Those who find that they can no longer make their mortgage payments have options to explore, including a short sale, which is when a home is sold for less than the borrower owes.
A short sale is a way to avoid foreclosure. It works much like a traditional home sale, except that the lender must approve the offer.
The Short Sale, in Short
If the borrower is able to negotiate a short sale, the lender agrees to take the money from the sale proceeds — even though that sum is lower than the balance of the loan — in lieu of foreclosing on the home.
Short sales were common a decade or so ago, when the housing crisis and Great Recession left many homeowners underwater on their mortgages. Since then, the percentage of short sales has dropped significantly, as housing values and employment have risen.
During a mortgage foreclosure, a lender repossesses and sells a property to satisfy outstanding debt.
In a short sale, the lender agrees to allow the borrower to sell the property for less than the mortgage balance and costs of the sale.
How Does a Short Sale Work?
A short sale is a viable option if the remaining balance on a home loan is greater than the amount the property can fetch on the open market. Otherwise, a borrower could repay the full amount of the mortgage by selling the home.
Here’s how the short sale process generally goes:
1. Borrowers typically send their lender a hardship letter, proving that they are facing a long-term financial challenge.
2. The lender decides whether to approve the sale or work out a plan, like extending the loan term or allowing the borrower to make interest-only payments for a set amount of time.
3. If a short sale plan is accepted, the homeowner works with the lender to determine the schedule for the sale. If the lender is already on the path to foreclosure, a short sale will typically need to happen rather quickly.
4. The sellers and their real estate agent will review the number of liens (such as a home equity line of credit or second mortgage) against the property. Having several of these can sometimes get in the way of a short sale, since all lenders must approve the sale. Buyers should be sure to ask about liens, as well.
5. The owner puts the home up for sale and selects among competing offers. Once an offer is chosen, the lender must approve the sale and agree to accept the sale price in lieu of full payment of the loan.
Who Benefits from a Short Sale?
For the buyer, a short sale can be an opportunity to get a home at a fair market price or lower.
And because the lender has an incentive to sell the property quickly and prevent further costs, the lender might offer attractive financing to the buyer, such as a lower interest rate or credit toward closing costs.
For the seller, a successful short sale can mean avoiding foreclosure and the challenges that come with it.
Are There Drawbacks to a Short Sale?
Mortgagors may want to look at a short sale as a last resort. Short sales still have a significant negative effect on an individual’s credit, affecting the ability to take out a home loan or other forms of credit in the short term.
A short sale may show up on your credit reports as “not paid as agreed.” As both short sales and foreclosures fall under that category, most lenders won’t distinguish between them, according to Equifax, and both stay on your credit reports for seven years.
Short sellers may want to get written confirmation of the sale from their lender, along with a copy of the final settlement statement, in case future lenders have trouble distinguishing a short sale from foreclosure or have questions about amounts or dates.
Someone with a foreclosure on their record generally needs to wait two to eight years before qualifying for a new mortgage.
Is the Deficiency Completely Forgiven?
After a short sale, in some states, the lender can seek a personal judgment against the borrower to recover the deficiency amount. If a lender agrees to waive the deficiency, that provision must be included in the short sale agreement.
How a Short Sale Affects Buyers
A short sale can be risky for buyers as well. Home sales are usually closed “as is.” If a property inspection did not catch a needed repair, that can lead to unpleasant surprises.
Buyers may also be responsible for fees they wouldn’t pay during a typical sale. For example, if the seller employs a short sale negotiator to reach a deal with the lender, the buyer may be asked to pay this charge.
How Long Does a Short Sale Take?
Short sales can be time-consuming transactions, taking anywhere from a few weeks to a few months or more.
It can take a while for lenders to review a buyer’s short sale application for approval, especially if multiple lienholders are involved.
How Often Do Short Sales Fall Through?
Because short sales are often slow and complicated, with many steps before a house can be sold, they fall through fairly frequently.
For example, a lender may reject a borrower’s qualifications or the price offered by a buyer. Foreclosure proceedings or a declaration of bankruptcy could throw a wrench into a short sale. Or sellers could get their finances in order and decide they want to keep their house and continue paying their mortgage.
The sale can also fall apart if the seller declines to pay certain fees in order for the lender to approve the transaction.
Both sellers and buyers in a short sale may want to practice patience when entering into this kind of transaction and know that all their hard work could come to naught.
The Takeaway
If a mortgage becomes too heavy a burden, a short sale can be a lifeline. Still, leaving a lender short will hurt a borrower’s credit and can be a drawn-out process. Savvy buyers may find a short sale a way to get a deal.
An option short of a short sale could be refinancing your mortgage. With SoFi, refinancing may result in a more favorable interest rate or loan terms.
Refinancing may result in a more favorable interest rate or loan terms.
It takes just minutes to check your rate on a SoFi mortgage refinance.
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
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. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
VA loans are available to active-duty military members, veterans, reservists, National Guard members, and certain surviving spouses. They require no down payment or mortgage insurance and typically come with lower interest rates than other types of mortgages. If you think you might qualify for a VA loan, it’s worth comparing the costs to those of a conventional loan.
What Is a VA Home Loan?
VA loans were created in 1944 as part of the G.I. Bill, and they have grown in popularity since. They are one way to buy a house with no money down.
Most VA loans are VA-backed loans. Approved private lenders issue the loans, part of which the U.S. Department of Veterans Affairs agrees to repay if the borrower stops making the payments. That guarantee incentivizes lenders to offer VA loans with attractive terms.
The VA issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. The agency also refinances VA and other mortgages.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
How Does a VA Home Loan Work?
To receive a VA loan, a veteran, service member, reservist, National Guard member, or surviving spouse first has to apply for a Certificate of Eligibility. Once you have your COE and have decided what you wish to spend on a home, you’ll seek out a lender. Most lenders charge a flat 1% fee for VA loans but there may be other fees as well.
Once you have a lender and find a home to purchase, you’ll need to have the home appraised by a VA-approved appraiser to ensure it meets the minimum qualifications for a VA loan. If it does, you’re on your way to moving day.
Types of VA Home Loans
VA loans are available to help eligible borrowers buy, build, renovate, or refinance. Here are the main programs.
VA-Backed Loans
VA-backed home loans are full of advantages. They require no down payment or mortgage insurance, and have fairly loose rules about qualifying.
The home must be a primary residence, but up to a four-unit multifamily property may be purchased if one unit will be owner-occupied.
Approved condos and manufactured homes classified as real property are eligible.
VA Direct Home Loans
If either a veteran or their spouse is Native American, they may qualify for a Native American Direct Loan (NADL) to purchase, construct, or improve a home on federal trust land.
The VA issues these loans directly to borrowers who meet credit standards and whose tribal government has an agreement with the VA.
VA Refinancing
The VA offers an interest rate reduction refinance loan (IRRRL) and a cash-out refinance.
An IRRRL, or VA Streamline Refinance, refinances an existing VA-backed home loan. No verification of credit, income, or employment is required, and you might not need a home appraisal.
The VA-backed cash-out refinance can be used to convert any type of home loan to a VA mortgage with cash back at closing. (Cash back is optional: You can also use a VA cash-out refi to switch to a VA loan, shed mortgage insurance, and possibly lower your mortgage rate.)
VA Renovation and Construction Loans
The VA renovation loan is Veterans Affairs’ answer to the FHA 203(k) loan. It allows eligible borrowers to purchase and repair a property using a single VA loan with no down payment.
VA construction loans can help borrowers finance land and the construction of a home without a down payment. The hitch is, few lenders offer these loans.
Some states also administer their own loan programs for qualified veterans. California, for example, may have a high cost of living but it does offer its own home loan program to veterans.
Who Should Apply for a VA Home Loan
Eligible applicants for a VA loan are:
• Current service members who have served for 90 consecutive days.
• Veterans who served after 1990 for 24 continuous months or for the full period (at least 90 days) when called or ordered to active duty. (Those who served prior to 1990 may also be eligible; check VA.gov for detailed requirements.)
• Service members who served at least 90 days of active duty in the Reserves or the National Guard after 1990. (Those who served prior to 1990 may also be eligible; visit VA.gov for details.)
• Spouses of service members who died in the line of duty or from a service-connected disability, or who are missing or are prisoners of war.
VA Home Loan Requirements for Buying a House
If you apply and meet the requirements for a VA loan, you’ll receive a certificate of eligibility. Approved lenders can check eligibility quickly, or potential borrowers can contact va.gov.
The document indicates “full entitlement.” For full entitlement, at least one of these must be true:
• You’ve never used your home loan benefit
• You’ve paid a previous VA loan in full and sold the property
• You’ve used your home loan benefit but had a foreclosure or short sale and repaid the VA in full
The VA does not have a minimum credit score, but most mortgage lenders will want to see a FICO credit score above 620. Some may go lower.
According to VA residual-income guidelines, borrowers should have a certain amount of discretionary income left over each month after paying major expenses.
The VA does not name a maximum debt-to-income ratio, but it does suggest placing more financial scrutiny on borrowers with a DTI of more than 41%, which includes the projected mortgage payments.
VA Loan Rates
For VA-backed loans, approved private lenders set their own VA loan rates and fees. It’s smart to contact more than one lender when shopping for a mortgage and compare offers.
VA Funding Fee
There will be no mortgage insurance on a VA loan, but most borrowers will pay a one-time funding fee for a VA-backed or VA direct home loan. The fee can be rolled into the loan.
For the first use of a VA-backed purchase or construction loan, the funding fee is 2.3% of the loan amount if the borrower is putting less than 5% down.
The NADL funding fee for a home purchase is 1.25%.
A few borrowers, including those who are receiving VA compensation for a service-connected disability, do not have to pay the funding fee.
Benefits of VA Home Loans
Here are the main selling points of VA loans:
• No down payment.
• More attractive interest rates and terms than loans from some mortgage lenders.
• Possibly lower closing costs. The VA allows lenders to charge up to 1% of the loan amount to cover origination, processing, and underwriting costs. Sellers can pay all of your loan-related closing costs, but yes, that’s a big ask. VA loans have an appraisal fee that is set by area. Buyers may purchase mortgage points to reduce the interest rate.
• There’s no limit to the amount that can be borrowed with a VA home loan. However, there is a limit to the amount of the loan that the VA will guarantee.
• No minimum credit score requirement (although some lenders may still not lend to those with lower credit scores).
• VA loans are assumable, meaning the loan could be taken over by the home’s next purchaser.
Downsides of VA Home Loans
Although there are many benefits to VA loans, there are a few potential pitfalls to keep in mind.
The main one is the funding fee. If rolled into the loan, this increases monthly payments as well as total interest paid over the life of a loan.
Others:
• VA loans can’t be used to purchase investment properties or vacation homes.
• Some approved condos are eligible, but co-op properties are not.
• Zero down payment is a nice option, but if the housing market falters, borrowers may be paying more on their home than it’s worth.
What Is the VA Loan Limit?
As of 2020, if you have full entitlement, you don’t have a VA loan limit.
If you have a remaining entitlement (e.g., you have a VA loan you’re still paying back), you can use your remaining entitlement — on its own or with a down payment — to take out another VA loan.
In that case, the VA loan limit is based on the county conforming loan limit where you live. (In most of the country, the 2023 conforming loan limit for one-unit properties is $726,200.)
VA Loan vs Traditional Mortgage
After comparing the pros and cons of VA loans, some borrowers may find that a conventional loan with a low down payment is a better fit for their long-term financial goals. Even if they save money upfront, in the long term, VA loan borrowers often end up paying more.
Conventional loans can be used for vacation homes or investment properties. They don’t include the VA funding fee.
VA loan requirements are more flexible than some others, and VA loan rates may be slightly lower. VA loans have benefits, but it might pay to get loan estimates for conventional loans, too, and compare. For one thing, nothing down means starting out with no equity.
Applying for a home mortgage loan with SoFi requires as little as 3% down for qualifying first-time homebuyers. The fixed rates are competitive. SoFi finances primary homes, second homes, and investment properties.
Check out SoFi Mortgages and get your rate with no obligation.
FAQ
What are the disadvantages of a VA loan?
The main downside of a VA loan is its funding fee. VA loans also can’t be used to purchase investment or vacation properties, or co-ops (although some condos are eligible).
What is the difference between a VA loan and a regular loan?
The main difference between a VA loan and a conventional loan is that VA loans do not require a down payment or mortgage insurance. And, of course, VA loans are only available to qualified service members, veterans, and certain spouses.
Do you pay a VA loan back?
Yes. A VA loan is a loan, not a gift, and It must be repaid. A homeowner who doesn’t make payments could lose their home and any equity they had built up in it.
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.
Buying a home is a major life moment. It’s exciting, but also potentially stressful and confusing. Luckily, there are real estate agents to guide you through the process.
Finding a real estate agent who is well connected, hard working, and trustworthy can save consumers time and offer some much-needed peace of mind.
Benefits of Hiring a Good Real Estate Agent
A skilled real estate agent can help a buyer locate their dream home, navigate negotiations, and wrap up all that tedious paperwork. An agent with a strong professional network and familiarity with the housing inventory where you’re hoping to buy may even get early word of so-called “whisper listings” — properties that are about to come on the market.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
How to Find a Good Real Estate Agent
In many housing markets, a dizzying number of professionals are standing by to help with your home purchase. Take these steps to choose smartly.
Learn the Terms
Before launching a search for the perfect real estate agent, it can be helpful to brush up on the job titles you may encounter.
Most commonly, consumers will come across real estate agents, Realtors®, and brokers, all of whom can act as agents, but who can have varying levels of experience, education, and certifications.
• Real estate agent: Holds a license to practice real estate.
• Realtor: To have this designation, an agent must be a member of the National Association of Realtors, which is a trade association.
• Broker: A real estate agent must complete a certain amount of working hours, have additional education, and may have demonstrated leadership abilities among other agents in order to qualify as a broker.
Keep It Personal
A little networking can go a long way when looking for a good real estate agent.
Asking trusted friends, family members, or neighbors which real estate agent they worked with is a great place to start. Additional avenues that can lead to finding a good real estate agent may include:
• Checking out local magazines and area “best of” lists featuring real estate agents.
• Reviewing local real estate association websites.
• Considering agents who are listed often on for-sale signs in the area.
How to Choose a Real Estate Agent
Once you’ve made a list of possible agents, you’ll want to do your homework.
Leave No Stone Unturned
Just as “location, location, location” is an important factor in buying property, research, research, and more research will help in the search to find a good real estate agent. This is also the time to think seriously about your finances and to start the process of lining up a home mortgage loan, as your real estate agent will ask about your price range.
Looking up reviews on websites like Zillow or Realtor.com can be a good place to find a good real estate agent.
When reading reviews or considering references, it can be helpful to seek answers to the following questions:
• Does the agent have good communication skills?
• Is the agent easy to touch base with and have ample availability?
• Did they show interest in the process even after a deal was under contract?
• Are they known to regularly have disagreements with other agents?
If you find a real estate agent online or as a result of the agent’s marketing efforts, ask for references before making a decision.
Following a Hiring Process
Narrow the field to a handful of possible agents, then interview them before making a decision.
This process can feel similar to hiring an employee. The interview can give you an idea of what it will be like to work with an agent. Here are some sample questions to ask when interviewing agents:
• How long have you worked as a real estate agent? Experience is key, especially for first-time buyers or sellers who need extra guidance in a hot market.
• How many clients do you usually have at once? Their answer will help determine how much time they have to devote to each client and how accessible they will be.
• Do you work with a team? For busier agents, having team members who can provide assistance can be helpful.
• What areas do you cover? Finding an agent who is familiar with the area you’re looking in can give you a leg up in your search.
• How do you prefer to communicate? Make sure your communication styles mesh well together, whether that be over text, phone, or email.
(Selling a home? The interview questions are different. You’d want to ask how the agent would market the home, what fees might be included, and how they would price the home based on recent sales in the area.)
Some real estate agents may request that home buyers sign a contract known as an agency agreement. Before making any real estate working relationship official, take a close look at the contract to ensure there are no unpleasant surprises down the road.
The agreement may obligate you to only work with the agent for a set period of time. These contracts are not always required, but they provide the real estate agent with more assurance that they will be paid for their services.
Those selling a home also sign a contract, known as a listing agent contract, with the real estate agent who is listing their home. Typically, these agreements include the commission amount, listing duration, cancellation clause, responsibilities, disputes, ownership, expiration date, and details regarding dual-agency restrictions in the states where it is allowed.
Good Real Estate Agents’ Tips
Once you find a real estate agent to buy a house, a good agent will accompany you on home tours, advise you when you are ready to make an offer, and recommend other professionals such as a home inspector.
The homebuying process can be complicated and a good real estate agent should hold your hand every step of the way. Your agent will submit your offer on your behalf and provide you with a list of the documents you need to buy a house, including mortgage documents, that you will need for the closing.
The Takeaway
Finding a good real estate agent can be key to closing the best deal as a buyer. A thorough research and interview process can help you land an agent you feel, well, at home with — and who will work hard for you.
Getting preapproved for your mortgage loan is another important step in the buying process. SoFi strives to make the process simpler with a quick online digital application and access to representatives ready to help. SoFi Mortgage Loans offer competitive rates, and require as little as 3% down.*
Review potential rates with SoFi in a matter of minutes.
FAQ
What buyers want most from real estate agents?
Buyers most want an agent who will help them find the right home, so a well-connected agent familiar with the community and its housing inventory is a top priority.
What is an offer to purchase a home called?
An offer to purchase contract, also called a real estate purchase agreement, contains the address and description of the property, as well as the purchase price, down payment information, other deal terms, and an expiration date. It helps ensure that the buyer and seller are in agreement about the deal.
How do I get the best out of my real estate agent?
Knowing what you are looking for in a home, knowing your budget, and communicating openly about what you like and dislike can help ensure best results. Keep in mind that your real estate agent works on commission: Be organized, only visit properties you are truly interested in, and come to appointments on time.
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.
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. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
**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.
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.
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.
In a real estate transaction, both the buyer’s and seller’s agents collect a commission. The real estate commission fee is typically 5% to 6% of the home’s purchase price. Who pays that? Usually the seller.
How do real estate commission fees work exactly? And do agents get to keep their entire half of the commission pie? If you plan to buy or sell a home, it’s important to understand where real estate commissions fit into the picture.
What Is a Real Estate Commission?
Real estate agents can perform a variety of services on behalf of their clients. If you’re buying a home, an agent can help you:
• Narrow your search to the most desirable properties for your budget
• View the homes in person or virtually
• Make an offer on a property
• Navigate the home inspection process
• Negotiate any contingencies you’d like to include in the home contract
• Prepare for closing
• Sell a home you already own, if necessary
Real estate agents typically aren’t paid a salary or an hourly wage for the services they provide. Instead, they earn a commission when the sale or purchase of a home is completed.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
How Do Real Estate Commissions Work?
The average commission is 5.4%. At that rate, if you’re buying a home for $300,000, your agent and the seller’s agent would share the $16,200 in commission.
It’s common for agents on each side of a real estate transaction to split the commission equally. Using the previous example, each agent would receive $8,100 from the transaction.
But if the agent works with a broker, either as an employee or an independent contractor, part of the commission they receive may go to the broker. (A broker is an agent who also has an additional license and can supervise other agents.) If a buyer’s agent is due $8,100, the broker may be entitled to half of that, leaving the agent with a net commission of $4,050.
In reality, an agent on either side of the table may net a commission of 1.35% of the home’s purchase price.
Commissions are paid out once the transaction is complete. This typically happens after the buyer and seller have signed their closing paperwork. The seller will receive a check for any profits due to them from the sale, while each agent receives a check equal to their share of the commission. Exact amounts of commissions, like home sale prices, vary widely by state.
If you are a first-time homebuyer, you may be wondering who pays the real estate agents. The good news is that homebuyers typically are not directly responsible for making sure the buyer’s or seller’s agents get paid.
Instead, the seller is usually responsible for paying a commission due to either agent from the proceeds of the home sale. So, say you purchase a home for $366,000 (the average home price in Fresno, California) and the commission is 6%, or $21,960.
If the sellers owe $250,000 on the home’s mortgage, they’d be poised to pocket $116,000 in profit. But first they have to subtract $21,960 to cover both agents’ commission fees.
While sellers most often bear the responsibility for paying both real estate agents, some sellers increase the home’s listing price to offset the commissions. So even though you aren’t paying the fees directly as a buyer, you may still cover them indirectly.
What Do Real Estate Commissions Cover?
Real estate commissions compensate agents for the work they put into helping you to buy or sell a home. What this specifically entails can depend on the agent you’re working with and your buying or selling needs. But again, this often involves researching listings, preparing comparative analyses, guiding home viewings, and helping to negotiate offers.
Commissions are unrelated to the costs paid at closing to finalize the purchase of a home. Closing costs can include:
Closing costs typically run between 2% and 5% of the home’s purchase price. So if you’re buying a $300,000 home, you might pay anywhere from $6,000 to $15,000 at closing, not including the down payment.
Closing costs are usually the buyer’s responsibility, but it’s not unusual for buyers to persuade sellers to share some expenses that are paid in advance.
It’s worth noting that some costs may not be included in a real estate commission or at closing. If you’re selling a home, you may pay a separate fee for professional staging or photography to get it ready to list.
And if you’re buying a home, you’ll typically pay for the appraisal and inspection before closing.
There are real estate brokerages that advertise services for a flat fee. Usually, the flat fee is very low and may only include a listing with photos on the MLS (the Multiple Listing Service, a list of available properties). Real estate agents who charge a flat fee usually don’t offer to schedule showings or manage the listing in other ways.
Are Real Estate Commissions Negotiable?
Just like anything else, real estate commission fees may be on the table for negotiations when buying or selling a home.
If you’re a seller, there are a couple of possibilities for reducing the fee. First, if you’re working with a dual agent who is representing you as well as the buyer, the agent may be willing to reduce the commission slightly. Since they don’t have to split their commission with another agent, they might be willing to cut you a break on the fee.
You may also be able to ask for a reduced commission if you’re working with an agent to sell multiple properties. The agent may be open to accepting a slightly lower fee per deal if there are multiple deals in play. This, of course, depends on how likely those properties are to sell at your desired price point.
As a buyer, there isn’t much you can do to negotiate commissions if the seller has worked out an agreement with their agent. But you can still negotiate a house price in other ways, such as by tailoring your offer price and asking for help on closing costs.
Why Even Involve Agents?
You could buy a house without a Realtor® but having a professional’s help can be invaluable, especially if you’re a first-time homebuyer. (Realtors® are real estate agents who are members of the country’s largest trade association, the National Association of Realtors®. They subscribe to a strict code of ethics.)
A real estate agent or Realtor® can help you navigate the ins and outs of the homebuying process so that you can feel confident about your purchase.
Real estate agents are legally obligated to put their clients’ best interests first. They are trained to negotiate price and contingencies, handle legally binding documents, prepare and show properties for sale, and market homes through the MLS.
And homes for sale by owner usually sell for less than agent-assisted sales. The typical FSBO home sold for about $225,000 in 2021, compared with $330,000 for agent-assisted homes.
The Takeaway
The real estate agents involved in a home’s purchase and sale each earn a commission after the deal closes. It’s usually paid by the home seller, from the proceeds of the sale. Some sellers, though, bump up the listing price to cover the real estate commission, so in essence buyers are paying some or all of it.
Are you house hunting? Getting prequalified for a home loan is an important step, as this can help you gauge what you can afford. With SoFi, would-be buyers can get prequalified for a mortgage loan and easily compare rates for home loan options.
SoFi Mortgage Loans come with competitive rates.
FAQ
Is commission and flat rate the same?
No. A flat rate is usually lower than a commission-based fee and covers only basic real estate agent services such as listing the property in the MLS.
What fee do most Realtors charge?
Most real estate agents work on commission. At the closing, when a property is sold, both the buyer’s and the seller’s agents are paid a percentage of the home’s sale price for their work. This fee is usually covered by the seller.
What is the difference between a flat fee and a fixed fee?
Yes, a flat fee and a fixed fee are the same when it comes to how a real estate agent is paid. Agents paid this way typically charge a lower rate and provide only basic services, such as listing a property for sale.
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.
Shopping for a car: fun, freeing, and full of fresh new smells. Shopping for a puppy: heartwarming and full of suspicious smells. Shopping for a mortgage: not particularly thrilling or fragrant but one of the most important decisions many consumers will make in a lifetime.
From assessing what they can afford to nailing down a mortgage type, researching the best rates, and ultimately securing a loan, homebuyers must take many steps when shopping for a home loan.
Here are a few tips and tricks on how to shop for a mortgage loan and what to expect along the way.
How to Shop for a Mortgage Lender
In order to obtain a home mortgage loan, a buyer first needs a lender. You might work directly with a financial institution, or you may find a mortgage through a mortgage broker (more on that later). Before you can research these options, you’ll need to have a sense of what you can afford to buy and borrow. Start by figuring out how much you might spend on a home and roughly what portion of that you will need to borrow.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Figuring Out What’s Financially Possible
Reviewing monthly spending and estimating how much they can afford is one way for mortgage shoppers to kick off the home-buying process.
A budget or worksheet can be particularly helpful in determining what’s possible, with line items for the mortgage payment, property taxes, insurance, utilities, maintenance, and funds set aside for emergencies.
A mortgage calculator is useful for estimating the real cost of a home purchase, allowing consumers to plug in and play with the factors that influence a monthly mortgage payment:
Most mortgage calculators allow homebuyers to enter their credit score for a more accurate estimate. Checking your current credit score can help you determine what type of loan you qualify for.
In many cases, a higher credit score can help buyers get a lower interest rate, while a lower credit score could mean higher interest rates or the need for a larger down payment.
Knowing this information can help consumers estimate what range of quotes to expect from mortgage lenders or brokers before they start shopping for a mortgage loan.
Another step to take when shopping for a mortgage is deciding which type of mortgage loan to apply for.
This process could require some diligent comparison shopping to consider the pros and cons of each option alongside financial and personal needs.
Fixed-Rate Mortgage
A conventional fixed-rate mortgage offers the same interest rate and monthly payment for the entire term of the loan — typically 15 or 30 years.
Adjustable-Rate Mortgage
ARMs generally offer lower interest rates than fixed-rate mortgages, but only for a certain time, such as five or 10 years. After that, the monthly payments will adjust to current interest rates.
No Down Payment Loans
A no down payment loan allows buyers to purchase a house with zero money down at closing, except for the standard closing costs.
Federal Housing Administration Loan
An FHA loan is a government-backed loan that allows qualified buyers to put down as little as 3.5% if they meet several FHA loan requirements, including the payment of mortgage insurance.
Veterans Affairs Loan
A VA loan is a government-backed loan that allows no down payment and no mortgage insurance. It is available to eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. VA loan requirements are worth looking into for buyers who fall into one of these categories.
USDA Rural Development Loan
A USDA Rural Development loan is a government-backed loan for families in rural areas who are trying to put homeownership within reach. As long as buyers’ debt loads don’t exceed their income by more than 41%, they can enjoy a discounted mortgage interest rate and no down payment.
💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
Researching Rates and Deals
Once mortgage shoppers have a better idea of their financial bandwidth and preferred mortgage type, they can begin researching the optimum rates and deals they can get on a home loan.
Mortgage lenders and brokers might offer different interest rates and fees to different consumers depending on the day, even when they have the same exact qualifications. That’s why it can be important not only to understand mortgage basics but to compare what an array of different types of mortgage lenders and brokers are able to quote in the loan estimate.
Bear in mind that mortgage lenders and brokers receive a profit from the loan issuance, so they might be motivated to get consumers to agree to loans with higher fees, interest rates, or origination points.
Shopping around for the best interest rates and deals is a proactive way for homebuyers to avoid more expensive loans and ensure they can strike a deal they’re comfortable with.
How to Shop for a Mortgage Without Hurting Your Credit
When a lender looks at your credit history and score—what is known as a “hard” inquiry—and generates a mortgage preapproval, your credit score typically takes a hit. As you shop for a mortgage, you’ll want to instead first ask for a prequalification, which requires only a “soft” credit pull and won’t negatively affect your rating. It’s important to understand mortgage prequalification vs preapproval as you move forward through the process, as there is a time for each step.
Mortgage Lender or Broker?
One decision to make when shopping for a mortgage lender is whether to work with a lender directly, or to go through a mortgage broker:
• A direct lender is a financial institution that assesses whether a buyer qualifies for a loan and offers them the funds directly.
• A mortgage broker is an intermediary between the buyer and financial institution who helps the buyer identify the best direct lender and compiles the information for the mortgage application.
Long story short, mortgage brokers help homebuyers comparison-shop by collecting multiple lender quotes and presenting them all at once. This can be helpful for buyers who don’t want to deal with contacting multiple lenders. That said, the broker typically takes a commission, covered by the buyer, based on the mortgage amount.
In the case of working with a direct lender, it can be a good idea for buyers to deal with a financial institution they already have a relationship with.
Questions to Ask When Considering a Lender or Broker
Sometimes a list of questions can be useful when considering whether a mortgage lender or broker is the right fit. Ask prospective lenders the following:
• How is the lender getting paid? It’s fairly common for a mortgage broker to get paid a commission on closed transactions. Asking them whether the fee is embedded in the loan origination fee or how their compensation will be facilitated can help make these costs more transparent to the buyer.
• Can they offer competitive interest rates? If so, how long can they lock them in? While mortgage rates tend to be standard across the industry, lender rates can fluctuate based on the buyer’s credit score and financial history. Once the rate is locked in, there’s a guarantee from the lender that they’ll stay the same for a specific period of time, regardless of industry-wide fluctuations. Finding out if the lender is willing to offer the best rate and lock it in for, say, 60 days can help buyers know that they’re covered until closing time.
• What are the typical business hours? Whether it’s a broker or a lender, finding out their availability can be good to determine in advance, especially since many home showings and offers happen on weekends and could require a tight turnaround time.
• Can they provide a breakdown based on different down payment amounts? It can be useful for buyers to see a wide range of cost comparisons when shopping for a loan. Can the lender provide multiple scenarios with different down payment amounts, interest rates, and fees so the buyer can have a knowledgeable conversation about their budget and what’s possible?
• What’s the loan processing time? Asking about the anticipated turnaround time for processing the loan (usually around six weeks) can help determine whether the lender will be able to execute the purchase and sale agreement in time for closing.
• What fees and closing costs can be expected? Inquiring about expected charges is an important way for buyers to ensure no surprises or hidden transaction fees down the line. From origination fees charged by the lender to cover the loan processing to closing costs such as home inspection and appraisal fees, HOA fees, or title service fees, a loan estimate can help lay out which charges can be negotiated and which ones are fixed.
Understanding Risks, Benefits of Loan Options
Depending on the loan type, Annual Percentage Rate (APR), whether the interest rate is adjustable or fixed, the down payment amount, and potential prepayment penalties or balloon payments, mortgages have many different benefits and risks associated with their purchase.
Working with a lender to calculate how much monthly payments are estimated at the start of the loan, five years in, 10 years in, etc., can help make clear the risks and benefits of certain terms and conditions.
A mortgage worksheet is one way to help illuminate the potential upsides and downsides of a particular mortgage loan alongside the lender.
Negotiating the Best Mortgage Deals
After a suitable sampling of lenders have provided detailed mortgage loan quotes, consumers can compare costs and terms and negotiate the best deal. The mortgage worksheet can be helpful in this part of the process as well.
Being transparent about the fact that you’re shopping around for the best quote can incite lenders and brokers to compete with one another in offering the most favorable option.
Checking With Trusted Sources Before Signing
Once comparisons and negotiations whittle the list of quotes to a few, consumers might wish to consult with reliable sources such as a family member who has experience shopping for a mortgage, a housing counselor, or a real estate attorney to weigh in on the impending agreement. Review the loan documents with a trusted, well-informed source before signing anything.
Since getting a mortgage loan is often considered one of the most expensive commitments many consumers will make in their lifetime, there’s no harm in asking for a little help when making the decision.
Getting Mortgage Preapproval
Once you’ve chosen your mortgage provider, it’s time to consider getting preapproval. While being prequalified for a loan involves consumers submitting their financial information and receiving an estimate of what the lender could potentially offer, preapproval means the lender has conducted a full review of the consumer’s income and credit history and approved a specific loan amount for, typically, 60 to 90 days. This approval usually comes in the form of a letter.
Homebuyers can benefit from getting preapproved for a mortgage in many ways. Not only does it offer them the opportunity to discuss loan options in detail with the lender, but it also helps them understand the maximum amount they could borrow.
In some cases, sharing a preapproval letter with a home seller indicates serious intention to purchase a property. This can prove particularly helpful in competitive markets and bidding wars. Sellers will often go with a preapproved buyer over a prequalified buyer, since it may help the parties get to a closing more quickly.
Shopping for a Mortgage Lender Tips
In a competitive local housing market consumers may feel pressure to line up a mortgage quickly. But it pays to do your homework when shopping for a mortgage. Evaluate your own finances, know your credit score, and then make sure you are aware of the full range of options available to you. (Remember, first-time homebuyers may qualify for special programs.) Keep good records of competing offers from potential lenders or a mortgage broker. Never hesitate to ask about all costs or request clarification of any terms you don’t understand.
The Takeaway
How to shop for a mortgage? First, figure out how much you can comfortably afford, research loan types and interest rates, then compare what lenders offer. Finding the right loan is as important as choosing the right home.
SoFi makes shopping for a mortgage loan easy and you can get your rate in just minutes.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
What to look for when shopping for mortgages?
You want to look for a good interest rate when shopping for a mortgage, but you also want to consider the term of the loan and fees that might affect its total cost. A loan with the lowest monthly payment initially may not always be the most affordable choice over the long haul.
Is it worth shopping around for mortgage rates?
A mortgage is one of the biggest financial decisions most consumers will make, so it’s definitely worthwhile to shop around for the best rates.
How to shop around for the best mortgage interest rate?
Shop for the best mortgage interest rate by checking with various lenders to see what rate you might qualify for based on your credit score and down payment amount. Or work with a mortgage broker who will do this research for a fee.
SoFi Loan Products
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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.
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.
