Home Ownership

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Conventional loans are the most popular kind of mortgage, but a government-backed mortgage like an FHA loan is easier to qualify for and may have a lower interest rate. FHA home loans have attractive qualities, but borrowers should know that mortgage insurance usually tags along for the life of the loan.

As of March 2023, new FHA borrowers will pay less for insurance. The Biden-Harris Administration announced it was reducing premiums by .30 percentage points, lowering annual homeowner costs by $800 on average. The administration hopes the cuts will help offset rising interest rates.

What Is an FHA Loan?

The Federal Housing Administration has been insuring mortgages originated by approved private lenders for single-family and multifamily properties, as well as residential care facilities, since 1934.

The FHA backs a variety of loans that cater to the specific needs of a borrower, such as FHA reverse mortgages for people 62 and older and FHA Energy Efficient Mortgages for those looking to finance home improvements that will increase energy efficiency (and therefore lower housing costs).

But FHA loans are most popular among first-time homebuyers, in large part because of the relaxed credit requirements.

Recommended: Tips to Qualify for a Mortgage

FHA Loan Requirements

If you’re interested in an FHA home loan to buy a single-family home or an owner-occupied property with up to four units, here are the details on qualifying.

FHA Loan Credit Scores and Down Payments

Borrowers with FICO® credit scores of 580 or more may qualify for a down payment of 3.5% of the sales price or the appraised value, whichever is less.

Those with a poor credit score range of 500 to 579 are required to put 10% down.

The FHA allows your entire down payment to be a gift, from a family member, close friend, employer or labor union, charity, or government homebuyer program. The money will need to be documented with a mortgage gift letter.

FHA Loan DTI

Besides your credit score, lenders will look at your debt-to-income ratio, or monthly debt payments compared with your monthly gross income.

FHA loans allow a DTI ratio of up to 50% in some cases, vs. a typical 45% maximum for a conventional loan.

FHA Mortgage Insurance

FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% of the base loan amount, which can be rolled into the loan. As of March 2023, monthly MIP for new homebuyers is 0.15% to .75% — most often 0.55%.

For a $300,000 mortgage balance, that’s upfront MIP of $5,250 and monthly MIP of $137.50 at the 0.55% rate.

That reality can be painful, but MIP becomes less expensive each year as the loan balance is paid off.

There’s no getting around mortgage insurance with an FHA home loan, no matter the down payment. And it’s usually only shed by refinancing to a conventional loan or selling the house.

FHA Loan Limits

In 2023, FHA loan limits in most of the country are as follows:

•   Single unit: $472,030

•   Duplex: $604,400

•   Three-unit property: $730,525

•   Four-unit property: $$907,900

The range in high-cost areas is $1,089,300 (for single unit) to $2,095,200 (four-unit property); for Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the range is $1,633,950 (for single unit) to $3,142,800 (for four-unit property).

FHA Interest Rates

FHA loans usually have lower rates than comparable conventional loans.

The annual percentage rate (APR) — the annual cost of a loan to a borrower, including fees — may look higher on paper than the APR for a conventional loan because FHA rate estimates include MIP, whereas conventional rate estimates assume 20% down and no private mortgage insurance.

The APR will be similar, though, for an FHA loan with 3.5% down and a 3% down conventional loan.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

FHA Income Requirements

There are none. High and low earners may apply for an FHA loan, but they must have at least two established credit accounts.

Recommended: How to Afford a Down Payment on Your First Home

Types of FHA Home Loans

Purchase

That’s the kind of loan that has been described.

FHA Simple Refinance

By refinancing, FHA loan borrowers can get out of an adjustable-rate mortgage or lower their interest rate.

They must qualify by credit score and income, and have an appraisal of the property. Closing costs and prepaids can usually be rolled into the new loan.

FHA Streamline Refinance

Homeowners who have an FHA loan also may lower their interest rate or opt for a fixed-rate FHA loan with an FHA Streamline Refinance. Living up to the name, this program does not require a home appraisal or verification of income or credit.

The new loan may carry an MIP discount, but you’ll pay the upfront MIP in addition to monthly premiums. An exception: The upfront MIP fee of 1.75% is refundable if you refinance into an FHA Streamline Refinance or FHA Cash-out Refinance within three years of closing on your FHA home loan.

Closing costs are involved with almost any refinance, and the FHA doesn’t allow lenders to roll them into a Streamline Refinance loan. If you see a no closing cost refinance for an FHA loan, that means that instead of closing costs, a lender will charge a higher interest rate on the new loan.

You’ll continue to pay MIP after refinancing unless you convert your FHA loan to a conventional mortgage.

FHA Cash-Out Refinance

You don’t need to have an FHA loan to apply for an FHA Cash-Out Refinance. Whatever kind of loan the current mortgage is, if the eligible borrower has 20% equity in the home, the refinanced loan, with cash back, becomes an FHA loan.

The good news: Homeowners with lower credit scores may be approved. The not-great news: They will have to pay mortgage insurance for 11 years.

Any cash-out refi can trigger mortgage insurance until a borrower is back below the 80% equity threshold.

FHA 203(k) Loan

In addition to its straightforward home loan program, the FHA offers FHA 203(k) loans, which help buyers of older residences finance both the home purchase and repairs with one mortgage.

An FHA 203(k) loan can be a 15- or 30-year fixed-rate or adjustable-rate mortgage.

Some homeowners take out an additional home improvement loan when the need arises.

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FHA vs Conventional Loans

Is an FHA loan right for you? If your credit score is between 500 and 620, an FHA home loan could be your only option. But if your credit score is 620 or above, you might look into a conventional loan with a low down payment.

You can also buy more house with a conventional conforming loan than with an FHA loan. Conforming loan limits in 2023 are $726,200 for a one-unit property and $1,089,300 in high-cost areas.

Borrowers who put less than 20% down on a conventional loan may have to pay private mortgage insurance (PMI) until they reach 20% loan-to-value. But borrowers with at least very good credit scores may be able to avoid PMI by using a piggyback mortgage; others, by opting for lender-paid mortgage insurance.

One perk of an FHA loan is that it’s an assumable mortgage. That can be a draw to a buyer in a market with rising rates.

The Takeaway

An FHA home loan can secure housing when it otherwise could be out of reach, and FHA loans are available for refinancing and special purposes. But mortgage insurance often endures for the life of an FHA loan. The Biden-Harris Administration recently reduced monthly MIP for new homebuyers to help offset higher interest rates.

Some mortgage hunters might be surprised to learn that they qualify for a conventional purchase loan with finite mortgage insurance instead. And some FHA loan holders who have gained equity may want to convert to a conventional loan through mortgage refinancing.

SoFi offers conventional fixed-rate mortgages with competitive interest rates and cancellable PMI, as well as refinancing. Check out SoFi’s low rate home mortgages.

Qualifying first-time homebuyers can put as little as 3% down, and others, 5%.

View your rate today.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Source: sofi.com

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When you buy a home, you’re likely paying more than just the down payment and closing costs. You’ill probably also need to purchase homeowner’s insurance. While this coverage is not mandated by law, many mortgage lenders require it before they agree to finance the purchase of your home.

Here’s what first-time homebuyers need to know before shopping for homeowners insurance.

What Does Homeowners Insurance Cover?

Homeowners insurance coverage provides protection for both a home and its contents against damage, theft, and up to 16 named perils, including fire, hail, windstorms, smoke, vandalism, and theft. It also typically includes personal liability coverage for accidents that may happen on the property (think of people slipping and falling down your stairs, or your dog biting a neighbor on the property).

On the flip side, basic homeowners insurance likely won’t cover damage from disasters such as floods and earthquakes, and even war (seriously). Homebuyers who live in an area prone to certain events or natural disasters may want to consider supplemental coverage. In some cases, their lender may even require it.

It’s a good idea to learn what’s generally covered by each homeowners insurance policy type — and what isn’t — to ensure you have the right protection in place.

When You Need to Buy Homeowners Insurance

If buyers plan to get a mortgage to purchase their home, their lender will likely require they obtain homeowners insurance coverage before signing off at closing.

In reality, this is a sound business tactic, as the lender will want to protect its investment, which is the property, not the person it’s lending to (harsh, we know). Let’s say the home is damaged in a windstorm or burns to the ground. Insurance will cover the cost, after a deductible, without burdening the homeowner. The homeowner can then continue to pay their mortgage on time, much to the delight of the lender.

Again, if you live in an area prone to certain disasters like floods or earthquakes, your lender may require additional coverage. Check with your lender on what’s necessary before signing.

If a person’s first home happens to be a condo or co-op, the board may also require specific coverage, thanks to a shared responsibility for the entire complex.

Recommended: House or Condo: Which Is Right For You? Take the Quiz

Can You Forgo Homeowners Insurance?

Technically, there are no laws requiring a person to obtain homeowners insurance, but it’s a rule put in place by many lenders.

If you’re paying cash for a new home, you can forgo purchasing homeowners insurance, though that may be a risky proposition.

Think you can somehow snake the system? Think again. If a lender doesn’t feel that the homebuyer is working hard or fast enough to find homeowners insurance before closing, the lender may go ahead and purchase insurance in that person’s name with what’s called “lender-placed insurance.”

This isn’t as cool as it sounds. Not only will it increase the mortgage payment, lender-placed insurance is typically more expensive than traditional homeowners insurance. And it may not even provide all the protection a homeowner needs or wants.

To give yourself enough time to find the right policy for you, aim to start shopping around a good 30 days before closing.

How Much Coverage a Person Needs

How much homeowners insurance a new homeowner needs will depend on the value of their home and the possessions in it. As a first step, would-be homeowners can ask their agent for a recommended amount of coverage.

After determining that number, it’s also a good idea to take stock of belongings and see if any items may require additional coverage (think expensive antiques, paintings, or other irreplaceable items). It could also be smart to photograph and digitally catalog major items in a home for proof needed on any claims.

Replacement Cost vs. Actual Cash Value

When shopping for homeowners insurance, there’s replacement cost coverage and actual cash value coverage.

Replacement cost coverage pays the amount needed to replace items with the same or similar item, while actual cash value coverage only covers the current, depreciated value of a home or possessions.

This means that if you have actual cash value coverage and disaster hits, you’ll only be able to get enough cash for the depreciated value of the home and items, not the cost of what it may take to replace them.

Most standard homeowners insurance policies cover the replacement cost of a physical home and the actual cash value of the insured’s personal property, but some policies and endorsements also cover the replacement cost of personal property.

The upshot: It’s best to go for replacement cost coverage whenever possible.

Recommended: How Much Is Homeowners Insurance?

The Takeaway

Is homeowners insurance required to buy a home? If you’re taking out a mortgage, that’s almost always a “yes.” It’s worth looking at your options — and understanding what will and will not be covered — so you can feel at ease in your new home for years to come.

Of course, shopping for homeowners insurance often requires considering several options, from the amount of coverage to the kind of policy to the cost of the premium. To help simplify the process, SoFi has partnered with Lemonade to bring customizable and affordable homeowners insurance to our members.

Lemonade is a name you can trust. It has exceptional ratings, is fully licensed, and reinsured by some of the most trusted names on the planet. Plus, it donates any leftover money to nonprofit partners chosen by customers.

Check out homeowners insurance options offered through SoFi Protect.


SoFi offers customers the opportunity to reach the following Insurance Agents:

Home & Renters: Lemonade Insurance Agency (LIA) is acting as the agent of Lemonade Insurance Company in selling this insurance policy, in which it receives compensation based on the premiums for the insurance policies it sells.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

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[Note from editor: The “Mastermind Showcase” highlights companies and news from members of the GEM. Today’s showcase: Prisidio]

A cloud-based vault to securely store, organize, and share all life’s essential documents and information, Prisidio provides cybersecurity and data protection solutions that protect users’ sensitive data and digital assets. Its software is used to store birth certificates and IDs, wills, the location of important physical and digital spaces like safe deposit boxes, or a digital inventory of financial and sentimental valuables. This protected data can then be accessed by the vault owner, via mobile or web, or by those invited to access the specific items in the vault, like a family member, lawyer, or financial advisor. The vault owner can keep track of all activity occurring within their vault through instant mobile notifications or the vault’s action log.

What we like: A digital version of a safe deposit box, built for the mobile and cloud world we now live in. Real estate and finance documents are a critical piece of virtually every family estate, and Prisidio makes them findable and shareable among families and other trusted connections.

Learn More

*Part of 2023 REACH Class

Source: geekestateblog.com

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Thomas Short

Posted on: March 28, 2018

Nobody wants to be paying as much as they do on a month-to-month basis. Home payments can make up a large portion of your monthly payments, but there’s a good chance you have other recurring expenses as well.

If you’re looking to save some money, monthly payments are where you should be looking. Depending on your current spending and payments, you could end up saving hundreds of dollars each month.

Some changes you should make to reduce your monthly payments won’t be fun, but others are going to be so easy that you’d wished you made the change months ago.

Here are some of the best ways to save money on your monthly payments:

Click to check today’s rates.

Improve the energy efficiency of your home

One of the quickest ways to reduce your monthly payments is to look at your bills. There’s a decent chance that your electric bill is a little larger than it should be.

Changing out lightbulbs and some appliances for more energy efficient versions can save you some decent cash pretty quickly. If you have the cash for it, replacing your windows with more energy efficient windows will also reduce your monthly payments while increasing the value of your home.

To further reduce the size of your energy bill, unplug devices when they aren’t on. Anything that’s plugged in is using “ghost power,” which basically means you’re paying for your devices to be off!

Get a VA refinance

The quickest way to reduce your monthly payments is to get a refinance, and, if you’re able, to get it through the VA.

There are two types of VA refinance: streamline and cash-out. Both will lower your monthly payments in the most important way: reducing your mortgage rate. Also, you’re able to use cash on both refinance options to make your home more energy efficient. This will save you money in two ways.

Refinances save people plenty of money on their monthly payments, and the VA gives homeowners different options for refinancing.

Click to check your VA refinance eligibility.

Non-Housing Ways To Save Money

Yes, your housing payment is likely the biggest expense you have each month. But that doesn’t mean you don’t have other expenses which could save you some cash.

The more you save each month, the easier it is to make mortgage payments while storing a little extra. To take the pressure off your mortgage payments, here are some ways to save money each month:

Change your cell phone/cable plan

Most cell phone carriers have similar reliability, so now they’re forced to compete with each other for lower rates and fees. You can take advantage of that. Shop your cell phone plan around and see if there’s an option that can save you some quick cash.

Another place to look is your cable plan, or whatever you use for TV. Many people have channels they don’t need, and some people could get by without cable completely. Reevaluate how badly you need all those channels – it could save you money.

Find lower insurance rates

If you’re a safe driver, odds are you can get a lower rate somewhere. Shopping insurance rates isn’t fun, but it saves you money.

The same applies to just about every type of insurance. Take a closer look at what you’re paying for and ask yourself if you really need it. Don’t try to get too skimpy with payments here, though – better safe than sorry at the end of the day.

Pay attention to monthly subscriptions

A monthly payment of $10.99 doesn’t seem like much, but when you have multiple subscriptions going on, this can add up pretty quickly. Services like Netflix, Hulu, subscription gaming and other streaming services are booming in popularity, and one reason the subscription service works is because you forget about it.

Go through your finances and look at services you pay for. Do any of them really add that much value? Just cutting out a few subscriptions could save you $25 a month, or $300 a year. The more you cut out, the more you’re bound to be saving.

Cutting your monthly payments isn’t always glamorous, but these methods will take you to your main goal: saving money. Refinancing is the most effective way to cut monthly payments without sacrificing too much (or anything), but if your goal is to save money, you shouldn’t stop with a refinance.

Click to check today’s refinance rates.

Source: militaryvaloan.com

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Thomas Short

Posted on: July 31, 2018

Nothing you’ve done up to this point compares to owning a home. Buying a home is often the biggest purchase someone has made in their life, and it’s a big milestone – and financial commitment.

As exciting as moving into your own home is, you shouldn’t get swept up too quickly. Things are going to need attention and you’re going to need to budget for future expenses.

To avoid making your big purchase feel like a big mistake, here are some tips that responsible new homeowners should follow. With a little prep and planning, you can make your purchase a happy, positive experience.

Check today’s rates.

Budget for new costs

Before moving into a home, the buyer was most likely renting. Mortgage payments aren’t too far from rent payments, so you’ll be ready for that. But there are other costs to be aware of.

Property taxes are not only going to be there the entire time you own your house, but they’re likely going to increase as the value of your home rises. While you don’t need to keep a long-term plan to keep up with rising taxes, you should be prepared to budget for them annually – and expect to pay more each year.

Utilities are also a huge expense, especially for homeowners that aren’t prepared. Heating and cooling can account for nearly half of your total energy costs, so you should track your usage and invest in a smart system that reduces costs while keeping you comfortable.

On top of these, other expenses you should prepare for include:

  • Homeowners association (HOA) dues
  • Homeowners’ insurance
  • Mortgage insurance (not applicable to homeowners with a VA loan)

Add all these up and you’ll likely be paying a bit more than you were with your rental. On the plus side, you’re now paying for a property that you own.

Know what needs maintenance and cleaning

If something is neglected for too long, permanent damage could be caused. This means spending money to fix or replace it.

Keeping your home clean is important, from the carpets to the window screen to the gutters. You should also be checking on your roof, water heaters, furnace and other major appliances. Air conditioning filters will need to be replaced regularly, and lightbulbs are bound to go out eventually.

While spending money on something that isn’t broken can be frustrating, it’s better than waiting until the last minute. If that happens, you may end up spending much more than you could have if you acted earlier.

Click to check current rates.

Budget for furniture and appliances

Your home is probably going to be a bit bigger than your apartment, which is good. But you probably only have enough furniture to fit your old rental, so you might have to get some more furniture.

Furniture can be expensive, especially when new. Check out consignment stores to find good deals, and ask friends and family if they have old furniture they’re no longer using.

Appliances can also be pricey. If you haven’t bought the home yet, see if you can convince the seller to leave the appliances behind. These are called seller concessions, and they’re negotiated in the contract.

Get homeowners insurance

While homeowners insurance might seem like a waste of money, ignoring it could be the worst mistake a homeowner makes. You’ll probably be required to get homeowners insurance when you get a mortgage, but some homeowners drop it after so many years.

Remember, this is the biggest purchase you’ve ever made. You’ll want to keep it protected, even if it means spending a little extra each month.

Cash in on your tax return

Here’s a good part about owning a home: you can deduct a lot of expenses and end up getting a bigger tax return.

You should hire a professional accountant the first year you own a home, even if you do your own taxes. They’ll be able to help save you money, and you’ll be able to see how. There are too many intricacies to taxes and homeownership to go through, so you’re best off spending money on an accountant in year one and using your newfound knowledge in the future.

Keep some money in an emergency fund

The unfortunate reality of life is that things will go wrong at some point. You can avoid making these bad things worse by keeping an emergency fund.

There’s no perfect amount to keep aside, but many financial planners advise that you put aside 3-6 months’ worth of expenses. If you can save more, it’s never a bad idea.

Check today’s VA rates.

Source: militaryvaloan.com

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Below is a list of acceptable VA energy efficient improvements according to the VA Loan Handbook. Qualified applicants can roll the cost of the improvements into your new loan up to a maximum amount of $6000.

<span data-sheets-value="{"1":2,"2":""" Check your VA home buying eligibility. Start here (May 7th, 2023)

VA acceptable energy efficiency improvements are:

  • Solar heating systems, including solar systems for heating water for domestic use
  • Solar heating and cooling systems
  • Caulking and weather-stripping
  • Furnace efficiency modifications limited to replacement burners, boilers, or furnaces designed to reduce the firing rate or to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency, devices for modifying flue openings which will increase the efficiency of the heating system, and electrical or mechanical furnace ignition systems which replace standing gas pilot lights.
  • Clock thermostats
  • New or additional ceiling, attic, wall, and floor insulation
  • Water heater insulation
  • Storm windows and/or doors, including thermal windows and/or doors
  • Heat pumps
  • Vapor barriers

You can increase your loan amount up to $6000 for energy efficiency improvements. You will need to provide the following additional documentation to have the cost of these improvements rolled into your loan amount:

If improvements total $0 – $3000

  • A copy of a contractor bid or quote itemizing the improvements and the cost. The quote must list the model number or name of the items to be installed and the bid must be signed and dated by both the contractor and the borrowers.
  • A manufacturer brochure or flyer for each of the item(s) you are installing. The brochure or flyer must state the item’s model number or name. The model number/name must match up with the model number/name listed on your bid/quote.

If improvements total $3000 – $6000

  • A copy of a contractor bid or quote itemizing the improvements and the cost. The quote must list the model number or name of the items to be installed and the bid must be signed and dated by both the contractor and the borrowers.
  • A manufacturer brochure or flyer for each of the item(s) you are installing. The brochure or flyer must state the item’s model number or name. The model number/name must match up with the model number/name listed on your bid/quote.
  • An energy audit performed by your utility company or another 3rd party. The energy audit needs to show what your current monthly average utility cost are for the last year.

Upon closing, the funds added to your loan amount for the energy efficient improvements will be held in an escrow account until your improvements are completed. Upon completion of the improvements, an inspection is done to verify completion and the funds will then be released.

<span data-sheets-value="{"1":2,"2":""" Check your VA mortgage rates. Start here (May 7th, 2023)

Source: militaryvaloan.com

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When you’re considering applying for a mortgage, one of your top questions is probably “What is the monthly payment going to be?”

For a 100K mortgage, the payment on a 30-year loan at 7% interest would be $665.30. For a 15-year mortgage loan term, the payment increases to $898.83, which helps you pay off the loan sooner and pay less in interest costs over the entire loan.

Your own loan will depend on a number of factors, including but not limited to fluctuating interest rates. Here’s what goes into a 100K mortgage, what income is required to get one, and what your payments would look like over the life of the loan.

Total Cost of a 100K Mortgage

The total cost of a 100K mortgage goes beyond the monthly payment. There are upfront costs and ongoing, long-term costs to consider, all of which affect how much house can you afford.

Upfront Costs

Upfront home loan costs can include:

•   Closing Costs: There are costs you need to pay to get a mortgage, but they are not a part of the original loan. These are known as closing costs and include things like the mortgage origination fee, the cost of an appraisal, attorney fees, title fees, taxes, prepaids, and other expenses. With the average closing cost on a new home adding between 3% and 6%, that works out to $3,000 to $6,000 on a 100K mortgage.

•   Down Payment: Unless you are able to obtain a 0% down payment loan, you’ll need some money to afford the down payment on a 100K mortgage loan.

The average down payment on a home is 13%, as per the National Association of Realtors®. This works out to $13,000 on a $100,000 home.

If you don’t quite have this amount, there are other types of mortgage loans that offer low down payment options. 3% and 3.5% are common, which would come out to $3,000 and $3,500 for the down payment on a 100K home.

Long Term Costs

Here are the ongoing costs of a mortgage loan:

•   Interest. The biggest expense you’ll have over the life of the loan is interest. Interest costs are huge, especially in an economy with higher annual percentage rates (APRs). You’ll pay more in interest than you do in principal if you keep the mortgage loan for the whole 30-year loan term.

For a $100K mortgage with a 30-year term and 7% APR, the interest costs total $139,508.90.That’s on top of the $100,000 original loan amount. Adding the two together, you’re looking at paying $239,508.90 for the original 100K mortgage. Take a look at our mortgage payment calculator or the amortization table further down if you’re more curious about this amount.

•   Escrow. You may pay for taxes and insurance through your escrow account every month. This expense doesn’t go away, even when you pay off your mortgage. The amount of tax and insurance varies by state and policy.

Estimated Monthly Payments of a 100K Mortgage

Payments on a 100K home will ultimately be determined by your loan term and interest rate. And the interest rate is determined by a number of factors. Of course, the Fed’s rate matters, but so too do such aspects as:

•   Credit score. A good credit score can afford you a lower interest rate on your mortgage.

•   Down payment. Generally, putting down a larger down payment affords you a lower interest rate.

•   Home location. There are certain areas where you may be offered a lower interest rate just because of where you live.

•   Loan amount. If you need a larger loan, such as a jumbo loan, you’ll usually see a higher interest rate. The same can be true of much smaller homes, such as tiny homes.

•   Interest rate type. If you choose a loan with an adjustable APR, you may initially have a lower interest rate.

•   Loan type. You’ll see different interest rates based on what loan type you’re using. Examples include VA loans, FHA loans, and a USDA loan which may offer a lower (or no) down payment as well as lower interest rates.

•   Loan term. Choosing a mortgage term that’s shorter can help you score a lower interest rate.

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Recommended: First-Time Homebuyer Guide

Monthly Payment Breakdown by APR and Term

It’s helpful to see what potential mortgage loan payments on a 100K mortgage may be, adjusting for term length and APR variance. Keep in mind these costs do not include escrow items, such as taxes or insurance.

APR Monthly Payment on a 30-Year Loan Monthly Payment on a 15-Year Loan
3.5% $449.04 $714.88
4% $477.42 $739.69
4.5% $506.69 $764.99
5% $536.82 $790.79
5.5% $567.79 $817.08
6% $599.55 $843.86
6.5% $632.07 $871.11
7% $665.30 $898.83
7.5% $699.21 $927.01
8% $733.76 $955.65
8.5% $768.91 $984.74
9% $804.62 $1,014.27
9.5% $840.85 $1,044.22
10% $877.55 $1,074.61

How Much Interest Is Accrued on a 100K Mortgage?

Each month, your payment is split into principal and interest payments. Those interest payments go to the bank as payment for lending you money. Principal payments go toward the original loan amount and pay down the loan.

The longer the loan term, the more you’ll pay in overall interest. For a 100K mortgage on a 30-year term with a 7% APR, the interest costs total $139,508.90 on top of the original loan.

On a 15-year term with the same parameters, the interest costs are a more modest $61,789.09. Yes, your monthly payments are higher, but the difference between a 15 vs. 30 year mortgage with 7% APR is significant.

Recommended: Home Loan Help Center

100K Mortgage Amortization Breakdown

The amortization of a 100K mortgage shows how much of your monthly payment pays off the loan each month.

You can see in the early years of your mortgage, more of your monthly payment goes toward interest, and very little of your loan is paid off. In later years, more of the payment will go toward the principal.

Year Monthly Payment Beginning Balance Total Amount Paid Interest Principal Ending Balance
1 $665.30 $100,000.00 $7,983.60 $6,967.81 $1,015.79 $98,984.19
2 $665.30 $98,984.19 $7,983.60 $6,894.39 $1,089.21 $97,894.95
3 $665.30 $97,894.95 $7,983.60 $6,815.64 $1,167.96 $96,726.96
4 $665.30 $96,726.96 $7,983.60 $6,731.21 $1,252.39 $95,474.55
5 $665.30 $95,474.55 $7,983.60 $6,640.66 $1,342.94 $94,131.59
6 $665.30 $94,131.59 $7,983.60 $6,543.59 $1,440.01 $92,691.55
7 $665.30 $92,691.55 $7,983.60 $6,439.49 $1,544.11 $91,147.41
8 $665.30 $91,147.41 $7,983.60 $6,327.86 $1,655.74 $89,491.65
9 $665.30 $89,491.65 $7,983.60 $6,208.17 $1,775.43 $87,716.19
10 $665.30 $87,716.19 $7,983.60 $6,079.81 $1,903.79 $85,812.38
11 $665.30 $85,812.38 $7,983.60 $5,942.19 $2,041.41 $83,770.95
12 $665.30 $83,770.95 $7,983.60 $5,794.61 $2,188.99 $81,581.94
13 $665.30 $81,581.94 $7,983.60 $5,636.38 $2,347.22 $79,234.69
14 $665.30 $79,234.69 $7,983.60 $5,466.70 $2,516.90 $76,717.75
15 $665.30 $76,717.75 $7,983.60 $5,284.75 $2,698.85 $74,018.87
16 $665.30 $74,018.87 $7,983.60 $5,089.64 $2,893.96 $71,124.88
17 $665.30 $71,124.88 $7,983.60 $4,880.45 $3,103.15 $68,021.68
18 $665.30 $68,021.68 $7,983.60 $4,656.10 $3,327.50 $64,694.16
19 $665.30 $64,694.16 $7,983.60 $4,415.56 $3,568.04 $61,126.09
20 $665.30 $61,126.09 $7,983.60 $4,157.62 $3,825.98 $57,300.08
21 $665.30 $57,300.08 $7,983.60 $3,881.03 $4,102.57 $53,197.49
22 $665.30 $53,197.49 $7,983.60 $3,584.46 $4,399.14 $48,798.32
23 $665.30 $48,798.32 $7,983.60 $3,266.46 $4,717.14 $44,081.14
24 $665.30 $44,081.14 $7,983.60 $2,925.44 $5,058.16 $39,022.95
25 $665.30 $39,022.95 $7,983.60 $2,559.78 $5,423.82 $33,599.10
26 $665.30 $33,599.10 $7,983.60 $2,167.69 $5,815.91 $27,783.17
27 $665.30 $27,783.17 $7,983.60 $1,747.26 $6,236.34 $21,546.80
28 $665.30 $21,546.80 $7,983.60 $1,296.45 $6,687.15 $14,859.60
29 $665.30 $14,859.60 $7,983.60 $813.02 $7,170.58 $7,688.98
30 $665.30 $7,688.98 $7,983.60 $294.64 $7,688.96 $0.00

What Is Required to Get a 100K Mortgage?

When you’re applying to qualify for a mortgage, lenders look for a few key things to approve your application.

•   How much debt you will be carrying. Lenders look for your monthly payment to be lower than 28% of your gross monthly income. A 100K mortgage payment at 7% interest on a 30-year term is $665.30. For this payment to be less than 28% of your monthly income, your monthly income needs to be over $2,376, assuming you have no debt. This turns into a $28,512 yearly salary requirement to afford a 100K mortgage payment.

If you have debt, the calculation changes a little bit. Your lender will add your monthly debts to your projected monthly mortgage payment. These two numbers added together need to be less than 36% of your monthly income. This calculation a lender does is known as the debt-to-income ratio, or back-end ratio.

•   Credit score. It’s advisable to have a credit score of 620 or higher when applying for a mortgage loan.

•   Consistent work history. If you are unemployed, self-employed, or have recently changed jobs, lenders may be less likely to approve your loan. They may worry about your having a steady enough income to make your payments.

The Takeaway

A 100K mortgage will have a monthly cost that varies depending on such factors as the loan’s interest rate, the term of the loan, and whether it’s a fixed- or variable-rate loan. By understanding more about how the cost of a mortgage is calculated, plus the related costs, you can be better prepared for the milestone of being a homeowner.

When you’re ready to apply for a mortgage, SoFi will be there for you. Our rates are competitive, and we offer flexible loan terms and down payment options (as little as 3% for first-time homebuyers) to suit your needs. The online application simplifies the process, and our dedicated Mortgage Loan Officers can help you every step of the way.

See how smart and simple a SoFi Mortgage Loan can be.

Photo credit: iStock/AndreyPopov

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.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
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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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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The Federal Home Loan Mortgage Corporation, or FHLMC, is known as Freddie Mac, the entity created by Congress for the purpose of buying mortgages from lenders to increase liquidity in the market. Freddie Mac was created in 1970 and expressly authorized to create mortgage-backed securities (MBS) to help manage interest-rate risk.

Because the FHLMC buys mortgages, lenders don’t have to keep loans they originate on their books. In turn, these lenders are able to originate more mortgages for new customers. The mortgage market is able to keep capital flowing and offer competitive financing terms to borrowers because of this system. In other words, the market runs more smoothly because of Freddie Mac and its sister company, Fannie Mae, the Federal National Mortgage Association (FNMA).

If you want to know more about how this government-sponsored enterprise works and how it affects your money, read on for details on:

•   What is the FHLMC and what are FHLMC loans?

•   What is the difference between Freddie Mac and Fannie Mae?

•   What are Freddie Mac mortgages?

•   How does the Federal Home Loan Mortgage Corporation work?

Freddie Mac and Fannie Mae

These organizations, with their friendly-sounding nicknames, serve a very important purpose. Freddie Mac and Fannie Mae were created for the purpose of stabilizing the mortgage market and improving housing affordability. These government-sponsored enterprises (GSEs) do this by increasing the liquidity (the free flow of money) in the market by buying mortgages from lenders. Mortgages are then pooled together into a mortgage-backed security (MBS) and sold to investors. The process created the secondary mortgage market, where lenders, homebuyers, and investors are connected in a single system.

In the past, Freddie Mac and Fannie Mae operated as private companies, though they were created by Congress. Fannie Mae came first in 1938, followed by Freddie Mac in 1970. Freddie Mac’s addition in 1970 resulted in the creation of the first mortgage-backed security.

The federal government took over operations at both companies following the financial crisis in 2008. According to the National Association of Realtors, without government support of Freddie Mac and Fannie Mae, there wouldn’t be very much money available to lend for mortgages.

The Federal Housing Finance Agency (FHFA) has oversight of Freddie Mac and Fannie Mae. On a yearly basis, they assess the financial soundness and risk management of Fannie Mae and Freddie Mac.

What Is the Purpose of the FHLMC?

As mentioned above, the FHLMC, or Freddie Mac, makes the housing market more affordable, stable, and liquid by buying mortgages on the secondary market. When they buy these loans, the retail lenders they buy them from are able to originate more mortgages to new customers and keep the mortgage market flowing smoothly.

There are many types of mortgage loans; the ones that Freddie Mac buys are known as conventional loans. The mortgage loan must meet certain standards (such as loan limits) for Freddie Mac to guarantee they will buy these loans.

In general, the process of successfully obtaining a mortgage usually looks something like this once the buyer has made an offer on a house that’s been accepted:

•   The consumer finds a lender, if they haven’t already done so, and will apply for a mortgage.

•   The lender collects documentation required by the loan type and submits it to underwriting.

•   The underwriter approves the loan.

•   The homebuyer closes on the loan, and mortgage servicing begins

•   The lender sells the loan on the secondary mortgage market to Freddie Mac (or Fannie Mae or Ginnie Mae, depending on what type of loan it is and from what type of lender it originated).

From a homebuyer standpoint, they will see the outward mortgage servicing, which is the entity to which they will send their monthly payment and who takes care of the escrow account. The mortgage servicer is the one who forwards the different parts of the mortgage payment to the appropriate parties.

Mortgage servicing can also be sold from servicer to servicer, but this is different from the sale of a mortgage to Fannie Mae or Freddie Mac.

Freddie Mac is also tasked with the responsibility of making housing affordable. There are specific mortgage programs guaranteed by Freddie Mac and offered by lenders.

•   HomeOne®. HomeOne is a mortgage program that offers low down payment options for first-time homebuyers. There are no income or geographic limits.

•   Home Possible®. Home Possible is a program for first-time homebuyers and low- to moderate-income homebuyers. It offers discounted fees and low down payment options.

•   Construction Conversion and Renovation Mortgage. This type of loan combines the costs of purchasing, building, and remodeling into one loan.

•   Manufactured Home Mortgage. For qualified buyers, Freddie Mac can guarantee mortgages when buying manufactured homes that meet their criteria.

•   Relief Refinance/Home Affordable Refinance Program (HARP). For borrowers with a good repayment history but little equity, loans are available to refinance into a more affordable rate.

Recommended: What Is the Average Down Payment on a House?

Understanding Mortgage-Backed Securities

After a mortgage is acquired from a lender, Freddie Mac can do one of two things: either keep the mortgage on its books or pool it with other, similar loans and create a mortgage-backed security (MBS). These MBS are then sold to investors on the secondary mortgage market.

What’s attractive about a mortgage-backed security to an investor is how secure it is. Fannie Mae and Freddie Mac guarantee payment of principal and interest. Both Fannie Mae and Freddie Mac issue mortgage backed securities now.

Does the FHLMC offer Mortgage Loans?

Freddie Mac does not sell mortgages directly to consumers. You won’t see a Freddie Mac mortgage or an FHLMC loan advertised to consumers. Instead, the FHLMC buys mortgages from approved lenders that meet their standards.

Recommended: What Are the Conforming Loan Limits?

The Takeaway

The housing market in the United States arguably benefits from the role of the Federal Home Loan Mortgage Corporation. Lenders can essentially originate mortgages to as many borrowers as can qualify. The free flow of capital created by the FHLMC also means mortgages are less expensive for homebuyers all around. In short, the smooth operation of the housing market owes much of its success to Freddie Mac and Fannie Mae.

If you’re shopping for a home and looking for a lending partner, consider what SoFi has to offer. With dedicated loan officers, competitive interest rates, flexible terms, and low down payment options, SoFi Mortgage Loans can offer something for nearly every borrower.

SoFi Mortgage Loans: Simple, smart, flexible.

FAQs

What does FHLMC stand for?

FHLMC is an abbreviation of Federal Home Loan Mortgage Corporation. It is commonly referred to as Freddie Mac.

What type of loan is FHLMC?

Freddie Mac guarantees conventional loans that adhere to funding criteria, but it does not offer Freddie Mac mortgages directly to consumers.

What is the difference between FNMA and FHLMC?

Fannie Mae and Freddie Mac originated in different decades and initially had different purposes, but for the most part, they serve the same purpose today of helping to improve mortgage liquidity and availability.

Photo credit: iStock/Andrii Yalanskyi

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Source: sofi.com

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Buying an investment property before your first home can be an interesting and financially sound plan. There are clear advantages — generating cash flow or building equity in your asset could benefit you and your family for years to come. You may be able to qualify as a first-time home buyer and take advantage of programs that allow you to buy a multi-family property. You may also be able to produce a strong enough income for the unit to pay for itself.

Yet, there can be significant sacrifices you may need to contemplate in order to make this dream happen. Here, learn what needs to happen if you’re planning on buying an investment property before your first home, including:

•   Is buying an investment property before your first home a good idea?

•   What are the steps for buying a house to rent?

•   What are the benefits of buying a house as an investment while still renting?

Purchasing an Investment Property 101

Purchasing an investment or rental property is similar to a regular home purchase. When you’re looking at buying an investment property for which you qualify as a first-time home buyer, however, there are some special considerations. Here is a guide:

Step 1: Decide if you’re going to live in a part of the investment property.
One of the first things you should decide when purchasing a rental property is if you’re going to live in a part of the investment property. This decision will affect what types of properties you’re going to look at, how you’re able to finance the property, and how much down payment you’ll need to come up with.

For example, if you can buy a house to rent with two to four units and live in one yourself, you may be able to finance the purchase as an owner-occupied property. This may qualify you for lower interest rates, lower down payment options, and more favorable loan options. However, you do have to live on the property. You cannot finance a property with an owner-occupied loan without living on the property as this is considered a type of mortgage fraud.

Here’s a quick summary of the difference between owner-occupied and non-owner-occupied rental properties.

Owner-Occupied Non-Owner-Occupied
Down payment options from 3.5% Down payment typically around 15%
Lower interest rates by about half a basis point Interest rates higher by about half a basis point

Step 2: Get preapproved for a loan.
Before you go shopping, make sure a lender is willing to give you a mortgage. Qualifying as a first-time homebuyer has some positives. On the one hand, you may have a better debt-to-income ratio since you don’t own a home yet. However, you may have a shorter credit history or a smaller down payment. Whatever the case, it’s helpful to get some numbers from your lender to assist with your investment.

Factors your lender will take into account when deciding what to lend to you include:

•   Amount of your down payment

•   Owner occupied status

•   Credit score

•   Debt-to-income ratio

•   Employment history.

Your lender will also take into account what programs you qualify for. Financing options for an investment property are wide. Some may include:

•   FHA

•   VA

•   USDA

•   Conventional

•   Private lending

•   Seller financing

Quick note: If you do decide to purchase a rental property and live in part of your investment property, your lender may be able to use the potential rent from that to qualify you for a mortgage.

Step 3: Find a property that meets your criteria
Now that you have your budget and parameters set, you’re ready to find a property. You may want to enlist the help of a real estate agent who can serve as your first-time homebuyer guide, especially since you want to buy an investment property right off the bat.

Your agent can help you write an offer while your lender may be able to help you apply for a mortgage online. You’re well on your way to buying a house to rent at this stage.

Step 4: Start your rental business.
Be sure to check local ordinances and business requirements for becoming a landlord. If you’ve got a plan and do your research, you may see success. Just don’t believe what you may see on TV, which makes owning a rental property look easy. Landlording is a tough job, and there’s a lot you need to know about the business before you start. Buying a house while renting is an endeavor that takes time and effort.

Buying a House While Still Renting

The benefit to buying an investment property before your first home is that your debt-to-income may be more favorable than for someone who has a mortgage. What this means is it’s possible you don’t have too much debt to qualify for a rental property.

The possible downsides are that you may not have the cash reserves to protect yourself from the risks of being a landlord. There’s always something that needs to be repaired or replaced.

What to Know As a New Landlord

Unlike what you may have heard or imagined, becoming a landlord can be anything but passive. You’ll also want to research all you can and put proper systems in place. Here’s a little of what you can expect to encounter as a new landlord.

•   Learn local housing laws. Housing laws can make or break you. Are short-term rentals allowed (if that’s what you’re planning)? What rights does your tenant have? If you need to evict a tenant, what does the process look like? Will you benefit by putting your property in an LLC?

There’s a lot to navigate, and you may want to consider hiring a property management company that specializes in this.

•   Determine how much to charge for rent. You’ll want to look at what other properties in the area are charging for rent and position yourself competitively. Also, consider what other landlords are allowing and charging when it comes to pets.

•   Prescreening is key. The reliability of your tenant is so important. It’s incredibly stressful when you’re not paid rent. Don’t rent to someone who “feels” like they would be a good tenant. Do your due diligence. Check credit and their background, and call references.

•   Create a plan for home maintenance, repairs, and other issues. If you’re hiring a property management company, plan for the expense. If you’re doing it yourself, make a list of contacts to call for the different issues that come up (electrical, plumbing, locks, handyman, etc.).

•   Have procedures in place for unit turnover. It’s an incredibly intense time when a tenant leaves and another needs to move in. How are you going to handle inspections? Cleaning? Deposits? You will need a system for logging such events and being prepared for turnover.

Recommended: Fixed-Rate vs. Adjustable-Rate Mortgages

The Takeaway

While landlording has a lot of responsibilities and risk, there can also be a lot of reward. If you’re really interested in buying a house while renting, you’ll find a way to make it work.

If you’re starting to shop for a new home and need a partner to help with your lending needs, see what SoFi has to offer. With a wide range of loans to choose from, low down payment options, and competitive interest rates, SoFi Mortgage Loans can be a great fit.

A SoFi Mortgage: Smart, simple, and flexible.

FAQ

How much profit should you make on a rental property?

There’s no easy answer for how much profit you should make on a rental property. Some investors buy property for the appreciation alone. There are also a number of methods for determining how much profit investors want to make on an investment property, such as cash flow, the 1% rule, gross rent multiplier, cash on cash return, cap rate, or internal rate of return. Those can help provide guidelines.

Should I buy an investment property and live in it?

If you’re able to live in your investment property, you can qualify for owner-occupied financing, which means lower down payments and better interest rates. But it also depends on your plans. If you want to renovate an investment property, living in it during renovations could be challenging.

Is rental property a good investment in 2023?

Rental demand is strong in 2023, but buying property is more dependent on your individual situation rather than market conditions.

Photo credit: iStock/luismmolina

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This article is not intended to be legal advice. Please consult an attorney for advice.
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Source: sofi.com

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Peter Warden

Posted on: April 19, 2022

Unlike FHA, USDA and conventional loans, VA mortgages have no loan limits. That’s because the Department of Veterans Affairs, back in 2020, stopped setting maximum loan sizes for the mortgages the VA insures.

But this doesn’t mean VA homebuyers have unlimited borrowing power. VA-authorized lenders, the institutions that issue VA loans, will still limit your loan size based on your borrowing credentials.

VA borrowers must still prove that:

  • They meet minimum credit score thresholds
  • They can comfortably afford the monthly payments
  • The home’s market value is at least as high as the loan amount

And, VA loan limits will still apply for new borrowers who have already used part of their VA entitlement. 

Check your maximum home purchase price today. Start here (Apr 25th, 2023)

What really changed with VA loan limits?

Veterans and active-duty service members have always been able to buy homes that exceed the conforming loan limit. These old  “jumbo VA loans” required a down payment, though, despite being VA loans.

Now, with no VA loan limits, borrowers with full entitlement could, theoretically, get a loan of any size with no money down. Even home prices of $1 million or more would be eligible. If a VA lender is willing to underwrite such a loan, the VA will insure it. 

Of course, in reality, lenders aren’t very likely to underwrite such a loan, and very few borrowers would have the credentials to qualify. After all, a $1 million home loan with zero down payment and a 4.16% interest rate has an estimated monthly mortgage payment of $6,000 — that’s a lot more than the average homebuyer can afford.

So the new, post-2020 rules affect only a small proportion of veterans and even fewer of those who are still serving. 

An exception to the new VA loan limit rules

The VA may still limit loan sizes for borrowers who already have active VA loans or who have only partial entitlement for some other reason such as a previous foreclosure.

If you’re in this situation, your new loan’s maximum size will depend on how much entitlement you’re already using and on the conforming loan limit in your county. Loan limits go higher in high-cost areas such as New York, San Francisco, Alaska, and Hawaii.

Even when loan limits apply, exceeding your maximum VA loan size may still be possible — if you can make the down payment that’s required. 

But rest assured, first-time home buyers, or VA homeowners who are refinancing their existing VA loan, usually have access to their full entitlement and can borrow with no down payment up to the level their lender approves.

If you’re worried loan limits will apply to you, speak to a licensed VA mortgage professional — call (866) 314-3616 or fill out this short, simple form.

How to calculate your VA loan limit

If you’re a first-time homebuyer — or a repeat homebuyer who does not currently have an outstanding VA loan — you can borrow up to the limit allowed by your lender. The VA’s loan limits won’t apply.

But if you already have an active VA loan, VA loan limits will help set your maximum loan size for a no-down-payment mortgage loan. 

Exactly how much you can borrow with no money down will depend on:

  • Remaining entitlement: How much entitlement you have left on your Certificate of Eligibility
  • Conforming loan limit: Your county’s conforming loan limit for this year as set by Freddie Mac and Fannie Mae

Calculating your loan limit for your second VA loan is complicated, and you may prefer to get a lender to find your loan limit for you. But if you’d like to calculate your VA loan limit, here’s how:

  1. Divide the original size of your current VA loan by 4
  2. Divide your county’s conforming loan limit by 4
  3. Subtract the answer in Step 1 from the answer in Step 2
  4. Multiply the answer in Step 3 by 4

The answer you get in Step 4 is the no-down-payment loan limit for your second VA home loan.

A VA loan limit example

Let’s work out an example to see this math in action:

  1. For this example, let’s say your current VA loan started out at $200,000. Divide that number by 4 to get $50,000
  2. To keep the math simple, we’ll say your current conforming loan limit, set by the Federal Housing Finance Agency, is $600,000. Divide this number by 4 to get $150,000 which is your full entitlement
  3. Subtract $50,000 (Step 1) from $150,000 (Step 2) to get $100,000, which is your level of remaining entitlement
  4. Multiply your current level of entitlement by 4 to get $400,000

The VA would allow you to borrow up to $400,000 with no down payment, assuming your lender will approve the loan.

What are VA loan limits and why are they so complicated?

The Department of Veterans Affairs does not loan money to veterans and active duty service members. It insures loans to make them safer for the lenders who issue them.

Specifically, the VA insures 25% of your loan amount. So $100,000 worth of VA insurance will allow a lender to underwrite a $400,000 mortgage loan with no down payment and no ongoing mortgage insurance.

Once again, all this math won’t affect your loan size unless you have an active VA loan and are buying another home. Your first use of your VA loan entitlement is now unlimited by the VA.

This math also won’t matter if your lender won’t approve a loan as large as your loan limit. Even if the VA says it would insure a loan up to $400,000, your lender could cap your loan at $300,000 based on your credit report and debt-to-income ratio.

Why VA loan limits don’t restrict how much you can borrow

Even if VA loan limits apply to you because you haven’t repaid a previous VA loan, you could get around the limit by making a down payment.

Essentially, this down payment will make up for your shortage in VA entitlement, allowing the lender to proceed with the loan.

Let’s continue looking at the example from above, in which you could borrow up to $400,000 with no down payment: Let’s say your home price is $500,000, $100,000 more than the VA loan limit allows. 

To make this loan work, you’d need to provide one-fourth of the difference between your loan and your loan limit. In this case, with a difference of $100,000, you’d need to pay $25,000 as a down payment.

That amounts to a 5% down payment — still not a bad deal considering you’re borrowing with no mortgage insurance and getting a competitive mortgage rate.   

No VA home loan limits and the VA funding fee

Loan limits were nixed by the Blue Water Navy Vietnam Veterans Act of 2019 which went into effect on Jan. 1, 2020. 

Along with the changes to loan limits, the law changed the VA funding fee, which most non-disabled borrowers pay on closing a VA home loan. The fee will increase slightly in some cases.

For example, veterans and active-duty service members who currently have an active VA home loan will pay a 3.6% funding fee on their next VA mortgage loan. 

First-time homebuyers and other borrowers with their full entitlement will continue paying 2.3% upfront. This funding fee helps keep the VA home loan program operating. 

If you’re interested in the details, see section 6 (b) of the Act for a full table of the funding fee adjustments.

Why pay VA funding fees at all?

The VA home loan program is self-sustaining meaning it doesn’t use taxpayer dollars or funds from other VA benefit programs.

Paying the VA funding fee ensures that the program is maintained so future veterans and active-duty service members can get these zero down payment home loans backed by a government agency.

This one-time, upfront fee is also relatively small when compared to other zero-down or low-down payment home loans, including USDA and FHA loans. Those other loan types require mortgage insurance premiums every month — for some over the entire life of the loan.

This option often costs borrowers thousands of dollars more than the typical VA funding fee amount.

Benefits of a VA loan

The VA doesn’t lend money directly for your home loan. You get that from a private lender. Subject to conditions, the United States Department of Veterans Affairs promises to pay your lender up to 25% of the loan amount you borrow if you default.

This removes a lot of risk lenders carry with all mortgages, which in turn means benefits for borrowers including lower rates, no down payment requirements and easier credit standards.

Check your maximum home purchase price today. Start here (Apr 25th, 2023)

VA loan limit FAQs

Is the loan limit the amount I can borrow or the amount the VA guarantees?

VA loan limits, and the level of entitlement listed on your Certificate of Eligibility, show the amount of money the VA guarantees the lender on your behalf, not the maximum amount you can borrow. Typically, a lender will let you borrow four times more than the VA guarantee without requiring a down payment. You could borrow even more if you’re able to make a down payment.

How does my county loan limit affect me?

Your county’s conforming loan limit, which is set by the Federal Housing Finance Agency (FHFA), helps set your VA loan limit, but only if you already have an active VA loan. To get a second VA loan with no money down, your total amount borrowed, with no money down, cannot exceed your county loan limit. If you live in a high-cost county — or if you’re buying a multi-unit property instead of a single-family home — your conforming loan limit will be higher.

What is a jumbo VA loan?

A jumbo loan exceeds your county’s loan limit. In the past, getting a jumbo VA loan required a down payment. Now, with no VA loan limits on borrowers with full entitlement, it’s possible to get a loan of any size with no money down.

Are VA loans unlimited?

The size of your first VA loan will not be limited by the VA, but it will be limited by your VA-authorized lender. Your lender will set your loan size based on your ability to repay the loan. Also, the lender won’t lend more than the home value.  

What is the VA loan limit?

There are no VA-imposed loan limits for first-time uses of the VA loan benefit. For subsequent uses of the benefit, your new loan size will depend on the size of your other VA loans and the conforming loan limit in your county. 

What is the VA loan maximum loan amount?

The VA no longer sets maximum loan sizes for VA loans. But lenders will set your loan size based on your borrowing credentials. And, if you already have active VA loans, your next loan’s size will likely be limited because you’d have only partial entitlement. However, you could still exceed the loan limits by making a down payment.

Can I get a VA loan for $1,000,000?

Yes, it is possible to get a VA loan for $1 million or more, but only if you qualify for the loan with your lender. The VA no longer caps loan sizes for VA-eligible borrowers with full entitlement.

What is the new VA loan limit for 2020?

Starting in 2020, the VA no longer sets loan limits for veterans and active duty service members who have full entitlement. Loan limits could still come into play if you already have a VA loan or if you didn’t repay a previous VA loan.

What is the maximum VA loan for 100% financing?

There is no maximum VA loan size for VA borrowers who have their full VA loan entitlement. These borrowers can get a loan, with no money down, of any size, if they can qualify for the loan with a lender.   

What is the maximum allowable VA loan amount based on?

Your maximum allowable VA loan depends on your credit history, debt-to-income ratio, and income. The VA itself does not set a maximum allowable loan for borrowers who have full entitlement. Borrowers who have partial entitlement will have limits on how much they can borrow with no money down. 

Did VA loan limits go away?

Yes. Congress eliminated VA-imposed loan limits in 2019, and the new law took effect on January 1, 2020. While the VA doesn’t limit loan sizes, VA lenders will limit your loan based on your personal finances and credit report.

Are there VA loan caps?

Veterans and active-duty military service members can get mortgage loans up to the amount approved by their lender. The VA no longer caps the size of these no-down-payment loans. But if you already have one or more VA loans, you may need to make a down payment on your next loan.

Can I buy a million-dollar home with a VA loan?

It is possible to finance homes valued at $1 million or more with a VA loan. The VA will insure the loan if your VA lender is willing to lend the money. Lenders check your credit score, bank accounts, and current debt load to make sure you can afford the new loan’s payment. You’ll need to use the new home as your primary residence and not as an investment property.

Check your maximum home purchase price today. Start here (Apr 25th, 2023)

Source: militaryvaloan.com