The Impact of Aging in Place on the Housing Market and Younger Generations

The Baby Boomer generation broke records for its size and have dominated American business, culture, and politics since they reached adulthood in the ’70s. Last year, their children and grandchildren, the Millennials, overtook the Boomer generation as their numbers swelled to 73 million. The two “mega-generations” are so large that the combined size of both generations limits opportunities in areas like employment and housing.

Without the savings to retire during and following the Great Recession, many Boomers stayed in their jobs after they turned 65. The combination of a shrinking economy and reduced retirements slowed the careers of millions of Millennials which led to them taking longer to make enough to buy their first homes. Compared to Baby Boomers, only 37% of Millennials between the ages of 25 and 34 own homes.

The strain on America’s real estate markets is so great that even one minor change in Boomers’ homeownership patterns can significantly affect Millennials. Traditionally, after children leave home, their parents “downsize.” They sell the family home, cash in the equity they have accumulated in their homes, and move into a retirement community or buy something much smaller to reduce their living expenses and chores.

Not the Millennials. Seventy-seven percent of people over the age of fifty want to stay in their homes as long as they can. This process of “aging in place” has helped to increase the average tenure to ten years. Despite the increase in equity, median tenure length jumped ten years in September 2018, and by last October, median tenure length reached its highest level in 18 years.

Row of large old brick houses with front porches and gardensRow of large old brick houses with front porches and gardens

“Aging in place” Delays the Inevitable

“The recent dramatic spike in tenure length is reflected in the growing performance gap between market potential and actual existing-home sales, which is up 48% since the end of 2017,” said Marc Fleming, Chief Economist at First American. “Homeowners are staying in their homes longer than ever, limiting supply and slowing home sales.”

Despite the cost of retrofitting a home for seniors, a Freddie Mac study last year estimates that approximately 1.6 million more senior households are staying in their homes than what would have been the case if they “behaved like older generations of homeowners.” 

However, aging in place may be just delaying the inevitable. “More than half of all existing homes are owned by Baby Boomers and the Silent Generation, who will eventually age out of homeownership,” says First American’s Fleming. “When that occurs, the problem may not be a lack of supply, but the exact opposite.”

The oldest Boomers will reach 75 this year and it will take a few more years for the bulk of their homes to be sold. When it does arrive around 2025 and last through the end of the decade, some economists anticipate that over the next twenty years the flood of Boomer homes will reach upwards of 21 million, more than a quarter (27.4%) of the nation’s current owner-occupied housing stock. Over the next 20 years, homes are likely to hit the market as their current owners pass away or vacate their homes.

Not all of these will end up on multiple listing services and real estate sites like right away, if at all. Many Boomer homes will require significant repair and remodeling and rather than pay to get their houses in shape to sell, many Boomer homes will be sold to “cash for homes” companies like HomeVestors or “iBuyers.” Both of these options are attractive because families can sell quickly to settle estates or use the proceeds to pay for long-term care. They also avoid paying brokerage fees. Once they are fixed up, then these homes may eventually end up on MLSs.

Millennials Don’t Want to Live in Boomer Houses

Boomers will face a big problem when they try to sell to Millennials. Their homes are large, expensive, and out of date. Young buyers prefer open living spaces, roomy bathrooms and kitchens with enough space for family gatherings.

A recent analysis of Boomer Zip Codes found that most live in major cities, not necessarily suburbs or retirement hubs. New York City is a serious contender for the title of the most popular place to live for baby-boomers. The urban districts of San Francisco, El Paso, Houston and Chicago make price the primary reason Millennials won’t be buying from Boomers

Many young buyers are saddled with debt and earning just enough to buy a first home in markets like Des Moines, Grand Rapids, Wichita, Omaha, and Toledo. Even in these places, Boomer homes will cost too much.

Sixty-five percent of owners ages 64 to 72 and 56% of those over 73 own homes worth $200,000 or more. Source:

Move-up Buyers Can’t Move Up

As large numbers of mid-to-upper priced Boomer homes come to the market, they will still have a positive effect on real estate inventories. First-time buyers looking for starter homes aren’t the only ones suffering from inventory shortfalls.

The inventory epidemic has become so severe that it is moving up the real estate ladder. Supplies of mid-priced homes are now declining, and their prices are rising. “There are many Gen-X buyers who are still trapped in their first home and that’s because they can’t find the home that they want to trade up. And so, you get this ratchet effect that occurs with the lack of construction, which is not just impacting entry-level, first-time home buyers, but even trade-up buyers,” says Sam Khater, Chief Economist for Freddie Mac.

In normal times, real estate agents counsel their clients to sell their current home before making an offer on a new one to avoid being stuck with two mortgages. In today’s seller’s markets, however, it’s much easier to sell a house in the mid to lower price tiers than to buy one.

In November 2019, for homes priced below $100,000, inventory was down 15% annually. For those priced between $100,000 and $250,000, supplies were 7% lower annually. In December, usually the slowest month to sell a house, properties remained on the market for just 41 days. Forty-three percent of homes sold in December 2019 were on the market for less than a month. In these conditions, move-up buyers will be safer if they buy before they sell.

Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.


How to Afford a Down Payment on Your First Home, Step by Step

Saving for a down payment when you have a boatload of bills is no easy task, but first-time homebuyers with good credit have an edge: They often can put just 3% down, and they have access to a host of down payment assistance programs.

A down payment gift from a family member, and sometimes a close friend, is allowed for most loan types. Then there are gifts of equity from home sellers.

Smart Ways to Save Up for a Down Payment

Here’s the lowdown on down payments, from 3% to 20%, to buy a home before you go shopping for a mortgage.

1. Low Down Payment Mortgages

Conventional loans, the most common type of mortgage, are offered by private mortgage lenders, such as banks, credit unions and mortgage companies. Many of those lenders allow a down payment of 3% for a fixed-rate conventional conforming loan.

To qualify, borrowers usually will need to have a credit score of at least 640 and a debt-to-income ratio of 43% or less. Income limits may apply.

Putting 20% down will allow a borrower to avoid private mortgage insurance (PMI) on a conventional loan.

Government-backed loans like FHA and USDA mortgages are designed to help low- to moderate-income borrowers or those with lower credit scores.

An FHA loan requires as little as 3.5% down on one- to four-unit owner-occupied properties as long as the borrower occupies the building for at least one year. To qualify for 3.5% down, your credit score must be 580 or higher. Someone with a credit score between 500 and 579 may qualify to put 10% down.

A VA loan, for veterans, active-duty military personnel, National Guard and Selected Reserve members, and some surviving spouses, requires no down payment. Borrowers can buy a property with up to four units, as long as the borrower occupies the property throughout the ownership. There is no stated minimum credit score, but generally speaking, lenders require a minimum credit score of 580 to 620 to qualify.

A USDA loan, for properties in eligible rural and suburban areas, also requires no down payment. Lenders typically want to see a credit score of at least 640, and household income can’t exceed 115% of the area’s median household income.

USDA and VA loans typically come with lower interest rates than conventional or FHA loans, but a USDA loan requires a guarantee fee, a VA loan requires a funding fee, and an FHA loan, upfront and annual mortgage insurance premiums (MIP).

It pays to understand PMI vs. MIP in understanding the total costs of your loan.

And lender-paid mortgage insurance has its pros and cons.

2. State and Local Down Payment Assistance

State, county, and city governments and nonprofit organizations offer down payment assistance programs to help get first-time homebuyers into homes. (By the way, the definition of who qualifies as a first-time homebuyer is more expansive than it seems.)

Down payment assistance may come in the form of grants or second mortgage loans with various repayment or loan forgiveness provisions.

HUD steers buyers to state and local programs.

The National Council of State Housing Agencies has a state-by-state list of housing finance agencies; each offers a wealth of information designed to boost housing affordability and accessibility.

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3. Down Payment Gifts

“Hey, Mom and Dad (or Uncle Clyde or Aunt Betty, or My Dear Girlfriend), I’d love it if you gave me a large cash infusion to help me buy a house.” It just rolls off the tongue, right? In fact, one or more loved ones may be willing to pitch in toward your down payment or closing costs.

Under conventional loan guidelines, gift money for a principal or second home is allowed from someone related by blood, marriage, adoption, or legal guardianship, or from a domestic partner or fiance. There’s no limit to the gift, but conventional loans may require borrowers to come up with a portion of the down payment.

FHA guidelines allow gift money from relatives, an employer, a close friend, a charitable organization, or a government agency that provides homeownership assistance.

With USDA or VA loans, the only people who cannot provide gift funds are those who would benefit from the sale, such as the seller, lender, real estate agent, or developer.

A mortgage gift letter signed by donor and recipient will be required, verifying that the down payment funds are not expected to be repaid. A lender may also want to track the gift money.

Then there are gifts of equity, when a seller gives part of the home’s equity to the buyer to fund all or part of the down payment on principal or second homes. For FHA loans, only equity gifts from family members are acceptable.

A signed gift letter will be required.

4. Crowdfunding a Down Payment

Crowdfunding to help buy a house? It’s possible with sites like GoFundMe, Feather the Nest, HomeFundIt, and even Honeyfund, set up as a crowdfunder for honeymoons.

Feather the Nest isn’t associated with a mortgage lender, so donation seekers can decide where to go for a loan. It charges a fee of 5% for every contribution.

HomeFundIt charges no fees, but you must pre-qualify and then use CMG Financial for your home purchase. The site shows a money match toward closing costs for first-time buyers.

GoFundMe charges 2.9% plus 30 cents per gift.

For Honeyfund, U.S. residents receiving U.S. dollars via PayPal are charged 3.5% plus 59 cents per transaction.

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

5. Retirement Account Withdrawals or Loans

It might be a good idea to explore all options for getting cash before tapping your 401(k) savings account.

As you probably know, taking money out of your 401k before age 59 ½, or before you turn 55 and have left or lost your job, is met with a 10% early withdrawal penalty and income tax on the amount. So withdrawing money early from this tax-deferred account has a painful cost and impairs long-term growth.

A traditional IRA, on the other hand, allows first-time homebuyers to take an early withdrawal up to $10,000 (the lifetime limit) to use as a down payment (or to help build a home) without having to pay the 10% early withdrawal penalty. They still will have to pay regular income tax on the withdrawal.

Your employer’s plan might let you borrow money from your 401k and pay it back to your account over time, with interest, within five years, in most cases. You don’t have to pay taxes and penalties when you take a 401k loan, but if you leave your current job, you might have to repay the loan in full fairly quickly. If you can’t repay the loan for any reason, you’ll owe taxes and a 10% penalty if you’re under 59 ½.

Then there’s the Roth IRA. You can withdraw contributions you made to your Roth any time, tax- and penalty-free.

If you take a distribution of Roth IRA earnings before age 59 ½ and before the account is less than 5 years old, the withdrawal may be subject to taxes and penalties. You may be able to avoid penalties but not taxes if you use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.

If you’re under age 59 ½ and your Roth IRA has been open for five years or more, a withdrawal of earnings will not be subject to taxes if you use the withdrawal to pay for a first-time home purchase.

Recommended: First-Time Homebuyers Guide: Getting Loans & Grants

The Takeaway

How to afford a down payment on a house? First-time homebuyers may benefit from assistance programs, down payment gifts, and mortgage types that require little down.

SoFi offers a help center for home loans to ease the way. And when you begin the hunt for financing, a good first step is to get pre-qualified and then seek mortgage pre-approval.

Consider SoFi mortgage loans. Qualified first-time homebuyers can put just 3% down, and checking your rate takes only minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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.


Let’s Calculate: How Much House Can I Afford?

Closing costs cover a litany of things such as lawyers and title fees and taxes on the transaction.
Mortgage Term: 30 years
Interest rate: This is the amount charged by your lender to finance your home loan as a percentage of your loan balance. Mortgage loans use compound interest, which is calculated every month based on the remaining balance of the loan. Obviously, the lower the interest rate, the lower your mortgage payment, and the less you’ll pay over the length of the loan.
In general, your salary refers to the full amount you earn (your gross income) rather than the amount you take home (your net pay). There are several deductions taken out of your paychecks for things like taxes, insurance and retirement contributions, depending on your workplace.

Calculate Your Housing Budget

And nothing down at all would result in a ,381 monthly payment, plus for PMI. Total: ,448.

  • Your monthly income and take-home pay.
  • The size and terms of the mortgage loan you’ll take out.
  • The size of your down payment.
  • The ongoing costs of homeownership.

How Much Money Do You Actually Take Home?

Monthly Taxes: 0
Principal and Interest: 2/month
When calculating for budgeting purposes, you’ll use your net monthly pay – the amount on your paycheck after taxes and withholdings. That’s your consumer DTI. Source:
Interest rate: 3.8%
Adjustable rate: If you opt for an adjustable-rate mortgage, then after a set period of time with a fixed rate, your interest rate can change if the market does. There are very few situations in which this is a better option than a fixed-rate loan.

How Lenders Evaluate Your Income and Monthly Payments

Interest rate: 2.9%
Monthly Insurance:
Property Taxes: Cities and counties set their own property tax rate for services like road upkeep, libraries and parks. Annual taxes are calculated based on the value of your house. Many lenders pay the taxes for you, then roll them into your monthly loan payment.
Here’s how that can affect your monthly payment:
So what’s a good DTI? Most experts agree 35% is a healthy ratio, meaning your debts are under control and you’re a good candidate for a loan. For mortgages specifically, 43% is generally considered the upper limit for getting approved.
Regardless, it’s a good approximation, and if you divide it by 12, you can get a sense of how much it will add to your monthly payment.

Determine How Much Down Payment You Can Make

Robert Bruce is a senior writer at The Penny Hoarder.
Scenario 3: A standard 30-year mortgage with no down payment.
Monthly Taxes: 0
Buying a home is the biggest financial decision many people ever make. So it’s not a decision to be taken lightly.
DTI = Monthly debt obligations/Monthly pay
Homeowners Insurance: You should never go without homeowners insurance. It protects your home and possessions from disasters, damage and theft, and provides liability protection for you in case of an accident on your property. If you have a fire in your house, your insurance will pay to repair it and may even pay for your housing costs elsewhere while your home is being fixed.
Monthly Insurance:
Home repairs and maintenance: A good rule of thumb is to save about 1% to 2% of your home’s value each year for future maintenance and costs for things like the HVAC, roof, major appliances and so on. For a 0,000 home, this is about ,000 to ,000 per year, which comes to about 7 to 3 per month.
When you think about how much house you can afford, you should think about your net pay, because that’s the real number you’re dealing with.
Interest rate: 3.8%
A 10% down payment would make your monthly payment ,243 per month, plus at least another a month for PMI, for a total of ,310.

How to Line Up Your Financing

Monthly PMI: Monthly PMI: 8
Knowing your take-home pay will help give you an idea about what size monthly house payment you’re comfortable with. You’ll need to factor in other debt payments, like a car loan or student loan payments. You’ll also need to think about other variable expenses, like how much you spend on entertainment or eating out, to see how much breathing room you have in your monthly budget.

Understanding How Your Mortgage Works

(Keep in mind that all of those figures don’t account for property taxes or homeowner’s insurance.)
So let’s break it all down into four different scenarios for a couple who has an annual gross income of 0,000 with a monthly take-home of ,660. Twenty-five percent of their monthly income comes to ,415, so that’s how much they have to work with on a monthly mortgage payment.
Monthly PMI: In addition to the standard 30-year and 15-year loans, you might have other options.
While it can be tempting to immediately start browsing the listings, the first step in this process is knowing your housing budget. To figure that out, take these into consideration:

The Difference Between Adjustable and Fixed Rates

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Total Monthly Payment: ,265
Term: The loan term is how long it will take you to pay back both the principal and the interest. The average term of a U.S. mortgage is 30 years, but you can also get 20- and 15-year loans — though those will come with higher monthly payments since you’re paying the loan back in less time.

FHA Loans, VA Loans and USDA Loans

You’ll also need to think about other monthly expenses, such as HOA fees, lawn care, pest control and home security, when factoring in the total monthly costs of your home.
But to really reduce your monthly payments, you should aim for at least a 20% down payment. By doing that, you won’t have to pay for private mortgage insurance, or PMI. Mortgage insurance is required by most lenders as a protection against you defaulting on the loan. It typically costs between 0.5% and 1% of your entire mortgage value, and it’s added onto your monthly payments.
The more your down payment, the less you’ll have to borrow. With that in mind, most experts recommend 10% as a minimum down payment.
When you shop for a mortgage loan, you’ll find several different types. Here’s what to look for in fixed and adjustable rate loans as you determine how much house you can afford:

Closing Costs: How They Work and Who Pays Them

Scenario 4: A standard 15-year mortgage with no down payment.
When you’re looking for a new home, you will generally see an annual tax rate included on the listing. That number is just an estimate and can change each year when your city or county sets new tax rates.
Ready to stop worrying about money?

Keep in Mind the Ongoing Costs of Homeownership

USDA Loans: These loans are backed by the U.S. Department of Agriculture and are mainly for rural borrowers who can’t qualify for traditional loans. No down payment is required, although there are income and property value limits.
Interest rate: 2.9%
Total Monthly Payment: ,224
Let’s say you put a 20% down payment on a 0,000 house. That leaves your total loan amount at 0,000. On a 15-year loan with a 3% interest rate, your monthly payment (principal and interest) would be ,105.
Like the down payment, they often need to be paid in cash, and will cost between 2% and 5% of the price of the home. So if you’re buying a 0,000 home, you can expect paying somewhere in the neighborhood of ,000 to ,000 in closing costs.
Principal and Interest: ,371/month
Monthly Insurance:
So, by making a 20% down payment, you’re financing less, which results in long-term savings on interest, but also keeps your monthly payment down by exempting you from paying mortgage insurance.

A calculator on a phone is held in front the door of house.
Chris Zuppa and Sherman Zent/The Penny Hoarder

How Much House Can You Afford? 4 Scenarios

The first order of business when making a budget is to determine how much of your income is available to you.
Principal and Interest: ,371/month
Monthly Taxes: 0
They’ve locked in on buying a beautiful home for 0,000 with annual property taxes of ,000 and insurance of ,000.
They’ve locked in on buying a beautiful home for 0,000 with annual property taxes of ,000 and insurance of ,000.
Down Payment: And don’t forget — an emergency fund will be more important than ever when you own a home. Financial experts advise having at least three to six months worth of expenses saved up so you can cover your bills in the event of a job loss or other crisis.
And don’t forget — an emergency fund will be more important than ever when you own a home. Financial experts advise having at least three to six months worth of expenses saved up so you can cover your bills in the event of a job loss or other crisis.
You’ll be more attractive to lenders if you can prove at least two years of continuous employment, have a good credit history over the last 12 months, and have enough funds on hand to afford a good down payment.
VA Loans: These loans are available for military service members and veterans and are backed by the Department of Veteran Affairs. VA loans require no down payment or mortgage insurance. However, these loans do require a VA funding fee that changes annually.
Mortgage Term: 15 years
Down Payment: ,000 (20%)
Mortgage Term: 30 years <!–


Your monthly mortgage payment is the installment you pay every month for the length of the loan, determined by the loan term, interest rate and principal:

Do You Qualify as a First-Time Homebuyer?

A first-time homebuyer isn’t just someone purchasing a first home. It can be anyone who has not owned a principal residence in the past three years, some single parents, and others.

If the thought of a down payment and closing costs put a chill down your spine, realize that first-time homebuyers often have access to down payment assistance in the form of grants or low- or no-interest loans.

‘First-Time Homebuyer’ Under the Microscope

To get a sense of who qualifies for a mortgage as a first-time homebuyer, let’s take a look at the government’s definition.

The U.S. Department of Housing and Urban Development (HUD) says first-time buyers meet any of these criteria:

•   An individual who has not held ownership in a principal residence during the three-year period ending on the date of the purchase.

•   A single parent who has only owned a home with a former spouse.

•   An individual who is a displaced homemaker (has worked only in the home for a substantial number of years providing unpaid household services for family members) and has only owned a home with a spouse.

•   Both spouses if one spouse is or was a homeowner but the other has not owned a home.

•   A person who has only owned a principal residence that was not permanently attached to a foundation (such as a mobile home when the wheels are in place).

•   An individual who has owned a property that is not in compliance with state, local, or model building codes and that cannot be brought into compliance for less than the cost of constructing a permanent structure.

For conventional (nongovernment) financing through private lenders, Fannie Mae’s criteria are similar.

You can use our Home Affordability
Calculator to get an estimate of how
much house you can afford.

Options for First-Time Homebuyers

First-time homebuyers may not realize that they, like other buyers, may qualify to buy a home with much less than 20% down.

They also have access to programs that may ease the credit requirements of homeownership.

Federal Government-Backed Mortgages

When the federal government insures mortgages, the loans pose less of a risk to lenders, so lenders may offer you a lower interest rate.

There are three government-backed home loan options. In exchange for a low down payment, you’ll pay an upfront and annual mortgage insurance premium for FHA loans, an upfront guarantee fee and annual fee for USDA loans, or a one-time funding fee for VA loans.

FHA Loans

The Federal Housing Administration, part of HUD, insures fixed-rate mortgages issued by approved lenders . On average, more than 80% of FHA-insured mortgages are for first-time homebuyers each year.

If you have a FICO® credit score of 580 or higher, you could get an FHA loan with just 3.5% down. If you have a score between 500 and 579, you may still qualify for a loan with 10% down.

USDA Loans

The U.S. Department of Agriculture offers assistance to buy (or, in some cases, even build) a home in certain rural areas. Your income has to be within a certain percentage of the average median income for the area.

If you qualify, the loan requires no down payment and offers a fixed interest rate.

The USDA has an interactive map to determine if a community is considered rural.

VA Loans

A mortgage guaranteed in part by the Department of Veterans Affairs requires no down payment and is available for military members, veterans, and certain surviving military spouses.

Although a VA loan does not state a minimum credit score, lenders who make the loan will set their minimum score for the product based on their risk tolerance.

Government-Backed Conventional Mortgages

Fannie Mae and Freddie Mac, government-backed mortgage companies, do not originate home loans; they buy and guarantee mortgages issued through lenders in the secondary mortgage market.

They make mortgages available that are geared toward lower-income, lower-credit score borrowers.

Freddie Mac’s Home Possible program offers down payment options as low as 3%. There are also sweat equity down payment options and flexible terms.

Fannie Mae’s 97% LTV program also offers 3% down payment loans.

Fannie Mae’s HomePath Ready Buyer program offers first-time homebuyers the ability to buy foreclosed properties with as little as 3% down and help with closing costs.

A Mortgage for Certain Civil Servants

If you’re a law enforcement officer, firefighter, or EMT working for a federal, state, local, or Indian tribal government agency, or a teacher at a public or private school, the HUD-backed Good Neighbor Next Door program could be a good fit. It provides 50% off the listing price of a foreclosed home in specific revitalization areas. In turn, you have to commit to living there for 36 months.

Homes are listed on the HUD website each week, and you have to put an offer in within seven days.

Only a registered HUD broker can submit a bid for you on a property.

If using an FHA loan to buy a home in the Good Neighbor Next Door program, the down payment will be $100. If using a VA loan to purchase a house through the program, buyers will receive 100% financing. If using a conventional home loan, the usual down payment requirements stay the same.

State, County, and City Assistance

It isn’t just the federal government that helps to get first-time buyers into homes. State, county, and city governments and nonprofit organizations run many down payment assistance programs.

HUD is the gatekeeper, steering buyers to state and local programs and offering advice from HUD home assistance counselors.

The National Council of State Housing Agencies has a state-by-state list of housing finance agencies, which cater to low- and middle-income households. Contact the agency to learn about the programs it offers and to get answers to housing finance questions.

Using Gift Money

First-time homebuyers might also want to think about seeking down payment and closing cost help from family members.

If you’re using a cash gift, your lender will want a formal gift letter, and the gift cannot be a loan. Home loans backed by Fannie Mae and Freddie Mac only allow down payment gifts from someone related to the borrower. Government-backed loans have looser requirements.

Want to use your 401(k) to make a down payment? You could, but financial advisors frown on the idea. Borrowing from your 401(k) can do damage to your retirement savings.

The Takeaway

First-time homebuyers are in the catbird seat if they don’t have much of a down payment or their credit isn’t stellar. Lots of programs, from local to federal, give first-time homeowners a break.

SoFi offers home loans with as little as 5% down. See how your rate and terms stack up against the competition.

It’s easy to find your rate.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See for more information.

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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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.


What Is Escrow? How It Keeps Home Buyers and Sellers Safe

What is escrow? In real estate, an escrow account is a secure holding area where important items (e.g., the earnest money check and contracts) are kept safe by an escrow company until the deal is closed and the house officially changes hands. Escrow is also a contractual arrangement in which a third party—usually the escrow officer—maintains money and documents until the deal is done and escrow is closed.

How escrow works

The escrow agent is a third party—perhaps someone from the real estate closing company, an attorney, or a title company agent (customs vary by state), says Andy Prasky, a real estate professional with Re/Max Advantage Plus in Twin Cities.

The third party is there to make sure everything during the transaction proceeds smoothly, including the transfers of money and documents, and to hold assets safely in an escrow account until disbursement.

Escrow protects all of the relevant parties in a real estate transaction, including the seller, the home buyer, and the lender, by ensuring that no escrow funds from your lender and other property change hands until all of the conditions in the agreement have been met. Along the way, proper documentation is filed with the escrow agent or the escrow company as each step toward closing is completed.

Contingencies that might be part of the process could include home inspection, repairs, mortgage approval, and other tasks that need to be accomplished by the buyer or seller. And every time one of those steps is completed, the buyer or seller signs off with a contingency release form; then the transaction moves to the next step (and one step closer to closing).

Once all conditions are met and the transaction is finalized, the closing costs are paid and the money due to the sellers is disbursed from your lender. Meanwhile an escrow officer clears (or records) the title, which means the buyer officially owns the home.

How much does escrow cost?

That varies—as well as whether the buyer or the seller (or both) pays—with the fee for this real estate service typically totaling about 1% to 2% of the cost of the home.

The earnest money deposit

Earnest money—also known as an escrow deposit—is a dollar amount buyers put into an escrow account after a seller accepts their offer. The escrow company holds the money in an escrow account for the duration of the transaction.

Another way to think of it is as a “good-faith” deposit into an escrow account, which will compensate the seller if the buyer breaches the contract and fails to close.

Can you borrow earnest money from your lender?

Most home buyers come up with cash for escrow and deposit it into the escrow account from their own funds. The payment amount is small compared with the cost of the home and the loan, and the home buyers may not even have a mortgage lender yet when they make an offer on a home.

However, earnest money can be borrowed from your lender, but there are certain rules involved. First-time buyers are most likely to need to go to their mortgage lender to make this escrow account deposit. Your lender will ultimately count the deposit toward closing costs and the down payment on the house.

How escrow protects you during the real estate buying process

Escrow may seem like a pain, but here’s how it can work in your favor. Let’s say, for example, the buyer had a home inspection contingency and discovered that the roof needed repairs. The seller agrees to fix the roof. However, during the buyer’s final walk-through, she finds that the roof hasn’t been repaired as expected. In this case, the seller won’t see a dime of the buyer’s money until the roof is fixed. Talk about a nice safeguard!

Sellers benefit from escrow, too: Let’s say the buyers get cold feet at the last minute and bail on the transaction. This may be disappointing to the seller, but at the very least, buyers have typically ponied up a sizable chunk of change for their earnest money deposit. This money, often totaling 1% to 2% of the purchase price of a home, has been held in escrow. When buyers back out with no legitimate reason, they forfeit that money to the seller—a decent consolation for the sale’s failure and the expense of making mortgage payments and other expenses while the home was off the market.

Escrow, in other words, is the equivalent of bumpers on cars, keeping everyone safe as they move forward in a real estate transaction. Odds are, no one’s trying to swindle anyone. But isn’t it nice to know that if something does go wrong, escrow is there to cushion the blow?

What is an escrow account on a mortgage account?

When a homeowner makes monthly payments to the mortgage servicer, part of each payment goes toward the mortgage and part of it goes into an escrow account for payment of property taxes and insurance premiums such as homeowners insurance or mortgage insurance. When those bills are due, the escrow service uses the funds in the escrow account to make payment to your insurance company and to the county for property taxes.

If more money accumulates in your escrow account from monthly payments than is necessary to pay property taxes and insurance, the mortgage company sends you a refund check, and may lower your monthly mortgage payment. On the other hand, if insurance premiums and property tax expenses go up, your mortgage holder may send you a bill for the difference, or raise your monthly loan payments.


Where the Most (and Fewest) Homes Sell Below Asking Price

Family Home Sold
Andrey_Popov /

Editor’s Note: This story originally appeared on Stessa.

It is no secret at this point that one of the economic effects of the COVID-19 pandemic has been a red-hot housing market. With more people at home, consumer spending in 2020 was down and savings rates were up, while the government pumped money into the economy with low interest rates and direct stimulus to American households. These conditions gave more people the means to save up for a home and brought a stampede of new would-be buyers into the housing market. But with many sellers staying out of the market, prices are at record highs and inventories at record lows.

While the pandemic has created conditions for dramatically accelerated demand for homes over the last year, the reality is that these trends have been ongoing for several years. One key factor is demographics: the millennial generation is now in their late 20s and 30s, and as they settle into their careers and family life, more have been entering the housing market. According to the National Association of Realtors, millennials represented 38% of homebuyers last year, and a large share of those were first-time buyers.

The increased demand has translated to rapidly increasing rates of homeownership and decreasing rates of homeowner vacancy. Just five years ago, in 2016, homeownership rates were at 63.4% — their lowest level since the 1990s, according to U.S. Census Bureau data. In 2020 that figure was 66.6%, which was a 2 percentage point increase just over the previous year. Vacancy rates, meanwhile, have taken the opposite trajectory. After spiking to nearly 3% when the housing bubble burst in the mid-2000s, vacancy rates have declined sharply and dipped to a low of 1% in 2020.

With higher demand and lower inventory, prices inevitably start to rise. The trend of price increases extends to homes of all sizes. Based on Zillow data dating back to 1996, prices for one, two, three, four and five (or more) bedroom homes have all been creeping steadily upwards since around 2012, when the recovery from the last recession began to pick up steam. Within the last year, the trend lines in each category have moved more steeply upward, an indication that record low inventory is pushing up prices for all home types.

Large metros with the most homes selling below asking price

mangostock /

While home pricing is usually cyclical — with higher prices and fewer cuts during spring and summer months — 2020 and 2021 have proven to be aberrations. The share of listings with price cuts stayed relatively flat throughout 2020, between 11% and 13%, before turning sharply downward at the end of the year. In February 2021, the share of listings with a price cut was at 8.2%, a decrease of more than half from a recent peak of 17.8% in September 2019.

This is not the reality in every market, however. Some cities where housing is plentiful and easy to build—like Houston—or where demand is lower—Rust Belt metros like Pittsburgh and Dayton—are still seeing substantial price cuts after homes come on the market. In contrast, cuts are almost nonexistent in some other areas where the inverse is true.

To find these locations, our team of researchers used data from Zillow to identify the share of listings with a price cut, the median price cut as a percentage of list price, the median price cut in dollars, and the median home value in all metro areas with available data. These figures all come from data collected from September 2020 through February 2021 to reflect the latest market trends.

Here are the metropolitan areas with the most and fewest homes selling below asking price.

1. Chicago, IL

Homes in Chicago, Illinois
Mark Baldwin /
  • Share of listings with a price cut: 17.9%
  • Median price cut as a percentage of list price: 2.4%
  • Median price cut in dollars: $7,350
  • Median home value: $257,400

2. Louisville-Jefferson County, KY

Louisville Kentucky homes
EQRoy /
  • Share of listings with a price cut: 16.9%
  • Median price cut as a percentage of list price: 2.7%
  • Median price cut in dollars: $5,322
  • Median home value: $195,880

3. Indianapolis, IN

winter scene homes in Indianapolis, Indiana
Ted Alexander Somerville /
  • Share of listings with a price cut: 16.8%
  • Median price cut as a percentage of list price: 2.5%
  • Median price cut in dollars: $5,475
  • Median home value: $199,721

4. Pittsburgh, PA

Steve Heap /
  • Share of listings with a price cut: 16.4%
  • Median price cut as a percentage of list price: 3.3%
  • Median price cut in dollars: $6,344
  • Median home value: $175,315

5. Houston, TX

Houston homes neighborhood
Stephanie A Sellers /
  • Share of listings with a price cut: 16.3%
  • Median price cut as a percentage of list price: 2.3%
  • Median price cut in dollars: $7,810
  • Median home value: $229,957

6. Dayton, OH

Dayton Ohio
Alex Balanov /
  • Share of listings with a price cut: 16.1%
  • Median price cut as a percentage of list price: 2.9%
  • Median price cut in dollars: $5,006
  • Median home value: $149,572

7. Oklahoma City, OK

Oklahoma City
Henryk Sadura /
  • Share of listings with a price cut: 15.5%
  • Median price cut as a percentage of list price: 2.0%
  • Median price cut in dollars: $5,000
  • Median home value: $168,394

8. Charleston, SC

Houses in Charleston, South Carolina
Sean Pavone /
  • Share of listings with a price cut: 15.3%
  • Median price cut as a percentage of list price: 1.9%
  • Median price cut in dollars: $6,733
  • Median home value: $292,942

9. Albuquerque, NM

Albuquerque, New Mexico
BrigitteT /
  • Share of listings with a price cut: 15.3%
  • Median price cut as a percentage of list price: 2.2%
  • Median price cut in dollars: $6,083
  • Median home value: $234,844

10. Columbus, OH

Historic homes in Columbus, Ohio
Karen and Scott Wightwick /
  • Share of listings with a price cut: 15.3%
  • Median price cut as a percentage of list price: 2.4%
  • Median price cut in dollars: $5,625
  • Median home value: $230,663

Large metros with the fewest homes selling below asking price

decision indecision undecided home buying buy house
By maroke /

Meanwhile, the chances of finding a home selling below its asking price are less likely in these markets.

1. El Paso, TX

El Paso Texas neighborhood
IflyAerialPhotography /
  • Share of listings with a price cut: 6.0%
  • Median price cut as a percentage of list price: 2.3%
  • Median price cut in dollars: $5,006
  • Median home value: $147,524

2. Stockton, CA

Stockton California
Terrance Emerson /
  • Share of listings with a price cut: 7.2%
  • Median price cut as a percentage of list price: 2.4%
  • Median price cut in dollars: $10,072
  • Median home value: $423,916

3. Urban Honolulu, HI

Honolulu City neighborhood
Real Window Creative /
  • Share of listings with a price cut: 7.4%
  • Median price cut as a percentage of list price: 3.0%
  • Median price cut in dollars: $14,186
  • Median home value: $739,690

4. Boise City, ID

Boise, Idaho neighborhood
CSNafzger /
  • Share of listings with a price cut: 7.5%
  • Median price cut as a percentage of list price: 2.1%
  • Median price cut in dollars: $8,908
  • Median home value: $381,759

5. Ogden, UT

Paul W Thompson /
  • Share of listings with a price cut: 7.9%
  • Median price cut as a percentage of list price: 2.3%
  • Median price cut in dollars: $9,994
  • Median home value: $371,978

6. Providence, RI

Providence, Rhode Island houses homes
Joy Brown /
  • Share of listings with a price cut: 8.2%
  • Median price cut as a percentage of list price: 3.1%
  • Median price cut in dollars: $10,000
  • Median home value: $350,548

7. Madison, WI

Houses in Madison, Wisconsin
MarynaG /
  • Share of listings with a price cut: 8.2%
  • Median price cut as a percentage of list price: 2.8%
  • Median price cut in dollars: $10,000
  • Median home value: $305,550

8. Colorado Springs, CO

Colorado Springs Neighborhood
Nirmal Bhagat /
  • Share of listings with a price cut: 8.6%
  • Median price cut as a percentage of list price: 2.3%
  • Median price cut in dollars: $10,567
  • Median home value: $359,246

9. Riverside, CA

Riverside California neighborhood
Matt Gush /
  • Share of listings with a price cut: 8.6%
  • Median price cut as a percentage of list price: 2.5%
  • Median price cut in dollars: $10,228
  • Median home value: $425,713

10. Virginia Beach, VA

Virginia Beach, Virginia
JoMo333 /
  • Share of listings with a price cut: 8.7%
  • Median price cut as a percentage of list price: 2.1%
  • Median price cut in dollars: $5,211
  • Median home value: $261,139

Detailed findings & methodology

Realtor in front of large brick home.
SpeedKingz /

The data used in this analysis is from Zillow. Researchers calculated the share of listings with a price cut, the median price cut as a percentage of list price, the median price cut in dollars, and the median home value. All were obtained using data from September 2020 through February 2021. The analysis includes all homes, including single-family, condominium, and co-operative homes with a county record. Metropolitan areas were ranked based on the share of listings with a price cut. In the event of a tie, the location with the higher median price cut percentage was ranked higher. Only the largest metropolitan areas in the U.S. with available data from Zillow were included.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.


How to Refinance Your Home Mortgage – Step-by-Step Guide

Deciding to refinance your mortgage is only the beginning of the process. You’re far more likely to accomplish what you set out to achieve with your refinance — and to get a good deal in the meantime — when you understand what a mortgage refinance entails.

From decision to closing, mortgage refinancing applicants pass through four key stages on their journey to a new mortgage loan.

How to Refinance a Mortgage on Your Home

Getting a home loan of any kind is a highly involved and consequential process.

On the front end, it requires careful consideration on your part. In this case, that means weighing the pros and cons of refinancing in general and the purpose of your loan in particular.

For example, are you refinancing to get a lower rate loan (reducing borrowing costs relative to your current loan) or do you need a cash-out refinance to finance a home improvement project, which could actually entail a higher rate?

Next, you’ll need to gather all the documents and details you’ll need to apply for your loan, evaluate your loan options and calculate what your new home mortgage will cost, and then begin the process of actually shopping for and applying for your new loan — the longest step in the process.

Expect the whole endeavor to take several weeks.

1. Determining Your Loan’s Purpose & Objectives

The decision to refinance a mortgage is not one to make lightly. If you’ve decided to go through with it, you probably have a goal in mind already.

Still, before getting any deeper into the process, it’s worth reviewing your longer-term objectives and determining what you hope to get out of your refinance. You might uncover a secondary or tertiary goal or benefit that alters your approach to the process before it’s too late to change course.

Refinancing advances a whole host of goals, some of which are complementary. For example:

  • Accelerating Payoff. A shorter loan term means fewer monthly payments and quicker payoff. It also means lower borrowing costs over the life of the loan. The principal downside: Shortening a loan’s remaining term from, say, 25 years to 15 years is likely to raise the monthly payment, even as it cuts down total interest charges.
  • Lowering the Monthly Payment. A lower monthly payment means a more affordable loan from month to month — a key benefit for borrowers struggling to live within their means. If you plan to stay in your home for at least three to five years, accepting a prepayment penalty (which is usually a bad idea) can further reduce your interest rate and your monthly payment along with it. The most significant downsides here are the possibility of higher overall borrowing costs and taking longer to pay it off if, as is often the case, you reduce your monthly payment by lengthening your loan term.
  • Lowering the Interest Rate. Even with an identical term, a lower interest rate reduces total borrowing costs and lowers the monthly payment. That’s why refinancing activity spikes when interest rates are low. Choose a shorter term and you’ll see a more drastic reduction.
  • Avoiding the Downsides of Adjustable Rates. Life is good for borrowers during the first five to seven years of the typical adjustable-rate mortgage (ARM) term when the 30-year loan rate is likely to be lower than prevailing rates on 30-year fixed-rate mortgages. The bill comes due, literally, when the time comes for the rate to adjust. If rates have risen since the loan’s origination, which is common, the monthly payment spikes. Borrowers can avoid this unwelcome development by refinancing to a fixed-rate mortgage ahead of the jump.
  • Getting Rid of FHA Mortgage Insurance. With relaxed approval standards and low down payment requirements, Federal Housing Administration (FHA) mortgage loans help lower-income, lower-asset first-time buyers afford starter homes. But they have some significant drawbacks, including pricey mortgage insurance that lasts for the life of the loan. Borrowers with sufficient equity (typically 20% or more) can put that behind them, reduce their monthly payment in the process by refinancing to a conventional mortgage, and avoid less expensive but still unwelcome private mortgage insurance (PMI).
  • Tapping Home Equity. Use a cash-out refinance loan to extract equity from your home. This type of loan allows you to borrow cash against the value of your home to fund things like home improvement projects or debt consolidation. Depending on the lender and jurisdiction, you can borrow up to 85% of your home equity (between rolled-over principal and cash proceeds) with this type of loan. But mind your other equity-tapping options: a home equity loan or home equity line of credit.

Confirming what you hope to get out of your refinance is an essential prerequisite to calculating its likely cost and choosing the optimal offer.

2. Confirm the Timing & Gather Everything You Need

With your loan’s purpose and your long-term financial objectives set, it’s time to confirm you’re ready to refinance. If yes, you must gather everything you need to apply, or at least begin thinking about how to do that.

Assessing Your Timing & Determining Whether to Wait

The purpose of your loan plays a substantial role in dictating the timing of your refinance.

For example, if your primary goal is to tap the equity in your home to finance a major home improvement project, such as a kitchen remodel or basement finish, wait until your loan-to-value ratio is low enough to produce the requisite windfall. That time might not arrive until you’ve been in your home for a decade or longer, depending on the property’s value (and change in value over time).

As a simplified example, if you accumulate an average of $5,000 in equity per year during your first decade of homeownership by making regular payments on your mortgage, you must pay your 30-year mortgage on time for 10 consecutive years to build the $50,000 needed for a major kitchen remodel (without accounting for a potential increase in equity due to a rise in market value).

By contrast, if your primary goal is to avoid a spike in your ARM payment, it’s in your interest to refinance before that happens — most often five or seven years into your original mortgage term.

But other factors can also influence the timing of your refinance or give you second thoughts about going through with it at all:

  • Your Credit Score. Because mortgage refinance loans are secured by the value of the properties they cover, their interest rates tend to be lower than riskier forms of unsecured debt, such as personal loans and credit cards. But borrower credit still plays a vital role in setting their rates. Borrowers with credit scores above 760 get the best rates, and borrowers with scores much below 680 can expect significantly higher rates. That’s not to say refinancing never makes sense for someone whose FICO score is in the mid-600s or below, only that those with the luxury to wait out the credit rebuilding or credit improvement process might want to consider it. If you’re unsure of your credit score, you can check it for free through Credit Karma.
  • Debt-to-Income Ratio. Mortgage lenders prefer borrowers with low debt-to-income ratios. Under 36% is ideal, and over 43% is likely a deal breaker for most lenders. If your debt-to-income ratio is uncomfortably high, consider putting off your refinance for six months to a year and using the time to pay down debt.
  • Work History. Fairly or not, lenders tend to be leery of borrowers who’ve recently changed jobs. If you’ve been with your current employer for two years or less, you must demonstrate that your income has been steady for longer and still might fail to qualify for the rate you expected. However, if you expect interest rates to rise in the near term, waiting out your new job could cancel out any benefits due to the higher future prevailing rates.
  • Prevailing Interest Rates. Given the considerable sums of money involved, even an incremental change to your refinance loan’s interest rate could translate to thousands or tens of thousands of dollars saved over the life of the loan. If you expect interest rates to fall in the near term, put off your refinance application. Conversely, if you believe rates will rise, don’t delay. And if the difference between your original mortgage rate and the rate you expect to receive on your refinance loan isn’t at least 1.5 percentage points, think twice about going ahead with the refinance at all. Under those circumstances, it takes longer to recoup your refinance loan’s closing costs.
  • Anticipated Time in the Home. It rarely makes sense to refinance your original mortgage if you plan to sell the home or pay off the mortgage within two years. Depending on your expected interest savings on the refinance, it can take much longer than that (upward of five years) to break even. Think carefully about how much effort you want to devote to refinancing a loan you’re going to pay off in a few years anyway.

Pro tip: If you need to give your credit score a bump, sign up for Experian Boost. It’s free and it’ll help you instantly increase your credit score.

Gathering Information & Application Materials

If and when you’re ready to go through with your refinance, you need a great deal of information and documentation before and during the application and closing processes, including:

  • Proof of Income. Depending on your employment status and sources of income, the lender will ask you to supply recent pay stubs, tax returns, or bank statements.
  • A Recent Home Appraisal. Your refinance lender will order a home appraisal before closing, so you don’t need to arrange one on your own. However, to avoid surprises, you can use open-source comparable local sales data to get an idea of your home’s likely market value.
  • Property Insurance Information. Your lender (and later, mortgage servicer) needs your homeowners insurance information to bundle your escrow payment. If it has been more than a year since you reviewed your property insurance policy, now’s the time to shop around for a better deal.

Be prepared to provide additional documentation if requested by your lender before closing. Any missing information or delays in producing documents can jeopardize the close.

Home Appraisal Blackboard Chalk Hand

3. Calculate Your Approximate Refinancing Costs

Next, use a free mortgage refinance calculator like Bank of America’s to calculate your approximate refinancing costs.

Above all else, this calculation must confirm you can afford the monthly mortgage payment on your refinance loan. If one of your aims in refinancing is to reduce the amount of interest paid over the life of your loan, this calculation can also confirm your chosen loan term and structure will achieve that.

For it to be worth it, you must at least break even on the loan after accounting for closing costs.

Calculating Your Breakeven Cost

Breakeven is a simple concept. When the total amount of interest you must pay over the life of your refinance loan matches the loan’s closing costs, you break even on the loan.

The point in time at which you reach parity is the breakeven point. Any interest saved after the breakeven point is effectively a bonus — money you would have forfeited had you chosen not to refinance.

Two factors determine if and when the breakeven point arrives. First, a longer loan term increases the likelihood you’ll break even at some point. More important still is the magnitude of change in your loan’s interest rate. The further your refinance rate falls from your original loan’s rate, the more you save each month and the faster you can recoup your closing costs.

A good mortgage refinance calculator should automatically calculate your breakeven point. Otherwise, calculate your breakeven point by dividing your refinance loan’s closing costs by the monthly savings relative to the original loan and round the result up to the next whole number.

Because you won’t have exact figures for your loan’s closing costs or monthly savings until you’ve applied and received loan disclosures, you’re calculating an estimated breakeven range at this point.

Refinance loan closing costs typically range from 2% to 6% of the refinanced loan’s principal, depending on the origination fee and other big-ticket expenses, so run one optimistic scenario (closing costs at 2% and a short time to breakeven) and one pessimistic scenario (closing costs at 6% and a long time to breakeven). The actual outcome will likely fall somewhere in the middle.

Note that the breakeven point is why it rarely makes sense to bother refinancing if you plan to sell or pay off the loan within two years or can’t reduce your interest rate by more than 1.5 to 2 percentage points.

4. Shop, Apply, & Close

You’re now in the home stretch — ready to shop, apply, and close the deal on your refinance loan.

Follow each of these steps in order, beginning with a multipronged effort to source accurate refinance quotes, continuing through an application and evaluation marathon, and finishing up with a closing that should seem breezier than your first.

Use a Quote Finder (Online Broker) to Get Multiple Quotes Quickly

Start by using an online broker like Credible* to source multiple refinance quotes from banks and mortgage lenders without contacting each party directly. Be prepared to provide basic information about your property and objectives, such as:

  • Property type, such as single-family home or townhouse
  • Property purpose, such as primary home or vacation home
  • Loan purpose, such as lowering the monthly payment
  • Property zip code
  • Estimated property value and remaining first mortgage loan balance
  • Cash-out needs, if any
  • Basic personal information, such as estimated credit score and date of birth

If your credit is decent or better, expect to receive multiple conditional refinance offers — with some coming immediately and others trickling in by email or phone in the subsequent hours and days. You’re under no obligation to act on any, sales pressure notwithstanding, but do make note of the most appealing.

Approach Banks & Lenders You’ve Worked With Before

Next, investigate whether any financial institutions with which you have a preexisting relationship offer refinance loans, including your current mortgage lender.

Most banks and credit unions do offer refinance loans. Though their rates tend to be less competitive at a baseline than direct lenders without expensive branch offices, many offer special pricing for longtime or high-asset customers. It’s certainly worth taking the time to make a few calls or website visits.

Apply for Multiple Loans Within 14 Days

You won’t know the exact cost of any refinance offer until you officially apply and receive the formal loan disclosure all lenders must provide to every prospective borrower.

But you can’t formally apply for a refinance loan without consenting to a hard credit pull, which can temporarily depress your credit score. And you definitely shouldn’t go through with your refinance until you’ve entertained multiple offers to ensure you’re getting the best deal.

Fortunately, the major consumer credit-reporting bureaus count all applications for a specific loan type (such as mortgage refinance loans) made within a two-week period as a single application, regardless of the final application count.

In other words, get in all the refinance applications you plan to make within two weeks, and your credit report will show just a single inquiry.

Evaluate Each Offer

Evaluate the loan disclosure for each accepted application with your objectives and general financial goals in mind. If your primary goal is reducing your monthly payment, look for the loan with the lowest monthly cost.

If your primary goal is reducing your lifetime homeownership costs, look for the loan offering the most substantial interest savings (the lowest mortgage interest rate).

Regardless of your loan’s purpose, make sure you understand what (if anything) you’re obligated to pay out of pocket for your loan. Many refinance loans simply roll closing costs into the principal, raising the monthly payment and increasing lifetime interest costs.

If your goal is to get the lowest possible monthly payment and you can afford to, try paying the closing costs out of pocket.

Choose an Offer & Consider Locking Your Rate

Choose the best offer from the pack — the one that best suits your objectives. If you expect rates to move up before closing, consider the lender’s offer (if extended) to lock your rate for a predetermined period, usually 45 to 90 days.

There’s likely a fee associated with this option, but the amount saved by even marginally reducing your final interest rate will probably offset it. Assuming everything goes smoothly during closing, you shouldn’t need more than 45 days — and certainly not more than 90 days — to finish the deal.

Proceed to Closing

Once you’ve closed on the loan, that’s it — you’ve refinanced your mortgage. Your refinance lender pays off your first mortgage and originates your new loan.

Moving forward, you send payments to your refinance lender, their servicer, or another company that purchases the loan.

Final Word

If you own a home, refinancing your mortgage loan is likely the easiest route to capitalize on low interest rates. It’s probably the most profitable too.

But low prevailing interest rates aren’t the only reason to refinance your mortgage loan. Other common refinancing goals include avoiding the first upward adjustment on an ARM, reducing the monthly payment to a level that doesn’t strain your growing family’s budget, tapping the equity you’ve built in your home, and banishing FHA mortgage insurance.

And a refinance loan doesn’t need to achieve only one goal. Some of these objectives are complementary, such as reducing your monthly payment while lowering your interest rate (and lifetime borrowing costs).

Provided you make out on the deal, whether by reducing your total homeownership costs or taking your monthly payment down a peg, it’s likely worth the effort.

*Advertisement from Credible Operations, Inc. NMLS 1681276.Address: 320 Blackwell St. Ste 200, Durham, NC, 27701