What Happens If You Inherit a Home with a Mortgage?

Inheriting a property from a loved one can be a meaningful gift, but it also comes with financial responsibilities—especially if the home has an existing mortgage. Whether you’re inheriting a primary residence, a vacation home, or investment properties, understanding your options is crucial. Let’s explore what happens when you inherit a house with a mortgage and how to navigate the process.

  • You can inherit a house with a mortgage – If the home still has a loan, you’ll need to decide whether to assume the mortgage, refinance, or sell the property.
  • If the home is worth less than what’s owed (underwater mortgage), you may need to negotiate with the lender, consider a short sale, or explore other options to avoid financial strain.
  • Inheriting a home comes with tax implications, including property taxes, potential inheritance or estate taxes, and capital gains tax if you sell the property.
  • You have options for keeping or selling the home, but understanding loan terms, costs, and financial impact is crucial before making a decision.
  • Consult professionals – A mortgage lender, financial advisor, and tax expert can help you navigate mortgage transfers, tax liabilities, and the best path forward.

Inheriting a House with a Mortgage

A little over 60% of homes carry a mortgage, the lowest level since 2005, according to US census data. If you inherit property, there’s a strong chance it still has an outstanding loan. But does inheriting a home mean inheriting the mortgage, too?

The answer depends on the estate’s structure and financial situation. When someone passes away, their debts—including mortgage loans—don’t automatically disappear. Instead, the estate is responsible for settling unpaid debts, with probate court overseeing the process. Here’s what could happen:

  • If the estate has assets to pay off the mortgage, the executor may use those funds to clear the debt, leaving you with an inherited home free and clear.
  • If the estate lacks sufficient assets, you may inherit a house with a mortgage, meaning you’ll need to decide how to handle the remaining loan balance.

Options for Inheriting a Property with a Mortgage

When inheriting a house with a mortgage, you have several options depending on your financial situation and long-term goals:

  1. Assume the Mortgage

    Federal law provides protections allowing heirs to take over responsibility for a mortgage in some cases. If you qualify, you may assume the loan and continue making payments under the existing terms. This can be a good option if the inherited property’s mortgage rate is lower than current market rates.

  2. Pay Off the Loan
    If you have the financial means, you can pay off the mortgage in full. You may also consider refinancing the loan to adjust the loan terms, lower the monthly payment, or access home equity through a cash-out refinance.

  3. Sell the Home

    There are plenty of reasons you might choose to sell the house you inherit. Selling the inherited home may be the best solution if:

    • You can’t afford the mortgage payments.
    • Siblings or multiple heirs inherit the house and wish to divide the proceeds.
    • The property doesn’t align with your long-term financial goals.

    If you choose to sell, be aware of potential capital gains tax implications and exemptions that may apply to your situation.

    If you’re unsure which option is best, we’re happy to review your situation with you and or your tax planner so you can make an informed decision about whether to live on the property, hold it, or sell it.

What Happens if You Inherit an Underwater Mortgage?

If you inherit a property that’s underwater—meaning the mortgage balance is higher than the market value of the home—you have several options, including walking away from the inheritance, selling the property through a short sale, or offering the lender a deed-in-lieu of foreclosure. In some cases, you may also be able to negotiate with the lender to lower the mortgage balance or work out a new payment plan.

If you’re facing this situation, it’s important to get professional advice to avoid financial loss.

Inheriting a Home with No Mortgage

If you inherit real estate that’s paid off, that’s great news! Homeownership has many advantages over renting, but be aware that you’re still on the hook for the usual expenses related to owning a home. Budget accordingly so you’ll be prepared when bills like property taxes, homeowners’ insurance and maintenance services come due.

How Does Inheriting a House Affect My Taxes?

Inheriting a home can also come with tax implications, and what you owe will depend on where the property is located and what you decide to do with it. Here’s a breakdown of some key taxes to be aware of when inheriting a house with a mortgage:

  • Local Property Taxes

    Property taxes are set by the local municipality based on the home’s assessed value. If the previous homeowner had an escrow account tied to their mortgage, these taxes were likely paid on time. However, if the home was fully paid off or you’re unsure about its tax status, it’s a good idea to check with the local tax office to ensure there aren’t any outstanding balances. Property taxes are typically due biannually, so factor them into your budget if you plan to keep the home long-term.

  • State Inheritance Tax

    Some states impose an inheritance tax based on the value of the estate, meaning you may need to pay taxes on the property you inherit. This tax comes out of your pocket rather than the estate itself. Fortunately, not all states have an inheritance tax, but if they do, the rates and exemptions can vary. For example, Kentucky and New Jersey have some of the highest inheritance tax rates, reaching up to 16%.

  • Federal Estate Tax

    The federal government also taxes large estates, but only if the total estate value exceeds a certain threshold. In 2025, this threshold is set at $13.99 million. If the estate you inherit falls below that amount, you won’t owe federal estate taxes. However, some states have their own estate taxes with different exemption limits, so it’s worth checking local laws to understand how they might affect you.

    It’s important to note that estate taxes are paid from the estate itself before any assets—including the home—are distributed to heirs. If the estate doesn’t have enough liquid assets to cover the tax bill, the home may need to be sold to satisfy the debt.

  • Capital Gains Tax

    Capital gains tax only applies if you sell the home, and the amount you owe depends on how much the property has appreciated since you inherited it. When a home is passed down, the IRS applies what’s called a “step-up in basis,” which means the property’s value is reset to its fair market value at the time of inheritance. If you sell the home later for more than that stepped-up value, you may owe capital gains tax on the profit.

    Since tax laws can be complex and vary by location, it’s always a good idea to consult a CPA or tax professional to fully understand your obligations. Whether you’re planning to live in the home, sell it, or rent it out, knowing the tax implications can help you make informed decisions about your inheritance.

Beware of Scams Affecting Inheritors

Beware of common scams targeting inheritors that exploit the emotional and financial vulnerability of individuals who have recently inherited a property. Here are some common scams and tips to safeguard personal and financial information:

Common Scams:

  1. Phishing Scams:
    • Scammers may send emails or messages posing as legitimate financial institutions or legal entities, asking for personal information or payment.
  2. Fake Debt Collectors:
    • Fraudsters may contact inheritors claiming that the deceased owed debts that must be settled immediately, pressuring them to pay.
  3. Title Fraud:
    • Scammers may attempt to forge documents to transfer the property title to themselves or others.
  4. Investment Scams:
    • Inheritors may be targeted with fraudulent investment opportunities promising high returns, often requiring upfront fees.

Bottom Line

Inheriting a property with a mortgage can be overwhelming, but understanding your options and responsibilities can help you make informed decisions. Whether you’re inheriting a house with a mortgage, dealing with an underwater mortgage, or inheriting mortgaged housing, it’s essential to consult with professionals to ensure the best outcome for your financial situation.

 

 

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Equal Housing Lender. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and
assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The
pre-approval is contingent upon no changes to financials and property approval/appraisal. NFM Lending is not a Financial Advisor, Tax Advisor or Credit Repair Company. You should consult with a Financial Advisor, Tax Advisor or Credit Repair Company to learn more.

LINTHICUM, MD, February 27, 2025 — NFM Lending is pleased to announce the opening of a new branch in Middletown, CT, led by Branch Managers Kirk Hagert and Jeneen Hupfer. The new branch will focus on expanding NFM Lending’s flexible and powerful lending platform to better serve community families with exceptional customer service. NFM Lending offers Conventional, FHA, VA, USDA, Jumbo, Renovation, and many other home loan options to fit every borrower’s needs.

Hagert is a seasoned mortgage loan officer, manager, and prior mortgage company owner, having originated thousands of loans throughout New England and beyond during that time. He has been honored by Fortune and Forbes Magazines. He is an 11-time annual winner of the Five Star Customer Service Award, as reported by Connecticut Magazine, including nine years straight, from 2016 to 2024. Five Star is awarded to less than 5% of mortgage loan officers annually.

“I chose to partner with NFM because they provide everything I need to support my clients,” said Hagert. “Their national presence and focus on customer service has allowed them to grow consistently since 1998.”

Hupfer has been a mortgage professional for 25 years, working as a licensed loan originator since 2010. She attributes her success to unparalleled customer service and clear communication throughout the home-buying process. Recognized as a top 1% mortgage professional by Mortgage Executive Magazine in 2020 and a Scotsman Guide top producer, Jeneen has also been voted a Five Star Mortgage Professional for six consecutive years.

“I am proud to be part of NFM Lending, a company known for its extensive loan options, competitive pricing, and fast closings,” added Hupfer. “After 20+ years in the mortgage industry, this next chapter allows me to continue doing what I love: supporting clients through their homeownership journey and partnering with real estate professionals to help grow their businesses.”

“Kirk and Jeneen are industry veterans with a wealth of experience they bring to NFM,” said NFM Managing Director Greg Sher. “They are set to significantly enhance our presence throughout Connecticut. Their commitment to exceptional customer service, a hallmark of their careers, will be instrumental in driving our growth and success in the region. We are thrilled to have such seasoned professionals leading the charge.”

The branch’s goal is to continue providing the same commitment and dedication to borrowers, ranging from first-time homebuyers to seasoned buyers looking for their next home or investment property. Hagert and Hupfer are currently seeking qualified Mortgage Loan Originators for full and part-time positions.

Contact information:

Kirk Hagert, Branch Manager – NFM Lending, NMLS# 121151 (p) 860-966-6056 [email protected] nfmlending.com/khagert

Jeneen Hupfer, Branch Manager – NFM Lending, NMLS# 70602 (p) 203-623-4665 [email protected] nfmlending.com/jhupfer

Branch Address: 386 Main Street, Suite 400 Middletown, CT 06457

About NFM Lending

NFM Lending is a national mortgage lending company licensed in 49 states and the District of Columbia. The company was founded in Baltimore, Maryland in 1998. NFM Lending and its family of companies include Main Street Home Loans, Bluprint Home Loans, Elevate Home Loans, and Element Home Loans. They attribute their success in the mortgage industry to their steadfast commitment to customers and the community. For more information about NFM Lending, visit www.nfmlending.com, like our Facebook page, or follow us on Instagram.

LINTHICUM, MD, February 19, 2025 — NFM Lending is pleased to announce the opening of a new branch in Colorado Springs, CO, led by Branch Manager Mary Greenwood. The new branch will focus on expanding NFM Lending’s flexible and powerful lending platform to better serve community families with exceptional customer service. NFM Lending offers Conventional, FHA, VA, USDA, Jumbo, and many other home loan options to fit every borrower’s needs.

“I chose to work at NFM Lending because of its unwavering commitment to support, transparency, and communication,” said Greenwood. “The company fosters a culture where loan officers and clients receive the resources and guidance needed for success. NFM’s dedication to honest and open communication ensures that every transaction is handled with clarity and integrity. With a strong support system and a team-driven approach, I can confidently help clients achieve their homeownership goals while backed by a company that prioritizes excellence and trust.”

“It is an honor to have an industry veteran like Mary Greenwood join the NFM family,” noted NFM Managing Director Greg Sher. “Her passion for helping families achieve home ownership is unparalleled, and her dedication to mentoring and growing her team of originators is inspiring. We are thrilled to bring her experience and leadership to the company.”  

The branch’s goal is to continue to provide the same commitment and dedication to borrowers, ranging from first-time homebuyers to seasoned buyers looking for their next home, a second home, or investment properties.

Greenwood is currently seeking qualified Mortgage Loan Originators for full and part-time positions.

For more information, please contact:

Mary Greenwood

NMLS# 459324
Branch Manager – NFM Lending
1150 Kelly Johnson Blvd., Suite 160
Colorado Springs, CO 80920
(p) 719-649-6656
[email protected]
nfmlending.com/loanoriginator/mary-greenwood

 

About NFM Lending

NFM Lending is a national mortgage lending company currently licensed in 49 states and the District of Columbia. The company was founded in Baltimore, Maryland in 1998. NFM Lending and its family of companies include Main Street Home Loans, Bluprint Home Loans, Elevate Home Loans, and Element Home Loans. They attribute their success in the mortgage industry to their steadfast commitment to customers and the community. For more information about NFM Lending, visit www.nfmlending.com, like our Facebook page, or follow us on Instagram.

Have you ever stopped to think about how much wealth you’ve built up just from being a homeowner? Especially if you became a homeowner in 2022 or earlier. As home values rise, so does your net worth. And, if you’ve been in your house for a few years (or longer), there’s a good chance you’re sitting on a pile of equity — maybe even more than you realize.

Home equity is one of the most powerful financial tools available to homeowners. Simply put, it’s the portion of your home’s value that you own outright—calculated by taking your home’s current market value and subtracting the balance of your mortgage.
For example: If your house is worth $500,000 and you still owe $200,000 on your home loan, you have $300,000 in equity.

As you make mortgage payments or if your home’s value increases, your equity grows. Think of it as a savings account built into your home, with potential to help you achieve financial goals such as funding a renovation, consolidating debt, or even investing in another property. For many, home equity is the largest source of wealth they will ever have. Understanding how it works and why it’s increasing for so many homeowners is key to making the most of this valuable asset.

Homeowners across the U.S. are reaching record levels of equity. Here’s a snapshot of the current landscape:

  • $11 trillion: The total tappable home equity held by U.S. homeowners—a record high.1
  • $206,000: 48M U.S. homeowners with mortgages have some level of such tappable equity, at an average of $206K per borrower.2
  • 3%: The percentage of mortgaged homes in the U.S. that are considered equity-rich, meaning the homeowner owes less than 50% of the home’s current value.3

Why Homeowners Are Gaining So Much Equity

Over the last several years, homeowners have experienced a surge in equity growth, thanks to a combination of skyrocketing home values and long-term ownership trends. Let’s break down why so many people are building wealth through their homes:

1.Rising Home Prices are Driving Equity Growth

Home price appreciation has been a game-changer for equity growth. Nationwide, the median home price has increased by 57.4% over the past five years, largely due to high demand and a tight supply of home (see map below):

This appreciation means your house is likely worth much more now than when you first bought it. This dramatic rise means that even homeowners who purchased their properties relatively recently are now sitting on significant equity.

2. Longer Homeownership Boosts Equity

  1. Homeowners are staying in their homes longer than ever before, with the average length of ownership increasing to over 10 years, compared to just eight years a decade ago. This trend of long-term ownership allows equity to grow steadily as homeowners pay down their mortgages and benefit from ongoing appreciation. This shift toward holding onto homes longer has been especially impactful, as it gives people more time to build equity and accumulate wealth.

Data from the National Association of Realtors (NAR) shows people are staying in their homes for a decade (see graph below):

3. Wealth Accumulation Over Time

  1. The combination of rising home prices and longer ownership has transformed home equity into a powerful wealth-building resource. For many homeowners, their equity represents the single largest portion of their net worth, creating opportunities to reinvest in their homes, fund major life events, or establish financial security for the future.

With a total of $11 trillion in usable home equity across the country, there’s no question that the housing market has rewarded homeowners who’ve stayed the course. If you’ve owned your home for several years, now is the time to understand how much equity you’ve gained and how it can work for you.

Related Topic:

Benefits and Strategies for Early Mortgage Payoff – Click Here

Ways to Use Home Equity

Your home equity can be a powerful tool, offering financial flexibility and opportunities. Here are some ways homeowners can take advantage of their equity for today and ways to use home equity to build wealth:

1.Pay Off High-Interest Debt

One of the most impactful ways to use home equity is to consolidate high-interest debt, such as credit cards, into a loan with a lower interest rate. This strategy not only simplifies your finances but can also lead to significant savings over time.

Consider Danielle’s story. A few years ago, she faced an unexpected family emergency. To cover medical expenses and related costs, she relied heavily on her credit cards. The balances grew quickly, and with interest rates climbing over 20%, her minimum payments barely made a dent. The debt felt overwhelming, and the stress of juggling multiple payments each month took a toll.

Danielle discovered she could use the equity in her home to consolidate her debts through a cash-out refinance. Even though the new mortgage rate was higher than her original home loan, it was significantly lower than her credit card interest rates. By rolling her high-interest debts into her mortgage, she reduced her monthly payments and saved thousands in interest over the life of the loan.

 

This approach doesn’t just offer financial relief; it provides emotional peace of mind. Instead of managing several high-interest debts, Danielle now makes a single, manageable payment each month. The clarity and control she gained have made a remarkable difference in her life.

If you’re carrying high-interest debt, consider how your home equity could work for you. While it’s important to weigh the pros and cons, consolidating debt through a cash-out refinance might be the key to reducing financial stress and regaining control over your finances.

2.Support Life Events

Major milestones often come with significant expenses, and home equity can be a resource to fund:

  • Higher education tuition.
  • A wedding.
  • Caring for a loved one.
  • Hospital bills

When used wisely, your home equity offers financial options that can ease the burden of life’s big moments while keeping your long-term goals in focus.

3.Upgrade Your Home

Planning to move? Your equity can serve as a sizable down payment on your next home or even help you purchase it outright in cash. Leveraging equity in this way can make it easier to secure your dream home or transition to a property that better fits your needs.

4.Fund Home Improvements

A common reason borrowers have for taking out home equity loans is to fund property improvements and upgrades. In general, building up equity in your home is based on:

  1. Making monthly mortgage payments
  2. Growth in home value over time
  3. Making repairs and maintaining the state of your buildings and land

The fourth and optional way to grow equity is to enhance your property with remodels and additions. Remodeling doesn’t usually provide a 100% return on its cost, but if you invest in upgrades that both enhance your current enjoyment of the property and add value to it, you’ll be building security and future wealth. 

Consider these popular remodels, and how much you can expect to recoup from them based on national averages: 

  • Garage door replacement: Cost $4,041 | Value $3,769 (93.3%) – Remodeling. 2022 Cost vs. Value Report.
  • Manufactured stone veneer: Cost $11,066 | Value $10,109 (91.4%)
  • Minor kitchen remodel using midrange materials: Cost $28,279 | Value $20,125 (71.2%)

You may also be able to deduct home equity loan interest from your federal income taxes if the loan proceeds are used to “buy, build or substantially improve the taxpayer’s home that secures the loan,” according to the IRS. ( IRS. Interest on Home Equity Loans Often Still Deductible Under New Law. 

According to the 2022 Remodeling Impact Report by the National Association of REALTORS® and the National Association of the Remodeling Industry, these types of projects not only improve your property’s resale value but also increase your enjoyment of the space.

5.Invest In Real Estate

Many homeowners find themselves asking, “Is it a good idea to invest in home equity?” The equity you’ve built in your home can be a powerful tool to further your financial growth. Capitalizing on the gains you’ve seen from your initial homeownership can be a strategic move, especially if you’re looking to invest in other property types, such as:

  • Rental property
  • Property to fix up and flip for a profit
  • Commercial investment property

While you’ve missed the 2020–2021 drop in interest rates, 30-year fixed mortgage rates continue to be a profit-generator for the long haul, especially if you own a rental property that produces enough revenue to provide you with monthly income.

6.Add a Rental Unit to Your Property

Let’s do a mash-up of the last two above—have you considered designating or building space you can rent out on your land? This could include: 

  • An apartment with separate entry in a basement, attic, or over a garage
  • Storage or working space in a garage or shed
  • Studio or office space

A contained living space on the same lot as a detached single-family home is also called an accessory dwelling unit (ADU). If you already have a structure or the space to convert—and are willing to deal with renters—you may be able to boost your equity immediately by more than the construction cost.

For instance, a garage conversion ADU costs $100,000–$150,000 to make tenant-ready, while adding the ADU increases property value by $158,000 on average. (Homestead. ADUs: The Best Investment You Can Make in 2022. )

7.Start A Business

If you’re ready to pursue an entrepreneurial dream, your home equity can provide the capital to launch or expand a business. This option allows you to access funding without taking on additional personal or business loans.

Whether you’re ready to ditch white-collar life and buy a franchise, fund a start-up, or take advantage of home-based tax write-offs with a new side hustle, you can use your home’s equity to fund it. If you’re just starting to explore the idea, keep in mind that some types of businesses take years to bring in a profit. 

Be sure to protect your assets with: 

  • A business structure that doesn’t put your personal home at risk
  • The right mix of business and liability insurance
  • Conservative income projections that ensure you can pay off property-secured debt

Put Your Equity To Work For You!

Your home equity in 2025 could be one of your most powerful financial tools. Whether you’re looking to consolidate high-interest debt, cover unexpected life events, or invest in new opportunities, understanding and leveraging your equity can open doors to greater financial freedom.

Take the time to evaluate your current equity position, explore your options, and consult with a financial advisor if needed. By making informed decisions, you can ensure your home equity works not just as a number on paper, but as a dynamic asset that supports your financial goals for years to come.

 

Ready to take advantage of your home equity?
Let’s discuss your goals and help you take the next step.
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1.ICE May 2024 Mortgage Monitor Report

2.ICE May 2024 Mortgage Monitor Report

3.ATTOM Data Solutions Q3 2024, Home Equity & Underwater Report

Equal Housing Lender. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and
assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The
pre-approval is contingent upon no changes to financials and property approval/appraisal.
*Veterans Affairs loans require a funding fee, which is based on various loan characteristics. Sales price cannot exceed appraised value. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan. Offers may vary and are subject to change at any time without notice. Interest rates are subject to change daily and without notice. LTV’s can be as high as 96.5% for FHA loans. FHA minimum FICO score required. Fixed rate loans only. W2 transcript option not permitted. For USDA loans, 100% financing, no down payment is required. The loan amount may not exceed 100% of the appraised value, plus the guarantee fee may be included. Loan is limited to the appraised value without the pool, if applicable. *Veterans Affairs loans require a funding fee, which is based on various loan characteristics. Sales
price cannot exceed appraised value.

LINTHICUM, MD—December 13, 2024—The NFM Family of Lenders is proud to announce that it has been recognized as a Top Workplace by The Baltimore Sun for the 13th consecutive year. This prestigious award is a testament to the company’s unwavering commitment to fostering a positive and empowering work environment.

“We are incredibly honored to receive this recognition for the 13th year in a row,” said President and COO Bob Tyson. “This award reflects our dedication to creating a workplace where our employees feel valued and supported. We believe that when our team thrives, so does our ability to serve our clients with excellence.”

The Top Workplace award is based solely on employee feedback gathered through a third-party survey administered by Energage LLC, a leading employee engagement technology partner. This confidential survey measures various aspects of the employee experience, including feelings of respect, support, growth opportunities, and empowerment to execute their roles effectively.

“Earning a Top Workplaces award is a badge of honor for companies, especially because it comes authentically from their employees,” said Eric Rubino, Energage CEO. “That’s something to be proud of. In today’s market, leaders must ensure they’re allowing employees to have a voice and be heard. That’s paramount. Top Workplaces do this, and it pays dividends.”

This recognition underscores the NFM Family of Lenders’ dedication to its employees and its mission to provide exceptional service to its clients. The NFM Family of Lenders remains committed to maintaining a culture that prioritizes employee satisfaction and engagement, ensuring that every team member feels an integral part of the company’s success.

For more information about the NFM Family of Lenders and career opportunities, please visit nfmlending.com/careers.

About The NFM Family of Lenders

NFM Lending is a mortgage lending company currently licensed in 49 states and Washington, D.C. The company was founded in Baltimore, Maryland in 1998. NFM Lending and its family of companies include Main Street Home Loans, BluPrint Home Loans, Elevate Home Loans, and Element Home Loans. They attribute their success in the mortgage industry to their steadfast commitment to customers and the community. For more information about NFM Lending, visit www.nfmlending.com, like our Facebook page, or follow us on Instagram.

Company Contact:

Gene DiPaula [email protected]

Every November, the Federal Housing Finance Agency (FHFA) announces new conforming loan limits for the upcoming year. For homebuyers and real estate agents, understanding these limits is crucial for navigating the homebuying process and making informed financial decisions. Whether you’re purchasing your first home or helping clients find the perfect property, conforming loan limits offer a roadmap for affordable financing.

  • Conforming loan limits are the maximum amounts Fannie Mae and Freddie Mac will back, updated annually by the FHFA to reflect housing market trends.
  • New for 2025: The baseline limit is $806,500, with a high-cost area limit of $1,209,750, now available for use.
  • Higher limits mean more borrowers qualify for competitive mortgage rates without needing jumbo loans.
  • High-cost areas like Hawaii, Alaska, and parts of California and others have elevated limits to match their unique housing markets.
  • Understanding these limits helps homebuyers and agents navigate financing options and streamline the homebuying process.

What Are Conforming Loan Limits?

The Role of the Federal Housing Finance Agency (FHFA)

When you get a mortgage on a home, there’s a limit to how much you can borrow. On an individual level, this limit is influenced by your creditworthiness and how much you can afford to spend each month (credit score, and Debt-to-income (DTI) ratios). However, at the industry level, lenders are also limited by how much they can lend if they want their loans to conform to the standards set forth by the Federal Housing Finance Agency (FHFA).

Conventional loans that meet these standards are called conforming loans, and their maximum amounts—known as conforming loan limits—are set annually by the FHFA. These limits represent the maximum loan amounts that Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) at the heart of the U.S. housing finance system, are willing to securitize. By adhering to these limits, lenders operate within safe and standardized boundaries.

Staying within conforming loan limits provides significant advantages. For homebuyers, it means access to loans backed by Fannie Mae and Freddie Mac, which typically come with more competitive interest rates compared to non-conforming or jumbo loans. For real estate agents, understanding these limits is crucial for offering clients accurate guidance and helping them navigate financing options effectively.

   Related Topic: Jumbo Loans

How Are Conforming Loan Limits Determined?

The Role of the Federal Housing Finance Agency (FHFA)

The FHFA plays a pivotal role in setting conforming loan limits. Established under the Housing and Economic Recovery Act (HERA) of 2008, the FHFA reviews these limits annually to reflect changes in the U.S. housing market. Adjustments typically take effect in January, but the limits are announced every November, giving lenders and borrowers time to prepare.

The baseline conforming loan limit is determined based on the average U.S. home price. For high-cost areas, the FHFA allows higher limits to accommodate local housing market variations.

The FHFA House Price Index Report

The FHFA House Price Index (HPI) Report plays a crucial role in determining whether conforming loan limits should be adjusted, as it tracks changes in home prices nationwide. While these limits can rise to reflect increasing home values, they cannot decrease, even if prices drop. This adjustment process ensures more borrowers can access affordable financing options, keeping homeownership within reach for many.

Related Topic: Prevent Annoying Credit Offers before starting the mortgage process – Opt out at www.optoutprescreen.com

The Impact of Conforming Loan Limits on Homebuyers

1. Access to Credit

Increased conforming loan limits expand credit availability, allowing more homebuyers to qualify for loans within the GSEs’ parameters. For first-time homebuyers, this can mean the difference between qualifying for their dream home or needing to settle for less.

2. Competitive Mortgage Rates

Conforming loans backed by Fannie Mae and Freddie Mac often come with lower interest rates compared to jumbo loans. Over the life of a 30-year mortgage, even a slight reduction in the interest rate can save tens of thousands of dollars.

3. Real Estate Agent Guidance

Real estate professionals rely on conforming loan limits to streamline the homebuying process. Agents can confidently advise clients on which homes fall within their financial reach based on current loan limits.

Historical and Current Conforming Loan Limits

Examining past loan limits provides valuable insights into trends in home prices and housing affordability.

Year

Baseline conforming loan limits

High-cost area loan limits
2021 $548,250 $822,375
2022 $647,200 $970,800
2023 $726,200 $1,089,300
2024 $766,550 $1,149,825
2025 $806,500 $1,209,750

High-cost areas, including Alaska, Hawaii, Guam, and the U.S. Virgin Islands, have unique limits due to their elevated property values. If you’re considering buying in one of these regions, understanding these thresholds is essential.

What Makes High-Cost Areas Unique?

Approximately 100-200 counties across the U.S. are classified as high-cost areas. These regions experience elevated home prices due to demand, geography, or local market trends. The higher conforming loan limits for these areas make homeownership more accessible.

For instance, in Hawaii or California’s Bay Area, where median home prices often exceed $1 million, the increased loan limits provide flexibility for borrowers without requiring them to pursue riskier jumbo loans.

When Are 2025 Loan Limits Available?

Good news for homebuyers: the new 2025 conforming loan limits are already available. The baseline limit of $806,500 and the high-cost area limit of $1,209,750 can be used immediately, even before the new year.

This proactive approach by lenders ensures borrowers can take advantage of the higher limits to secure financing sooner rather than later.

Reach out to learn how conforming loan limits affect homebuying or refinancing for you!

Why Understanding Conforming Loan Limits Matters

For homebuyers and real estate agents alike, understanding conforming loan limits is more than just knowing a number. These limits:

  • Provide clarity on borrowing potential.
  • Help identify properties within budget.
  • Facilitate access to better mortgage terms and lower interest rates.

Whether you’re purchasing in a high-cost area or staying within the baseline limits, these thresholds offer a foundation for smart financial decisions.

Ready to take advantage of today’s conforming loan limits? Getting pre-approved is the key to understanding which loan options—whether conventional, FHA, VA, USDA, or even Jumbo—are best for you. Let’s talk about your goals and map out the next step toward your dream home!

 

Frequently Asked Questions

The concept of Conforming Loan Limits began in 1970 with the Emergency Home Finance Act, which set the first limit at $33,000 for loans purchased by Fannie Mae and Freddie Mac. This act also introduced higher limits for high-cost areas such as Alaska, Hawaii, and Guam, and was later expanded to include the U.S. Virgin Islands.

Congress periodically raised these limits, tying them to housing price changes starting in 1980. The Housing and Community Development Act that year also introduced higher limits for multi-unit properties. By 1992, the term “conforming loan limit” was formally established.

In 2008, the Housing and Economic Recovery Act (HERA) granted the Federal Housing Finance Agency (FHFA) authority to adjust the limits annually based on changes in the national housing price index. These adjustments ensure the CLL reflects market conditions, with separate limits set for one- to four-unit properties.

No, VA loan limits are no longer tied to FHFA Conforming Loan Limits. Until January 1, 2020, VA loan limits matched the FHFA limits. However, the Blue Water Navy Vietnam Veterans Act of 2019 removed this restriction. As of January 1, 2020, veterans can obtain VA-backed home loans with no down payment, regardless of loan amount, in all areas. For more details, visit the VA’s Blue Water Navy Act page.
Learn More About VA Loans.

No, FHA loans are not directly limited by FHFA Conforming Loan Limits but are influenced by them. FHA loan limits are determined based on median house prices in accordance with the National Housing Act. These limits fall between the low-cost area limit, set at 65% of the national conforming loan limit, and the high-cost area limit, set at 150% of the national conforming loan limit. For more details, refer to the applicable FHA Mortgagee Letter.

The USDA’s Rural Housing Services (RHS) has its own loan limits and requirements that vary depending on the program. For instance, the Single Family Housing Guaranteed Loan Program is for properties located in rural areas and has eligibility criteria based on factors like household size, income (below 115% of the area median), owner occupancy, and borrower immigration status. On the other hand, the Single Family Housing Direct Home Loan Program sets loan limits at no more than 80% of the local HUD 203(b) loan limit values. 
Learn more about USDA Loans

Ready to see what you can afford? Contact us today to discuss your home-buying goals and take your first step toward homeownership!

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Equal Housing Lender. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The pre-approval is contingent upon no changes to financials and property approval/appraisal. *Veterans Affairs loans require a funding fee, which is based on various loan characteristics. Sales price cannot exceed appraised value. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan. Offers may vary and are subject to change at any time without notice. Interest rates are subject to change daily and without notice. LTV’s can be as high as 96.5% for FHA loans. FHA minimum FICO score required. Fixed rate loans only. W2 transcript option not permitted. For USDA loans, 100% financing, no down payment is required. The loan amount may not exceed 100% of the appraised value, plus the guarantee fee may be included. Loan is limited to the appraised value without the pool, if applicable. *Veterans Affairs loans require a funding fee, which is based on various loan characteristics. Sales price cannot exceed appraised value.

More than 21 million Veterans and service members live in the U.S., yet only about 6% have taken advantage of a VA home loan in the past five years. This percentage could be significantly higher if more Veterans understood the full scope of benefits this program offers.

Many Veterans and their families either aren’t aware of these advantages, believe the process is too complex, or haven’t worked with a lender knowledgeable about VA loans. Let’s clear the air and explore why a VA loan is one of the best mortgage options available.

  • Zero Down Payment: VA loans let eligible Veterans, active-duty service members, and some surviving spouses buy a home without needing a down payment.
  • Lower Costs: No private mortgage insurance (PMI) and often lower interest rates make VA loans more affordable than many other loan types.
  • Flexible Eligibility: You can reuse your VA loan benefit and even refinance with VA loan options like Streamline or Cash-Out refinancing.
  • Wide Property Options: Buy single-family homes, VA-approved condos, multi-unit properties (up to four units), or even manufactured homes (with land).
  • Exclusive Benefits: Protections like no loan limits (with full entitlement), seller-paid closing costs, and financial counseling if you face payment difficulties make VA loans uniquely supportive.

1. No Down Payment Required & No Mortgage Insurance

One of the standout features of a VA loan is the option to purchase a home with $0 down. This is a game-changer for many Veterans who may struggle to save enough for a down payment, especially with rising home prices.

For comparison, most other mortgage options require a down payment of at least 3.5% to 5%, translating to $8,750–$12,500 on a $250,000 home. With a VA loan, that upfront cost disappears, allowing Veterans to enter homeownership sooner.

Additionally, VA loans eliminate the need for private mortgage insurance (PMI). For other loans, PMI typically adds $100–$200 per month to your mortgage payment if your down payment is less than 20%. This means VA loans save Veterans hundreds of dollars monthly.

Pro Tip: The VA funding fee replaces PMI and can be rolled into the loan amount, so you won’t need to pay it upfront.

 

2. VA Funding Fee Exemptions for Disabled Veterans

If you have a service-related disability rating of at least 10%, you’re exempt from the VA funding fee. This can save thousands of dollars upfront and makes the VA loan even more affordable.

For Veterans who aren’t exempt, the VA funding fee is typically financed into the loan, allowing you to avoid an out-of-pocket expense at closing. The fee varies based on your service history and loan type, ranging from 0.5% to 3.6%.

Quick Fact: Veterans receiving VA disability compensation automatically qualify for a funding fee exemption.


3. The VA Loan Benefit Never Expires

One of the lesser-known benefits of a VA home loan is its reusability. Veterans can use this benefit multiple times throughout their lifetime, provided they meet certain requirements.

Here’s how:

  • Selling your home: If you sell a home purchased with a VA loan and pay off the loan in full, your entitlement is restored.
  • One-time restoration: If you’ve paid off your VA loan but still own the home, you may be eligible for a one-time restoration of your entitlement.

Even Veterans who served decades ago can still use their VA loan benefit. Eligibility is based on service duration and time period, so it’s worth checking your status.

To verify your eligibility: Obtain your DD Form 214 and work with a VA-approved lender or access the VA’s eBenefits portal.


4. Surviving Spouses Are Eligible

Unremarried spouses of deceased service members may also qualify for a VA loan. This benefit offers them financial support during a challenging time.

Eligibility applies if the service member:

  • Died in the line of duty.
  • Passed away due to a service-related disability.
  • Was missing in action or a prisoner of war for at least 90 days.

Surviving spouses are also exempt from the VA funding fee, providing additional savings.

Related Topic: Prevent Annoying Credit Offers before starting the mortgage process – Opt out at www.optoutprescreen.com

5. VA Home Loan Interest Rates Are Typically Lower

VA loans often feature interest rates about 0.25% lower than conventional loans, saving you money over the life of the loan. These competitive rates are possible because the VA guarantees the loan, reducing the lender’s risk.

Even Veterans with less-than-perfect credit scores may qualify for these favorable VA loan rates, making homeownership more accessible.

Did You Know? VA loans also boast some of the lowest foreclosure rates, a testament to Veterans’ commitment to homeownership.

6. Flexible Credit and Bankruptcy Guidelines

VA loans are more forgiving than conventional loans when it comes to credit requirements. There’s no minimum credit score required by the VA, though individual lenders may have their own criteria.

Even Veterans with a past bankruptcy or foreclosure can qualify, as long as they’ve reestablished credit for two years. This flexibility ensures that financial setbacks don’t prevent Veterans from achieving homeownership.

Important Note: If a previous foreclosure involved a VA loan, the remaining amount owed must be repaid to restore eligibility.

7. Wide Variety of VA Loan Options

The VA loan program isn’t just for purchasing a home. Veterans can choose from a variety of options tailored to their needs:

 Types of VA Loans

  1. VA Home Purchase Loan: For buying a primary residence with no down payment.
  2. VA Cash-Out Refinance: Tap into your home equity for expenses like home improvements or tuition.
  3. VA Streamline Refinance (IRRRL): Lower your interest rate quickly without an appraisal or extensive documentation.
  4. VA Renovation Loan: Combine the cost of a home purchase with necessary repairs or upgrades.
  5. Native American Direct Loan (NADL): For Native American Veterans purchasing or improving homes on federal trust land.

VA loans are more forgiving than conventional loans when it comes to credit requirements. There’s no minimum credit score required by the VA, though individual lenders may have their own criteria.

Even Veterans with a past bankruptcy or foreclosure can qualify, as long as they’ve reestablished credit for two years. This flexibility ensures that financial setbacks don’t prevent Veterans from achieving homeownership.

 

8. VA Loans Are Available from Private Lenders

While the VA backs these loans, they’re issued by private lenders, such as banks, credit unions, and mortgage companies. This allows Veterans to enjoy competitive terms and the convenience of working with a local lender.

Quick Tip: The VA guarantee ensures lenders will be repaid, enabling them to offer better rates and terms to Veterans.

 

9. Buy Condos, Multi-Unit Homes, and More with a VA Loan

VA loans can be used to purchase a variety of properties, including:

  • Single-family homes.
  • Multi-unit properties (up to four units).
  • Condominiums approved by the VA.

Condos are particularly attractive for first-time homebuyers, offering affordability and access to desirable locations.

Search for VA-approved condos: Use the VA’s online condo search tool to explore approved communities.

 

The Bottom Line:

Should I get pre-approved for a VA Loan?

VA loans offer a unique combination of affordability, flexibility, and financial protections, making them one of the most valuable benefits available to those who have served our country. With no down payment, competitive interest rates, and no PMI, they help Veterans and their families achieve homeownership without the traditional financial barriers. Beyond the cost savings, VA loans offer peace of mind through borrower-friendly terms, such as flexible property options and protections for those facing financial hardship. Whether you’re purchasing your first home, refinancing, or upgrading to meet your family’s needs, VA loans are a powerful tool to help you build a stable and secure future. If you’re eligible, it’s worth exploring how a VA loan can make your homeownership dreams a reality.

Ready to make the most of your VA loan benefits? Getting preapproved is the first step toward unlocking the advantages of this incredible program. Reach out to us today to start your journey to homeownership with expert guidance and a smooth, stress-free process. Let’s get you one step closer to your dream home!

 

Frequently Asked VA Loans

A VA loan is a mortgage program created by the U.S. Department of Veterans Affairs to help Veterans, active-duty service members, and certain surviving spouses buy or refinance a home. Eligibility typically requires meeting one of the following conditions:

  • Serving at least 90 consecutive days during wartime.
  • Serving at least 181 consecutive days during peacetime.
  • Completing six years of service in the National Guard or Reserves.
  • Being the un-remarried surviving spouse of a service member who died in the line of duty or as a result of a service-connected disability.

Your lender can help confirm eligibility by obtaining your VA Certificate of Eligibility (COE).

No, one of the biggest benefits of a VA loan is the option to buy a home with no down payment, making homeownership more accessible to Veterans who may not have significant savings.

The VA funding fee is a one-time payment that helps keep the VA loan program running without requiring taxpayer funding. This fee is based on your loan amount, type of loan, and whether it’s your first time using your VA loan benefit.

For example:

  • First-time use with no down payment: 2.3% of the loan amount.
  • Subsequent use with no down payment: 3.6%.

If you have a service-related disability, you may be exempt from paying this fee. Additionally, the funding fee can be rolled into the loan amount instead of being paid upfront. – Source: VA.gov

Yes, VA loans offer several refinancing options:

  • VA Streamline Refinance (IRRRL): Helps lower your interest rate or monthly payment with minimal paperwork and no appraisal required.
  • VA Cash-Out Refinance: Lets you tap into your home equity to pay for expenses or refinance a non-VA loan into a VA loan.

Absolutely! The VA loan benefit is reusable as long as you meet the eligibility requirements and pay off any previous VA loan. You can also restore your benefit if you sell your home and pay off the loan completely.

No, VA loans are available to eligible Veterans and service members, whether they’re buying their first home or their fifth. There’s no limit to how many times you can use your VA loan benefit, provided you still qualify.

VA loans are intended for primary residences, meaning the home you plan to live in full-time. You cannot use a VA loan to purchase a vacation home or investment property.

VA loans can be used to buy a variety of property types, including:

  • Single-family homes.
  • Condos (must be in a VA-approved community).
  • Multi-unit properties (up to four units, as long as you live in one of them).
  • Manufactured homes (with land, and subject to lender approval).

The VA does not set a specific credit score requirement, but most lenders do. Typically, you’ll need a credit score of at least 580-620 to qualify. However, VA loans are more flexible with credit standards compared to conventional loans, making them accessible to borrowers with lower scores.

The VA provides financial counseling to borrowers who are struggling with payments. Additionally, because VA loans tend to have lower foreclosure rates, lenders may be more willing to work with you to find a solution, such as loan modification or repayment plans.

If you have full VA entitlement, there are no loan limits, meaning you can borrow as much as a lender approves without a down payment. However, lenders will still evaluate your income, credit, and debt-to-income ratio to determine how much they’re willing to lend.

Yes, VA loans allow sellers to contribute to the buyer’s closing costs, up to 4% of the loan amount. This can include paying off debt to help the buyer qualify or covering prepaid expenses like property taxes and homeowners insurance.

Yes, VA loans come with a built-in Escape Clause that protects buyers. If the home’s appraised value is lower than the purchase price, you can back out of the deal without losing your earnest money deposit.

 

Ready to see what you can afford? Contact us today to discuss your home-buying goals and take your first step toward financial freedom.

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Equal Housing Lender. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The pre-approval is contingent upon no changes to financials and property approval/appraisal. *Veterans Affairs loans require a funding fee, which is based on various loan characteristics. Sales price cannot exceed appraised value. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan. Offers may vary and are subject to change at any time without notice. Interest rates are subject to change daily and without notice. *On an Interest Rate Reduction Refinance Loan (IRRRL) the Veterans Affairs does not require an appraisal, but NFM Lending may require a drive-by-appraisal. Income documentation is not required, but source of income must be verified. **Purchases only, must have Automatic Underwriting System (AUS) approval. No cash-out under 600. †Sales price cannot exceed appraised value. ††In a purchase transaction, reasonable closing costs may be paid by the seller, and the program is available with no points depending on credit profile, collateral, and current mortgage history.

Buying a home is an exciting milestone, but understanding how much house you can afford is essential before diving into the market. Determining the right monthly payment goes beyond just your salary—factors like debt, credit score, available down payment, and current mortgage rates all play a role in shaping your budget. In this article, we’ll help you assess affordability, including tips for using a Home Affordability Calculator to estimate your target range within your monthly budget. With these insights and our mortgage resources, you’ll be ready to confidently start your journey to financial security and generational wealth.

  • Use our Home Affordability Calculator: Start with a home affordability calculator, considering factors like income, debts, and down payment to estimate a realistic home-buying budget.
  • Debt-to-Income (DTI) Ratio & 28/36% Rule: Aim to keep housing costs below 28% of gross income and total debts under 36%. Lower DTI ratios may help secure better loan terms.
  • Plan for Upfront Costs: Budget for down payments, closing costs, and inspections, plus explore down payment assistance and gift funds if available.
  • Consider Additional Costs: Monthly expenses like property taxes, utilities, insurance, maintenance, and repair costs are important for realistic budgeting.
  • Impact of Mortgage Rates and Credit Score: Higher mortgage rates and lower credit scores can significantly increase monthly payments, so improving credit can improve affordability.
  • Focus on Personal Timing: Decide based on your personal financial stability, future plans, and readiness to plant roots—not just market conditions.

Home Affordability Calculator: Start by Crunching the Numbers

A home affordability calculator is a quick and helpful tool to get started. With just a few details—income, debts, and down payment—this snapshot can be a great starting point to identify a realistic target for your home-buying journey.

Click to check out our Home Affordability Mortgage Calculator

When calculating your own numbers, be sure to factor in:

Gross Income: Your annual salary before taxes.

Your gross income is the foundation of how much home you can comfortably afford. Include all earnings before taxes, bonuses, freelance income, retirement payouts, etc.

Debts: Monthly Payment Obligations

Debts like credit cards, car loans, child support or student loans are all factors in how much home you can comfortably afford.

Down Payment: Upfront Investment

Your down payment can lower your loan amount, and therefore your monthly mortgage. Higher down payments may also lead to better loan terms like interest rate.

With our calculator, you can play with different scenarios to see what factors affect your homebuying power.  From there, we can discuss the details and work together to the right loan from different programs and options available to you!

 

How Much Home Can I Afford with My Salary?

Calculating your budget doesn’t only involve monthly payments; it’s about choosing a payment level that fits comfortably in combination with your lifestyle. Every person’s life is completely different, and so are their finances. Are you single? Do you have a family? Divorced? Are you retired? Do you have a lot of debt? No debt? You get the point!

Here’s an example:

Say you earn $100,000 annually, or $8,333 per month before taxes and deductions. Based on the 28% rule, a reasonable full monthly mortgage payment could be $2,333 (including mortgage, insurance, and taxes). You’ll need to consider other financial goals to ensure you’re not overextending yourself and can continue saving.

Mortgage Affordability: Your Debt-to-Income Ratio and the 28/36% Rule

Lenders use your debt-to-income (DTI) ratio to assess your ability to handle monthly mortgage payments. Actual loan guidelines (criteria of who qualifies for each type of loan) may allow for more debt, as high as 50% in some cases. A good rule of thumb for affordability is the 28/36% rule: housing costs should ideally be no more than 28% of your gross monthly income, while your total monthly debts—including housing—should stay below 36%.

For Example: If your monthly income is $4,500, a comfortable housing payment target would be $1,260 (28% of $4,500). Adding in other monthly debts, your total should ideally remain below $1,620 (36% of $4,500) to give you breathing room for savings, unexpected expenses, and daily needs.

 

Calculating your DTI Ratio:

  1. Add up all monthly debt payments (housing, car loans, child support, credit cards).
  2. Divide by your gross monthly income.
      • Total Monthly Debt: $1,635
      • Gross Monthly Income: $4,000
      • DTI: $1,635 ÷ $4,000 = 41%

Reducing debt, like eliminating a credit card payment, can lower your DTI, helping your monthly mortgage payment more comfortable, and also making you less of a risk to lenders which can offer you better loan terms.

Pro Tip: Connect with one of our loan officers early in the home-buying process to ensure you understand the full scope of buying a home. From pre-qualification and pre-approval to budgeting and credit tips, our team is here to help.

What if I’m Self-Employed, Work on Commission, or am Retired?

If an affordability calculator feels too rigid, or if your income varies, reach out to us for personalized advice. We’ll go over your budget, review your loan options, and answer any questions so you’re fully confident before you buy.

 

7 Important Factors to Calculate Home Affordability

 

1. How does my monthly budget affect my mortgage payments?

Your DTI ratio is a good gauge, but only part of the equation, as it only considers true “debt” and only your gross income (pre-tax).
Other things you should consider in your budgeting decisions are your true monthly obligations and recurring costs, along with your Net income after taxes, insurance, and retirement savings are deducted.

Consider Budget Items Like:

  • Childcare Costs
  • Utilities: gas, water/sewer, trash, internet/cable
  • Groceries
  • Transportation
  • Health Insurance/Medical Expenses
  • Savings and Investments
  • Entertainment
  • Personal Care
Home Affordability Mortgage Payment Monthly Payment Home Loan Affordability

Pro Tip: If you’re struggling to outline your true budget, reach out! We love helping to set our customers up for success, building a good foundation from the ground, up!

2. Upfront Costs When Buying a Home – Saving for the Down Payment

After understanding what your monthly budget can accommodate, now you can see what room there is in your budget to save for the upfront costs of buying a home. Here’s a breakdown:

  • Down Payment: Generally 3-20% of the home’s price, though some loans offer zero down payment options. If your down payment is below 20%, you may need to budget for private mortgage insurance (PMI).
  • Closing Costs: Typically 2-6% of the loan amount. Closing costs cover title fees, appraisals, legal fees, prepaid taxes, and other fees. For a $400,000 loan, closing costs might be between $8,000 and $24,000.
  • Inspection and Appraisal Fees: Expect to pay around $300-$1,000 separately for a home inspection and appraisal, depending on local rates.

Tip: Come up with a larger down payment:

The more you can contribute upfront, the less you need to borrow. Your down payment doesn’t all have to come from your own savings, either. If you have a family member or close friend who can afford to, they might give you a gift to add to your down payment. They will need to sign a letter stating that the money is a true gift — not a loan that you’ll need to pay back.

Closing costs are based on the loan amount rather than the whole home. So the larger the down payment, the less closing costs you pay!

Pro Tip: Down payment assistance is also a helpful tool that most people don’t know they qualify for! – learn more about down payment assistance

3. Be Prepared for Property Taxes

Property taxes vary based on location and property value. Some states charge no property tax at all, while others can have very high property taxes.
For instance, single-family home taxes in New Jersey averaged $9,527, while in West Virginia, the average was $928 (2022 US Census Data). Keep these in mind as they impact your monthly payment.

Tip: Lower Property Taxes by Considering Other Locations

You might have your heart set on a certain neighborhood or a certain city, but flexibility is key. If you can cast a wider net, you will open yourself up to places where property taxes, and even home prices are lower.

4. Budget for Ongoing Repair and Maintenance Costs

Homeownership means taking care of your property’s upkeep. If you’re considering a fixer-upper, research the probably and leave room for unexpected costs, as these can add up quickly. Even new homes require upkeep both inside and out.

5. Shop Around for Homeowners Insurance

Insurance is essential to protect your investment, and premiums vary based on location, coverage, and risk factors. They are especially high in states prone to natural disasters, like Florida and California. Get multiple quotes to find the best rate as this is the one area you can control in your monthly payment.

6. How Do Current Mortgage Rates Impact Affordability?

Interest rates are determined by many different factors, but the effect they have on your monthly mortgage payment is simple. The higher your interest rate, the higher your monthly payment. For instance, a 30-year $600,000 mortgage would be $3,220 at a 5% rate, but would increase to $4,402 at 8%.

Tip: Talk with us about today’s rates and how they affect your monthly budget.

7. How Does Credit Score Impact Affordability?

Your credit score is the foundation of your finances, and it plays a critical role in determining your mortgage rate. For example, let’s say you have a credit score of 750, considered in the “very good” range by FICO. That will put you in the running for a better rate than, say, a lower credit score of 580, which is at the top of the “poor” credit range. To find out your score, check your credit report at one of the big three agencies: Equifax, Experian and TransUnion.

Tip: How to Improve Your Credit Score

Boosting your credit score is a great way to put yourself in a position for the lowest mortgage rate possible. ALWAYS make your payments on time and in full every month. Pay down your credit cards and avoid applying for any additional accounts as you prepare to apply for a mortgage.

Related Topic: Prevent Annoying Credit Offers before starting the mortgage process – Opt out at www.optoutprescreen.com

 

The Bottom Line:

Should I Buy a Home Now or Wait?

Home prices have been on a rollercoaster ride in recent years and are still very high, as are mortgage rates. It’s enough to make you wonder whether now is even a good time to buy a house. It’s important to focus on your personal situation rather than thinking about the overall real estate market. Is your credit score in great shape, and is your overall debt load manageable? Do you have enough savings that a down payment won’t drain your bank account to zero? If your personal finances are in excellent condition, a lender will likely be able to give you the best deal possible on your interest rate.

It’s not just about money, though. Think about what’s on the horizon for you. Are you comfortable planting roots for the foreseeable future? The longer you can stay in a home, the easier it is to justify the expenses of closing costs and moving all your belongings — and the more equity you’ll be able to build.

With careful planning and the right support, homeownership can be a powerful step toward building financial security. Reach out today to discuss your options, learn about our loan programs, and take the first step toward making your dream home a reality.

 

Frequently Asked Questions About Home Affordability

Let’s say you earn $75,000 each year, which is $8,333 per month before taxes and deductions. By using the 28 percent rule, your full mortgage payments should add up to no more than 28 percent of $8,333, or $1,750 per month (including mortgage, insurance, and taxes). – This is assuming no other debts and doesn’t consider your other monthly obligations and budget.

Federal Housing Agency (FHA) mortgages are available to homebuyers with credit scores of 500 or more and can help you get into a home with less money down. If your credit score is below 580, you’ll need to put down 10 percent of the purchase price. If your score is 580 or higher, you could put down as little as 3.5 percent. There are limits on FHA loans, though. In most areas in 2024, an FHA loan cannot exceed $498,257  for a single-family home. In higher-priced areas, the number can go as high as $1,149,825. You’ll also need to factor in how mortgage insurance premiums (MIP) — required on all FHA loans — will impact your payments.

Eligible active duty or retired service members, or their spouses, might qualify for down payment–free mortgages from the U.S. Department of Veterans Affairs. These loans have competitive mortgage rates, and they don’t require PMI, even if you put less than 20 percent down. Plus, there is no limit on the amount you can borrow if you’re a first-time homebuyer with full entitlement. You’ll need to also consider how the VA funding fee will add to the cost of your loan.

Loans backed by the United States Department of Agriculture (USDA) require no down payment, and there is no limit on the purchase price. However, these loans are geared toward buyers who fit the low- or moderate-income classification, and the home you buy must be within a USDA-approved rural area.

 

Ready to see what you can afford? Contact us today to discuss your home-buying goals and take your first step toward financial freedom.

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Refinancing an existing loan may result in the total finance charges being higher over the life of the loan.

Refinancing your home may seem like a big decision, but it’s essentially swapping your current mortgage for a new one—potentially with better terms, a lower interest rate, or a different loan balance. When you refinance, your lender will pay off the old mortgage and issue a new one. But why refinance? If you’re curious about how the mortgage refinance process works or wondering how it might benefit you, we’re here to walk you through every step.

  • Refinancing Basics: Refinancing replaces your current mortgage with a new one, potentially offering better terms, a lower interest rate, or cash from your home’s equity.

  • Reasons to Refinance: Common reasons include lowering your interest rate, removing mortgage insurance, or accessing cash for large expenses through a cash-out refinance.

  • Choosing the Right Lender: Select a lender who listens to your financial goals, educates you, and helps you choose the best mortgage refinance option for your needs.

  • Closing Costs Matter: Refinancing involves closing costs of 3-6% of the loan principal. Talk to your loan officer to determine how long it will take to recover those costs (your break-even point), and if you can roll them into your loan.

  • Walking Through the Refinance Process: We walk through every step, starting with gathering documents, submitting your application, and through what your closing appointment will be like.

When to Consider Refinancing Your Mortgage

There are several scenarios where refinancing can be a smart financial move:

  1. Rate and Term Refinance

Goal: Refinancing gives you the option to shorten the term to pay off your loan faster and potentially secure a lower interest rate. Alternatively, you can extend your loan term, spreading out payments over a longer period and lowering your monthly costs.

  1. Remove Mortgage Insurance

Goal: If you have an FHA loan, you’re required to pay a mortgage insurance premium (MIP) for the life of the loan. Many homeowners refinance to a conventional loan once they reach 20% equity, allowing them to drop the insurance and lower your monthly expenses.

  1. Cash-Out Refinance

Goal: A cash-out refinance lets you tap into your home’s equity by refinancing for a higher loan balance and taking the difference in cash. This is a great way to access funds for large expenses like home renovations, education, or consolidating high-interest debt.

Knowing when to refinance is key to maximizing your savings. Tools like a Mortgage Refinance Savings Calculator can help you determine whether a refinance is right for you.

 

Starting the Mortgage Refinance Process

1. Choose the Right Mortgage Lender

The first step to refinancing is finding a mortgage refinance lender you trust. They will walk you through different mortgage refinance options and help you choose the one that aligns with your financial goals.

Choose a lender who listens, asks about your goals, educates, and communicates clearly.

When is it Worth it to Refinance?

A good rule of thumb is to consider refinancing if you can lower your interest rate by at least 1%. For instance, if you currently have a 7% rate and find that you could refinance at 6%, it’s likely worth running the numbers with your lender. Beyond that, your lender can help you calculate the total savings and how long it will take to break even on the cost of refinancing.

 

Closing Costs

Understanding Closing Costs When Refinancing

You might ask, “Is it worth it to refinance my mortgage?” One key factor is closing costs, which are typically 3-6% of the new loan principal. You’ll want to make sure the financial benefits of refinancing outweigh these costs. Your lender can help calculate your break-even point—how long it will take to recoup the cost of refinancing through the savings generated by your lower monthly payments.

Refinance Break-Even Point closing cost calculation
TIP: If you’re planning to move before you reach your break-even point, refinancing might not make sense financially. However, if you plan to stay in your home long-term, refinancing can yield substantial savings.

How to Pay for Refinancing Closing Costs

You can either roll closing costs into your loan or pay them upfront at closing. Talk with your loan officer to decide which option works best for your situation. Some homeowners prefer to pay upfront to avoid increasing their loan balance, while others like the flexibility of rolling the costs into the loan to avoid out-of-pocket expenses.

 

Steps in the Mortgage Refinance Process

Now that we’ve covered the basics, let’s dive into the key steps you can expect when going through the mortgage refinance process:

2. Gather Documentation

Before filling out a mortgage refinance application, you’ll need to gather essential documents. Every situation is unique, but you’ll likely need the following:

  • Government-issued ID and Social Security number
  • Recent pay stubs
  • W-2s from the past two years
  • Federal tax returns
  • Proof of additional income (if applicable)
  • Mortgage statements, credit card statements, and other debts
  • Retirement and investment account statements
  • Homeowners insurance policy
Your documents may be needed again in the processing phase, so keeping them on hand in the beginning and throughout your loan process can save you time and headaches.

3. Submit Your Refinance Application

Once you’ve gathered all your documents, it’s time to submit your application. This step involves sharing details about your financial situation, such as your assets, liabilities, and property information.

Our online application process is safe, secure, and easy to complete right from your smartphone or computer.

After submitting your application, your credit will be checked to give your loan officer a complete picture of your finances. Within three business days, you’ll receive a Loan Estimate (LE), which breaks down your estimated closing costs and the terms of your new loan. Be sure to review it carefully and notify your loan officer immediately if you spot any errors—like a misspelled name or incorrect address.

4. Processing

During this stage, your loan processor verifies your financial details. This includes checking your income, assets, and credit score. They may request additional documents to clarify or confirm information, so keeping your documents organized can help speed up the process. The processor will also open an escrow account and may order an appraisal to determine your home’s current market value.

Appraisal

An appraisal is typically required during a refinance to ensure the new loan amount does not exceed the home’s value. Some loans, such as FHA Streamline Refinance and VA IRRRL, may waive the appraisal requirement, but for cash-out refinance, it’s usually necessary.

5. Underwriting

The underwriting process reviews all the information you’ve provided. The underwriter might grant:

underwriting approval, green checkmark

Direct approval: Your loan is approved with no further action needed, and you can proceed to closing.

caution, conditional approval

Conditional approval: You’ll need to provide additional documents or clarification before receiving full approval.

red x, underwriting denial

Denial:
What happens if your refinance application is denied? In rare cases, your loan could be denied due to credit history, insufficient income, or other factors. If this happens, the underwriter will explain the reasons, and you can work with your lender to explore alternatives.

6. Review Your Closing Disclosure

Three days before your closing date, you’ll receive a Closing Disclosure (CD) outlining the final details of your loan, including the closing costs. Compare it with the Loan Estimate you received earlier and carefully review the terms. If anything seems off, don’t hesitate to ask your loan officer for clarification.

Closing and Final Steps

7. Closing Day

On closing day, you’ll meet with a title company representative, and possibly your loan officer to finalize your loan. Bring a state-issued photo ID and any remaining funds needed to cover closing costs (if not rolled into the loan). After signing the documents, the loan funds will be distributed. If you’re refinancing to take out cash, you’ll typically receive your funds a few days after closing.

8. First Monthly Payment

Depending on the closing date, you may be able to skip one or two mortgage payments. After that, your regular monthly payments will begin. 

If you’re interested in how to pay off your mortgage quicker, here are a few ways you can do that.

 

Wrapping it Up


We hope this guide has provided clarity on the mortgage refinance process. Whether you’re aiming to reduce your monthly payments, access your home’s equity through a cash-out refinance, or eliminate mortgage insurance, refinancing can offer significant financial benefits. With the right approach, you can save money and achieve your long-term financial goals.

When you’re ready to explore your refinancing options, feel free to reach out to us. We look forward to helping you navigate the process and find the best solution for your needs!

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Refinancing an existing loan may result in the total finance charges being higher over the life of the loan.

LINTHICUM, MD, September 30, 2024 — NFM Lending is pleased to announce the opening of a new branch led by Branch Managers Greg Bork and Kevin Holmes. The new branch will focus on expanding NFM Lending’s flexible and powerful lending platform to better serve community families with exceptional customer service. NFM Lending offers Conventional, FHA, VA, USDA, Jumbo, and many other home loan options to fit every borrower’s needs.

“I am thrilled to announce my return to NFM Lending as Branch Manager for our Towson, Maryland location,” said Holmes, who previously worked for NFM in 2010. “I want to extend my heartfelt thanks to the NFM transition team for their support during this journey. I am excited to be back as part of the NFM family and look forward to growing our business together!”

The branch’s goal is to continue to provide the same commitment and dedication to borrowers, ranging from first-time homebuyers to seasoned buyers looking for their next home, a second home, or investment properties.

“Kevin and I met at NFM,” noted Bork, a 20-year mortgage veteran. “As we’ve watched them grow and thrive, the idea of coming back has always been on our mind due to their outstanding leadership. I can honestly say that I feel like we are back home where we belong.”

 

Bork and Holmes are currently seeking qualified Mortgage Loan Originators for full and part-time positions.

For more information, please contact:

Greg Bork Branch Manager NMLS# 34928 410-474-1427 [email protected]

Kevin Holmes Branch Manager NMLS# 193246 717-676-8733 [email protected]

 

About NFM Lending

NFM Lending is a national mortgage lending company currently licensed in 49 states and the District of Columbia. The company was founded in Baltimore, Maryland in 1998. NFM Lending and its family of companies includes Main Street Home Loans, Bluprint Home Loans, Elevate Home Loans, and Element

Home Loans. They attribute their success in the mortgage industry to their steadfast commitment to customers and the community. For more information about NFM Lending, visit www.nfmlending.com, like our Facebook page, or follow us on Instagram.