You may feel proud of yourself for paying off a debt early, but doing so could trigger prepayment fees (ouch). The best way to avoid those charges is to read the fine print before you take out a loan that involves this kind of fee.
If you neglected to do that, however, it doesn’t necessarily mean you’re stuck with a prepayment penalty. Read on to learn ways to avoid paying loan prepayment penalties.
• Prepayment penalties charge fees for early loan repayment, often to recoup lost interest income.
• Reviewing loan terms and conditions helps identify and avoid prepayment penalties.
• Early repayment might incur penalties based on interest, balance percentage, or flat fees.
• Prepayment penalties are more common in mortgages than in personal loans.
• Loan documents should be reviewed for prepayment clauses, and negotiation or partial payments can help.
What Is a Prepayment Penalty?
A prepayment penalty is when a lender charges you a fee for paying off your loan before the end of the loan term. It can be frustrating that a lender would charge you for paying off a loan too early. After all, many people may think a lender would appreciate being repaid as quickly as possible.
While that’s true in theory, in reality, it’s not that simple. Lenders make most of their profit from interest, so if you pay off your loan early, the lender is possibly losing out on the interest payments that they were anticipating. Charging a prepayment penalty is one way a lender may recoup their financial loss if you pay off your loan early.
Lenders might calculate the prepayment fee based on the loan’s principal or how much interest remains when you pay off the loan. The penalty could also be a fixed amount as stated in the loan agreement.
Can You Pay Off a Loan Early?
Say you took out a $5,000 personal loan three years ago. You’ve been paying it off for three years, and you have two more years before the loan term ends. Recently you received a financial windfall and you want to use that money to pay off your personal loan early.
Can you pay off a personal loan early without paying a prepayment penalty? It depends on your lender. Some lenders offer personal loans without prepayment penalties, but some don’t. A mortgage prepayment penalty is more common than a personal loan prepayment penalty.
The best way to figure out how much a prepayment penalty would be is to check a loan’s terms before you accept them. Lenders have to be upfront about how much the prepayment penalty will be, and they’re required by law to disclose that information before you take on the loan.
Personal Loan Prepayment Penalty
If you take out a $6,000 personal loan to turn your guest room into a pet portrait studio and agree to pay your lender back $125 per month for five years, the term of that loan is five years. Although your loan term says it can’t take you more than five years to pay it off, some lenders also require that you don’t pay it off in less than five years.
The lender makes money off the monthly interest you pay on your loan, and if you pay off your loan early, the lender doesn’t make as much money. Loan prepayment penalties allow the lender to recoup the money they lose when you pay your loan off early.
Mortgage Prepayment Penalty
When it comes to different types of mortgages, things get a little trickier. For loans that originated after 2014, there are restrictions on when a lender can impose prepayment penalties. If you took out a mortgage before 2014, however, you may be subject to a mortgage prepayment penalty. If you’re not sure if your mortgage has a prepayment penalty, check your origination paperwork or call your lender.
Checking for a Prepayment Clause
Lenders disclose whether or not they charge a prepayment penalty in the loan documents. It might be in the fine print, but the prepayment clause is there. If you’re considering paying off any type of loan early, check your loan’s terms and conditions to determine whether or not you’ll have to pay a prepayment penalty.
How Are Prepayment Penalties Calculated?
The cost of a prepayment penalty can vary widely depending on the amount of the loan and how your lender calculates the penalty. Lenders have different ways to determine how much of a prepayment penalty to charge.
If your loan has a prepayment penalty, figuring out exactly what the fee will be can help you determine whether paying the penalty will outweigh the benefits of paying your loan off early. Here are three different ways the prepayment penalty fee might be calculated:
1. Interest costs. If your loan charges a prepayment penalty based on interest, the lender is basing the fee on the interest you would have paid over the full term of the loan. Using the previous example, if you have a $6,000 loan with a five-year term and want to pay the remaining balance of the loan after only four years, the lender may charge you 12 months’ worth of interest as a penalty.
2. Percentage of balance. Some lenders use a percentage of the amount left on the loan to determine the penalty fee. This is a common way to calculate a mortgage prepayment penalty fee. For example, if you bought a house for $500,000 and have already paid down half the mortgage, you might want to pay off the remaining balance in a lump sum before the full term of your loan is up. In this case, your lender might require that you pay a percentage of the remaining $250,000 as a penalty.
3. Flat fee. Some lenders simply have a flat fee as a prepayment penalty. This means that no matter how early you pay back your loan, the amount you’ll have to pay will always be the prepayment penalty amount that’s disclosed in the loan agreement.
Trying to avoid prepayment penalties can seem like an exercise in futility, but it is possible. The easiest way to avoid them is to take out a loan or mortgage without prepayment penalties. If that’s not possible, you may still have options.
• If you already have a personal loan that has a prepayment penalty, and you want to pay your loan off early, talk to your lender. You may be offered an opportunity to pay off your loan closer to the final due date and sidestep the penalty. Or you might find that even if you pay off the loan early and incur a penalty, it might be less than the interest you would have paid over the remaining term of the loan.
• You can also take a look at your loan origination paperwork to see if it allows for a partial payoff without penalty. If it does, you might be able to prepay a portion of your loan each year, which allows you to get out of debt sooner without requiring you to pay a penalty fee.
For example, some mortgages allow payments of up to 25% of the purchase price once a year, without charging a prepayment penalty. This means that while you might not be able to pay off your full mortgage, you could pay up to 25% of the purchase price each year without triggering a penalty.
Some lenders shift their prepayment penalty terms over the life of your loan. This means that as you get closer to the end of your original loan term, you might face lower prepayment penalty fees or no fees at all. If that’s the case, it might make sense to wait a year or two until the prepayment penalties are less or no longer apply.
When it comes to your money, you don’t want to make any assumptions. You still need to do your due diligence by asking potential lenders if they have a prepayment penalty. The Truth in Lending Act (TILA) requires lenders to provide documentation of any loan fees they charge, including a prepayment penalty. Also, under the TILA, consumers have the right to cancel a loan agreement within three days of closing on the loan without the lender taking any adverse action against them.
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The Takeaway
A prepayment penalty is one fee that can be avoided by asking questions of the lender and looking at the loan documents with a discerning eye. This may hold true both when you are shopping for a loan and when you are paying your loan off.
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If you carry some debt, you’re not alone. The total household debt in the U.S. rose to $18.59 trillion in the third quarter of 2025, according to the latest statistics from the Federal Reserve Bank of New York.That includes everything from mortgages to credit card balances to student loans.
If you’re among the ranks of those with outstanding debt and want to pay it off, here are strategies to help you do just that.
Key Points
• Outstanding debt represents any unpaid balance owed to a creditor; tracking all debts is a crucial first step to understanding the total amount.
• An expedited debt repayment plan is beneficial when monthly payments are unmanageable, interest rates and/or fees are high, or you need to free up funds.
• Two widely used strategies for debt repayment are the debt snowball and debt avalanche, both emphasizing focused attention on one debt source.
• Debt consolidation personal loans and balance transfer credit cards can be smart options for eligible individuals.
• Finding the best debt repayment method depends on individual circumstances, with options ranging from consolidation loans to credit counseling.
What Is Considered Outstanding Debt?
Outstanding debt refers to any balance on a debt that has yet to be paid in full. It is money that is owed to a bank or other creditor.
When calculating debt that’s outstanding, you simply add all debt balances together. This could include credit cards, student loans, mortgage loans, payday loans, personal loans, home equity lines of credit, auto loans, and others. You should be able to find outstanding balance information on your statements.
Types of Outstanding Debt
Outstanding debt can take a few different forms. Here are some key types to know about:
• Secured debt: This is debt that’s backed by an asset or collateral. For instance, with a mortgage, your home is the collateral; with an auto loan, your car secures the loan. If you default on your loan, the lender may seize your collateral.
• Unsecured debt: This is a debt that is not backed by collateral. The lender offers you money, to be paid back with interest, based on their evaluation of your creditworthiness. Examples of this kind of debt include most personal loans as well as credit card balances.
• Revolving debt: With this kind of debt, you can borrow up to a certain limit. Credit cards and HELOCs (home equity lines of credit) are examples of this kind of debt. If, say, you have a $10,000 limit and you spend $9,000 of it, you only have $1,000 remaining to access. But if you make a payment of $3,000 toward your debt, you’ll have $4,000 available to spend.
• Installment debt: With installment debt, the lender disburses a lump sum, which the borrower pays back over time with interest. Examples of this kind of outstanding debt include mortgages and personal loans.
When paying off outstanding debt, a good first step is to track it all down and account for it to understand the total.
As you move through your debt payoff journey, you may find it helpful to start a file (hard copies or digital) for your statements and correspondence. Also, you could create a list or input information into a spreadsheet. Organizing your information is necessary for building a debt payoff strategy.
It can be a good idea to build a list of all debts with the most useful information, such as the outstanding balance, the interest rate, the monthly payment, the type of debt, and the creditor. If you have an installment loan, such as a personal loan, the principal amount of the loan is another helpful piece of information.
What If I Can’t Find All My Outstanding Debts?
If you feel as though you’ve lost track of some debts, you may want to start by requesting a credit report.
Checking Credit Reports and Account Statements
In this case, you’ll want to get your credit report from at least one of the three major reporting agencies, Experian®, TransUnion®, or Equifax®. You are currently legally entitled to one free copy of your credit report from each of the three agencies per week. It’s easy to request a credit report from AnnualCreditReport.com.
(If you’re curious about just your score, you might also see if your financial institution offers credit score monitoring. This could be an easy way to keep tabs on your creditworthiness.)
A credit report includes information about each account that has been reported to that particular agency, including the name of the creditor and the outstanding debt balance.
It is possible that some outstanding debts may have been sold to a collection agency. The name of the original creditor may be included on the credit report. Some outstanding debts, however, may not appear on a credit report. Creditors are not required to report to the agencies, but most major creditors do. That said, a creditor could choose to report to none, one, two, or all three of the agencies. If you’re in information-collecting mode, you may want to consider requesting reports from more than one agency or from all three.
Another step in accounting for outstanding debt is to review all the account statements that may come your way, scan your checking account statements for automatic withdrawals (for example, for any payment plans you may have forgotten about), and review payment apps. This can help you see what debt you are carrying.
Outstanding Debt Amounts
Aside from how a debt is structured — revolving or installment debt; installment or lump sum — it can also be thought of as “good” debt or “bad” debt.
• Good debt: Generally, if borrowing money (and thus incurring debt) enhances your net worth, it’s considered good debt. A mortgage is one example of this. Even though you might incur debt to purchase a home, the value of the home will likely increase. As it does, and as you pay down the mortgage balance, your net worth has the potential to increase.
• Bad debt: On the other hand, if debt taken on to purchase something that will depreciate, or lose value, over time, that is considered bad debt. Going into debt to purchase consumer goods, such as cars or clothing, will not enhance your net worth.
In terms of how much outstanding debt is too much, know this: Each person has a unique financial situation, level of comfort with debt, and ability to repay debt. What one person may be able to justify may be completely unacceptable to another.
How Does an Outstanding Debt Impact Your Credit?
Outstanding debt can impact your credit in a few ways. Here’s a closer look.
Debt-to-Income Ratio (DTI)
During loan processing, lenders may consider the applicant’s debt-to-income ratio (DTI), which compares how much you owe each month to how much you earn. Lenders will often look at this number to determine their potential risk of lending. Different lenders have different stipulations about this ratio, so asking a potential lender about theirs is a good idea.
Calculating DTI is done by dividing monthly debt payments by gross monthly income.
• Monthly debt payments can include rent or mortgage payment, homeowners association fee, car payment, student loan payment, and other monthly payments. (Typically, monthly expenses such as utilities, food, or auto expenses other than a car loan payment are not included in this calculation.)
• Gross income is the amount of money you earn before taxes and other deductions are taken out of your paycheck.
Someone with monthly debt payments of $2,000 and a gross monthly income of $8,000 would have a DTI of 25% ($2,000 divided by $8,000 is 25%).
Generally, a DTI of 35% or less is considered a healthy balance of debt to income.
Credit Utilization Ratio
Another way that debt impacts your credit: your credit utilization ratio. This ratio expresses how much of your revolving credit limit you are using. For instance, if your credit limit on your two credit cards totals $40,000 and you are carrying a balance of $10,000, your ratio is 25%. You are using a quarter of what is available.
Ideally, a person’s credit utilization would be 10% of less, but up to 30% is considered acceptable. Go over that amount, and lenders may see you as financially unstable and living beyond your means. This can negatively impact their willingness to extend more credit at a favorable rate.
Payment History and Delinquencies
Whether you pay your bills on time also impacts your credit. Making payments on time is the single most important factor when it comes to your credit score. It accounts for 35% of your rating. In fact, late (or delinquent) payments that are reported to the credit bureaus can stay on your report for seven years, although their impact can diminish over time if you make timely payments.
It can be wise to use autopay or set up reminders to ensure you don’t pay your creditors late or skip payments entirely.
Should I Pay Down Outstanding Debt?
Barring extenuating circumstances, it’s a good idea to make regular, consistent payments on your debt. Whether or not you decide to pay the debt back on an expedited schedule is up to you.
Some may not feel the need to aggressively tackle their outstanding debt. They may be just fine to continue paying off a balance until the loan’s maturity date. This may apply to people with manageable debt payments, those who have debts with lower interest rates, or those focusing on other financial goals.
For example, someone with a low-interest-rate mortgage loan may not feel the need to pay it down faster than the agreed-upon schedule. So they continue to make regular, scheduled payments that make up a manageable percentage of their monthly budget. Therefore, they are able to work on other financial goals in tandem, such as saving for retirement or starting a fund for a child’s college.
Other scenarios may call for a more aggressive strategy to pay down debt. Some reasons to consider an expedited plan:
• Your debt levels, and therefore monthly payments, feel unmanageable.
• You’re carrying debts with higher interest rates, like credit cards.
• You want to avoid missed payments and added fees.
• You simply want to have zero debt.
You’ll also want to keep in mind that carrying a large debt load could negatively affect your credit. One factor in a credit score calculation is the ratio between outstanding debt balances and available credit on revolving debt, like a credit card — the credit utilization rate.
Using no more than 30% of your available credit is recommended. So, if a person has a $5,000 credit limit on a card, that would mean using no more than $1,500 at any given time throughout the month. Using more could result in a ding on their credit score.
Carrying debt also means paying interest. While some interest may not be avoidable, it’s generally a sound financial strategy to pay as little in interest as possible.
Credit cards tend to have some of the highest interest rates on unsecured debt. The average interest rate on a credit card was almost 22% according to Experian as of November 2025. With high rates, it’s worth seriously considering paring back debt balances.
Two popular strategies for paying off debt are called the debt snowball and the debt avalanche. Both ask that you isolate one source of debt to focus on first.
Simply put, you’ll make extra payments or payments larger than the minimum monthly payment on that debt until the outstanding balance is eliminated. You’ll continue making the minimum monthly payment on all your other debts.
Debt Snowball
A debt snowball payoff plan involves listing all of your debt in order of size, from smallest to largest, ignoring interest rate. You then put extra funds towards the debt with the smallest balance, while making the minimum required payments on the rest. Once that debt is paid off, you put extra money towards the next-smallest debt, and so on.
The idea here is that there’s a psychological boost when a card is paid off, so it makes sense to go after the smallest first. That way, when a person works up to the card with the next highest balance, they can focus singularly on it, without a bunch of annoying, smaller payments getting in the way of the ultimate goal.
It’s called a snowball because the strategy starts small, gaining momentum as it goes.
Debt Avalanche
Alternatively, the debt avalanche method starts by listing debt in order of interest rate, from highest to lowest. You then put extra money towards the debt with the highest interest rate. Because this source of debt costs the most to maintain, it is a natural place to focus. Once that debt is paid off, you focus your extra payments towards the debt with the next-highest interest rate.
The debt avalanche is the debt payoff strategy of choice for those who prefer to look at things from a purely mathematical standpoint. For example, if a person has one credit card with a 27% annual percentage rate (APR) and another with a 22% APR, they’d focus on that 27% card with any extra payments, no matter the balance.
Of course, it is also possible to modify these strategies to suit personal preferences and needs. For example, if one source of debt has a prepayment penalty, maybe it drops to the bottom of the list. If there’s a particular credit card you tend to overspend with, perhaps that’s a good one to focus on.
Debt Consolidation Strategy
The two methods described above aren’t your only options. You might also pursue debt consolidation, in which you combine multiple debts into a single, more convenient loan, possibly with a lower interest rate.
For example, if you are carrying a balance on two or three credit cards, you might apply for a personal loan to pay off credit card debt. In this case, the debt consolidation loan, if approved, would be used to pay off the credit card balances. Then, instead of making monthly payments to the credit card companies, you would pay just your personal loan. This can simplify your financial life, and the new loan could offer a lower interest rate vs. credit cards.
Outstanding Debt Payoff Methods
Once you decide on a strategy, whether it’s one discussed above or something that works better for your financial situation, you’ll need to figure out where the money will come from to pay down outstanding debt.
A good first step is to simply list your monthly income and expenses. If you find that you have enough money to begin making extra payments toward your outstanding debt balances, then you might choose to start right away.
Some people choose to keep a 30-day spending diary to get a clear picture of what they spend their money on. This can be a good way to pinpoint areas you might be able to cut back on to have more money to apply to outstanding debt.
If your existing budget is already tight and won’t accommodate extra payments, you might consider looking for some other financial strategies.
Increasing Income
Sometimes the answer is to make more money. Granted, this can be easier said than done. But some people can get a part-time job, start a side hustle, or sell things they no longer need or want to raise cash. You might also think about looking for a new, higher-paying job or asking for a raise at your current job.
Using Personal Savings
Tapping into money you’ve saved can be another way to pay down outstanding debt. Savings account interest rates, even high-yield savings accounts, generally pay much less interest than you’re paying on your outstanding debts. Keeping enough money in a savings account as an emergency fund is recommended, but if you have a surplus in your personal savings, putting that money toward your debt balances is a good way to make headway on outstanding debt.
Consolidating With a Credit Card
Using a credit card to pay off debt may seem like an unwise choice, but it can make sense in some situations. If your credit score is healthy enough to qualify for a credit card with a zero- or low-interest promotional rate, you might consider transferring a higher-rate balance to a card like this.
The benefit of this strategy is having a lower interest rate during the promotional period, potentially resulting in savings on the overall debt.
There are some drawbacks to credit card balance transfers though. One is that promotional periods are limited, and if you don’t pay the balance in full during this period, the remaining debt will revert to the card’s regular rate. Also, it’s typical for a promotional-rate card to charge a balance transfer fee, which can range from 3% to 5%, or more, of the balance transferred. This fee will increase the amount you will have to repay.
Consolidating With a Personal Loan
As noted above, using one new loan to pay off multiple outstanding debt balances is another debt payoff method. A personal loan with a lower overall rate of interest and a straightforward repayment plan can be a good way to do this.
In addition to one fixed monthly payment, a debt consolidation loan provides another benefit — the balance cannot easily be increased, as with a credit card. It’s easy to swipe a credit card for an additional purchase, potentially undoing the progress you’ve made on your debt repayment plan.
To consolidate your outstanding debt with a personal loan, you might want to look around at different lenders to get a sense of what interest rates they might offer for you. Typically, lenders will provide a few options, including loans of different lengths.
Negotiating With Creditors
One other alternative is to reach out to creditors and try to negotiate with them. Some lenders may be interested in negotiating with borrowers who are struggling with debt. Doing so can help them recoup some if not all of the money they are owed. You might call your creditor, explain your situation, and see if they will reduce your interest rate, shift your loan terms, pause payments for a time, or otherwise help you pay what you can.
There are also debt settlement companies that are third parties. These offer to negotiate with creditors on your behalf, often advising clients to withhold payments for a period of time, which can cause their credit score to drop. Proceed with caution as these companies can charge high fees and results are not guaranteed.
When to Seek Professional Help
In some situations, you may want to get professional help with your debt. Perhaps you are feeling overwhelmed, barely able to make minimum payments, dealing with collections agencies, and finding the amount you owe rising. When this kind of stressful scenario occurs, you may find relief by reaching out for qualified assistance.
There are several types of professionals who might help. You could reach out to a nonprofit credit counseling agency (NFCC and FCAA are two to consider) for guidance on managing your debt. You could consult a financial advisor or financial therapist for advice and insights into how you can avoid future debts. If you are facing legal action, such as foreclosure, a debt attorney could be your best resource.
Do check references and make sure you are working with a well-regarded professional or organization so this difficult situation doesn’t become more challenging.
The Takeaway
Outstanding debt can be a heavy burden. Many people owe large amounts of debt but don’t know how to start making a dent in their balances. A good place to begin is by identifying your current income and expenses to see your overall financial picture. From there, you may decide to focus on paying down certain debts over others. You can then choose the best paydown method for your financial situation, whether that means using the debt avalanche technique or taking out a personal loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
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FAQ
What is the best method to pay off outstanding debt?
There is no single best method to pay off outstanding debt. Much depends on an individual’s unique situation and financial profile. For some, a debt snowball or avalanche method works well; others will prefer a debt consolidation loan, balance transfer card, or a consultation with a credit counseling agency. Research your options to find the best fit.
Can outstanding debt be negotiated or settled?
Yes, you may be able to negotiate or settle outstanding debt. You can contact your creditors directly yourself, or work with a debt settlement company (but be sure you understand the fees involved and that they may not be successful). In these situations, you can expect your credit score to be significantly lowered.
Does paying off outstanding debt build your credit score?
Yes, paying off outstanding debt typically has a positive impact on your credit score. This happens because you are lowering your credit utilization, meaning you are not owing as much vs. your credit limits. However, paying off debt could trigger a small decrease in your score as well, since it might reduce your credit history and mix, which contribute to your score.
How long does outstanding debt stay on your credit report?
Negative debt information can stay on your credit report for up to seven years and, in the case of bankruptcies, up to 10 years.
What happens if you ignore outstanding debt?
Ignoring outstanding debt can lead to serious financial and legal consequences. For instance, your credit score could drop significantly, collection agencies could pursue payment, you might have your salary garnished, and/or you could face the loss of an asset used as collateral on a loan.
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Borrowing money online has become one of the fastest and most convenient ways to access funds when you need them — but it’s not something to jump into without understanding how it works. From choosing a reputable lender to comparing interest rates, fees, and repayment terms, there are several important factors that can impact both your wallet and your peace of mind.
Keep reading to learn how to borrow money safely, how to avoid common pitfalls, and what to look for so you can make a confident, informed financial decision.
Key Points
• Online lending is growing because of convenience: borrowers can complete applications, underwriting, and fund transfers digitally.
• There are many online borrowing options — including traditional banks, credit unions, peer-to-peer platforms, and dedicated online lenders — so it’s important to choose what fits your needs.
• Credit cards may seem like an easy borrowing choice, but carry high APRs and can trap users in cycles of expensive revolving debt.
• Predatory lending options, such as payday loans or title loans, should be avoided due to extremely high interest rates and fees.
• Before borrowing, research the lender carefully for credibility, transparency, and terms.
Why Have Online Lenders Grown in Popularity?
Online lenders have surged in popularity because they offer a faster, more convenient borrowing experience than many traditional banks. Instead of visiting a branch or dealing with long processing times, borrowers can apply, upload documents, and receive decisions entirely online — often within minutes. Here’s what online lenders may offer:
Familiarity, for Some Customers
A growing proportion of consumers is accustomed to using computers for many aspects of daily life, and making online financial transactions is no different. More people may be looking for things like:
• Online applications
• Streamlined underwriting processes
• Automated funds transfers
A Different Kind of Personal Service
Personalization in the past meant having a face-to-face relationship with a banker. Personalization in today’s world can mean information that is relevant to an individual’s financial needs. This might look like:
• Personalized financial trends in a portfolio so they can make informed decisions about their financial goals
• Insights about their spending and saving so they can budget monthly income and expenses to meet their needs
Time Saving
Customers may also want an experience that saves time. Automating tasks is a timesaver that can easily be done with online financial tools. In the case of online lending, the option to set up automatic bill payments and automate other tasks are likely to be considerations when a customer is choosing an online financial company.
💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.
Where to Borrow Money Online
When looking for an online lender, you should consider the reputation of the lender, safety precautions the lender has in place, and types of loan products offered. In addition, each person should determine their individual comfort level of doing business with or without personal interaction. Here’s where you can borrow money online:
Banks
Borrowing money online from a bank typically involves a streamlined digital application that allows you to complete the entire process from your computer or phone. Most banks offer online personal loans, where you provide basic information such as your income, employment details, and desired loan amount. The bank then performs a credit check and may request additional documentation, like pay stubs or bank statements, which you can upload directly through a secure portal.
If approved, you’ll receive the loan terms electronically and can sign the agreement using e-signature. Funds are usually deposited directly into your bank account within a few business days.
Credit unions generally have physical locations, but may also have online services. Financial services offered by credit unions are similar to banks and other financial institutions, but there are usually specific requirements to be a member of a credit union, such as employment-related or residence in a particular region. Credit unions may offer member benefits such as low fees, high savings rates, and low loan rates.
Peer-to-Peer Lending
Peer-to-peer (P2P) lending is a type of online borrowing where individuals can obtain loans directly from other individual investors rather than from a traditional bank or credit union. Through a digital platform, borrowers submit an application, and investors choose to fund all or part of the loan in exchange for earning interest on the repayments.
Online Lenders
You can borrow money from online lenders by completing a fully digital application that typically takes just a few minutes. These lenders allow you to upload documents, verify your identity, and receive approval without visiting a branch. Many use automated underwriting systems that review your credit, income, and banking activity quickly, which can speed up the approval process.
Once approved, funds are usually deposited directly into your bank account, sometimes as fast as the same day or the next business day.
Options to Think Twice About
Along with favorable options for lending that are available, there are some that may not bring about the best financial outcomes.
Credit Cards
At its core, a credit card is a short-term loan — specifically, a line of credit. If the account balance is paid in full before each month’s due date, it’s a no-interest loan. Financial drawbacks arise, however, when that balance is not paid in full each month, carrying over a balance due.
Credit card interest rates tend to be high, and they accrue on any unpaid balance, compounding what is owed in the next billing cycle. The average credit card annual percentage rate (APR) is currently 24.04% for new credit card offers. It’s easy to see how this can lead to a cycle of debt. Paying off a loan over time is probably more efficiently done with other financial tools.
It’s important to be aware of predatory lending, which is the practice of offering loans with unfair, deceptive, or abusive terms that exploit borrowers and make repayment difficult or impossible. Both payday loans and title loans are a type of predatory lending. Repeat borrowing is common with these types of loans.
• Payday loans are short-term loans, typically to be paid off in the borrower’s next payday. Interest rates are extremely high, often 400% or more.
• Title loans, or pawn loans, use a borrower’s vehicle or other item of value as collateral. The APR on a title loan can be as much as 300%, and lenders often charge additional fees.
💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
The Takeaway
Borrowing money online has never been more accessible, but it’s important to approach the process with clarity and caution. By understanding the different types of ways to borrow money online, comparing interest rates and terms, and checking for reputable, transparent practices, borrowers can confidently choose the option that best aligns with their financial situation.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Can I borrow money online instantly?
Yes, you can borrow money online instantly through various lenders offering quick loans. These include payday loans, personal loans, and credit card cash advances. However, be cautious of high interest rates and fees, and ensure the lender is reputable and licensed. Always read the terms and conditions carefully.
How can you protect yourself when borrowing money online?
To protect yourself when borrowing money online, verify the lender’s legitimacy, check for a secure website (https), read the terms and conditions, and understand fees and interest rates. Use reputable credit reporting agencies to check the lender’s history and consider consulting a financial advisor.
Why have online lenders become more popular?
Online lenders have become more popular due to their convenience, quick approval processes, and accessibility. They often offer a wider range of loan products and can be more flexible with credit requirements. Additionally, the ability to compare multiple lenders easily and apply from anywhere has attracted many borrowers.
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.
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Maybe you’ve already tried to apply for a regular personal loan — only to be turned down. If so, a guarantor loan might be an option worth looking into. With this type of loan, the guarantor (often a close friend or family member) agrees to repay the loan if the borrower can’t. Since this reduces risk to the lender, guarantor loans can make it possible for those with poor or limited credit to qualify for an unsecured personal loan.
However, guarantor loans come with risks and costs — for both the borrower and the guarantor. Here are some things to consider before you apply for a guarantor loan.
• A guarantor loan can allow individuals with poor credit to qualify for an unsecured personal loan by having a guarantor agree to repay the loan if the borrower defaults.
• The guarantor’s role is to reduce the lender’s risk, which can result in better loan terms for the borrower.
• Guarantor loans often come with higher interest rates than traditional personal loans, and the guarantor does not have access to the loan funds.
• Choosing a guarantor loan can help borrowers avoid expensive subprime loans and potentially build credit.
• Alternatives to guarantor loans include secured credit cards, flex loans, or borrowing directly from friends or family.
What Is a Loan With a Guarantor
A guarantor loan is typically an unsecured personal loan that requires the primary borrower to have a financial backer, or guarantor. A guarantor may be required because the borrower has not yet established credit or has had credit issues in the past (such as a history of late or missed debt payments). It’s still considered the borrower’s loan, but the guarantor is legally obligated to cover payments and any other fees if the borrower defaults on the agreement.
This guarantee reduces the lender’s risk and enables them to advance the money at a reasonable annual percentage rate (APR). However, APRs for guarantor loans are generally higher than APRs for regular personal loans.
How Do Guarantor Loans Work?
Guarantor loans work in the same way as other types of personal loans — you borrow a lump sum of money from a lender, which you are able to use for virtually any purpose. You then pay it back (plus interest) in monthly installments over a set period of time, which may be anywhere from one and seven years.
The only difference is that a third party (your guarantor) is part of the loan agreement. The guarantor is legally bound to make payments on the loan in the event that you default. A loan default is generally defined as missing payments for several months in a row but the exact meaning will depend on the lender.
While the guarantor bears responsibility for repaying the debt, this individual doesn’t have any legal right to the loaned money or anything purchased with the loan proceeds.
Are You Guaranteed to Get a Loan With a Guarantor?
Although it can certainly help your case, there’s no guarantee that you’ll qualify to take out a loan with a guarantor. Approval depends on the financial profiles of you and your guarantor and the eligibility requirements of the lender.
Who Can Be a Guarantor for Loans?
A guarantor doesn’t need to be anyone specific — it could be a parent, sibling, friend, or even a colleague. You generally want to choose someone you trust and feel comfortable openly discussing your finances with. That’s most likely going to be a family member or a close friend.
Guarantors also need to have a good credit history and typically be at least age 18 (though some lenders require a higher minimum age). Some lenders also require the guarantor to be a homeowner. As part of the application process, guarantors will need to undergo a credit check and provide proof of identification and income, as well as bank details and statements.
What Should I Look for in a Guarantor Loan?
Like any other loan, it’s generally a good idea to look for a guarantor loan with a competitive personal loan interest rates and low or no fees. You’ll also want to carefully consider the monthly payments and be sure you can comfortably afford to make them. While this is crucial with any loan, it’s particularly important with a guarantor loan, since your guarantor will be on the hook for repayment if you fall behind. This could impact your credit as well as put a significant strain on your relationship with your guarantor.
How Much Can I Borrow for a Guarantor Loan?
Many lenders offer personal loan amounts ranging anywhere from $500 to $50,000 (and sometimes up to $100,000 for borrowers with excellent credit). Loan amounts for guarantor loans will depend on which lender you choose as well as your financial situation and your guarantor’s credentials (such as their credit score and income).
Guarantor Loan Requirements
Guarantor loans have eligibility requirements such as minimum credit scores and income thresholds that the guarantor will have to meet. Here’s a closer look.
Credit Score
While the borrower’s credit score might be poor or fair, the guarantor’s credit score should be considerably higher in order to secure the loan.
Proof of Residency
A guarantor will need to provide proof of residency. This can be done by showing documents such as a utility bill, a mortgage or rental agreement, or bank statements.
Income
The guarantor will need to verify a consistent income that’s sufficient to make payments on the loan if the primary borrower cannot. They will need to be able to show proof of income through bank account statements, pay stubs, invoices, and/or tax returns.
Age Requirements
The guarantor must be at least 18 years old, though some lenders have an age requirement of 21 or 22. They will need to show proof of age (and identity) with a government-issued photo ID.
Guarantors aren’t just for personal loans, and they don’t always take on the full financial responsibility of the agreement they’re entering into. Here’s a look at some different types of guarantors.
Guarantors as Certifiers
A guarantor may act as a certifier for someone looking to land a job or get a passport. These guarantors pledge that they know the applicant and they are who they say they are.
Limited vs Unlimited
Acting as a guarantor doesn’t always mean you’re responsible for the entire loan if the primary borrower fails to repay it. Limited guarantors are liable for only part of the loan or part of the loan’s timeline. Unlimited guarantors, however, are responsible for the full amount and full term of the loan.
Lease Guarantor
A guarantor may be required to cosign an apartment lease if the renter has limited credit and income history. In the event that the tenant is unable to pay the rent or prematurely breaks the lease agreement, the guarantor is responsible for paying any money owed to the landlord.
Guarantors vs Cosigners
Guarantors and cosigners play similar roles in a lending agreement — they pledge their financial responsibility for the debt to strengthen the primary borrower’s application. And, in both cases, these individuals may become responsible for repaying the debt.
However, there are some key differences between a guarantor and a cosigner. The main one is that a cosigner is responsible for repayment of the debt as soon as the agreement is final and will need to cover any missed payments. A guarantor, on the other hand, is only responsible for repayment of the debt if the primary borrower defaults on the loan.
There are also differences in terms of credit impacts. A cosigner will have the loan added to their credit report and any positive or negative payment information that the lender shares with the consumer credit bureaus can have a positive or negative impact on their credit. Becoming a guarantor, on the other hand, will typically not have an impact on an individual’s credit unless the primary borrower defaults on the loan. At that point, the loan will appear as part of the guarantor’s credit report.
Pros and Cons of Guarantor Loans
Pros of Guarantor Loans
Cons of Guarantor Loans
Offers a lending option for people who cannot qualify for a loan on their own
Can be more expensive when compared to a standard personal loan
Helps borrowers avoid expensive and risky predatory loan products
Less choice of lenders compared with the wider personal loan market
Can help borrowers build their credit
Defaulting on the loan could strain your relationship with the guarantor
A guarantor loan can allow you to borrow money even if you have limited or less-than-ideal credit. It can also help you avoid expensive and risky subprime loans that are marketed to borrowers with bad credit. In addition, the proceeds of a guarantor loan can be used for virtually any purpose, including emergency expenses (such as a car repair or medical bill) and lifestyle expenses (like a wedding or home improvement project).
As with all forms of credit, getting a guarantor loan can help you establish or build your credit, provided you manage the debt responsibly and keep up with your payments. Stronger credit can give you access to loans with better rates and terms in the future, without the need for a guarantor.
But these loans also come with some downsides. For one, guarantor loans can be expensive, often with higher APRs than other types of personal loans. Also, you’ll want to make sure you can keep up with the payments. Should you default, you’ll not only be hurting yourself but also the person who signed on as your guarantor.
Another downside is that there are fewer guarantor loans on the market than traditional personal loans. This can lead to less choice of lenders, making it harder to shop around and find a good deal.
What Happens if a Guarantor Cannot Pay?
A guarantor is legally obligated to repay the loan if the primary borrower defaults. If the borrower defaults and the loan is a secured loan, then the guarantor’s home could be at risk if the borrower defaults on the repayments and the guarantor is also unable to pay. This is not the case for unsecured guarantor loans, but the lender will still pursue the guarantor for the repayment of the debt, possibly through the courts.
Alternative Options to a Guarantor Loan
What if you don’t have a trusted person to ask to be your guarantor or you don’t want to ask anyone to take on this responsibility? Here are some alternatives to a guarantor loan that you could consider.
• Secured credit card: If you have some cash, you could pledge that as collateral on a secured credit card. Responsible use of this type of credit card could help you build your credit history so you can improve your chances of future loan approval. Interest rates on secured credit cards can be higher than regular credit cards, and there may be fees associated with their use.
• Flex loan: A line of credit that is similar to a credit card, a flex loan can also be used to build credit. Borrowers can use funds up to their credit limit, repay those funds, and borrow them again. Interest rates on flex loans tend to be high, and there may be fees assessed daily or monthly or each time the loan is used.
• Loan from a friend or family member: Perhaps the person you ask to be a guarantor doesn’t want to take on that responsibility, but they are willing to directly loan you the money. A loan from family or a friend can be an option to consider, but you’ll want to be sure to have a written agreement outlining the expectations and responsibilities of both parties. This will go a long way to minimizing miscommunication and hurt feelings. Keep in mind that this is not an option that will help you build your credit history.
The Takeaway
Getting approved for an unsecured personal loan is more likely if you have a solid credit history, an above-average credit score, and sufficient income to satisfy a lender’s qualification requirements. If you’re lacking one or more of these things, you might consider other types of loans, which might include a guarantor loan. SoFi does not currently offer guarantor loans.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
What are guarantor loans?
A guarantor loan is typically a type of personal loan that requires the primary borrower to have a financial backer, or guarantor. The guarantor agrees to pay the debt if the primary borrower defaults on the loan agreement.
How do I get a guarantor for a loan?
You might consider asking a trusted friend or family member to be a guarantor. This person should be someone who has solid credit and sufficient income to cover the loan payments should you default on the loan.
Are you guaranteed to get a loan with a guarantor?
No. Having a guarantor may strengthen a loan application, but it’s up to each individual lender to assess the qualifications of both parties.
Photo credit: iStock/fizkes
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.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
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.
Getting a mortgage can be one of life’s biggest financial undertakings. What’s more, it also unlocks the path to what is typically the biggest asset and wealth builder out there: a home of your own.
Whether you’re dreaming of a center hall Colonial or a cool, loft-style condo, you will likely need a mortgage to make homeownership happen. And if you want to qualify for the best possible interest rate, it helps to have a little more knowledge and preparation when you seek a home loan.
This guide will teach you how to get a home mortgage and arrive expeditiously at the closing. Read on to learn how to get a mortgage right now, what matters most to lenders when you’re getting a mortgage, and the seven steps necessary to get a mortgage on your new home.
• Getting a mortgage is a multi-step process that starts with preparing your finances and setting a realistic budget.
• Lenders primarily evaluate your credit score and debt-to-income (DTI) ratio to determine loan qualification and interest rate.
• Research different mortgage loan types (conventional vs. government-backed) and lenders, then get preapproved to solidify your buying position.
• Once your offer on a home is accepted, you submit a full application, which leads to the underwriting process, including a home appraisal and title search.
• The final step is closing, where you sign all documents, submit your down payment and closing costs, and officially become the homeowner.
Step 1: Prepare Your Finances and Determine Your Budget
Now is the time to develop a budget for buying a house. Use a mortgage calculator to see what your monthly payment might be depending on the home price, down payment amount, and mortgage type. But don’t overlook these other costs:
• Closing costs and related expenses (typically 2% to 5% of the loan amount)
• Funds to make any repairs/renovations required
• Moving expenses
• Home insurance premium
• Property taxes
• Utilities (especially important if you are moving from a rental where your landlord paid some of these costs)
• Maintenance (landscaping, HVAC service, etc.)
Another good first step to getting a mortgage is to understand how you will be evaluated by lenders so you can put your best foot (or financial profile) forward. Here are the key mortgage loan requirements:
Your Credit Score
Your credit score is an important number: It tells lenders how well you have managed debt in the past. Typically, you will need a credit score of 620 or higher to qualify for a conventional home loan. However, those with scores of 740 or higher may snag lower interest rates. So as you’re learning how to get a house loan, make sure you are also taking good care of your credit score.
If your score is at least 580, you may qualify for a government-backed loan (more on those below). And even those with a credit score of 500 to 579 may be eligible in some cases. If you’d like to build your credit score, make every payment on time and pay any unpaid bill. Avoid opening new credit accounts or closing old ones in the months leading up to your mortgage application.
Your Debt-to-Income Ratio
Another number that lenders will be interested in is your debt-to-income (DTI) ratio — in other words, how much debt you are carrying relative to your income. To compute your DTI ratio, total your monthly minimum debt payments, such as student loans, car loans, credit-card bills, current rent or mortgage and property taxes, and the like. Divide the total by your gross monthly income. The resulting number is your DTI.
The DTI figure that lenders look for may vary. Some lenders want to see 36%; others will be comfortable with up to 45%. Government-backed loans are likely to accept higher DTI’s than other lenders. You can use a home affordability calculator to compute what price home you might be able to afford based on your income and debts.
Other factors lenders will consider are your income history and assets. Lenders like to see signs of a positive, stable income. Ideally, you have been employed for at least two years. If you have been out of work or have job-hopped recently, it might be wise to wait a bit before applying for a mortgage.
Lenders will also want to see that you have some assets available, such as cash in the bank or other fairly accessible funds. This is where a healthy emergency fund and money saved for a down payment can be a real boost.
Speaking of your down payment: A down payment for a conventional loan has traditionally been 20% of a home’s cost, but there is some flexibility. A recent survey by the National Association of Realtors® found that first-time homebuyers typically put down 10% on a home purchase. And some loans are available with as little as 3% down or even (for certain government-backed ones) zero money down.
Keep in mind that if you put down less than 20%, you will likely have to pay for private mortgage insurance (PMI), or in the case of a Federal Housing Administration (FHA) loan, a mortgage insurance premium.
💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a competitive rate with SoFi Mortgage Loans.
Step 2: Research Mortgage Loan Types and Find a Lender
• Conventional vs. government-backed loans.Conventional loans typically have stricter income, credit score, and other qualifying factors, while government-backed loans may be easier to obtain. Government-backed loans may have lower (or even no) down payment requirements. Examples of these government loans are FHA, VA, and USDA loans.
• Type of rate: For some borrowers, a fixed-rate loan, with its never-varying monthly payment, may be best. For others, an adjustable-rate one that fluctuates may be more appealing. The payments tend to start out low, which can be attractive for those who may sell their home within a few years’ time. You may also look into mortgage points, which involve paying more upfront to shave down your rate over the life of the loan.
• Mortgage loan term: Many loans last 30 years, but there are other options, such as 5, 10, 15, or 20 years. The shorter the term, the higher your payment is likely to be.
Next, it’s wise to review different mortgage lenders and see what kind of rates and terms are quoted. For example, your own bank may offer mortgages and could give you a good rate in an effort to keep your business. Or you might look into online lenders, where the process can be more streamlined and the rates possibly better than traditional options.
Step 3: Get Preapproved for a Mortgage
It can be wise to get preapproved by more than one lender. This can help you evaluate different offers and broaden your options when it’s time to apply for a loan. When you apply for preapproval, you can expect the lender to do a credit check, verify your income and assets, and consider your DTI ratio.
While not a guarantee of a mortgage, it shows you are serious about buying and are on the path to securing your funding, and it reflects that the lender found you qualified for a mortgage. Having this letter can be especially helpful when you are competing for a home in a seller’s market.
You might also decide to work with a mortgage broker to get help learning about your alternatives.
💡 Quick Tip: Backed by the Federal Housing Administration (FHA), FHA loans provide those with a fair credit score the opportunity to buy a home. They’re a great option for first-time homebuyers.
Step 4: Find a Home and Make an Offer
With your preapproval letter in hand, you are ready to go home shopping. As you tour properties, you’ll likely refer back to your budget and down payment plans again and again as you get to an accepted offer. Don’t be surprised if you find yourself having agonized discussions about whether a home is truly affordable. Try to avoid pushing yourself beyond what you can comfortably afford.
Once you find a suitable property and your offer is accepted (a big moment!), you will hopefully be on the path to home ownership. If contract negotiations and the inspection goes well, you will move along to the final steps.
Step 5: Submit Your Mortgage Loan Application
Once you have an accepted offer and know how much you need to borrow, you’ll submit a full-fledged mortgage application. Expect to submit the following, and possibly more:
• Two years’ worth of W-2 forms or other income verification
• A month’s worth of pay stubs
• Two years’ worth of federal tax returns
• Proof of other income sources
• Recent bank statements and documentation of possibly recent sources of deposits
• Documentation of funds/gifts of money to be used as your down payment
• ID and Social Security number
• Details on debt, such as student loans and car payments
These forms allow a lender to consider your level of financial security and whether you are a good risk to offer a mortgage loan.
Step 6: Go Through the Underwriting Process
As you wait for your mortgage approval and a closing date, the underwriting process is happening. You’ll need a home appraisal and title search, and an underwriter will verify your income, evaluate your credit history, and assess your financial readiness to take on the loan. It’s not unusual for the lender to reach out with questions or to ask for more documentation during underwriting. Respond promptly to keep things on track.
If things progress smoothly, your loan will be approved and you will be ready to close on your home. You’ll do a final walk-through of the home to make sure everything is in order and any repairs that the seller agreed to make have been addressed.
Three days before your closing date, your lender will provide you with a closing disclosure that outlines the final closing costs and terms of your home loan. You can compare this five-page form with the loan estimate you received initially. If everything looks to be in order, get ready to close.
Step 7: Close on Your New Home
You may wish to bring your real estate agent and/or attorney with you to your closing meeting, which might be in-person or virtual. They can help explain everything — especially valuable if you are a first-time homebuyer. At the closing you will sign all your forms and submit your down payment and closing costs (or provide proof of wire transfer). The closing attorney, escrow officer, or title company representative will record the deed, and you will be given the house keys. Congratulations — you’re a homeowner!
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
The Takeaway
The path to homeownership can be a long and winding road, but worth it as you gain what could be your biggest financial asset. By learning how to get a mortgage, preparing to present a creditworthy file, and following the steps needed to apply for a home mortgage, you can be on your way to owning your new home.
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
How do you improve your chances of getting approved for a mortgage loan?
You can improve your chances of getting approved for a mortgage by checking on your credit score (and improving it, if necessary), showing a debt-to-income ratio of ideally 36% or lower, and having two years’ of a steady job history.
What is the lowest income to qualify for a mortgage?
There is no one set income required to qualify for a mortgage. Much will depend on how much you want to borrow versus your income, how much debt you are carrying, and your credit score. For those who have a lower income, there are government-backed loans that may be suitable; it can be worthwhile to look into FHA, USDA, and VA loans to see what you might qualify for.
What credit score is needed to get a mortgage?
Typically, a credit score of at least 620 is required for a conventional loan, and the higher your score (say, in the 700s or higher still), the more loan options and lower rates you may find. For those with a credit score of at least 500, there may be government-backed loan products available.
How long does the mortgage approval process take?
The full approval process for a mortgage can take 30 to 60 days. If you have a closing date or range of dates specified in your agreement with the seller, it’s important to let your prospective lender know.
What documents are needed for a mortgage application?
Documents needed for a mortgage application include proof of identity and at least two years’ worth of W-2 forms and tax filings. You can also expect to need your most recent pay stubs, bank statements, and proof of other income sources. If you are self-employed, be prepared to be asked for more details about your income, including, potentially, a profit-and-loss statement for your business.
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-criteria 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.
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.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
This article is not intended to be legal advice. Please consult an attorney for 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 .
