A mortgage broker acts as an intermediary between you and potential lenders. The broker’s job is to compare mortgage lenders on your behalf and find interest rates that fit your needs. Mortgage brokers have lists of lenders they work with, which can make your life easier.
Mortgage brokers are licensed and regulated financial professionals. They gather documents from you, pull your credit history, and verify your income and employment, using the information to help you apply for loans and negotiate terms in a short time.
Once you settle on a loan and a lender that works best for you, your mortgage broker will collaborate with the lender’s underwriting department, the closing agent (usually the title company) and your real estate agent to keep the transaction running smoothly through closing day.
A mortgage broker can save you time and may offer you a wider array of options than if you shop on your own. But brokers don’t work for free, so you should expect to pay for their services at some point in the process.
1. What makes mortgage brokers different from loan officers?
Loan officers, as opposed to mortgage brokers, are employees of one lender who are paid set salaries, plus bonuses. Loan officers can write only the types of loans their employer chooses to offer.
Mortgage brokers, meanwhile, deal with many lenders to find loans for their clients. Mortgage brokers, who can work within a mortgage brokerage firm or independently, may be able to give borrowers access to a broad selection of loan types.
2. How does a mortgage broker get paid?
Mortgage brokers are most often paid by lenders, sometimes by borrowers, but, by law, never both. That law — the Dodd-Frank Act — also prohibits mortgage brokers from charging hidden fees or basing their compensation on a borrower’s interest rate.
You can also choose to pay the mortgage broker yourself. That’s called “borrower-paid compensation.” Though even when the fee is paid by the lender, often it is rolled into the loan itself, meaning the borrower eventually still pays the bill.
Shop around for mortgage brokers and ask how much to expect to pay in fees, which are typically 1% to 2% of the loan amount. The competitiveness — and home prices — in your market will have a hand in dictating what mortgage brokers charge. Federal law limits how high compensation can go.
3. Is a mortgage broker right for me?
You can save time by using a mortgage broker; it can take hours to apply for preapproval with different lenders, and then there’s the back-and-forth communication involved in underwriting the loan and ensuring the transaction stays on track.
However, that convenience comes at a cost, which is something to consider if you’re especially tight on funds. You also might sacrifice a sense of control and direct interaction with a lender when you turn the process over to a broker, a feeling that could be unnerving when making such a big purchase.
If you seek expert guidance and streamlined lender comparisons, and you are willing to pay a premium for these services, a mortgage broker may be right for you.
🤓Nerdy Tip
When choosing a lender, pay attention to lender fees. Specifically, ask what fees will appear on Page 2 of your Loan Estimate form in the Loan Costs section under “A: Origination Charges.” Then, take the Loan Estimate you receive from each lender, place them side by side and compare your interest rate and all of the fees and closing costs.
That head-to-head comparison among different options is the best way to make the right choice.
4. How do I choose a mortgage broker?
The best way to find a mortgage broker is to ask friends and relatives for referrals, but make sure they have actually used the broker.
Learn all you can about the broker’s services, communication style, level of knowledge and approach to clients.
Another referral source: Ask your real estate agent for the names of brokers that they have worked with and trust. Some real estate companies offer an in-house mortgage broker as part of their suite of services, but you’re not obligated to go with that company or individual.
Finding the right mortgage broker is just like choosing the best mortgage lender: It’s wise to interview at least three people to find out which services they offer, how much experience they have and how they can help simplify the process.
Check your state’s professional licensing authority to ensure they have mortgage broker’s licenses in good standing.
Also, read online reviews and check with the Better Business Bureau to assess whether the broker you’re considering has a sound reputation.
Frequently asked questions
What exactly does a mortgage broker do?
A mortgage broker finds lenders with loans, rates, and terms to fit your needs. They do a lot of the legwork during the mortgage application process, potentially saving you time.
How do mortgage brokers get paid?
Mortgage broker fees most often are paid by lenders, which may add to the total cost of a loan, though they sometimes can be paid directly by borrowers. Competition and home prices will influence how much mortgage brokers get paid.
What’s the difference between a mortgage broker and a loan officer?
Mortgage brokers will work with many lenders to find the best loan for your situation. Loan officers work for one lender.
How do I find a mortgage broker?
The best way to find a mortgage broker is through referrals from family, friends and your real estate agent. But don’t just take their word for it. Do your homework when selecting a mortgage broker by investigating their licenses, reading online reviews and checking with the Better Business Bureau.
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It’s entirely possible to sell a house with a mortgage. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.
With the help of your lender and real estate agent, you can move ahead and sell a house with a mortgage. Yes, there’s a bit of paperwork involved, but settling your mortgage at the closing table shouldn’t prove too challenging.
Here’s everything you need to know about selling a home with a mortgage.
What Happens to Your Mortgage When You Sell Your Home?
When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.
A Typical Sale
In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.
A Short Sale
A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).
In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction can be lengthy (up to 120 days) and involves a lot of paperwork. It’s not common in areas where values are falling or at times when the real estate market is dropping.
When You Buy Another House
There are several roads you can take when you buy another house before selling your own. You may have the option of:
• Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.
• Including a home sale contingency in your real estate contract. The home sale contingency states that the purchase of the new home depends upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.
• Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.
Selling a House With a Mortgage: Step by Step
Here are the steps to take to sell a home that still has a mortgage.
Get a Payoff Quote
To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance shown on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.
The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.
Determine Your Home Equity
Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on the existing mortgage is $250,000, your equity is $150,000.
When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.
Secure a Real Estate Agent
A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.
Set a Price
With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.
Accept a Bid and Open Escrow
After an open house and showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage preapproval?
You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.
Review Your Settlement Statement
You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.
Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction and pinpoints how much money you’ll net by selling your home. 💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
Selling a House With a Negative Equity
Negative equity means that the value of an asset (such as a home) is less than the balance due on the loan against it. Say you purchased a property for $400,000 with a $380,000 loan, but then the real estate market took a nosedive. Your property is now worth $350,000, less than the amount of the mortgage.
If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.
In this scenario (an alternative to a short sale), you pay the difference between the amount left on your mortgage note and the purchase offer at closing. So in the example above, if you sold the house for $350,000, at the closing, you would need to pay the loan holder an additional $30,000 to clear the debt.
The Takeaway
Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your remaining mortgage, your closing costs, and any second mortgage. The rest is your profit.
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FAQ
Who is responsible for the mortgage on the house during the sale?
The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.
What happens if you sell a house with a HELOC?
When you sell a home that has a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.
What happens to escrow money when you sell your house?
Your mortgage escrow account will be closed, and any money left will be refunded to you.
Can I make a profit on a house I still owe on?
Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.
Can I have two mortgages at once?
Yes, you can have two mortgages at once if the lender approves it.
Photo credit: iStock/Beton studio
*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.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Are you eligible for the zero-down USDA home loan?
What if you could secure a USDA home loan that allows you to buy a house with no down payment, competitive mortgage rates, and reduced mortgage insurance costs?
It might sound like a dream, but it’s entirely possible with the USDA mortgage program. Designed to assist low- and moderate-income Americans in becoming homeowners, USDA loans provide incredibly affordable financing options for eligible buyers.
Essentially, USDA mortgages empower individuals to transition from renting to owning, even when they thought homeownership was out of reach.
Verify your USDA loan eligibility. Start here
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>Related: How to buy a house with $0 down: First-time home buyer
What is a USDA loan?
USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. The USDA offers financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.
Verify your USDA loan eligibility. Start here
The USDA mortgage program is intended for home buyers with low-to-average household incomes. In order to qualify, you must also purchase a home in a “rural area” as the USDA defines it. Those who are eligible can use a USDA mortgage to buy a home or refinance one they already own.
USDA loans offer nearly unbeatable benefits for qualified borrowers. So if this program sounds like a good fit for you, it’s worth getting in touch with a participating lender to find out if you’re eligible.
How do USDA loans work?
The U.S. Department of Agriculture insures USDA loans. Thanks to government guarantees and subsidies, lenders can offer 100% financing and below-market interest rates without taking on too much risk.
Verify your USDA loan eligibility. Start here
Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions.
The application process for a USDA mortgage works just like any other home loan. You’ll compare rates and choose a lender, complete an application (often online), provide financial documents, wait for the lender’s approval, and then set a closing day.
The only exception is for very low-income borrowers, who may qualify for a USDA Direct home loan. In this case, you’d go straight to the Department of Agriculture to apply rather than to a private lender.
Types of USDA loans
For eligible individuals and families looking to buy, build, or renovate a home in a rural area, the USDA offers three main mortgage loan types. The loan programs are as follows:.
Verify your USDA loan eligibility. Start here
USDA Guaranteed Loans
Approved private lenders, such as banks and mortgage companies, provide USDA loan guarantees to qualified borrowers. A USDA guaranteed loan is one in which the government backs a portion of the loan, lowering the lender’s risk and allowing them to offer more favorable terms to the borrower. These loans frequently have low interest rates, no down payment, and more lenient credit requirements. The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size.
USDA Direct Loans
The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans. These loans have favorable terms, such as low interest rates (as low as 1% with payment assistance) and long repayment periods (up to 38 years for eligible applicants). Income, creditworthiness, and the property’s location in an eligible rural area determine eligibility for direct loans.
USDA Home Improvement Loan
The USDA’s Single Family Housing Repair Loans and Grants program, also known as the Section 504 program, provides financing for home improvements. This program provides low-interest, fixed-rate loans and grants to low-income rural homeowners for necessary home repairs, improvements, and modifications that make their homes safer, more energy-efficient, and more accessible. However, if you’re looking for one, you might have a difficult time finding this type of USDA home loan. They are not widely available from lenders.
USDA loan eligibility requirements
To be eligible for a USDA home loan, you’ll need to meet a number of requirements that vary depending on whether you are applying for a USDA loan guarantee or a USDA direct loan.
Verify your USDA loan eligibility. Start here
Some general requirements, however, apply to all USDA loans, specifically those based on both buyer and property eligibility.
USDA loan property requirements
Eligible rural area
The USDA defines an eligible area in rural America as having a population of 20,000 or fewer. To check if the property you’re considering falls within these designated areas, the USDA’s eligibility site provides all the necessary information. We also provide a USDA eligibility map below.
Single-family primary residence
USDA loans are exclusively available for primary residences. Neither investment properties nor second homes are eligible for this program.
Meet safety standards
The property must adhere to the USDA’s minimum property requirements, which focus on safety, structural integrity, and adequate access to utilities and services.
USDA loan borrower requirements
Income limits
You must meet USDA monthly income limits, meaning your household income can’t exceed 115% of the area median income. Conforming to USDA income eligibility requirements ensures the program is accessible to those it’s intended to serve.
Stable income
Applicants are required to demonstrate a stable and dependable income, typically for at least 24 months, before applying. This helps ensure borrowers can maintain their loan payments.
Creditworthiness
Although USDA loans are known for their flexible credit requirements, creditworthiness is still important. Lenders usually seek a minimum credit score of 640 for guaranteed loans, with USDA Direct Loans potentially having more lenient criteria.
Debt-to-income ratio
Your monthly debt, including future mortgage payments, generally should not exceed 41% of your gross monthly income. However, lenders may make exceptions based on credit score and available cash reserves.
Citizenship status
Applicants need to be U.S. citizens, U.S. non-citizen nationals, or qualified aliens with a valid Social Security number to qualify for a USDA loan.
USDA loan eligibility map
The USDA eligibility map is a valuable online resource for potential borrowers. It helps them identify if a property is situated in an area of rural America that qualifies for USDA home loans.
Verify your USDA loan eligibility. Start here
Users can enter a specific address or explore areas of the map to see if they qualify for USDA guaranteed loans or direct loans by using this interactive map.
1 Source: USDAloans.com, based on Housing Assistance Council data
USDA loan rates
Compared to other home loan programs, USDA mortgage interest rates are some of the lowest available.
Check your USDA loan rates. Start here
The VA loan, specifically tailored for veterans and service members, stands alongside the USDA loan as one of the few government-backed loan programs offering competitively low rates. Due in large part to the security that government subsidies and guarantees provide, both the USDA and VA programs are able to offer interest rates below the market average.
Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%–0.75% higher than USDA rates on average. That said, mortgage rates are personal. Getting a USDA loan doesn’t necessarily mean your rate will be “below-market” or match the USDA loan rates advertised.
How to get the best USDA mortgage rates
Strengthening your financial standing is essential for obtaining the best USDA loan rates. Here are some helpful techniques for improving your personal finances:
Boost your credit score.Improving your credit score is an important step toward getting the best USDA loan rates. Taking steps to improve your credit score before applying for a USDA loan often proves beneficial.
Consider a down payment. While a down payment is not required for USDA loans, it can demonstrate to the lender your commitment to repaying the loan. This could also help lenders find your application more appealing.
Minimize existing debt.Lowering your debt-to-income ratio (DTI) by paying off existing high-interest debts can make you more appealing to lenders. It demonstrates that you are capable of handling your loan and making payments on time.
Shop around for lenders.Exploring loan options with multiple participating lenders is a smart move that can save you thousands of dollars over the life of the loan. Comparing their interest rates, fees, closing costs, and loan terms can help you identify the most appealing offer. It’s possible that first-time home buyers will find better options than what USDA loans can offer.
USDA loan costs
When it comes to financing a home purchase with a USDA loan, it’s not just the mortgage rate that you need to consider. You’ll be responsible for various fees and costs, which can add up over time. Understanding these costs upfront can help you make a more informed decision and plan your budget accordingly.
Here’s a breakdown of the expenses you can expect:.
USDA mortgage insurance
The USDA guarantees its mortgage loans, meaning it offers protection to approved mortgage lenders in case borrowers default. But the program is partially self-funded. To keep this loan program running, the USDA charges homeowner-paid mortgage insurance premiums.
Verify your USDA loan eligibility. Start here
Upfront guarantee fee
One of the first costs you’ll encounter is the upfront guarantee fee. This fee is a percentage of the loan amount and is required by the USDA to secure the loan. It’s usually around 1% but can vary. You can either pay this fee upfront or roll it into the loan balance.
Annual guarantee fee
Unlike conventional loans that may not require mortgage insurance, USDA loans come with a monthly mortgage insurance premium. You can expect to pay a 0.35% annual guarantee fee based on the remaining principal balance each year.
The annual fee is broken into 12 installments and included in your regular mortgage payment.
As a real-life example, a home buyer with a $100,000 loan size would have a $1,000 upfront mortgage insurance cost plus a monthly payment of $29.17 for the annual mortgage insurance. USDA upfront mortgage insurance is not paid in cash. It’s added to your loan balance, so you pay it over time.
Inspection fees
Before the loan is approved, the property will need to be inspected to ensure it meets USDA property eligibility requirements. This inspection can cost anywhere from $300 to $500, depending on the location and size of the home.
Closing Costs
Closing costs are a mix of fees that include loan origination fees, appraisal fees, title search fees, and more. These costs can range from 2% to 5% of the home’s purchase price. Some of these costs can be rolled into the loan amount, but it’s best to be prepared to pay some of them out-of-pocket.
How to apply for a USDA home loan
Qualifying for a USDA home loan can be a great way to finance a home, especially if you’re looking to buy in a rural area. These loans offer attractive benefits like zero down payments and competitive interest rates.
However, the USDA loan approval process involves several steps and specific eligibility criteria. Here’s a guide on how to apply for a USDA home loan.
Check your USDA loan eligibility. Start here
Step 1: Check your eligibility
Before diving into the application process, it’s important to determine if you meet the USDA’s eligibility requirements. These typically include:
A minimum credit score of 640
A debt-to-income (DTI) ratio of up to 41%
Income limitations, which vary by location and household size
The property must be located in a USDA-eligible area
Step 2: Gather necessary documentation
You’ll need to provide various documents to prove your eligibility, including:
Proof of income eligibility (e.g., pay stubs, tax returns)
Employment verification
Credit history report
Personal identification (e.g., driver’s license, passport)
Step 3: Pre-Qualification
Contact a USDA-approved lender to get pre-qualified for a loan. During this qualifying process, the participating lender will review your financial situation to give you an estimate of how much you can borrow.
Check if you’re eligible for a USDA loan. Start here
Both pre-approval and pre-qualification can give you a better idea of your budget and show sellers that you are a serious buyer.
Step 4: Property search
Once pre-qualified, you can start looking for a property that meets USDA guidelines. Keep in mind that the home must be your primary residence and be located in an eligible rural area.
Working with a real estate agent who has experience with USDA loans can be a big advantage.
Step 5: USDA home loan application
After finding the right property, you’ll need to fill out the USDA loan application. Your lender will guide you through this process, which will include a more thorough review of your financial situation and the submission of additional documents.
Step 6: Property appraisal and inspection
The lender will arrange for an appraisal to ensure the property meets USDA standards. An inspection may also be required to identify any potential issues with the home.
Step 7: Loan approval and closing
Once the appraisal and inspection are complete and all documentation is verified, you’ll move on to the loan approval stage. If approved, you’ll proceed to closing, where you’ll sign all necessary paperwork and officially secure your USDA home loan.
With the loan secured and the keys in hand, you’re now ready to move into your new home!
By following these steps and working closely with a USDA-approved lender, you can navigate the USDA home loan process with confidence. Always remember to consult with your lender for the most accurate and personalized advice.
How do USDA loans compare to conventional loans?
USDA loans and conventional loans both have fixed terms and interest rates, but they’re different when it comes to down payments and fees.
Down payment
USDA loans don’t ask for a down payment, unlike conventional mortgages, which usually require a 3% down payment. FHA loans require a 3.5% down payment. VA loans, like USDA loans, also don’t require a down payment.
Home appraisal
Both USDA loans and conventional loans need an appraisal from an independent third party before the loan is approved.
The home appraisal for a conventional loan determines whether the loan amount and the home’s value match. If the loan amount doesn’t measure up to the market value of the home, the lender can’t get back their money just by selling the house. If you want to know more about the home’s condition, like the roof or appliances, you need to get a home inspector.
For a USDA loan, the appraisal does two things:
Just like with a conventional loan, it makes sure the home’s value is right for the loan amount.
It checks if the home meets USDA standards. This means the home should be ready to live in. For example, the roof and heating should work properly. The appraisal also looks at whether the well and septic systems follow USDA rules.
If you’re looking for a detailed report on the house, hiring a home inspector is still a good idea.
Fees
While conventional loans charge private mortgage insurance (PMI) when you make less than a 20% down payment, this isn’t the case with USDA loans. You don’t need PMI for USDA direct or guaranteed loans.
However, USDA guaranteed loans have a guarantee fee of 1% at closing and then an annual fee of 0.35% of the loan, added to your monthly payment. You can roll the initial fee into your loan amount.
Loan terms
The term for a USDA guaranteed loan is 30 years with a fixed rate. If you get a USDA direct loan, you can have up to 33 years to pay it back. If you’re a very low-income borrower, you might get up to 38 years to make it more affordable.
FAQ: USDA loans
Verify your USDA loan eligibility. Start here
What is the USDA Rural Housing Mortgage and who is eligible for it?
The USDA Rural Housing Mortgage, officially known as the Single Family Housing Guaranteed Loan Program, is a rural development loan aimed at helping single-family home buyers. It’s often referred to as a “Section 502” loan, based on the Housing Act of 1949 that created this program. Designed to stimulate growth in less-populated and low-income areas, this rural development loan is ideal for those looking to buy in eligible rural areas with the possibility of a zero-down payment.
What is the income limit for USDA home loans?
The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15 percent. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less.
Do USDA loans take longer to close?
USDA lenders have to send each loan file to the Department of Agriculture for approval before underwriting. This can add around two to three weeks to your loan processing time.
Can I do a cash-out refinance with the USDA program?
No, cash-out refinancing is not allowed in the USDA Rural Housing Program. Its loans are for home buying and rate-and-term refinances only.
What’s the maximum USDA mortgage loan size?
The USDA does not set loan limits, but your household income and debt-to-income ratio have a limit on the amount you can borrow. The USDA typically caps debt-to-income ratios at 41 percent. However, the program may be more lenient for borrowers with a credit score over 660 and stable employment or who show a demonstrated ability to save.
Where can I find a USDA loan lender, and what loan terms are available?
You can find a USDA loan lender by visiting the U.S. Department of Agriculture’s website, which maintains a list of approved lenders for the Rural Housing Program. The USDA Rural Housing loan offers a 30-year fixed-rate mortgage only, with no 15-year fixed option or adjustable-rate mortgage (ARM) program available.
Can I receive a gift or have the seller pay for my closing costs with a USDA loan?
Yes, USDA rural development loans allow both gifts from family members and non-family members for closing costs. Inform your loan officer as soon as possible if you’ll be using gifted funds, as it requires extra documentation and verification from the lender. Additionally, the USDA Rural Housing Program permits sellers to pay closing costs for buyers through seller concessions. These concessions may cover all or part of a purchase’s state and local government fees, lender costs, title charges, and various home and pest inspections.
Can I use the USDA loan for a vacation home, investment property, or working farm?
No, the USDA loan program is designed specifically for primary residences and cannot be used for vacation homes, investment properties, or working farms. The Rural Housing Program focuses on residential property financing.
Am I eligible for the USDA if I recently returned to work or am self-employed?
If you are a W-2 employee, you are eligible for USDA financing immediately, as there’s no job history requirement. However, if you have less than two years in a job, you may not be able to use your bonus income for qualification purposes. Self-employed individuals can also use the USDA Rural Housing Program. To verify your self-employment income, you will need to provide two years of federal tax returns, similar to the requirements for FHA and conventional financing.
Can I use the USDA loan program for home repairs, improvements, accessibility, and energy-efficiency upgrades?
Yes, the USDA loan program can be used for various purposes, including making eligible repairs and improvements to a home (such as replacing windows or appliances, preparing a site with trees, walks, and driveways, drawing fixed broadband service, and connecting utilities), permanently installing equipment to assist household members with physical disabilities, and purchasing and installing materials to improve a home’s energy efficiency (including windows, roofing, and solar panels).
Can a non-citizen qualify for a USDA loan?
Yes, along with U.S. citizens, legal permanent residents of the United States can also apply for a USDA loan.
Today’s USDA mortgage rates
USDA mortgage interest rates consistently rank among the lowest in the market, next to VA loans.
USDA loans can be particularly attractive to borrowers seeking optimal financial terms, especially in an environment with elevated interest rates. Prospective homebuyers who meet the criteria for a USDA loan may be able to secure a great deal right now.
To find out whether you qualify for one and what your rate is, consult with a trusted lender below.
Time to make a move? Let us find the right mortgage for you
1 Source: USDAloans.com, based on Housing Assistance Council data
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Taking out a mortgage comes with many costs — some upfront and some paid over long lengths of time. On a $300,000 mortgage, those costs might surprise you.
In fact, on a traditional 15- or 30-year loan of this size you might pay anywhere from $72,000 to $155,000 just in interest.
Learn more about how much a $300,000 mortgage will cost you in the long run:
Monthly payments for a $300,000 mortgage
Monthly mortgage payments always contain two things: principal and interest. In some cases, they might include other costs as well.
Here’s what typically makes up a mortgage payment:
Principal: This money is applied straight to your loan balance.
Interest: The cost of borrowing the money. How much you’ll pay is indicated by your interest rate.
Escrow costs: If you opt to use an escrow account (or your lender requires it), you’ll also have your property taxes, mortgage insurance, and homeowners insurance rolled into your monthly mortgage payment, too.
On a $300,000 mortgage with a 6% APR, you’d pay $2,531.57 per month on a 15-year loan and $1,798.65 on a 30-year loan, not including escrow. Escrow costs vary depending on your home’s location, insurer, and other details.
Here’s a quick look at what the monthly payment (principal and interest) would be for a $300,000 mortgage with varying interest rates:
Annual Percentage Rate (APR)
Monthly payment (15 year)
Monthly payment (30 year)
$2,531.57
$1,798.65
$2,572.27
$1,896.20
$2,613.32
$1,896.20
$2,654.73
$1,945.79
$2,696.48
$1,995.91
$2,738.59
$2,046.53
$2,781.04
$2,097.64
$2,823.83
$2,149.24
$2,866.96
$2,201.29
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Check out: 20- vs 30-Year Mortgage: Is an Unusual Option Right for You?
Where to get a $300,000 mortgage
To get a $300,000 home loan, you’ll want to get quotes from at least a few different lenders. Though this can be done by reaching out to each mortgage company directly, you can also compare lender options with an online marketplace like Credible.
Once you receive your quotes, you’ll want to compare them line by line. You should look at the interest rate, total costs on closing day, any origination fees, mortgage points you’re being charged, and more.
After you determine the best offer, you can move forward with that lender’s application and submit any required documentation.
Credible makes the process of comparing lender options easier — and it only takes a few minutes.
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Learn More: How to Know If You Should Buy a House
What to consider before applying for a $300,000 mortgage
Before taking out a mortgage of this size (or any home loan for that matter), you’ll want to have a good handle on the total costs of the loan. That includes your closing costs, the down payment, the total interest you’ll pay, and the monthly payment the loan comes with.
Total interest paid on a $300,000 mortgage
You’ll always pay more interest on longer-term loans. So, for example, a 30-year loan would cost more in the long haul than a 15-year one would (though the 30-year loan would have a smaller monthly payment).
With a 30-year, $300,000 loan at a 6% interest rate, you’d pay $347,514.57 in total interest, and on a 15-year loan with the same rate, it’d be $155,682.69 — a whopping $191,831.88 less.
Use the below calculator to see how much interest you’ll pay, as well as what your home will cost you every month.
Enter your loan information to calculate how much you could pay
Total Payment
$
Total Interest
$
Monthly Payment
$
With a $
home loan, you will pay $
monthly and a total of $
in interest over the life of your loan. You will pay a total of $
over the life of the
mortgage.
Amortization schedule on a $300,000 mortgage
An amortization schedule breaks down how much you’ll pay in interest and principal for every year of your loan’s term.
At the start of your loan, the bulk of your monthly payments will go toward interest, but as you get further into the loan term, more will be applied to the principal balance.
Here’s what an amortization schedule looks like for a 30-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance
Monthly payment
Total interest paid
Total principal paid
Remaining balance
1
$300,000.00
$1,798.65
$17,899.78
$3,684.04
$296,315.96
2
$296,315.96
$1,798.65
$17,672.56
$3,911.26
$292,404.71
3
$292,404.71
$1,798.65
$17,431.32
$4,152.50
$288,252.21
4
$288,252.21
$1,798.65
$17,175.21
$4,408.61
$283,843.60
5
$283,843.60
$1,798.65
$16,903.29
$4,680.53
$279,163.07
6
$279,163.07
$1,798.65
$16,614.61
$4,969.21
$274,193.86
7
$274,193.86
$1,798.65
$16,308.12
$5,275.70
$268,918.16
8
$268,918.16
$1,798.65
$15,982.72
$5,601.10
$263,317.06
9
$263,317.06
$1,798.65
$15,637.26
$5,946.56
$257,370.50
10
$257,370.50
$1,798.65
$15,270.49
$6,313.33
$251,057.17
11
$251,057.17
$1,798.65
$14,881.10
$6,702.72
$244,354.45
12
$244,354.45
$1,798.65
$14,467.69
$7,116.13
$237,238.32
13
$237,238.32
$1,798.65
$14,028.78
$7,555.04
$229,683.28
14
$229,683.28
$1,798.65
$13,562.80
$8,021.02
$221,662.27
15
$221,662.27
$1,798.65
$13,068.08
$8,515.74
$213,146.53
16
$213,146.53
$1,798.65
$12,542.85
$9,040.97
$204,105.57
17
$204,105.57
$1,798.65
$11,985.22
$9,598.59
$194,506.97
18
$194,506.97
$1,798.65
$11,393.20
$10,190.61
$184,316.36
19
$184,316.36
$1,798.65
$10,764.67
$10,819.15
$173,497.21
20
$173,497.21
$1,798.65
$10,097.37
$11,486.45
$162,010.76
21
$162,010.76
$1,798.65
$9,388.91
$12,194.91
$149,815.85
22
$149,815.85
$1,798.65
$8,636.75
$12,947.06
$136,868.78
23
$136,868.78
$1,798.65
$7,838.21
$13,745.61
$123,123.17
24
$123,123.17
$1,798.65
$6,990.41
$14,593.41
$108,529.76
25
$108,529.76
$1,798.65
$6,090.32
$15,493.50
$93,036.26
26
$93,036.26
$1,798.65
$5,134.71
$16,449.11
$76,587.16
27
$76,587.16
$1,798.65
$4,120.17
$17,463.65
$59,123.51
28
$59,123.51
$1,798.65
$3,043.05
$18,540.77
$40,582.73
29
$40,582.73
$1,798.65
$1,899.49
$19,684.32
$20,898.41
30
$20,898.41
$1,798.65
$685.41
$20,898.41
$0.00
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Here’s what an amortization schedule looks like for a 15-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance
Monthly payment
Total interest paid
Total principal paid
Remaining balance
1
$300,000.00
$2,531.57
$17,653.84
$12,725.00
$287,275.00
2
$287,275.00
$2,531.57
$16,868.99
$13,509.85
$273,765.15
3
$273,765.15
$2,531.57
$16,035.74
$14,343.11
$259,422.04
4
$259,422.04
$2,531.57
$15,151.08
$15,227.76
$244,194.27
5
$244,194.27
$2,531.57
$14,211.87
$16,166.98
$228,027.30
6
$228,027.30
$2,531.57
$13,214.72
$17,164.12
$210,863.17
7
$210,863.17
$2,531.57
$12,156.08
$18,222.77
$192,640.41
8
$192,640.41
$2,531.57
$11,032.14
$19,346.71
$173,293.70
9
$173,293.70
$2,531.57
$9,838.88
$20,539.97
$152,753.73
10
$152,753.73
$2,531.57
$8,572.02
$21,806.83
$130,946.90
11
$130,946.90
$2,531.57
$7,227.02
$23,151.83
$107,795.08
12
$107,795.08
$2,531.57
$5,799.06
$24,579.78
$83,215.29
13
$83,215.29
$2,531.57
$4,283.04
$26,095.81
$57,119.49
14
$57,119.49
$2,531.57
$2,673.51
$27,705.34
$29,414.15
15
$29,414.15
$2,531.57
$964.70
$29,414.15
$0.00
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How to get a $300,000 mortgage
Finding a mortgage can be quite simple — especially when using a tool like Credible.
When filling your mortgage application out, you’ll want to have some financial details on hand, including your income, estimated credit score, homebuying budget, and info regarding your assets and savings.
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Here’s a step-by-step guide on how the mortgage process usually goes:
Estimate your homebuying budget. Take a look at your finances, including your earnings, debts, and monthly expenses, and determine what you can afford in terms of home price, down payment, and monthly payments. A good mortgage calculator can help you here.
Do a credit check. Both your credit history and your credit score will play a major part in your loan application, so pull your credit report and evaluate your standing. If you have late payments, collections efforts, or other negative events on your report, you may want to work on addressing those before applying, as they could hurt your chances.
Get pre-approved. Always get pre-approved for a mortgage before searching for a home. A pre-approval letter can give you a good price range to shop in, as well as give sellers more confidence in your offers.
Compare rates and mortgage offers. Next, you’ll want to compare options. Pay close attention to the interest rate and APR you’re being offered, the closing costs, and any fees the lender is charging.
Find and make an offer on a home. When you find that dream home, be sure to include your pre-approval letter in your offer, and work with an experienced real estate agent to get the best deal.
Complete the full mortgage application. After your offer has been accepted, fill out your lender’s full mortgage application and submit the documentation they require. This usually includes things like tax returns, bank statements, pay stubs, and more. You will also need to submit to a credit check.
Await approval. Your loan will then go into underwriting, which is when your lender verifies your income, savings, and other assets and makes sure you can repay the loan. The lender will also order an appraisal to gauge your home’s value (and make sure it’s worth the money you’re requesting to borrow for it).
Get ready for closing. Once your loan is nearing full approval, you’ll get a closing date, which is when you’ll sign the final paperwork and receive your keys. You’ll typically need proof of homeowners insurance by this day, so be sure to shop around for your policy early.
Close on your loan. When closing day rolls around, you’ll attend your appointment, sign the required paperwork, and pay for your down payment and closing costs (usually via cashier’s check or wire transfer).
Keep Reading: How Long It Takes to Buy a House
About the author
Aly J. Yale
Aly J. Yale is a mortgage and real estate authority. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.
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Home » All » Mortgages » How Much a $300,000 Mortgage Will Cost You
Buying a home is an exciting milestone, but it comes with its fair share of financial responsibilities, including the often-misunderstood closing costs. These costs are a vital part of your home purchase budget and can significantly impact your financial planning as a new homeowner.
Far from being just a trivial detail, closing costs encompass a range of fees and charges that, when understood correctly, can help you make more informed decisions and potentially save money in your home-buying journey.
Here’s everything you need to know about mortgage closing costs to avoid any last-minute surprises.
Who Pays the Closing Costs: Buyer or Seller?
When it comes to closing costs in a home purchase, the question of who pays what is often a topic of negotiation and varies by transaction. Generally, both buyers and sellers have their own set of fees to handle, but the exact distribution can differ.
Your mortgage lender is required to provide you with an estimated breakdown at multiple points in the loan process. The loan estimate outlines the estimated closing costs and lists out all the different fees, as well as who is responsible for paying them.
Buyer’s Responsibility
Typically, the buyer shoulders a significant portion of the closing costs, which can include:
Loan-related fees (such as application and origination fees)
Appraisal and inspection fees
Initial escrow deposit for property taxes and mortgage insurance
Title insurance and search fees
Seller’s Contribution
Sellers commonly pay for:
Real estate agent commissions
Transfer taxes and recording fees
Any homeowner association transfer fees
Room for Negotiation
It’s important to note that these are not hard and fast rules. In many cases, closing costs are a point of negotiation in the sale agreement. For example, in a buyer’s market, a seller might agree to cover a larger portion of the closing costs to attract buyers. Conversely, in a seller’s market, the buyer might take on a larger share to make their offer more appealing.
Case Example
Imagine you’re buying a home priced at $300,000. The closing costs, amounting to approximately 3% of the purchase price, would be around $9,000. As a buyer, you might agree to pay $6,000 of this, covering most of the loan-related fees and escrow deposits. The seller, in turn, might handle the remaining $3,000, covering their portion of fees like the agent’s commission and transfer taxes.
Comprehensive List of Fees Associated with Mortgage Closing Costs
Mortgage closing costs can be broken down into a few different categories: lender fees, real estate fees, and mortgage insurance fees.
Lender Fees
These fees may vary depending on the lender you choose. Here’s a basic rundown of each closing cost to give you an idea of what you can expect.
Application fee: Covers processing your mortgage loan application and obtaining your credit report.
Attorney fee: In some states, an attorney must review the mortgage paperwork; fees vary and can be hourly or a flat rate.
Broker fee: If using a mortgage broker, they typically charge a commission, usually between 1% and 2% of the home’s purchase price.
Origination fee: The origination fee compensates the lender for administrative tasks and is typically around 1% of the loan amount.
Discount points: Paying points upfront can lower your interest rate; each point equals one percent of your loan amount.
Prepaid interest: Covers the interest that accrues between the closing date and the first mortgage payment.
Recording fee: Charged by local governments for recording the mortgage documents; it covers the administrative costs of maintaining public records.
Underwriting fee: Charged for the underwriter’s services in evaluating and preparing your loan; includes costs like due diligence and legal fees.
Real Estate Fees
Real estate fees are related to costs surrounding the property itself. Some are one-time fees, while others are recurring.
Appraisal fee: Necessary to assess the market value of the home. Costs vary, but typically around $500 to $600, payable before the appraisal or at closing.
Property tax: Generally an annual or biannual payment. Most lenders require at least two months’ worth pre-paid into an escrow account at closing.
Homeowners’ insurance policy: An annual premium required for a home loan. The first year’s premium is often paid at closing, with subsequent payments included in your mortgage.
Title search and insurance: Ensures the property is lien-free. Lender’s title insurance protects the lender, while owner’s title insurance safeguards the buyer.
Transfer tax: Imposed by governments when a property is sold, usually a percentage of the sale price.
HOA fees: For properties in a homeowners association, this may include a transfer fee and potentially the first year’s annual assessment.
Mortgage Insurance Fees
When you pay less than 20% of your home purchase price as part of your down payment, you’re usually required to pay mortgage insurance. Your private mortgage insurance (PMI) premium is typically assessed as a monthly fee within your mortgage payment. However, you may also have some costs at closing.
Upfront mortgage insurance fee: Depending on your loan type and lender, you may have to pay an additional application fee for a loan with mortgage insurance. Additionally, some loans require that you pay a one-time fee at the time of closing on top of your annual fee throughout the mortgage.
Government-backed loan fees: If your loan is from the FHA, USDA, or VA, then you may have extra mortgage insurance fees if your down payment is under 20%. FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% and a monthly fee. The VA and USDA don’t charge mortgage insurance, but instead have guarantee fees. VA fees fall between 1.25% and 3.3% while USDA fees are a flat 2%.
Understanding How Closing Costs Are Calculated
That list may seem huge and overwhelming. However, before making an offer on a house, you can estimate your closing costs using some shortcuts. Average closing costs are usually about 2% – 6% of the loan amount.
Let’s look at that in real numbers.
Say you buy a home for $200,000. You can realistically expect your closing costs (not including your down payment) to extend anywhere between $4,000 and $10,000. That’s a pretty big range, so use that as a starting point when you begin to compare loan offers.
But don’t wait until you’ve fallen in love with a house to financially plan for closing costs.
Instead, use an online closing costs calculator early in the process to get a more specific estimate. You will want to use real information like average property taxes in your area and the costs associated with your type of loan.
A good mortgage lender can walk you through the variables, including how different loan types affect your closing costs.
Strategies for Reducing Closing Costs: Negotiation Tactics
Negotiating closing costs can be an effective way to reduce the financial burden of buying a home. While some fees are fixed, others offer room for negotiation. Here are strategies and insights to help you lower these costs:
Understand What Can Be Negotiated
Identify which fees are negotiable. These often include certain lender fees like the origination fee, broker fees, and some third-party charges. Knowing what can be adjusted is the first step in negotiation.
Compare and Shop Around
Before settling with one lender, shop around. Get Good Faith Estimates from multiple lenders and compare their closing costs. This can give you leverage in negotiations, as lenders are often willing to offer competitive pricing to win your business.
Ask the Seller to Contribute
In some real estate markets, it’s common for buyers to ask sellers to cover a portion of the closing costs. This is particularly feasible in buyer’s markets, where sellers are motivated to make the sale.
Look for Lender Credits
Some lenders offer credits in exchange for a slightly higher interest rate on your loan. These credits can be used to offset closing costs. While this increases your long-term interest cost, it can significantly reduce upfront expenses.
Negotiate with Service Providers
For services like home inspections and title searches, you have the option to choose your provider. Shop around and negotiate with these providers for better rates.
Review the Closing Disclosure Form
Before closing, you’ll receive a Closing Disclosure form listing all the fees. Review it carefully and question any fees that seem off or weren’t previously disclosed. Sometimes, errors can be corrected, leading to lower costs.
Time Your Closing
By scheduling your closing towards the end of the month, you can reduce the amount of prepaid interest you’ll need to pay.
Seek Legal or Financial Advice
Consider consulting with a real estate attorney or a financial advisor. They can provide valuable advice on which costs can be cut and how to negotiate effectively.
Options for Financing Your Closing Costs
In some cases, you can roll your closing costs into the mortgage, but you have to meet some basic requirements. First, it depends on your type of loan, since not all loans allow you to do this. Most government-backed loans, like FHA and USDA loans, do offer the possibility to add them into your home loan.
What’s the downside to this idea?
A higher loan amount means a higher monthly mortgage payment and a larger amount of interest paid over the life of your mortgage. Furthermore, your new home needs to appraise for the higher amount you want to finance. Plus, your debt-to-income ratio needs to be able to support that larger payment to qualify for such a loan.
If you’re getting a loan that doesn’t allow for closing costs to be rolled into the mortgage, you can still get around it. However, you must meet those criteria we just talked about.
Simply ask the seller (through your real estate agent) to pay for closing costs in exchange for paying the extra amount as part of the purchase price. Here’s an example.
If your $200,000 offer is accepted, but closing costs are $5,000, ask the seller to contribute $5,000 and change your offer to $205,000. At the end of the day, the seller still walks away with the same amount of money.
Again, this strategy is contingent upon the numbers working for you, your financial situation, and your mortgage application.
Finalizing Payment: Methods to Cover Your Closing Costs
When you finally get to closing day, it’s almost time to relax and move into your new home. But first, don’t forget to set up a way to pay closing costs.
You can ask your lender or settlement company for the preferred payment method. However, in most cases, you can either get a cashier’s check from your bank or set up a wire transfer. There’s usually a minor fee associated with each one. It’s a quick and easy process, but it shouldn’t be forgotten before you get to closing.
Conclusion
Closing costs are a crucial aspect of buying a home. Being well-informed and prepared for these expenses can make a significant difference in your financial planning. Remember, while some fees are fixed, others offer room for negotiation, and shopping around can lead to potential savings.
By factoring in these costs from the start, you can ensure a smoother, more predictable home-buying experience. Buying a house is a major step – financially and personally. Approach it with the right knowledge, and you’ll be set to make this important decision with confidence and peace of mind.
Frequently Asked Questions
What is an escrow account, and how does it relate to closing costs?
An escrow account is a third-party account where funds are held during the process of a transaction, like buying a home. Regarding closing costs, part of these costs often includes initial deposits into an escrow account for future property taxes and homeowners’ insurance. This ensures that there is enough money set aside to cover these recurring expenses.
Can closing costs be included in the mortgage loan?
In some cases, closing costs can be rolled into the mortgage loan. This is more common with certain types of loans, like FHA loans. However, including closing costs in the loan increases the total loan amount and, consequently, your monthly mortgage payments and the total interest paid over the life of the loan.
Are there any tax benefits related to closing costs?
Yes, certain closing costs can have tax benefits. For example, points paid to lower your interest rate may be deductible in the year you buy your home. Always consult a tax professional to understand how your closing costs might affect your taxes.
How can first-time homebuyers prepare for closing costs?
First-time homebuyers should start saving early for closing costs, which typically range from 2% to 6% of the home purchase price. It’s also helpful to research and understand the different types of fees involved in closing costs, and consider attending homebuyer education courses for more detailed information.
What happens if I can’t afford closing costs?
If you find that you can’t afford closing costs, there are a few options. You can negotiate with the seller to pay some or all of the costs, look for lender credits, or explore programs available for first-time buyers or low-income buyers that offer assistance with closing costs.
Editor’s note: In June 2014, the Consumer Financial Protection Bureau (CFPB) took enforcement action against Truist for unlawful and deceptive practices. Truist was ordered to pay at least $500 million to underwater borrowers, provide $40 million to victims of foreclosure, pay a penalty to the Department of Justice and establish homeowner protections to prevent further violations. Because of this, we can’t currently recommend Truist as a lender.
Truist offers several options for mortgage purchase and refinance loans, including doctor loans for qualified physicians and dentists. If you’re thinking about applying for a mortgage from Truist, here’s what you should know first.
Truist
Blueprint Rating
Truist overview
Truist has roots that date back to 1872, when the Branch Banking and Trust Company (BB&T) was founded. In 2019, BB&T merged with SunTrust Banks to form the Truist Financial Corporation.
Unfortunately, in its short time as Truist, the company has garnered thousands of poor reviews from customers. The company is accredited with the Better Business Bureau (BBB) and has an A+ BBB rating. However, as of Dec. 12, 2023, the company has a BBB star rating of just 1.09 out of 5.0, based on over 2,300 customer reviews. Customers complained about having trouble contacting customer service and others complained about fraudulent activities within their account. Truist seems to send an automated reply to these reviews, telling them to contact the company directly.
As of Dec. 12, 2023, Truist has also earned a star rating of 1.2 out of 5.0 stars on Trustpilot, based on 1,300 reviews.
How to qualify for a Truist mortgage
Truist offers a variety of mortgage loans, each with its own requirements. Here’s how to put yourself in the best standing to qualify for a Truist mortgage.
How to apply for a Truist mortgage
Compare lenders and get pre-qualified. Before you apply, be sure to compare as many mortgage lenders as possible, including Truist, to find the right loan for your needs. Consider interest rates, repayment terms, eligibility requirements and other factors as you weigh your choices. Truist as well as many other lenders allow you to pre-qualify with only a soft credit check that won’t affect your credit score — this will give you an idea of how much you can borrow and help you set a budget.
Pick a lender and apply. If you choose to go forward with Truist, you can start the formal application process online, by phone or in person at a local Truist branch. Speak with a loan officer to complete the application and determine the right type of mortgage for you. Be prepared to provide required documents, such as proof of income, assets, identification and previous tax statements. Work with the bank to answer any questions and document requests in a timely manner to avoid delays.
Close on the loan. The loan approval process with Truist typically takes about 30 to 60 days. If you’re approved, your loan will be scheduled to close. On closing day, you’ll sign paperwork and pay the closing costs, after which you’ll get the key to your new home.
Pros of a Truist mortgage
Offers doctor loans to medical and dental professionals.
Offers construction-to-permanent loans.
Can apply online, over the phone or in person in some areas.
Cons of a Truist mortgage
Doesn’t offer mortgages backed by the U.S. Department of Agriculture (USDA).
Poor customer service reviews.
Only available in 15 states and Washington, D.C.
Truist perks and special features
Savings and discounts
Like many other lenders, Truist offers you the option to buy mortgage points. These will permanently lower the interest rate on your loan for an upfront fee. If you intend to stay in the home for the length of the loan, mortgage points can save you thousands of dollars on interest payments.
Offers doctor loans
If you’re a medical doctor or dentist, a doctor loan could be a good option. These loans aren’t offered by many lenders. But with Truist’s doctor loan, qualified physicians and dentists can get a more favorable interest rate and make a lower or no down payment, even if they have student loans.
Offers construction-to-permanent loans
Another loan type that Truist offers that a lot of other mortgage lenders don’t is a construction-to-permanent loan. If you’re building a home, you can get one loan that funds the construction. Once the construction is complete, this loan will roll over into a traditional mortgage.
With Truist’s construction-to-permanent loan, you’ll make interest-only payments during construction and have only one set of closing costs for the land, construction and mortgage. Plus, there are no penalties for prepayment, so you don’t have to worry about being charged if you pay the mortgage off early.
Multiple ways to apply
Truist offers you the ability to apply over the phone, online or in person. With so many people turning to online mortgage applications, the fact that Truist offers physical locations can be an asset if you prefer to apply for a mortgage in person. Buying a home is a big decision and having someone to talk to face-to-face can be helpful.
How Truist could improve
Offer USDA loans
For much of rural America, a USDA loan increases their ability to own a home. These government-backed loans are for low-income families buying a home in specific rural areas. Truist, however, doesn’t offer these loans, which limits options for those who don’t live in cities. If Truist wants to improve its offerings, one way could be to provide a USDA loan option.
Improve customer service
Just browsing sites like BBB and Trustpilot can leave you with the impression that Truist isn’t well-regarded. There are a lot of negative reviews, complaining about a variety of things. These include the bank’s slowness in responding to deposits, improper handling of accounts and multiple accounts being hacked. Customers complain that they often are required to visit branches in person to resolve these issues, which is a problem when there are limited hours.
Expand availability
Truist is only available in 15 states and Washington, D.C. Its locations are mostly in the South and eastern parts of the country. Truist’s mortgages could reach more people if it expanded its availability to additional areas.
While Truist’s roots lie in operating as a traditional brick-and-mortar bank, it could make its mortgages available to a wider part of the country while maintaining its current in-person branches.
Truist customer service and reviews
There are multiple ways to contact Truist. You can visit a branch in person, connect on social media or call. You can talk to someone Monday through Friday, 8 a.m. to 8 p.m. Eastern Time (ET) and 8 a.m. to 5 p.m. ET on Saturdays. After hours, there’s 24-hour automated assistance.
The company also offers a mobile app, which lets you view your accounts, make payments and more. The app has a rating of 4.7 out of 5.0 stars on both the App Store and the Google Play store as of Dec. 12, 2023. However, many recent reviews note that the app has suffered since the merger to form Truist, with customers citing that recent versions are slow and unstable.
Customer reviews
Truist has received many negative reviews from customers on sites like BBB and Trustpilot. Some trends among these reviews state that the company is difficult to contact, accounts are often locked and promotions the company runs are misleading.
As of Dec. 12, 2023, these reviews have resulted in a BBB customer rating of 1.09 out of 5.0 stars and a Trustpilot rating of 1.2 out of 5.0 stars.
CFPB action
In 2014, SunTrust (a predecessor of Truist), was required by the CFPB to pay customers $540 million due to wrongfully servicing their loans. The company was also required to pay a penalty of $418 million to the Department of Justice. These institutions found that SunTrust was illegally foreclosing on homes by denying loan modifications, deceiving homeowners and charging unauthorized fees.
Truist alternatives: Truist vs. Bank of America vs. Chase
It’s important to consider a wide variety of mortgage lenders before applying for a loan. Two competitors to consider in addition to Truist include Bank of America and Chase.
Bank of America is a multinational financial company with ties back to 1784, when its predecessor, the Massachusetts Bank, was founded. As of 2021, it holds over $3.17 trillion in total assets and operates worldwide.
Chase Bank is a subsidiary of the holding company JPMorgan Chase & Co. Its history dates back to 1799 when its predecessor was founded as The Manhattan Company. As of 2021, JPMorgan Chase & Co. held over $3.7 trillion in total assets, making it the largest financial institution in the country.
While Truist is a big bank with a lot of history, both Bank of America and Chase are much larger than Truist. Mortgages are small parts of their businesses. With either of these banks, you might have more financing options. However, with a place like Truist, you could have a more personalized experience. While Truist is only available in 15 states and Washington D.C., that can be a positive as chances are higher that a Truist loan officer would be more familiar with state laws and assistance programs.
Frequently asked questions (FAQs)
The exact credit score you’ll need to get a Truist mortgage depends on the type of loan you choose. You must have a minimum credit score of 620 to qualify for FHA, VA and conventional mortgages. For jumbo loans, you’ll need a score of at least 680.
Truist mortgages are available in 15 states plus Washington, D.C. These states include:
Alabama
Florida
Georgia
Indiana
Kentucky
Maryland
New Jersey
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
West Virginia
Single-family homes, condominiums and some multi-unit properties are all eligible properties for personal mortgages. Truist also offers loans for real estate investors.
Truist is one of the 10 largest banks in the U.S. You don’t get that without repeat customers. Still, the recent merger of BB&T and SunTrust has caused hiccups with client accounts. Also, in 2014, SunTrust the CFPB required SunTrust to pay customers $540 million in relief due to wrongfully servicing their loans.
Rates for a 30-year, fixed-rate mortgage are the highest in over 20 years and may stay elevated for some time.
As borrowers reel from the sticker shock of conventional mortgages, lenders could see a surge of demand for alternative lending products, such as adjustable-rate mortgages (ARMs), for the first time since the financial crisis.
Most potential borrowers should familiarize themselves with how these products work. Without the proper guidance, they could be enticed by attractive introductory rates only to choose the wrong product for their personal or financial situation in the long term.
One way lenders can create value is to upgrade the shopping experience so borrowers can easily understand, compare and contrast the available products. Here are three tips that can help.
1. Ask the right questions upfront
Most lenders ask borrowers a few initial questions to understand their needs better. But many tend to focus on the basics, like whether a borrower is a first-time homebuyer.
With more products on the table, lenders will need more granular data to steer borrowers toward the right one. In many cases, that product may still be a fixed-rate mortgage. But for some borrowers, a less traditional loan type could make the most financial sense.
What is the best way to help borrowers choose? Start by asking enough questions early on to create a holistic borrower profile. We recommend enhancing your POS flow with an initial questionnaire. Ask these questions:
How long do they plan to stay in their home?
How comfortable are they with uncertainty?
How comfortable are they potentially making higher monthly payments after three, five or seven years?
Of course, the more questions you ask upfront, the more overwhelming the shopping process can feel to borrowers. To ease folks in, we suggest these action items:
Break down your questionnaire into manageable chunks.
Add a progress bar that displays what percent of the questionnaire remains.
Add a “Save and Continue Later” button that gives borrowers more flexibility (and allows you to keep folks engaged).
Add context about why you’re asking for specific information at every stage. Tooltips can be a powerful way to do so; they give borrowers the flexibility to toggle explanations. Tooltips are helpful when it comes to educating customers on your products, which we’ll dive into into next.
2. Educate borrowers early and often
Exotic lending products went mainstream in the early 2000s, leading, in part, to the 2008 financial crisis and the subsequent regulatory overhaul.
It’s worth emphasizing just how little borrowers knew about these products. In the run-up to 2008, many lenders emphasized low introductory mortgage rates and weren’t required to disclose the final terms until closing day. Without enough timely information to ask questions and compare options, borrowers had loans they couldn’t afford.
Today’s regulations require more precise disclosures earlier in the process to help people make more informed financial decisions. But they only apply after a borrower has submitted a loan application, which leaves room for ambiguity when shopping.
When lenders educate up front, they can add value when borrowers need it most. Here’s what we recommend:
Tailor your educational content to the borrower’s profile. Your initial questionnaire can help. For instance, if a borrower says they plan to relocate to Chicago in a few years, they might be a better candidate for a five-year ARM than someone who intends to stay in Charlotte indefinitely. At the comparison stage, you can prioritize education about that product and deprioritize products that might be a poor fit.
Help borrowers understand how rates may change over time. For instance, don’t just display a 3% teaser rate for an ARM. Instead, explain whether it adjusts annually or semiannually, along with the maximum annual adjustment factor and lifetime cap, plus what factors will affect the adjustable rate.
Offer information about refinancing. Many borrowers are familiar with the concept but may need to learn how it works. Spelling out the specifics may make some borrowers feel more comfortable taking on a fixed-rate loan at a 7% or higher rate.
Create an intuitive shopping experience. Avoid the dreaded info dump, where lending products display on an endless scroll with intimidating blocks of text. Instead, let borrowers compare a handful of products side by side. And present only the most important details first, with drop downs or tooltips that offer more information.
Even in a digital-first shopping landscape, loan officers are still a valuable resource for borrowers. Alongside on-screen sidebars and tooltips, ensure that borrowers can connect with a human expert for more hands-on guidance.
The goal is to help borrowers understand the risks and rewards of every product available and feel more confident in their decisions.
3. Invest in the right technology
The key to a top-notch shopping experience is a digital platform that allows for everything we’ve discussed so far — all while fitting seamlessly with the rest of your origination software. Creating that platform, though, is often easier said than done.
For instance, if you choose to build your platform, you’ll have plenty of freedom in its design. But you’ll have to integrate it with your point of sale (POS) on the back end. That could make for a longer and more complex project that eats up more of your organization’s resources.
On the other hand, it might be worth talking with your POS vendor about customizing the shopping experience to fit your goals. This route could help you save on development time.
However, most vendors don’t prioritize software features that seem like “nice to haves.” So you’ll have less control over the features that do get added, not to mention the development timeline. And keep in mind that if your vendor adds new capabilities, any lender — including your competitors — will be able to use them.
There’s no single best path here, but consider partnering with an experienced digital specialist to help you weigh the options available. This way, you can make the right decision for your business and your borrowers.
As “exotic” lending products become more attractive, borrowers will value lenders that demystify the shopping process to connect them with the right product for their needs.
But the truth is that helpful lenders win in any market conditions. By upgrading your shopping experience now, you can set yourself — and your borrowers — up for long-term success, no matter how the wind blows.
Steve Wolfe is an SVP of Banking and Fintech and Lloyd Booth is an Enterprise Solutions Executive at CI&T, a global digital specialist.
When you’re about to make an offer on a home, your real estate agent will ask how much “earnest money” you’d like to put down. Earnest money is a type of security deposit, also known as a “good faith” deposit, made to the seller of a home. It represents your intent to buy the property by showing the seller you’re serious about purchasing the property. In most cases, earnest money can also act as a deposit on the property you’re looking to buy.
This Redfin article gives an overview of what earnest money is, why you need it, and how much you may need, and how to protect the money once you deposit it.
What is earnest money in real estate transactions?
Earnest money is the money you pay after a home seller has accepted your offer on a house and before closing on the home. Earnest money assures the seller that you as the buyer are acting in good faith, and it provides them with some compensation in case you back out of the deal without a valid, contractual reason.
Once the seller’s agent is able to confirm that your earnest money has been deposited into an escrow account, the buyer and seller will enter into a purchase agreement and the seller’s agent will mark the listing as a pending sale — in effect taking the property off the market. At this stage, various inspections, appraisals, and possibly other contingencies you had in the offer contract move forward to finalize the sale.
Who keeps earnest money if the deal falls through?
If the buyer backs out, the earnest money is paid to the seller. If the deal falls through due to something coming up on the home inspection that would be prohibitively expensive (like a cracked foundation) or any other contingency listed in the contract, the buyer gets their earnest money back.
How much earnest money do you need to offer?
The buyer and seller can negotiate the earnest money deposit amount, but it typically ranges from 1% to 3% of the sale price, depending on the market. However, if you’re buying a home in a seller’s market (when there are more buyers than homes for sale), or bidding on a highly competitive home, the earnest money deposit might range between 5% and 10% of a property’s sale price.
Be sure to talk to your real estate agent about how much earnest money you should offer in the housing market you’re competing in.
Do you need to pay earnest money?
In the strictest technical terms, the answer is no – earnest money is not a requirement when you make an offer on a house. However, your offer likely won’t receive the seller’s serious consideration without putting a good faith deposit down of some kind. Earnest money can act as added insurance for both parties in the transaction.
How is earnest money paid and where does it go?
In most cases, your earnest money deposit is paid to the escrow or title company, which holds it in an escrow account until the transaction closes. If you work with a real estate attorney, the deposit may be put into escrow there. You can pay this deposit with a personal check, a cashier’s check from the bank, a money order, or wired funds, depending on the terms of your contract.
What does the good faith deposit count toward?
Once the sale of the home has been completed, the earnest money you paid can be applied toward your closing costs or down payment. Alternatively, you can receive your earnest money back after closing. Because the sale went through the home sellers do not get to keep the earnest money deposit.
When does a seller keep the earnest money deposit?
If you fail to meet your offer’s contractual obligations, your earnest money could now belong to the seller. Examples include:
After the due diligence period is over (usually a couple of weeks), you learn that the home sits in a flight path or near a refinery and you decide to walk.
You back out for any reason not listed as a contingency in the contract.
You cannot close on time, without a relevant contingency, and the contract has a “time is of the essence” term.
If you face any of these issues but still want to purchase the house, don’t give up. Have your agent get with the seller’s real estate agent. If you are upfront about the situation, the seller may extend the timeframe.
Is earnest money refundable?
As a buyer, you can reclaim your earnest money for a couple of reasons:
If the seller doesn’t fulfill their side of the purchase contract. For example, if the home inspection found faulty windows and the seller agreed to replace them – but did not follow through by the contract deadline. That breach of contract allows a buyer to back out of the purchase and receive a refund of their earnest money.
If you have a contingency in place, and you have a reason related to that contingency to cancel the contract. There are a number of contingencies you can put into the contract and, if not met, you can walk away from the deal with your good faith deposit in hand.
Other examples of when your earnest money would commonly be refunded:
The title company finds a lien against the property.
Your lender denies you the loan, but you have a financing contingency in your offer.
If your offer is contingent on selling your current home, but you are unable to do so after a given period of time.
If you have an appraisal contingency, and the home appraises at a lower rate but the seller won’t reduce the price of the home.
Having a contingency may also allow you to negotiate the terms of your contract. For example, you may be able to ask the seller to perform repairs or give a credit at escrow to cover the agreed-upon repair costs. Typically, a buyer and seller can negotiate a resolution so the sale can be completed.
What if a buyer can’t afford a good faith deposit?
Most sellers will not consider an offer without earnest money. Keep in mind, however, that it may be possible to negotiate a work-around. If you can’t afford an upfront earnest money deposit, let the real estate agent and seller know right away. If your purchase method and financing look solid otherwise, maybe the seller will agree to move forward with the sale. If you are serious about the purchase, you may be able to ask a family member or friend to assist with a gift or loan of funds for the good faith deposit.
A word of caution: Before taking a gift, institutional loan, or getting a cash advance on a credit card for your earnest money, be sure to consult with your mortgage lender. Any new gift, bank loan or cash advance that leads to high credit card balances during your transaction timeline could be detrimental to your mortgage loan approval. This deposit is meant to secure the property, not put it at risk of losing it.
Earnest money in action: Common scenarios
Let’s look at an example scenario of how earnest money may play out. Evan and Mia have listed their homes for sale in Washington, DC. Amelia is in the market for a new home and is interested in both properties and can’t make up her mind. In the event that both sellers require an earnest money deposit, three potential scenarios can unfold.
Scenario 1: The forfeited deposit
Because Amelia can’t decide which house to buy, she puts a good faith deposit down on both properties, prompting Evan and Mia to take their homes off the market.
Later, Amelia decides to buy Mia’s house. Now, Evan needs to relist their home for sale all over again. Luckily, Amelia’s earnest money is Evan’s to keep because Amelia backed out, which offers some compensation for time and money lost while the home was off market.
Scenario 2: The early closing payment
After giving it some thought, Amelia decides to make a single deposit on Mia’s home and everything runs smoothly. On closing day, Amelia gets the keys and the deposit is put towards their downpayment.
Scenario 3: The failed contingency
Amelia makes a single deposit to Mia. However, during the home inspection, Amelia discovers the electrical wiring is not up to code and will be very expensive to update. Luckily, Amelia has a home inspection contingency in the purchase agreement and decides not to buy and gets the deposit back from Mia.
How to protect your earnest money deposit
Take the following steps to protect your earnest money against fraud or unjustifiable forfeiture:
Document Everything. A home is one of the largest purchases many of us will make. Make sure the contract clearly defines what amounts to cancel the sale and who ends up with the earnest money. Include any amendments to details like buyer responsibilities and timelines.
Use an escrow account. Instead of working directly with the real estate seller or broker, use a reputable third-party, such as an escrow company, legal firm, or title company. Ensure the funds are securely held within an escrow account and obtain a receipt.
Understand the contingencies. Familiarize yourself with the contingencies included in the contract, and double-check the contingencies that protect your interests are included. Do not sign a home purchase agreement that doesn’t have the clauses that protect you.
Fulfill obligations. Real estate purchase agreements typically establish deadlines to safeguard sellers. Honor these deadlines and be sure to promptly address inquiries, submit necessary documents, and meet inspection, appraisal, and closing timelines.
Earnest money is an integral part of most real estate transactions. Before signing a Purchase and Sale Agreement to buy a home, carefully review all contingencies, understand how much money you’ll need to pay, and know-how to successfully recover your earnest money if you need to back out of the sale.
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 nine steps in the mortgage process, including moves you can make that may expedite your approval.
1. Estimate Your Budget
Before any mortgage application, your first step should be figuring out how much house you can afford. Being realistic about your budget — factoring in income, debts, monthly spending, down payment savings, and more — can keep you from shopping outside your budget.
Certain budgeting guidelines can help you determine what kind of monthly mortgage payment you can afford. You’ll also want to figure in homeowners insurance, property taxes, and (possibly) private mortgage insurance, or PMI. Some popular methods for calculating your mortgage budget include:
• The 28% rule: No more than 28% of your gross monthly income should go to a mortgage payment.
• The 35% / 45% guideline: Your total monthly debt should be no more than 35% of your pre-tax income or 45% of your post-tax income.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
When calculating your budget, don’t forget the down payment. A higher down payment can yield a lower monthly payment — and putting down 20% or more could help you avoid PMI — but don’t drain your savings for a down payment. You want to have savings on hand should you need to cover emergency home repair costs down the line.
💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*
2. Choose a Mortgage Type and Term
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 government-insured loan (FHA loan, USDA loan, or VA loan)
• A fixed-rate or adjustable-rate mortgage
• Your repayment term: typically 15, 20, or 30 years
• A conforming or nonconforming loan (such as a jumbo loan)
• If you should opt for an interest-only mortgage
A good lender will walk you through your options, whether it’s a HUD home requiring an FHA mortgage or a high-priced home with a jumbo loan.
3. Get Preapproved
At this stage in the mortgage application process, you can shop around for multiple mortgage lenders and even get prequalified. Look for lenders that not only offer you a great rate but that are also willing to help you navigate the mortgage process. Here are a few questions to ask a lender to narrow down your list.
Found the perfect lender? Then it’s time to get preapproved. During the mortgage preapproval process, you’ll complete a full mortgage application. The lender will perform a hard credit inquiry and issue a letter confirming your ability to borrow a certain amount of money.
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.
A preapproval letter, usually good for up to 90 days, can improve your odds of winning over a seller in a bidding war. In competitive markets, having a preapproval letter may even be a requirement.
Getting preapproved requires some work on your part. You’ll need to furnish the lender with proof that you can afford the mortgage, which typically includes the following documents:
• Bank statements
• Paystubs
• Tax returns
• W-2s
• Retirement account statements
• Gift letter (if you received help from a family member to fund your down payment)
• Identification
Mortgage lenders prefer borrowers who have stable, predictable incomes. A steady employment history signals to the lender that you have regular income coming in to make the monthly payments of a mortgage. That’s why it’s easier to get approval as a W-2 employee than as a self-employed worker.
In general, lenders like to see two years of employment on a loan application. Self-employed individuals will submit two years of tax returns.
Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?
4.Find a Property and Make an Offer
Your real estate agent will guide you through the process of finding a property and making an offer on a house. The offer is typically written by the buyer’s agent on a standardized form.
Only make offers on properties that fall within the amount you’ve been preapproved for. Otherwise, the lender will need to re-process your full application again. If you don’t qualify for the new, larger amount, you may not be able to secure any loan on the property.
Your offer will typically include earnest money — a good-faith deposit you’re making on the house. It’s usually 1% to 3% of the offer price, and it’s meant to make your offer more attractive to the buyer.
If your offer is accepted, you’ll send the signed paperwork to your lender.
5. Submit a Mortgage Application
Lenders are required to do a second credit check before final mortgage loan approval and will likely ask for further documentation. If you’ve opened a new account, changed jobs, or made a major purchase since preapproval, those actions will have to be vetted.
Responding quickly to your lender’s requests for documentation can help keep your application on track. Your lender likely has most of the required forms from your preapproval application, but in general, you’ll need:
• Documentation of income: W-2s or 1099s, profit-and-loss statements if self-employed, paystubs, Social Security and retirement account info, information on alimony and child support, etc.
• Documentation of assets: Bank accounts, real estate, investment accounts, gifted funds, etc.
• Documentation of debts: Any current mortgage if you own a home, 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.
💡 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.
6. Be Patient and Avoid New Debt
The average time between submitting a mortgage application and closing is 50 days. 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, 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 them know.
It can be tough feeling like your life is on hold while you’re waiting for your mortgage application to be processed. Try to be patient and just let the process 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.
Recommended: What’s a Mortgage Commitment Letter?
7. Get a Home Inspection
Home inspections may not be required — but they’re a crucial part of the mortgage loan process. 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 or back out of the deal without penalty.
Inspectors will look for a wide range of issues, but some inspectors are more thorough than others. 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 your dream home 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.
8. Go Through the Mortgage Underwriting Process
A major part of mortgage loan processing is the underwriting process. But what is underwriting? The underwriting process begins after you complete your mortgage application and ends after all the documentation has been completed and includes the appraisal. During this process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance.
An appraisal is an independent property evaluation of a home’s value. It will describe the home 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.
Once the appraisal is complete and all documentation has been reviewed and verified, the underwriter will 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.
After underwriting approval with a “clear to close,” you’re set to close on your loan.
Recommended: Local Housing Market Trends
9. Close on Your New Home
Closing day is when all parties 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 3% to 6% of the mortgage principal and consist of:
• Lender fees
• Appraisal and survey fees
• Title service
• Recording fees
• Home warranty costs
• First year’s premium of PMI
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.
Before arriving at closing, however, you’ll want to do a final walk-through of the property. During this walk-through, confirm that the sellers have made all the repairs agreed to — and that the buyers haven’t removed anything, like appliances, that were meant to be left, per the purchase agreement.
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 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
What are the first steps of applying for a mortgage?
The first step when applying for a mortgage is estimating how much house you can actually afford. Once you have an idea of your budget, you can research mortgage types and lenders and get preapproved for a loan.
What are the steps of mortgage loan processing?
During mortgage loan processing, an underwriter will first review your personal information and information about the sale property to determine approval. The potential lender will request an appraisal of the home, and also request additional documents from you as needed. Finally, the underwriter will recommend approval or denial of the loan.
How long is a mortgage loan in processing?
It takes a little under two months from the date you submit your mortgage application and close on the house — the average timeline is 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.
Photo credit: iStock/MicroStockHub
*SoFi requires 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. Minimum down payment varies by loan type.
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Life has gotten a lot more convenient over the past decade thanks to our friend the Internet.
Today, we can shop for clothes, groceries, and just about anything else online, do our banking with text messages and smartphones, or hail a ride home with the touch of a button.
But one area that still needs improvement is real estate, including the notoriously chaotic mortgage world where paperwork continues to be beyond burdensome in the digital age.
Remember when MBA chief David Stevens claimed that the average mortgage file had grown to more than 500 pages?
Well, hopefully the smart guys and gals up in Silicon Valley have a solution for that as well.
Say Hello to Opendoor, the Instant Home Buyer
Opendoor is one of the biggest iBuyers of residential real estate
They want to help you sell your home quickly with the push of a button
Instead of having to clean it, list it, show it, and wait for the offers to come in
And make it easier to acquire a new home while getting rid of your old one
A group of San Francisco-based tech disruptors (that’s the buzzword these days) have big plans to make selling your home a lot easier and faster.
Their company, called Opendoor, has one mission. To make it easy to sell your home. To quote them exactly, their tagline appears to be, “The easiest way to sell your home.”
Note the word easy; nowhere on their one page website do they say highest price. Or anything to do with price for that matter. Just that you’ll receive an “instant offer” online and be able to close in 3 days. Wow.
Simply put, they want to bring liquidity to real estate, similar I suppose to how stocks are bought and sold within milliseconds online.
That’s the draw of buying stock. You can unload it whenever you want and get your hands on the cash for other needs with minimal delay.
One of the major downsides to real estate as an investment (or in general) is that it’s extremely illiquid.
If you own a piece of property and want to dispose of it, you’ll need to hire a real estate agent, create a listing, spruce up the place, let people tour the property, and hopefully land a suitable offer.
The process, if you’re lucky, will only take a month. More realistically, it’ll take a few months from start to finish, barring the recent home buying frenzy that has probably given every homeowner unrealistic expectations on selling timelines.
It Might Make Sense to Use Opendoor If You Must Sell Quickly
Like most convenient services there is a price that must be paid
Opendoor may make sense if you have to sell your home quickly for some reason
But there’s always a cost to doing things easier
And that could mean a significantly lower offer price for your home
To be clear, Opendoor doesn’t plan to replace real estate agents or reinvent the entire process. At least, not just yet.
They simply want to provide a quicker way to sell when you don’t have time to go through the entire process, whether because you’re relocating for a job or simply because you need capital this week, not three months from now.
Perhaps you’re having trouble keeping up with mortgage payments and just want to avoid foreclosure. There are plenty of reasons why homeowners may want to sell immediately.
Apparently there’s some algorithm that determines an appropriate selling price, similar to how Zillow provides you with a Zestimate.
So far they’ve snagged $9.95 million in funding, though the lead is from Opendoor co-founder Keith Rabois of Khosla Ventures.
Other notable individuals involved with Opendoor include PayPal co-founder Max Levchin, former YouTube and Facebook CFO Gideon Yu, Yelp CEO Jeremy Stoppelman, and Facebook vice president Dan Rose.
With that group of investors, it’s certainly going to get interesting in a hurry.
How Selling a Home with Opendoor Works
You request an offer to sell your home
A “home expert” prepares an offer based on market data in 24 hours
You review the offer and sign if you accept it
They provide a free home assessment to determine repair costs
You choose a closing day and they buy your home
Opendoor basically takes the guess work and uncertainty out of selling a home by just agreeing to buy it from you for a certain market-driven price.
That makes them an iBuyer, or instant buyer, of homes, as opposed to a maybe-buyer who takes 30-45 days to close on your home, assuming they get to the finish line.
Instead of having to find a real estate agent, clean it, list it, stage it, hold open houses, and wait and hope that it sells for the price you want/need, they’ll buy it for you in a matter of days.
All you need to do is request a free, no-obligation offer by entering your address and telling them about your home.
If your home qualifies, a local market expert will prepare your offer in just 24 hours, relying on your property’s unique features and market data.
The offer is good for five days, but you can proceed whenever you’d like. It can also be refreshed at any time after that period.
Assuming you accept, it will be subject to an in-person inspection to determine if repairs are necessary.
If they are, you can make them yourself or leave it up to Opendoor, in which case the costs will be deducted from your sales proceeds.
You get to choose your closing date as well, between 14 and 60 days, whether you want to unload it quickly or at a later date (and changes can be made free of charge).
That can come in handy if you need a quick sale, perhaps to avoid a contingent purchase. Or if you need cash fast from the sale of your home.
But they’re happy to let you stick around a while too. This flexibility is one of the main perks of iBuying, especially if you’re acquiring a new home.
Opendoor Pricing and Fees
Despite the enormous convenience, Opendoor claims to save you money too, with the average service charge around 7.1% of the sales price versus a 7-10% cost if you go the traditional route.
You can see a breakdown above of what a traditional sale might cost versus selling to Opendoor.
Of course, what’s the sale price in both scenarios? If they’re the same, great. If the one with Opendoor is significantly lower, the math changes quickly.
These head-to-head comparisons always seem to feature the same sales price, which probably isn’t a reality.
Another key factor is repair costs. Will Opendoor hold you accountable for thousands in repairs, or will they go relatively easy? I guess it depends on the property in question.
Regardless, you do have to factor in some “cost” for the time and effort saved by not having to list yourself.
And as they point out, there is a cost to owning two homes at once, assuming you’re not benefiting from it.
Opendoor Versus the Competition
Not all iBuyers are created equal, despite there being several of them nowadays like Zillow Offers and Offerpad.
Opendoor points out the subtle, but important differences in their offerings versus the competition.
Notably, they allow you to cancel your home sale at any time for any reason, which apparently isn’t the case with Offerpad.
They also allow a 14-day “Late Checkout” if you need to stay in your home a bit longer before you move into your new abode.
However, my guess is all these companies will make adjustments over time to match up with the others.
So ultimately it will probably come down to pricing if you shop different iBuyers at the same time.
Buying an Opendoor Home
Opendoor sells the homes it buys shortly after refurbishing them
So you can search their listings on their website/app
And then buy a home directly from them too
With or without your own real estate agent
If you happen to be a home buyer, you can purchase an Opendoor property.
After all, if Opendoor is buying properties from home sellers, they’ve got to unload them on the other side.
They provide some benefits to buyers as well, including the ability to view an Opendoor home via the Opendoor Homes mobile app.
You can actually open the door so to speak by unlocking it with the app. Or at least getting the code to the lockbox. And each home is open daily from 6am to 9pm, so there’s always a convenient time to visit.
Once you’re ready to make an offer, you can do so via the Opendoor app or their website, and it only takes 48 hours or so to hear back.
They say it generally takes 20-30 days to close, similar to a traditional home purchase, and they require you to be pre-approved for a mortgage before making an offer.
If you have a buying agent, you can use them and Opendoor will pay them a commission. But it might affect your sales price.
Lastly, there’s a 30-day satisfaction guarantee if you don’t love your home, they’ll buy it back.
Update: They also recently launched a trade-in program where you can sell your home and get a new one all through their company.
Where Opendoor Is Currently Available
At the moment, Opendoor is available in the following metros/cities:
Asheville, NC
Atlanta, GA
Austin, TX
Boise, ID
Charlotte, NC
Columbia, SC
Dallas Fort-Worth, TX
Deltona, FL
Denver, CO
Greensboro, Winston-Salem and High Point, NC
Houston, TX
Jacksonville, FL
Killeen, TX
Knoxville, TN (and Chattanooga)
Lakeland, FL
Las Vegas, NV
Los Angeles, CA
Miami, FL (including Fort Lauderdale and Palm Beach)
Minneapolis-St. Paul, MN
Nashville, TN
Ogden, UT
Oklahoma City, OK
Orlando, FL
Ormond Beach, FL
Oxnard, CA
Phoenix, AZ
Portland, OR
Prescott, AZ
Provo, UT
Raleigh-Durham, NC
Reno, NV
Riverside, CA
Rochester, MN
Sacramento, CA
Salt Lake City, UT
San Antonio, TX
San Diego, CA
Sarasota, FL
Tampa, FL
Thousand Oaks, CA
Tucson, AZ
Ventura, CA
Winter Haven, FL
Their hope is to offer the service nationwide at some point in the near future, and they have plans to expand to additional metros this year.
Opendoor’s Mortgage Division
You might be able to finance an Opendoor home with an Opendoor home loan
If buying in the states of Arizona or Texas
The company provides a 1% credit for closing costs
And the ability to get pre-qualified quickly
The company has since introduced a financing arm known as “Opendoor Mortgage” that provides financing for buyers of Opendoor homes. It’s only available in Arizona and Texas at the moment though.
The name has since been changed to Opendoor Home Loans.
They claim to offer competitive mortgage rates and the ability to get pre-qualified in under 30 minutes. And if everything happens under one roof, they might be able to close faster.
So it seems they’re trying to make it a one-stop shop, which makes sense because time is of the essence and you can’t have a third-party lender slowing things down.
At the moment, they have a promotion where a buyer can get a so-called “ultimate mortgage.” I’m not exactly sure what that means, but it does come with 1% off the purchase price in the way of a credit for closing costs.
This could make Opendoor Mortgage more competitive than other lenders assuming the mortgage rates and lender costs are comparable.
Opendoor Acquires Open Listings
In September 2018, Opendoor acquired Open Listings, a discount real estate brokerage that connects home buyers with local real estate agents.
It’s different in that agents and their services are on-demand, as needed. So a home buyer can control as much or as little of the process as they wish.
And in exchange for that hands-off approach, home buyers who use Open Listings get up to 50% of the typical buyer agent’s commission back.
So instead of the typical 2.5% commission, only 1.25% is paid via the sales price and the other 1.25% is returned to the buyer either via reduced closing costs or via check in the mail.
The company has already refunded over $8 million to homeowners whose collective purchases exceeded $1 billion.
Open Listings was launched just three years ago in Los Angeles, part of Y Combinator, with a simple goal of making buying a home easier and more affordable.
The merger aims to create an end-to-end solution for buying, selling, and trading in homes, the first of its kind in the industry.
Opendoor and Redfin Partnership
In July 2019, Opendoor announced a partnership with competitor Redfin.
While it sounds like an odd marriage, given the existence of a very similar RedfinNow product, it opens up some new markets for Redfin.
The agreement will allow home sellers in the cities of Phoenix and Atlanta to request an Opendoor offer through Redfin’s website or mobile apps, as seen in the screenshot above.
Currently, RedfinNow isn’t available in those markets, so perhaps it a free test-run.
Well, Redfin will actually make a profit if a customer decides to sell to Opendoor, and they’ll be able to see demand for iBuying in those cities.
Opendoor’s home listings will also appear on Redfin’s website and mobile apps.
In mid-June 2021, the company announced that it had reached the 100,000-transaction milestone.
Read more: Is Google about to replace your real estate agent?