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

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

What Is a HECM?

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

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

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

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

How HECMs Work

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

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

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

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

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

Home Equity Conversion Mortgage Requirements

There are several requirements to quality for an HECM:

Age

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

Homeownership

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

Equity

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

Financial Assessment

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

Property Type

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

Repayment

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

Compliance

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

Recommended: How to Use a HECM to Buy a Home

Pros and Cons of HECMs

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

Pros of HECMs

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

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

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

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

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

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

Cons of HECMs

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

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

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

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

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

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

Home Equity Conversion Mortgage vs Reverse Mortgage

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

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

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

Alternatives to HECMs

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

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

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

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

Home Loan Rates

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

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

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

The Takeaway

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

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

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

FAQ

What is the downside of a HECM loan?

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

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

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

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

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

Photo credit: iStock/monkeybusinessimages

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

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

SOHL-Q126-079

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

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

20 Questions to Ask When Refinancing a Mortgage

1. Should I switch lenders?

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

2. Can I switch loan types?

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

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

3. What’s my new interest rate?

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

4. What is my interest rate type?

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

5. What’s my new term length?

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

6. What’s the new payoff date?

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

7. Will I be paying mortgage insurance?

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

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

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

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

9. What will my new payment be?

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

10. Can I afford the new payment?

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

11. Will I save any money?

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

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

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

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

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

13. Can I refinance without a credit check?

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

14. Can I refinance multiple times?

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

15. How do I prepare for a refinance?

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

16. What’s the purpose for the refinance?

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

Recommended: How to Remove a Cosigner from a Mortgage

17. What are you sacrificing for this refinance?

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

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

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

19. Do I need cash out?

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

20. Is this the right time to refinance?

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

Why Asking These Questions Is Important

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

•   Understand what options are available to you

•   Grill your lender on important details

•   Comparison shop and get the best deal

•   Understand how a refinance will affect your finances

Deciding Whether to Refinance Your Mortgage

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

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

Recommended: How to Refinance a Home Mortgage

The Takeaway

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

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

FAQ

What is not a good reason to refinance a mortgage?

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

What is a good rule of thumb for mortgage refinancing?

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

What should you look out for when refinancing a home?

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

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

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

SOHL-Q126-095

A $100,000 mortgage comes with a monthly payment (principal, interest, taxes, and insurance) of around $840, assuming a 6.5% interest rate and a 30-year term. Your lender will look for income in the $28,000 range to make that monthly payment, assuming you don’t already have existing debt.

If you’re wondering how we got to this income level, you’ll want to stick around to see exactly how to get the mortgage you need for the home you want. We’ll go through everything you should know about the income required for a $100,000 mortgage.

Income Needed for a $100,000 Mortgage

The income needed for a $100K home mortgage loan depends on your existing debt and down payment. The amount you’ll qualify for goes up and down based on how much you owe and how much you’re willing to put down. (This is where a home affordability calculator comes in handy.)

For example, if you put down $25,000 on a property that costs $125,000, your $100,000 mortgage works out to about $840 monthly, including principal, interest, taxes, and insurance on a 6.5% annual percentage rate (APR). That $840 should be at maximum 36% of your monthly income (assuming you have no debt), which means you need to make at least $2,333 per month, or $28,000 per year, to afford the payment.

Of course, your existing debt affects your $100,000 mortgage: If you’re carrying $400 in additional debt each month, you’ll need more income to qualify for the loan. Here’s a look at the math:

$840 mortgage + $400 additional debt = $1,274 total monthly debt

$1,274 is 36% of $3,539 per month, or $42,468 per year.

In other words, if you have $400 in debt and are looking for a $100,000 mortgage, you’ll need to earn $42,468 per year.

For the most accurate numbers, try using a mortgage calculator with taxes and insurance.

How Much Do You Need to Make to Get a $100K Mortgage?

To recap: For a $100,000 mortgage, you need to make a minimum of roughly $28,000 per year. To get this number, we calculated the percentage of income based on the 28/36 rule of thumb, which states that mortgage payments should be 28% or less of your gross income and no more than 36% of your total monthly debts. Thus, if you have no debt, a lender could approve a monthly payment that is 36% of your income. Some lenders may be even more generous with these ratios.

A $100,000 mortgage at a 6.5% interest rate on a 30-year term with estimated taxes and insurance works out to be $874. Working backward, we find that $874 is 36% of $2,428 per month, or $29,138 per year.

Keep in mind, that number is without other debt. If you have a car loan or credit card bills, you’ll need to make a higher income.

Recommended: I Make $100,000 a Year, How Much House Can I Afford?

What Is a Good Debt-to-Income Ratio?

Lenders look for debt-to-income (DTI) ratios below 36%, but your chances of qualifying for the mortgage you want improve drastically if you have a minimal amount of debt. Conversely, with a lot of debt, the loan amount you qualify for is much lower.

What Determines How Much House You Can Afford?

Qualifying for a mortgage involves balancing the following factors:

•   Income. Your income is one of the most important factors in determining how much house you can afford. Generally, the higher your income, the more house you can afford. But it’s not the only factor.

•   Debt. Debt is a huge factor in determining how much house you can afford. Every monthly debt payment you have is calculated in your debt-to-income ratio. When you have too much debt, you’ll struggle to qualify for the mortgage you want.

•   Down payment. The higher your down payment, the higher purchase price you can take on. It also changes how much you’ll qualify for because a 20% down payment eliminates mortgage insurance.

A million dollar mortgage seems like a high mark, but if you’re in a state with a high cost of living, it can be relatively common. If you do need to borrow that much, you’ll also likely need a jumbo loan, also called a nonconforming loan, which usually has more stringent requirements.

Whatever amount you need to borrow, take a look at a mortgage calculator or talk to a lender to take your individual situation into account and get the most accurate number.

What Mortgage Lenders Look For

To qualify for a $100,000 mortgage, you’ll need to show the lender you’re a reliable borrower. For the best rates on a $100,0000 mortgage, lenders are going to look closely at the following factors:

•   Credit history. A credit history full of on-time payments, low credit balances, and only necessary credit inquiries may look ideal to a lender. If your credit has some imperfections, it may still be possible to get a mortgage for a $100,000 home.

•   Debt-to-income ratio. If you have too much debt, a lender isn’t going to approve you, no matter how high your credit score is. If you don’t meet the lender’s debt-to-income (DTI) ratio, you may be out of luck. Pay off some debt and try to qualify in the future.

•   Income. Income is the biggest factor that affects your odds of approval. Lenders want to see that you make enough to pay back the loan.

•   Down payment. A higher down payment represents less risk to the lender, and you may be rewarded with a lower interest rate on your mortgage. Remember that if you qualify for a mortgage but not at the best possible interest rate, you can consider refinancing your mortgage in the future.

$100,000 Mortgage Breakdown Examples

To illustrate the income needed for a $100,000 mortgage, we’ve put together a few scenarios. All assume a 7% APR, but different debt levels will affect how much you qualify for. Keep in mind the taxes and insurance numbers may not reflect your area. The cost of home insurance in Florida, for example, is going to be much higher than in Utah.

When you break down a $100,000 mortgage, it will look similar to this:

Terms

•   Home purchase price: $125,000

•   Down payment: 20% or $25,000

•   Mortgage amount: $100,000

•   APR: 7%

Monthly payment: $874

•   Principal and interest: $665

•   Taxes and insurance: $209

If you don’t have a down payment, it’ll look more like this:

Terms

•   Home purchase price: $100,000

•   Down payment: 0% or $0

•   Mortgage amount: $100,000

•   APR: 7%

Monthly payment: $924

•   Principal and interest: $665

•   Private mortgage insurance: $95

•   Taxes and insurance: $164

You’ll notice that you have to pay PMI, an increase of $95. (PMI is required when the down payment is less than 20%.) However, taxes and insurance may be lower because you’re purchasing a less expensive property.

Recommended: Home Loan Help Center

Pros and Cons of a $100,000 Mortgage

When comparing the different types of mortgage loans, there are some benefits and drawbacks to a $100,000 mortgage.

How Much Will You Need for a Down Payment?

For a $100,000 mortgage, you may be able to qualify for loans with 0% down payment options. The chart illustrates several loan types and the minimum down payment required for each.

If you’re able to put down 20%, you’ll be able to avoid PMI, which is arguably the most hated fee on a mortgage. (If you have it, you’ll want to get rid of it as soon as possible.)

Recommended: Best Affordable Places to Live

Can You Buy a $100K Home With No Money Down?

There are some scenarios where you’ll be able to buy a $100,000 home with no money down. These options have 0% down payment requirements for borrowers who qualify.

0% Down Payment Mortgages

•   VA mortgages: VA mortgages are for qualified veterans and service members. A certificate of eligibility (COE) based on service and duty status is required. These loans have no down payment requirement.

•   USDA mortgages: USDA mortgages, designed for low- and moderate-income borrowers in rural areas, have no down payment requirement. The interest rate is comparable to a conventional loan, and the mortgage insurance is much lower than the FHA’s.

Can You Buy a $100K Home With a Small Down Payment?

If you can find a $100K house, there are several ways to pull off a small down payment.

•   Conventional mortgages: Conventional mortgages have options for down payments as low as 3% of the purchase price. These loans require mortgage insurance, but do allow for it to drop off once the mortgage reaches 20% equity.

•   FHA mortgages: FHA mortgages allow for down payment options as low as 3.5% of the purchase price. The mortgage insurance is more costly and doesn’t ever go away, but FHA loans have more flexibility when it comes to credit requirements.

The other options for 0% down payment mortgages — VA loans and USDA loans — also apply here.

Is a $100K Mortgage with No Down Payment a Good Idea?

If you can find a home that requires just a $100K mortgage and can afford the payment, then a no-down-payment mortgage may be a good idea. This is especially true if it can help you get into a home sooner.

A $100K mortgage with no down payment does come with a higher monthly payment due to the higher mortgage amount and required mortgage insurance premium.

How to Improve Your Chances of Approval

If you’re struggling to qualify for a $100K mortgage, there are steps you can take to improve your qualifications as a borrower.

Pay Off Debt

Paying off debt is the secret formula to help you afford a home. When your debt is paid off, your lender doesn’t need to count anything toward your monthly debts. This leaves you with the ability to qualify for a higher mortgage amount.

Look into First-Time Homebuyer Programs

First-time homebuyer programs can help with down payment and closing costs assistance, homebuyer education, and rate buydowns. Most cities and states have some type of program to help first-time homebuyers, so you’ll want to research the program available in your local area.

Recommended: Finding Down Payment Assistance Programs

Care for Your Credit Score

Your credit history is a key piece of the puzzle your lender is putting together, and it takes time to build. These ideas can help.

•   Check your credit report. Errors on a credit report are common. You’ll want to take a good look and see if there’s anything you can do to take better care of your credit. Can you pay off an account? Can someone add you as an authorized user on their account to help build your credit history?

•   Consider opening a credit account. You need to use credit to build it. If you have a limited credit history, consider opening a credit card or applying for a credit-builder loan. Pay your bill on time each month, which may help build your credit.

•   Automate your payments. Use your bank’s bill pay function to automate your payments. You’ll never miss a payment and build your credit history with beautiful, on-time payments.

Start Budgeting

Tracking your money is one of the best ways to get better control of it. When you know where your money is going, you can do powerful things with it. That includes saving a little bit every month for a down payment on a house.

Alternatives to Conventional Mortgage Loans

If you’re looking at alternatives to a conventional mortgage, here are some places to look:

•   Private lending. Private lenders may be able to help borrowers with special circumstances. You might pay a higher interest rate, but the lender also might have more flexible qualifications.

•   Seller financing. It’s possible to enter into an agreement with a seller where you pay them directly instead of the bank. The buyer and seller will agree upon the details privately.

•   Rent-to-own. Along the same lines as seller financing is the rent-to-own option, where the seller agrees to finance the property before the buyer is able to purchase it.

Mortgage Tips

Finding a mortgage that suits your needs is important. Here are a few quick tips to get you through the process of choosing a lender and finding the right mortgage for you.

•   Shop around. Different lenders have different mortgages, so be sure to shop around to find a mortgage with a rate, term, and conditions that work for you.

•   Compare loan estimates. Ask each lender you’re considering for a loan estimate and be sure to submit the same information to each lender (loan amount, loan type, etc.). This will give you a standard form from each lender that can help you compare the fees, interest rates, and terms of each loan offered before you go through the mortgage preapproval process.

•   Go with a reputable lender. It’s hard to know if a lender is going to be good from the get-go, but you can read reviews on Trustpilot and the Better Business Bureau to get an idea of what closing a loan with the company is going to be like.

The Takeaway

Affording a $100,000 mortgage requires reliable income, the right debt-to-income ratio, and healthy credit. There are a number of zero down payment mortgages that can aid your mission to buying a home, too.

For most people around the country, the biggest problem is likely going to be finding a $100,000-$125,000 home. When you do find a home at an affordable price, you’ll need a minimum of roughly $28,000 in income to qualify for the mortgage.

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.

FAQ

How much house can I afford if I make $36,000 a year?

With an income of $36,000 per year, or $3,000 a month, going by the 28/36 rule, the amount of mortgage you’re looking for is between $840 and $1,080. With a 7% interest rate and homeowner’s insurance and taxes, that puts your purchase price at a maximum of $140,000, assuming you have no other debts.

What is the monthly payment on a $100K mortgage?

A monthly payment for a $100K mortgage is $665 per month (assuming a 7% interest rate and 30-year term). This amount includes principal and interest only.

How much home loan can I get if I make $100K?

How much home loan you can get on a $100,000 income depends on your debt, credit score, interest rate, and down payment. Many lenders aim for housing costs below about 28% of income, which could translate to a mortgage roughly in the $300,000 to $400,000 range.

Photo credit: iStock/ElenaMorgan

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

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

SOHL-Q126-084

Home equity could be a powerful tool for helping you meet your financial goals. If you need to pay for an extensive renovation, fund adoption expenses, or supplement your retirement income, there are many ways you could extract equity from your home in order to better your life.

But how exactly do you get the equity out of your home? What are the best methods that are affordable and make sense for your situation? Whether you’re thinking of a cash-out refinance, a home equity loan, or another option, you’ll want to carefully evaluate the costs, risks, and impact on your financial situation.

Here, we’ll go over how to get equity out of your home, the different methods for accessing the equity in your home, and the pros and cons of each.

What Is Home Equity?

Home equity is the amount of total ownership you have in your home over what you owe on your mortgage. It is the amount you would receive if you were to sell the home today.

Equity is best expressed mathematically. To calculate your home equity, subtract your outstanding mortgage amount from your home’s current market value:

Home’s Value – Your Mortgage = Equity

For example, if your home is worth $500,000 and your mortgage is $300,000, you would have $200,000 in equity ($500,000 – $300,000 = $200,000).

5 Ways to Take Equity From Your Home

If you’re ready to take the next step and seriously consider taking some equity out of your home, you have five main options. These include a home equity loan, home equity line of credit (HELOC), cash-out refinance, home sale, and equity-sharing agreement.

Home Equity Loan

If you’re looking at pulling equity out without refinancing, a home equity loan or line of credit (HELOC) is the move you’re going to want to make. A home equity loan offers a low interest rate because it uses your home’s equity to secure the loan. Depending on how much equity you have in your home, you may have access to a larger sum of money at a lower interest rate than you would if you used another source, such as a credit card.

Home equity loans disburse funds upfront. The loan would have a fixed interest rate and a set repayment plan. You’ll start repaying the loan from your first payment (vs just paying interest for some period of time).

The main negative with a home equity loan is that it uses your home as collateral. If you fail to make payments, the lender could start foreclosure proceedings against you.

Recommended: What Is a Home Equity Loan and How Does It Work?

HELOC

A home equity line of credit, or HELOC, is another type of home equity loan secured by your home’s equity, with the main difference being that the amount you borrow is more flexible. With a HELOC, you apply for a loan with a maximum amount. If approved, that maximum amount becomes your credit limit. You borrow what you need when you need it, and when you repay what you have borrowed, the full credit limit becomes available to you once again.

One advantage of a HELOC is that you only need to make payments on what you’ve borrowed. This minimum payment is determined by your lender when you apply for the loan, but is usually a lower amount during the initial draw period.

Cash-Out Refinance

Another option for accessing your home’s equity is through a cash-out refinance. This is where you replace your existing mortgage with a new, bigger mortgage and take the difference in cash.

It works if interest rates are lower than when you originally took out your mortgage and you have a significant amount of equity in your home. As a quick example: If your home is worth $300,000, the lender may be able to loan out $240,000. If your existing mortgage is $200,000 and you get the full $240,000, then approximately $40,000 (less any closing costs) could be refunded to you.

Home Sale

When you sell your home, all of the equity that you have accumulated — less the costs associated with the sale — can be converted to cash. There is also the possibility for you to enter into a sale-leaseback arrangement. This is where you sell your home and then lease it back from the new owner. Just as with a sale, you gain access to almost all of the equity you’ve accumulated over the years. You also get to stay in your home, provided you find the lease agreement acceptable.

Equity-Sharing Agreement

With an equity-sharing agreement, the homeowner enters into an agreement with a company that provides some money to the homeowner in exchange for a percentage of the home’s appreciation. The company is essentially an investor that bets on the value of your home rising.

There typically isn’t a monthly payment. The investor gets their money back when you buy them out or sell the home.

The main thing to look out for with this option is how much the investor asks in return for the loan. The long-term costs for this option could potentially be significant — usually 10% equity or more.

Pros and Cons of Using Home Equity

After looking at all of your options for accessing the equity in your home, the pros and cons of the methods look like this:

Home Equity Loan

HELOC

Cash-Out Refinance

Home Sale

Equity Sharing

How to Get Equity Out of Your Home

If you’ve made up your mind to extract some equity from your home, this is typically the process:

Determine How Much Equity You Have in Your Home

To figure out how much equity is in your home, start with a good estimate of your home’s market value. A real estate agent or assessor can provide this for you. Online estimates can get close, but they won’t be as accurate. The more accurate (and unbiased) an estimate you can get, the better you’ll be able to gauge how much equity you have. Use the formula from above (home value – your mortgage = estimated equity).

Decide How to Take Equity Out of Your Home

Examine the list above to determine which means of accessing the equity in your home feels right for you, whether it be a home equity loan, HELOC, home sale, or other method.

Shop Around for a Lender

If you elect to extract equity with a cash-out refi, HELOC, or home equity loan, you’ll need to look for a lender that offers competitive rates and terms for what you want. Comparison shopping is a good idea; keep in mind shopping around won’t count against your credit if you do it within a 45-day window.

Qualify for a Loan

Once you’ve narrowed down your choice of lenders, submit a full application. Your lender will start reviewing your documents to verify income, employment, identity, and loan details. The lender will also check your credit score and debt level to ensure you qualify for the loan.

Get an Appraisal

Your lender will order the appraisal for your loan, which is necessary to determine the exact value of the property and how much equity you have in the home. It’s common to be able to get a desktop appraisal or use an automated valuation model (AVM) to determine the value for a home equity loan or HELOC. (An appraisal will also likely be needed if you sell your home or enter into an equity sharing agreement.)

Close on the Loan

After an underwriter has reviewed your file, the lender will send loan documents for you to review and sign. If there are any closing costs, you may be directed to bring funds to closing.

Receive Funds

Money from the loan will be deposited into an account of your choosing.

Which Method of Getting Equity Out of Your Home Is Best for You?

The best method for taking equity out of your home depends on your goals. Do you need the largest amount of money while maintaining ownership of the home? Perhaps a cash-out refinance is for you. Do you like the idea of having a flexible line of credit that you can use when you need it? A HELOC might suit your needs. Do you want to access 100% of your equity and not be responsible for the costs of homeownership anymore? Then perhaps selling your home is the answer.

If it fits with your life plans, then it will make the best sense financially, even if there’s another method that may offer a lower interest rate.

The Takeaway

When you’re planning to get equity out of your home, the most important thing to take into consideration is how you’re going to use it. Since taking equity out of your home usually means you’ll be paying on the loan longer, you’ll want to carefully consider which method helps you meet your financial goals.

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

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

FAQ

Is it a good idea to take equity out of your house?

Taking equity out of your home typically means you’ll take longer to repay the loan (though not always — it depends on the terms and rates of your loan). Even if you get a lower interest rate and lower monthly payment, a longer loan term could mean that you’ll pay more for your mortgage because of the added years you’ll have on the mortgage.

How do you pull equity out of your home?

To pull equity out of your home, you’ll need to get in contact with a lender that offers financial tools that can grant you access to your equity. These may include home equity loans, HELOCs, or cash-out refinances. You may also consider selling your home or getting into an agreement with an equity-sharing company.

What is the best way to release equity from a house?

The best way to pull equity from your house is the one that helps you meet your financial goals. If you need to remodel your home and you know exactly how much it is going to cost, a home equity loan may work best. But if you want simplified finances, a single payment from a cash-out refi could be the answer.

Photo credit: iStock/Korrawin

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

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

SOHL-Q126-083

As you prepare for life after graduation, one important step is figuring out whether you’re required to make monthly student loan payments right away or if you have what’s called a student loan grace period.

Read on to learn what a student loan grace period is, when it starts, the student loan grace period ending date, and how you might extend yours. You’ll also find tips on how to use your grace period to help get your finances in order before you start making student loan payments.

What Is a Grace Period for Student Loans?

A student loan grace period is a window of time after a student graduates and before they must begin making loan payments. The purpose of a grace period is to give new graduates a chance to get a job, get settled, select a repayment plan, and start saving a bit before their student loan grace period ending date arrives and their payment due dates kick in. Most federal student loans have a grace period, and some private student loans do as well.

Grace periods also apply when a student leaves school or drops below half-time enrollment. Active members of the military who are deployed for more than 30 days during their grace period may receive the full grace period upon their return.

How Long Do Student Loan Grace Periods Last?

The grace period for federal student loans is typically six months. Some Perkins loans can have a nine-month grace period. When private lenders offer a grace period on student loans, it’s usually six months as well.

Keep in mind that, as noted above, not all student loans have grace periods.

Recommended: The Average Cost of College Tuition

Which Student Loans Have a Grace Period?

Whether you have a grace period depends on what kind of loans you have. There are two main types of student loans: federal and private student loans.

Federal Student Loans

Most federal student loans have grace periods.

•   Direct Subsidized Loans and Direct Unsubsidized Loans have a six-month grace period.

•   Grad PLUS loans technically don’t have a grace period. But graduate or professional students get an automatic six-month deferment after they graduate, leave school, or drop below half-time enrollment.

•   Parent PLUS loans also don’t have a grace period. However, parents can request a six-month deferment after their child graduates, leaves school, or drops below half-time.

Keep in mind: Borrowers who consolidate their federal loans lose their grace period. Once your Direct Consolidation Loan is disbursed, repayment begins approximately two months later. And if you refinance, any grace period is determined by your new private lender.

Private Student Loans

The terms of private student loans vary by lender. Some private loans require that you make payments while you’re still in school. When private lenders do offer a grace period, it’s usually six months for undergraduates and nine months for graduate and professional students.

At SoFi, qualified private student loan borrowers can take advantage of a six-month grace period before payments are due. SoFi also honors existing grace periods on refinanced student loans.

If you’re not sure whether your private student loan has a grace period, check your loan documents or call your student loan servicer.

Will Interest Accrue During the Grace Period?

For most federal and private student loans, interest is charged during the grace period — even though you aren’t making payments on the loan. In some cases, this interest is then added to your total loan balance (a process called interest capitalization), effectively leaving you to pay interest on your interest.

In 2023, federal regulations changed so that the interest that accrues during a borrower’s grace period is not capitalized. According to the Federal Student Aid website, “the interest that accrues during your grace period will be added to the outstanding balance of your loan, but it will not be capitalized.”

Smart Ways to Use Your Student Loan Grace Period

If you are in a financially tight spot after you graduate or during your break from school, a student loan grace period can offer some much-needed breathing room. Here’s how you can put your grace period to good use.

Organize Your Finances Before Payments Begin

Take this time to create a new post-grad budget. Which approach you use is up to you: the 70-20-10 Rule, the envelope budget method, or zero-based budgeting. The important thing is to determine your monthly income and expenses, setting aside enough to pay down debts and save a little.

Enroll in Autopay to Avoid Late Fees

Missed student loan payments can incur penalties and hurt your credit score. Setting up autopay means one less thing you have to remember. Some student loan lenders (like SoFi) will even discount your interest rate for setting up automatic payments. Federal student loans also offer a discount for enrolling in autopay.

Make Early Payments to Reduce Interest Costs

Just because you don’t have to make payments toward student loans during a grace period doesn’t mean you can’t. If you are in a financial position to make payments during a grace period, you should. It can help keep your loan’s principal balance from growing on certain types of student loans and the accruing interest from potentially capitalizing during your grace period.

If you can, direct some extra money toward your principal balance. Because student loans are amortizing loans, when you enter repayment, your early payments largely go largely toward the interest. Making additional principal payments can help reduce the total amount of interest you’ll pay, and even potentially reduce your loan term.

Explore Repayment Plan Options Before the Grace Period Ends

Once your grace period is over for your federal loan, you’ll be automatically enrolled in the 10-year Standard Repayment plan. However, if you’re concerned about making your payments, several income-driven repayment plans are currently available. These plans generally reduce your payment to a small percentage of your discretionary income.

You can use a student loan repayment calculator to calculate your monthly payments and what they might be.

Consider Consolidating or Refinancing Your Student Loans

These two terms are often used interchangeably, but there are important differences between them. When it comes to student loan consolidation vs refinancing, both options combine and replace existing student loans with a single new loan.

Student loan consolidation with a Direct Consolidation Loan allows you to combine several federal student loans into one new federal loan. The resulting interest rate is the weighted average of prior loan rates, rounded up to the nearest ⅛ of a percent. However, as noted above, borrowers who consolidate their federal loans lose their grace period.

Student loan refinancing is when you consolidate your student loans with a private lender and receive new interest rates and terms. Your student loan refinancing rate — which ideally would be lower — is determined by your credit history.

Using a student loan refinancing calculator can help you estimate how much refinancing might save you.

Can You Extend Your Student Loan Grace Period?

If your loan doesn’t qualify for a grace period or if your student loan grace period is ending and you want to extend it, you have options. You may delay your federal student-loan repayment through deferment and forbearance.

Both options are similar to a grace period in that you won’t be responsible for student loan payments for a length of time. The difference is in the interest.

When a loan is in forbearance, loan payments are temporarily paused, but interest will accrue on all loan types during the forbearance period. This can lead to substantial increases in what you’ll pay for your federal loans over time. You’ll want to consider forbearance very carefully, and look into other options that might be available to you, like income-driven repayment plans. (The good news is that for most types of loans, the interest that accrues during forbearance no longer capitalizes.)

During deferment, by contrast, interest will not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or Federal Family Education Loan Program (FFEL) Consolidation Loans. Other types of federal loans may still accrue interest during deferment, and that interest will capitalize upon exiting deferment unless you were enrolled in an income-driven repayment plan.

While grace periods are automatic, you’ll need to request a student loan deferment or forbearance and meet certain eligibility requirements. In some cases — during a medical residency or National Guard activation, for example — a lender is required to grant forbearance.

Pros and Cons of Using Your Full Grace Period

A grace period can be beneficial since it gives you time to get your financial situation in order before you need to start repaying your loans. However, there are also disadvantages to a grace period. Here are some pros and cons to weigh as you’re thinking about when to start paying student loans.

Pros

•   A grace period gives you time to find a job after graduation and start earning a salary.

•   You can create a budget and start saving money to put toward your student loan payments.

•   For those with Direct Subsidized loans, interest does not accrue on these loans during the grace period

Cons

•   With many student loans, interest does accrue, which increases the overall amount you need to repay.

•   The interest may also capitalize and be added to the principal balance of your loan so that you’re effectively paying interest on the interest.

•   Having more debt to repay can increase your debt-to-income (DTI) ratio, which could impact your credit score and your ability to borrow money for other purposes, such as taking out a mortgage.

The Takeaway

Federal student loan grace periods are typically six months from your date of graduation, during which you don’t have to make payments. Most federal student loans have grace periods. Private student loan terms vary by lender. However, some lenders, like SoFi, match federal grace periods for undergrad loans.

During your grace period, you may want to make payments anyway, even interest-only payments, to prevent your balance from growing. The grace period is a good time to create a new budget, choose a repayment plan, and set up autopay.

If you have trouble making your payments, you have options, from income-driven repayment plans to loan consolidation to refinancing.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

How do I know if my student loan has a grace period?

To find out if your student loan has a grace period, check your loan documents. As part of the terms and conditions stated on the documents, you should find information about a grace period if there is one, including how long it is. If you can’t find your loan documents or you’re still not sure if your loan has a grace period, call your loan servicer.

Can I start making payments before my grace period ends?

Yes, you can start making payments before your grace period ends. If you can afford to do so, making early payments can help keep your principal balance from growing and interest from accruing and potentially capitalizing. Even if you make interest-only payments, it can help reduce the total interest you’ll pay on the loan.

What happens if I don’t make a payment after my grace period?

If you fail to make student loan payments after your grace period ends, your loan could eventually go into default. A student loan is considered in default once you are nine months late on your payments. This could damage your credit rating and your future ability to take out a loan. If you’re having trouble making your loan payments, contact your loan servicer right away to see what your options are. You may be able to apply for income-driven repayment, forbearance, or deferment.

Does refinancing affect my grace period?

Whether refinancing affects your grace period depends on the lender. Some private lenders, like SoFi, will honor your grace period, but with others, student loan repayment may begin right away. Check with your refinancing lender.

Are grace periods the same for federal and private student loans?

No, grace periods are not the same for federal and private student loans. Federal student loans typically have a six-month grace period, though some Perkins loans have a nine-month grace period. Not all private lenders offer a grace period. Those who do typically offer a six-month grace period for undergraduates, and nine months for graduate students.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.