SoFi

For first-time buyers — or anyone facing financial hurdles — getting an FHA loan can help make homeownership a reality. With insurance from the Federal Housing Administration, lenders can afford to offer loans with a lower down payment, lower closing costs, and less restrictive qualifying credit requirements.

But can you refinance an FHA loan? Yes, FHA loans are available for those looking to refinance an existing mortgage rather than take out a new one — whether or not that existing mortgage is itself an FHA loan. However, there are a variety of different ways to go about refinancing an FHA loan, and which is right for you will depend on your circumstances. Here’s what you need to know.

Understanding FHA Refinancing

Like any FHA loan, FHA refinancing loans are insured by the FHA — and therefore available with easier qualifying requirements and lower costs than other types of conventional loans may be. Refinancing your mortgage with an FHA refinance loan could help you save money on interest over time by scoring a lower rate, lowering your monthly payments, or even accessing cash by leveraging your home’s equity. And yes, you can refinance an FHA loan, or another type of existing home loan with an FHA refinancing loan. However, the specific FHA refinance requirements vary depending on your circumstances.

Why Homeowners Choose to Refinance FHA Loans

Homeowners may choose to refinance for one or more reasons. One common goal for refinancing is to obtain a lower interest rate (and thus lower your monthly payments). Some homeowners might want to change their loan term in a refinance, perhaps getting a lower rate and a shorter term so they can finish paying off their loan faster. “It’s important to understand that not every mortgage refinance will save you money on interest. For example, if you extend the repayment term, you may have smaller monthly payments, but you’ll end up paying more money over the course of the loan,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

It’s also common to refinance an FHA loan to get rid of the mortgage insurance that is required of FHA borrowers for the duration of their loan. And some homeowners do a refinance to pull equity from their home to use for renovations or other expenses. The type of refinance you choose depends largely on these goals.

Types of FHA Loan Refinancing

There are four main options when it comes to FHA loan refinancing: Simple refinancing, Streamline refinancing, cash-out refinancing, and 203(k) refinancing. Some people also refinance out of an FHA loan and into a conventional one. Which is right for you will depend on what kind of loan you have — and why you’re refinancing in the first place.

FHA Simple Refinance

FHA Simple refinancing is for those whose original home loan is an FHA loan. With an FHA Simple refinance, you’ll simply — as the name implies — refinance your home, using a new FHA loan to pay off the existing one, ideally with a lower monthly payment or interest rate to make it worth your while. You may also be able to switch between fixed and adjustable interest rates.

Unlike some other types of FHA refinancing, you won’t be able to access any cash using this type of refinance, so it’s not a viable option for homeowners attempting to leverage home equity to pay for other expenses. In addition, it has slightly stricter qualification requirements than FHA Streamline refinancing, which requires less credit documentation and underwriting. Although credit score requirements vary by lender, most FHA Simple refinance programs require a minimum credit score of 580.

FHA Streamline Refinance

The FHA Streamline refinance option also follows the logic of its name: The underwriting and qualification process is less intense than other types of FHA refinancing. In addition, unlike the FHA Simple refinance option, a home appraisal is not required. You can also take out up to $500 in cash against your home equity with an FHA Streamline refinance loan.

To qualify for FHA Streamline refinancing, your original home loan will also need to be an FHA loan, and payments must not be delinquent. The FHA also requires that the new loan result in a financial benefit for the borrower. Of course, you wouldn’t be going through the process and expense of refinancing if you had nothing to gain in the bargain.

FHA Cash-Out Refinance

FHA cash-out refinancing allows borrowers to leverage their home equity to take out cash that can be used for any purpose. To make this work, a new, larger loan is taken out, which is used to refinance the existing home loan — which need not be FHA insured — as well as to provide cash value.

Using an FHA cash-out refinance loan, homeowners may be able to lower their payments or interest rates while also accessing lump-sum cash that can be used for just about any purpose under the sun. Again, however, the underwriting and qualification process for FHA cash-out refinance loans may be more intense than Streamline loans — though a cash-out refi is still accessible to most borrowers with a credit score of 580 or higher and a debt-to-income ratio (DTI) of 43% or less.

FHA 203(k) Refinance

Finally, the FHA 203(k) loan, also known as a rehabilitation loan, allows homeowners to take out money for the purpose of restoring, rehabilitating, or repairing their home along with purchasing it. FHA 203(k) loans can be used for an original purchase or a refinance, and homeowners with a non-FHA loan can apply for 203(k) refinancing, and may find FHA-insured rates are lower than those of other home improvement loans.

FHA-to-Conventional Refinance

Some people with FHA loans prefer to refinance into a conventional loan. If you have more than 20% equity in your home, you can refinance into a conventional loan and you likely won’t have to pay a mortgage insurance premium (MIP) on top of your conventional loan payment. In the process, you’ll get rid of your FHA mortgage insurance. To obtain a conventional loan, you’ll likely need a credit score of at least 620.

Comparing FHA Refinance vs. Conventional Loan Refinance

Why choose to refinance with an FHA loan rather than a conventional one? Or vice versa? There are pros and cons to consider either way you go. For instance, although FHA refinance loans tend to come with more accessible qualification requirements, some types are only available for those with existing FHA loans — and all of them require an FHA mortgage insurance premium (MIP). The important thing is to consider all your options so you can make an informed decision. Let’s take a closer look.

Pros and Cons of Refinancing with an FHA Loan

While there are many benefits to mortgage refinancing with an FHA loan, there are some drawbacks to consider, too.

Differences in Requirements and Benefits

In addition to the pros and cons of FHA loan refinancing, there are also differences in the requirements and benefits for FHA versus conventional home refinancing loans. For instance, in most cases, FHA loans require a minimum credit score of just 580, whereas conventional loans might have a minimum credit score starting at 620 or higher.

And while FHA loans often come with lower interest rates, they always come with a mortgage insurance requirement — whereas conventional loans may not require private mortgage insurance (PMI) if you already own at least 20% of your home’s equity.

Finally, FHA refinancing loan options may be somewhat limited, depending on your existing home loan and your motivations for refinancing. Some types of FHA refinancing loans are only available to homeowners who already have an FHA-insured mortgage, which may make them inaccessible to other borrowers.

When to Consider Switching from FHA to Conventional

It might be worth refinancing from an FHA loan into a conventional loan if you have at least 20% equity in your home and can therefore avoid mortgage insurance with a conventional loan. But ideally you would also be in a position to lower your interest rate on your loan by undergoing a refinance. Another thing to consider is your credit score. If you have improved your score and are now over 620 — or have an even higher score — it could be time to run the numbers on a refinance to a conventional loan. Much will depend on current interest rates.

Eligibility and FHA Refinance Requirements

So, what does it take to secure an FHA home loan? While requirements vary by lender, here are some basic rules of thumb:

Qualifying Factors for Refinancing an FHA Loan

As mentioned above, certain types of FHA refinance loans are only available to those who already have an FHA-insured mortgage loan. In addition, only FHA loans that are not delinquent — i.e., you’re up to date on your payments — may qualify for refinancing.

Credit Score Guidelines

While FHA-insured loans tend to have lower minimum credit scores than conventional refinance loans, lenders do still have a minimum. In most cases, it’s 580—though specifics may vary by lender.

Loan-to-Value Ratio (LTV)

A home’s loan-to-value (LTV) ratio refers to what percentage of the home’s current market value you’re taking out a loan for. Ideally, those who are refinancing their homes have a lower loan-to-value ratio — meaning they owe less of their home’s total value than they did when it was first purchased. Still, the LTV is one factor lenders look at when qualifying borrowers for an FHA refinance loan; the lower your LTV, the better.

Employment and Income Verification

Lenders have a vested interest in making sure you’ll be able to repay your loan, so a lender will verify your employment situation and income before qualifying you for a new loan, whether you’re taking out an original mortgage or refinancing.

Debt-to-Income Ratio (DTI)

Your debt-to-income, or DTI, ratio refers to the proportion of your available income each month that goes toward existing debts. While FHA loans have a higher maximum DTI than other types — borrowers with DTIs as high as 57% may still qualify — some lenders may choose not to qualify borrowers with a DTI of 43% or more.

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Specific Requirements for Streamline Refinance

For the FHA’s Streamline refinance program, certain specific requirements apply, including:

•   The existing mortgage must also be FHA-insured.

•   The refinance must result in a “net tangible benefit” to the borrower.

•   Only up to $500 may be taken out of the loan in cash.

•   In most cases, investment properties are ineligible.

Criteria for Cash-Out Refinance

In order to qualify for an FHA cash-out refinance, you’ll need:

•   To have lived in your home for at least 12 months

•   To own at least 20% of your home’s equity

•   A minimum credit score of 580

•   A debt-to-income (DTI) ratio of 43% or lower

FHA Seasoning Requirements for Refinancing

One other consideration you’ll have if you are thinking about refinancing an FHA loan is the seasoning requirement. “Seasoning” refers to the length of time that must pass between your obtaining the loan and your taking action to change it.

Seasoning time varies according to your loan type and the action you wish to take. For example, if you are refinancing to eliminate PMI, you may need to wait two years from your initial loan date. To do a Streamline refinance, borrowers must have made at least six payments on the FHA-insured mortgage that is being refinanced. At least six months must have passed since the first payment due date of the mortgage, and at least 210 days must have passed from the closing date of the mortgage being refinanced.

Benefits of Refinancing an FHA Loan

What are the specific benefits of refinancing with an FHA loan? Here are just a few of the reasons people choose to take this route when refinancing a mortgage.

Lower Interest Rate and Monthly Payment

For most homeowners, the primary motivator for an FHA mortgage refinance is to save money — either over the long term, by scoring a lower interest rate, or on a monthly basis by choosing a loan with a lower minimum monthly payment. In some instances, you may be able to achieve both goals with the same refinancing loan, particularly if your credit history has appreciably improved since you originally took out your mortgage.

New Loan Terms

Some borrowers refinance to give themselves more time to pay off their home loan with a longer term — or to accelerate their repayment process with a shorter term.

Equity Access with a Cash-Out Refinance

For most consumers, a home is the single most valuable asset they’ll ever purchase. Being able to access the value of that equity with a cash-out refinance option is another important motivator for those seeking to refinance, and FHA refinance loans can make that goal a reality whether or not your original loan is FHA-insured.

Avoid Private Mortgage Insurance (PMI)

For borrowers looking to avoid private mortgage insurance (PMI), take heed: Although FHA loans don’t require PMI, they do require mortgage insurance. The FHA-loan version is called MIP (mortgage insurance premium), and is required on all FHA loans.

Improve Financial Stability

For some borrowers, refinancing can improve overall financial stability by achieving any of the goals listed above — for example, freeing up more discretionary income each month with a lower monthly payment.

Ability to Consolidate Debt

Borrowers who do a cash-out refinance might use the cash provided by their refinance to pay off higher-interest debt, such as debt from a personal loan or credit card. Instead of making payments to multiple lines of credit each month, they essentially roll their debt payment into their mortgage payment, simplifying their finances.

Steps to Refinance an FHA Loan

Seriously considering an FHA refinance loan? Here are the steps it takes to turn your ideation into reality.

1. Review Your Current FHA Loan

1.    The first step in shopping for a new loan should always be to review your existing mortgage. After all, that’s the best way to understand what factors would make a new mortgage more favorable for your finances. If your original loan is not FHA-insured, note that you may not qualify for certain types of FHA refinancing loans.

2. Shop for Lenders and Offers

2.    Next up: The actual shopping part. In order to ensure you get the best deal available, it’s worth asking several lenders for refinancing quotes, including a full amortization schedule. That way, you’ll understand exactly how much money you stand to save — or not — by choosing a specific lender.

3. Submit an Application and Required Documentation

3.    Once you’ve settled on a lender, you’ll submit your application, including any required documentation (such as ID and income verification, including bank statements and tax forms). In most cases, this process can be done entirely online.

4. Go Through the Appraisal and Underwriting Process

4.    As part of most refinancing processes, you’ll need to have your home appraised so the lender understands its current market value — and can use that value to calculate important aspects of your application, like the LTV. An underwriter will assess your holistic financial profile to determine whether or not you qualify for the refinance loan.

5. Close the Refinance

5.    Finally, if the terms are favorable and you are approved, you’ll close the refinance loan. The new lender will repay your existing loan, and your new payments will be directed toward this new lender, using the new terms you’ve agreed to.

Tips and Considerations for FHA Loan Refinancing

Want to get the very best out of your FHA loan refinancing process? Here are some tips to help you get the most bang for your buck.

Evaluate Your Financial Situation

Refinancing isn’t right for everyone. In fact, in most cases, the FHA won’t even allow you to refinance with one of its loans unless it results in a net financial benefit for you, the borrower. You can take a few first steps to determine whether or not it will help before you ever get a lender involved.

Using a mortgage calculator, you can determine how much a lower interest rate would save you over time or how much a longer loan term would reduce your monthly payment. Keep in mind that refinancing isn’t free, so unless the savings are substantial enough to eclipse your closing costs, it may make more financial sense to keep your original loan.

Understand Closing Costs and Fees

Loans come with a variety of closing costs and fees, such as application fees, the cost of the appraisal, attorney fees, and more. These costs can add up to about 6% of your overall loan value, and though some of them may be able to be financed as part of your loan, they still have the potential to eat into any savings your refinancing loan might offer.

Time Your Refinance Strategically

When it comes to refinancing your mortgage, timing matters. For example, if interest rates are higher than when you took out your original loan, the timing might not be right. The same could be said if you’re planning on moving out of your home in the near future, in which case, you may not have enough time in the home left to break even on your closing costs.

Consider Your Break-Even Point

A key piece of advice when you’re refinancing any home loan is to compute the break-even point on the refinance. A refinance comes with closing costs, and you’ll want to divide the closing costs by the monthly savings from your new mortgage payment to get to your personal break-even point.

For example, imagine that refinancing causes a payment to decrease by $100 a month. If closing costs will be $2,500, it would take 25 months to recoup the costs and start to see savings. If you plan to sell the house in 18 months, refinancing may not be the right strategy. If you intend to stay long term, it may be an idea to explore.

Common Mistakes in FHA Loan Refinancing

Here are some common errors borrowers make when undergoing the FHA loan refinancing process.

Misunderstanding the Eligibility Criteria

Although FHA loans come with more accessible eligibility criteria than many conventional loans, they do still have standards. If your credit score is less than 580 or your payments are delinquent, you’re unlikely to qualify for an FHA refinancing loan.

Ignoring Closing Costs and Fees

As mentioned, closing costs and fees can really add up — so if you don’t take them into account when you’re considering a refinance, you may wind up with an unpleasant case of sticker shock.

Not Considering Long-Term Financial Goals

Refinancing your home, when done best, is all about saving money over time, which means having enough time for those savings to accrue. If you’re planning on selling your house and moving in three to five years, refinancing may actually end up being more expensive than staying with a higher-rate original loan. Additionally, if you’re refinancing primarily to lower your monthly payment and make ends easier to meet, don’t forget to keep your long-term finances in mind. It may not be worth the extra monthly money to pay thousands more in interest overall.

The Takeaway

FHA refinance loans are available for homeowners whose original loans are FHA-insured — as well as for those who have a conventional original mortgage. FHA loan requirements vary depending on which type of loan you’re considering, and may not be right for everyone. But if you can meet the qualifications and derive a solid financial benefit from an FHA refinance, it may be worthwhile to embark on the process.

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

Can you refinance an FHA loan without an appraisal?

Yes — but only if you qualify for an FHA Streamline loan, which requires your original loan also be an FHA-insured loan.

What happens if your home’s value has decreased?

Even if your home’s value has decreased, you may still be eligible for a refinance loan through the FHA Streamline program. It all depends on how much you owe on your home and your other qualifying factors. (Keep in mind, too, that this program requires that your original home loan also be an FHA one.)

Can you refinance an FHA loan if you’re behind on payments?

No. All FHA loan refinance programs require borrowers to be up-to-date on their loan payments, with most including provisions that there must not have been any payments more than 30 days late within the last six months.

How soon can you refinance an FHA loan?

How soon you can refinance your FHA loan will depend on what kind of refinance you’re planning. If you are doing an FHA Streamline refinance, at least 210 days must have passed from the closing date of the mortgage you’re refinancing, and certain other loan “seasoning” requirements may also apply. Moving from an FHA loan into a conventional loan usually requires at least six months of on-time payments since the loan’s closing.

What credit score is needed to refinance an FHA loan?

If you are refinancing from an FHA loan into another FHA loan, you will likely need a credit score of at least 580. Going from an FHA loan into a conventional loan will require a minimum score of 620.

Photo credit: iStock/gremlin

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
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.

SOHL-Q425-200

Read more

There are many steps to the home-buying process. If you’re taking out an FHA loan (a loan backed by the Federal Housing Authority) to buy a property, you’ll most likely need to get an appraisal to verify the value and condition of the home. Let’s take a closer look at how FHA appraisals work, what to expect from FHA loan inspection requirements, and how to prepare, particularly if you’re a first-time homebuyer and have never been through the process before.

Understanding FHA Appraisals and Inspections

An FHA loan appraisal is an in-person assessment performed by an accredited appraiser. The purpose of the appraisal is to evaluate how much a house is worth and determine if it meets minimum safety and livability standards. The appraisal is sent to the lender for further evaluation before a FHA loan can be approved. FHA appraisals are typically required whether the borrower is buying or refinancing a home with an FHA loan. A buyer might meet all the other FHA loan requirements but an FHA appraisal is still needed in order for a loan to get the green light.

FHA Inspections vs. Appraisals

The appraiser only factors in readily observable conditions. A home inspection, by comparison, is much more in-depth in its assessment of a property’s need for repairs. Does the FHA require inspection of the home by a home inspector? No. An FHA appraisal may pick up some problems an inspector might see. But many homebuyers still order a traditional home inspection alongside their FHA appraisal.

Besides the property value, the FHA appraisal requirements evaluated during an FHA appraisal include the safety, security, and soundness of a home. In other words, the home should be safe for occupants to inhabit, protect the security of the property, and not have physical deficiencies or conditions impacting the structural integrity and ability to market it for future sale.

Appraisers are required to describe the property conditions, including any renovations, necessary repairs, or deterioration. Minor issues, such as missing handrails, cracked windows, or worn countertops, do not require automatic repair.

Differences Between FHA and Conventional Appraisal

Whether a borrower is seeking an FHA loan or a conventional loan, a home appraisal estimates the fair market value of a home based on the property condition and nearby home values. But FHA loans must meet the minimum standards set by the U.S. Department of Housing and Urban Development (HUD). This means that FHA appraisal requirements also consider the health and safety of the property, while conventional appraisals focus on the property’s value and condition. So in a sense, while the process is technically an appraisal, there are FHA loan inspection requirements that must be met. FHA lenders may require that any health and safety hazards be addressed before approving the mortgage.

FHA appraisers follow HUD guidelines for minimum property standards. During the appraisal, they analyze and report a property’s physical and economic characteristics to provide an opinion of its value. HUD requires FHA appraisers to have state certification and meet the minimum certification criteria issued by the Appraiser Qualification Board.

How Do FHA Appraisals Work?

An FHA loan appraisal involves two steps. The appraiser will complete a site visit to inspect the property condition and perform market research for comparable homes in the area to estimate the market value of the home.

The appraiser will inspect the home’s interior and exterior to determine the property’s safety and soundness. The appraiser’s findings, plus information on the home like square footage and the year it was built, are cataloged in HUD’s Uniform Residential Appraisal Report.

To estimate the property’s value, the appraiser evaluates the selling prices for comparable homes in the same area that were recently sold. This information, combined with the property’s condition and characteristics, is used to estimate the market value.

Recommended: The Ultimate Home Inspection Checklist

What’s the Purpose of an FHA Appraisal?

FHA appraisals are required by lenders to ensure that the loan amount doesn’t exceed the market value of the property. The appraisal process is also used to determine that a property meets FHA standards for health and safety.

Safety and Structural Standards

In terms of occupant health and safety, the FHA appraisal looks out for exposure to hazardous materials, such as lead paint and asbestos. Mold, radon gas, and poor insulation are other potential safety risks that would be flagged in an appraisal. The overall property structure needs to be in sufficient condition to keep occupants safe. This means that damage to the foundation, structural decay, or anything that impacts the long-term integrity of the home would not meet FHA requirements.

Compliance with Minimum Property Standards (MPS)

FHA appraisals follow the Minimum Property Standards (MPS) set by HUD. The MPS establishes baseline conditions to cover aspects of a property that aren’t met by model building codes. For example, the MPS covers doors, gutters, and wall coverings to ensure the property value is not impacted by the quality of these components.

What to Expect from an FHA Appraisal

Being prepared for an FHA appraisal can help streamline the loan application and homebuying process. Here’s what to expect from FHA appraisal guidelines:

Appraisal Timeline and Duration

The duration of an FHA appraisal site visit varies by property size and condition, but plan for it to take between one and several hours to complete. The full appraisal report is usually complete within a week.

Common Issues That Can Affect the Appraisal Outcome

There are a number of issues and property conditions that the FHA requires to be remedied for loan approval. Some common FHA loan appraisal requirements that could trigger problems include:

•   Roof condition or damage

•   Exposed wires

•   Water heater temperature and pressure relief valve

•   Damaged foundation

•   Peeling paint (for homes built before 1978)

Conditions That Won’t Pass FHA Inspection

It’s important to know what won’t meet FHA loan inspection requirements. Any property conditions that impact the safety and health of occupants could need to be addressed in order to get FHA loan approval. Besides the common issues outlined above, hazards, nuisances, and obstructions to property access could fail to pass FHA inspection. For example, the level of traffic or proximity to a hazardous waste site could violate FHA standards.

Ultimately, the property valuation accounts for the home condition, square footage, any renovations, and the number of bedrooms and bathrooms. The appraiser must observe neighborhood characteristics and surrounding properties to make determinations that will be incorporated into the valuation of the property.

FHA Inspection Requirements Checklist

Sellers can plan ahead and fix what won’t pass FHA inspection to avoid delays and improve the marketability of their home. Here’s how to address some common issues that could cause a property to fail an FHA appraisal.

•   Roof repair: Fix leaks and consider a new roof if life expectancy is less than three years.

•   Chipped or peeling paint: Scrape and repaint peeling surfaces if property was built prior to 1978.

•   Water heater: Ensure the water heater has a pressure and temperature relief valve and sufficient piping.

•   Plumbing: Repair all toilets, showers, and sinks that aren’t in working order as leaky plumbing won’t pass FHA inspection.

Both the inspection and the home’s appraised value are critical to FHA loan approval. Sellers and their real estate agents are permitted to communicate with an appraiser to offer additional property information that can contribute to the valuation of the home. Gathering documentation beforehand on any home improvements can ensure the appraiser has everything needed for an accurate valuation.

Recommended: What Are the Most Common Home Repair Costs?

What Happens After an FHA Appraisal?

The FHA appraisal report will provide the estimated market value and outline any required repairs or alterations that need to be completed for FHA loan approval.

What to Do if the Home Sale Appraisal Comes Back Low

If an FHA appraisal comes back low, there are several possible scenarios. The seller can lower the sale price to accommodate the appraised value. Alternatively, the buyer can renegotiate to lower the price and potentially contribute a larger down payment to cover the portion of the home price that is not covered by the FHA loan. As a last resort, a buyer would be permitted to walk away from the deal if the FHA lender’s requirements can’t be met.

What to Do if the Refinance Appraisal Comes Back Low

If refinancing with a FHA loan and the appraisal comes back low, there are a few courses of action available to borrowers. First, review the appraisal report to see if an appraiser missed anything important. If so, providing the correct information to get another appraisal could result in a higher appraised value.

If disputing the appraisal isn’t an option or successful, borrowers can consider restructuring the loan to take less cash out. Finally, the loan can be denied if the terms are not beneficial to the borrower.

What to Do if the Appraiser Requests Further Repairs

The appraisal may identify repairs that need to be completed to close on the loan. Unless otherwise outlined in the purchase and sale agreement, sellers are typically on the hook for repairs. The sellers have up to 120 days to make necessary repairs and meet FHA standards if required by a lender.

Alternatively, buyers can pay for the repairs themselves. If the issues impact the health, safety, and livability of the property, they’ll need to be completed prior to closing. Other non-safety repairs can be completed after closing. Note that delayed repairs may require an extra escrow holdback for the estimated costs.

Once repairs and issues have been addressed, the property can be reassessed. Borrowers can consider a FHA 203(k) loan to finance both the purchase and rehabilitation costs through a single loan if the repairs are an obstacle to closing. Buyers might consider renegotiating their offer to reflect the repair costs being financed.

If appraisal-related issues are delaying closing, buyers can consider a mortgage rate lock to secure their interest rate for a set period. This can help buy more time for repairs to be made without losing out on favorable loan terms.

What to Do if the Appraisal Comes Back at or Higher Than the Expected Amount

The loan simply moves forward if the appraisal comes back at or higher than the expected amount, barring any request for further repairs.

FHA appraisals are valid for 180 days unless it’s updated. If updated, an appraisal can be good for up to one year.

Recommended: FHA Loan Closing Cost Calculator

Impact of FHA Appraisal on Loan Approval

The FHA appraisal influences loan approval in two key ways. First, the appraisal evaluates the property condition and identifies if any repairs or further inspections are required for loan approval. Second, the appraised value determines the total loan amount a buyer is approved for. If the appraised value is lower than the purchase price on the contract, either a price reduction or larger down payment could fill the gap to get loan approval.

Repairs aside, how long can you wait after the appraisal to close on an FHA loan? It helps to understand how long an FHA appraisal is good for. Once the borrower and lender receive a copy of the FHA appraisal, it’s valid for 180 days.

A conditional approval from the lender will outline the required repairs to be made in order to close. After the appraisal is approved in underwriting, the loan will most likely be cleared to close. Prior to closing, borrowers will receive a mortgage closing disclosure which outlines the total funds needed to close.

💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

The Takeaway

FHA appraisals estimate a property’s value and assess its condition to determine if it meets safety and livability standards set by HUD. Understanding the conditions and issues that won’t pass FHA inspection is important for buyers and sellers alike.

SoFi offers a wide range of FHA loan options that are easier to qualify for and may have a lower interest rate than a conventional mortgage. You can down as little as 3.5%. Plus, the Biden-Harris Administration has reduced monthly mortgage insurance premiums for new homebuyers to help offset higher interest rates.

Another perk: FHA loans are assumable mortgages!

FAQ

How does the appraised value affect the loan amount?

With FHA loans, the appraised value of the property determines the loan amount a borrower can qualify for.

Can you contest an FHA appraisal?

Yes, you can contest an FHA appraisal and provide additional information to inform the property valuation. However, there’s no guarantee that the appraiser will change the valuation.

What happens if the property doesn’t meet FHA requirements?

If a property doesn’t meet FHA requirements, buyers can ask the seller to make the necessary repairs. Alternatively, buyers can consider other types of home loans, such as a conventional mortgage.

How do FHA appraisals impact refinance applications?

If a home appraises for less than its owner thought it was worth, this could affect the ability to refinance, or the available loan amount for the refinance. Ultimately, a refi plan could be thrown off course by an unexpectedly low appraisal.

Is an FHA appraisal different for a new-construction home?

A new-construction home still has to meet the FHA’s requirements and standards. A key difference in the FHA appraisal process for new homes: If the home is 90% or less completed, the lender must provide the appraiser with a copy of the floor plan and other documents necessary to determine the size and quality level of the house. If construction is more than 90% complete, the lender must provide a list of what will be installed or completed after the inspection date.

How long is an FHA appraisal good for?

An FHA appraisal is valid for 180 days unless it’s updated. If updated, an appraisal can be good for up to one year.

Can an FHA appraisal affect interest rates?

An FHA appraisal won’t directly affect the interest rate you are offered for an FHA loan; however, if the home you wish to purchase appraises for less than the sale price, then the appraisal may affect your ability to obtain an FHA loan.

How long do you have after appraisal to close an FHA loan?

An FHA appraisal is good for 180 days and can be extended under certain conditions. But buyers typically close within 30 to 45 days after the appraisal.

Photo credit: iStock/valentinrussanov

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.
^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. Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOHL-Q425-201

Read more

Before most house hunters can close the deal, they need to qualify for a mortgage. Learning how to apply for a mortgage in advance — and breaking the process down into digestible steps — can help applicants feel better prepared and avoid any unpleasant surprises during the process. (Good news: The mortgage application process is one of those things that is more complicated to explain than to experience!)

Ready to learn how to apply for a home loan? Here are the seven steps in the mortgage process, including moves you can make that may expedite your approval.

Table of Contents

1. Submit Your Mortgage Application

You’ve found the ideal property, made an offer on the house, and put your down payment into escrow. If you didn’t already get preapproved for a mortgage online, it’s time to apply for a mortgage. There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle. Some choices you’ll need to make at this stage of the mortgage process are:

•   A conventional home loan or a government-insured loan, such as an FHA loan backed by the Federal Housing Administration or a VA loan backed by the U.S. Department of Veterans Affairs)

•   A fixed-rate or an adjustable-rate mortgage

•   Your repayment term: typically 15, 20, or 30 years

A good lender will walk you through your options, whether you’re looking at a home requiring an FHA mortgage or a high-priced home with a jumbo loan.

Your lender will have the required forms for your mortgage loan application, and you can often submit everything online, but you’ll want to have the following at hand:

•   Proof of identity.

•   Documentation of income: W-2s or 1099s, your most recent income tax filing, profit-and-loss statements if self-employed, pay stubs, Social Security and retirement account info, information on alimony and child support, etc.

•   Documentation of assets: bank accounts, real estate, investment accounts, etc. If you received help from a family member to fund your down payment, a gift letter will be necessary.

•   Documentation of debts: any current mortgage you might have, car loans, credit cards, student loans, etc.

•   Information on property: street address, sale price, property size, property taxes, etc.

•   Employment documentation: current employer information, salary information, position/title, length of time at employer, etc. In general, lenders like to see two years of employment on a loan application. Self-employed individuals will generally submit two years of tax returns.

2. Schedule Your Home Inspection and Appraisal

It can take a little time to get your inspection and appraisal on the calendar, and then you can expect to wait at least a few days to get the reports. So now’s the time to make sure these two important aspects of the home-buying process are moving along.

A home inspection may not be required, but it’s a good idea to hire an inspector (your real estate agent may have recommendations, but you can shop around) to thoroughly check the property inside and out for undisclosed problems. If the inspector uncovers expensive issues, you may negotiate for a price reduction, which could affect your mortgage principal amount. If the problem is a dealbreaker, the inspector’s report could help you back out of the deal without penalty.

Review this home inspection checklist to make sure your inspector will cover all the bases. In some cases, a general home inspector may find an issue that requires a more specific expert to take a look (and yes, that’ll cost more money — but it may be worth the cost).

Don’t let the infatuation with a seemingly perfect property blind you. If there are serious issues that come up during the inspection and the sellers won’t budge on price (or agree to fix them before closing), seriously consider walking away. You won’t recoup the money you paid for the inspection — a home inspection costs between $300 and $500 — but if it keeps you from investing in a money pit, it’s money well spent.

An appraisal will be necessary as part of the mortgage underwriting process. It’s an independent evaluation of a home’s value. It will describe the property and what makes it valuable. Factors that affect the appraisal value include the location, condition, amenities and features, and market conditions in the area.

A lender requires a home appraisal to ensure that it isn’t lending more than the property is worth. If the appraisal comes in too low, the lender won’t lend extra money to cover the gap. Buyers will need to cover the difference with their own money or renegotiate the price with the seller to match the appraisal.

Recommended: Local Housing Market Trends

3. Secure Homeowners Insurance

You’ll need to buy homeowners insurance before you can close on your new home, so now’s the time to scout around for a policy that provides the coverage you need at the price you feel is right. Thanks to the appraisal, you can feel confident in the value of the home, which will help in the insurance process.

Before you commit, get quotes from a few different companies. Taking the time to do so at this step of the mortgage process will ensure your coverage is shipshape when you reach your closing. Your prospective lender will want to know the home is covered and many homeowners make their insurance premium payments as part of their monthly mortgage bill.

4. Undergo Loan Processing and Review

While you are taking care of your insurance coverage, the lender will be processing and reviewing your loan application to make sure you meet all the mortgage loan requirements. A major part of the mortgage loan process is the underwriting phase. The underwriting process begins after you complete your mortgage application, ends after all the documentation has been completed, and includes the appraisal.

During the process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance. The lender will perform a hard credit inquiry. In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates. But in general, you’ll need a minimum 620 credit score to buy a house. Lenders are required to do a second credit check before final mortgage loan approval and may likely ask for further documentation.

The average time between submitting a mortgage application and closing is about 50 days, so if you’re wondering how long does the underwriting process take for a mortgage, you can expect things to take a little under two months, start to finish. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, take out auto loans, or take on any other new debt. And, of course, make sure to pay all your bills on time. If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let it know.

Responding quickly to any questions or requests from your lender can help keep your application on track.

Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?

5. Receive Your Approval and Closing Disclosure

It can be tough feeling like your life is on hold while you’re waiting for the mortgage underwriting process to be completed. Try to be patient and let things play out. Now is a good time to reach out to friends and family who have been through the mortgage loan process before and commiserate. Consider this your orientation into the homeownership club.

Once the appraisal is complete and all documentation has been reviewed and verified, the underwriter will complete the mortgage underwriting process and recommend approval, denial, or pending. A pending decision is given when information is incomplete. You may still be able to get the loan by providing the documentation asked for.

It’s a happy day when your lender officially notifies you that you have been approved for your home loan. After underwriting approval with a “clear to close,” you’re set to close on your loan. The mortgage closing disclosure you receive from the lender is a required document. This five-page form from your lender will outline the home mortgage loan terms, including the loan principal, interest rate, and estimated monthly payment. It also lays out how much money is owed for closing costs and the down payment.

Lenders are required by federal law to provide the mortgage closing disclosure at least three business days ahead of the closing date. Make sure you read it immediately and thoroughly.

6. Do A Final Walk-Through of the Home

Before arriving at closing, you’ll want to do a final walk-through of the property you’re purchasing. During this walk-through, confirm that the sellers have made any repairs that were agreed to — and that they haven’t removed anything, such as an appliance or light fixture, that was meant to be left, per the purchase agreement.

7. Attend the Closing Meeting

Closing day comes after the mortgage loan approval process is completed. All parties will sign the final documents and ownership is legally transferred from the sellers. In the days prior to your close, the lender should provide a final list of closing costs. Closing costs are typically 2% to 5% of the mortgage principal and may include items like:

•   Lender fees

•   Appraisal and survey fees

•   Title search/title insurance fees

•   Recording fees

•   First year of private mortgage insurance (PMI) premiums, if required

You can pay closing costs by wire transfer a day or two before, or by cashier’s check or certified check the day of closing.

In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork at closing. In recent years, remote online closings have become more common. The closing may be virtual, but the feelings of relief and happiness that typically result are very real.

The Takeaway

Applying for and securing a home mortgage loan follows a simple process that can seem complicated the first time you do it. But if you reply to questions promptly and are organized with your documents, it’s actually pretty simple — even if it does involve a little waiting time.

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 long is a mortgage loan in processing?

It takes a little under two months from the date you submit your mortgage application to closing on the house — the average timeline is about 50 days. In some scenarios, you may be able to close in as little as 30 days.

How do you know when your mortgage loan is approved?

Your mortgage loan officer will contact you when your loan is approved. They may call you to give you the good news, but you’ll want to see it in writing so watch for an email as well.

What should I avoid after applying for a mortgage?

You want to keep your financial situation as stable as possible during the mortgage application process. That means don’t open new credit accounts, and keep your credit utilization down (no extra swipes on those credit cards). Don’t fall behind on any bill, either

What looks bad on a mortgage application?

Key red flags on a mortgage application include a high level of debt relative to your income, a low credit score, or a history of late or missed debt payments. A lender might also be concerned about any large, unexplained influx of cash into your bank account in the months leading up to your application. A history of gambling or repeated use of payday loans might also be cause for concern from a lender’s perspective.

---

Photo credit: iStock/MicroStockHub

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®
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.

SOHL-Q425-196

Read more

While it is possible to take out a Federal Housing Authority (FHA) loan to purchase a second home, it’s only allowed in a handful of specific scenarios. Many first-time homebuyers choose an FHA loan because of its lower credit score and down payment requirements, so when they need to purchase a second home the natural instinct is to look at financing with a second FHA loan. Read on for more details on how FHA loans work and the few exceptions that allow borrowers to qualify for more than one at a time.

What Is an FHA Loan?

An FHA loan is a type of mortgage that’s insured by the federal government and issued by a lender. FHA loans were created in 1934 at the height of the Great Depression to make homeownership more accessible. Since the FHA assumes the risk in case of default, lenders are able to offer more favorable loan terms to borrowers who might not otherwise qualify for conventional home mortgage loans.

With an FHA loan, borrowers with credit scores of 580 or more may qualify for a down payment of 3.5% of the home purchase price. (Borrowers with credit scores between 500 and 579 will be required to put 10% down.) These FHA loan requirements are helpful for first-time homebuyers who haven’t built up their credit or borrowers with less savings to put toward a down payment. FHA loans are one of several options for low-income home loans, so consider all your options, whether you are thinking about taking out a first or second FHA loan.

Borrowers must also get mortgage insurance with an FHA loan. FHA mortgage insurance involves an upfront premium and an annual payment that’s added to monthly mortgage payments. The upfront premium is equivalent to 1.75% of the loan, while the annual payment is calculated based on the loan-to-value ratio and loan terms.

Besides the purchase of a home, FHA-insured loans are also available for home renovations and refinancing an existing FHA loan.

Recommended: How Do FHA 203(k) Loans Work?

How You Can Get an FHA Loan for a Second Home?

It’s possible to get an FHA loan more than once. For instance, if you’ve sold a prior home and haven’t owned a home for three or more years, you’d qualify as a first-time homebuyer and be eligible for an FHA loan. (And if you have a conventional mortgage on your first home, you may be able to get an FHA loan for a second home provided your credit score is adequate and your budget can handle the cost of a second mortgage; you would also have to occupy the second home as your primary residence.)

Meanwhile, qualifying for a second FHA loan is more complicated. For one, the purchased property must become the primary residence for at least one borrower. This includes a requirement to occupy the property within 60 days and have it be their primary residence for at least one year. These occupancy requirements mean that an FHA loan can’t be used to buy vacation homes or rental properties.

Here are details on the exceptions that permit borrowers to get an FHA loan on a second home:

•   Relocation: If moving for employment-related reasons, borrowers who financed their current home with an FHA loan may qualify for a second FHA loan on a new home before or without selling their first property. However, to qualify, the job must be performed on-site and the new home must be located at least 100 miles away from the primary residence that was previously purchased with FHA-backed financing.

•   Increase in Family Size: Borrowers may qualify for a second FHA loan to purchase a larger home to accommodate their growing family. This is evaluated on a case-by-case basis but typically requires proof of an increase in legal dependents and having at least 25% equity in the home.

•   Vacating a Jointly Owned Property: Borrowers who are getting divorced or permanently vacating a home they inhabited with a co-borrower may qualify for a second FHA loan.

•   Cosigning: A borrower who cosigned an FHA loan but didn’t live in the property could qualify for another FHA loan to buy their own home.

Recommended: FHA Loan Mortgage Calculator

FHA Second-Home Requirements

For borrowers who can satisfy one of the exceptions outlined above, the next step is meeting financial eligibility requirements for a second FHA loan. With any loan, and especially a second mortgage, lenders will consider the borrower’s ability to afford monthly payments when determining if they qualify. FHA loans can allow a debt-to-income (DTI) ratio of up to 50%, meaning that half of a borrower’s income is going to debt payments. Lenders, however, may look for a lower DTI of 43%, accounting for the cost of both mortgages, to approve a second FHA loan.

Borrowers will need to meet FHA loan credit score criteria to determine whether they’ll need to put 3.5% or 10% down. Besides the down payment, lenders also factor in savings for covering closing costs and monthly payments.

Pros and Cons of Multiple FHA Loans

There are advantages and drawbacks to having FHA loans for borrowers to keep in mind.

Tips if You’re Considering Multiple FHA Loans

Consider these tips to be prepared to apply for a second FHA loan: To lower your DTI ratio, you’ll either need to increase your income or lower your debt. Using your first home for rental income can demonstrate to lenders that you can afford having two mortgages. When evaluating debt, remember that established credit that’s in good standing is viewed more favorably than newer credit accounts.

Building more equity in the home you currently own is another option to help qualify for a second FHA loan. If possible, aim for at least 25% equity before applying for a second FHA loan, as this is the minimum required if you are citing an increase in family size as the exception.

The Takeaway

Can you get an FHA loan if you already have an FHA loan? Yes, but there are specific exceptions you’ll need to meet in order to qualify, and the new property must be used as a primary residence for at least one year. Not able to take out two FHA loans at once? Don’t worry. There are other options for borrowing that may suit your needs.

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 will disqualify you from an FHA loan?

Borrowers could be disqualified from an FHA loan based on a high debt-to-income ratio, poor credit, or insufficient funds to cover the down payment, closing costs, and monthly mortgage payment.

Can you qualify for FHA twice?

Yes, you can get a second FHA loan if you are relocating for a new job and need to move at least 100 miles away, have an increase in family size, or vacate a jointly owned property. Borrowers who previously co-signed on someone else’s FHA loan may also qualify for FHA twice.

What is the 100-mile rule for FHA loans?

The 100-mile rule allows borrowers to get a second FHA loan without having to sell an existing property with a FHA-backed mortgage if they’re moving for employment-related reasons to a location that’s at least 100 miles away.

---

Photo credit: iStock/nazar_ab

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

^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.

SOHL-Q425-165

Read more

Heard of a no-closing-cost mortgage or refinance? Sounds divine, but mortgage closing costs are almost as certain as death and taxes. They must be accounted for, one way or the other.

You may be spared the pain of paying closing costs upfront, depending on the type of loan and the lender’s criteria, but they won’t just magically disappear. Instead, you’ll either be given a higher interest rate on the mortgage to cover those costs or see the costs added to your principal balance.

If you’re thinking about what’s needed to buy a house, keep closing costs in mind and understand the pros and cons of rolling these costs into your loan.

What Are Closing Costs?

A flock of fees known as closing costs on a new home are part and parcel of a sale. They typically range from 2% to 5% of the home’s purchase price. Closing costs include origination fees, recording fees, title insurance, the appraisal fee, property taxes, homeowners insurance, and possibly mortgage points. Some of the costs are unavoidable; lender fees are negotiable.

Closing costs come into play when acquiring a mortgage and when refinancing an existing home loan.

You may cover closing costs with a cash payment at closing, with your down payment, or by tacking them on to your monthly loan payments. You may also be able to negotiate with the sellers to have them cover some or all of the closing costs.

💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Can Closing Costs Be Rolled Into a Loan?

If you’re buying a home and taking out a new mortgage, your lender may allow you to roll your closing costs into the loan, depending on:

•   the type of home loan

•   the loan-to-value ratio

•   your debt-to-income (DTI) ratio

Rolling closing costs into your new mortgage can raise the DTI and loan-to-value ratios above a lender’s acceptable level. If this is the case, you may not be able to roll your closing costs into your loan. It’s also possible that if you roll in your closing costs, your loan-to-value ratio will become high enough that you will be forced to pay for private mortgage insurance. In that case, it may be worth it to pay your closing costs upfront if you can.

If you hear of someone who’s taken out a mortgage and says they rolled their closing costs into their loan, they may have actually acquired a lender credit — the lender agreed to pay the closing costs in exchange for a higher interest rate in a “no-closing-cost mortgage.” A no-closing-cost refinance works similarly.

Not all closing costs can be financed. For example, you can’t roll in the cost of homeowners insurance or prepaid property tax. Some of the costs that may be included are the origination fees, title fees and title insurance, appraisal fees, discount points, and the credit report fee.

What about government-backed mortgages? Most closing costs for FHA loans (backed by the Federal Housing Administration) can be financed. And VA loans usually require a one-time U.S. Department of Veterans Affairs “funding fee,” which can be rolled into the mortgage.

USDA loans (from the U.S. Department of Agriculture) will allow borrowers to roll closing costs into their loan if the home they are buying appraises for more than the sales price. Buyers can then use the extra loan amount to pay the closing costs.

Finally, for FHA and USDA loans, the seller may contribute up to 6% of the home value as a seller concession for closing costs.

How to Roll Closing Costs Into an Existing Home Loan

When you’re refinancing an existing mortgage and you roll in closing costs, you add the cost to the balance of your new mortgage. This is also known as financing your closing costs. Instead of paying for them up front, you’ll be paying a small portion of the costs each month, plus interest.

Pros of Rolling Closing Costs Into Home Loans

If you don’t have the cash on hand to pay your closing costs, rolling them into your mortgage could be advantageous, especially if you’re a first-time homebuyer or short-term homeowner.

Even if you do have the cash, rolling closing costs into your loan allows you to keep that cash on hand to use for other purposes that may be more important to you at the time.

Cons of Rolling Closing Costs Into Home Loans

Rolling closing costs into a home loan can be expensive. By tacking on money to your loan principal, you’ll be increasing how much you spend each month on interest payments.

You’ll also increase your DTI ratio, which may make it more difficult for you to secure other loans if you need them.

By adding closing costs to your loan, you are also increasing your loan to value ratio, which means less equity and, often, private mortgage insurance.

Here are pros and cons of rolling closing costs into your loan at a glance:

Pros of Rolling In Costs	Cons of Rolling In Costs
Allows you to afford a home loan if you don’t have the cash on hand	Increases interest paid over the life of the loan
Allows you to keep cash for other purposes	Increases DTI, which can lower your ability to secure future credit
May allow you to buy a house sooner than you would otherwise be able to	Increases loan to value ratio, which may trigger private mortgage insurance
	Reduces the amount of equity you have in your home

Is It Smart to Roll Closing Costs Into Home Loans?

Whether or not rolling closing costs into a home loan is the right choice for you will depend largely on your personal circumstances. If you don’t have the money to cover closing costs now, rolling them in may be a worthwhile option.

However, if you have the cash on hand, it may be better to pay the closing costs upfront. In most cases, paying closing costs upfront will result in paying less for the loan overall.

No matter which option you choose, you may want to do what you can to reduce closing costs, such as negotiating fees with lenders and trying to negotiate a concession with the sellers in which they pay some or all of your costs. That said, a seller concession will be difficult to obtain if your local housing market is competitive.


💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

The Takeaway

Closing costs are an inevitable part of taking out a home loan or refinancing one. Rolling closing costs into the loan may be an option, but it pays to carefully consider the long-term costs of avoiding paying closing costs up front before you commit to your mortgage.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is a no-closing-cost mortgage?

The term “no-closing-cost mortgage” is a bit misleading. Closing costs are in play, but the lender agrees to cover them in exchange for a higher interest rate or adds them to the loan balance.

How much are home closing costs?

Closing costs are usually 2% to 5% of the purchase price of a home.

Can you waive closing costs on a home?

Some closing costs must be paid, no matter what. But you can try to negotiate origination and application fees with your lender. You may even be able to get your lender to waive certain fees entirely.

---

Photo credit: iStock/kate_sept2004

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.

⁺Lock and Look program: Terms and conditions apply. Applies to conforming, FHA, and VA purchase loans only. Rate will lock for 91 calendar days at the time of pre-approval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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.

^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®

SOHL-Q425-170

Read more