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Getting mortgage preapproval can give you an edge in the home-buying process, especially when the housing market is tight. A mortgage preapproval from a lender lets sellers know that you have tentatively been approved for a specific loan type and amount. Not only does this show them that you’re a serious home shopper, it also helps give you a good sense of your budget as you go house-hunting.

Here, you’ll learn the ins and outs of how to get preapproved for a home loan.

What Is Mortgage Preapproval?

Mortgage preapproval involves a thorough review of your credit and financial history. If you look like a good candidate for a mortgage, a lender will issue a letter stating that you qualify for a loan of a certain amount at a certain interest rate. The letter is an offer — but not a commitment — to lend you a specific amount. It’s good for up to 90 days, depending on the lender.

You’ll want to shop for homes within the price range of your preapproved mortgage. Armed with your preapproval for a home loan, you can show sellers that you are a serious buyer with the means to purchase a property. In the eyes of the seller, preapproval can often push you ahead of other potential buyers who have not yet been approved for a mortgage and make it easier to compete when there are multiple offers on a house.

Once you find a house that you want to buy, you can make an offer immediately based on the loan amount for which you are preapproved. And if the seller accepts, it will be time to finalize your mortgage application. At this point, a loan underwriter will review your application and conduct other due diligence measures, such as having the house appraised to make sure it is valued at the price it’s selling for. If all goes well, the lender will issue another letter called a commitment letter, which officially seals the deal on your loan, and you can schedule a closing date.

When Should I Get Preapproved for a Home Loan?

Preapproval typically lasts for 90 days, at most, so you want to seek it when you are actively in the market for a new home. Maybe you’ve done some initial online research into available properties. Ideally, you’ve also had a good look at your finances and thought about how much you have available to spend on a down payment as well as what monthly mortgage payments you can afford long-term. It takes around 10 days after you submit a request to be preapproved, so factor that timing into your house search as well.

Mortgage Preapproval vs. Prequalification

If you are house hunting, you will likely hear two different terms regarding early mortgage moves: prequalification vs. preapproval. Prequalification is a simple, less involved look at your financial qualifications for a mortgage. Preapproval for a home loan is a more in-depth review of your finances and an indicator that your loan application will likely move forward smoothly. Each has its advantages — and its moment.

Mortgage Prequalification

Getting prequalified for a home loan involves a review of a few financial details — usually self-reported — such as income, assets, and debt. The lender will then estimate what size mortgage you can afford.

Pros of Mortgage Prequalification

•   It’s fast. The process can often be done in minutes, by phone or online.

•   You’ll zero in on house prices. Prequalifying for a home loan quickly gives you an idea of what your monthly payment might be and how much house you can afford.

•   You can shop around. You can prequalify with multiple lenders to see what types of terms and interest rates they offer.

•   It’s easy on your credit score. Prequalification will not affect your credit score because it only requires a “soft inquiry” into your credit record.

Cons of Mortgage Prequalification

•   It’s no guarantee. Because it is an unverified, high-level look at your finances, prequalification doesn’t ensure that you will actually qualify for a mortgage.

•   It won’t help you bargain. Being prequalified won’t help you negotiate a lower price with a seller or compete against other bidders in a competitive market.

Mortgage Preapproval

Requesting a mortgage preapproval is a more complicated process than getting prequalified. You’ll have to fill out an application with your chosen lender and agree to a credit check. The credit check will be a “hard pull” which will ding your credit score by a few points. You’ll also provide information about your income and assets. The evaluation process can take 10 days or more. Again, preapproval doesn’t mean it’s a done deal that you’ll get the loan, but it is a solid indication of your financial situation and ability to purchase a home.

There are a number of advantages to getting preapproval for a home loan, especially if you’re shopping in a fast-moving market.

Pros of Mortgage Preapproval:

•   It gives you an edge. Sellers will see that you are a serious buyer and have assurance that your financing won’t fall through and sink the deal.

•   It helps you get loan shopping done. When you’ve found your dream house, you don’t want to delay putting in an offer because you have to spend time getting your documents together and pursuing a loan. Going through the preapproval process helps you take care of these details before you’re in a fast-moving situation.

Cons of Mortgage Preapproval:

•   A mortgage preapproval expires. How long does a mortgage preapproval last? As noted above, the letter is only good for a certain period of time, usually 90 days, so you’ll want to make sure you’re seriously ready to start shopping once you have your mortgage preapproval in hand.

•   The application is time-consuming. You’ll need to provide a lot of documentation to get a mortgage preapproval and agree to a hard credit inquiry, which can drag down your credit score, though usually only by a bit.

•   Nothing is guaranteed. Even though your home loan preapproval letter likely has details on your loan amount and type, it is only a tentative approval — you still can’t be 100% sure that you will get the loan.

Here are the basic comparison points of prequalification vs. preapproval:

The Difference Between Prequalification and Preapproval

	Prequalification	Preapproval
Process	•   Simple process that takes only a few minutes online or by phone.	•   You’ll fill out a thorough application and provide documents. The process can take 10 days or more.
Required materials	•   High-level financial details you provide; sometimes a “soft” credit check that won’t impact your rating.	•   Full application and supporting financial documents, as well as a “hard pull” credit check that will ding your rating.
Benefits	•   Can give you an idea of what you can afford as you start the process. •   Lets you compare lenders and rates.	•   Tentatively approves you for a loan amount and type. •   Can provide leverage when you’re ready to get serious about buying.
Drawbacks	•   Won’t give you an advantage in negotiations or a bidding war. •   It’s no guarantee you’ll get a mortgage.	•   Preapproval is good for 90 days so your home-finding timeline may be affected. •   Does not guarantee you’ll get the loan.

Steps to Get Preapproved for a Home Loan

Getting preapproved for a home loan will take some time, so it’s good to get the process started before you are ready to make an offer on a home. Here are some important steps along the way.

Check Your Credit Score

If you’ve established a credit history, a first step before applying for a mortgage is to check your credit reports, which are a history of your credit compiled from sources like banks, credit card companies, collection agencies, and the government.

The information is collected by the three main credit reporting bureaus: TransUnion®, Equifax®, and Experian®. You’ll want to make sure that the information on your credit reports is correct. Ordering the reports is free once a week through AnnualCreditReport.com.

If you find any mistakes in your credit reports, contact the credit reporting agencies immediately to let them know. You don’t want any incorrect information weighing down your credit score, putting your chances for preapproval at risk.

The free credit reports provided by the nationwide credit reporting agencies do not include your credit score, a number typically between 300 and 850. You can purchase your score directly from the credit reporting agencies, or from FICO®. Your credit card company also may provide your credit score for free, or you could try a money tracker app that updates your credit score weekly and tracks your spending at no cost.

Calculate Your Potential Mortgage

To help with the prequalification and preapproval process, use the mortgage calculator below to see what your estimated monthly mortgage would be based on down payment, interest rate, and loan terms.

Gather Documentation

Your credit score is only one of many factors a potential lender will consider when deciding on your mortgage qualification. So collect the many other documents you will need to paint a full picture of your financial life. Ask the lender what is needed, specifically. The list will likely include:

•   Recent pay stubs

•   Recent bank and investment account statements

•   Two years of tax returns and/or W2s, possibly more if you are self-employed

•   Verification of alimony or child support payments received and the court documents spelling out the terms of the payments

•   Social Security award letter, if you derive income from Social Security

•   Certificate of Eligibility from the VA, if you are applying for a VA loan

•   Gift letter documenting any money you are receiving from family or other sources toward a down payment

Receive Your Mortgage Preapproval Letter

Your first instinct when you receive preapproval will likely be to jump for joy. But next, take a moment to ask the lender if they made any assumptions about your finances in order to issue the letter, or if they flagged anything that could lead to you being denied a mortgage later on or that could increase your costs. Doing this could help you head off future problems that might scuttle a deal.

Upping Your Odds of Mortgage Preapproval

There are a number of steps you can take to improve your chances of preapproval or to increase the amount your lender may approve you for.

Build Your Credit

When you apply for any type of loan, lenders want to see that you have a history of properly managing your debt before they offer you credit themselves.

You can build your credit history by opening and using a credit card and paying your bills on time. Or you could consider having regular payments, such as your rent, tracked and added to your credit score.

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

Stay on Top of Debt

Your ability to pay your bills on time has a big impact on your credit score. If your budget allows, you should aim to make payments in full.

If you have any debts that are dragging down your credit score — for example, debts that are in collection — it’s smart to work on paying them off first, as this could help build your score.

“Really look at your budget and work your way backwards,” explains Brian Walsh, CFP® at SoFi, on planning for a home mortgage.

Recommended: Fixed-Rate vs. Adjustable-Rate Mortgages

Watch Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is your monthly debt payments divided by your monthly gross income. If you have $1,000 a month in debt payments and make $5,000 a month, your DTI ratio is $1,000 divided by $5,000, or 20%.

Mortgage lenders typically like to see a DTI ratio of 36% or less. Some may qualify borrowers with a higher DTI, up to 43%. Lenders may assume that borrowers with a high DTI ratio will have a harder time making their mortgage payments.

If you’re seeking preapproval for a mortgage, it may be beneficial to keep the ratio in check by avoiding large purchases. For example, you may want to hold off on buying a new car until you’ve been preapproved.

Prove Consistent Income

Your lender will want to know that you have enough money coming in each month to cover a potential mortgage payment, so the lender will likely want proof of consistent income for at least two years (that means pay stubs, W-2s, etc.).

For some potential borrowers, such as freelancers, this may be a tricky process since they may have income from various sources. Keep all pay stubs, tax returns, and other proof of income, and be prepared to show those to your lender.

What Happens If Your Mortgage Preapproval is Rejected?

Rejection hurts. But if you aren’t preapproved or you aren’t approved for a large enough mortgage to buy the house you want, you also aren’t powerless. You can ask the lender why it said “no.” This will give you an idea about what you might need to work on in order to secure the mortgage you want.

Then you may want to work on the factors that your lender saw as a sticking point to preapproval. You can continue to work to build your credit score, lower your DTI ratio, or save for a higher down payment.

If you’re able to pay more upfront, you will typically lower your monthly mortgage payments. Once you’ve worked to make yourself a better candidate for a mortgage, you can apply for preapproval again.

Dream Home Quiz

The Takeaway

In a competitive market, having a mortgage preapproval letter in hand may give a house hunter an edge. After all, the letter states that the would-be buyer tentatively qualifies for a home loan of a certain amount.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What happens during the preapproval process?

During the mortgage preapproval process, you’ll provide lots of background information on your finances. A potential lender will also check your credit score. If the lender feels you’re a suitable candidate for a loan, you’ll receive a letter that you can show a seller to potentially better your chances when making an offer on a home.

Do preapprovals hurt your credit score?

The lender will do a “hard pull” to obtain your credit score prior to a preapproval. This may cause your rating to drop by a few points, but it should rebound quickly if you pay your bills on time.

How far in advance should I get preapproved for a mortgage?

Get preapproved for a mortgage when you have a sense of the housing costs where you are shopping for a home, and you are ready to start looking in earnest.

Which is better: preapproval or prequalification?

Prequalification and preapproval each have a place in the homebuying process. Prequalification is helpful when you are trying to get a sense of what you can afford and which lender might offer the best terms. It’s time for preapproval when you are serious about searching for a home and have researched possible lenders.

Is it OK to get multiple preapprovals?

You only need one preapproval, but it is fine to get a few if you want to see what loan amounts and rates you might qualify for. Make all applications within a 45-day window — the time frame during which multiple lenders can check your credit without each check having an additional impact on your score.

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

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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

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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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 (HELOC). What is a HELOC? Well, for starters, it’s different from a home equity loan. But like a home equity loan, it can help you finance a major renovation or cover 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 how a HELOC 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 90% of your home’s value, minus whatever you may still owe on your mortgage. (You can roughly calculate home equity before you apply for a HELOC by using online property estimates; ultimately your lender will likely do an appraisal.)

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 applying.

Here’s a look at what is a HELOC good for:

•   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 cost of a bathroom remodel topped $12,000 in 2025 according to Angi, while a kitchen remodel was, on average, almost $27,000.

•   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 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, and the basics of how does a HELOC work, 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.

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

How to Get a Home Equity Line of Credit

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 often and by how much 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?

A HELOC is distinguished from other types of loans by its two-phase payment structure. During the first stage of your HELOC (the draw period), you can borrow against your credit line, up to the approved ceiling, but you may be required to make only minimum payments. These are often interest-only payments. (Of course, if you choose to repay all that you owe, you can then borrow against the entire credit line again, and again, up to the end of the draw period.)

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

Interest-Only vs. Principal and Interest Payments

After the draw period ends and the repayment period begins, you’ll begin making monthly payments that, similar to a home mortgage loan, include both principal and interest. For some borrowers, the end of the interest-only period can be a bit of a shock to the budget, so make sure you are prepared and know when the draw period is ending (often at the 10-year mark). A HELOC repayment calculator can help you understand what your payments might be based on how much you borrow.

Remember that if you have a variable-rate HELOC, your monthly payment will 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:

1. 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 rate for a $100,000 HELOC in March 2025 was 7.61%.

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.

2. 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.

3. 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:

1. 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 affordable (or more!).

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

2. 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.

3. 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.

4. 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.

Alternatives to HELOCs

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

1. Cash-Out Refi

With a cash-out refinance, you replace your existing mortgage with a new mortgage based on 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

2. Home Equity Loan

HELOCs and home equity loans are often confused. Both are second mortgages (assuming you still have your first mortgage) that allow you to borrow against your home equity. The key difference in the HELOC vs. home equity loan comparison: With a home equity loan, you get a lump sum all at once and begin repaying what you owe (principal plus interest) immediately. A HELOC, as noted above, works more like a credit card. You borrow what you need in increments before you reach your repayment term.

Another difference: Home equity loans almost always come with a fixed interest rate, which allows for consistent monthly payments. HELOCs typically have a variable rate.

3. 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.

4. Reverse Mortgage

If you are 62 or older, a reverse mortgage could allow you to turn part of your home equity into cash. Funds can be paid out as a lump sum, a monthly payment, or available as a line of credit, and are repaid when the home is sold. Borrowers who want a reverse mortgage usually turn to a home equity conversion mortgage, or HECM, which has fairly rigid standards. All owners must be at least age 62, and the home must be paid off or largely paid for.

Note: SoFi does not offer home equity conversion mortgages (HECMs) at this time.

5. Bridge Loan

A short-term bridge loan lets owners use the equity in their existing home to help pay for a home they’re ready to purchase. A bridge loan is secured by the first home and typically issued by a lender who will be the lender on their new mortgage. If you’re buying and selling a home at the same time, a bridge loan might be an appropriate way to help cover costs in the transitional period, such as when closing dates on the two properties don’t align.

Note: SoFi does not currently offer bridge loans for home financing.

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

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

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, after any mortgage principal is paid off.

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.

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According to the Federal Trade Commission (FTC), consumers reported losing close to $12.5 billion to fraud in 2024 vs. $8.8 billion to fraud in 2022, reflecting a tremendous increase. Many of people’s losses were the result of various types of bank account fraud.

Crooks are getting ever more sophisticated in the ways they steal money from financial institutions or their account holders. There are few things as upsetting as seeing your bank account emptied or your credit card used for thousands of dollars in purchases by a scammer.

So if you have a financial life, you’ll want to be on alert and do what you can to protect yourself and your hard-earned money. Here’s help.

What Is Bank Fraud?

Bank fraud is the use of deceptive, often illegal means to steal money, assets, or other property owned or held by a financial institution. It also entails stealing money from people just like you, who keep money on deposit in their bank accounts or use other financial products at banks.

Bank fraud also includes being defrauded of money by criminals who pose as employees of a financial institution.

Bank fraud is different from bank robbery; with fraud, thieves use schemes or deception to snag funds illegally, versus perpetrating outright theft.

Types of Bank Fraud

Unfortunately, bank fraud comes in many varieties, all the better to fool financial institutions and consumers. The law provides a broad definition of bank fraud, and several of these actions can be considered for federal prosecution.

Here’s a look at the six most common types of fraud in banks. Money scams are all too common today; knowledge can help protect you and your funds.

1. Forgery

Forgery includes all forms of using a false signature or other details on financial documents. This includes when a person changes the name, signature, or other information on a check, including the amount (think adding a zero — or two or three). Forgery is also the term used for filling out a blank check or printing fraudulent checks with another person’s account number or a number for a non-existent account.

2. Fraudulent Loans

It is a crime when someone uses a false identity to obtain a loan. This can happen when, say, identity thieves take out loans using victims’ personal and financial information.

Another type of fraudulent loan: When a person takes out a loan with the intention of filing for bankruptcy soon thereafter. This might occur when a dishonest business person works with a complicit bank officer to get a loan. The borrower then declares bankruptcy, often leaving the bank on the hook for the money borrowed.

Fraudulent loans also occur when someone falsifies answers on a personal or business loan application, usually in an effort to improve their chances of qualifying for the loan. An individual may try to hide a blemished credit history, for example, or a business may use accounting fraud to paint a more positive financial picture. As you might guess, this is criminal activity and can leave the lending bank in a bad situation.

3. Bank Impersonation and Internet Bank Fraud

When a person or group of people set up a fake financial institution, that’s known as bank impersonation. When such thieves hack into your account and steal money, whether by impersonation or otherwise, that’s internet bank fraud. Typically, this kind of crime is usually committed by creating a website designed to lure people into depositing funds.

Fake websites like this can also trick you into downloading computer viruses that can steal your personal information, such as your bank account details. These details are then used to rob you of your hard-earned money

Many phishing schemes also come under the umbrella of bank impersonation or internet bank fraud. In these crimes, consumers receive forged emails impersonating an online bank; they then direct the unwitting recipient to a forged website that looks like a legitimate bank site. From there, the bogus site will ask the user to update personal information. That information can be used for identity theft and other crimes.

Recommended: APY Calculator

4. Stolen Checks

Stealing checks is a crime that plays out just as it sounds. Someone at, say, the post office, a company’s payroll department, or anybody else with access to checks may steal those checks. From there, they can open a false bank account, write checks (depleting the account holder’s cash), and deposit them. The cash is then available for them to use as they desire.

5. Money Laundering

This term is used to describe the process criminals use to hide an illegal (or “dirty”) source of income — say from illegal drug smuggling or gambling operations — through a complex series of transfers. These transactions are designed to make the “dirty” money look legitimate, or “clean,” hence the term money laundering. A bit of trivia: Many people believe the term money laundering comes from gangster Al Capone’s habit of using his chain of laundromats to “launder” his illegal cash. This tale however probably isn’t true.

Now, here’s how the crime of money laundering can work: Often the “dirty” money is first deposited into a bank through a restaurant or other legitimate business. Say that business actually did $1,000 worth of sales in a single day but they say they did $2,000. They then deposit the “real” $1,000 they earned plus the same amount of “dirty” money.

Next, to avoid taxes and detection, the money is distributed to other legitimate businesses or complicit companies, or is otherwise subjected to bookkeeping trickery. Multiple transactions can make the money hard to trace, and so it becomes “clean” enough to be used as the fraudster likes.

Banks may unwittingly or possibly complicitly play a role in many stages of money laundering, which is a severe form of fraud.

6. Credit Card Fraud

This term covers a slew of crimes; it refers to all fraudulent payments made with a credit or debit card. The bogus payments may be used to purchase goods and services, to withdraw funds from the account, or to make payments to another account controlled by a criminal. Fraud may happen by stealing the actual credit or debit card or by illegally obtaining the cardholder’s account and personal information.

The latter has become more common as online shopping and bill paying has soared, since there is no longer a need to have a physical card to make purchases. This is why you can still be in possession of your plastic, but be having all sorts of false charges turn up on your statement. As long as criminals can obtain enough personal information about an individual, they can use that information to open new credit card accounts or tamper with existing accounts.

Fortunately, thanks to the Fair Credit Billing Act, your liability for unauthorized charges should be capped at $50.

How Do Banks Recover Money That Was Fraudulently Taken?

When bank security personnel notice unusual transactions or a customer reports suspicious account activity, banks will typically conduct an investigation. Their goal: To confirm whether fraud exists and, if so, to uncover its details and take legal action against the perpetrators. Once a bank has determined fraud has taken place, most banks will refund stolen funds to customers. This happens as long as it is clear the customer is not an accessory to the crime or was not negligent with account security. In addition, you may want to report the crime to the authorities so they can work on finding and prosecuting those who stole your money. Some banks may require this, in fact, as a step towards catching the criminals.

What to do if you, the consumer, is defrauded of funds? Contact your financial institution’s fraud department and share what has happened. The representative will walk you through the steps required. Remember, the more quickly you alert your bank to any issues or report identity theft, the more likely you are not to lose any money.

Prosecuting fraud is complicated, time-consuming, and unfortunately sometimes impossible. As a result, many banks put extensive efforts into technological security solutions. These card fraud protection measures can help identify fraud quickly to avoid large losses as well as ward off many types of criminal activity in the first place.

Penalties for Bank Fraud

Bank fraud is a serious crime with serious penalties. How serious depends on how much money was stolen and what type of illegal activity was used to steal the money. It must also be proven that a person charged with bank fraud willfully and knowingly committed the crime.

A conviction of money laundering or other types of bank fraud can involve significant fines as well as prison sentences.

How to Avoid Bank Fraud

There are several steps you can take to avoid having money stolen from your accounts in a bank fraud scheme. Here are some of the most important.

•   Check your account activity regularly. With online banking, this is easy to do. It’s a good idea to log in at least once a week so you evaluate your bank accounts and your debit card and credit card histories. Report any unexpected or suspicious transactions. While you’re at it, why not make sure your bank offers debit card fraud protection, too? It’s important to secure that aspect of your banking.

•   Keep your PIN and passwords secret. Do not give them to anyone and never write them down in an email or text message that could be easily intercepted. Avoid using public wifi networks for any banking, from checking your balance to paying bills. You could be leaving yourself vulnerable.

•   Use a strong password for online banking. And everything else for that matter. Remember to use numbers, capital letters, and symbols. Change passwords regularly, and please: Don’t reuse passwords.

•   Beware phishing schemes. Do not give out your account information over the phone or through email. Anyone legitimate would not be asking for account information by either means. Don’t click links embedded in emails either; they could lead to a fraudulent website posing as your bank. If you receive an email that looks as if it is legitimately from your bank, it’s still better to visit your bank’s website and proceed from any message you receive there.

•   Keep your computer protected. Use anti-virus protection software, firewalls, and spyware blockers to protect your electronic information. Make sure you keep your computer updated with the most recent security upgrades.

The Takeaway

Bank fraud is a criminal activity that can leave you with a big mess to clean up: It can put you at risk for losing money and facing identity theft. Understanding the different types of bank fraud is one important step; knowing how to secure your personal financial information is another one. These moves can help protect you from being a victim. Also double-check that your bank has state-of-the-art security measures.

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 3.80% APY on SoFi Checking and Savings.

FAQ

How does bank fraud happen?

Bank fraud happens when criminals use deceptive means to steal money, assets, or property owned or held by a financial institution, including banks. It is also considered bank fraud when thieves steal money from customer accounts by posing as a bank or other financial institution or by using personal financial information obtained through identity theft.

How do banks recover money from a scammer?

It is challenging for banks to recover money from a scammer. They can seek to unravel who committed the crime and, with the help of law enforcement, prosecute those individuals. Because this is often so difficult, though, banks also are implementing new, technologically advanced ways of preventing and detecting fraud. This allows them to better protect their account holders.

What is internal fraud?

Internal fraud is fraud that occurs inside a business. It is perpetrated by those who work at the company. While rare, it can have a large impact on everything from travel and expenses to procurement.

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Photo credit: iStock/Damir Khabirov

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

This article is not intended to be legal advice. Please consult an attorney for advice.

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