase price, could be the amount of the downpayment and strength of the borrower, the type of transaction and more. Some lenders may also use AVMs when deciding whether to extend or adjust a home equity line of credit (HELOC).

Drive-by or Exterior Only Appraisal

As the name suggests, a drive-by appraisal (also known as a summary appraisal) refers to an inspection that only looks at the exterior of a home. A licensed appraiser will photograph the front and sides of the home, as well as the street in both directions.

Appraisers take notes on the neighborhood and the condition of the home. They also look at comparable properties that have recently sold or listed nearby when coming up with an estimated value.

Broker Price Opinion

A broker price opinion, or BPO, is an estimate of a property’s value determined by a real estate agent or broker, rather than a licensed appraiser. A client may request this estimate to underpin a home’s listing price.

A BPO may be requested by a lender on a property where the borrower is behind on payments and risks entering into a short sale or foreclosure.

A BPO allows the lender to confirm whether the value of the home is below the amount of the loan, potentially making the borrower eligible to negotiate a short sale.

BPOs can also be used to buy and sell mortgages on the secondary market.

Lenders prefer to go with BPOs in these cases because a full appraisal isn’t required, and BPO valuations are fast and generally less costly.

Apply for a SoFi Mortgage

Before you get to the home valuation stage, the first step to becoming a homeowner may be applying for a mortgage loan. SoFi offers home loans of up to $3 million with as little as 10% down.

If you’re eligible, you can choose from competitive fixed-rate mortgages, or from adjustable-rate mortgage options. It takes just two minutes to see if you pre-qualify online.

Apply for a SoFi mortgage today to see if you qualify for competitive rates and terms.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight 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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5 Tips for Finding a Mortgage Lender

Buying a home is an incredible accomplishment but does not come without its challenges. Not only are you on the hunt for your dream home (you know, that one with that perfect yard for the dog and amazing fireplace), you’re likely running through your finances to figure out what you can afford.

And then, there’s getting a mortgage loan, which means finding a good, reputable mortgage lender; that offers the type of loan program (down payment requirement, DTI, etc) that best suits your needs, but also offers excellent customer service and competitive rates.

An organization that you can trust and that understands that this is one of the biggest financial decisions you’ll make.

Luckily, there are plenty of viable options for borrowers. There are online lenders, credit unions, direct lenders, and mortgage brokers with a vast array of loan programs to choose from, to name just a few. The trick is narrowing down a crowded field to find someone you trust that offers the loan program you want.

We might not be able to help you find the house of your dreams, but if you’re wondering how to find a good mortgage lender, here are five tips on how to find the best mortgage lender for you.

Tips for Shopping For a Mortgage Lender

1. Decide What’s Important

Throughout the process of obtaining a loan, you’ll have a lot of conversations with a bunch of different people. Before jumping in headfirst, take some time to understand what loan programs you may qualify for such as the amount of downpayment you have to work with and if you are a veteran, what lenders offer VA loans.

Once you narrow down the type of mortgage loan program you will be shopping for you can think deeper about what other elements are important to you.

Right off the bat, it can be hard to pinpoint what type of communication you’ll want during the loan process out of a mortgage lender. But you’ll likely know it when you experience it, for better or worse.

Good mortgage lenders should be clear and upfront about the loan process and all associated costs. They should be willing to answer questions because you will have questions—and you should definitely feel comfortable asking them.

You may even want to ask about a mortgage lender’s communication channel before engaging in a relationship. Here are a few questions you could consider asking them: “Do you communicate through phone, email, or text?” and “How quickly do you respond to questions?”

As you can imagine, there are multiple steps that require back-and-forth correspondence and paperwork when applying for a mortgage. Maybe it’s important for you to have someone who responds quickly. Ask your potential mortgage lender: “What are your turnaround times on things like pre-approval, appraisal, final approval and closing?”

2. Be Prepared

Part of knowing how to find the best mortgage lender is to go in ready to hold your own in conversations. It’s hard to choose between two options if you don’t truly know what you’re looking for, especially when there’s as much fine print as is typically involved in taking out a mortgage loan.

First, know the costs involved in taking out the type of mortgage you need in addition to the interest rate. There will likely be various fees associated with taking out a mortgage, such as origination and application fees, appraisal fees, and other third-party fees.

Fees can vary by lender, so have some idea of what is common and what to look out for. Such as if the rate quote is lower, are the fees higher as a result?

Next, it’s smart to have an idea of how much home you can afford and how much of a down payment is required under your preferred type of loan program. It’s good to note here that even the same loan program can have different down payment requirements at different lenders.

For instance, with a Fannie Mae first time home buyer loan you can put as little as 3% down, but not all lenders carry this program at only 3% down, some lenders may require 5% or 10% according to their internal guidelines.

Armed with this type of information may help you narrow your search to the lenders who best fit your needs. Also, having your financials in order will allow you to know how much you have to work with so you can get down to business with the lender of your choice.

Throughout the mortgage process, how you have managed your credit and the resulting credit scores will come into play. Your credit score may be one of the determining factors on what mortgage lenders you can choose from based on the loan programs you may be eligible to qualify for.

To maximize your buying experience, you may want to take some time to make sure your credit profile is in good enough shape for the loan program you want to qualify for before starting the process of searching for a mortgage lender.

3. Know Your Options

Finding the right mortgage lender means being able to navigate who you can work within the big world of mortgage lending. Here are some of the major types of mortgage lenders out there. Many may offer similar types of loan programs, but through varied channels and possibly with different fees and qualifying criteria:

Mortgage bankers: Bankers work for a financial institution that underwrites loans, but does not take deposits. Mortgage bankers can sometimes also broker out loans.

Retail lenders: Similar to mortgage bankers and also known as direct lenders, retail lenders only originate mortgage products offered by their financial institution.

Mortgage brokers: Brokers don’t generally work with one institution, but instead act as an intermediary between the borrower and a wholesale lender. For the service of pairing you with a mortgage loan from one of the lending institutions they are approved to work with, the mortgage broker will generally take a commission that is a percentage of the loan amount. The loan is approved and funded by the wholesale lender.

Online lenders: A newer option for borrowers, online lenders like SoFi offer mortgage loans and focus on competitive rates and a more streamlined application.

Correspondent lenders: Typically, correspondent lenders are local mortgage loan companies that have the capital to fund a loan, but then quickly turn around and sell the loan to a major financial institution.

Wholesale lenders: Unlike retail lenders, wholesale lenders don’t interact with borrowers and rely on brokers to sell their products.

Portfolio lenders: These lenders originate and fund loans from bank deposits and do not typically resell them after closing. They typically include bigger banks, community banks, credit unions, and savings and loan institutions.

Still, wondering how to find a reputable mortgage lender amongst these options? One thing you can do is read online reviews, like those on the Better Business Bureau’s website You can also check to make sure that your lender is registered to originate loans Nationwide Multistate Licensing System Registry in your state.

4. Compare Lenders

It’s a good idea to shop around for mortgage rate quotes through a number of different lenders. Check with banks, online lenders, credit unions, and other local independent lenders to compare loan terms, interest rates, fees, and closing timelines. Request quotes on writing.

You can plug offers into a mortgage calculator to get an idea of the total interest costs. With a mortgage calculator, you can also play around with different down payment options.

And remember, the interest rate isn’t the only cost to take into consideration; don’t forget to account for all of the fees associated with each rate and program offer.

Third-party fees should pretty much be the same no matter what lender you choose, so it’s the lenders loan terms (qualifying) rate and fees to compare apples to apples.

Checking on costs isn’t the only reason to get multiple quotes. This way, you will get to experience a number of communication styles, and you’ll have a look into the process for each lender.

5. Get Pre-approved

Once you’ve narrowed it down to your chosen lender, apply for mortgage pre-approval. During pre-approval, you’ll be asked to provide documentation on your financials, such as your paystub, W2s, tax returns, bank account balances, and credit information.

This step in the process is valuable when placing an offer on a home. A pre-approval letter shows that you have been vetted for the first (credit) portion of the loan process and you just need to find an eligible property.
Once you apply with a lender you will receive a Loan Estimate laying out the down payment, fees, estimated monthly payment and more.

This is the time to ask any lingering questions on the terms of the loan such as lending fees, rates, commissions, points, and any other fine print you may not understand.

Don’t be shy! This is a huge, important decision and you should feel welcome to ask every question twice if you need to.

At this point, you may even want to consider negotiating your offers. If at all possible, use the competing offers as leverage to obtain better pricing. If the very thought of asking is intimidating to you, just remember that it never hurts to ask and the worst they can say is no. You might be surprised at what you can get if you just ask.

As you compare your mortgage options, consider SoFi Mortgages. With SoFi, you could secure a mortgage with as little as 10% down.

If you’re looking for competitive rates on mortgages, excellent customer service ratings, and a painless prequalification process that takes less than two minutes, check out SoFi Mortgages.


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
.

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.
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.
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 Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight 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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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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Budgeting for Buying A House

The American Dream—buying your own home— is sometimes perceived as an Impossible Dream, but it can be achieved if you have a plan and stick with it.

When planning a budget for buying a house, you might ask yourself the following questions:

•   What are the costs/fees to consider?
•   How can I create a budget in order to reach my goal?

Remember that life goes on while you are saving for your new house. You’ll likely have other priorities and monthly obligations while trying to fit those new home costs into your existing budget.

Consider this priority list when planning ways to budget for a house:

Upfront Expenses

Once an offer on a new home is accepted, there are certain costs the buyer needs to pay right off the bat, and in most cases, out of their own pocket. These are called upfront expenses. Here are a few:

20% Down Payment

You may have heard of the traditional 20% down payment guideline, which helps you avoid paying private mortgage insurance (PMI) on applicable loan programs. Additionally, a higher down payment can sometimes result in better loan terms which may translate into lower monthly mortgage payments.

Yep, it’s a lot of money to try to save, but if you can swing it, in the long run, applying a 20% down payment will likely save you from paying thousands of dollars in additional mortgage interest over the life of the loan
The 20% down is a guideline.

The minimum down payment for a First Time Homebuyer on a conventional loan can be as low as 3% and an FHA government loan that is open to everyone requires a down payment of at least 3.5%.

Sometimes exceptions can be found to minimum down payment requirements such as with Veteran VA loans or government USDA loans which will allow eligible borrowers to finance up to 100%.

In these instances, even if you save for a lower down payment, buying may still significantly reduce your overall expenses, compared to your current rent and real estate market conditions.

2-5% Closing Costs

You can likely expect to pay an estimated 2-5% of your home price for closing costs, and save accordingly. For example, if you buy a home that costs $150,000, you may be required to pay between $3,000 and $7,000 in closing costs.

Some costs are fixed and not tied to the price, so the percentage can be higher for the lower range and lower for the higher purchase price range. Keep in mind that there are alternatives to paying the closing costs out-of-pocket, such as requesting a seller credit, requesting a lender credit, or a down payment/closing costs assistance loan program.

Moving Costs

According to the American Moving and Storage Association, the average intrastate move is $2,300, and the average move between states is $4,300.

Costs can vary widely, so you might want to comparison shop for moving companies and factor this expense into your budget.

If you are moving for work reasons, check with your company to see if they offer a relocation package to help cover some or all of the moving costs.

New Furniture and Appliances

Your new house may not have the same dynamics, dimensions, and overall feel of your old house. That could mean that you need to buy new furniture, appliances, and even items you may have never considered, like shower rods.

You might want to start a savings account for these types of adaptations—some of them may be unexpected.

Ongoing Expenses

PITIA (principal, interest, property taxes, homeowners insurance, and other assessments) is an acronym describing all the components of a mortgage payment. The principal is the “meat” of the payment—paying down the principal will reduce the loan balance.

Interest is what you are charged for borrowing the money. Taxes refer to your property taxes. The insurance represents both your homeowners and mortgage insurance, if applicable. The other assessments refer to things that may be applicable to the home you purchase such as Homeowner Association Dues, Flood or Earthquake Insurance, and more.

HOA Dues

HOA stands for Homeowners Association. These dues usually apply to a condo, co-op, or property owned in a planned community.

The charge is usually monthly (but it could also be charged quarterly or annually), and it typically goes to maintaining the community (landscaping, garbage collection, repairs, and upgrades).

Ask the Homeowners Association for a complete HOA questionnaire so you can view how healthy the association is, whether there is any outstanding litigation due to structural or other issues, etc.

Maintenance and Lawn Care

Your budgeting probably won’t stop once you’ve moved and settled into your new home. Expenses will likely continue to knock on your door—landscaping, roof repair, and water heater replacement are just a few items that might require ongoing financial consideration.

You may want to budget for 1%-2% of the cost of your home in maintenance each year—however, deferred maintenance costs may depend on the age, quality of construction, where you live, and more.

Pest Control, Security, Utilities

Cost for electricity, gas, water, and phones may differ from market to market. This is also true with pest control, and making sure your home is secure and safe. You could find yourself paying more (or even less) for these services in your new home.

Planning Ahead

Do your research on the different types of mortgage loan programs and which programs may best suit you so you can start to budget for any down payment while taking care of current bills and other financial obligations.

Calculating After-Tax Income

Here’s how: subtract out all non-housing expenses that occur both now and that will occur in the future. Include savings goals; for instance, retirement contributions. Include any other debt that may be paid off before the house purchase.

Whatever is left over after this subtraction is what may be put toward housing costs.

What Are Your Savings Goals?

Once you determine which loan program(s) you may qualify for, you can begin to put together an estimate on how much money is needed to be saved each month in order to meet the target date of a home purchase.

What Are Your Priorities?

Take care of your current obligations first, especially if they have to do with the money you owe. Ridding yourself of debt may help you achieve your goals.

This may also help improve your financial profile so that the best loan deal may be more available.

You may also want to establish an emergency fund that, in a pinch, can keep you from using your credit card and running up even more debt.

Ready to Buy?

Once you have your savings set, you can begin to look for different mortgage loan options. SoFi for example, offers competitive rates, no hidden fees, and as little as 10% down. It takes just minutes to start your application online.

Ready to purchase your dream home? Find your rate 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.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight 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.

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
.

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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5 Things to Consider When Choosing a Mortgage Lender

Buying a home is likely one of the biggest moves you’ll make in your personal and financial life, and your home may represent one of your largest assets.

If you take out a mortgage loan to help you buy it, you will end up making mortgage payments—and if your lender ends up servicing your loan after closing—you will make payments to that lender, possibly for decades. This is one possible reason you may choose to shop around before committing to a mortgage lender and loan program that’s right for you.

Today, borrowers have more choices on ways to apply. With the rise of online and marketplace lenders, there’s increased competition, which fuels improvements in process, service, and cost—and can mean a much better experience for you.

That said, there may be different factors each individual wants to consider when on the lookout for a lender. If you want to avoid getting stuck with a not-so-great lender, take the time to shop around. Asking questions could help you evaluate your options. Here are some of the questions you may be looking for answers to:

1. Does the lender offer competitive interest rates?

First things first, it’s generally recommended to get the lay of the land by looking at various lenders and the rates and fees they advertise. Taking this step may help you understand what the market looks like overall and who may be offering competitive rates.

Remember that the rates and programs you are ultimately eligible for will likely depend on the lender you choose along with your needs and financial situation, yet this initial comparison can give you a baseline to start working from.

Try taking a look at the common loan types offered. Interest rates for fixed-rate loans do not change over the life of the loan. Interest rates for adjustable-rate mortgages can change over the life of the loan and are influenced by the Federal Reserve boosting or lowering their benchmark rate which in turn causes movements in the indexes tied to ARM rates, such as the LIBOR .

Hybrid Adjustable-rate mortgages are mortgages that offer an initial fixed rate for a certain period of time. These hybrid ARMs are commonly offered and typically come with a low introductory rate for either 1, 3, 5, 7 or 10 years. These introductory rates may be one element that entices borrowers to use them.

Another element may be that some hybrid ARMs offer an interest-only payment option for a specified period of time such as 10 years.

When the initial fixed-rate period is over, the interest rate is normally reviewed on an annual basis for adjustment. Although the index tied to the ARM rate may have moved much higher, these loans offer yearly and annual interest rate caps to control rate and payment fluctuations.

When talking to a lender about their mortgage offerings don’t just ask about interest rate, also ask about APR, or annual percentage rate . This figure takes into account certain fees like broker fees, points, and other applicable credit charges, giving you an easier way to compare loan offers.

2. Does the lender offer loan products with terms that suit your needs?

Your needs and financial situation can play a large part in which mortgage programs you choose and are eligible for. For example, some lenders require a 20% down payment to qualify for a mortgage.

If you can’t pay 20%, lenders may require that you have private mortgage insurance, which covers them in case you default on your mortgage payments. Mortgage insurance premiums vary depending upon many factors.

Ask your chosen lender how much insurance payments will add to your monthly payment and keep in mind that in certain circumstances private mortgage insurance does not apply, such as with some Jumbo loan programs and in other cases, can be eligible for removal from your home loan later if certain criteria is met.

If you can’t afford a 20% down payment, you can look for lenders who offer more flexible down payment requirements. Also, consider what term—the length of time you’ll be paying off your loans—works best for you. See what kinds of terms lenders offer and the interest rates that accompany those terms.

A shorter-term will likely come with higher monthly payments, but lower interest rates that result in lower interest charges over time. Not everyone can afford those higher monthly payments, however, in which case a longer term may be preferable. Note that longer terms usually mean that you end up paying more in interest over the life of the loan.

Once you’ve found a loan with rates and terms that work for you, you can obtain a rate lock from your lender, generally for the time it takes to close on the transaction, such as 30 or 45 days.

You may have to pay a fee if you want to lock in the rate for a longer extended period of time, but once you do it will guarantee that you have access to the mortgage at a specific rate during the lock-in period even if interest rate rises while your loan is being processed.

3. What type of origination, lender, and other fees might you be responsible for?

We’ve already alluded to the fact that you’ll likely be on the hook for other costs in addition to your down payment. One good idea is to request a Loan Estimate (LE) for any mortgage you’re considering to see a solid estimate of what costs you may be on the hook for.

Keep your eye out for things like:

•   Commissions: Mortgage brokers are paid on commission, which is either paid by you, your lender, or a combination of both.
•   Origination fees: These fees may cover the cost of processing your loan application.
•   Appraisal fees: Appraisal fees cover the cost of having a professional come in and put a value on the home you want to buy. You must have a property valuation of some type in order to borrow money to buy a home and in most cases a full appraisal is required.
•   Credit Report Fee: Covers the cost of the bank obtaining your credit report from the credit reporting bureaus.
•   Discount Points: Optional fee the borrower can pay to reduce or buy down their interest rate.

The added fees will typically impact the overall cost of buying the home if the borrower does not receive a seller or lender credit towards closing costs, so doing your research and reading the fine print up front might pay off.

Depending on the loan terms and fees charged, some will be paid upfront at the beginning of the application process such as credit report and appraisal, while other fees might be paid at loan closing such as lender fees, title insurance and more.

In some cases, under certain loan programs, you can borrow the money to cover these fees, which will increase your overall mortgage payment(s). Therefore, having a clear understanding of what fees you’ll owe is critical to understanding how much you’ll end up paying.

Request from your lender a quote on all the costs and fees associated with the loan. A Loan Estimate (LE) is a typical form used to disclose loan fees to a borrower. Ask questions about what each fee covers. Have your lender explain any fees you don’t understand, and then find out which ones may be negotiable or can be waived entirely.

4. How much of the process is online vs. on paper or in person?

How much facetime you have to put in to apply for a mortgage can vary by lender. Some online banks will have you complete the process entirely online, while brick and mortar banks may require an in-person visit.

In the past, applying for a mortgage required a lot of physical paperwork. But much of this has now been replaced by online interactions. For example, you are now likely able to send your financial information like bank statements and W-2s electronically.

Lenders who complete much, or all, of the mortgage application process online may be able to offer lower rates or fees, since they don’t have the cost of brick and mortar bank locations and their employees to maintain.

That said, if you’re someone who likes face-to-face help, you may consider a lender that allows you to apply in person or a lender who utilizes facetime.

5. How quickly can the lender close once you’re in contract?

Once you’ve found the home you want to buy and you’re under a purchase contract with the seller, the amount of time it takes to close on a loan can vary. Depending on the situation you may have to wait for inspections, appraisals, and all sorts of paperwork to go through before you can close.

However, your lender may offer you ways to speed up the process. For example, you may be able to get preapproved for a loan, which takes care of a lot of potentially time-consuming paperwork upfront before you’ve even started shopping for a home.

Ask your lender how much time their closing process usually takes and what you can do to expedite it. Especially if you’re crunched for time, their answer can have a big impact on which lender you choose. Afterall, the faster you’re financed, the sooner you’ll be able to move in.

SoFi offers loan options with as little as 10% down on loans up to $3 million. And there are no hidden fees.
On the path to homeownership?

We’re right there with you. Download the SoFi Guide to First Time Home Buying to get valuable tips on these topics and more. Our guide also demystifies modern mortgage myths around down payments, the pre-approval process, student loans, rising interest rates, and more.

Ready to buy a home? Check out mortgages with SoFi Home Loans.


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 Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight 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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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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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.

Check out local real estate
market trends to help with
your home-buying journey.


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 (dba SoFi), a lender licensed by the Department of Business Oversight 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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