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If you own a home, you may be interested in tapping into your available home equity. One popular way to do that is with a home equity line of credit. This is different from a home equity loan, and can help you finance a major renovation or many other expenses.

Homeowners sitting on at least 20% equity — the home’s market value minus what is owed — may be able to secure a HELOC.Let’s take a look at what is a HELOC, how it works, the pros and cons and what alternatives to HELOC might be.

How Does a HELOC Work?

The purpose of a HELOC is to tap your home equity to get some cash to use on a variety of expenses. Home equity lines of credit offer what’s known as a revolving line of credit, similar to a credit card, and usually have low or no closing costs. The interest rate is likely to be variable (more on that in a minute), and the amount available is typically up to 85% of your home’s value, minus whatever you may still owe on your mortgage.

Once you secure a HELOC with a lender, you can draw against your approved credit line as needed until your draw period ends, which is usually 10 years. You then repay the balance over another 10 or 20 years, or refinance to a new loan. Worth noting: Payments may be low during the draw period; you might be paying interest only. You would then face steeper monthly payments during the repayment phase. Carefully review the details when apply

Here’s a look at possible HELOC uses:

•   HELOCs can be used for anything but are commonly used to cover big home expenses, like a home remodeling costs or building an addition. The average spend on a bath remodel in 2023 topped $9,000 according to the American Housing Survey, while a kitchen remodel was, on average, almost $17,000.

•   Personal spending: If, for example, you are laid off, you could tap your HELOC for cash to pay bills. Or you might dip into the line of credit to pay for a wedding (you only pay interest on the funds you are using, not the approved limit).

•   A HELOC can also be used to consolidate high-interest debt. Whatever homeowners use a home equity credit line or home equity loan for — investing in a new business, taking a dream vacation, funding a college education — they need to remember that they are using their home as collateral. That means if they can’t keep up with payments, the lender may force the sale of the home to satisfy the debt.

HELOC Options

Most HELOCs offer a variable interest rate, but you may have a choice. Here are the two main options:

•   Fixed Rate With a fixed-rate home equity line of credit, the interest rate is set and does not change. That means your monthly payments won’t vary either. You can use a HELOC interest calculator to see what your payments would look like based on your interest rate, how much of the credit line you use, and the repayment term.

•   Variable Rate Most HELOCs have a variable rate, which is frequently tied to the prime rate, a benchmark index that closely follows the economy. Even if your rate starts out low, it could go up (or down). A margin is added to the index to determine the interest you are charged. In some cases, you may be able to lock a variable-rate HELOC into a fixed rate.

•   Hybrid fixed-rate HELOCs are not the norm but have gained attention. They allow a borrower to withdraw money from the credit line and convert it to a fixed rate.

Note: SoFi does not offer hybrid fixed-rate HELOCs at this time.

HELOC Requirements

Now that you know what a HELOC is, think about what is involved in getting one. If you do decide to apply for a home equity line of credit, you will likely be evaluated on the basis of these criteria:

•   Home equity percentage: Lenders typically look for at least 15% or more commonly 20%.

•   A good credit score: Usually, a score of 680 will help you qualify, though many lenders prefer 700+. If you have a credit score between 621 and 679, you may be approved by some lenders.

•   Low debt-to-income (DTI) ratio: Here, a lender will see how your total housing costs and other debt (say, student loans) compare to your income. The lower your DTI percentage, the better you look to a lender. Your DTI will be calculated by your total debt divided by your monthly gross income. A lender might look for a figure in which debt accounts for anywhere between 36% to 50% of your total monthly income.

Other angles that lenders may look for is a specific income level that makes them feel comfortable that you can repay the debt, as well as a solid, dependable payment history. These are aspects of the factors mentioned above, but some lenders look more closely at these as independent factors.

Example of a HELOC

Here’s an example of how a HELOC might work. Let’s say your home is worth $300,000 and you currently have a mortgage of $200,000. If you seek a HELOC, the lender might allow you to borrow up to 80% of your home’s value:

   $300,000 x 0.8 = $240,000

Next, you would subtract the amount you owe on your mortgage ($200,000) from the qualifying amount noted above ($240,000) to find how big a HELOC you qualify for:

   $240,000 – $200,000 = $40,000.

One other aspect to note is a HELOC will be repaid in two distinct phases:

•   The first part is the draw period, which typically lasts 10 years. At this time, you can borrow money from your line of credit. Your minimum payment may be interest-only, though you can pay down the principal as well, if you like.

•   The next part of the HELOC is known as the repayment period, which is often also 10 years, but may vary. At this point, you will no longer be able to draw funds from the line of credit, and you will likely have monthly payments due that include both principal and interest. For this reason, the amount you pay is likely to rise considerably.

Difference Between a HELOC and a Home Equity Loan

Here’s a comparison of a home equity line of credit and a home equity loan.

•   A HELOC is a revolving line of credit that lets you borrow money as needed, up to your approved credit limit, pay back all or part of the balance, and then borrow up to the limit again through your draw period, typically 10 years.

   The interest rate is usually variable. You pay interest only on the amount of credit you actually use. It can be good for people who want flexibility in terms of how much they borrow and how they use it.

•   A home equity loan is a lump sum with a fixed rate on the loan. This can be a good option when you have a clear use for the funds in mind and you want to lock in a fixed rate that won’t vary.

Borrowing limits and repayment terms may also differ, but both use your home as collateral. That means if you were unable to make payments, you could lose your home.

Recommended: What are the Different Types of Home Equity Loans?

What Is the Process of Applying for a HELOC?

If you’re ready to apply for a home equity line of credit, follow these steps:

•   First, it’s wise to shop around with different lenders to reveal minimum credit score ranges required for HELOC approval. You can also check and compare terms, such as periodic and lifetime rate caps. You might also look into which index is used to determine rates and how much and how often it can change.

•   Then, you can get specific offers from a few lenders to see the best option for you. Banks (online and traditional) as well as credit unions often offer HELOCs.

•   When you’ve selected the offer you want to go with, you can submit your application. This usually is similar to a mortgage application. It will involve gathering documentation that reflects your home’s value, your income, your assets, and your credit score. You may or may not need a home appraisal.

•   Lastly, you’ll hopefully hear that you are approved from your lender. After that, it can take approximately 30 to 60 days for the funds to become available. Usually, the money will be accessible via a credit card or a checkbook.

How Much Can You Borrow With a HELOC?

Depending on your creditworthiness and debt-to-income ratio, you may be able to borrow up to 90% of the value of your home (or, in some cases, even more), less the amount owed on your first mortgage.

Thought of another way, most lenders require your combined loan-to-value ratio (CLTV) to be 90% or less for a home equity line of credit.

Here’s an example. Say your home is worth $500,000, you owe $300,000 on your mortgage, and you hope to tap $120,000 of home equity.

Combined loan balance (mortgage plus HELOC, $420,000) ÷ current appraised value (500,000) = CLTV (0.84)

Convert this to a percentage, and you arrive at 84%, just under many lenders’ CLTV threshold for approval.

In this example, the liens on your home would be a first mortgage with its existing terms at $300,000 and a second mortgage (the HELOC) with its own terms at $120,000.

How Do Payments On a HELOC Work?

During the first stage of your HELOC (what is called the draw period), you may be required to make minimum payments. These are often interest-only payments.

Once the draw period ends, your regular HELOC repayment period begins, when payments must be made toward both the interest and the principal.

Remember that if you have a variable-rate HELOC, your monthly payment could fluctuate over time. And it’s important to check the terms so you know whether you’ll be expected to make one final balloon payment at the end of the repayment period.

Pros of Taking Out a HELOC

Here are some of the benefits of a HELOC:

Initial Interest Rate and Acquisition Cost

A HELOC, secured by your home, may have a lower interest rate than unsecured loans and lines of credit. What is the interest rate on a HELOC? The average HELOC rate in mid-November of 2024 was 8.61%.

Lenders often offer a low introductory rate, or teaser rate. After that period ends, your rate (and payments) increase to the true market level (the index plus the margin). Lenders normally place periodic and lifetime rate caps on HELOCs.

The closing costs may be lower than those of a home equity loan. Some lenders waive HELOC closing costs entirely if you meet a minimum credit line and keep the line open for a few years.

Taking Out Money as You Need It

Instead of receiving a lump-sum loan, a HELOC gives you the option to draw on the money over time as needed. That way, you don’t borrow more than you actually use, and you don’t have to go back to the lender to apply for more loans if you end up requiring additional money.

Only Paying Interest on the Amount You’ve Withdrawn

Paying interest only on the amount plucked from the credit line is beneficial when you are not sure how much will be needed for a project or if you need to pay in intervals.

Also, you can pay the line off and let it sit open at a zero balance during the draw period in case you need to pull from it again later.

Cons of Taking Out a HELOC

Now, here are some downsides of HELOCs to consider:

Variable Interest Rate

Even though your initial interest rate may be low, if it’s variable and tied to the prime rate, it will likely go up and down with the federal funds rate. This means that over time, your monthly payment may fluctuate and become less (or more!) affordable.

Variable-rate HELOCs come with annual and lifetime rate caps, so check the details to know just how high your interest rate might go.

Potential Cost

Taking out a HELOC is placing a second mortgage lien on your home. You may have to deal with closing costs on the loan amount, though some HELOCs come with low or zero fees. Sometimes loans with no or low fees have an early closure fee.

Your Home Is on the Line

If you aren’t able to make payments and go into loan default, the lender could foreclose on your home. And if the HELOC is in second lien position, the lender could work with the first lienholder on your property to recover the borrowed money.

Adjustable-rate loans like HELOCs can be riskier than others because fluctuating rates can change your expected repayment amount.

It Could Affect Your Ability to Take On Other Debt

Just like other liabilities, adding on to your debt with a HELOC could affect your ability to take out other loans in the future. That’s because lenders consider your existing debt load before agreeing to offer you more.

Lenders will qualify borrowers based on the full line of credit draw even if the line has a zero balance. This may be something to consider if you expect to take on another home mortgage loan, a car loan, or other debts in the near future.

What Are Some Alternatives to HELOCs

If you’re looking to access cash, here are HELOC alternatives.

Cash-Out Refi

With a cash-out refinance, you replace your existing mortgage with a new mortgage given your home’s current value, with a goal of a lower interest rate, and cash out some of the equity that you have in the home. So if your current mortgage is $150,000 on a $250,000 value home, you might aim for a cash-out refinance that is $175,000 and use the $25,000 additional funds as needed.

Lenders typically require you to maintain at least 20% equity in your home (although there are exceptions). Be prepared to pay closing costs.

Generally, cash-out refinance guidelines may require more equity in the home vs. a HELOC.

Recommended: Cash Out Refi vs. Home Equity Line of Credit: Key Differences to Know

Home Equity Loan

What is a home equity loan again? It’s a lump-sum loan secured by your home. These loans almost always come with a fixed interest rate, which allows for consistent monthly payments.

Personal Loan

If you’re looking to finance a big-but-not-that-big project for personal reasons and you have a good estimate of how much money you’ll need, a low-rate personal loan that is not secured by your home could be a better fit.

With possibly few to zero upfront costs and minimal paperwork, a fixed-rate personal loan could be a quick way to access the money you need. Just know that an unsecured loan usually has a higher interest rate than a secured loan.

A personal loan might also be a better alternative to a HELOC if you bought your home recently and don’t have much equity built up yet.

The Takeaway

If you are looking to tap the equity of your home, a HELOC can give you money as needed, up to an approved limit, during a typical 10-year draw period. The rate is usually variable. Sometimes closing costs are waived. It can be an affordable way to get cash to use on anything from a home renovation to college costs.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low 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 can you use a HELOC for?

It’s up to you what you want to use the cash from a HELOC for. You could use it for a home renovation or addition, or for other expenses, such as college costs or a wedding.

How can you find out how much you can borrow?

Lenders typically require 20% equity in your home and then offer up to 90% or even more of your home’s value, minus the amount owed on your mortgage. There are online tools you can use to determine the exact amount, or contact your bank or credit union.

How long do you have to pay back a HELOC?

Typically, home equity lines of credit have 20-year terms. The first 10 years are considered the draw period and the second 10 years are the repayment phase.

How much does a HELOC cost?

When evaluating HELOC offers, check interest rates, the interest-rate cap, closing costs (which may or may not be billed), and other fees to see just how much you would be paying.

Can you sell your house if you have a HELOC?

Yes, you can sell a house if you have a HELOC. The home equity line of credit balance will typically be repaid from the proceeds of the sales when you close, along with your mortgage.

Does a HELOC hurt your credit?

A HELOC can hurt your credit score for a short period of time. Applying for a home equity line can temporarily lower your credit score because a hard credit pull is part of the process when you seek funding. This typically takes your score down a bit.

How do you apply for a HELOC?

First, you’ll shop around and collect a few offers. Once you select the one that suits you best, applying for a HELOC involves sharing much of the same information as you did when you applied for a mortgage. You need to pull together information on your income and assets. You will also need documentation of your home’s value and possibly an appraisal.

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

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

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

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 .

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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If you’re one of the more than 20 million Americans working remotely, you might be tempted to buy a house out of state. Or maybe you just need a change of scenery.

Buying a house long distance can be a challenge, but it’s doable with a plan in place.

Why Buy a House in Another State?

There are multiple reasons to consider a house in a different state. Here are some.

Affordability

People may be lured by the cost of living of a state and its quality of life, or trying to escape high costs in the state they are leaving.

More than 350,000 people left California (the country’s third-highest state in cost-of-living rankings) from April 2020 to January 2022 for Arizona, Texas, Florida, Washington, and other states. This trend slowed in 2023, but the state still lost more than 250,000 people.

Job Relocation

Some companies move personnel out of state, and some employees are good with that. A Graebel report exploring the Great Resignation found that 70% of knowledge workers who resigned in the past two years may have stayed if they’d been offered the same role in a different region of the country.

Family Reasons

Some folks choose to buy a house out of state to be closer to parents, children, or grandchildren. And people in their 40s,especially, may have aging parents and financial concerns on their minds.

Retirement

Americans entering retirement may want to buy a home in a state where the weather and lifestyle are more appealing. When it comes to a home, some may want to downsize.

How to Purchase a Home in Another State

Buying a house from out of state may be a challenge, but people do do it.

It can be tough to buy a house if you already have a house and a home mortgage loan. Homeowners have been known to use a home equity loan or bridge loan to fund the down payment on another house.

A personal loan can fund travel and moving costs.

If you’re ready to move on, it might be a good idea to sell and maybe ask for a leaseback. If you’re in a hurry, learn how to sell a house fast.

1. Virtually Explore

It’s easy to research cities, states, and communities online. There’s a listicle for almost everything.

For example, maybe you’re interested in the safest cities in the U.S.

Or the 50 most popular suburbs.

It can also be helpful to explore housing market trends by city.

Areavibes, BestPlaces, and HomeSnacks provide rankings or information. Coldwell Banker introduced Move Meter, to compare locations across the country. Or you could use Google Maps or Google Earth to study an out-of-state home’s proximity to schools, medical centers, law enforcement agencies, parks, and restaurants.

2. Link Up to Social Media

Social media platforms like Facebook Groups and Nextdoor can provide a personal sense of home buying and community. These groups are user-friendly to newcomers, and many group members are happy to answer questions about life in their city or town.

3. Ask Co-Workers, Friends, or Family

If you’re moving out of state for a job, check in with future co-workers for advice about the homes and neighborhoods. If you’re moving near friends or family members, pick their brains. Is this going to be a good spot for you?

Moving is stressful enough. If you’re one of the growing number of people interested in financially downsizing, you may want to just exhale and enjoy when you land.

4. Consider Talking to a Relocation Specialist

Yes, home relocation professionals exist. And they do everything from connecting clients with a real estate agent to finding a long-distance moving company, scouring school districts, securing a storage space, and supervising a contractor’s work if the client is buying or building a house.

Relocation companies can also suggest local service providers and transport pets and vehicles across state lines.
Relocation services are often free of charge because the specialists earn their money from third-party vendors like real estate firms and employers transferring employees.

If you’re not inclined to hire a relocation specialist, here’s some helpful reading before making a big move:

•   How to move across the country

•   How to move to another state

•   The ultimate moving checklist

You can look into the safety record of carriers on the U.S. Department of Transportation website.

5. Find a Reliable Real Estate Agent

A brave few who are interested in buying a house out of state opt to go without an agent.

It’s true that you can buy a house without a Realtor® — but even a local home sale may be challenging without a buyer’s agent in your corner.

Partnering with an experienced real estate agent who is based in the area where you hope to move could be highly beneficial.

Besides familiarity with neighborhoods, schools, and vibe, a buyer’s agent can walk a future homebuyer through local zoning regulations and the permit process.

6. Consider Visiting IRL

It’s not that rare to buy a house sight unseen. That can work out.

But someone looking to buy a house in a new state may want a real visit. You may receive short notice on a viewing date, so it could be helpful to budget for out-of-state travel as part of the buildup to buying a home in another state.

While a real estate agent can act as a proxy for homebuyers, there may be nothing like being onsite during the home inspection of a property you’ve made an offer on.

Then again, if you adore a property and must have it, you might waive some contingencies in the case of multiple offers.

7. Get Preapproved for a Mortgage

It can be easier to find a real estate agent or relocation specialist with a mortgage preapproval letter in hand.

When a lender preapproves a mortgage (a credit check and a review of financial assets is typical), it is tentatively greenlighting a specific home loan amount at a particular interest rate, which is not locked unless the lender offers a lock.

Obtaining preapproval tells home sellers that you’re qualified for a home loan up to a certain amount.

8. Handle the Closing Online

Get ready, because closing on a house may take only 20 or 30 days.

In some cases, everyone huddles to sign closing paperwork. Other times, buyers and sellers sign separately.

But most states have approved remote online notarization, when buyers join a video call, present their government-issued IDs to a title company rep and a notary, and sign all paperwork electronically.

The Takeaway

Buying a house out of state requires investigation and probably a good real estate agent. Getting preapproved for a mortgage can ease the path to a new address.

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

SoFi Mortgages: simple, smart, and so affordable.

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

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

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

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

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

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Cashier’s checks and money orders are two forms of currency used to make payments. While there are similarities between the two, there are also significant differences. Cashier’s checks are drawn on a bank account and guaranteed by the financial institution. A money order, on the other hand, is a prepaid financial tool that can be obtained at banks, the post office, or retail businesses.

Depending on your needs, one payment method may be a better choice than the other. Here, learn what distinguishes a money order from a cashier’s check, the way they work, plus the pros and cons of each.

What is a Cashier’s Check?

A cashier’s check, also known as a bank check, is issued by a bank or credit union. You can obtain a cashier’s check by either paying cash upfront or, if you’re a customer of that bank, have the funds drawn from your account.

Because the check is backed by the bank, it’s guaranteed so you don’t have to worry about a bounced check. This is why it’s considered a safe and secure method of payment. Cashier’s checks also clear rather quickly, with some of the funds usually available in one business day.

Cashier’s checks are typically available in smaller and larger amounts, and generally there’s no upper monetary limit. Many people use a cashier’s check for a large purchase or deposit, such as a car, boat, down payment on a home, or a security deposit to a landlord.

Recommended: Where to Cash a Check Without Paying a Fee

How Do Cashier’s Checks Work?

In most cases, you’ll visit your bank in person to do the cashier’s check transaction. Your bank may offer the opportunity to get one through their website, but doing so will take longer since the check will be mailed to you, instead of handed to you.

When you go to the bank, you’ll likely give the bank employee the recipient’s name and the amount of the check. You’ll either purchase the check with cash or have the money debited from a checking or savings account that you have with that particular bank. Cashier’s checks often come with a fee, which usually run about $10 to $20.

Don’t have a bank account? You may be able to get a cashier’s check from a bank where you’re not a customer, but you’ll have to check with the financial institution first. And, if you are able to get a cashier’s check from a bank where you don’t have an account, you’ll have to purchase the cashier’s check with cash.

A credit union may offer you more flexibility if you’re not a customer. Often, credit unions will issue cashier’s checks to members of other credit unions along as their own.

Recommended: Issuing a Stop Payment on a Check

What is a Money Order?

Like a cashier’s check, a money order is a form of paper payment and an acceptable alternative to paying a bill or debt with cash or a check. You can purchase a money order with cash, traveler’s checks, and a credit or debit card. Since a money order is prepaid, unlike a regular check, a money order can’t bounce.

A money order has empty spaces where you’ll need to fill out certain information, similar to writing out a check. Besides the amount being paid and the date the money order is issued, you’ll need to fill out your name and address as well as who is the payee, and then sign your name. In the memo line, you can fill in the reason for payment.

There may be limits on the amount of the money order that’s possible. For example, at a United States post office, a single money order can be no more than $1,000.

You’ll also get a receipt when you purchase a money order which is important to keep safe. With a receipt, you can track your money order and, if the payment is lost or stolen, use it to attempt to recover the funds.

Money orders can be obtained at a number of different places, including post offices, Western Union and similar retail businesses, check-cashing outlets, financial institutions, supermarkets, and convenience stores. Along with paying the face value of the money order, you’ll also have to pay a fee. The amount depends on such specifics as where you obtain the money order, but typically fees don’t exceed $10.

People who want to cash a money order can generally do so at the same places you purchase one. Unless you deposit it into a bank account, be aware that you may be charged a small fee for cashing the money order.

Money Order vs. Cashier’s Check

While both money orders and cashier’s checks are similar in some ways, there are also distinctions between the two. Here’s how the two compare.

Similarities

Both money orders and cashier’s checks are forms of payment that can be used instead of cash or a personal check. Because these are both completely prepaid, a person can cash or deposit a money order and a cashier’s check without worry that either will be declined or returned for insufficient funds.

Money orders and cashier’s checks share the following features:

•   Can both be purchased at a bank or credit union.

•   Prepaid so funds are guaranteed.

•   Provide more privacy for the payer because neither contain a checking account number.

•   Each typically comes with fees.

•   Allow you to trace or track payments.

Differences

Now, consider the ways in which they differ:

•   Cashier’s checks may be available in large sums, while money orders often have limits.

•   Money orders can typically be obtained at more locations than cashier’s checks.

•   Cashier’s checks are guaranteed by the financial institution that issued them; money orders are paid for with cash. Or you could use a debit card, a credit card, or similar payment method.

•   Money orders must usually be purchased in person.

•   The fees on money orders may be lower.

Differences Between a Money Order and a Cashier’s Check

Here, how money orders and cashier’s checks compare in chart form.

Money Order	Cashier’s Check
Minimal fees, as low as $1	Higher fees that can equal $10 or more
Generally have a maximum limit amount of $1,000	No limit on amount
Backed by the outlet where you purchased the money order	Backed by the bank
Can be purchased more widely	Can only be purchased at a bank or credit union
Must be bought in person	May be purchased through a bank’s online portal
The ‘pay to’ line is blank so payer must fill in this information or else anyone can cash it	Recipient’s name is filled out by the bank or credit union cashier so the check can only be cashed by the payee
No expiration date	May have an expiration date depending on the bank or local laws

Pros and Cons of Cashier’s Checks

Next, take a closer look at the pluses and minuses of cashier’s checks. First, the pros:

•   Available in higher dollar amounts

•   Higher security because it’s guaranteed by a bank

•   May be purchased through a bank’s website.

Next, the cons:

•   Not as widely accessible because you can only obtain at banks or credit unions

•   Harder to get at a bank if you’re not a customer

•   Higher fees than money orders.

Pros and Cons of Money Orders

Here’s a closer look at money orders and their benefits and downsides. First, the pros:

•   Useful for people who don’t have a bank account

•   Can be purchased with cash or another type of payment such as a credit or debit card

•   Lower fees make it less expensive than a cashier’s check

•   More widely and readily available.

And, on the other hand, the cons:

•   Typically can only be purchased up to $1,000

•   Must get them in person

•   May not be able to deposit through mobile banking

•   Can be cashed by anyone if you don’t fill out the ‘payment to’ line.

The Takeaway

Both cashier’s checks and money orders are a form of prepaid payment, which makes the funds guaranteed so you don’t have to worry about a bounced check. Whether you use a money order or a cashier’s check as a payment depends on many factors, including the size of the payment you’re making, if you have a bank account, and the outlet you choose to make the purchase. Taking into the account of the pros and cons of each can help you make the decision of which method is right for you.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Are a cashier’s check and a money order the same?

No. While both are prepaid forms of payment and therefore guaranteed not to bounce, a cashier’s check can only be obtained at a bank or credit union, while money orders are more widely available at other venues including post offices, check cashing places, and various retailers. Cashier’s checks are better for large purchases or deposits since there’s no monetary limit, while money orders often have a maximum limit of $1,000.

Why would someone use a money order instead of a cashier’s check?

People who choose to use a money order may not have a bank account, could be paying a bill or a debt less than $1,000, or might want to avoid the higher fees associated with a cashier’s check.

How quickly do money orders and cashier’s checks clear?

In most cases, funds from deposited money orders and cashier’s checks can be available the next business day. If the bank suspects there might be fraud involved, however, it could be several weeks.

Photo credit: iStock/Fly View Productions

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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