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7 Key Steps in Buying a Home

Purchasing a house or condo can be pretty complicated, but having a blueprint of the normal process can steady your nerves.

The journey can seem especially mystifying if you’re a first-time buyer, since everything is likely to be new to you. First-time buyers made up 31% of all recent homebuyers, according to the 2021 generational trends report from the National Association of Realtors® (NAR).

The report also found that what it defines as millennials, buyers ages 22 to 40, continue to make up the largest share of homebuyers, 37%.

From Crunching to Closing

First, you’ll want to keep it real in your real estate search. To that end, here’s a home affordability calculator.
Then here are the steps you can expect in the home-buying process.

1. Doing Your Homework

Before you start the search, consider the type of home you’d like to buy and what neighborhoods you’d want to live in. Then do some research to see what similar homes have sold for in the recent past. That should give you an idea of whether your resources align with your dream house or whether you need to reevaluate.

It’s good to know how much of a down payment you’ll need, and what it will take to qualify for a home loan.

Lenders typically give great weight to your credit score and debt-to-income ratio. Most will also be looking to verify your income and at least two years’ worth of steady employment or consistent and ongoing income.

Most conventional mortgages—those originated by private lenders—require a down payment of at least 3%. An FHA loan requires as little as 3.5% down, and a VA loan, usually nothing down.

Putting less than 20% down on almost any purchase will mean ongoing fees or, in the case of a VA loan, a one-time fee.

2. Getting Prequalified for a Home Loan

Next, you’ll need to figure out what kind of home you can afford. One way to do this is by getting prequalified with a mortgage lender. Using self-reported information, the lender reviews the basics of your financial situation and provides an estimate of how much you may be able to borrow and at what rates.

Getting prequalified with several lenders can help you get a sense of what kind of home you can afford and allow you to compare monthly payments and interest rates.

3. Finding a Real Estate Agent

It’s not required, but the vast majority of house hunters purchase a home through a real estate agent or broker.

You can hire either a Realtor® or a real estate agent to assist you in your search. Both are licensed professionals. The main difference is that a NAR member is required to stick to a code of ethics that includes putting a client’s interests before their own.

Agents only get paid when you close on a home. The seller typically pays the real estate commission for both the listing agent and buyer’s agent.

A real estate agent will help you find property listings that fit your preferences, visit them to make sure they’re up to snuff, write offers and counteroffers, attend inspections, help you negotiate, and work with you to deal with any obstacles that emerge.

When looking for an agent, you can ask people you know for recommendations, note the names on signs in your area, and read reviews online. You may want to speak to several agents until you find one who feels right and may be considered an expert in the area where you want to buy.

Gain home-buying insights
with the latest housing
market trends.

4. Getting Preapproved for a Mortgage

Once you’re ready to start seriously looking for a home, unless you’re a cash buyer you’ll need to lock down funding. You can do this by getting preapproved with a mortgage lender. This is a more involved process than prequalification.

You’ll fill out a detailed application and allow the lender to do a hard credit check and verify your finances.

When you’re preapproved for a mortgage, you will know exactly how much you can most likely borrow and at what terms. That’s because the entire credit portion of the loan has been verified.

Remember that you don’t have to take out the highest amount you qualify for if you find a more affordable home. In that scenario, you’d just ask your lender to adjust the preapproval letter based on the actual bid you’re making on a home.

Showing a seller the lender’s preapproval letter (typically valid for 90 days) can help you rise above the pack if multiple offers are in play.

5. Shopping for a Home

Next, it’s time to start shopping for a house or condo or buying into a co-op. If you have an agent, you’ll probably sit down and outline the parameters of what you’re looking for.

Then the agent will start bringing to your attention properties that might fit the bill, and you’ll attend viewings and open houses.

But these days, there’s also a lot more you can do to jumpstart your home search on your own. Websites like Zillow, Trulia, Redfin, and others can help you find out about properties as soon as they’re on the market.

If you’re moving forward without an agent, you can consider exploring platforms that have cropped up to help buyers who don’t have agents.

6. Making an Offer

Once you find the perfect home, you’re ready to make a formal purchase offer. This involves not only letting the seller know how much you’re willing to pay but providing evidence that you’ll be able to afford those costs and when you expect to close on the house. The offer also details what you expect the seller to do before closing.

At this stage, many buyers also provide earnest money, a deposit that can be up to 10% of the negotiated price. The offer might also include contingencies, which are conditions that need to be met in order for you to proceed with the transaction.

Some contingencies, like a home or roof inspection, are usually at the buyer’s discretion. Others, like a home appraisal, can be tied to the loan approval.

7. Closing on the Home and Moving In

Once you and the seller are on the same page about a price, the house goes into escrow. That involves a third party, namely an escrow officer, making sure that both of you meet the conditions you’ve agreed to.

Your real estate agent will help make sure any home inspection you ordered takes place. If there are unwelcome surprises, the agent might need to help you renegotiate the selling price. Depending on the severity of the surprise—if a significant home repair is needed, for example—the lender might require a complete fix before escrow closes.

Once that’s all set, and all income, assets, and property conditions are signed off on by the underwriter, you will be issued final loan approval.

Next, you’ll sign the needed paperwork to take out the mortgage and finalize the home purchase. It can take a few days for the purchase money to reach the seller and for the county records to reflect the transfer of the sale.
And then the house is all yours! Move in and enjoy.

The Takeaway

Buying a home isn’t a cakewalk, but the path is much smoother when you know the steps involved.

One of the first things to think about doing is to get prequalified for a mortgage. SoFi, which offers fixed-rate mortgages with competitive rates, makes that quick and easy.

Check your rate for a SoFi Home Loan in two minutes.

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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

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What Do I Need to Buy a House?

You don’t have to have excellent credit or a 20% down payment to buy a house or condo. You do need a plan, which starts with knowing how much you can afford.

If you think you have your financial house in order, for the most part, here are some suggestions to get you to the closing table.

A Home-Buying Checklist

You might want to start with a home affordability calculator, and then let’s launch into six things you’ll need to buy a house.

1. A Real Estate Agent (Maybe)

The vast majority of buyers use the services of a real estate agent or broker, according to the National Association of Realtors® (NAR).

You can go it alone, but finding a real estate agent who is experienced and knowledgeable can be key to, well, getting you a new set of house keys.

Agents have access to the multiple listing service, which is a comprehensive list of homes for sale by a real estate agent or broker in your desired location.

A buyer’s agent can help you:

•  Build your wishlist and hunt for homes that fit your needs

•  Check out listings in person

•  Write offers and counteroffers, including putting an offer on a contingent house

•  Negotiate with the seller

•  Navigate the complexities of the purchase contract

Using a real estate agent might also relieve some of the stress that comes with purchasing a home, especially when buying in a hot house market.

2. A Down Payment (Probably)

You’ve cobbled together a few thousand, but what is the average down payment on a house? It’s less than the benchmark of 20%.

Many homebuyers put 6% down—that’s $18,000 on a $300,000 home. Nothing to sneeze at.

The more you can put down, the more likely it is that you could get a lower interest rate. In most cases, you’ll need a 20% down payment to avoid private mortgage insurance or a mortgage insurance premium.

Here’s a glimpse of loan types and down payments of each:

•  Conventional conforming loan. This, the most common type of mortgage loan, has a minimum down payment requirement of 3%.

•  FHA loan. This loan, among a few kinds of government home loans, requires as little as 3.5% down for those who qualify.

•  VA loan. If you qualify for a VA loan, you can usually buy a home with no money down.

•  USDA loan. This income-restricted loan, geared toward rural properties, requires no down payment.

Gain home-buying insights
with the latest housing
market trends.

3. Closing Costs

Closing costs cover a variety of expenses and are in addition to your down payment.

Typical home-buying closing costs on your side of the ledger will add up to 2% to 5% of the loan amount.

Generally the seller pays the real estate commission for both the seller’s and buyer’s agents. The seller, especially in a buyer’s market, may be willing to pay for some or all of the buyer’s eligible closing costs. The lender may also give a credit toward closing costs.

US closing costs averaged $6,000, including taxes, and $3,500, excluding taxes, in 2020, according to ClosingCorp, a closing costs technology company. If your loan requires property taxes to be paid at closing, and you’re buying in a high-tax state, sticker shock may ensue. In Washington, D.C., for example, buyers paid about $29,330 in closing costs, with taxes, in 2020.

4. A Certain Credit Score

Your credit score is one of the primary factors lenders will consider when reviewing your mortgage application, so being aware of your current score might help you understand what loan programs you may be eligible for and, in some cases, your home affordability.

So what credit score is needed to buy a house? In the range from 300 to 850, If you’re aiming for a conventional (nongovernment) loan, you’ll likely need a credit score of at least 620.

For an FHA loan, 580 is the minimum score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 must put down 10%. Lenders typically require a minimum score of 580 to 660 for a VA loan; and for a USDA loan, 640.

The government offers periodic free credit reports so consumers can review their credit history, but the reports do not give a credit score.

You can monitor your credit score with a paid service, for free from some banks and credit card issuers, and at no cost with this money tracker.

5. Proof of Income

Even if you have a stellar credit score, for the majority of loan programs, you still have to prove your income to the lender to gain loan approval. This is the lender’s way of verifying that you have the means to pay the mortgage back.

For mortgage preapproval, you’ll typically need to submit W-2s, your two most recent pay stubs, and your two most recent federal tax returns for the lender to verify your income. (Self-employed applicants will need to submit a year-to-date profit and loss statement and two years of records.)

6. A Reasonable Debt-to-Income Ratio

Your debt-to-income ratio matters when determining your mortgage amount and may factor into the type of loan program you qualify for.

The DTI ratio equates to your monthly debt payments divided by your gross monthly income.

Mortgage lenders usually like to see a DTI ratio of 36% or less.

Historically, mortgage lenders would typically look at a back-end ratio and a front-end ratio. A front-end ratio shows how much gross monthly income would go toward the mortgage payment, property taxes, homeowners insurance, and any HOA dues.

A back-end ratio, which is primarily used today, shows how much of your income would be needed to cover all monthly debts (like student loan, car loan, and credit card payments), plus the monthly mortgage payment and housing extras.

Buying a House, or Maybe a Condo

Condominiums are often a more affordable way to enter the homeowner leagues than single-family homes are.

Condo and co-op sales spiked 29% within a year, according to NAR, probably thanks to the dearth of affordable housing and amped-up demand.

If you decide to buy an apartment, you’ll want to understand the differences between condos and co-ops. The price per square foot for a co-op is usually lower than for a condo, but financing might be more challenging than for a condo or single-family home.

You can use most types of mortgages to buy a condo, including conventional 30-year fixed-rate mortgages and government-backed loans.

The Takeaway

What do you need to buy a house or condo? First, you’ll want to be on pretty solid financial footing. Then a good agent, probably a down payment, and proof of income will come into play.

If you’re not a cash buyer, you’ll need a mortgage. SoFi offers fixed-rate home loans with as little as 5% down.

Get prequalified in two minutes.

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

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

SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.


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LTV 101: Why Your Loan-to-Value Ratio Matters

Are you thinking about taking out a home loan or refinancing your mortgage? If so, knowing your loan-to-value (LTV) ratio, or the loan amount divided by the value of the property, is important.

Let’s break down LTV: what it is, how to calculate it, and why it matters. (Hint: It could help save you a lot of money.)

LTV, a Pertinent Percentage

The relationship between the loan amount and the value of the asset securing that loan constitutes LTV.

To find the loan-to-value ratio, divide the loan amount by the value of the property.

LTV = (Loan Value / Property Value) x 100

Here’s an example: Say you want to buy a $200,000 home. You have $20,000 set aside as a down payment and need to take out a $180,000 mortgage. So here’s what your LTV calculation looks like:

180,000 / 200,000 = 0.9 or 90%

Here’s another example: You want to refinance your mortgage (which means getting a new home loan, hopefully at a lower interest rate). Your home is valued at $350,000, and your mortgage balance is $220,000.

220,000 / 350,000 = 0.628 or 63%

As the LTV percentage increases, the risk to the lender increases.

Why Does LTV Matter?

Two major components of a mortgage loan can be affected by LTV: the interest rate and private mortgage insurance (PMI).

Interest Rate

LTV, in conjunction with your income, financial history, and credit score, is a major factor in determining how much a loan will cost.

When a lender writes a loan that is close to the value of the property, the perceived risk of default is higher because the borrower has little equity built up—and therefore, little to lose.

Should the property go into foreclosure, the lender may be unable to recoup the money it lent. Because of this, lenders prefer borrowers with lower LTVs and will often reward them with better interest rates.

Though a 20% down payment is not essential for loan approval, someone with an 80% LTV is likely to get a more competitive rate than a similar borrower with a 90% LTV.
The same goes for a refinance or home equity line of credit: If you have 20% equity in your home, or at least 80% LTV, you’re more likely to get a better rate.

If you’ve ever run the numbers on mortgage loans, you know that a rate difference of 1% could amount to thousands of dollars paid in interest over the life of the loan.

Let’s look at an example, where two people are applying for loans on identical $300,000 properties.

Person One, Barb:

•  Puts 20%, or $60,000, down, so their LTV is 80%. (240,000 / 300,000 = 80%)

•  Gets approved for a 4.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $197,778 in interest over the life of the loan

Person Two, Bill:

•  Puts 10%, or $30,000, down, so their LTV is 90%. (270,000 / 300,000 = 90%)

•  Gets approved for a 5.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $281,891 in interest over the life of the loan

Bill will pay $84,113 more in interest than Barb, though it is true that Bill also has a larger loan and pays more in interest because of that.

So let’s compare apples to apples: Let’s assume that Bill is also putting $60,000 down and taking out a $240,000 loan, but that loan interest rate remains at 5.5%. Now, Bill pays $250,571 in interest;

The 1% difference in interest rates means Bill will pay nearly $53,000 more over the life of the loan than Barb will.

Mortgage CalculatorMortgage Calculator

PMI or Private Mortgage Insurance

Your LTV ratio also determines whether you’ll be required to pay for PMI. PMI protects your lender in the event that your house is foreclosed on and the lender assumes a loss in the process.

Your lender will charge you for PMI until your LTV reaches 78% (by law, if payments are current) or 80% (by request).

PMI can be a substantial added cost, ranging from 0.5% to 2.25% of the value of the loan per year. Using our example from above, a $270,000 loan at 5.5% with a 1% PMI rate translates to $225 per month for PMI, or about $18,800 in PMI paid until 20% equity is reached.

How Does LTV Change?

LTV changes when either the value of the property or the value of the loan changes.

If you’re a homeowner, the value of your property fluctuates with natural market pressures. If you thought the value of your home increased significantly since your last appraisal, you could have another appraisal done. You could also potentially increase your home value through remodels or additions.

The balance of your loan should decrease over time as you make monthly mortgage payments, and this will lower your LTV. If you made a large payment toward your mortgage, that would significantly lower your LTV.

Whether through an increase in your property value or by reducing the loan, decreasing your LTV provides you with at least two possible money-saving options: removal of PMI and refinancing to a lower rate.

The Takeaway

The loan-to-value ratio affects two big components of a mortgage loan: the interest rate and private mortgage insurance. A lower LTV percentage typically translates into more borrower benefits.

Whether you’re on the hunt for a new home loan or a refinanced mortgage, it’s a good idea to shop around for the best deal. Check out what SoFi has to offer.

See if a SoFi mortgage or refi is a good fit in just a few clicks.

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

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

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


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31 Real Estate Listing Terms Explained

As you read real estate listings, you may come across industry jargon and certain catchphrases again and again. Paying attention to and understanding these terms can provide valuable clues about the home and the seller’s situation.

What follows is a real estate glossary that can help you decipher listings and figure out what a realtor is really saying about a property.

Real Estate Listing Terms Decoded

Real estate has a language all its own. To figure out which homes may be worth looking at, and which might not, you may want to use this handy real estate translator next time you peruse the listings.

1. Cozy

While this descriptor may bring to mind a comfy armchair and a steaming mug of cocoa, in real estate, “cozy” tends to mean “small.” The home may have minimal square footage, meaning each room may have very limited space.

2. Charming

“Charming” is often another code word for a house with a small footprint, and may also indicate an older construction — which may, indeed, be charming, but might also end up needing costly repairs and renovations.

3. Cottage

This is yet another word that sounds like it’s invoking a feeling when it may really be invoking a size — and that size may be on the smaller side. Cottages tend to be one- to two-bedroom houses and, again, might also be dated.

4. Hidden gem

These words might indicate a nice home in an out-of-the-way location or a home in a popular and trendy locale that needs some work. Either way, it can indicate that the property offers a great opportunity for the right buyer, though you may have to put in some work or make some sacrifices.

5. Investor special

That sounds like a good thing, right? But a real estate agent might use this phrase to mean a house is in pretty rough shape and will take significant work to make livable– as in, you may only be able to buy it for cash or with a rehab loan.

6. Fixer

A listing agent may use this term as a shortening of “fixer-upper.” In other words: major renovations are likely going to be needed.
Recommended: The Cost of Buying a Fixer-Upper

7. Good bones

A home with “good bones” is typically one that needs some renovation and repair, but whose original construction is solid and whose layout is desirable. In other words, the skeleton of a great home is there, but you may need to do some work to flesh it out.

8. Move-in ready

Here’s a phrase you want to see in your real estate listings: “Move-in ready” typically means a home doesn’t need any major, mandatory repairs and is ready for you to start living in as soon as you’ve closed on the property. Of course, this term does indicate that the seller probably has a lot of leverage to demand the highest possible offer on the home

9. Turnkey

Basically a synonym for move-in ready–just turn the key and you’re all set to go!

10. Lives large

This indicates that the home may appear small in terms of square footage, but when you are actually in the property and walking around, it feels a lot more spacious.

11. Room to roam

A home with “room to roam” is typically one with a larger-than-average lot with lots of room to create outdoor living/play spaces or grow a garden.

12. As-is

If you see the words “as-is” in a real estate listing, proceed with some caution: This typically indicates that there are repairs or renovations that need to be done that the current owner is washing their hands of and passing off to the buyer.

13. Handyman special

This is another term that can indicate that a property needs a lot of work — thus making it a good opportunity for a handy homeowner, since the house may be priced lower than other, more turnkey, homes in the area.

14. Priced to sell

“Priced to sell” often indicates that the seller is pretty set on the price they’ve offered–you probably won’t be able to negotiate it down too far or get anywhere with a low-ball offer.

15. Serious buyers only

This term is usually meant to keep casual browsers or open-house visitors who are “just-looking” at bay. The seller likely doesn’t want to waste their time with people who aren’t seriously considering making an offer.

16. Custom

While “custom” sounds cool, it may or may not be. This term indicates that the property includes some built-to-order features or additions that appealed to the previous owners. These features, however, may or may not be to your taste.

17. Unique

“Unique” is another word that can go either way. It could be used to describe a lovely, one-of-a-kind feature, like a rooftop patio. Or, it could be used to describe something odd-ball, like a sunroom converted into a photographer’s darkroom.

18. Loft

“Loft” indicates that the home is large, open, and airy, with high ceilings and few interior walls. The bedroom, for instance, may be situated on an open second-floor landing that looks out directly onto the living room below. This may make for a picturesque living situation, but also one with relatively little privacy, so depending on who you live with, take heed.

19. Vintage

You might be able to guess from the name that “vintage,” when it comes to real estate listing terms, is generally code for “really outdated.” Those 1960s appliances might look cute in the pictures… but how much more life do they have in them before they need to be replaced?

20. Rustic

At its best, “rustic” might mean natural wood fixtures and a kind of casual, barn-inspired theme. At its worst, “rustic” might mean old, unprofessionally constructed, or poorly maintained.

21. Modern

Here’s a tricky one. Although you might assume “modern” means that a place is newly constructed and contemporary in style, it can also refer to mid-century modern, an era of architecture and design that took place between the 1930s and 1950s.

22. Great potential

In a similar vein to “good bones” or “hidden gem,” a home with “great potential” is typically one that provides an opportunity for the right buyer — but which likely needs some work to get there.

23. TLC

Short for “tender, loving care,” TLC is yet another term in real estate listings that typically indicates the home in question needs some renovations and repairs before it’s comfortable — or even livable.

24. Well-maintained

This is another term that sounds good on its surface — and might be! However, it can also be a yellow light. “Well-maintained” often indicates that a property has some age on it. (After all, if it’s new, there’s nothing that has needed maintenance yet). An older home isn’t automatically a bad thing, but it does mean you may be faced with upgrades or appliance replacements sooner rather than later.

25. Original details

As with “well-maintained,” “original details” suggests that the home has some older features that you may love, but may also require some maintenance/upgrading in the future.

26. Up-and-coming neighborhood

An up-and-coming location is one that might actively be evolving or drawing new residents. However, it can also indicate that the neighborhood may still contain a fair number of run-down homes and have a way to go before it’s considered a hot housing market.

27. Built-ins

Built-ins are features like bookshelves, benches or cabinets that are permanently built into the home itself, and are fairly common in older construction. Built-ins can be charming and convenient, but can also limit the flexibility you have in arranging and decorating the space as you see fit.

28. Motivated seller

“Motivated seller” may mean almost the opposite of “priced to sell” (above): It indicates that the seller is motivated to make a deal go through and may be willing to hear lower offers or make negotiations in order to get it to happen.

29. Location, location, location

Perhaps one of the most common real-estate-related catchphrases, if a listing puts a heavy emphasis on a property’s location, it could potentially indicate that the house itself leaves something to be desired (even if the location it’s in is fantastic).

30. Natural landscaping

“Natural landscaping” might indicate that there’s actually very little landscaping at all. Rather, the property might have lots of wild-growing flora that needs to be cleared to create an organized outdoor living space.

31. REALTOR (in all caps)

Although “real estate agent” and “realtor” are often used interchangeably, REALTOR is actually a term trademarked by the National Association of REALTORS (NAR) . Real estate agents can only use the title REALTOR in all caps if they are members of NAR, and adhere to the organization’s strict code of ethics.

The Takeaway

If you feel like property listings are sometimes written in a foreign language, you’re not entirely off-base. Listing agents often use terms that may be well-known in real estate circles, yet are unfamiliar to the average first-time home-buyer.

Agents may also use vague-sounding terms and phrases to make a home’s less-appealing qualities sound more attractive.

Knowing how to decode real estate listings can be a great first step toward finding the perfect home. Another step you may want to take is to pre-qualify for a mortgage.

SoFi offers home loans with as little as 5% down. It only takes two minutes to find out if you pre-qualify and what your options are for potential rates.

House hunting? Learn more about SoFi home loans today.

Photo credit: iStock/irina88w

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

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Everything You Need to Know About Remodeling Recessed Lighting

Everything You Need to Know About Remodeling Recessed Lighting

For homeowners looking for relatively small projects to better enjoy and increase the value of their homes, remodeling with recessed lighting is a good move. That’s because upgrading your current lighting to recessed can lighting has the potential to create a more functional—possibly more energy-efficient—lighting scheme that could make your home feel more welcoming to buyers when the time comes to sell.

What Is a Recessed Light?

Recessed lighting is a lighting fixture that is set into a ceiling, virtually flush with the ceiling rather than hanging down from it. They’re often referred to as “can lights” or “downlights.”

Installation requirements for and the recessed lighting fixtures themselves are different for a remodel than new construction, depending on access to the area above the ceiling.

Generally speaking, it’s more common to have access to that space while a house is being constructed than for a house that’s already built. But for remodeling projects that do have that access, recessed lights for either new construction or remodels should work.

There are two main parts to a recessed light—housing and trim—with multiple options for each. The two parts can be purchased together in a kit or they can be purchased separately.

Housing: The housing is the portion set into the ceiling and, depending on the type of fixture, can be visible or fairly hidden, and plain or decorative. It’s the part that is actually mounted to the ceiling and houses the bulb socket.

Trim: The trim is the most visible part of a recessed lighting fixture. Some types of trim are merely a ring covering up the edge of the housing, allowing more of the inner housing to be visible. Other types of the trim cover more of the housing, placing the emphasis on the level of illumination or where the light is directed.

Homeowners who want to change the look of existing recessed lighting can usually change the trim without needing to replace the housing. This is called retrofitting.

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What To Consider When Deciding To Add Recessed Lighting

There are a host of factors to consider when planning to add recessed lighting to an existing home, from what function the lighting will perform to the style of light that will work with the architecture of the home, as well as project cost and more.


Will the light be to generally light up the room? Or will it be to draw focus to a piece of art?

To add general lighting to a room—a living room, for instance—ambient downlights will provide even lighting throughout the room. The number and placement of lights will depend on the size and shape of the room.

If the goal is to have better lighting when performing certain tasks, such as in a kitchen, spotlights placed in areas above where those tasks are done will serve this purpose well.

A good example of this is bright lighting placed over the kitchen sink area so those dirty dishes can come out sparkling clean, or over a counter section where most of the food preparation is done.

Some people might have artwork or architectural detail to accent. For those purposes, recessed lighting that can be pointed in the desired direction would be optimal.


There are four main bulb categories: incandescent, halogen, compact fluorescent (CFL), an LED, all in a variety of wattages. Recessed lighting kits may also come with integrated lighting is soft, bright, or daylight color temperatures. Custom installations are available with lighting that can be adjusted with smart technology. It’s best to check the package information for the correct type of lightbulb and maximum wattage for the fixture.

Incandescent bulbs, the long-time classic, provide general lighting with a warm glow. Halogen bulbs have a similar color temperature to incandescents. The main difference between the two is the gas inside of each: Incandescents are filled with a gas such as argon or nitrogen, while halogens are filled with … a halogen gas. Halogen bulbs are more energy-efficient than incandescents, using 20% to 30% less energy.

Both of these types of bulbs are being phased out across the US, however, with outright bans proposed in some states, in favor of more energy-efficient bulbs.

CFLs were introduced in the mid-1980s, but their relatively high price tag—$25 to $35 per bulb—was a hard sell, even to consumers who were starting to become more energy conscious.
A main advantage to the CFL is that they are easy to fit into a regular socket because they have the same size base as old-style incandescents. Their reputation for having a long life, 6 to 15 times as long as incandescents, has enabled them to remain a popular choice.

The drawback, and a reason they have begun to fall out of favor recently, is that they contain small amounts of environmentally harmful mercury. For this reason, they should be recycled instead of disposed of, which some consumers find inconvenient.

Another option for recessed lighting is an LED bulb, and it’s quickly becoming the standard. These light-emitting diode (LED) bulbs use semiconductors to convert electricity into light, a process that doesn’t emit heat as incandescents or CFLs do.

They’re much more energy-efficient than other lighting options, as well, using 80% less energy than incandescents and lasting 25 times as long. Unlike CFL bulbs, LEDs don’t contain mercury, nor do they contain wire filaments like incandescents and halogens, so it’s safe to dispose of them in regular household trash.


Including recessed lighting in an existing home remodeling project typically requires fixtures that are supported by metal clips that are pushed through the housing onto the top of the drywall or plaster of the ceiling. This differs from new-construction fixtures in which the fixture’s frame is screwed or nailed to the ceiling joists, which are accessible during the construction process.

Homeowners who have access to space above the ceiling where the fixture will be placed, such as attic space, may be able to use new construction fixtures. An advantage to this option is that fixtures made for new construction are generally less expensive and offer a wider range of trims than remodel fixtures.

Insulation is also a factor. If the lighting fixtures will be installed in an area where they will be in contact with insulation, they should be insulation compatible (IC)
rated. If not, an alternative solution would be to use a fire-rated recessed light cover to go over the fixture’s housing in the attic.

Another rating to look for is the AirTight (AT) rating. This rating indicates that the fixture should keep heat from escaping. This might be less of a concern if there is living space above the room with recessed lighting, but when installing recessed lighting in a room with unfinished attic space above, the AT rating may be something to take into account.

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The cost to install recessed lighting in an existing home is dependent on several factors. How many lights will be installed? What type of recessed lighting will be installed? Will there be labor costs if the job will be done by a professional? How much drywall repair and repainting will be needed after the installation is complete?

On average, recessed lighting costs about $360 per fixture when installation is being done by a professional. A typical kitchen, for instance, might require six fixtures, for a total cost of $2,160. This cost can vary, of course, based on the number and type of fixtures, trim, and bulbs chosen.

Recessed lighting is a common feature in kitchen and bath remodels, both of which have a high return on investment. While the lighting itself might not be the ultimate selling point for someone thinking of purchasing a home, updating the lighting when undertaking a remodeling project just might add to that ROI.

Recommended: The Top Home Improvements to Increase Your Home’s Value

The Takeaway

Adding recessed lighting to your home is one way to increase the cozy factor while maintaining the home’s value for a relatively small investment. Understanding the scope of the job will make it easier to estimate how much it might cost and how best to pay for it based on your particular financial situation.

Looking into rebate programs or federal and state financial assistance programs might help with the costs associated with adding recessed lighting to a home. Another option may be a personal loan to help pay for the project costs.

SoFi unsecured personal loans have no fees and low rates, with funding in as little as three days. Checking your rate takes just two minutes via an easy online process.

Learn more about personal loans from SoFi.

Photo credit: iStock/Yulia Romashko

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