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If you’re buying a flipped property and are planning to use a loan backed by the Federal Housing Administration (FHA), you need to be aware of the FHA flip rule, also known as the 90-day FHA flip rule. It could prevent you from buying the property or cause delays.

The main thing to know is you can’t use an FHA loan for properties that have been owned for less than 90 days by the seller. This is to prevent fraud and to protect you and the lender.

We’ll explain everything you need to know about the rule, including:

•   What is property flipping and what to watch out for

•   The purpose of the FHA flipping rule

•   How timing of the purchase contract affects FHA financing

•   What exemptions there are

•   How to comply with FHA guidelines on flips

What Is Property Flipping?

Property flipping is where an investor acquires a property with the intent of quickly selling it for a profit. The investor can renovate, landscape, develop raw land, or complete other projects to improve the property and then put it right back onto the market. It’s also common to generate profit through rapid property appreciation in hot real estate markets.

None of the above activities is prohibited. But when a property is sold for a large profit soon after being acquired, it could potentially signal illegal activity. Illegal property flipping is where the investor sells the property at an artificially inflated price, usually through collusion with the appraiser. Overvalued properties can be a problem for legitimate buyers as well as mortgage lenders, including with FHA loans. Hence the flip rule the FHA has created to protect borrowers.

Reasons for FHA Flipping Rules

The purpose of the FHA flip rules is to prevent the FHA from taking on loans at inflated values, and in the process, protect buyers from being taken advantage of. The FHA states that most flipping occurs within days of the original purchase with little improvement taking place. (An FHA loan buyers guide details other important rules surrounding FHA loans.)

FHA Flipping Rules Explained

The FHA flip rules are primarily concerned with the amount of time the property has been owned prior to being resold. It was implemented in 2003 by the Federal Housing Administration to try and prevent the kind of illegal flipping mentioned previously. Lenders rely on information provided by an appraiser to follow the rule. The nitty gritty:

90-Day Flipping Rule

Under the FHA 90-day flip rule, you can’t finance property with an FHA loan if it was bought by the seller less than 90 days ago. Other requirements include:
The property must be sold by the owner of record
The lender must obtain documentation verifying the seller as such
The purchase can’t involve a sale or assignment of contract

The FHA counts 90 days from the seller’s day of settlement to the day the next contract is signed. There are some additional requirements for purchasing a flipped property from 91 to 180 days after the seller’s day of settlement.

How the FHA Flip Rules Work from 91 to 180 Days

If the property is sold between 91 and 180 days from the settlement date, a second, independent appraisal may be required to verify the value. The second appraisal is required if the value is more than 100% above the price the seller paid. The seller cannot require the buyer to pay for the second appraisal. For example, if the home was purchased by the current owner for $100,000 and the new value is $200,000 or more, a second appraisal would be required.

Exceptions to the 90-Day Rule

There are a few exceptions to the 90-day rule. A property may be eligible for an exemption from the FHA flip rule if it was acquired for its owner by an employer or a relocation agency or if it is:

•  HUD Real Estate Owned

•  Sold by local, state, or federal government agencies

•   Sold by Fannie Mae or Freddie Mac

•   Inherited property

•   In a presidentially declared disaster area

•   An initial builder sale

Property Eligibility Requirements

There are no property requirements with the FHA flip rule — the rule applies equally to all properties with the exception of those noted above. The only factor the FHA is concerned with when it comes to this rule is the amount of time the seller has owned the property. If it’s less than 90 days, you can’t finance it with an FHA loan. And if you’re between 91 and 180 days and the amount is 100% more than what the property previously sold for, two appraisals may be required.

Recommended: Minimum Down Payment for FHA Loan

Complying with FHA Flipping Guidelines

It’s easy to comply with FHA flipping guidelines. That’s because your lender can’t give you an FHA loan if the property has been owned less than 90 days.

The onus falls to the FHA appraiser to properly document the date and amount of prior transactions in the appraisal report. The lender submits this information to the FHA when making your application.

Documenting Property Acquisition

The appraiser is tasked with documenting the date of acquisition for the seller and will also verify that the seller is the owner of record. Verification may include documents such as the property sales history, a copy of the recorded deed, a copy of the property tax bill, and a title search.

Appraisal Requirements

Appraisers must include all transactions in the previous three years on their Uniform Residential Appraisal Report (URAR) to submit to the lender. They must also consider and analyze the comparables used to determine the value of the property being sold.

Consequences of Not Following the FHA Flip Rules

The main consequence for not following the FHA flip rules is that your mortgage application may be denied.

Alternatives to FHA Loans

If you have your eye on a flipped property that has miraculously been significantly improved in less than 90 days, there are other roads you can take to acquire it. These include:

•  Waiting to write the contract until the seller has owned it 91 days (and getting that second appraisal if necessary)

•  Financing with a conventional loan, or applying for a VA loan if you are eligible

•  Arranging seller financing

No other loan type has a flip rule like the FHA, so if you’re really intent on buying that flip, you can also explore another loan type. Read up on FHA loans vs. a conventional mortgage, then talk to a lender, ideally one that offers both FHA and conventional loans.

The Takeaway

For the most part, the FHA flip rules are simple to understand and follow. Basically, you won’t be able to get an FHA loan on a property that the seller purchased less than 90 days ago. The lender is the one who is required to follow the rule.

Documentation requirements fall on the appraiser and the lender, so it’s important to start with a lender you trust. There’s nothing more steadying than a lender that can be there for you every step of the way.

SoFi offers a wide range of FHA loan options that are easier to qualify for and may have a lower interest rate than a conventional mortgage. You can put down as little as 3.5%, making an FHA loan a great option for first-time homebuyers.

Another perk: FHA loans are assumable mortgages!

FAQ

What qualifies as a property flip under FHA rules?

It’s not the property that has requirements, it’s the timeline. Any property can be considered a flip if it’s owned for fewer than 90 days.

Can FHA borrowers purchase a recently flipped property?

FHA borrowers are allowed to purchase a recently flipped property as long as the owner of record has owned the property for at least 90 days. The amount they’re purchasing it for has a limit of 100% of the original value if purchased between 91 and 180 days after the original owner’s purchase, or else they’ll need an additional appraisal. After 180 days, the extra appraisal is asked for at the FHA’s discretion.

How is the 90-day flipping period calculated?

The FHA counts 90 days from the settlement date of the current owner to the day the new purchase contract is executed.

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Photo credit: iStock/warrengoldswain

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. ^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SOHL-Q324-024

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40-year mortgages aren’t exactly what you think they are, and we’re here to clear up the confusion. Yes, a 40-year mortgage is only 10 years longer than the traditional 30-year mortgage, but the increased time to amortize interest makes it significantly more expensive. Though it may seem more affordable on a month-to-month basis, the increased amount of interest you’ll pay over the entire loan makes it hard to pay off the principal and build equity.

Additionally, 40-year mortgages are not backed by the federal government, so it can be hard to find a lender that originates them.

Here’s a deep dive on exactly what they are, how to qualify for one, how much they cost, how they compare with other loan terms, and what factors you’ll want to consider if you’re thinking about a 40-year mortgage.

Understanding a 40-Year Mortgage

To understand a 40-year mortgage, it’s important to look at how the mortgage market works and where a 40-year mortgage fits. With a traditional 30-year mortgage, the loan is typically sold on the secondary mortgage market to be bundled into securities by government-sponsored enterprises Fannie Mae and Freddie Mac.

To be eligible for sale, the loan must meet certain criteria to be considered a “qualified” mortgage. One of these criteria is that the loan term must not be longer than 30 years (the average mortgage term length in the U.S. is three decades). So a 40-year loan isn’t considered a qualified mortgage. You might also see it referred to as a “nonconforming loan.”

Because a 40-year mortgage can’t be backed by the government, it’s harder and more expensive to originate. As a result, this type of mortgage often doesn’t make sense for borrowers or lenders.

Recommended: What Is Mortgage Curtailment?

How a 40-Year Mortgage Works

When lenders do offer 40-year mortgages, there are a number of different ways these loans can be structured.

•  ARM: The 40-year mortgages can be adjustable-rate mortgages (ARMs) where the interest rate adjusts every five or ten years.

•  Interest-only for 10 years + 30-year term: They can also operate like a 10-year interest-only loan tacked on to the front of a traditional 30-year mortgage.

•  Fixed 40-year term: They can also work as a 40-year fixed loan, much like a 30-year fixed-rate loan.

Most 40-year loans require that the property be owner occupied. But the biggest hurdle you’ll encounter in the mortgage process is finding a lender that offers 40-year mortgages. Qualification works as it does with a 30-year loan, but because the lender has to keep the loan on its books, it will be extra judicious about lending when it comes to a 40-year mortgage.

40-year Loan Modification

If you’re reading up on 40-year mortgages, you may run across the term as it relates to home loan modifications. Borrowers with FHA loans (from the Federal Housing Administration) who got into financial trouble during the COVID-19 pandemic may have the opportunity to have their loans modified (or “recast”) into 40-year loans.

Advantages and Disadvantages

With a typical 40-year mortgage, it’s clear what the advantage is because there’s only one: a lower monthly payment. A lower monthly payment may make buying a home possible for some borrowers, so it’s tempting to look at a 40-year mortgage despite the drawbacks.

The lone pro, as well as the risks and drawbacks of a 40-year mortgage, can be summarized as follows:

Pros	Cons
Lower monthly payment	Pay more in interest over a 40-year term
	May have a higher interest rate
	Builds equity more slowly
	Hard to find a lender who offers this loan type

Qualifying for a 40-Year Mortgage

Qualifying for a 40-year mortgage is similar to qualifying for other types of mortgages. In addition to the loan type and interest rate the lender can offer you, other mortgage qualification factors may include:

•  Credit score. There is no minimum score required specifically for 40-year mortgages but generally, the better the score, the better your rate.

•  Income verification. The lender will examine your employment history and how reliable your source of income is.

•  Debt-to-income ratio. How much debt you have affects how large a mortgage you can take on. Higher debt equals less borrowing power.

•  Down payment. The down payment affects the loan-to-value ratio, which affects how much the lender is willing to lend and what rate it will offer.

Recommended: How to Get a Home Loan

Comparing 40-Year Mortgage to Other Loan Terms

When you look at the costs on a 40-year mortgage, it becomes very clear what the tradeoff is. Here is an example using interest rates available in August 2024. Note that the 40-year example has a rate that adjusts every five years, so the total interest paid is an estimate.

	Mortgage amount	Interest rate	Monthly payment (principal and interest only)	Total interest paid over the term
40-year 5/5 adjustable rate mortgage	$450,000	6.625%	$2,674.73	$833,870.52
30-year fixed mortgage	$450,000	6.500%	$2,844.31	$573,950.20
15-year fixed mortgage	$450,000	6.250%	$3,858.40	$244,512.52

For a 40-year loan, you’ll pay $833,870.52 in interest for a $450,000 mortgage. In total, that’s $1,283,870.52 you’ll pay for the $450,000 loan.

The monthly payment on a 40-year mortgage is only about $200 less for a $450,000 mortgage. All told, you would save nearly $300,000 by choosing a mortgage term of 30 years vs. a 40-year mortgage. Borrowers who opt for the lowest payment with an idea that they would pay off the mortgage early would be wise to make sure they understand whether there are prepayment penalties before signing on the loan.

Factors to Consider with a 40-Year Mortgage

Because of how much more you’ll pay for a 40-year mortgage vs. 30-year mortgage, a 40-year loan comes with some serious considerations.

Long Repayment Period

A 40-year mortgage loan will take much longer to pay off. And because you’re paying a greater percentage of interest in the beginning of your loan, it will be hard to pay down the principal for quite some time.

Building Equity Is Difficult

As noted above, a 40-year mortgage loan makes building equity more difficult because of the increased interest costs. Difficulty building equity can make it harder to move because you may not have adequate profits from the home sale to make a down payment on your next home. It can also make refinancing challenging.

Interest Costs Are High

When you look at a mortgage calculator, you may be quite shocked at how much more interest you’ll pay on a 40-year mortgage when compared to a 30-year mortgage, as illustrated previously.

When a 40-Year Mortgage Makes Sense

A 40-year mortgage could make sense if:

•  You plan to refinance to a different mortgage term in the future. If you need to keep monthly costs as low as possible and refinance at a later date, such as when you’re renovating your home, then you may want to consider a 40-year mortgage.

•  It makes a difference in home affordability. If the difference between buying a home and not buying a home is a 40-year mortgage, you’re probably thinking about the 40-year mortgage. Hopefully, you could refinance down the line and save yourself a large chunk of money.

As mentioned previously, the high cost of a 40-year mortgage is a major drawback. The total amount of the mortgage works out to be hundreds of thousands more when compared with a traditional 30-year mortgage. Be sure you’re aware of the increased costs and risks before committing to a 40-year mortgage.

Note: SoFi does not offer a 40-year mortgage. However, SoFi does offer conventional mortgage loan options.

The Takeaway

The 40-year mortgage isn’t common and there are few scenarios where it makes sense. When you compare a 30-year mortgage with a 40-year mortgage, you’ll only pay a couple hundred dollars more per month on a 30-year mortgage, but you’ll save hundreds of thousands of dollars over the life of the loan. If you’re considering a 40-year mortgage, consult a lender you trust. They will have many tools at their disposal for helping you afford a home of your own.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Are 40-year mortgages widely available?

No, 40-year mortgages are not common because they aren’t considered conforming, qualified mortgages. Qualified mortgages follow guidelines set by the government so they’re less risky and able to be bought by Fannie Mae and Freddie Mac. A 40-year mortgage falls outside the maximum allowable 30-year term for a qualified mortgage.

Can I refinance a 40-year mortgage later?

Yes, you can refinance a 40-year mortgage at a later date, provided you can qualify for the new loan you’re applying for.

Is a 40-year mortgage a good option for first-time homebuyers?

There are serious downsides to a 40-year mortgage. It may have a more affordable monthly payment than a 15- or 30-year mortgage, but you’ll have a hard time building equity (which is important for first-time homebuyers) and you’ll pay much more in interest over 40 years than you would 30 years.

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Photo Credit: iStock/gradyreese

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.
^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

SOHL-Q324-022

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If you’re in the market for a new home, you’re likely no stranger to browsing online listing services. During your search, you may come across a listing that’s marked as active contingent. What does active contingent mean and how does it impact the homebuying process? In this guide, we’ll define active contingent and explore common types of contingencies.

What Is Active Contingent Status?

When a real estate listing has an active with contingency status, it means that the seller has accepted a buyer’s offer, but there are certain conditions (known as contingencies) that have not been addressed yet. These contingencies must be resolved before the sale of the property can be finalized.

Other buyers interested in the property may choose to submit a back-up offer in case the contingencies aren’t met and the deal falls through.

How It Differs from Other Listing Statuses

Every industry has its jargon, including real estate. Active contingent is just one of several statuses buyers might encounter while house hunting.

An active listing, for instance, is currently on the market for sale. Offers on the property may have been submitted, but none have been accepted yet, so buyers have the green light to make an offer.

Under contract is often used interchangeably with active contingent. Both mean that the seller has accepted a buyer’s offer, but the sale still depends on certain circumstances being resolved.

A listing with a pending status is farther along in the transaction process. The key difference between pending and contingent status is that the buyer contingencies have been satisfied when a listing is marked as pending. Alternatively, it could mean a buyer made an offer with no contingencies and the deal is moving toward closing, barring any unexpected issues with an inspection or securing a home loan.

Buyers can make an offer on a property, even if the status is pending, though it’s up to the sellers if they want to continue showing the home.

Recommended: Tips to Qualify for a Mortgage

Common Types of Active Contingent Scenarios

What does active contingent mean in different scenarios? There are several types of contingencies that can be included when making an offer on a home. Here’s a look at the most common contingencies in real estate transactions.

Home Sale Contingency

A home sale contingency makes an offer on a property conditional on the buyer’s sale of their current home.

There are two types of home sale contingencies that affect active contingent meaning: a sale and settlement contingency and a settlement contingency. With a sale and settlement contingency, the buyer has not yet accepted an offer on their current home. Meanwhile, a settlement contingency involves a buyer with a house under contract, but not yet sold.

According to a National Association of Realtors® study, around 53% of repeat buyers in 2023 used proceeds from their home sale to make a down payment on their new home, meaning buying and selling a house at the same time — and settlement contingencies — are probably quite common.

Financing Contingency

A financing contingency, also known as a mortgage contingency, is just as it sounds: a clause that allows buyers to walk away from a home purchase if they’re unable to secure financing. There’s typically a time frame included with a financing contingency — often 30 to 60 days — that the buyer and seller agree to in the purchase contract.

Either the seller or buyer can exit the agreement during the financing contingency period without penalty, meaning that the buyer can get their deposit back and the seller can accept other offers.

Financing a home purchase isn’t just for first-time homebuyers — around 80% of home buyers used financing in 2023. Getting mortgage preapproval before making an offer on a home can help reduce the risk of not qualifying for financing later on.

Appraisal Contingency

What is active contingent if an appraisal is involved? If a contract has an appraisal contingency in place, the buyer can back out of the deal and get their deposit back if the property doesn’t appraise for the amount they agreed to purchase it for.

Home appraisals are typically required when taking out a mortgage or refinancing to determine the fair market value of a property. If the appraisal comes in lower than the offer, buyers have options to keep the deal alive instead of walking away. Namely, they can renegotiate with the seller or make up the difference in the appraisal gap with a larger down payment.

Inspection Contingency

An inspection contingency gives buyers the option to exit a deal if major defects or structural issues are identified during a home inspection. If making an offer with an inspection contingency, the buyer has a set timeframe (usually 7 days) to hire an inspector. The home inspection cost is paid by the buyer and it may be required by the mortgage lender.

Completing a 4-point inspection provides a review of the property’s major systems, including electrical, HVAC, plumbing, and roofing, and this may be all that a homeowners insurance company requires. But a fuller home inspection might turn up issues a 4-point one would miss so it’s worth getting a full home inspection. Buyers can also hire a specialist to examine any issues identified during an inspection in more detail.

An inspection contingency may include a maximum dollar amount for repairs that allows the buyer to walk away from the contract. If they choose to negotiate instead, there’s typically a timeframe for the seller to make necessary improvements or lower the sales price to match the cost of repairs.

Recommended: 10 Tips for Selling Your Home Fast

Implications for Buyers and Sellers

Contingencies carry implications for both buyers and sellers. For sellers, it’s important to review the terms of any contingencies and assess whether it’s likely they can be resolved for the sale to move forward in a timely fashion.

Suppose an offering includes a home sale contingency. Sellers can practice due diligence by checking if the buyer’s home is currently on the market, and if so, what the listing price is and how long it’s been on the market. This information can help decide if the risk associated with the contingency is worth taking.

Contingencies can provide a safety net for buyers to get their deposit back and exit a deal if their mortgage approval or sale of their current home falls through. While limiting contingencies could potentially make an offer more attractive, it’s similarly important for buyers to exercise due diligence in making sure they’re prepared to move forward with a home purchase. This could mean paying repairs out of pocket or taking out a bridge loan to close on a new home before selling a previous residence.

Impact on Real Estate Markets

Homes with active contingent status are still on the market, meaning buyers can request to view a property and make an offer.

Since contingencies pose risk that a deal will fall through, some sellers include a “kick-out” clause in the agreement to increase their chances of getting a better offer. With a kick-out clause, the buyer can accept a noncontingent second offer while the property is still active contingent. In this scenario, the buyer who made the first offer can either remove their contingencies or back out of the deal.

The Takeaway

What does active contingent mean? Put simply, it means a seller has accepted an offer with contingencies that haven’t been met yet. Active contingency meaning varies from deal to deal and may involve a home inspection, securing financing, or a buyer selling their previous home.

It’s important to have your financial ducks in a row if you’re considering an offer on an active contingent property. That way, you’ll be prepared if the initial deal falls through.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can I make an offer on an active contingent property?

Yes, you can make an offer on a property with active contingent status. This will serve as a backup offer in case the initial deal falls through.

How long does active contingent status typically last?

A property has an active contingent status until all contingencies are resolved, but the window for doing so typically spans 30 to 60 days.

Is an active contingent listing still considered “on the market”?

Yes, an active contingent listing is still on the market, meaning it can be shown to interested buyers and the seller can accept backup offers.

How does active contingent differ from a pending sale?

A pending sale is moving forward to closing, whereas active contingent status means that certain contingencies, such as financing or a home sale by the buyer, haven’t been met yet.

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Photo Credit: iStock/deliormanli

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

This article is not intended to be legal advice. Please consult an attorney for advice.

SOHL-Q324-025

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Buying a home with a significant other is a big investment and commitment, but having two incomes can more easily open the door to homeownership.

If you’re buying a house with a lover (or with a friend, parent, or sibling), here are a few things to know.

What You Should Know When Buying a House Unmarried

Before sharing a mortgage and house, a few heart-to-hearts about your purchase partner’s financial health and yours are in order. Being frank about debts, income, and projected job security is important. It’s a good idea to explore what-ifs as well.

Here’s a list of suggested questions to answer before sharing a deed or a home mortgage loan:

•   Is the down payment to be evenly divided?

•   Will mortgage payments, insurance, property taxes, any mortgage insurance and homeowners association dues, repairs, and utilities be split evenly? If not, how will they be divided up?

•   What will happen if one person is unable to make their portion of the mortgage payments for a while?

•   What will happen if one homeowner dies?

•   If one person leaves and the mortgage is refinanced to remove one of the signers, who pays for the refinancing?

Most lenders underwrite each individual on the home loan. The weaker link will most likely determine the rate at which you can borrow money as a duo — or whether you can get a loan at all. When lenders pull credit scores from the three main credit reporting agencies, they usually focus on the middle score. Let’s say your middle score is 720, and your co-borrower’s is 650. Lenders will use the lower of the two for the application. Even a small change in interest rate can result in significantly more money paid over time. (See for yourself with this online mortgage calculator.)

Loans underwritten by Fannie Mae do have one exception to this rule. To determine whether an unmarried couple is eligible for a loan underwritten by Fannie Mae, a lender will look at the average of their credit scores. As long as the average tops 620, the loan will be considered even if one borrower’s credit score is below 620 (in the past, if either borrower had a score below 620 they would not have been considered for the loan).

Buying a Home Married vs Unmarried

Married couples often merge their finances and operate as a single unit. If spouses are pulling from the same pool of money, they don’t generally mind shortages from a partner when the mortgage payment is due.

Unmarried co-borrowers going in on a house together may need each party to pull its weight each and every month.

Then there’s this: What if a co-owner dies?

For the most part, a spouse has the legal right to inherit property from their partner whether or not the deceased spouse had a will. Domestic couples may have no automatic right to inheritance if a co-owner dies without a will in place (this is known as dying intestate).

Additionally, depending on the state and the way the married couple holds title, the surviving spouse will receive a partial or full step-up in basis upon the first title owner’s death, meaning the property’s cost basis will be reset to fair market value when one spouse dies. If the inheriting spouse decides to sell the property, the stepped-up basis will greatly minimize capital gains taxes owed or translate to none owed at all.

The step-up in basis is one way that some families harness generational wealth through homeownership. Unmarried co-owners should be clear about how they hold title and what that means in case one partner dies.

How to Handle the Title

Two or more unmarried people can take title to a house. The main two forms are:

Tenancy in common. This arrangement allows equal or unequal ownership; that is, one person may own 60% of the property and the other person, 40%. If one owner dies, their share of the property passes to their heirs. It does not pass automatically to the surviving co-owner.

Tenancy in common allows one owner to transfer their interest to another buyer or use their share as collateral for financial transactions. And creditors may place liens on that person’s share of the property.

Joint tenancy with right of survivorship. Each person owns 50% of the house. Upon the death of one of the joint tenants, the property passes automatically to the surviving owner.

If you want to sell your share, you don’t have to ask for permission to do so. Any financing involving the property must be approved by both parties. Creditors trying to collect a debt from one of the homeowners may petition the court to force a sale in order to collect.

A third option is sole ownership, when only one person is on the title. The person left off the title risks walking away with nothing if the relationship sours.

Preparing for the Mortgage Application

The mortgage process is mostly the same whether applying solo or with a co-borrower.

It begins by getting a feel for how much house both of you can afford. Getting prequalified and using a home affordability calculator are quick ways to estimate your maximum budget. Then talk about these questions:

Are you aware of each other’s credit scores, incomes, and debt burdens?

Is each of your debt-to-income ratios around 36%, max? If so, good, because this is a team effort.

Have you agreed on the type of loan that fits your needs? If not, a mortgage broker or direct lender can guide you.

Do you want the standard 30-year mortgage term, or is it in the budget to seek a shorter term, which will mean higher monthly payments but less interest paid?

Combining forces can make homeownership possible, especially for first-time homebuyers and anyone in a hot market. That’s exciting.

How to Make the Property Purchase 50/50

When each co-owner has a 50% share of the property, the status is joint tenants with right of survivorship.

Your real estate agent or attorney will need to be careful about the wording in the deed. It should reflect the desire to create joint tenancy, not tenancy in common.

What Happens If You Part Ways?

It’s a good idea to go into the deal with a written buyout agreement, just in case.

But if a pact is not in place, here are steps you could take to acquire the co-borrower’s share:

1.    Hire an independent appraiser to determine the property value.

2.    Find the difference between the mortgage balance and appraised value. That’s the equity in the house. If you each have a 50% share in the house, divide equity by two.

3.    Negotiate the buyout price. If you can’t come up with cash, take any refinancing costs into consideration and …

4.    Apply for a cash-out refinance. You’ll need to qualify on your own.

5.    Have a real estate agent create a detailed purchase agreement. You are the buyer, and the co-owner is the seller.

6.    If your refinance is approved, you will sign a deed transferring the seller’s interest in the property to you. The cash-out refi loan will pay off the original loan and, with luck, will provide the cash you need to pay your former co-borrower.

7.    The former co-owner signs a certificate of title, deed of sale, loan payoff, and statement of closing costs to make you the sole owner.

If that route is not viable, you may need to get the co-borrower to agree to sell the house. If yours is an assumable mortgage, good. They’re in demand.

The Takeaway

Buying a house with someone you are not married to works similarly to purchasing a property when married, but there are some important conversations to have about how ownership is structured and what might happen if one of you dies or wants to sell. The more solid each buyer is financially, the better the chances of a good mortgage rate.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What happens if one of us is not on the mortgage?

If two people’s names are on the deed but just one is on the mortgage, both are owners of the home but only one is liable for repaying the mortgage loan.

What needs to change if I get married?

If co-borrowers marry, the deed will need to be updated.

To add a spouse’s name to the deed, you must file a quitclaim deed. You can transfer the ownership rights from yourself to yourself as well as other people. Once a couple marries, they may want to hold title with rights of survivorship if they do not already.

Can I add my partner’s name to the mortgage after buying the house?

No. You’ll need to refinance your mortgage.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

This article is not intended to be legal advice. Please consult an attorney for advice.

‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.

Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.

SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.

If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.

Reward is valid for 18 months from date of enrollment. After 18 months, you must re-enroll to be eligible for a reward.

SoFi loans subject to credit approval. Offer subject to change or cancellation without notice.

The trademarks, logos and names of other companies, products and services are the property of their respective owners.

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For both buyers and sellers, real estate inventory is a key factor to note. When inventory is abundant, buyers may have the upper hand. If the list of available properties is short, sellers may be able to command higher prices. This means that whether housing inventory is high or low can impact your strategy if you are hunting for a home or trying to get yours sold.

It pays to keep your eye on the market, as inventory can sometimes change swiftly. In recent memory, we’ve seen a pandemic-fueled buying frenzy that fueled bidding wars. As mortgage rates rose, some markets evolved into low-demand, high-availability scenarios.

Here’s a closer look at how to gauge the local real estate market and navigate high and low housing inventory through the perspective of buyers vs. sellers.

What Is Housing Inventory?

An area’s real estate inventory can be thought of as the current supply of properties for sale. The housing inventory will increase or decrease according to the difference between the rate of new listings on the market and the number of closed sales or houses taken off the market for other reasons.

Although this calculation can be done at any time, it’s common practice to assess the balance at the end of the month. Comparing monthly figures can show if housing inventory is trending up, down, or staying relatively stable.

If there appears to be a rapid trend in either direction, it may signal the need to take quick action on a purchase or sale (seeking preapproval for a home loan, for example), or take a wait-and-see position and hold off for a while.

Even within a town or city, real estate inventory can vary significantly. To better understand your local housing market trends, you can dig deeper into important indicators like average time on the market and average price of nearby homes or in your desired neighborhood. Next, we’ll delve into this in more depth.

High Housing Inventory

An area with a high housing inventory has more properties on the market than there are people looking to buy. This can also be referred to as a buyer’s market, since the larger selection of homes usually favors prospective buyers more than sellers.

These conditions may cause the price of homes to stagnate or, in more extreme cases, fall. Typically, the average property will also take longer to sell in this environment.

Still, there’s a huge variety of financial situations and unique property characteristics out there. Each case will be different, but here are some considerations if you’re buying or selling during a moment of high housing inventory.

If You’re a Buyer Amid High Housing Inventory

In many cases, shopping for a new home during high housing inventory can be a blessing.

•   Take it slow (or at least slower). You may be able to see multiple properties before making an offer and size up which home best suits you. High housing inventory means there are fewer buyers to compete with, so there’s less of a risk that homes will quickly get scooped up.

•   Shop around. Knowledge is power when it comes to making an offer. Having viewed comparable houses in the area firsthand could help when it’s your turn at the negotiating table.

•   Do your research. Other property details, such as price reductions and total days on the market, are potential indicators that sellers might be ready to accept an offer below asking price.

Although buyers can have a comparative edge when housing inventory is high, there is, of course, still a chance of multiple offers and bidding wars for well-priced homes. There are likely to be others who want to take advantage of what may be called a soft market in real estate terms.

Recommended: A Guide to Real Estate Counter Offers

If You’re a Seller Amid High Housing Inventory

Putting a property on the market in a location with high housing inventory may require investing more time to find the right buyer. After all, you’re not the only game in town. However, there are several strategies at a seller’s disposal to unload a house without financial loss.

•   Fix it up. To stand out in a crowded field, it can help to address any persisting issues and accentuate your home’s best assets. Parts of the property in need of common home repairs — the foundation, electrical system, HVAC system, and so on — could discourage potential buyers. Instead of accepting lower offers or other concessions, sellers may save more money by handling the repairs before putting the house on the market.

•   Improve it. Making improvements can be helpful, too. A kitchen reno may be out of reach in terms of time and money, but doing a thorough cleaning and tidying up landscaping are easy fixes that could make a better impression on prospective buyers.

•   Declutter. It’s another way to enhance a house for showings and listing photos. It could also indicate a shorter turnaround for buyers eager to move quickly.

•   Price it right. When all is said and done, setting an asking price that’s not too far above similar properties may be necessary to keep your property on buyers’ radar.

Low Housing Inventory

Also known as a seller’s market or a hot housing market, an area with low housing inventory has a surplus of interested homebuyers and a shortage of available listings.

Usually, sellers in an area with low housing inventory can get a higher price for their property. Thanks to the abundance of buyers, It’s not uncommon to see multiple offers and bidding wars for any type of housing stock.

Let’s take a closer look at how to make the most of low housing inventory for either side of the deal.

If You’re a Buyer Amid Low Housing Inventory

Although the odds may not favor buyers in a low housing inventory environment, they still have some options to increase their chances of finding a dream home.

•   Think beyond price. In a multiple-offer situation, the highest price may not be the most advantageous deal for the seller. Being flexible on the closing date and limiting contingencies can affect an offer’s competitiveness.

•   Get prequalified or preapproved. Doing the legwork, researching the different kinds of mortgages in advance, and getting prequalified can show that buyers are ready to go and financially eligible. Typically, lenders provide potential borrowers with a letter stating how much they can borrow, given some conditions.

◦   Preapproval, which involves analysis of at least two years of tax returns, months’ worth of income history and bank statements, and documents showing any additional sources of income, can carry more weight and speed up the mortgage application process.

•   Consider cash. If you can swing it, a cash offer is often seen as advantageous because there’s no risk of the deal falling through from a denied mortgage loan.

•   Opt for an escalation clause, a method for beating out competing bids. The clause means a buyer automatically will increase their initial bid up to a specified dollar amount. For example, a buyer with an escalation clause could offer $250,000 with an option to bump up to $255,000 if another offer exceeded theirs.

•   Know what a place is worth. Even in a seller’s market, house hunters would do best to keep appraised values in mind. If buyers pay thousands more than the appraised value of a house, their home equity could take a hit.

If You’re a Seller Amid Low Housing Inventory

When the forces of supply and demand favor sellers, they have a better chance of fielding multiple offers on a property. Still, getting a great deal is not a sure thing as many factors affect property value. Here, some advice to help you take advantage of this scenario.

•   Spruce it up. The same conventional wisdom applies for cleaning and touching up a house to get more foot traffic at showings or open houses.

•   Set a reasonable asking price just below the market value — a figure based in part on comps, or comparables, which reveal what similar homes in the same area have sold for recently. This can be a good way to capture buyer interest. In a multiple-offer situation, this gives buyers room to outbid each other, potentially increasing the purchase price above asking.

•   Look past price alone. If faced with more than one offer, it may be tempting to go for the highest bidder. It can be beneficial to review each buyer’s finances and contingencies to lower the risk of a deal falling through.

•   Recognize that cash is king. Cash offers are generally the most secure. These have risen significantly in the current hot market, according to a National Association of Realtors® report. They made up 32% of sales in February of 2024, the highest rate in a decade.

•   Check contingencies. If there are offers with contingencies like the house passing an inspection, they could allow a buyer to back out of a deal; an offer that waives such contingencies is likely preferable.

Recommended: What Is a Mortgage Contingency? How It Works Explained

Other Considerations When Buying a Home

Housing inventory can be an important factor when looking for a new home and may impact your experience in a positive or negative way. Knowing how to negotiate both scenarios, whether as a buyer or seller, can help you get the best deal with the least amount of stress.

You’ll also have other considerations to keep in mind as you shop for your home. These may include:

•   How much you can put down

•   What type of mortgage works best for you

•   How much your mortgage will cost

•   What your closing costs will be

•   How much you’ll need for any necessary renovations

•   What the property taxes are

The Takeaway

For both buyers and sellers, the amount of available housing inventory can have an impact on the home purchase process. Keeping tabs on the market you’re shopping or selling in and looking carefully at competing properties (buyers) or competing offers (sellers) can help you get the most from your real estate deal.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What does inventory mean in real estate?

Inventory is the number of properties available for sale in a particular real estate market. It is often recorded once a month, so that trends can be observed.

Why is housing inventory so low?

Several factors have contributed to low housing inventory: During the Great Recession that began in late 2007, construction of new homes declined and took many years to recover. More recently, mortgage rates trended upward, causing many people who might have sold a starter home to stay put rather than put their home on the market. Finally, investors have been buying up available properties and renting them out, taking them out of the sale market.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q324-046

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