student loans home market

SoFi Makes Jump from Student Loans to Mortgages

Michael Lux Blog, Student Loans 2 Comments

Anyone with student loans who has tried to buy a house knows how big of an impact student debt can have on your ability to get a mortgage.  If it seems like mortgage lenders look for an excuse to deny people with student loans, it is because they do.

The fact that SoFi, a company created for student loan lending, has branched into mortgages could be great news for many borrowers.

Full disclosure: in our reviews of SoFi and other student loan companies, we are able to apply years of experience dealing with student loans to offer unique insights to our readers.  When it comes to mortgages, our experience is somewhat limited.  That being said, the recent developments with SoFi mortgages do offer hope to a number of people saddled with student debt.

What makes this different?

SoFi is brand new to mortgages.  The company was created to help people consolidate and refinance student loans, and now they have entered into a new arena.  The thing that should separate SoFi from other lenders in the mortgage business is their expertise in student loans.  They should be in a much better position to evaluate the ability of people to afford a home.

For example, SoFi should be in a much better position to understand the true earning power of the degree you have.  There is a big difference between 100k spent at the local for profit school versus 100k spent earning a medical degree.  Many traditional mortgage lenders would treat this debt the same.

Mortgages for those with student loan debt

The SoFi strategy here is pretty obvious.  They have a huge number of student loan borrowers already working with the company.  If they can sell them a new product, in this case a mortgage, it means bigger profits for the company.

By targeting their existing student loan customers, SoFi has created mortgages with some unique features.  Three stand out.

Feature One: 10% Down, No PMI

If you are shopping for a home, but don’t have a have a ton of money for a down payment, the mortgage insurance can limit your buying power and cost you over one hundred bucks each month.

Traditional mortgage lenders typically require 20% down in order to avoid having to pay the PMI.  At Sofi, a 10% down payment is all that is required.  If you are buying a home that costs 250k, it is the difference between needing to put $50,000 down, or having to put down $25,000.

Feature Two: No Origination Fees

People who have shopped student loans know that origination fees should always be avoided.  Tacking an extra percent or two on to the balance from day one is an unnecessary cost.

Unfortunately, in the world of mortgages, they can be buried within the closing costs.

It is nice to see a student loan lender jumping into the mortgage market and eliminating the origination fees from the process.

Feature Three: Flexible Debt-to-Income limits

This one sounds nice, but it is hard to know exactly what they mean by “flexible”.  Traditional lenders are much more strict about the amount of income you need to generate in order to qualify for a certain mortgage.  By being “flexible”, SoFi seems to imply that if you went to an elite school, or have some sort of indication of a high earning potential, you will have a better shot at getting the loan you want.

It is hard to say whether or not this feature will make a difference, but it sounds good in theory.

Something to think about…

SoFi seems to be willing to take on borrowers who might otherwise be too risky for other mortgage lenders.  If you are a potential home buyer, this is a good thing, but it can also be a dangerous thing.

It is important for any borrower to take a careful look at their finances and to be certain that they can afford the home they are buying.  Just because you can get the loan, doesn’t mean you can afford the house.

The Bottom Line

Buying a home is no picnic.  Add some student loans to the equation and things get really difficult.  The fact that at least one company is putting together a mortgage product aimed specifically at those with student loans is probably a good thing.  Click here to see if SoFi mortgages are available in your State and to check the rates that you qualify for.

  • DebtDiscipline

    Home ownership is great, a good long term investment. If I had it to do over again I’d make sure I have all other debt cleaned up before making the purchase.

  • I think this is a good thing! They know and understand student loans and can now offer mortgages. The only downside is if you run into trouble on both.