The Best Mortgages That Require No or Low Down Payment

 

If you’re considering buying a home, you’re probably wondering how much you’ll need for a down payment. It’s not unusual to be concerned about coming up with a down payment. According to Trulia’s report Housing in 2017, saving for a down payment is most often cited as the biggest obstacle to homeownership.

Maybe you’ve heard that you should put 20% down when you purchase a home. It’s true that 20% is the gold standard. If you can afford a big down payment, it’s easier to get a mortgage, you may be eligible for a lower interest rate, and more money down means borrowing less, which means you’ll have a smaller monthly payment.

But the biggest incentive to put 20% down is that it allows you to avoid paying for private mortgage insurance. Mortgage insurance is extra insurance that some private lenders require from homebuyers who obtain loans in which the down payment is less than 20% of the sales price or appraised value. Unlike homeowners insurance, mortgage protects the lender – not you – if you stop making payments on your loan. Mortgage insurance typically costs between 0.5% and 1% of the entire loan amount on an annual basis. Depending on how expensive the home you buy is, that can be a pretty hefty sum.

While these are excellent reasons to put 20% down on a home, the fact is that many people just can’t scrape together a down payment that large, especially when the median price of a home in the U.S. is a whopping $345,800.

Fortunately, there are many options for homebuyers with little money for a down payment. You may even be able to buy a house with no down payment at all.

Here’s an overview of the best mortgages you can be approved for without 20% down.

FHA Loans

An FHA loan is a home loan that is insured by the Federal Housing Administration. These loans are designed to promote homeownership and make it easier for people to qualify for a mortgage. The FHA does this by making a guarantee to your bank that they will repay your loan if you quit making payments. FHA loans don’t come directly from the FHA, but rather an FHA-approved lender. Not all FHA-approved lenders offer the same interest rates and costs, even for the same type of loan, so it’s important to shop around.

Down payment requirements

FHA loans allow you to buy a home with a down payment as low as 3.5%, although people with FICO credit scores between 500 and 579 are required to pay at least 10% down.

Approval requirements

Because these loans are geared toward lower income borrowers, you don’t need excellent credit or a large income, but you will have to provide a lot of documentation. Your lender will ask you to provide documents that prove income, savings, and credit information. If you already own any property, you’ll have to have documentation for that as well.

Some of the information you’ll need includes:

  • Two years of complete tax returns (three years for self-employed individuals)
  • Two years of W-2s, 1099s, or other income statements
  • Most recent month of pay stubs
  • A year-to-date profit-and-loss statement for self-employed individuals
  • Most recent three months of bank, retirement, and investment account statements

Mortgage insurance requirements

The FHA requires both upfront and annual mortgage insurance for all borrowers, regardless of their down payment. On a typical 30-year mortgage with a base loan amount of less than $625,500, your annual mortgage insurance premium will be 0.85% as of this writing. The current upfront mortgage insurance premium is 1.75% of the base loan amount.

Casey Fleming, a mortgage adviser with C2 Financial Corporation and author of The Loan Guide: How to Get the Best Possible Mortgage, also reminds buyers that mortgage insurance on an FHA loan is permanent. With other loans, you can request the lenders to cancel private mortgage insurance (MIP) once you have paid down the mortgage balance to 80% of the home’s original appraised value, or wait until the balance drops to 78% when the mortgage servicer is required to eliminate the MIP. But mortgage insurance on an FHA loan cannot be canceled or terminated. For that reason, Fleming says “it’s best if the homebuyer has a plan to get out in a couple of years.”

Where to find an FHA-approved lender

As we mentioned earlier, FHA loans don’t come directly from the FHA, but rather an FHA-approved lender. Not all FHA-approved lenders offer the same interest rates and costs, even for the same type of loan, so it’s important to shop around.

The U.S. Department of Housing and Urban Development (HUD) has a searchable database where you can find lenders in your area approved for FHA loans.

First, fill in your location and the radius in which you’d like to search.

Next, you’ll be taken to a list of FHA-approved lenders in your area.

Who FHA loans are best for

FHA loans are flexible about how you come up with the down payment. You can use your savings, a cash gift from a family member, or a grant from a state or local government down-payment assistance program.

However, FHA loans are not the best option for everyone. The upfront and ongoing mortgage insurance premiums can cost more than private mortgage insurance. If you have good credit, you may be better off with a non-FHA loan with a low down payment and lower loan costs.

And if you’re buying an expensive home in a high-cost area, an FHA loan may not be able to provide you with a large enough mortgage. The FHA has a national loan limit, which is recalculated on an annual basis. For 2017, in high-cost areas, the FHA national loan limit ceiling is $636,150. You can check HUD.gov for a complete list of FHA lending limits by state.

SoFi

For borrowers who can afford a large monthly payment but haven’t saved up a big down payment, SoFi offers mortgages of up to $3 million. Interest rates will vary based on whether you’re looking for a 30-year fixed loan, a 15-year fixed loan, or an adjustable rate loan, which has a fixed rate for the first seven years, after which the interest rate may increase or decrease. Mortgage rates started as low as 3.09% for a 15-year mortgage as of this writing. You can find your rate using SoFi’s online rate quote tool without affecting your credit.

Down payment requirements

SoFi requires a minimum down payment of at least 10% of the purchase price for a new loan.

Approval requirements

Like most lenders, SoFi analyzes FICO scores as a part of its application process. However, it also considers factors such as professional history and career prospects, income, and history of on-time bill payments to determine an applicant’s overall financial health.

Mortgage insurance requirements

SoFi does not charge private mortgage insurance, even on loans for which less than 20% is put down.

What we like/don’t like

In addition to not requiring private mortgage insurance on any of their loans, SoFi doesn’t charge any loan origination, application, or broker commission fees. The average closing fee is 2% to 5% for most mortgages (it varies by location), so on a $300,000 home loan, that is $3,000. Avoiding those fees can save buyers a significant amount and make it a bit easier to come up with closing costs. Keep in mind, though, that you’ll still need to pay standard third-party closing costs that vary depending on loan type and location of the property.

There’s not much to dislike about SoFi unless you’re buying a very inexpensive home in a lower-cost market. They do have a minimum loan amount of $100,000.

Who SoFi mortgages are best for

SoFi mortgages are really only available for people with excellent credit and a solid income. They don’t work with people with poor credit.

SoFi does not publish minimum income or credit score requirements.

VA Loans

Rates can vary by lender, but currently, rates for a $225,000 30-year fixed-rate loan run at around 3.25%, according to LendingTree. (Disclosure: LendingTree is the parent company of MagnifyMoney.)

Down payment requirements

Eligible borrowers can get a VA loan with no down payment. Although the costs associated with getting a VA loan are generally lower than other types of low-down-payment mortgages, Fleming says there is a one-time funding fee, unless the veteran or military member has a service-related disability or you are the surviving spouse of a veteran who died in service or from a service-related disability.

That funding fee varies by the type of veteran and down-payment percentage, but for a new-purchase loan, the funding fee can run from 1.25% to 2.4% of the loan amount.

Approval requirements

VA loans are typically easier to qualify for than conventional mortgages. To be eligible, you must have suitable credit, sufficient income to make the monthly payment, and a valid Certificate of Eligibility (COE). The COE verifies to the lender that you are eligible for a VA-backed loan. You can apply for a COE online, through your lender, or by mail using VA Form 26-1880.

The VA does not require a minimum credit score, but lenders generally have their own requirements. Most ask for a credit score of 620 or higher.

If you’d like help seeing if you are qualified for a VA loan, check to see if there’s a HUD-approved housing counseling agency in your area.

Mortgage insurance requirements

Because VA loans are guaranteed by the Department of Veterans Affairs, they do not require mortgage insurance. However, as we mentioned previously, be prepared to pay an additional funding fee of 1.25% to 2.4%.

What we like/don’t like

There’s no cap on the amount you can borrow. However, there are limits on the amount the VA can insure, which usually affects the loan amount a lender is willing to offer. Loan limits vary by county and are the same as the Federal Housing Finance Agency’s limits, which you can find here.

HomeReady

 

The HomeReady program is offered by Fannie Mae. HomeReady mortgage is aimed at consumers who have decent credit but low- to middle-income earnings. Borrowers do not have to be first-time home buyers but do have to complete a housing education program.

Approval requirements

HomeReady loans are available for purchasing and refinancing any single-family home, as long as the borrower meets income limits, which vary by property location. For properties in low-income areas (as determined by the U.S. Census), there is no income limit. For other properties, the income eligibility limit is 100% of the area median income.

The minimum credit score for a Fannie Mae loan, including HomeReady, is 620.

To qualify, borrowers must complete an online education program, which costs $75 and helps buyers understand the home-buying process and prepare for homeownership.

Down payment requirements

HomeReady is available through all Fannie Mae-approved lenders and offers down payments as low as 3%.

Reiss says buyers can combine a HomeReady mortgage with a Community Seconds loan, which can provide all or part of the down payment and closing costs. “Combined with a Community Seconds mortgage, a Fannie borrower can have a combined loan-to-value ratio of up to 105%,” Reiss says. The loan-to-value (LTV) ratio is the ratio of outstanding loan balance to the value of the property. When you pay down your mortgage balance or your property value increases, your LTV ratio goes down.

Mortgage insurance requirements

While HomeReady mortgages do require mortgage insurance when the buyer puts less than 20% down, unlike an FHA loan, the mortgage insurance is removed once the loan-to-value ratio reaches 78% or less.

What we like/don’t like

HomeReady loans do require private mortgage insurance, but the cost is generally lower than those charged by other lenders. Fannie Mae also makes it easier for borrowers to get creative with their down payment, allowing them to borrow it through a Community Seconds loan or have the down payment gifted from a friend or family member. Also, if you’re planning on having a roommate, income from that roommate will help you qualify for the loan.

However, be sure to talk to your lender to compare other options. The HomeReady program may have higher interest rates than other mortgage programs that advertise no or low down payments.

USDA Loan

USDA loans are guaranteed by the U.S. Department of Agriculture. Although the USDA doesn’t cap the amount a homeowner can borrow, most USDA-approved lenders extend financing for up to $417,000.

Rates vary by lender, but the agency gives a baseline interest rate. As of August 2016, that rate was just 2.875%

Approval requirements

USDA loans are available for purchasing and refinancing homes that meet the USDA’s definition of “rural.” The USDA provides a property eligibility map to give potential buyers a general idea of qualified locations. In general, the property must be located in “open country” or an area that has a population less than 10,000, or 20,000 in areas that are deemed as having a serious lack of mortgage credit.

USDA loans are not available directly from the USDA, but are issued by approved lenders. Most lenders require a minimum credit score of 620 to 640 with no foreclosures, bankruptcies, or major delinquencies in the past several years. Borrowers must have an income of no more than 115% of the median income for the area.

Down payment requirements

Eligible borrowers can get a home loan with no down payment. Other closing costs vary by lender, but the USDA loan program does allow borrowers to use money gifted from friends and family to pay for closing costs.

Mortgage insurance requirements

While USDA-backed mortgages do not require mortgage insurance, borrowers instead pay an upfront premium of 2% of the purchase price. The USDA also allows borrowers to finance that 2% with the home loan.

What we like/don’t like

Some buyers may dismiss USDA loans because they aren’t buying a home in a rural area, but many suburbs of metropolitan areas and small towns fall within the eligible zones. It could be worth a glance at the eligibility map to see if you qualify.

At a Glance: Low-Down-Payment Mortgage Options

To see how different low-down-payment mortgage options might look in the real world, let’s assume a buyer with an excellent credit score applies for a 30-year fixed-rate mortgage on a home that costs $250,000.

As you can see in the table below, their monthly mortgage payment would vary a lot depending on which lender they use.

 

Down Payment


Total Borrowed


Interest Rate


Principal & Interest


Mortgage Insurance


Total Monthly Payment

FHA


FHA

3.5%
($8,750)

$241,250

4.625%

$1,083

$4,222 up front
$171 per month

$1,254

SoFi


SoFi

10%
($25,000)

$225,000

3.37%

$995

$0

$995

VA


VA Loan

0%
($0)

$250,000

3.25%

$1,088

$0

$1,088

HomeReady


homeready

3%
($7,500)

$242,500

4.25%

$1,193

$222 per month

$1,349

USDA


homeready

0%

$250,000

2.875%

$1,037

$5,000 up front,
can be included in
total financed

$1,037

Note that this comparison doesn’t include any closing costs other than the upfront mortgage insurance required by the FHA and USDA loans. The total monthly payments do not include homeowners insurance or property taxes that are typically included in the monthly payment.

ANALYSIS: Should I put down less than 20% on a new home just because I can?

So, if you can take advantage of a low- or no-down-payment loan, should you? For some people, it might make financial sense to keep more cash on hand for emergencies and get into the market sooner in a period of rising home prices. But before you apply, know what it will cost you. Let’s run the numbers to compare the cost of using a conventional loan with 20% down versus a 3% down payment.

Besides private mortgage insurance, there are other downsides to a smaller down payment. Lenders may charge higher interest rates, which translates into higher monthly payments and more money spent over the loan term. Also, because many closing costs are a percentage of the total loan amount, putting less money down means higher closing costs.

For this example, we’ll assume a $250,000 purchase price and a loan term of 30 years. According to Freddie Mac, during the week of June 22, 2017, the average rate for a 30-year fixed-rate mortgage was 3.90%.

Using the Loan Amortization Calculator from MortgageCalculator.org:

Assuming you don’t make any extra principal payments, you will have to pay private mortgage insurance for 112 months before the principal balance of the loan drops below 78% of the home’s original appraised value. That means in addition to paying $169,265.17 in interest, you’ll pay $11,316.48 for private mortgage insurance.

The bottom line

Under some circumstances, a low- or no-down-payment mortgage, even with private mortgage insurance, could be considered a worthwhile investment. If saving for a 20% down payment means you’ll be paying rent longer while you watch home prices and mortgage rates rise, it could make sense. In the past year alone, average home prices increased 16.8%, and Kiplinger is predicting that the average 30-year fixed mortgage rate will rise to 4.1% by the end of 2017.

If you do choose a loan that requires private mortgage insurance, consider making extra principal payments to reach 20% equity faster and request that your lender cancels private mortgage insurance. Even if you have to spend a few hundred dollars to have your home appraised, the monthly savings from private mortgage insurance premiums could quickly offset that cost.

Keep in mind, though, that the down payment is only one part of the home-buying equation. Sonja Bullard, a sales manager with Bay Equity Home Loans in Alpharetta, Ga., says whether you’re interested in an FHA loan or a conventional (i.e., non-government-backed) loan, there are other out-of-pocket costs when buying a home.

“Through my experience, when people hear zero down payment, they think that means there are no costs for obtaining the loan,” Bullard says. “People don’t realize there are still fees required to be paid.”

According to Bullard, those fees include:

  • Inspection: $300 to $1,000, based on the size of the home
  • Appraisal: $375 to $1,000, based on the size of the home
  • Homeowners insurance premiums, prepaid for one year, due at closing: $300 to $2,500, depending on coverage
  • Closing costs: $4,000 to $10,000, depending on sales price and loan amount
  • HOA initiation fees

So don’t let a seemingly insurmountable 20% down payment get in the way of homeownership. When you’re ready to take the plunge, talk to a lender or submit a loan application online. You might be surprised at what you qualify for.

The post The Best Mortgages That Require No or Low Down Payment appeared first on MagnifyMoney.

SoFi Parent PLUS Loan Refinance Review

Senior Couple Talking To Financial Advisor At Home

Updated August 21, 2017

Are you a parent who wanted to help your child finance his or her education, and ended up taking out more loans than anticipated? Many parents find themselves in a precarious situation as they try to plan for retirement and while balancing student loan debt.

If you’re looking to save on the amount of interest you’re paying, SoFi’s Parent PLUS loan refinance program may be right for you.

Details of the Parent PLUS Loan

You can refinance a minimum of $5,000 under SoFi. Fixed rates range from 3.35% to 6.75% APR and variable rates range from 2.815% – 6.490% APR (these rates assume you enroll in autopayment).

Terms of 5, 7, 10, and 15 years are available. Variable rates on terms of 5, 7, and 10 years are capped at 8.95%, while the 15 year term is capped at 9.95%.

An example payment looks like this: if you refinance $10,000 on a 5 year term with a fixed APR of 5.49%, your monthly payment will be $190.97 and you’ll pay a total of $11,457.93 over the life of the loan. If you refinance $10,000 on a 5 year term with a variable APR of 4.2%, your monthly payment will be $185.07 and you’ll pay a total of $11,104.43.

How Does the Parent PLUS Loan From SoFi Compare to a Federal PLUS Loan?

The interest rate for Federal Direct PLUS Loans disbursed on or after July 1st, 2015 and before July 1st, 2016 is 6.84%. During much of the 2000s, interest rates were higher. Currently, interest rates are fixed – variable rates are unavailable.

Most people are looking to refinance to save money, and SoFi offers very competitive rates compared with the Direct PLUS Loan, especially on variable rates.

While there are no fees to refinance, you should calculate your estimated savings before going through the process. Be aware if you do refinance, you’ll lose out on certain benefits that come with having Federal student loans, such as deferment, forbearance, and various repayment options.

PLUS loans made to parents are eligible for the Graduated or Extended Repayment Plans, and Direct PLUS loans are also eligible for forgiveness. In some cases, PLUS loans can be discharged due to the death of the borrower (or student).

Private loans often don’t extend these same benefits. In fact, SoFi explicitly states on its legal page that this loan “is not discharged in the event of death or permanent disability of the borrower or student on whose behalf the loan is taken out.”

Eligibility Requirements

You must be a U.S. citizen or permanent resident and employed to be approved. SoFi is unable to lend in Nevada, and variable rates aren’t offered in Illinois, Ohio, or Tennessee. The loans must have been used to obtain at least a Bachelor’s degree with an eligible school as well.

There are no specific credit score requirements as SoFi tries to take a broader view of borrowers. It focuses on income and credit history instead.

Application Process and Documents Needed

The application process to refinance a PLUS Loan with SoFi is easy and can be done completely online. The application takes around 15 minutes to complete, and you’ll know whether or not you qualify by going through the pre-approval process first. During this portion of the application, a soft credit inquiry is used. If you decide to move forward with the loan offered to you, a hard credit inquiry will be used.

You’ll be asked to upload a few documents, so it’s a good idea to have the following ready to go:

  • Proof of residence – ID with matching address, otherwise a utility bill dated within the last 60 days is okay
  • Proof of income – most recent pay stubs
  • Proof of citizenship – a passport or birth certificate can be provided
  • Verification of loans – most recent loan statements for the loans you’re refinancing

Once you submit this documentation, SoFi’s review team gets to work on evaluating your loan. If no other documentation is needed, reviews can take anywhere from 2 to 3 weeks to complete.

The Fine Print

There isn’t an origination fee or application fee, and there are no prepayment penalties. Rates are determined on a number of factors, including the term you choose, your income, and your credit history.

There are late fees associated with the loan. The Parent PLUS Refinance program is currently offered through SoFi’s lending partner, Mohela, and it assesses any fees owed. When you receive the paperwork for the loan, the fees can be found under the disclosures.

Repayment Assistance Options

If you’re struggling to repay the loan after refinancing with SoFi, we recommend you contact a representative and make them aware of the situation. The worst thing you can do with any loan is not make a payment.

SoFi offers unemployment protection on a case-by-case basis, during which payments can be paused for a period of 3 to 12 months.

Pros and Cons of SoFi Parent PLUS Loan

Pro: SoFi offers much better rates than the 6.84% fixed rate that comes with Direct PLUS loans. If you have a higher interest rate – around 8% – you’ll stand to benefit even more.

Con: As we mentioned, refinancing means losing out on benefits associated with Federal student loans. If you’re not as concerned about needing repayment assistance, the savings might be enough to make refinancing worthwhile.

Pro: SoFi also offers variable interest rates, whereas the most recent Direct PLUS loans don’t. Variable rates can be tricky, though – SoFi says rates may change on a monthly basis. If you value stability and peace of mind, variable rates may not be for you. If you’re trying to pay off your balance quicker, and a lower interest rate would help, then it might be worth considering this option. 

Con: You may have to extend the repayment term to get a lower monthly payment, as SoFi offers terms up to 15 years. Unfortunately, this increases the amount of interest you’ll pay over the life of the loan. It’s important to use a calculator to estimate how much your savings will be to make sure refinancing is worth it. For example, if you have less than 5 years remaining on your loan, refinancing may not save you a lot of money.

Pro: SoFi offers unemployment protection, and you can also take advantage of SoFi’s career assistance program. If you or your child is experiencing trouble finding employment, it will connect you with its network of alumni and give you tools and tips to succeed in your job search.

SofiLogo

 *referral link

Other Parent PLUS Refinance Alternative

If you don’t qualify with SoFi, you can try these lenders that also offer refinancing options:

CommonBond: Fixed APRs range from 3.35% to 6.74%, and variable APRs range start at 2.80%, and terms offered are 5, 10, 15, and 20 years. CommonBond also has hybrid APRs. Only a 10 year term is offered with this choice; it starts off as fixed for 5 years, and changes over to variable for 5 years. There are no origination fees or application fees, no prepayment penalty, and CommonBond actually allows you to transfer your loan to your child (which isn’t allowed with Federal loans). You can borrow a maximum of $110,000.

CommondBondbank

 

 

Citizens Bank: Citizens Bank refinances Parent PLUS and Direct PLUS loans through its Education Refinance program. The minimum amount you can refinance is $10,000 and up to $90,000 for Bachelor’s degrees and below, $130,000 for graduate and doctoral degrees, and $170,000 for professional degrees. For a Bachelor’s degree and above, you must have made 3 consecutive monthly payments to refinance. For anything less than a Bachelor’s degree, you must have made 12 consecutive monthly payments. The loan you’re refinancing must be in repayment status and can’t be enrolled in an Income-Based Repayment plan. Fixed APRs start at 6.24%. Terms of 5, 10, 15, or 20 years are offered. You need a minimum income of $24,000 to qualify.

citizens-bank

 

Be sure to shop around as there are other lenders out there that will refinance PLUS loans – you want to make sure you’re getting the best rates and terms available to you so you can save the most. Shopping around within 30 days will only count as one credit inquiry, so your credit won’t get penalized heavily. Take advantage of this and lessen the burden of student loan payments so you can focus on saving for your future.

We’ll receive a referral fee if you click on the “Apply Now” buttons in this post. This does not impact our rankings or recommendations You can learn more about how our site is financed here.

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Why I Refinanced My Student Loans — Twice

 

Refinancing your student loans can be a great way to accelerate debt repayment or free up some of your monthly budget. I recently refinanced my student loans for a second time, which was a strategic move to improve my overall financial health.

Here’s why I think this can be a smart idea, if you do it at the right time in the right way.

What Is Student Loan Refinancing?

If you’re new here and wondering what refinancing even is, allow me to explain. When you refinance your student loans, you essentially apply for a new loan so that a new lender will buy out your current student loans and give you a new loan with better terms.

“Better” terms depends on what your goal is. For many people, getting a better loan means getting a lower interest rate. If you want to save hundreds of thousands of dollars of interest over the life of your loan, refinancing is a great way to do that. You can structure your loan to pay it off faster at a lower interest rate. This might mean higher monthly payments than you’re used to but a much lower cost of your loan overall.

If you’re having trouble paying your student loans and your monthly payment is too high right now, you can also refinance your student loans to lower your monthly payment. So if you’re on a 10-year plan now, you could refinance to a 15- or 20-year plan to spread out your payments until you get on better financial footing.

Why I Refinanced Twice

About a year ago, I refinanced my federal student loans with SoFi because I wanted to get a better interest rate and pay off my loans faster. My student loans totaled $33,000 with an interest rate of 6.8% with 15 years left on the loan. My monthly payment was around $295 a month. I dropped over a half a percentage point in the interest rate to 6.25% and chose to pay off my loans in 7 years, which increased my monthly payment to about $485. Had I stayed with this loan, I would have saved almost $12,000 in interest fees over time.

I paid my monthly payments dutifully every month, but when my husband and I recently sat down to plan an aggressive debt payoff using the snowball method, we realized that I had been a bit too aggressive with my initial refinance.

Essentially, we wanted to throw as much money as possible at our high-interest debt. Our student loans were at manageable interest rates compared to our credit cards, and we wanted to restructure things a bit to free up more cash.

After receiving a refinance advertisement from College Ave in the mail, I decided to see if I could refinance my student loans and my husband’s graduate school loans with them. It had been only a year or so since my first refinance, but I was still interested. For the record, I tried twice previously to refinance my husband’s loans with SoFi, but they didn’t like his current salary as a medical resident, and they said I was not a qualified co-signer.

Well, luckily College Ave thought I was, so I was able to refinance both my student loans and my husband’s graduate school loans with College Ave. Our interest rates remained the same but I was able to customize a payoff plan that works well with our current debt snowball.

Basically, I chose a plan that allowed us to make graduated payments, so my payments for the next two years are significantly lower than they used to be. That gives me two years to knock out some of our credit card debt without worrying about having large student loan payments.

The Benefits of Student Loan Refinancing

In addition to getting longer or shorter payoff periods and better interest rates, there are other reasons why you might choose to refinance your student loans. For example, if you co-signed your student loans with your parents, sometimes student loan refinance companies will let you get a new loan entirely in your name, getting your parents off the hook.

Many people also refinance their student loans to be more organized. If you have several different student loans and bills with a mixture of interest rates, consolidating your student loans allows you to finally have one monthly bill with one interest rate in one place. This helps reduce the possibility of being late on your payments.

Things to Watch Out for Before You Refinance

While I’m obviously an advocate of refinancing, it’s important to know the downsides as well. The main downside is that if you refinance to a private company from having federal student loans, you lose a lot of the flexibility and perks of the federal student loan system.

Not all private lenders have as many repayment options as federal loans have, and most of them do not offer the perks that come with income-based repayment. For example, my husband’s medical school loans are under the income-based repayment plan called REPAYE, where the government is subsidizing his interest payments (several hundred dollars a month). This is not a perk I was willing to give up, but I was happy to refinance his private graduate school student loans to another private lender with better terms.

It’s Easier Than You Think

I know that switching student loan providers might sound like a complicated process, but with all the online financing companies available now, it’s easier than ever. The process to apply to refinance my student loans took less than 20 minutes both times.

Just make sure to have some identification documents on hand, like your driver’s license and Social Security card, to keep the process running smoothly. After my application was approved, it took about two weeks for my student loans to be completely moved over. Plus, since my new servicer paid off my own loans, that counted as a “payment,” which freed up even more cash this month.

Ultimately, student loan refinancing can be a strategic tool you can use when it comes to bettering your finances and getting out of debt faster. As long as you understand the process, ask to make sure you’re aware of any possible fees, and double-check that the process runs smoothly, you could be well on your way to financial freedom just by adjusting your interest rates and your payments on your student loans.

The post Why I Refinanced My Student Loans — Twice appeared first on MagnifyMoney.

SoFi Review: Personal & Student Loans with Low Rates and No Fee

SoFi Review: Personal & Student Loans

Updated August 21, 2017

[SoFiPL]SoFi[/SoFiPL] is an online loan company that offers student loan refinancing options, mortgages and personal loans. [SoFiPL]SoFi[/SoFiPL] offers some of the lowest interest rates and the best consumer experience in the market. We have researched thousands of products from hundreds of companies, and [SoFiPL]SoFi[/SoFiPL] is one of our favorites. However, they have strict credit criteria and target people with good jobs, good income, a proven ability to manage a budget and good credit history. If [SoFiPL]SoFi*[/SoFiPL] approves you, you will probably have a difficult time finding a lower interest rate anywhere else.

In this post, we will review both Student Loans and Personal Loans. (They have just launched mortgages, and we will be updating this post later with a review of that product). For each, we will discuss:

  • The details of the product: how much can you borrow, and at what price
  • Approval criteria: how does [SoFiPL]SoFi[/SoFiPL] underwrite, and who are they likely to accept

In addition, at the end we will give you more details of [SoFiPL]SoFi[/SoFiPL], including who funded them, how big they are and their reputation.

Student Loan Refinance (Skip Ahead for Personal Loans)

[SoFiSL]SoFi[/SoFiSL] has just reduced the minimum loan amount. You can now refinance as [SoFiSLLoanAmt]little as $5,000[/SoFiSLLoanAmt] of student loan debt. There is no cap on how much you can refinance. Based upon your cash flow, [SoFiSL]SoFi[/SoFiSL] will try to provide an option to refinance all of your student loan debt.

There is [SoFiSLOrgFee]no origination fee[/SoFiSLOrgFee] and [SoFiSLPrepayFee]no prepayment penalty[/SoFiSLPrepayFee]. It offers some of the lowest rates out there. [SoFiSLAPR]Fixed APRs range from 3.35% – 7.125%*, and variable APRs range from 2.815% – 6.740%[/SoFiSLAPR].* These rates are available so long as you enroll in auto-pay.* Given that interest rates are at an all-time low, you should think carefully before signing up for a variable interest rate. If you can pay off your loan in a short period of time, you could save a lot of money. If it will take you longer, you may not want to take the interest rate risk.

You can refinance on a [SoFiSLTerm]5, 10, 15, or 20 year term[/SoFiSLTerm].

For example, if you borrow $30,000 on a 10 year term at an APR of 4.615%, your monthly payment will be $312.58. Under those terms, you’re paying back a total of $37,509.60 (120 payments). If you borrow the same amount, but have a 6.8% APR, your monthly payment is $345.24, paying back a total of $41,428.80. In this case, [SoFiSL]SoFi’s[/SoFiSL] low rates have the potential to save you nearly $4,000.

[SoFiSL]SoFi[/SoFiSL] will refinance both private and federal student loans. However, if you refinance a federal loan you will give up all federal protections and programs, including income-based repayment programs. [SoFiSL]SoFi[/SoFiSL] is unique among private lenders because it offer unemployment insurance, free of charge. If you lose your job for no fault of your own (you can’t quit), [SoFiSL]SoFi[/SoFiSL] will suspend your monthly payments until you find a new job. You can do this for up to 12 months. The interest that accrues during this period would be added to the loan.

[SoFiSL]SoFi[/SoFiSL] also offers an entrepreneur program to help graduates who dream of owning a business.

Under this program, loans can be deferred for six months so borrowers can focus on growing their businesses. [SoFiSL]SoFi[/SoFiSL] provides access to networking events, mentors, and investors.

Refinancing with [SoFiSL]SoFi[/SoFiSL] isn’t an option for everyone. First, refinancing is currently unavailable to those residing in Nevada, and variable rate options aren’t available to those in Ohio or Tennessee.

Second, [SoFiSL]SoFi[/SoFiSL] has a list of available schools and programs it services. If your school or program isn’t on that list, you won’t be eligible to refinance.

Third, [SoFiSL]SoFi[/SoFiSL] typically [SoFiSLInq]requires applicants to have excellent credit[/SoFiSLInq]. [SoFiSLCoSigners]It occasionally accepts co-signers – you must call to review your situation with a representative. However, there’s no co-signer release if you move forward with one on your loan[/SoFiSLCoSigners].

To be eligible to refinance your student loans with [SoFiSL]SoFi[/SoFiSL], you need to meet the following requirements:

  • You must be a U.S. citizen or permanent resident 18 years or older
  • You need to have a 4-year undergraduate or graduate degree from a Title IV accredited institution
  • You have to be employed or have an offer of employment starting in 90 days from the time you apply
  • You need to be in good standing on your current student loans
  • You should have a good, stable employment history
  • A strong monthly cash flow is a must
  • [SoFiSLCreditScore]An excellent FICO score will improve your chances of being approved[/SoFiSLCreditScore]

The application process is straightforward and [SoFiSL]SoFi’s[/SoFiSL] pre-approval should take you less than 15 minutes to complete. You likely won’t need most of the documents listed below until you’re ready to move forward with a loan, but they’re good to have on hand while you’re shopping around.

  • Existing student loan information [SoFiSL](SoFi[/SoFiSL] will need your account information for the loans you wish to finance)
  • Employment information – salary, offer of employment, length of employment
  • Most recent pay stubs as proof of income and employment (if you’re currently employed)
  • Diploma or transcript in the event [SoFiSL]SoFi[/SoFiSL] needs to verify your graduation

It’s good to note [SoFiSL]SoFi[/SoFiSL] accepts screenshots from your PC and pictures taken from a phone, so if you don’t have access to a scanner, there’s no need to worry.

If you’re ready to get started, you can apply for a refinance and check your rate by clicking the button below.

APPLY NOW Secured

on SoFi’s secure website

Details on [SoFiPL]SoFi’s[/SoFiPL] Personal Loan

At [SoFiPL]SoFi,[/SoFiPL] you can [SoFiLoanAmt]borrow between $5,000 and $100,000[/SoFiLoanAmt].

There is [SoFiOrgFee]no origination fee,[/SoFiOrgFee] [SoFiPrepayFee]no prepayment penalty[/SoFiPrepayFee] and no balance transfer fee. They are truly unique in this regard.

You can [SoFiTerm]borrow the money for 3, 5 or 7 years[/SoFiTerm].

In addition, [SoFiPL]SoFi[/SoFiPL] offers unemployment protection. Unlike traditional personal loan companies, they are not looking to make money from unemployment insurance. Instead, they are offering it as a feature and a brand promise. And the insurance is generous. If you lose your job through no fault of your own, you will be given a payment holiday. Interest will continue to accrue on the loan (and be added to the balance), but no payment will be due and your loan will continue to be reported as current to the credit bureau. You can have 3 consecutive months of payments made at a time, and you can have up to 12 months of payments made during the life of the loan. That offers great flexibility. In addition, they offer job placement services to help you find a job.

[SoFiAPR]Fixed interest rates range from 5.49% to 14.24%[/SoFiAPR]* – but you have to sign up for auto-pay in order to get these rates. In addition, [SoFiPL]SoFi[/SoFiPL] offers [SoFiAPR]variable interest rates from 5.17% – 11.32%* with auto-pay. The rates are based upon 1-month LIBOR and are capped at 14.95%[/SoFiAPR].*

You can use the loans for almost any purpose: pay off credit card debt, home improvement, or anything else because the money can be deposited as cash in your checking account.

APPLY NOW Secured

on SoFi’s secure website

What Does It Take to Get Approved?

In order to be approved for a loan, you must at least meet the following requirements:

  • You are a US citizen or permanent resident
  • You are at least the age of majority in your state (typically 18)
  • You are currently employed
  • You have graduated from a selection of Title IV accredited universities or graduate programs (only for the student loan product. For personal loans, there is no university requirement).

Personal loans are not available to residents of the following states: Mississippi, Nevada and Tennessee.

If you fail to meet the above criteria, you will be rejected. However, just because you meet these criteria does not mean that you will be approved. [SoFiPL]SoFi[/SoFiPL] will:

  • Perform an analysis of your ability to repay. They do a “cash flow analysis” looking at your income and expenditure, making sure you can pay
  • Perform an analysis of your history with credit. Missed payments and defaults will most likely get your rejected. You need to have a strong history of repayment. Although they are not a FICO-driven lender (because they look at education, employment and cash flow), the following people will likely have a difficulty getting approved:
    • People who do not have excellent credit. In particular, if you have missed payments or have rapidly built up debt, you could find it difficult to qualify.
    • If you have a “thin credit file”, you will still have a good chance of getting approved. A thin file means that you do not have much information in your credit report. Although that could be a problem with traditional credit scores, [SoFiPL]SoFi[/SoFiPL] might still be willing to work with you.
    • People with collection items, judgments or other negative legal action

[SoFiPL]SoFi[/SoFiPL] offers some of the lowest interest rates out there, and they are picky about who they approve. If you have a good degree, a good job and a history of making payments on time, you will likely be able to benefit from [SoFiPL]SoFi[/SoFiPL].

And here is the best news: you can check to see if you will be approved, and the interest rate you would receive, without hurting your credit score. [SoFiPL]SoFi[/SoFiPL] uses what is called a [SoFiInq]“soft pull”[/SoFiInq] to determine your interest rate and your loan amount.

Given how low the interest rates are at [SoFiPL]SoFi,[/SoFiPL] if you have a college degree you should take the 3-4 minutes to see if you can be approved. The only cost is your time.

Screen Shot 2015-02-26 at 6.49.15 PM

Remember that you’re in no way obligated to take a loan once you apply.

Unless you accept the loan and go through with the hard credit inquiry, [SoFiPL]SoFi[/SoFiPL] doesn’t hold you to taking the loans presented to you.

All About [SoFiPL]SoFi[/SoFiPL]

You can trust [SoFiPL]SoFi[/SoFiPL]. They are a very well funded start-up, having raised $164 million from some of the biggest and most influential venture capital firms in the Silicon Valley.

They have also built a very strong relationship with investors, and have funded more than $2 billion in loans to date.

[SoFiPL]SoFi[/SoFiPL] has been created with a mission to revolutionize the way we borrow in this country. In particular:

  • They want to make it easy for people to shop for a loan, believing that you should be able to get your interest rate without hurting your score
  • They want to create an easy, seamless experience with a great user experience
  • They want to cut out the costs of the big banks, giving lower interest rates to borrowers and higher interest rates to lenders
  • They want to create a different type of borrowing experience, by providing unemployment insurance as a free benefit.

Their mission, and their personal loan product, align to the vision of MagnifyMoney. When we created MagnifyMoney, we hoped to find lenders like [SoFiPL]SoFi,[/SoFiPL] and are pleased to award them an A+ Transparency Score.

APPLY NOW Secured

on SoFi’s secure website

We only have one criticism: their underwriting criteria is very tight right now. Hopefully, over time, they will be able to expand the criteria and be able to provide the great experience to people who may have experienced some financial difficulties in the past.

The post SoFi Review: Personal & Student Loans with Low Rates and No Fee appeared first on MagnifyMoney.