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You may have heard that 20% is the ideal down payment on a house, but that doesn’t mean you must pony up that amount to become a homeowner. In truth, the average house down payment is considerably smaller. Currently, the median down payment for a house is 15%, according to data from the National Association of Realtors® (NAR).
Here, you’ll learn more about down payments so you can house-hunt like an insider. Getting a sense of what others are paying and how that differs based on geographic area is helpful. We’ll also share how you might access help if you can’t come up with 20%. Armed with this intel, you’ll be better prepared to navigate that major rite of passage: purchasing a home.
Table of Contents
Key Points
• The median down payment for a house in the US ranges widely from 10% to 35% of the purchase price.
• The amount of the down payment can vary based on factors like loan type, credit score, and lender requirements.
• A larger down payment can result in lower monthly mortgage payments and potentially better loan terms.
• Down payment assistance programs and gifts from family members can help with affordability.
• It’s important to save and plan for a down payment to achieve homeownership goals.
Average Down Payment Statistics
As of 2023, the median down payment for a house was 15%, or $63,908 if you consider that the median national home price in 2023 was $426,056, according to Redfin. This was up slightly from 13% in 2022, according to the NAR. (The median means half of buyers put down less and half put down more; it’s generally considered a better barometer than an average, because the latter can be thrown off by outliers — people who spend wildly more or less than usual.)
This 15% figure shows that the conventional wisdom that you need 20% down to purchase a home is, to a large extent, untrue. In fact, in an April 2024 SoFi survey of prospective homebuyers, many planned to put down far less than 20%. Almost a third of respondents (29%) said they planned to put down 10% or less, and 7% of those surveyed were exploring zero-down-payment options.
A 20% down payment will lower your mortgage amount and monthly payments vs. a smaller down payment, and will allow you to avoid private mortgage insurance (PMI), but it’s not the only game in town.
Average Down Payment on a House for First-Time Buyers
First-time buyers make about a third of all home purchases, and the typical down payment for first-time buyers in the NAR survey was 8%, while repeat buyers’ typical down payment was 19%. (Repeat buyers often have money from the sale of their first residence to put toward the purchase of their next one.)
Down Payment Requirements by Mortgage Loan Type
The amount of money you put down on a home may be governed in part by the type of mortgage loan you choose (and conversely, how much money you have saved for a down payment could dictate the type of mortgage you qualify for). Let’s take a look at the different loan types and their down payment requirements.
Remember that if you are buying your first home or you haven’t purchased a residence in three or more years, you may qualify as a first-time homebuyer and be eligible for special first-time homebuyer programs.
Conventional Loan
This is the kind of loan favored by most buyers, and for first-time homebuyers some conventional home loans can allow for as little as 3% down on a home purchase. A repeat homebuyer might need to put down a bit more — say 5%.
FHA Loan
An FHA loan, acquired through private lenders but guaranteed by the Federal Housing Administration, allows for a 3.5% minimum down payment if the borrower’s credit score is at least 580.
VA Loan and USDA Loan
These loans usually require no down payment, although there are still other hoops to jump through to qualify for one of these loans.
A VA loan backed by the Department of Veterans Affairs, is for eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. The VA also issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. For a typical VA loan borrower, no down payment is required.
A USDA loan backed by the U.S. Department of Agriculture is for households with low to moderate incomes buying homes in eligible rural areas. The USDA also offers direct subsidized loans for households with low and very low incomes. Typically, a credit score of 640 or higher is needed. While borrowers can make a down payment, one is not required.
Jumbo Loan
A jumbo loan is a loan for an amount over the conforming loan limit, which is set by the Federal Housing Finance Agency (FHFA). In most U.S. counties, the conforming loan limit for a single-family home in 2024 is $766,550. Minimum down payment rules for jumbo loans vary by lender but are generally higher than those for conforming loans. Some lenders require a 10% down payment, and others require as much as 20%.
For all of the above loan types, the home being purchased must be a primary residence in order to qualify for the minimum down payment, but a homebuyer can use a conventional or VA loan to purchase a multifamily property with up to four units if one unit will be owner-occupied.
Average Down Payment by Age Group
The latest NAR Home Buyers and Sellers Generational Trends Report breaks down by age the percentage of a home that was financed by homebuyers in 2023.
Older buyers tend to use proceeds from the sale of a previous residence to help fund the new home. Buyers 59 to 68 years old, for instance, put a median of 22% down, the NAR report shows.
Most younger buyers depend on savings for their down payment. Buyers ages 25 to 33 put down a median of 10%, and those ages 34 to 43, 13%. A fortunate 20% of the younger homebuyers (those age 25-33) received down payment help from a friend or relative.
Percentage of Home Financed
All buyers | Ages 25-33 | Ages 34-43 | Ages 44-58 | Ages 59-68 | Ages 69-77 | Ages 78-99 | |
---|---|---|---|---|---|---|---|
50% | 15% | 6% | 8% | 15% | 22% | 31% | 29% |
50-59% | 6% | 2% | 5% | 5% | 9% | 14% | 11% |
60-69% | 6% | 2% | 5% | 6% | 9% | 11% | 9% | 71-79% | 13% | 13% | 14% | 14% | 12% | 9% | 15% |
80-89% | 23% | 26% | 27% | 22% | 19% | 18% | 14% |
90-94% | 13% | 19% | 14% | 12% | 10% | 4% | 8% |
95-99% | 14% | 22% | 17% | 12% | 8% | 4% | 7% |
100% (financed the whole purchase) | 12% | 9% | 11% | 13% | 9% | 9% | 6% |
Average Down Payment by State
The average house down payment in any given state is tied to home prices in that location. You can look into the cost of living by state for an overview and then find the median home value in a particular state at a given point in time and estimate what your down payment might be.
The least expensive states in which to buy a home? Iowa, Oklahoma, Ohio, Mississippi, and Louisiana are among them, according to Redfin.
Average Down Payment On a House in California
California, the most populous state and one of the largest by area, is joined by Hawaii and Colorado on many lists of the most expensive states in which to buy a house. Redfin shows a median sales price of $859,300 in California in spring of 2024. A 3% down payment would be $25,779; 10% down, $85,930; and 20% down, $152,260. The Los Angeles housing market is among the toughest in California, with the median sale price up more than 10% in the last year to $1,050,000. You might want to check out housing market trends by city as well if you are interested in finding out where owning a home could be more or less expensive.
Hawaii comes out near the top with a median home price of $754,800. Three percent down would be $22,644; 10% down, $75,480; and 20%, $150,960. In Hawaii, the conforming loan limit is $1,149,825, a reflection of the state’s high home prices. If you need a mortgage for more than that amount in Hawaii, you’ll be in the market for a jumbo loan.
Recommended: How to Afford a Down Payment on Your First Home
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Source of Down Payment
You’re probably wondering where homebuyers get the money to afford a down payment, especially first-time homebuyers. NAR has polled buyers to probe that question. Not surprisingly, more than half of buyers (53%) simply say they have saved up the money — which of course isn’t simple at all.
Savings is especially likely to fund a home purchase for those ages 25-33. Almost three-quarters of younger buyers rely on it for their down payment. Older buyers also use savings but are more likely to draw on the sale of a primary residence. This is especially true after age 59.
Other down payment sources include gifts from relatives or friends, sale of stock, a loan or draw from a 401K or pension, or an inheritance. For those who don’t have generational wealth or savings to rely on, first-time homebuyer programs can make home ownership possible.
City, county, and state down payment assistance programs are also out there. They may take the form of grants or second mortgages, some with deferred payments or a forgivable balance.
How Does Your Down Payment Affect Your Monthly Payments?
Curious to see what your potential mortgage would look like based on different down payments? Start with a home affordability calculator (like the one below) to get a feel for how much you’ll need to put down and other expenses.
Or use this mortgage calculator to estimate how much your mortgage payments would be, depending on property value, down payment, interest rate, and repayment term.
If Your Down Payment Is Less Than 20%
If your down payment will be less than 20%, you now know that you’ll have plenty of company. (In SoFi’s survey, 14% of would-be buyers said not having an adequate down payment was their primary challenge.) Consider these ways to optimize the situation:
• A government loan could be the answer: FHA loans are popular with some first-time buyers because of the lenient credit requirements. The down payment for an FHA loan is just 3.5% if you have a credit score of 580 or more. Just know that upfront and monthly mortgage insurance premiums (MIP) always accompany FHA loans, and remain for the life of the loan if the down payment is under 10%. If you put 10% or more down, you’ll pay MIP for 11 years.
• You may be able to improve your loan terms: If you can’t pull together 20% for a down payment, you can still help yourself by showing lenders that you’re a good risk. You’ll likely need a FICO® score of at least 620 for a conventional loan. If you have that and other positive factors, you may qualify for a more attractive interest rate or better terms.
• You can eventually cancel PMI: Lenders are required to automatically cancel PMI when the loan balance gets to 78% LTV of the original value of the home. You also can ask your lender to cancel PMI on the date when the principal balance of your mortgage falls to 80% of the original home value.
You may be able to find down payment assistance: City, county, and state down payment assistance programs are out there, and SoFi’s survey suggests they don’t get enough attention: About half (49%) of the homebuyers who said they were challenged to come up with a down payment hadn’t looked into city or state down payment assistance programs. The assistance may take the form of grants or second mortgages, some with deferred payments or a forgivable balance.
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Dream Home Quiz
The Takeaway
What is the average down payment on a house? Currently, it’s about 15% of the home’s purchase price, which usually means mortgage insurance and higher payments for the buyer. But buyers who put less than 20% down on a house unlock the door to homeownership every day. If you want to join them, you can be helped along by low down payments for first-time homebuyers, as well as government loans, down payment assistance, and other programs.
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
Is 10% down payment enough for a house?
Yes. More than a third of all buyers put down 10% or even less to buy a home. Lower down payments are especially common among younger and/or first-time homebuyers.
What is the minimum you should put down on a house?
Conventional wisdom says the minimum down payment is 20%, but most buyers put down less — 15% is far more common. Younger buyers and first-time homebuyers, especially, often put down far less and some home loans allow you to finance 97% or even 100% of the home’s cost.
What factors can affect my down payment requirements?
The amount of down payment you’ll need to come up with depends on your loan type, credit history and credit score, the cost of the property you’re buying, and whether you are a first-time homebuyer.
What are the pros and cons of putting down less than 20% on a house?
Putting down less than 20% on a house might allow you to buy a home sooner. It might also permit you to set aside money for renovations or to pay off other debts. The disadvantage is that those who put down less than 20% usually have to pay for private mortgage insurance which adds to their monthly costs. (Those with FHA loans who put down less than 20% will pay a mortgage insurance premium.)
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.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party 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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
SOHL-Q324-107
Source: sofi.com
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Both chambers are scheduled to meet this month to try and match the two versions of the bill as closely as possible, with Sweeney hoping for a strong push by mortgage and real estate professionals to get the amendment over the line. “Everyone in the housing industry needs to complete a call to action emailing … [Read more…]
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Over the past several years, mortgage lenders have been offering “early bird” conforming loan limits for the upcoming year.
This allows them to make bigger loans that adhere to the underwriting guidelines of Fannie Mae and Freddie Mac without them being considered jumbo loans.
Instead of waiting until January 1st, they make a projection for where the loan limit will land the next year and offer it around the fourth quarter.
For example, in early October 2023 some lenders raised the 2024 loan limit to $750,000 ahead of the announcement that came in late November.
That loan limit wound up being $766,550, which meant the lenders who offered the higher loan limits ahead of time didn’t get caught out.
But that only worked because home prices kept on marching higher and higher.
Some Lenders Are Already Offering 2025 Conforming Loan Limits as High as $803,500
Like last year, lenders haven’t waited for the conforming loan limit announcement in late November to raise it.
And this year it has come even earlier than in years’ past. It has actually become a sort of game between competing mortgage companies to be the first out of the gate.
Rocket Pro TPO, the wholesale division of Rocket Mortgage, was first to come out with the 2025 loan limits this year.
On September 13th, they announced a limit of $802,650, up from the current limit of $766,550. This represents a 4.7% increase.
While that seems like a fairly reasonable estimate, home price appreciation has been slowing this year.
At last glance, home prices as measured by the FHFA HPI were up 4.5% from July 2023 to July 2024.
To come up with the conforming loan limit, the FHFA uses home price movement from the third quarter of the prior year to current year (see FAQ).
So we need the August and September data before they can make that determination.
Since the YoY appreciation is currently below the 4.7% needed to hit those projected 2025 loan limits, the next two releases will need to show home prices rising at a faster clip. What if they don’t?
What Happens If Home Prices Fall Short and the 2025 Loan Limits Are Lower?
Remember how I said this has become a game between lenders to see who comes out with the loan limits first? Well, it has also become a game of who goes highest.
And it appears that the nation’s largest lender, United Wholesale Mortgage (UWM), has won that battle.
They weren’t first, but they came out with the highest 2025 loan limit, offering to fund loans up to $803,500 for the remainder of 2024.
That’s a 4.8% YoY increase in home prices. Not much different than Rocket’s, but well above some other mortgage lenders who are playing it a little safer.
For example, Rate (formerly Guaranteed Rate) has only offered to go as high as $792,000, while Pennymac is only willing to go to $795,000.
Inside Mortgage Finance writer James Dohnert expressed some concern with these varying limits, noting that “it’s possible that some origination shops shot too high.”
And that if the actual 2025 loan limits come in below what these lenders are currently allowing, any of the related conforming loan production would “inherently turn into non-agency product.”
At that point, these lenders would either need to keep the loans on their books or perhaps sell them at a discount (maybe a loss) if they wished to unload them.
They wouldn’t qualify for backing by Fannie Mae or Freddie Mac, meaning they couldn’t be sold to or guaranteed by the pair.
This could present problems for the lenders who do a decent amount of volume using these new provisional loan limits.
It may also change how they offer early bird limits going forward if home prices do indeed come in lower than expected.
Given how home prices have been screaming higher and higher each year, it has yet to be a problem.
But this could finally be a turning point as housing affordability finally weighs on appreciation.
Stay tuned on this one. It might get interesting.
Which Lenders Are Already Offering 2025 Conforming Loan Limits?
CrossCountry Mortgage – $802,650
Guild Mortgage – $799,125
Movement Mortgage – $802,650
Newrez – $795,000
Pennymac – $795,000
Rate – $792,000
Rocket Mortgage – $802,650
TowneBank Mortgage – $795,000
United Wholesale Mortgage – $803,500
Source: thetruthaboutmortgage.com
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These protections are included in the Enterprise Multifamily Lease Standards Policy announced by the Federal Housing Finance Agency (FHFA) in July. “The new Enterprise Multifamily Lease Standards align with our mission to expand access to housing that is both affordable and sustainable,” Fannie Mae Multifamily head Michele Evans said in the announcement. “They reflect our … [Read more…]
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Significant gaps found The OIG’s report highlighted several critical gaps in the FHFA’s current supervisory framework. Notably, the agency has yet to issue formal guidance on how FHLBanks should manage collateral subordination practices to facilitate member banks’ access to the Federal Reserve’s discount window. Additionally, the FHFA lacks written protocols to guide coordination with other … [Read more…]
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The FHFA’s Office of Technology and Information Management (OTIM) is responsible for ensuring the security and resilience of the agency’s IT resources. These resources host a variety of critical data, including financial reports and information from Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and Common Securitization Solutions, LLC. Additionally, the network contains personally … [Read more…]
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Well, here we are. It took longer than expected, but mortgage rates have finally strung together a decent rally after nearly three years of increases.
They fell below year-ago levels a week or two ago, per Freddie Mac, and took another big leg down after a softer-than-expected jobs report on Friday.
As for why, fewer new hires, increased unemployment, and slowing wage growth all point to a slowing economy. And interest rates tend to drop when the economy cools.
In addition, the Fed is expected to pivot and begin cutting rates, which could act as another tailwind for lower mortgage rates.
This has many thinking we’ll see another surge of home buyer demand, and potentially a big jump in home prices. But is it true?
Do Lower Interest Rates Actually Increase Home Prices?
It’s entirely logical on the surface. If something people want becomes cheaper overnight, demand for it should hypothetically increase.
And if demand increases, the price might rise as supply decreases, especially if there are already too few homes for sale.
But if that were true for single-family homes, why didn’t asking prices crash over the past year and change?
After all, rates on the 30-year fixed mortgage nearly tripled from its record lows in the mid-2s in early 2021 before peaking at just above 8% last fall.
Using the same logic above, home prices would surely nosedive as buyers fled the market, leading to a massive supply glut.
Instead, home price appreciation simply cooled off and home prices continued to increase in most parts of the country.
In fact, if you look at many home price indices, we have new all-time high home prices pretty much every month.
Home Prices Continued to Rise as Mortgage Rates Nearly Tripled
Just take this chart from the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac.
Their latest report released on July 30th revealed that home prices increased a solid 5.7% from May 2023 to May 2024.
However, home prices were flat month-to-month from April after rising 0.3% a month earlier.
Still, if you look at the chart, you’ll see that home prices didn’t slow much as mortgage rates began their ascent at the start of 2022.
There was a brief pause as the housing market digested the near-tripling in rates, but then prices continued their ascent unabated.
So if we want to argue that there’s an inverse relationship between rates and prices, this last few years wouldn’t be a good example of that.
All we’ve really seen is a positive correlation between rates and prices, in which BOTH have risen together.
And now that mortgage rates appear poised for a bit of a rally, should we ignore that and say they have a negative relationship?
Can we say prices should have fallen when rates went up, but now that rates are falling they should go up even more?
Maybe There’s Just Not Much of a Correlation at All
Instead of trying to invent a relationship between mortgage rates and home prices, maybe we should just come to terms with the fact there isn’t a strong one.
And there’s nothing wrong with that. If you look at history, changes in mortgage rates and home prices are weakly related, this according to the Urban Institute.
I’ve posted this chart before, but here it is again if you don’t believe it. You’ll see all types of combinations of annual mortgage rate and home price changes.
These little dots won’t make it easy to make the argument that when mortgage rates fall, home prices rise. Or vice versa.
Instead, you’ll see instances when they rose together, fell together, or sometimes, to fit the popular narrative that isn’t necessarily true, went in opposite directions.
Of course, nominal home prices (not adjusted for inflation) rarely go down to begin with, so we don’t even have that many examples to look at.
Why Would Home Prices Fall If Mortgage Rates Got Cheaper?
Well, just look at the economy…sure, mortgage rates are important because they can make a big impact on affordability.
The lower the rate, the more a home buyer can afford, all else equal. In fact, a 1% drop in mortgage rates is worth an 11% decrease in price.
But this simplistic view ignores cash buyers. And it ignores the financial health of prospective home buyers who need to get approved for a mortgage.
Just consider the last few days. The stock market has gotten hammered, with the Dow Jones falling more than 1,000 points today and the Nasdaq off nearly 600 points.
This sell-off was sparked by concerns about the health of the economy, with weaker data expected to usher in Fed rate cuts.
There’s a good chance that softer data will be accompanied by lower mortgage rates too.
Simply put, signs of a slowing economy improved the odds for a Fed rate cut, and also gave bonds a boost, which are a safe haven for investors when times get tough.
But if households are in worse shape because of said data, you’re going to have fewer home buyers out there. You could also have more sellers, perhaps even distressed ones.
Taken together, we might have a situation where the supply of homes for sale rises and prices fall, despite a big improvement in mortgage rates.
So yes, home prices could in fact go down, even if mortgage rates are lower!
But that’s not a foregone conclusion either, and will likely be highly variable based on economic strength and individual market dynamics throughout the country.
The main message here is there’s no strong correlation any which way. Thinking otherwise might simply lead to disappointment.
Source: thetruthaboutmortgage.com
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In response to a poaching lawsuit filed two months by Home Mortgage Alliance Corp. (HMAC), wholesale lender OCMBC Inc. has denied the allegations while countersuing HMAC and its co-founder, Alfred Hanna, on behalf of an employee, Michael Turturro, and his corporation, Jet Alliance.
The OCMBC counterclaim brings eight counts, including defamation, breach of contract, fraud and unfair business practices. Alan Lindeke, counsel for HMAC, told HousingWire that the counterclaim is a “resort to a tried-and-true defense strategy attempting to deflect and distract from Turturro, OCMBC, Inc. dba Jet Advantage Mortgage, and Jet Alliance’s wrongful conduct with blatant misdirection.”
In late May, direct lender HMAC accused OCMBC of allegedly poaching Turturro and several key staffers while aiming to capitalize on its dba, Jet Mortgage, according to a lawsuit filed in California’s Orange County Superior Court. The document adds that Turturro joined HMAC in late 2022, becoming a “high-ranking employee” and divisional president for Jet Mortgage.
The HMAC lawsuit alleges that Turturro, restricted from using confidential company information for his benefit, directed $800,000 to a marketing agency to develop the Jet Mortgage brand. But in May 2024, he resigned from HMAC “without prior notice,” the complaint stated.
According to the OCMBC countersuit, Turturro left after discovering that the Federal Housing Finance Agency (FHFA) barred Hanna in 2017 regarding “prior misconduct” related to his position as CEO of Affiliated Funding Corp., dba In-House Lender.
The counterclaim states that, despite the FHFA order, “Hanna co-founded HMAC in 2013,” a company that “engages in business relationships with regulated entities,” such as Fannie Mae, Freddie Mac and warehouse lenders. Per the court documents, Hanna had a duty to disclose these prior actions to Turturro before recruiting him, which did not happen.
According to the counterclaim, Turturro created Jet Alliance in October 2022 before witnessing Hanna’s and HMAC’s allegedly unfair business practices. These include a failure to properly and timely compensate vendors and employees, who were allegedly required to deposit their own funds as a reserve for potential loan losses but never recovered this money.
Turturro also said that HMAC allegedly received Paycheck Protection Program (PPP) loans to pay employees but instead used the funds to remodel its business offices.
The OCMBC countersuit states that due to this conduct and Hanna’s restriction by the FHFA, Turturro decided to resign in April 2024, bringing clients and account executives with him to OCMBC.
OCMBC and Turturro claim that HMAC has engaged in a campaign to “publicly defame and slander the reputation of Turturro and Jet Alliance.” This campaign allegedly included sending an email to 20,000 recipients with a link to the poaching lawsuit. They also accuse HMAC of reaching out to current and former colleagues of Turturro, falsely telling them he had engaged in misconduct against borrowers and brokers.
In response, HMAC counsel Lindeke said that “this case is about the open and deliberate appropriation of Jet Mortgage’s name, likeness, employees, clientele, trade secrets, and intellectual property” and that plaintiffs “remain steadfast in their commitment and look forward to their day in Court to see Defendants pay for their egregious self-dealing and wrongful conduct.”
“Finally, HMAC dba Jet Mortgage is a licensed mortgage company in good standing in 47 states and the District of Columbia, is an approved direct seller/servicer to Fannie Mae and Freddie Mac and approved as a seller to FHA and VA,” Lindeke said.
OCMBC requests injunctive and declaratory relief, restitution and compensatory damages, among other things.
Related
Source: housingwire.com
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This just in: Houses are expensive. But some houses are really expensive. If you have your heart set on a luxurious oceanside mansion (or just a modest home in an ultra-high-cost city like New York or San Francisco), you may need to seek out a jumbo mortgage: one whose dollar amount surpasses the conforming loan limits set by the Federal Housing Finance Administration (FHFA) each year. In 2024, that limit is $766,550 in most cases, though in some high-cost areas the limit can range up to $1,149,825. Any mortgage that exceeds those amounts is considered a jumbo loan.
What Are Jumbo Loans?
Jumbo loans are those in which the mortgage total surpasses the conforming loan limits set by the FHFA. The conforming loan limits change annually. As noted above, in 2024, a jumbo loan is one whose total is $766,550 or more in most areas, though in select high-cost areas, the limit goes up to $1,149,825.
Your mortgage total is the amount of money you borrow in order to purchase a house — an amount that can be calculated by subtracting your down payment from the agreed home purchase price. (Keep in mind, though, that this figure isn’t the same as how much you’ll pay in full over the lifetime of the loan, since you’ll also owe interest to the bank that provides the loan. Still have questions? Check out our mortgage payment calculator with interest.)
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Jumbo vs Conventional Loan
Conventional loans are offered privately through banks, credit unions, and other financial institutions, unlike other loans which are supported by a government agency such as the Federal Housing Administration (FHA) or USDA (U.S. Department of Agriculture). Conventional loans are easily the most common type of home loan.
Jumbo loans are a type of conventional loan. But whereas most conventional loans are also conforming loans and are available with a minimum down payment as low as 3% for first-time homebuyers, jumbo loans are considered nonconforming and typically require a larger down payment — usually at least 10%. You’ll also likely need a very high credit score in order to be eligible to take out a jumbo loan.
Determining Jumbo Loan Limits
As we’ve seen above, the specific jumbo loan limits where you live (or where you’re planning to buy a home) will vary depending on the area’s cost of living. The FHFA offers a convenient conforming loan map that allows you to see what the conforming loan limits (otherwise known as jumbo loan limits) are in your area, broken down by county.
How Loan Limits Are Calculated
The jumbo loan limit is determined each year by the FHFA using current housing price data. That way, the limits are tied to real information in the world about how much it actually costs to buy a home in a given area. Conforming loan limits — also known as the jumbo loan limits — change each year; new limits for the coming year are typically announced in late November.
Current Jumbo Loan Limits
As mentioned above, in 2024, the jumbo loan limit for the vast majority of the U.S. is $766,550, and the highest conforming loan limit, in the most expensive places to live, is $1,149,825. To see exactly what the jumbo loan limits are in your area, visit the FHFA’s map.
Qualifying for a Jumbo Loan
Jumbo loans are, well, big — which means the qualification metrics for getting a home loan are pretty strict. (After all, that’s a whole lot of money the lender stands to lose if you default.) While every lender has its own specific algorithm for qualifying potential borrowers, here are some rules of thumb when it comes to qualifying for a jumbo loan:
Credit Score Requirements
While there’s no specific credit score that guarantees you’ll qualify for a jumbo loan, most lenders will likely require a high one — after all, it’s a fairly risky prospect to lend that much money to someone. Credit scores range from 300 to 850. Scores of 670 to 739 are considered good; scores of 740 to 799 are considered very good, and scores of 800 and above are considered exceptional.
Down Payment Requirements
We touched on this briefly, but jumbo loan lenders often require their borrowers to provide a more substantial down payment than conventional loan lenders do. While a minimum of 10% is a good rule of thumb, some lenders may ratchet up the minimum to 25% or 30%.
Considering how large jumbo loans are already, that means you’ll probably need a significant amount of cash lying around in order to successfully apply for one — 10% of $800,000, a relatively small jumbo loan, is already $80,000.
Debt-to-Income Ratio Requirements
Your debt-to-income ratio, or DTI, is a measurement of your existing debt burden expressed as a percentage. It’s calculated by totalling all your monthly debt payments and dividing that figure by your gross monthly income.
Conventional loans usually required a DTI of 50% or lower — and that’s the absolute max. (Many lenders cut off qualification at lower percentages.) Again, while there’s no one advertised maximum DTI for a jumbo loan, you’ll likely want to have as little debt as possible in order to qualify — not to mention in order to have the money on hand each month to make that massive mortgage payment.
Income and Asset Documentation
Jumbo loan lenders are, of course, primarily concerned with your ability to repay the loan. That means that, along with the above-mentioned factors, they’ll also want proof that you earn a reliable and high income — and in some cases that you’ve already stockpiled enough wealth that you’ll be able to make your payments for several months even if you lose your job. For this reason, qualifying for a jumbo loan can be especially challenging for a self-employed worker.
Advantages and Disadvantages of Jumbo Loans
So, now that you understand them better, is a jumbo loan right for you? Like any financial decision, taking out a jumbo loan has both benefits and drawbacks to carefully consider. Here are some of the pros and cons of jumbo loans.
Advantages of Jumbo Loans
Jumbo loans offer those who qualify the opportunity to purchase a costly home that they might otherwise not have access to. They may also be available at similar interest rates to lower conforming loans, and both fixed and adjustable rates are available in 15- and 30-year terms.
Disadvantages of Jumbo Loans
On the other hand, jumbo loans are, well, jumbo-sized — which means the total amount you’ll pay over time is, too. Even a low interest rate can add up to a lot on a large principal balance, and jumbo loans also have more stringent qualification and down payment requirements than their conforming counterparts. Associated closing costs and fees can be higher, too.
Alternatives to Jumbo Loans
If you find yourself having trouble qualifying for a jumbo loan, you could look into other nonqualifying mortgages, such as bank statement loans — or potentially borrow a significant amount of money from family or friends. However, if the home you’re vying for is that much of a stretch, it may make more financial sense to find something a bit more modest and apply for a conforming loan instead.
The Takeaway
Jumbo loans are large mortgages that don’t conform to the limits set by the FHFA — and therefore come with stricter qualification requirements. While jumbo loans can help those who qualify to access a high-value house, they can also be hard to keep up with unless your income is correspondingly high.
When you’re ready to take the next step, consider what SoFi Home Loans have to offer. Jumbo loans are offered with competitive interest rates, no private mortgage insurance, and down payments as low as 10%.
SoFi Mortgage Loans: We make the home loan process smart and simple.
FAQ
What does a jumbo loan mean?
Jumbo loans are those whose totals exceed the conforming loan limits set each year by the FHFA. For 2024, that limit is $766,550 in the vast majority of the U.S.; in some areas with a high cost of living, the conforming loan limit can be as high as $1,149,825.
What are the disadvantages of a jumbo loan?
Along with their extra-large monthly mortgage payments, jumbo loans also come with stricter eligibility requirements and higher minimum down payments. In most cases, you’ll need to pony up at least 10%, and some lenders may require as much as 30% up front.
Why are jumbo loan limits necessary?
Most mortgage loans issued in the U.S. are guaranteed by Fannie Mae and Freddie Mac, which helps reduce risk for lenders and ensure that loans are affordable and available to homebuyers. But the guarantee has to stop somewhere, and conforming loan limits draw that line. This is why jumbo loans have more stringent borrower requirements than conforming loans — lenders who make jumbo loans don’t have Fannie Mae and Freddie Mac to fall back on if a jumbo borrower defaults.
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Whether you’re thinking about buying a home for the first time, buying a bigger or smaller home, or refinancing your mortgage on your existing home, you’re probably keeping a close eye on current mortgage rates. Here’s the most up-to-date data on a variety of types of fixed-rate mortgages in the United States, per mortgage technology and data company Optimal Blue.
Current average mortgage interest rates in the U.S. in 2024
Type of Mortgage | Current Rate | Rate Reported a Week Prior | Rate Reported a Month Prior |
---|---|---|---|
30-year conforming | 6.756% | 6.870% | 6.834% |
30-year jumbo | 7.180% | 7.149% | 7.025% |
30-year FHA | 6.583% | 6.695% | 6.640% |
30-year VA | 6.352% | 6.380% | 6.334% |
30-year USDA | 6.697% | 6.692% | 6.589% |
15-year conforming | 6.068% | 6.385% | 6.039% |
30-year conforming | |
---|---|
6.756% | |
6.870% | |
6.834% | |
30-year jumbo | |
7.180% | |
7.149% | |
7.025% | |
30-year FHA | |
6.583% | |
6.695% | |
6.640% | |
30-year VA | |
6.352% | |
6.380% | |
6.334% | |
30-year USDA | |
6.697% | |
6.692% | |
6.589% | |
15-year conforming | |
6.068% | |
6.385% | |
6.039% |
So how do mortgage rates work and why do they fluctuate so much? We’ll explain that too.
In this article:
Why are mortgage rates so high?
During 2020 and 2021, many homebuyers were able to get mortgage rates approaching or even below 3%. But with the federal government injecting money into the economy through COVID-19 pandemic aid to individuals and businesses—with the aim of preventing a recession—and consumers spending money at an unexpected clip, inflation hit record rates and prices soared.
In response, the Federal Reserve hiked its federal funds rate 11 times between March 2022 and July 2023. To put it simply, a higher federal funds rate means it costs more for banks when they need to borrow money. Lenders accordingly raise interest rates and it becomes more expensive for consumers and businesses to borrow. Debt gets more expensive in a variety of forms, including auto loans, carrying a credit card balance, and of course, mortgages.
But it’s an important piece of context that rates are not that different from where they were in the 1970s, 1980s, and 1990s. If anything, they’re a little lower today. They’re roughly on par with where they were in the early 2000s. The Federal Reserve dropped rates in 2007 and 2008 to near zero as part of the effort to revive an economy damaged by the Great Recession. While the Fed did hike rates slightly in 2015, it reversed course as the pandemic happened.
In short, the high mortgage rates of today are a shock to consumers after more than a decade of low rates—perhaps particularly to Americans in the Millennial and Generation Z demographics who came into adulthood when low rates were the norm—but are not historically unusual.
Will mortgage rates go down soon?
It’s possible the Fed could cut interest rates before the end of 2024. However, at the most recent meeting on this topic in June, the central bank decided to keep the federal funds target rate steady. Its analysis was that unemployment was low, hiring was strong, and that inflation was beginning to ease—but that the battle to get inflation back down to its target of 2% was not over.
A release issued after the decision put it this way: “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”
While mortgage rates will still fluctuate day to day with the market, it’s unlikely home-shoppers will see the low rates they’re hoping for until the Fed decides it’s safe to lower the federal funds rate.
Why are home prices so high?
Put simply, low housing supply and high demand means home prices have shot up and stayed high. The Federal Housing Administration put the problem this way in a 2023 report to Congress:
“During the last two years, mortgage rates have quickly risen to a level not seen in more than two decades. Home prices have steadily increased over the last seven years, and while house price appreciation moderated this year, sales prices remained high as housing supply remained at some of the lowest levels ever recorded.”
Thus far in 2024, the trend does not seem to have abated. Dallas Tanner, CEO of Invitation Homes, described the problem in March as a “perfect storm”—created by the combination of cheap money before the Fed raised rates impacting borrowing, high demand for homes, and regulations at local and state levels making it difficult to build new supply.
In fact, home prices hit an all-time high in April 2024. The silver lining for prospective homebuyers, such as it is, is that price inflation seems to show signs of slowing. That means while prices are still going up, they’re not increasing quite so quickly or dramatically.
Historical home price data
If you’re curious how home prices in the 2020s compare to previous decades, take a look at this chart from the St. Louis Fed (commonly referred to as FRED):
Types of mortgages
As you begin your homebuying journey, here are some of the types of mortgages you should know about.
Conventional loan
This is simply a mortgage from a private lender not backed by a federal government program.
Government-backed loan
Working with certain lenders, the federal government insures these home loans, providing access to eligible applicants and reducing risk for the lenders in the event of the consumer defaulting on what they owe. These programs include FHA loans, VA loans, and USDA loans.
Conforming loan
These are conventional loans (see above) that do not exceed the Federal Housing Finance Agency’s maximum loan amount, and that meet criteria set by government-sponsored enterprises Fannie Mae and Freddie Mac. In 2024, in most of the U.S., the FHFA limit for one-unit properties is $766,550.
Jumbo loan
Contrast jumbo mortgages with the conforming loans just explained. A jumbo mortgage exceeds the FHFA’s maximum, and while you may need this type of loan if you’re planning to purchase a home with a large price tag, beware that you’ll likely pay more in interest over the life of the loan.
Fixed-rate mortgage
With a fixed-rate mortgage, your interest rate stays the same from the time you get the loan until you pay it off. That’s true whether you end up keeping the loan for its full duration, selling your home and using the proceeds to pay it off, or refinancing and taking out a new mortgage.
Beware that with a fixed-rate mortgage, your monthly payments can still change, for example if your property value increases (leading to higher property taxes) or if your homeowners insurance is bundled with your mortgage payment and your insurance premium increases. With severe weather events becoming more common, insurance rates in certain regions (like Florida) have seen double-digit increases in a single year.
Adjustable-rate mortgage
Unlike a fixed-rate mortgage, an adjustable-rate mortgage (ARM) has a rate tied to an index that tracks the market. As the index fluctuates, so too does your rate. Typically, these offer a low teaser rate for an initial window of time, then your rate may increase when the agreed-upon adjust periods kick in. See our analysis for whether ARMs are a good idea for more details.
What type of mortgage should you get?
There’s no silver bullet answer to this question. The best mortgage for you is going to depend on factors such as how large a loan you need, where you intend to buy, and what you can qualify for.
If you’re a U.S. military member or veteran, or the surviving spouse of a veteran—or the spouse of a veteran who is missing in action or being held as a prisoner of war—you are likely eligible for a VA home loan, which may allow you to buy a house with no money down.
Or, if you’re purchasing a home in an eligible rural area, you may qualify for a USDA loan. You can check USDA’s eligibility map as a starting point. As an example, at the time of writing, the map shows that someone looking to purchase a house in Charlotte, North Carolina would not be eligible. But someone looking to purchase a house in Gaffney, South Carolina roughly an hour’s drive away might be.
For consumers with a credit score of at least 580, who can afford a down payment ranging from 3.5% to 10%, an FHA loan is likely to be worth considering.
If none of these government-backed loans are available to you, however, you may have to go with a conventional mortgage and shop around for the best rate you can find. Applying at smaller institutions, such as local credit unions, may help you get a lower rate.
We will advise avoiding adjustable-rate mortgages unless you are comfortable with the risk of your rate (and accordingly, your monthly mortgage payment) going up after the teaser rate expires, and are willing to put in the work to refinance to a fixed-rate mortgage later on if market conditions justify it.
How to get the best mortgage rate you can
To some extent, you’re at the whims of the market when mortgage shopping, but there are tangible steps you can take to secure a lower rate. Here are a steps we recommend taking:
- Check your credit score. While all is not lost if you have a credit score in the 500s or low 600s, mid-600s and above is ideal. If you’re not sure what your credit score is, there are numerous ways to check for free—make sure you’re looking at a FICO Score, as that’s the model lenders typically use. Signing up for an account with the credit bureau Experian is one easy way to get your score from a trustworthy source. If your score is low and you decide to hold off applying for a mortgage for a while, you can take steps to improve your credit such as opening a secured credit card and using it responsibly.
- Shop around. Whether you work with a mortgage broker or comparison shop on your own, don’t assume the institution you bank with is necessarily the best option for your mortgage. You may get a lower rate with a local credit union, for example, even if you do most of your business with a larger bank that has a national presence.
- Buy mortgage points. This is obviously only an option if you have the money available upfront. But if you do, and you intend to stay in your new home for several years, buying mortgage discount points can be well worth it in terms of a lower interest rate.
- Use a rate lock. If you’re offered a favorable mortgage rate, consider initiating a lock-in that can hold it for 30 or more days. You won’t reap the benefits of rates dipping if they continue to go down, but you’ll have peace of mind that your rate shouldn’t skyrocket.
- Refinance. Maybe you decided the best option was to forge ahead, even with a mortgage rate higher than you would have liked. In that case, keep an eye out for a chance to refinance your mortgage at a lower rate if the market changes.
Understanding interest rate vs. APR
While you may have heard interest rate and APR used interchangeably (for example that’s correct when referring to credit card rates) there’s an important difference in the context of mortgages. Your APR will be higher than your interest rate because it reflects the interest plus any fees and other charges.
What are mortgage points?
Want to lower your mortgage rate while you’re in the process of buying your soon-to-be home? Buying mortgage points, also known as discount points, offers a way to get a lower interest rate.
Essentially, you’re paying more toward interest at closing than you would otherwise have to in exchange for having a lower rate over the length of the mortgage.
Each point is worth 1% of the total amount of your loan. Thus, if your loan is $300,000, one point would cost you $3,000. Each discount point typically reduces your interest rate by 0.25% (though this varies by the specific lender). So, for example, using this value you’d have to buy four points to knock an 8% mortgage rate down to 7%.
You have the option to purchase points in non-round-number amounts as well, such as paying $1,375 for 1.375 points on a $100,000 mortgage—or even purchasing less than a point, such as $125 for 0.125 points.
If your mortgage meets the IRS requirements for interest payments to be tax deductible, you may be able to deduct the cost of purchasing the discount points when you file taxes—as long as you’re itemizing—for the year you buy them, or potentially over the life of the loan.
You pay for these points at closing, so keep in mind it’s a trade-off. Can you afford higher closing costs in exchange for a lower rate over the life of the loan? Do you intend to stay in the new home for at least a few years? Then buying discount points might be the right move.
But, if you have less saved up to go toward closing costs, you might decide to live with a higher rate instead and plan to refinance your mortgage if an opportunity presents.
If you’re in the latter situation, then a lender credit might help you achieve homeownership. We’ll explain more in a later section, but this works in essentially the reverse of mortgage points.
Don’t confuse mortgage discount points with “mortgage origination points,” which refers to origination fees paid to your lender—something else entirely vs. discount points.
Finally, know that a lender can cap the number of mortgage discount points you can buy.
Factors impacting your mortgage rate
There are a lot of things that go into determining your mortgage interest rate. Some of the big ones are:
- Economic conditions. With inflation rising after 2020, it may be unsurprising if lenders raise rates to protect their profit margins, though that’s scant comfort for prospective homebuyers.
- Lack of inventory. Add into that a well-documented housing shortage, and you’ve got a tough situation for those seeking to move from renting to homeownership or hoping to change to a larger or smaller house to fit with lifestyle changes. In fact, this is leading many baby boomers, who otherwise might have downsized and opened up inventory, staying in place due to their currently-low mortgage rates.
- The Fed’s actions. As the Federal Reserve adjusts its federal funds rate, influencing the economy by making it more or less expensive to borrow money, banks tend to change their rates accordingly. If you’re keeping fingers crossed for mortgage rates to go down, you’re essentially hoping the Fed will cut rates soon.
- Your credit. Not only does it make your mortgage application more likely to be approved if you have a good to excellent credit score, but a better score typically means you’ll be offered a lower rate, too.
- How much you put down. We’ll touch on whether you actually have to save up a 20% down payment momentarily, but it’s undeniable that a larger down payment can mean more favorable terms on your mortgage.
- Mortgage type and length. Government-backed mortgages such as FHA loans and VA loans may offer lower interest rates. Also, even if you don’t qualify for a government-backed loan and simply go with a conventional mortgage from a private lender, a 15-year mortgage may offer a lower rate than a 30-year mortgage (in exchange for a higher monthly payment).
Is it mandatory to put 20% down when buying a house?
In short, no. While you frequently hear that you need a 20% down payment, that’s more of a “nice to have” than an actual requirement. Typically, you will need at least a 5% down payment—and there are some special cases where it can be lower or nonexistent. Specifically, FHA loans require a minimum down payment of 3.5%, while VA home loans can help those who are eligible to buy a house with no money down.
This is good news for aspiring homebuyers who may have felt locked out by the 20% down payment rule of thumb. For example, if buying a $250,000 house, a 20% down payment would be $50,000. And that’s even before you consider the closing costs that will have to be paid out of pocket.
Learn more: How much should a house down payment be?
However, a larger down payment can help you get a lower interest rate on your mortgage, as well as a lower monthly payment. It can also help your offer be more competitive—the typical down payment is 8% for first-time homebuyers and 19% for repeat homebuyers, according to a 2023 report from the National Association of Realtors.
Also, know that if you take out a conventional loan with a down payment that’s less than 20%, you’ll be expected to purchase private mortgage insurance (PMI) which protects the lender. This will increase your monthly payments. However, you can request that your servicer removes the PMI once you’ve paid down your debt to a specified point—for example, when the principal balance hits 80% of the home’s original value.
Help for low income, bad credit, and first-time homebuyers
Many of the government-backed mortgage types outlined earlier in this article are worth considering if you have low income, bad credit, or are a first-time homebuyer. These include FHA loans, VA loans, and USDA loans.
With the federal government stepping in to mitigate risk for approved lenders, these loans may be more accessible to people with credit scores in the 500s or low 600s. Contrast that with a typical mortgage from a private lender without government backing, which will generally require applicants to have a mid-600s credit score or higher. They may also offer access to lower down payments and more affordable interest rates.
See our analysis of what type of mortgage might be best for you for more details on these types of home loans and who can qualify.
There are also programs specifically targeted at offering first-time homebuyers down payment assistance. These vary by location, but typically have income restrictions and length of residence requirements.
For example, first-time homebuyers in Austin, Texas may qualify for down payment loan assistance of up to $40,000. Requirements include the purchase of a single-family home or condominium in Austin’s full-purpose city limits and that applicants are at or below 80% median family income ($78,250 per year for two people as of this writing).
If this is all a little overwhelming, you might benefit from working with a HUD-approved counseling agency. HUD is the U.S. Department of Housing and Urban Development—and counselors with this training can help with topics such as understanding what documents you’ll need to provide to a mortgage lender and identifying local resources you may be able to use. You may be able to work with a HUD-approved counselor at no cost.
To find a housing counseling agency with HUD certification, you’ve got a few options:
- Use the Find a Counselor tool provided by the Consumer Financial Protection Bureau.
- Call the CFPB by phone at 855-411-2372 and they can connect you to a counselor.
- Call the HOPE Hotline, open 24/7, by phone at 888-995-4673.
What are closing costs and how do they work?
If you thought the down payment was the only thing you had to save up for when planning to buy a house, brace yourself. You’ll also be responsible for closing costs out of pocket. Generally, buyers are responsible for the bulk of closing costs, though sometimes a seller may make concessions and agree to pay certain items in the interest of selling the house quickly.
Closing costs typically run about 3% to 5% of the amount of the loan, and can include expenses such as appraisals, title insurance, and more. We’ll dive into specifics momentarily, but first, let’s note that mortgage points and lender credits play an important role in determining how much you owe at closing.
Mortgage discount points, as explained earlier, lower your interest rate but require you to pay more upfront—lender credits do the reverse, letting you close for less in exchange for a higher rate. Here’s how.
How lender credits are calculated
It’s easy to understand lender credits as “negative points.” You should get a loan estimate and closing disclosure as part of the homebuying process, and lender credits should be reflected there—a $3,000 credit on a $300,000 mortgage might be shown as one negative point, for instance.
How much your interest rate increases for each negative point is going to vary by lender, as well as by factors such as the type of mortgage you’re taking out.
When discussing lender credits with the bank or credit union you’re working with for your mortgage, make sure everyone is using the same terminology. Some institutions may refer to “credits” that are not connected to your interest rate.
Now, on to some of the other elements making up your closing costs.
Loan origination fees
The saying goes that nothing in life is free, and that certainly applies to taking out a mortgage. The loan origination fees cover processing and underwriting, and generally cost up to 1% of the mortgage amount.
Appraisal and survey fees
This is fairly self-explanatory. The buyer is usually responsible for paying for the appraisal, which confirms the value of the house before the lender agrees to fund the mortgage. While the cost of an appraisal will depend on factors such as location, expect it to run $300 or more.
Title insurance
Title insurance makes sure the house can legally be transferred to the buyer, and that there aren’t any issues such as liens or unpaid taxes that would complicate things.
Homeowners insurance and HOA fees
You probably knew that you’d need to have homeowners insurance, with coverage generally including situations like fire and theft—as well as potentially covering medical expenses if someone gets hurt on your property. But did you know you likely have to pay the first year upfront?
And, if your new place is within a homeowners’ association, your first month of HOA dues will likely need to be paid at closing too. These dues often go toward things such as maintaining pools, clubhouses, and private roads.
Private mortgage insurance
PMI is standard when you make a down payment of less than 20%. While the cost for PMI varies based on numerous factors including your credit score and the insurer, a Freddie Mac estimate puts it at roughly $30 to $150 per month for every $100,000 you borrow.
If you have an FHA home loan, you’ll have something very similar but under a different name—a mortgage insurance premium (MIP).
Mortgage points
You can buy mortgage discount points worth 1% of the amount of your loan in exchange for a lower interest rate. However much you decide to put up for points will be due at closing. See our explanation of how mortgage points work for a more in-depth examination.
Property tax
Most of the closing costs we’ve addressed so far are not tax deductible. Property tax and mortgage points are two that likely are (but only if you’re itemizing). It’s usual to pay six months of advance property tax with your closing costs.
Attorney fees
This will depend on whether your state requires a real estate attorney to draft paperwork for the seller to be able to transfer the property title to you, the buyer.
Miscellaneous fees
Expect a variety of smaller fees, such as the cost of registering your home purchase with the appropriate local government body and a charge for your credit report.
When and how to refinance an existing mortgage
Maybe you’re already a homeowner, and once in a while you think to yourself, “Getting that first mortgage was so much fun. I really wish I could do it again, but darn it, I’m just not ready to buy a new house.” If so, you’re in luck—refinancing is a fancy term for taking out a new mortgage to replace your existing one on your current house.
Jokes aside, there are some pretty obvious cases where it’s worth the effort to refinance. Maybe the market has changed and rates have gone down, or perhaps your home value has gone up while you’ve been paying down debt and you want to turn the difference into cash.
Here’s when you may want to refinance and how it works to do so. Note, some mortgages allow you to refinance almost immediately while others might make you wait up to 24 months, so check with your lender about your specific loan offer before signing.
To get a better rate
If you bought your house after the Fed started raising rates in March 2022, you might be paying an interest rate in the vicinity of 6%, 7%, or 8% on your mortgage, judging by the national average. Should the Fed end up cutting rates in the future, you may have an opportunity to refinance at a lower rate. Even a difference of one percentage point can save you a lot of dough—potentially in the vicinity of a couple grand per year, depending on your loan specifics.
Or, perhaps you currently have an adjustable-rate mortgage and are tired of the rate fluctuating each time the adjustment period comes around. Even with caps on how much your rate can increase in certain cases or over the life of the loan, maybe you didn’t fully realize how much your monthly payment could fluctuate—or maybe your financial situation has changed, such as a reduction in income. Refinancing to a fixed-rate mortgage could give you peace of mind.
We should mention as a caveat to the above that your mortgage payment can still increase or decrease with a fixed-rate mortgage, for example if your property value goes up and property taxes increase accordingly.
When you need funds
Quite simply, a cash-out refinance lets you take out a new mortgage to pay off your old one and receive the difference between the new loan (your home’s current value) and what was left on the old loan by check or wire transfer.
Of course, the downside to this is that you’re taking on a new, bigger loan in exchange for immediate cash. And, depending on the term of your new mortgage, you could essentially be starting over on the repayment period with 30 years ahead of you to pay off your home.
But, if you’re OK accepting the above and you have equity in your home, a cash-out refinance can give you access to money that can be used for almost any purpose. Per an analysis of data spanning 2013 to 2023, the median amount homeowners pocket through cash-out refinances is $37,131, according to the Consumer Financial Protection Bureau.
How it works
Refinancing is more or less like what you went through the first time you took out a mortgage when you bought your home. It’s generally not free—closing costs on refinances average $5,000, according to Freddie Mac.
As with your first mortgage, you can choose to comparison shop on your own or use a mortgage broker when refinancing. You also have the chance to buy mortgage discount points to lower your interest rate.
Be skeptical of lenders advertising a “no-cost refinance” as this likely means they will roll closing costs into the loan amount and charge you a higher interest rate.
Historical mortgage rate trends
We spent time analyzing data from the Federal Reserve Bank of St. Louis (FRED) to satisfy your curiosity about how mortgage rates today compare with historical rates.
30-year fixed-rate mortgage highs by decade
Decade | Rate High | Specific Year |
---|---|---|
2020s | 7.79% | 2023 |
2010s | 5.21% | 2010 |
2000s | 8.64% | 2000 |
1990s | 10.67% | 1990 |
1980s | 18.63% | 1981 |
1970s | 12.90% | 1979 |
2020s | |
---|---|
7.79% | |
2023 | |
2010s | |
5.21% | |
2010 | |
2000s | |
8.64% | |
2000 | |
1990s | |
10.67% | |
1990 | |
1980s | |
18.63% | |
1981 | |
1970s | |
12.90% | |
1979 |
A note regarding mortgage rate data available for the 1970s: FRED data on 30-year fixed-rate mortgages starts in April 1971, so 1970 and part of 1971 are not factored into this analysis.
15-year fixed-rate mortgage highs by decade
Decade | Rate High | Specific Year |
---|---|---|
2020s | 7.03% | 2023 |
2010s | 4.50% | 2010 |
2000s | 8.31% | 2000 |
1990s | 8.89% | 1994 |
2020s | |
---|---|
7.03% | |
2023 | |
2010s | |
4.50% | |
2010 | |
2000s | |
8.31% | |
2000 | |
1990s | |
8.89% | |
1994 |
A note regarding mortgage rate data available for the 1990s: FRED data on 15-year fixed-rate mortgages starts in August 1991, so 1990 and part of 1991 are not factored into this analysis.
Chart of 30-year fixed-rate mortgage trends
Chart of 15-year fixed-rate mortgage trends
Chart of 30-year conforming mortgage trends
Chart of 30-year fixed-rate jumbo mortgage trends
Chart of 30-year VA mortgage trends
Chart of 30-year FHA mortgage trends
Chart of 30-year USDA mortgage trends
What is home equity and how do you leverage it?
Put simply, home equity is the difference between what your home is worth and what you owe on it. You can leverage this to borrow money for purposes like home improvement projects, paying off other debt, or even buying a vacation house or an investment property. Generally speaking, the funds are not restricted to any specific use.
There are two main ways of borrowing against the equity you’ve built up—a home equity loan or a home equity line of credit, with the latter commonly abbreviated as HELOC.
How home equity loans and HELOCs work
A home equity loan is also known as a second mortgage. It does not necessarily need to be from the same lender as your original mortgage is with. You take out a home equity loan for a set amount and with a set repayment period (often five to 20 years, but it can be as long as 30).
By contrast, a HELOC is a revolving line of credit, meaning you can borrow as needed and repay as you go. There’s an initial draw period, usually five to 10 years, where you can pay just the interest accrued. After that, you must make payments toward both principal and interest. As with a home equity loan, there’s no requirement to go to your original mortgage lender for your HELOC.
We’ll look at some pros and cons of both methods for leveraging your home equity and help you assess if either might be right for you.
Pros and cons of a home equity loan
Pros
- Fixed interest rate
- Set repayment timeline
- Comparatively lower interest rate vs. unsecured loans
- Might be partially tax deductible
Cons
- Secured by your home
- Requires good credit
- May incur closing costs
- Less flexibility
Pros and cons of a HELOC
Pros
- Flexibility to borrow as you need funds
- Comparatively lower interest rates vs. unsecured loans
- Might be partially tax deductible
Cons
- Secured by your home
- Requires good credit
- May incur closing costs
- Variable interest rate
- May charge a prepayment penalty
Is using home equity a good idea?
First, be very aware of the fact that both home equity loans and HELOCs are secured by your home as collateral. That means if you default, your home could be foreclosed upon. The chance of losing one’s home is never a matter to take lightly, even if your finances are in great shape.
If you understand and accept that risk, and have a budget in place for repaying your loan or line of credit reliably, you may decide it’s worth moving forward. After all, using home equity can likely get you a lower interest rate than you’d get with an unsecured personal loan. You may also have a longer window of time to repay what you owe, compared with a personal loan that might offer a three-to-five-year repayment schedule.
Depending on what you plan to use the funds for, even though the initial loan or HELOC will decrease your equity, you might end up better off in the long run—some home improvement projects, such as remodeling the kitchen, basement, or attic, may significantly increase the resale value.
Note that you might need to get an appraisal done before receiving approval for a home equity loan or HELOC. You’ll also need to have at least 15% to 20% equity in your home to be able to secure one of these products. And, while this might be stating the obvious, be aware you’ll need to provide proof of homeowners insurance.
If after reading all this you don’t feel like a home equity loan or HELOC is right for you, another option could be a cash-out refinance—where you take out a new mortgage to pay the old one off. Doing so essentially lets you pocket the difference between the new loan you took out (for your home’s current value) and what was left on the original mortgage. See our section on refinancing for more on when this might make sense.
Frequently asked questions
Who can get an FHA mortgage?
To be a good candidate for an FHA loan, you’ll generally need a credit score of 580 or higher, no history of bankruptcy in the past two years or foreclosure in the past three years, a debt-to-income ratio less than 43%, steady income and proof of employment, and purchasing a home that you will use as your main place of residence. You’ll also need to be able to make a down payment ranging from 3.5% to 10% (depending on your credit) and cover closing costs.
A quick note of explanation here—to calculate your debt-to-income ratio, you need to know your gross monthly income before taxes and any other deductions come out of your paycheck, plus the total amount of any debt payments you have to make each month. Divide your debt payment amount by your gross monthly income and there’s your DTI. For example, someone whose income is $5,000 and whose monthly debt payment is $1,500 has a DTI of 30%.
While FHA loans can be a strong option for first-time homebuyers, you can still apply for an FHA mortgage even if you’re a current homeowner or have owned a house in the past.
Is an adjustable-rate mortgage a good idea?
If you are uncomfortable with uncertainty, an adjustable-rate mortgage is probably not a good idea for you. ARMs offer an attractive low teaser rate for an initial period, then generally the rate goes up. Note that increases are based on an index, which tracks general market conditions, and a margin—the number of percentage points the lender can tack onto the index to turn a profit.
It’s also important to understand how often your rate can be adjusted. ARMs are referred to with a combination of numbers that spell out the length of your teaser rate and the frequency of subsequent adjustments. For example, if you have a 5/6m ARM, that means your intro rate should stay the same for five years, after which your lender can adjust your rate every six months.
The Consumer Financial Protection Bureau (CFPB) provides a Consumer Handbook on Adjustable Rate Mortgages, catchily nicknamed the CHARM booklet.
If you do proceed with an ARM, you may wish to keep an eye out when your intro rate expires for an opportunity to refinance to a fixed-rate mortgage. Just know that while you can refinance some mortgages almost immediately, others might make you wait for up to two years. Ask about the fine print before you sign.
What’s a mortgage rate lock?
A mortgage rate lock, or lock-in, allows you to temporarily freeze a rate you’ve been offered and protect it from the daily fluctuations that buffet mortgage rates. These typically last for 30, 45, or 60 days, so keep in mind you’ll need to move quickly once you initiate a rate lock. If your initial lock doesn’t provide enough time to seal the deal, you may be able to extend it—for a cost.
The downside to a rate lock is that if mortgage rates dip after you’ve locked in your rate, you won’t benefit from the decrease. Think carefully what level of uncertainty you can accept.
Lastly, know that your mortgage rate can still change in certain circumstances even if you’ve locked it in. Maybe the house appraises at a vastly different value than expected. Or perhaps you miss a payment on an existing credit account and your credit score goes down. A rate lock can provide some peace of mind in a turbulent market, but it is not an absolute guarantee.
Can I get a mortgage with bad credit?
The answer here is “maybe.” With a credit score in the mid-600s, you have a chance at getting approved for a conventional mortgage from a private lender or a USDA-backed loan. If your credit score is 500 or higher, you may be able to get an FHA loan, so long as you can put down a 10% down payment. With a credit score below 500, your application for any type of mortgage is likely to be rejected. Take a look at our tips on how to improve your credit in this case.
Can I get a mortgage on a mobile home?
You may be able to get a mortgage to purchase a mobile home (or more properly, a manufactured home, if built after June 15, 1976). But some lenders will consider such properties as greater risk than traditional houses and will avoid them accordingly, so you might have to shop around a bit. Also, know that a manufactured home should be atop a permanent base.
Can I get a mortgage to build a house?
If you already have the land where you’re planning to build your new home, what you need is a construction loan. And, if you haven’t purchased the land yet, what you need is a land loan.
These types of loans differ from home loans in a few ways. For example, both construction loans and land loans tend to have higher interest rates than home loans. They also have different durations, with a construction loan period generally only lasting a year, while a land loan repayment period may extend up to 20 years. Contrast these with a mortgage to buy a house, where a 30-year repayment period is standard.
Also, know that construction loans are likely to have variable interest rates which fluctuate based on an index, whereas fixed-rate home loans are more common.
You may be able to get a construction-to-permanent loan, which lets you convert the loan into a mortgage after your house is up.
Can I get a mortgage on a modular home?
If the modular home has already been constructed, then yes, a prospective homebuyer can get a mortgage for it just like for a stick-built home. But if the modular home has not yet been put together, a construction loan would be the appropriate type of funding.
Do I need a mortgage broker?
A mortgage broker essentially helps you comparison shop, getting quotes from multiple lenders based on your financial situation and needs. This can be helpful if you feel overwhelmed by the complexities of the homebuying process—and since lenders may have requirements such as a certain minimum credit score or debt-to-income ratio cutoff, the broker can connect you with a lender likely to work for you.
But, of course, it’s not free. It’s typical for the broker to be paid a commission by the lender based on a percentage of the mortgage amount (though there can sometimes be other arrangements, such as a flat fee). If you’re considering engaging a broker’s services, ask them to explain the payment structure before you commit to working with them.
Are mortgage payments tax deductible?
Yes, if your mortgage meets certain IRS requirements, the interest portion of your mortgage payments should be tax deductible. The loan must be secured by your home, and you need to have used the money from the loan to purchase or improve your main residence—with an allowance for a second home as long as that one too is used for personal purposes.
If you purchased mortgage discount points when you took out your mortgage, those are usually tax deductible for the year you bought the home, but not thereafter.
There are two important caveats to all this. First, there’s a cap on how much you can deduct. You’re limited to a principal amount of no more than $750,000 for loans originated in April 2018 or later (half that amount if you’re married but file separately). And second, you can only deduct mortgage interest and points if you itemize.
That last bit is key, because many homeowners may actually do better taking the standard deduction than trying to itemize and deduct mortgage interest on their taxes. The standard deduction as of 2024 is $29,200 for married couples filing jointly and $14,600 for singles and married folks filing separately. Those are big numbers to beat with itemized deductions.
Source: fortune.com