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A certificate of deposit (CD) can be a useful tool for saving money for an upcoming goal. The downside is that you need to wait until the CD matures in order to access your money. If you withdraw some or all of your funds early, you typically get hit with a hefty penalty fee.

If you’re in a pinch and need cash quickly, however, you may be able to get a CD loan. Also known as a CD-secured loan, this is a type of personal loan that uses the value of a CD account as collateral. CD loans are offered by some banks and credit unions. Typically, the lender needs to be the same institution that holds your CD.

Here’s a closer look at how CD loans work and how they stack up against unsecured personal loans.

What Is a CD Loan?

A CD loan is a type of personal loan that is secured by the money you have in a CD. Since the collateral lowers the risk for the lender, these loans can be easier to qualify for and have lower interest rates than unsecured loans. However, if you don’t repay the loan, the bank can take the money out of your CD to cover their losses.

Of course, to get a CD loan, you need to have a CD, which is a type of savings account that pays a fixed interest rate over a set amount of time, or term. You must leave the money untouched for the CD term, which can range from three months to five years. If you withdraw your funds before the end of the CD’s term, you usually have to pay an early withdrawal penalty. CDs generally pay a higher annual percentage yield (APY) than regular savings accounts. And the longer the CD’s term, usually the higher the APY. Similar to other types of savings accounts, CDs come with FDIC protection, up to the applicable limits.

How Do CD-Secured Loans Work?

If you take out a CD loan, the lender will charge interest. So you’ll be earning interest on the CD but paying interest on the CD-secured loan. In some cases, a bank or credit union will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.

How much you can borrow with a CD-secured loan depends on the lender. Often, you are able to borrow up to 100% of the value of your CD principal. The term of the loan can generally be as long as the term of the CD.

While you can typically access money in a CD if absolutely necessary and pay a penalty, that may no longer be the case if you get a CD loan. Typically, the funds being used as collateral are sealed even in the event of an emergency.

Who Might CD Loans Be Right For?

The idea of paying interest on a loan backed by an interest-bearing CD may seem counterintuitive. However, there can be some logical reasons for taking out a CD-secured loan. One is that you may be able to build your credit by taking out a CD loan and then making a series of on-time payments on the loan. More common ways to do that include getting a secured credit card or becoming an authorized user on another person’s credit card. But if those options aren’t available, and you have a CD, you might use a CD loan for that purpose.

Another reason you might opt for a CD loan is that you need access to your funds for an emergency before it matures. However, you’ll want to first check what your CD’s early withdrawal penalty is. It might be cheaper and easier to simply break open a CD early and pay the penalty. However, if the penalty would be more than what you’d pay in a CD loan’s fees and interest, you might consider a CD loan.

Before taking out a CD loan, it makes sense to weigh the pros and cons.

CD Loan Pros

•   Lower interest rates CD-secured loans often have lower interest rates compared to credit cards and unsecured personal loans, making them an attractive option for borrowers seeking lower borrowing costs.

•   Building credit CD loans offer an opportunity to establish or improve your credit history if you currently have limited or no credit.

•   Retaining CD benefits Despite using the CD as collateral, you can still earn interest on the deposited amount.

•   Fast access to funds If you apply for a CD loan with the bank or credit union that holds your CD, you can often get approved quickly and receive funds within a day or two.

•   Good for those with bad credit Borrowers with poor credit often qualify for CD-secured loans.

CD Loan Cons

While CD loans have their benefits, there are also some drawbacks to keep in mind.

•   Frozen funds The funds in the CD are tied up as collateral, limiting access to the money until the loan is repaid.

•   Potential loss of CD If you default on the loan, the lender can seize the CD, resulting in the loss of the deposited funds.

•   Limited loan amount CD loans are typically limited to a percentage of the CD’s value, which might not meet your full borrowing needs.

•   Fees Your bank may charge fees, such as an origination fee, for issuing you a CD loan.

•   Hard to find CD loans aren’t as common as other types of personal loan, so your bank or credit union may not offer them.

CD Loan vs Personal Loan

While CD-secured loans and unsecured personal loans have some similarities, they also have some significant differences.

With both types of loans, you get a lump sum of money up front and can then use those funds for virtually any type of expense. Both also typically offer fixed interest rates and a set repayment term so payments are easy to predict and budget for.

Unlike a personal loan, however, a CD-secured loan can be hard to find. Also with a CD loan, you need to put your savings on the line to secure the loan. With an unsecured personal loan, you don’t need to provide any funds or personal assets as collateral, making them accessible to borrowers without a CD or other assets.

CD loans also tend to have lower interest rates than unsecured personal loans due to the collateral, while personal loans tend to offer more flexibility in loan amount and repayment terms.

Recommended: Typical Personal Loan Requirements Needed for Approval

The Takeaway

CD loans can be a viable option for someone who has a certificate of deposit and needs access to funds while keeping their deposited amount intact. The lower interest rates and potential credit-building opportunities make CD loans attractive for some borrowers.

However, these loans aren’t widely available and the cost of the loan could potentially exceed the CD’s early withdrawal fee. Also, you could lose the money in your CD if you have difficulty making payments. It’s crucial to weigh the pros and cons, consider your personal financial goals and needs, and compare loan options before deciding on the best borrowing solution.

If you’re interested in exploring personal loans, SoFi could help. SoFi’s unsecured personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

FAQ

Where can I get a CD loan?

CD loans are typically offered by banks and credit unions. It’s best to start by contacting your current financial institution to inquire about their CD loan options. They can provide you with specific details about their loan terms, interest rates, and application process. Typically, you need to take out a CD loan from the same institution that holds your CD.

What are CD loan interest rates?

CD loan interest rates vary depending on the lender, current market conditions, and your qualifications as a borrower. Rates tend to be lower than those of unsecured personal loans, since the loan is backed by the funds in the CD.

Some banks and credit unions will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.

Do you get money back from a CD loan?

When you take out a CD loan, you do receive money from the lender. However, it’s important to note that the funds received are borrowed money that you are obligated to repay, typically with interest. The funds from the loan are separate from the funds you have deposited in a certificate of deposit. The CD itself remains intact and continues to earn interest, but it is held as collateral until the loan is repaid. Once the loan is fully repaid, you regain full access to your CD and any interest it has earned during the loan term.

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Photo credit: iStock/PeopleImages

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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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Swiping and tapping a credit card can certainly make life easier, from buying a cup of coffee on the go to ordering (after much research) a new couch online. But knowing the right time to pay your bill can require a bit of time and thought. Sometimes, the due date is not so clear. And you may wonder whether to pay on that date or before.

With this guide, you’ll learn how to find your due date plus the ins and outs of paying your bill. You’ll also get some smart insights and tips on managing your credit card responsibly.

When to Make a Credit Card Payment

There are many different kinds of credit cards available. Once you have one or more in your wallet, you can enjoy the ease of paying with plastic and possibly earning some credit card rewards.

But how do you find your credit card due date? Unlike other sorts of bills, credit cards aren’t always due on a regular date like the first of the month. The exact due date will vary depending on your credit card billing cycle, and may fall on a seemingly random date.

To find your credit card due date (because paying on-time is part of using a credit card wisely), you can check your billing statement. The due date, along with the minimum payment due, will likely appear close to the top of your written statement.

You can also find due date and payment information in your online account, if you’ve created one; these digital portals also often make it simple to make online payments.

If you don’t have access to either a paper or digital billing statement, you can call the customer service number on the back of your card and ask a representative when your payment is due. Most cards also allow you to make payments over the phone, either through an automated system or with a live customer service agent.

How to Pay Your Credit Card on Time — and Why it’s Important

To pay your card on time, you’ll pay at least the minimum amount listed by the credit card payment due date. Generally, the cutoff time is 5pm on the day the payment is due, but you may want to reach out to the issuer directly to get exact details.

That said, it may be a better idea to avoid cutting it so close, if you can help it. You can make your credit card payments before the due date typically, both online and by phone. Doing so can help ensure the payment has time to post to your account before the cutoff.

Paying your credit card on time will help you avoid paying late fees, for one thing — which, when added to interest payments, can make your credit card debt spiral.

But on-time payments can also help build your credit history since they’re reported to the major credit bureaus, and your payment history (including timeliness) accounts for around 35% of your FICO® score.

The Grace Period

It’s helpful to understand that practically all credit cards offer a grace period: the time between your statement closing date and the due date in which the purchases you’ve made during that billing cycle do not accrue interest. (Not accruing interest can be a very good thing; the current average interest rate on new credit card offers hit 20.51% as of the middle of 2023.)

By law, if offered the grace period must be at least 21 days. This means you get a three-week window to pay your card off in full without being responsible for any finance charges. (This may not be true in the case of balance transfers or cash advances, and interest may accrue immediately.)

But it’s possible to use a credit card on a regular basis without paying interest. All you have to do is pay it off on time and in full each and every month.

Recommended: Guide to Lowering Your Credit Card Interest Rate

Paying Your Credit Cards on Time

Even if you only have one or two credit cards, chances are you have a lot on your plate in any given month.

Between making rent, shelling out your car payment, and actually keeping the job that lets you pay for all this stuff, keeping tabs on your credit card due dates may feel like just another task in a long list of chores. (It’s true: Adulting is hard.)

What Happens If I Pay Late?

Life happens, and sometimes many people pay their credit card late, whether due to an oversight or lack of funds. Typically, when you miss a payment deadline on your credit card bill, here’s what can happen:

•   You may be assessed a late payment fee. These usually range from about $15 to $35 per instance.

•   Your credit card issuer could raise your interest rate to what is known as a penalty rate. In most cases, the issuer must give you 45 days notice. The penalty rate is something you are likely to want to avoid, as it can be around 27% to 30%.

•   Your late payment can be reported to the big three credit reporting bureaus and show up on your credit history. A pattern of late payments could translate into your having to pay more to borrow in the future or even being denied credit.

Can I Change My Credit Card Bill’s Due Date?

Some credit card issuers will allow you to change your statement due date. Check with your issuer to see if they offer this; be aware that there may be a cap on how many times a year you can do so.

Changing your credit card bill’s due date can be a helpful move. You might be able to shift it to better sync up with your payday or at least move the date so it’s not, say, right at the same time as when rent is due.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Benefits of Paying Your Credit Card Early

Here’s another angle on paying your credit card: Instead of thinking about the damage that can be done by paying it late, look at the benefits of paying your bill early. The pros include:

•   Paying your credit card bill early may help establish and secure your credit score.

•   It helps free up your line of credit. It’s wise to keep your card’s balance at 30% of your limit at the very most. It’s a financially healthy move to make, and it could free up your available line of credit for an upcoming large purchase.

•   Paying your bill early lowers the amount of interest you will accrue. That means you owe less.

•   The sooner you pay off bills, the sooner you get out of debt, which is a desirable thing for most people.

•   By paying a bill early, you know it’s taken care of and you don’t have to worry about forgetting to send funds to your card issuer.

Tips for Managing Your Credit Card Bill

If you’re new to having a credit card or find yourself facing challenges managing your credit card usage, consider these helpful strategies:

•   Prioritize paying your bill when (or before) it’s due. That will be a positive step in your use of credit and minimize the interest and charges that can accrue.

•   Review your credit card bill every month. Not only will this help you get a handle on your spending, you can identify any incorrect charges or ones that might indicate fraudulent activity.

•   Try to pay more than just the minimum every month. Also educate yourself about what that minimum is. It’s not a helpful recommendation; it’s the lowest possible limit you can pay on the bill.

•   Work to keep your credit utilization ratio low; no more than 30% at most can be a good guideline.

•   If you are feeling as if your credit card debt is too high and/or you feel you need help eliminating it, it may be a smart financial move to take out a personal loan to pay off a credit card fully. Depending upon the term length you choose, you may end up saving money if the interest rate you’re offered is lower than the one offered by the credit card.

Or you could consult with a no- or low-cost credit counselor on solutions to your situation.

The Takeaway

Credit cards have many benefits, but it can be important to stay on top of your payments so your debt doesn’t accrue and your credit score is maintained. Understanding when your credit card payment is due, by looking at your statement or contacting your card issuer, is a smart move. It can also be wise to request your due date be moved, if possible, to better sync up with your cash-flow needs.

Looking for a new credit card? Consider a rewards card that can make your money work for you. With the SoFi Credit Card, you earn cash-back rewards on all eligible purchases. You can then use those rewards for travel or to invest, save, or pay down eligible SoFi debt.

With the SoFi Credit Card, you can earn cash-back rewards, apply them toward your balance, redeem points into stock in a SoFi Active Invest account, and more!* 

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Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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The most widely used credit scoring model is the FICO® score. Your FICO score is a three-digit number somewhere between 300 and 850 that tells lenders how much risk you represent as a borrower. Your score is important because it can determine what financial products and services, as well as interest rates, you can qualify for. If you have a low (or no) score, however, you may be able to improve or build it using the UltraFICO® Score.

What is UltraFICO? This is a relatively new scoring model that includes banking activity not normally factored into your credit score. By incorporating information from your savings and checking accounts, you may be able to increase your FICO credit score and, in turn, your chances of getting approved for credit, as well as qualifying for better rates.

However, UltraFICO isn’t a cure-all. It’s only used by one of the credit bureaus (Experian), and isn’t offered by all lenders. Plus, it won’t result in a huge boost in your score. Here’s what you need to know about UltraFICO.

How Does UltraFICO Work?

UltraFICO is a tool that allows you to voluntarily include banking activity not normally considered by the credit bureaus in your credit score calculation.

To understand how UltaFICO works, it helps to understand how your FICO credit score is calculated. While FICO keeps their exact methodology under wraps, your score is primarily based on the following criteria:

•   Debt payment history (35% of your score) This looks at whether you make your debt payments on time. Late payments can negatively impact your score. So can accounts in collections or a bankruptcy.

•   Credit utilization (30%) Also known as amounts owed, this is how much of your available revolving credit you’re currently using. Utilizing less of your available credit at any one given time is generally better than using more. Ideally, you want to aim to use 30% or less of your available credit.

•   Length of credit history (15%) Having a longer history with creditors is better than being new to credit.

•   New credit (10%) Applying for new credit cards or loans (and initiating a hard credit pull) can temporarily lower your score. For this reason, it’s a good idea to research credit card offerings and eligibility requirements before applying for one.

•   Credit mix (10%) Having a mix of different types of credit (such as a credit card and an installment loan like a mortgage) can positively influence your score.

The UltraFICO scoring model expands the information included in your credit score by considering such factors as:

•   Length of time you’ve had your bank accounts open (checking, savings and money market)

•   Your activity in those bank accounts

•   Proof that you have cash in those accounts (ideally, at least $400)

•   Whether your overdraft often

•   If you have direct deposit of your paycheck

How Do You Get an UltraFICO Score?

If you apply for new debt, such as a credit card or personal loan, and are denied because your score is low or you don’t have enough credit history to generate a FICO Score, you can ask the lender to pull your UltraFICO score. You might also ask a lender to pull your UltraFICO score if you are offered a credit card or loan with a high interest rate in the hopes of getting a better offer.

In some cases, a lender might invite you to participate in the UltraFICO scoring process after you submit an application for a credit card or loan. This is most likely to happen if your score is on the edge of acceptance or there simply isn’t enough information in your credit report to generate a FICO score.

If a lender offers UltraFICO, you will be directed to a secure site to answer questions about your banking relationships. By doing this, you’re allowing the credit bureau to look at your checking, savings, and money market accounts in order to try to get the boost you need to qualify for credit.

Who Will UltraFICO Benefit?

On their website, FICO states that the UltraFICO score will broaden access to credit for young or immigrant applicants who are just starting to build their credit profile, as well as those who are those who are trying to reestablish their credit after financial distress. They also say that the new scoring model will be able to help borrowers who are near score cut-offs, giving them access to credit they wouldn’t otherwise qualify for.

While UltraFICO isn’t likely to dramatically change the outcome of your credit card or loan application, it might be enough to bump you into the next higher range which may make a difference if you were on the borderline of acceptance.

You’ll want to keep in mind, however, that UltraFICO is only available through some lenders. In addition, only Experian offers UltraFICO. Your credit reports with the other two consumer credit bureaus — Equifax and Transunion — won’t be affected by this service.

The Takeaway

Your credit score can make or break your ability to get a credit card, mortgage, or any type of personal loan. It can also determine the interest rate you’re offered, which can make a big difference in the total cost of a loan.

The new scoring model UltraFICO could help your FICO score improve if you have consistently maintained positive bank account balances. However, it’s not offered by all lenders and creditors, so it isn’t always an option. Fortunately, there are other ways to build or improve your credit profile. These include consistently paying your bills on time, tapping only a portion of your available credit lines, and using a mix of different types of credit.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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

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A jumbo loan is a home mortgage loan that exceeds maximum dollar limits set by the Federal Housing Finance Agency (FHFA). Loans that fall within the limit are called conforming loans. Loans that exceed them are jumbo loans.

Jumbo mortgages may be needed by buyers in areas where housing is expensive, and they’re also popular among lovers of high-end homes, investors, and vacation home seekers.

What Is a Jumbo Loan?

To understand jumbo home loans, it first helps to understand the function of Freddie Mac and Fannie Mae. Neither government-sponsored enterprise actually creates mortgages; they purchase them from lenders and repackage them into mortgage-backed securities for investors, giving lenders needed liquidity.

Each year the FHFA sets a maximum value for loans that Freddie and Fannie will buy from lenders — the so-called conforming loans.

Jumbo Loans vs Conforming Loans

Because jumbo home loans don’t meet Freddie and Fannie’s criteria for acquisition, they are referred to as nonconforming loans. Nonconforming, or jumbo, loans usually have stricter requirements because they carry a higher risk for the lender.

Jumbo Loan Limits

So how large does a loan have to be to be considered jumbo? In most counties, the conforming loan limits for 2023 are:

•  $726,200 for a single-family home

•  $929,850 for a two-unit property

•  $1,123,900 for a three-unit property

•  $1,396,800 for a four-unit property

The limit is higher in pricey areas. For 2023, the conforming loan limits in those areas are:

•  $1,089,300 for one unit

•  $1,394,775 for two units

•  $1,685,850 for three units

•  $2,095,200 for four units

Given rising home values in many cities, a jumbo loan may be necessary to buy a home. Teton County, Wyoming, for instance, has an average home value of $1,624,087 and a conforming loan limit of $1,089,300.

Recommended: The Cost of Living By State

Qualifying for a Jumbo Loan

Approval for a jumbo mortgage loan depends on factors such as your income, debt, savings, credit history, employment status, and the property you intend to buy. The standards can be tougher for jumbo loans than conforming loans.

The lender may be underwriting the loan manually, meaning it’s likely to require much more detailed financial documentation — especially since standards grew more stringent after the 2007 housing market implosion and during the pandemic.

Lenders generally set their own terms for a jumbo mortgage, and the landscape for loan requirements is always changing, but here are a few examples of potential heightened requirements for jumbo loans.

•  Your debt-to-income (DTI) ratio. This ratio compares your total monthly debt payments and your gross monthly income. The figure helps lenders understand how much disposable income you have and whether they can feel confident you’ll be able to afford adding a new loan to the mix.

To qualify for most mortgages, you need a DTI ratio no higher than 43%. In certain loan scenarios, lenders sometimes want to see an even lower DTI ratio for a jumbo loan, or they may counter with less favorable loan terms for a higher DTI.

•  Your credit score. This number, which ranges from 300 to 850, helps lenders get a snapshot of your credit history. The score is based on your payment history, the percentage of available credit you’re using, how often you open and close accounts such as credit cards, and the average age of your accounts.

To qualify for a jumbo loan, some lenders require a minimum score of 700 to 740 for a primary home, or up to 760 for other property types. Keep in mind that a lower score doesn’t mean you won’t be able to get a jumbo loan. The decision depends on the lender and other factors, such as the loan program requirements, your debt, down payment amount, and reserves.

•  Down payment. Conforming mortgages generally require a 20% down payment if you want to avoid paying private mortgage insurance (PMI), which helps protect the lender from the risk of default.

Historically, some lenders required even higher down payments for jumbo mortgages, but that’s not necessarily the case anymore. Typically, you’ll need to put at least 20% down, although there are exceptions.

A VA loan can be used for jumbo loans. The Department of Veterans Affairs will insure the part of the loan that falls under conforming loan limits. The down payment requirement is based on the portion of the jumbo loan that’s above the conforming loan limit. The loan is available from some lenders with nothing down and no PMI. VA loans have a one-time “funding fee,” though, a percentage of the amount being borrowed.

•  Your savings. Jumbo loan programs often require mortgage reserves, housing costs borrowers can cover with their savings. The number of months of PITI house payments (principal, interest, taxes, insurance), plus any PMI or homeowner association fees, needed in reserves after loan closing depends on many factors. For a jumbo loan, some lenders may require reserves of three to 24 months of housing payments.

You don’t necessarily need to have all the money in cash. Part of mortgage reserves can take the form of a 401(k), stock portfolios, mutual funds, money market accounts, and simplified employee pension accounts.

Also, depending on the loan program, a lender may be comfortable with lower cash reserves if you have a high credit score, low DTI ratio, a high down payment, or some combination of these things.

•  Documentation. Lenders want a complete financial picture for any potential borrower, and jumbo loan seekers are no exception. Most lenders operate under the “ability to repay” rule, which means they must make a reasonable, good-faith determination of the consumer’s ability to repay the loan according to their terms. Applicants should expect lenders to vet their creditworthiness, income, and assets.

Jumbo Loan Rates

You might assume that interest rates for jumbo loans are higher than for conforming loans since the lender is putting more money on the line.

But jumbo mortgage rates fluctuate with market conditions. Jumbo mortgage rates can be similar to those of other mortgages, but sometimes they are lower.

Because the absolute dollar figure of the loan is higher than a conforming loan, it is reasonable to expect closing costs to be higher. Some closing costs are fixed, such as a loan processing fee, but others, such as title insurance, are tiered based on the purchase price or loan amount.

Pros and Cons of Jumbo Loans

Benefits

Because a jumbo loan is for an amount greater than a conforming loan, it gives you more options for ownership of homes that are otherwise cost-prohibitive. You can use a jumbo loan to purchase all kinds of residences, from your main home to a vacation getaway to an investment property.

Drawbacks

Due to their more stringent requirements, jumbo loans may be more accessible for borrowers with higher incomes, strong credit scores, modest DTI ratios, and plentiful reserves.

However, don’t assume that jumbo loans are just for the rich. Lenders offer these loans to borrowers with a wide variety of income levels and credit scores.

Lender requirements vary, so if you’re seeking a jumbo loan, you may want to shop around to see what terms and interest rates are available.

The most important factor, as with any loan, is that you are confident in your ability to make the mortgage payments in full and on time in the long term.

How to Qualify for a Jumbo Loan

To qualify for a jumbo loan, borrowers need to meet certain jumbo loan requirements. You’ll likely need to show a prospective lender two years of tax returns, pay stubs, and statements for bank and possibly investment accounts. The lender may require an appraisal of the property to ensure they are only lending what the home is worth.

Is a Jumbo Loan Right for You?

You’ll need to come up with a large down payment on a property that merits a jumbo loan, and some of your closing costs will be higher than for a conventional loan. But depending on where you wish to buy, the cost of the property, and the amount you wish to borrow, a jumbo loan may be your only choice for a home mortgage loan. It’s a particularly attractive option if you have good credit, a low DTI, and a robust savings account. And sometimes jumbo home loans actually have lower interest rates than other loans.

What About Refinancing a Jumbo Loan?

After you’ve gone through the mortgage and homebuying process, it could be helpful to have information about refinancing. Some borrowers choose to refinance in order to secure a lower interest rate or more preferable loan terms.

This could be worth considering if your personal situation or mortgage interest rates have improved.

Refinancing a jumbo mortgage to a lower rate could result in substantial savings. Since the initial sum is so large, even a change of just 1 percentage point could be impactful.

Refinancing could also result in improved loan terms. For example, if you have an adjustable-rate mortgage and worry about fluctuating rates, you could refinance the loan to a fixed-rate home loan.

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

Jumbo Loan Limits by State

The conforming loan limits set by the Federal Housing Finance Agency can vary based on the county where you are buying a home.

In most areas of the country, the conforming loan limit for a one-unit property increased to $726,200 in 2023 (the amount rises for multiunit properties). The chart below shows exceptions to the $726,200 limit by state and county.

Source: Federal Housing Finance Agency

The Takeaway

What’s the skinny on jumbo loans? They’re essential for buyers of more costly properties because they exceed government limits for conforming loans. Luxury-home buyers and house hunters in expensive counties may turn to these loans, but they’ll have to clear the higher hurdles involved.

If you’re interested in refinancing a jumbo mortgage at competitive rates, consider SoFi. You can prequalify online and put as little as 10% down.

With SoFi, you can see your new rate in just minutes.

FAQ

What are jumbo loan requirements?

Jumbo loans typically require a credit score of at least 700, a low DTI, and a down payment of at least 20%, although there are always exceptions.

What is the difference between a jumbo loan and a regular loan?

A jumbo loan is a home mortgage loan that exceeds maximum dollar limits set by the Federal Housing Finance Agency. Jumbo loans are typically used by buyers in regions with higher-priced housing but are also popular among luxury homebuyers and investors.

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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.

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.

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If you’re like many people, your home is probably your biggest asset, so you might think it always makes sense to include it in your net worth. However, in some situations, this may not always be the best idea.

Here’s why: Yes, all your assets usually should be tallied as part of your net worth. But some would argue that everyone has to live somewhere, and the money you have invested in your home is basically designated for that purpose and can’t be thrown in with other assets. For instance, if most people sold their home and moved, they would typically have to put the funds from the sale toward buying or renting a new home.

The specifics of your situation can also determine whether or not to count your home equity in your net worth. Generally, when using tools to tap your home equity, you may want to include your house as part of your net worth. But when calculating retirement savings, it’s a no-go.

Read on to learn more about when home equity counts in your net worth.

Why Is Knowing Net Worth Important?

Your net worth will fluctuate over time, but it can always be a valuable way to chart how your finances are going. If your net worth is negative, that means you have more debts than assets. This might encourage you to budget differently or focus more on paying off debt, especially high-interest debt.

If, however, your net worth is positive, that can help you see how you are progressing toward financial goals and what funds you will have available for, say, retirement.

Calculating Net Worth

At its most basic, net worth is everything you own minus everything you owe.

To calculate your net worth, tally the value of all or your assets, including bank accounts, investments, and perhaps the value of your home or vacation home. Then subtract all of your debts, including any mortgage, student loans, car loans, and credit card balances.

If the resulting figure is negative, it means that your debts outweigh your assets. If positive, the opposite is true.

There is no one net worth figure that everyone should be aiming for. Your net worth, though, can be a personal benchmark against which you can measure your financial progress.

For example, if your net worth continues to move into negative territory, you know that it is time to tackle debts. Hopefully, you’ll see your net worth grow, which can give you some idea that your savings plan is working or your assets are increasing in value.

Your home may, strangely, function as both an asset and a liability. Your home equity — the part of the home you actually own — can be an asset. But your lender may still own part of your home. In that case, mortgage debt is a liability.

As you track your home value and other assets to take your financial pulse, you may find that your home is simultaneously your biggest asset and biggest liability.

Recommended: What Credit Score Is Needed to Buy a Car?

When to Include Home Equity in Net Worth

Generally speaking, you may want to include your home as part of your total assets and net worth when you want to leverage the value of the equity you have stored there.

You can tap the equity in your home with a number of financial products. Here’s a closer look:

Home Equity Loan

A home equity loan allows you to borrow money that is secured by your home. You may be able to borrow up to 85% of the equity you have built up. For example, if you have $100,000 in home equity, you may have access to an $85,000 loan.

The actual amount you are offered will also be based on factors such as income, credit score (which may differ among the credit bureaus — say, between TransUnion vs. Equifax), and the home’s market value.

You repay the lump-sum loan with fixed monthly payments over a fixed term.

As with home improvement loans, which are personal loans not secured by the property, you can use a home equity loan to pay for home renovations.

Or you can use a home equity loan for goals unrelated to your house, like paying for a child’s college education or consolidating higher-interest debt.

Just remember that if you fail to repay the loan, the lender can foreclose on your home to recoup its money.

Home Equity Line of Credit

A home equity line of credit (HELOC) is not a loan but rather a revolving line of credit. You may be able to open a credit line for up to 85% of your home equity.

How do HELOCs work? You can borrow as much as you need from your HELOC at any time. Accounts will often have checks or credit cards you can use to take out money. You make payments based on the amount you actually borrow, and you cannot exceed your credit limit. HELOCs typically have a variable interest rate, although some lenders may allow you to convert a portion of the balance to a fixed rate.

HELOCs use your home as collateral. If you make late payments or fail to pay at all, your lender may seize your home.

Traditional Refinance

A traditional mortgage refinance replaces your old mortgage with a new loan. People typically choose this path to lower their interest rate or monthly payments.

They may also want to pay off their mortgage faster by changing their 30-year mortgage to a 15-year mortgage, for example, reducing the amount of interest they pay over the life of the loan.

How do net worth and home equity come into play? One important metric lenders use when deciding whether you qualify for a mortgage refinance is your loan-to-value ratio (LTV), how much you owe on your current mortgage divided by the value of your home.

The more equity you have built in your home, the lower your LTV, which can help you secure a refinanced loan and positively influence the rate of the loan.

Another option: A cash-out refinance vs. a HELOC.

Cash-Out Refinance

A cash-out refinance replaces your mortgage with a new loan for more than the amount of money you still owe on your house.

The difference between what you owe and the new loan amount is given to you in cash, which you can use to pursue a number of financial needs, such as paying off debt or making home renovations.

Your cash-out amount will typically be limited to 80% to 90% of your home equity, and interest rates are typically a little bit higher due to the higher loan amount.

Reverse Mortgage

A home equity conversion mortgage, the most common kind of reverse mortgage, allows homeowners 62 and older to take out a loan secured by their home.

Borrowers do not make monthly payments. Interest and fees are added to the loan each month, and the loan is repaid when the homeowner no longer lives there, usually when the homeowner sells the house or dies, at which point the loan must be paid off by the person’s estate.

When Does Home Equity Not Count as Part of Your Net Worth

There are a few instances when it doesn’t make sense to include your home in your net worth, or you aren’t allowed to.

Retirement Savings

If you’re using your net worth to get a sense of your retirement savings, it may not make sense to include your home, especially if you plan to live there when you retire.

Your retirement savings represent potential income you will draw on to cover your living expenses. Your home does not produce a stream of income on its own, unless you tap your equity using one of the methods above.

Applying for Student Aid

A family’s net worth can have an impact on eligibility for federal student aid. The more assets a family has, the more that need-based aid may be reduced.

However, the equity in a family’s primary residence is a nonreportable asset on the Free Application for Federal Student Aid (FAFSA®). Most colleges use only the FAFSA to decide aid.

Several hundred colleges, usually selective private ones, use a form called the CSS Profile, which does ask applicants to report home equity, though a number of schools, such as Stanford, USC, and MIT, have moved to exclude home equity from their considerations for aid.

When Becoming an Accredited Investor

An accredited investor may participate in certain securities offerings that the average investor may not, such as private equity or hedge funds. Accredited investors are seen to be financially sophisticated enough, or wealthy enough, to shoulder the risk involved with such investments.

To become an accredited investor, you must have earned more than $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, or you have a net worth over $1 million. However, you cannot include the value of your primary residence in your net worth in most cases. (An exception worth noting: There are certain FINRA licenses that allow a person to become an accredited investor independently of one’s finances.)

Tips for Improving Net Worth

If you are looking to build your net worth, you might try these tips:

•  Rein in your spending. If your net worth is not rising as you would like, you might assess if you are spending too much. You might be shopping out of boredom, trying to keep up with your peers (aka, FOMO or Fear of Missing Out), or be experiencing what is known as lifestyle creep, when your expenses rise along with your income.

•  Deal with your debt. Having debt, especially high-interest debt like the kind you can incur with credit cards, can make it hard to grow your net worth. If you are struggling to get on top of debt, you might look into debt consolidation options or working with a low-cost or free credit counselor.

•  Consider automating your savings. Many financial experts advise that you “pay yourself first” and immediately transfer some funds into savings when you get paid. In one popular budgeting method, the 50/30/20 Rule, it’s recommended that 20% of your take-home pay go toward savings and debt. In addition, you would probably want that money to grow, whether that means putting it in a high-yield savings account or investing in the market.

The Takeaway

Whether or not you include your home in your net worth will depend largely on what you’re trying to accomplish. If you plan to tap your equity, then it is an important figure to include. But it’s not always included when it comes to things like student aid or retirement income.

While your mind is on home equity, maybe you’ve thought about a cash-out refinance, or maybe it’s time to sell and buy anew.

If you’re curious about home financing or mortgage refinancing options, see what SoFi offers. With competitive rates, flexible terms, and a simplified online application process, we can help you find the right loan product for your needs.

SoFi: The smart and simple option for your home loans.

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Photo credit: iStock/Chainarong Prasertthai

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.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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