SoFi, short for Social Finance, is a new approach towards lending. Operational since 2011, SoFi has its headquarters in San Francisco and is currently licensed to originate mortgages across 42 States. With no physical branches, it embraces the digital age with a fully online platform.
It is geared towards young professionals just starting out on the financial ladder. SoFi’s services include student loan refinancing, mortgages, personal loans, wealth management, and life insurance.
If you’re considering a SoFi mortgage, here’s the need-to-know.
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Is Sofi a Good Mortgage Lender?
SoFi is a suitable mortgage lender if you’re on a relatively high income but lacking any considerable downpayment. It caters to the online market with an easy and transparent online application process. Pre-approval can take only a couple of minutes, and the remainder of the process is just as simple.
SoFi is different in that it considers the non-traditional incomes of restricted stock units and the self-employed. This helps target their market of young, high-paid professionals.
What Types of Mortgages Are Available With Sofi?
SoFi offers a variety of different mortgages. SoFi does not, however, offer any government-backed mortgages such as the Federal Housing Administration (FHA) or Veteran Affairs (VA) loans.
A fixed-rate SoFi mortgage is available over a 15 or 30-year term. The benefits of a fixed-rate mortgage are that your interest rate, and therefore your repayments, will remain the same for the full term of the loan. This can be a comfort when making one of the most significant financial commitments of your life.
The main drawback of a fixed-rate mortgage is that the interest tends to be a bit higher than an adjustable-rate mortgage. Another disadvantage is that 30, or even 15 years, is a very long time. Markets will fluctuate, and you may miss out on the opportunity for an even lower interest rate down the line.
However, if you’re planning on not selling (for the term of the loan) and fixing when interest rates are low, the stability of a fixed-rate mortgage outweighs any drawbacks.
Adjustable-rate mortgage (ARM)
Adjustable-rate mortgages tend to have a lower interest rate than fixed-rate mortgages. With a SoFi mortgage, you have the opportunity to fix for a set period of time at the beginning of the term.
After this time, the interest rate and your repayments will fluctuate depending on market conditions. SoFi offers a 5/1 ARM and a 7/1 ARM.
With a 5/1 ARM, the rate is fixed for the first five years then adjusts annually. There is an option to pay interest only for the first 10 years and principal and interest for the remaining 20 years.
The advantage of opting for interest-only is smaller repayments initially.
The disadvantage is that you’re not building up equity in your home for the first 10 years. SoFi requires 25% down for 5/1 ARMs.
The same goes for a 7/1 ARM; the rate is fixed for the first 7 years, then adjusts annually. This loan carries full principal and interest payments for 30 years.
Repayments may initially be higher than an interest-only repayment option, but you will start building equity in your home immediately. SoFi requires 10% down for 7/1 ARMs.
SoFi offers jumbo loans of up to $3,000,000 with a down payment of as little as 10%, which is lower than other lenders. This caters to young buyers with good incomes that have not yet had the time to accumulate a large downpayment.
A jumbo loan is considered to be any mortgage lending over the conforming loan limit of that area. Currently, that limit is set at $484,350 in average income areas, with a higher limit of $726,525 in areas with a higher average real-estate value.
If you’re looking to free up some equity in your home, SoFi offers mortgage refinancing. To qualify for this, you will need a minimum of 10% equity built up in your home.
Refinancing is a great way to access equity and free up cash-flow. However, it is effectively starting a new mortgage all over again, and your new loan conditions will be dependent on current market interest rates.
SoFi Mortgage Qualifications
To qualify for a SoFi mortgage, you will be assessed on different criteria. Your credit score, your downpayment, and your debt-to-income ratio will all be taken into consideration as part of the application process.
A SoFi mortgage will require a minimum credit score of 660. This applies to a conventional fixed-rate or ARM mortgage. For a jumbo loan, a minimum credit score of 720 is required due to the higher risk associated with the greater lending amount.
Unlike other lenders, however, SoFi is a bit more flexible on their downpayment. You may qualify for a SoFi mortgage with as little as 10% down, assuming you meet the other criteria.
This is lower than the industry standard of 20% and also does not require you to have Private Mortgage Insurance (PMI), which protects the lender against losses if you default.
Your debt-to-income ratio is a generous 50% with a conventional SoFi mortgage. However, if you’re applying for a jumbo loan, you will need a debt-to-income ratio of no more than 43%.
SoFi rates well among young professionals that appreciate an effective online platform and a certain level of autonomy in the application process.
A Trustpilot rating of 4.3 stars from 2,280 reviews and a NerdWallet rating of 4 stars confirms their popularity in the market. The ease of use, high level of efficiency, and speedy outcome of the application process appeal to their target market.
However, if you prefer a higher level of face-to-face interaction, or you’re looking for an FHA, VA, or USDA loan, SoFi may not be right for you.
Pros and Cons of SoFi Mortgages
- Fully online application process.
- Pre-qualify in 2 minutes
- Does not require private mortgage insurance for jumbo loans
- It considers nontraditional incomes
- 50% discount on your origination fees
- No government-backed FHA, VA or USDA loans are available.
- No physical offices.