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USDA loans are available for certain properties with no down payment required and possibly a lower interest rate than conventional loans. However, eligibility for USDA loans largely depends on borrower income and home location.

While those four letters, namely USDA, may conjure up images of prime beef or grain crops, this particular usage refers to a program that can encourage homeownership for those with lower incomes in rural and some suburban areas. These mortgages may also help people buy and repair homes in need of updating.

Here, you’ll learn more about what these loans offer, how they work, and who qualifies for them.

What Is a USDA Loan?

USDA loans offer a loan option with no down payment for certain qualifying buyers who plan to purchase property in rural or some suburban areas. These mortgages are guaranteed by a division of the USDA known as the USDA Rural Development Guaranteed Housing Loan Program.

While partner lenders typically issue the loans themselves, the fact that the government is taking on some of the risk of lending funds has a big benefit. It allows these loans to often offer a considerably lower rate than you’d find at a commercial lender.

To qualify for a USDA loan, you may have to earn below a specific income limit and buy in certain areas. You may also purchase a property in need of repair.

If you are eligible, another perk of these mortgages is that private mortgage insurance (PMI) is not required, which is another way they present an affordable option for some buyers.

How USDA Loan Programs Work

USDA Rural Development’s housing programs give individuals and families the opportunity to buy or build a rural single-family home with no money down, repair their existing home, or refinance their mortgage under certain circumstances.

The USDA promotes homeownership for low-income households and economic development in rural areas.

USDA loans are available to eligible first-time homebuyers and repeat buyers for primary residences.

USDA Loan Requirements

Here are more details on who qualifies for a USDA loan.

Single Family Housing Guaranteed Loan Program

This program is the one that most people think of when they hear about USDA loans.

The USDA guarantees 30-year fixed-rate loans originated by approved lenders so that people in households with low to moderate incomes can buy homes in eligible rural areas. (You’ll need to search with an exact address.)

The income threshold is defined as no more than 115% of area median household income. In other words, your household income can’t exceed the area median income by more than 15%.

Buyers can finance 100% of a home purchase, get access to better-than-average mortgage rates, and pay a lower mortgage insurance rate.

That means no down payment, but borrowers still might want to look into down-payment assistance programs that also may help with closing costs.

A USDA loan can be used to purchase, renovate, or build a primary single-family home (no duplexes).

Single Family Housing Direct Home Loans

These subsidized loans, issued directly by the USDA, are available for homes in certain rural areas and for applicants with low and very low incomes.

The amount of the subsidy depends on the adjusted income of the family, and it reduces the family’s mortgage payment for a certain amount of time.

Adjusted income must be at or below what’s required for the geographical area where the house is located, and applicants must currently be without housing that’s considered safe, sanitary, and decent.

In addition, they must be unable to qualify for loans elsewhere; meet citizenship requirements (or eligible noncitizen ones); legally be allowed to take on a loan; and not be suspended from participating in federal programs.

The home itself must meet certain requirements for USDA loan eligibility. It must:

•   Typically have no more than 2,000 square feet

•   Not have an in-ground swimming pool

•   Not have a market value that exceeds the loan limit for the area

•   Not be used to earn income from the home.

Typically no down payment is required, although borrowers who have more assets than are allowed may need to use part of them toward the purchase. The rate is fixed and, when taking payment assistance into account, could be as low as 1%. The repayment term can be up to 33 years, or 38 years for applicants with very low income.

Funds can be used to purchase, build, repair, or renovate a single-family home. Once the title is out of the borrowers’ names or they no longer live in the house, they must repay part or all of the subsidies received.

Apply directly with your state Rural Development office .

This online eligibility tool can help potential borrowers see if they might qualify.

Single Family Housing Repair Loans and Grants

This program, also called the Section 504 Home Repair Program, is for homeowners with very low incomes who need a loan to improve, repair, or modernize their homes.

The program also offers grants if the applicants are 62 or older with very low incomes, and the money will be used to remove hazards to health and safety. The borrower must own the home and live in it. Prospective homeowners must not be able to find affordable credit through other venues.

Current limits on both the loans and the grants are as follows:

•   Maximum loan amount: $40,000

•   Maximum grant amount: $10,000

•   Maximum per person: $50,000, if they qualify for both the loan and grant.

Loan terms can be up to 20 years, with a fixed 1% interest rate.

For details about how to apply, applicants may contact their state Rural Development office.

Homeowners of higher income levels who need to finance home repairs may want to look into home improvement loans.

What Is the Minimum Credit Score for a USDA Loan?

The USDA does not set a firm credit score requirement. However, you are most likely to be approved if your score is in the 640 and higher range.

Even with a lower score, however, you may qualify for a loan.

Recommended: Learn the Cost of Living by State

Pros and Cons of USDA Loans

This section will focus on the USDA guaranteed loan program.

USDA Loans Pros

•   Typically no down payment is required.

•   Lower rates than FHA and conventional loans on average.

•   There isn’t a minimum FICO® score to qualify, so a less-than-ideal credit history may not prevent the loan from going through, though lenders like to see a credit score of at least 640.

•   Lenders may also require a debt-to-income ratio (DTI) of 41% or under. Depending on other factors, a slightly higher DTI might be possible.

•   No private mortgage insurance (PMI).

USDA Loans Cons

•   Homes must be in eligible rural areas.

•   Applicants must meet income limits.

•   Only certain lenders offer the program.

•   USDA loans require a 1% upfront guarantee fee and a 0.35% annual guarantee fee, based on the remaining principal balance each year.

Other Types of Mortgage Loans

In general, if your household income is more than 115% of the area median income, you can’t qualify for a USDA loan. The income of the entire household is considered, even if someone isn’t going to be on the mortgage note. That’s just one reason you might need to seek another type of mortgage.

Three broad types are:

Conventional loans: These are provided by banks and other private lenders and are not government-backed loans. This is the most common type of mortgage today. Borrowers typically need to have a down payment of 3% to 20%, and the lender will look at the debt-to-income ratio and credit scores when deciding whether to grant the mortgage loan.

FHA loans: Lenders that issue these loans are insured by the Federal Housing Administration, and it can be easier to qualify for this type of loan than a conventional mortgage. Lending standards can be more flexible and, with a credit score of 580 or higher, the borrower might qualify for a down payment of 3.5%. Note that mortgage insurance for an FHA loan can be high.

VA loans: Veterans, active military members, and some surviving spouses may receive VA loans provided by banks and other lenders but guaranteed by the VA. Eligible borrowers can benefit from a loan with no down payment and no monthly mortgage insurance. Most borrowers will pay a one-time funding fee, though.

Different types of mortgage loans have benefits and disadvantages. As a homebuyer, it is beneficial to understand what is applicable to your situation.

First-Time Homebuyer Programs

Borrowers who qualify as first-time homebuyers can receive benefits. Loan programs include:

•   Freddie Mac’s Home Possible® program and Fannie Mae’s 97% LTV. The programs offer down payments as low as 3% for buyers who have low to moderate incomes.

•   The Fannie Mae HomeReady® mortgage program. Borrowers who undergo educational counseling can get help with closing costs.

•   Mortgages for qualifying first-time buyers, who can put as little as 3% down.

It can make sense for low- and moderate-income borrowers to contact their state housing agency to see what programs are available for first-time homebuyers.

Recommended: Find First Time Home Buyer Programs in Your State

The Takeaway

USDA loans support rural homebuyers and homeowners who meet income limits and whose properties qualify. Others shopping for a mortgage will need to research home loans and find a choice that suits them.

If you’re in that group of mortgage shoppers who aren’t seeking a USDA loan, consider this option: A SoFi Home Mortgage Loan might be just right for you. Our flexible, competitive loans are available via a quick and simple process.

Start your home-buying journey with SoFi.

FAQ

What are the basics of how a USDA loan works?

USDA loans are available with no down payment and potentially a lower interest rate to borrowers who are buying certain properties in qualifying rural areas and who meet income limits.

What’s the difference between an FHA loan and a USDA loan?

These loans address different types of properties and have different qualifying requirements. With a USDA loan, there is no down payment requirement, there is no PMI, but borrowers must meet income guidelines and be purchasing properties in a rural or suburban area. With an FHA loan, there is a 3.5% down payment and a DTI requirement, but there is not the regional guideline for the property. However, PMI is assessed.

Is FHA better than USDA?

When comparing FHA vs. USDA loans, it’s not really a matter of one being better than another but of which one suits your needs and which one you qualify for. An example: If you are buying in a rural area, you might get a USDA loan requiring no down payment. If you are buying in a metropolitan area, you might instead qualify for an FHA loan with 3.5% down.

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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Modular homes are increasingly capturing interest as a fast and affordable housing option. The global market for modular homes is forecast to grow from $82 billion in 2022 to $139 billion in 2029. These houses are built from factory-made components and are then constructed on a permanent foundation on a building site. They must meet the Department of Housing and Urban Development standards, as well as local guidelines.

Not to be confused with manufactured homes (previously called mobile homes), which can be moved from location to location, a modular home can be a good option to what are known as stick-built or traditionally constructed homes.

Could one be right for you? Here are the pros and cons of these structures, to help you decide if this might be your next home sweet home.

What Are Modular Homes?

Modular homes are constructed in a way that differs from a traditionally built home. Many of the components are made in a factory and then shipped to the property, where they are assembled on a permanent foundation.

The process is typically less expensive and faster than a stick-built home (meaning ones that are assembled piece by piece at the site).

As briefly noted above, modular homes are permanent structures and are subject to local and federal standards.

Recommended: Mobile vs. Modular vs. Manufactured Homes

How Are Modular Homes Constructed?

One of the biggest differences from a traditional home is the way modular homes are constructed. The house’s components are assembled in a factory and delivered to the homesite in one or more trips. The modules may be akin to three-dimensional boxes that are connected to one another and the foundation at the job site.

The benefit of constructing modular home components in a factory is the controlled environment. Because the parts are assembled under ideal conditions (perfect temperature, humidity, etc.), buyers can usually expect a consistent, high-quality build.

In addition, the actual build can move more quickly. Estimates of the time to build a modular home range from 16 to 32 weeks, depending on how customized the plans are and other variables.


💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.

The Pros and Cons of Modular Homes

As with most things in life, there are pluses and minuses to modular homes. Consider these points to decide if one could be right for you. First, the upsides:

•  Modular homes are typically 10% to 20% less expensive than traditionally built homes.

•  They can be built up to 30% to 60% faster than stick-built homes.

•  Depending on the builder, they may be customized to suit your needs, both in terms of layout/square footage and finishes. You can get a very basic home or a truly luxe, mansion-like one.

•  They can be more energy-efficient than traditionally built houses, and the materials and building process may be more environmentally friendly as well.

•  They are considered better able to withstand environmental threats (flooding, hurricanes) than traditionally built homes.

That said, there are some disadvantages to modular homes to consider:

•  You need to add in some costs to your home-buying budget: the cost of the land, the foundation, and other related expenses. Yes, you are paying for those things when you buy a stick-built house, but it’s already rolled into the price.

•  You will need to investigate how to finance your home. If it’s an already built home, then a home loan will work. But if you are building from the ground up? Rather than getting a mortgage (since you aren’t buying an existing home from a seller), you may want to look into construction loans. Some modular home companies offer their own financing and lending programs.

•  Depending on the modular home company, you may not be able to get every last detail you want. Shopping around can help you find the top features you want in your home.

Modular Home Risks

There are a couple of considerations prospective modular homeowners should be aware of:

•  Finding land can be difficult in some areas. If you love modular homes but want to live in a suburb that has a hot housing market, you may be hard pressed to find a lot that works for you.
(You also may need a land loan to purchase your property if you do find a lot you love.)

•  It may be difficult to make changes once construction has started because so much of the home is pre-built.

•  Bias exists. Some people confuse modular homes with manufactured or mobile homes, which don’t have a foundation, and may therefore avoid them. This could mean a real estate agent might not show buyers a modular home that’s for sale, for example, due to this misperception.

How to Find Modular Homes for Sale

You can shop for pre-existing modular homes on major real estate websites like Realtor.com and also on specialized sites that list this type of home.

To construct a modular home, you can look at such sites as modularhome.org and modularhomeowners.com. Also, with the growing popularity of modular homes, you may well be able to get a word-of-mouth referral from someone in your circle.

How to Choose a Modular Home

When considering a modular home builder, much will depend on the following factors:

•  Do you like the style of the houses they build? The floorplans?

•  Are their prices lining up with your budget? Do they offer financing, if you need it?

•  Where are they located? If their factory is somewhat close to you, which can help reduce transportation expenses?

•  Are you impressed with the quality of their work? Their customer service?

•  Which brands do they partner with? Many manufacturers work with certain vendors for windows, doors, appliances, etc.

💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.²

How to Finance a Modular Home

Financing a modular home will take different paths depending on whether the house is already constructed or you’re building it.

•  For already built homes, you may look into conventional mortgage loans, FHA, USDA, and VA loans, just as you would for any other property you are interested in.

•  If you are building your own modular home, then you will probably need to apply for a construction loan to have the funds to get your house over the finish line.

•  Some modular home companies offer financing options.

•  You might also see if a personal loan could help you afford a modular home. Some lenders will allow you to buy a property with the funds; check with your lender, and understand the interest rate you will be charged.

Are Modular Homes Worth It?

Whether a modular home is worth it is a very personal decision.

For some people, there may be no greater satisfaction than working with a modular builder to specify their dream home and seeing their home come together, usually more quickly and less expensively than other building methods. They can collaborate with their builder and find a house plan that checks off all (or most) of the items on their home wish list.

Many people are thrilled with the eco-friendly aspects of these homes as well.

However, there are also people who find a vintage home more appealing or who would rather walk through an already built home and know exactly what they are buying.

Recommended: How Much Does It Cost to Build a House?

Modular Home Tips

If you’re set on buying a modular home, here are things to consider:

•  Style of home. Modular homes come in various styles, from contemporary to log cabins. It can be wise for buyers to shop around and work with a modular home manufacturer that suits their taste.

•  Manufacturer location. The cost of transporting a modular home can be high. It may be essential for the budget-conscious modular homebuyer to work with a manufacturer close to the home’s final destination.

•  Custom builds. Some modular home manufacturers may offer more customizable options, from floor plans and finishes. Do your research, and find a builder who can check off most of the priorities on your wish list.

•  Timeline. Some modular homes go up relatively quickly, while other manufacturers could be dealing with back orders. If time is of the essence, choose your builder carefully.

The Takeaway

Modular homes are growing in popularity. Components (modules) are factory-built and then assembled on a foundation; this process can be faster and more affordable than buying a traditionally built home. They also often have environmental benefits.

However, they aren’t for everyone: Building your own home is very different than hitting the open houses, and financing a modular home likely takes you on a path that involves a construction loan. If, however, you fall in love with an already built modular home, then you can usually apply for a mortgage from a number of lenders.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is a modular home a good investment?

A modular home can be a good investment. They often offer energy efficiency which is a selling point. However, a modular home’s value will be dependent on the housing market in your area, just as it would be with any other kind of home.

Are modular homes dangerous?

The dangers of modular homes are minimal. As long as the assembly of the modular home complies with local building codes, modular homes are as safe as a traditionally built home.

Is the value of modular homes decreasing?

Modular homes appreciate and depreciate in a way that’s similar to traditional builds.

Where can you get financing for modular homes?

Among the possibilities from various lenders are a construction loan, financing from your builder, or a personal loan.

How long will a modular home last?

With proper maintenance and high-quality materials, a modular home should last as long as, or longer than, any traditionally built home. Some of the first modular homes, built in the early 1900s, are still standing today.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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To obtain a home equity loan, SoFi Bank (NMLS #696891) may assist you obtaining a loan from Spring EQ (NMLS #1464945).

All loan terms, fees, and rates may vary based upon individual financial and personal circumstances and state.

You may discuss with your loan officer whether a SoFi Mortgage or a home equity loan from Spring EQ is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit brokered through SoFi. Terms and conditions will apply. Before you apply for a SoFi Mortgage, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and loan amount. Minimum loan amount is $75,000. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria.

SoFi Mortgages originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org). Equal Housing Lender. SoFi Bank, N.A. is currently NOT able to accept applications for refinance loans in NY.

In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Mortgage rates have risen considerably recently, from an average of 2.96% for a 30-year fixed-rate loan at the end of 2021 to around 6% to 7% at the midpoint of 2023. But despite it being more expensive to borrow money for a home, refinancing is still an attractive option for many homeowners. It allows you to replace your current mortgage with a new, potentially more advantageous one.

Perhaps you decided that you’d like to change your loan term, or you received a windfall you’d like to put toward lowering your mortgage ASAP. Another possibility is that you’ve built up equity and would like to tap it in a cash-out refinance.

Whatever your situation may be, here’s what you need to know about refinancing a home mortgage loan, from whether it’s right for you to what steps are involved to how much it will cost.

What Is Mortgage Refinancing?

Mortgage refinancing occurs when you replace one home loan with a new one. You might do so for such reasons as:

•  To get a different loan term (say, 15 years instead of 30, or vice versa)

•  To get a better interest rate

•  To tap your home equity

•  To make a switch between a fixed- and adjustable-rate loan

•  To get rid of mortgage insurance on an FHA loan.

You need to go through the loan application process, underwriting, and closing again and pay the related costs. The new loan will pay off the old one. Then, going forward, you pay the new lender every month instead of your previous one.

Mortgage Refinancing Costs

Refinancing will generally cost from 2% to 5% of your loan’s principal value in closing costs. That’s a significant range, so it can be wise to shop around to make sure you’re getting the best deal.

Since you’re essentially applying for a new loan, you will likely need a chunk of cash at the ready if you choose to refinance. For this reason, it’s important to consider those refinancing costs compared to the potential savings. A good rule of thumb is to be certain you can recoup the cost of the refinance in two to three years — which means you shouldn’t have immediate plans to move.

There are helpful online calculators for determining approximate costs for a mortgage refinance. Of course, this will only be an estimate, and each lender will be different. As you do your research, lenders can provide final closing cost information alongside a quote for your new mortgage rate.

When you refinance, you also have to consider closing costs. Some lenders may not have origination fees, but instead charge the borrower a higher interest rate.

If you have a history of managing credit well and a strong financial position, there are some mortgage refinancing lenders that will probably reward you by offering a better rate than they would charge those with lesser credentials.

Recommended: Home Affordability Calculator

How Long Does a Mortgage Refinance Take?

The process can take anywhere from 30 to 45 days or longer to complete. Factors that impact timing include the complexity of the loan, your ability to submit materials in a timely fashion, and the efficiency of the lender and/or broker.

If you want the process to move quickly, you may want to look for mortgage lenders who offer more streamlined service and a better customer experience. This may mean working with an online lender versus, say, a brick-and-mortar bank.

How to Refinance a Home Mortgage Loan

When you refinance a home mortgage, you are essentially repeating the same process as when you originally bought your property. This time, however, instead of the loan going to the homeowner you are buying a house from, funds will first go to the financial institution that holds your current mortgage. Once that loan is paid off, your newly refinanced loan kicks in. You start making payments to the new lender.

Because you are replacing one mortgage with another, you can expect the steps to be similar as they were when you got your original loan, from shopping around for the best loan for your situation to providing the necessary documentation to closing.

Steps in the Mortgage Refinancing Process

Here’s a closer look at the process:

1.   Determine your goal. The first (and arguably most important) step is to determine what you want to get out of your mortgage loan refinance. There are several mortgage refinance types, but “rate and term” and “cash-out” are the two most common.

Just as the name implies, a “rate and term” refinance updates the interest rate, the term (or duration) of the loan, or both. You can also switch between an adjustable- vs. a fixed-rate loan.

It is important to understand that not every refinance will save you money on interest. For example, if you extend the loan term from 15 to 30 years, you may lower your monthly payment, but you could end up paying more money in interest over the course of your loan.

Once you determine your goal, your primary focus will be determining whether the fees are worth what you’ll gain.

With a cash-out refinance, you are using increased equity in your home to take out additional money on your mortgage.

This is usually done to fund common home repairs or pay off other, higher-interest debt. While this kind of loan can be an excellent tool if you use it wisely, as with all loans, it’s rarely advisable to take out more than you absolutely need.

2.   Check your credit score and credit history for errors. Your credit score is an important factor in determining whether you get a better rate. Make sure you take time to clear up anything that’s been reported erroneously on your credit report. You might also want to remedy, say, an unpaid bill that was forwarded to a collection agency. These are factors that can lower your score.

3.   Research your home’s approximate value. Check comparable sale prices — not just listing prices — in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this will be helpful in securing the best refinancing rate.

4.   Compare refinance rates online. It’s wise to shop around and see what at least a few lenders offer. Don’t forget to ask about all costs involved. Most financial institutions should be able to give you an estimate, but the accuracy can depend on how well you know your credit score and LTV ratio.

5.   Get your paperwork together. The process will move faster if you have your pay stubs, bank statements, tax filings, and other pertinent financial information ready to go.

6.   Have cash on hand. Refinancing brings charges, and at closing, such items as overdue property taxes can need to be paid, too. Make sure you can cover these costs.

7.   Track the lender’s progress. Once the process is underway, keep an eye on how well things are moving ahead. What typically happens: The lender will likely send an appraiser for a home inspection. After the loan documentation and appraisal are submitted, loan officers determine the interest rate and create the loan closing documents. The closing is then scheduled with the refinancing company, mortgage broker, and your attorney.

Reasons to Refinance

As mentioned above, there are several typical reasons to refinance:

•  Reducing your monthly payment

•  Paying off your loan sooner

•  Changing the loan terms or type (fixed- vs. adjustable-rate)

•  Tapping your home equity

•  Eliminating mortgage insurance on an FHA loan.

Benefits of Refinancing

By refinancing your home loan, your monthly mortgage payments might be reduced. This in turn could free up money in your budget to go toward other goals, like paying down credit card debt or pumping up your emergency fund.

In addition, you might pay off your loan sooner, which could save you a considerable amount in interest over the life of the loan.

Refinancing your mortgage might also allow you to tap equity in your home. This could be useful if, say, you need those funds for educational or other expenses coming your way.

Also, some people who switch from an adjustable- to a fixed-rate loan may feel more secure with a set, unwavering payment schedule.

Recommended: First-Time Homebuyer Programs

Tips to Refinance a Mortgage

Beyond the tips mentioned above, you may also benefit from keeping these points in mind:

•  Think carefully about no-closing-cost loans. Yes, not paying closing costs can sound appealing, but there’s a good chance you will wind up with a higher interest rate and paying more over the life of the loan.

•  Make your appraisal a success. It can be distressing to have an appraisal come in low and throw a wrench into the works as you try to refinance. If there’s a glaring issue (rotting porch posts, for instance), it might be wise to fix it before the appraiser visits.

•  Prioritize requests for paperwork and documentation when your file is moving through underwriting. Not doing so can cause the process to drag on for longer than anyone might want.

The Takeaway

Depending on your financial situation and goals, refinancing your home loan can be a wise move. You may be able to lower your monthly payments, or you might shorten your loan term, thereby saving a considerable amount in interest. Another reason to refinance: To tap the equity you have built up in your home and use that cash elsewhere. The process is very similar to shopping for, applying for, and closing on your current mortgage. It will involve doing your research, providing documentation, and paying closing costs.

If refinancing is right for you, see what SoFi offers. With a SoFi Mortgage Refinance, you’ll find competitive rates, flexible terms, and a streamlined process, all of which can help you find just the right loan for your life.

SoFi: The smart way to refinance your mortgage.

FAQ

What is the average refinance fee?

Typically, you can expect to pay between 2% to 5% of the loan’s principal in closing costs when refinancing a mortgage.

Is it expensive to refinance?

The cost of refinancing will typically vary with the amount of the loan you are seeking. If closing costs are, say, 3.5% of the loan principal, that will be $3,500 on a $100K loan and $35,000 on a $1 million loan. It can also be helpful to compare these closing costs to the benefits of refinancing. For instance, you might free up more money every month to pay down pricey credit card debt, or you might shorten your loan term and pay less interest over the life of the loan when refinancing.

Why is it so expensive to refinance a mortgage?

When you refinance a loan, you are replacing your current loan with a new one. Closing costs are assessed to cover the expenses involved, including appraisal fees and other charges.

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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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 .

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You may have heard that 20% is the ideal down payment, but that doesn’t mean you must pony up that amount to become a homeowner. In truth, the average down payment on a house is considerably smaller. Currently, the median down payment on a house is 13%, according to data from the National Association of Realtors® (NAR).

Here, you’ll learn more about down payments so you can house-hunt smarter. Some topics to drill down on include the average amount paid by age and in different geographic areas to how you might access help if you can’t come up with 20%. Armed with this intel, you’ll be better prepped to navigate that major rite of passage: purchasing a home.

What’s the Average Down Payment On a House?

In 2022, the average down payment on a house was 13% down

The average down payment nationwide was 13% in 2022, according to the NAR. Given that the most recent Spring 2023 data showed a median price of $388,800 for home sales, that would mean most people are plunking down about $50,544 for a down payment.

This shows that the conventional wisdom that you need 20% down to purchase a home is, to a large extent, untrue. A 20% down payment will lower your mortgage amount and monthly payments vs. a smaller amount, and you will be able to avoid private mortgage insurance (PMI), but it’s not the only game in town.

Average Down Payment by Age

The latest NAR Home Buyers and Sellers Generational Trends Report breaks down by age the percentage of a home that was financed by homebuyers in 2022.

Older buyers tend to use proceeds from the sale of a previous residence to help fund the new home. Buyers 57 to 66 years old, for instance, put a median of 21% down, the NAR report shows.

Most younger buyers depend on savings for their down payment. Buyers ages 23 to 31 put down a median of 8%, and those ages 32 to 41, 10%.

A fortunate 25% of younger Millennial homebuyers received down payment help from a friend or relative.

Percentage of Home Financed

	All buyers	Ages 23-31	Ages 32-41	Ages 42-56	Ages 57-66	Ages 67-75	Ages 76-96
< 50%	11%	4%	6%	9%	20%	25%	22%
50-59%	5%	1%	2%	5%	8%	12%	15%
60-69%	5%	1%	3%	6%	7%	9%	13%
71-79%	13%	8%	12%	17%	16%	17%	15%
80-89%	24%	27%	28%	25%	22%	18%	18%
90-94%	15%	21%	18%	15%	8%	7%	6%
95-99%	17%	28%	20%	15%	9%	6%	2%
100% (financed the whole purchase)	10%	9%	11%	9%	9%	7%	10%

Average Down Payment by State

Down payments are tied to home prices in any state.

You can look into the cost of living by state for an overview and then find the median home value in a particular state at a given point in time and estimate your down payment.

Redfin, for example, shows a median sales price of $761,300 in California in spring of 2023. A 3% down payment would be $22,839; 10% down, $76,130; and 20% down, $152,260.

California is joined by Hawaii and Colorado on many lists of the most expensive states in which to buy a house.

For example, Hawaii comes out on top with a median home price of $805,775. Three percent down would be $24,173; 10% down, $80,576; and 20%, $161,155.

Mortgages under conforming loan limits are often the most attractive for homeowners because they are backed by Fannie Mae and Freddie Mac. The limit is $726,200 for a one-unit property in most counties and $1,089,300 in high-cost areas, including Hawaii.

A jumbo loan may be used to finance a property exceeding those limits.

The least expensive states in which to buy a home? Mississippi, Kansas, Alabama, and Oklahoma are among them.

You might want to check out housing market trends by city as well if you are interested in finding out where owning a home could be more or less expensive.

Down Payment Requirements by Mortgage Loan Types

There are first-time homebuyer programs and products that can allow for as little as 3% down on a home purchase.

That is the minimum down required for a conventional home loan, a nongovernment loan and the kind favored by most buyers.

However, there are some other loans you might want to consider, if you qualify for them:

•   FHA Loans: An FHA loan, acquired through private lenders but guaranteed by the Federal Housing Administration, allows for a 3.5% down payment if the borrower’s credit score is at least 580.

•   VA or USDA Loans: A VA loan or USDA loan usually requires no down payment.

A VA loan backed by the Department of Veterans Affairs is for eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. The VA also issues direct loans to Native American veterans or non-Native American veterans married to Native Americans.

A USDA loan backed by the U.S. Department of Agriculture is for households with low to moderate incomes buying homes in eligible rural areas. The USDA also offers direct subsidized loans for households with low and very low incomes. Typically, a credit score of 640 or higher is needed.

For all of the above loan types, the home being purchased must be a primary residence, but a homebuyer can use a conventional or VA loan to purchase a multifamily property with up to four units if one unit will be owner-occupied.

Recommended: How to Afford a Down Payment on Your First Home

Calculate Your Potential Mortgage Based on Down Payment

Curious to see what your potential mortgage would look like based on different down payments?

Start with a home affordability calculator (like the one below) to get a feel for how much you’ll need to put down and other expenses.

Or use this mortgage calculator to estimate how much your mortgage payments would be depending on property value, down payment, interest rate, and repayment term.

Should You Aim for 20% Down?

Should buyers try to put 20% down to get a mortgage loan? Not necessarily. It’s an individual decision. Here are some things to consider:

If Your Down Payment Is at Least 20%

Putting down at least 20% has benefits:

•  You won’t have to pay for mortgage insurance: If you put down 20% or more with a conventional loan, you won’t be required to pay for private mortgage insurance (PMI), which protects the lender if you were to stop making payments.

•  Your loan terms may be better: Lenders look at an applicant’s credit history, employment stability, income, debt-to-income ratio, and savings. They’ll calculate the loan-to-value ratio, or what percentage of the home’s purchase price will be covered by the mortgage.

Lenders often provide a better rate to borrowers who have an LTV ratio of 80% or lower — in other words, at least a 20% down payment — because they consider them a better risk.

•  You have instant equity in the property: You borrowed less than you could have, which translates to a lower mortgage payment, less interest paid over the life of the loan, and the potential later to take out a home equity loan.

Recommended: What Do I Need to Buy a House?

If Your Down Payment Is Less Than 20%

If your down payment will be less than 20%, know that you’ll have plenty of company. Consider these ways to optimize the situation:

•  A government loan could be the answer: FHA loans are popular with some first-time buyers because of the lenient credit requirements. Just know that upfront and monthly mortgage insurance premiums (MIP) always accompany FHA loans, and for the life of the loan if the down payment is under 10%. If you put 10% or more down, you’ll pay MIP for 11 years.

•  You may be able to improve your loan terms: If you can’t pull together 20% for a down payment, you can still help yourself by showing lenders that you’re a good risk. You’ll likely need a FICO® score of at least 620 for a conventional loan. If you have that and other positive factors, you may qualify for a manageable interest rate or better terms.

•  You can eventually cancel PMI: Lenders are required to automatically cancel PMI when the loan balance gets to 78% LTV of the original value of the home. You also can ask your lender to cancel PMI on the date when the principal balance of your mortgage falls to 80% of the original home value.

You may be able to find down payment assistance: City, county, and state down payment assistance programs are out there. They may take the form of grants or second mortgages, some with deferred payments or a forgivable balance.

The Takeaway

What is the average down payment on a house? Currently, it’s about 13% of the home’s purchase price, which usually means mortgage insurance and higher payments for the buyer. But buyers who put less than 20% down on a house unlock the door to homeownership every day. They can be helped along by such options as government loans, down payment assistance, and other programs.

If you’re in the market for a mortgage, SoFi can help. With a SoFi Mortgage Loan, you may be able to put as little as 3% to 5%, enjoy flexible terms, and apply simply and easily online.

See how a SoFi Mortgage can help you become a homeowner.

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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOHL0423017

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Buying a new home requires managing a lot of moving parts, from mortgage preapproval to closing. Even after an offer is accepted, buyers and sellers are still at the negotiating table. If closing costs or surprise expenses become too much for the buyer, a seller concession could help seal the deal.

Although seller concessions can work to a buyer’s advantage, they are neither a guaranteed outcome nor a one-size-fits-all solution for every real estate transaction.

To determine if seller concessions are the right move from a buyer’s perspective, here are some key things to know, including what costs they can cover and when to consider asking for them.

Recommended: How Much Are Closing Costs on a New Home?

What Are Seller Concessions?

Seller concessions represent a seller’s contribution toward the buyer’s closing costs, which include certain prepaid expenses and discount points. A seller concession is not the equivalent of a price reduction; nor is it received as cash or a loan discount.

Closing costs usually range from 3% to 6% of the loan principal on your mortgage. When combined with a down payment, the upfront expense of buying a home can be burdensome, especially for first-time homebuyers.

Buyers can ask for concessions on the initial purchase offer or later if the home inspection reveals problems that require repairs.

Although this can be a helpful tool to negotiate a house price, there are rules for eligible costs and limits to how much buyers can ask for.

Recommended: Home Buyer’s Guide

What Costs Can Seller Concessions Cover?

A buyer’s closing costs can vary case by case. Generally, buyers incur fees related to the mortgage loan and other expenses to complete the real estate transaction.

There are also types of prepaid expenses and home repairs that can be requested as a seller concession.

Some common examples of eligible costs include the following:

•   Property taxes: If the sellers have paid their taxes for the year, the buyer may be required to reimburse the sellers for their prorated share.

•   Appraisal fees: Determining the estimated home value may be required by a lender to obtain a mortgage. Appraisal costs can vary by geography and home size but generally run between $300 and $500.

•   Loan origination fees: Money paid to a lender to process a mortgage, origination fees, can be bundled into seller concessions.

•   Homeowners insurance costs: Prepaid components of closing costs like homeowners insurance premiums can be included in seller concessions.

•   Title insurance costs: A title insurance company will search if there are any liens or claims against the property. This verification, which averages $1,000 but varies widely, protects both the homeowner and lender.

•   Funding fees: One-time funding fees for federally guaranteed mortgages, such as FHA and VA loans, can be paid through seller contributions. Rates vary based on down payment and loan type.

•   Attorney fees: Many states require a lawyer to handle real estate closings. Associated fees can run $500 to $1,500 or more, based on location.

•   Recording fees: Some local governments may charge a fee to document the purchase of a home.

•   HOA fees: If a home is in a neighborhood with a homeowners association, there will likely be monthly dues to pay for maintenance and services. A portion of these fees may be covered by the seller.

•   Discount points: Buyers may pay an upfront fee, known as discount points, to lower the interest rate they pay over the life of the mortgage loan. (The cost of one point is 1% of the loan amount.)

•   Home repairs: If any issues emerge during a home inspection, the repair costs can be requested as a seller concession.

Closing costs can also be influenced by the mortgage lender. When shopping for a mortgage, evaluating expected fees and closing costs is a useful way to compare lenders. Factoring in these costs early on can give buyers a more accurate idea of what they can afford and better inform their negotiations with a seller.

Recommended: Home Improvement Calculator

Rules and Limits for Seller Concessions

Determining how much to ask for in seller concessions isn’t just about negotiating power. For starters, the seller’s contributions can’t exceed the buyer’s closing costs.

Other factors can affect the allowable amount of seller concessions, including the type of mortgage loan and whether the home will serve as a primary residence, vacation home, or investment property.

Here’s a breakdown of how concessions work for common types of loans.

Conventional Loans

Guidance on seller concessions for conventional loans is set by Fannie Mae and Freddie Mac. These federally sponsored enterprises buy and guarantee mortgages issued through lenders in the secondary mortgage market.

With conventional loans, the limit on seller concessions is calculated as a percentage of the home sale price based on the down payment and occupancy type.

If it’s an investment property, buyers can only request up to 2% of the sale price in seller concessions.

For a primary or secondary residence, seller concessions can add up to the following percentages of the home sale price:

•   Up to 3% when the down payment is less than 10%
•   Up to 6% when the down payment is 10-25%
•   Up to 9% when the down payment is greater than 25%

FHA Loans

FHA loans, which are insured by the Federal Housing Administration, are a popular financing choice because down payments may be as low as 3.5%, depending on a borrower’s credit score.

For this type of mortgage, seller concessions are limited to 6% of the home sale price.

VA Loans

Active service members, veterans, and surviving spouses may qualify for a mortgage loan guaranteed by the Department of Veterans Affairs. For buyers with this type of mortgage, seller concessions are capped at 4% of the home sale price.

VA loans also dictate what types of costs may qualify as a seller concession. Some eligible examples: paying property taxes and VA loan fees or gifting home furnishings, such as a television.

Seller Concession Advantages

There are a few key ways seller concessions can benefit a homebuyer. For starters, they can reduce the amount paid out of pocket for closing costs. This can make the upfront costs of a home purchase more affordable and avoid depleting savings.

Reducing closing costs could help a buyer make a higher offer on a home, too. If it’s a seller’s market, this could be an option to be a more competitive buyer.

Buyers planning significant home remodeling may want to request seller concessions to keep more cash on hand for their projects.

Seller Concession Disadvantages

Seller concessions can also come with some drawbacks. If sellers are looking for a quick deal, they may view concessions as time-consuming and decline an offer.

When sellers agree to contribute to a buyer’s closing costs, the purchase price can go up accordingly. The deal could go awry if the home is appraised at a value less than the agreed-upon sale price. Unless the seller agrees to lower the asking price to align with the appraised value, the buyer may have to increase their down payment to qualify for their original financing.

Another potential downside is that buyers could ultimately pay more over the loan’s term if they receive seller concessions than they would otherwise. If a buyer offers, say, $350,000 and requests $3,000 in concessions, the seller may counteroffer with a purchase price of $353,000, with $3,000 in concessions.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Seller concessions can make a home purchase more affordable for buyers by reducing closing costs and expenses, but whether it’s a buyer’s or seller’s market will affect a buyer’s potential to negotiate. A real estate agent can offer guidance on asking for seller concessions.

The vast majority of homebuyers finance their purchase. So for most buyers, finding the right mortgage is an important step in landing their dream home.

SoFi offers home mortgages with competitive rates and down payments as low as 5%. And prequalifying takes just a few minutes.

Buying a home? Find out how SoFi can help you with a mortgage that fits your needs.

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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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