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To make homeownership more affordable, the federal government offers programs for first-time homebuyers and buyers with low to moderate incomes. The mortgage credit certificate (MCC) program is one option that helps eligible first-time homebuyers save money on their mortgage.

This guide will unpack how a mortgage credit certificate works, the pros and cons, and claiming it on your taxes.

What Is an MCC?

A mortgage credit certificate, sometimes called a mortgage certificate credit, is designed to help homebuyers recoup a portion of the interest paid on their home mortgage loan. An MCC is a dollar-for-dollar federal tax credit of up to $2,000 on the mortgage interest paid annually. It’s a nonrefundable credit, which just means that the amount of your credit can’t exceed the amount of income tax owed for that filing year.

If you take out a mortgage to buy a home, your monthly payment has four components: principal, interest, taxes, and insurance. State and local housing finance agencies issue MCCs, and if you receive one you can claim the dollar equivalent as a tax deduction to reduce the amount you owe in federal taxes. (Not all states offer MCCs, however. Michigan offers one, for example, while Massachusetts does not.) Eligible homeowners can take advantage of an MCC even if they take the standard deduction rather than itemize deductions. If you are one of the few homeowners who itemizes, any remaining mortgage interest not accounted for in an MCC may qualify for the mortgage interest deduction.

Eligibility for this program is based on income and is generally only available for first-time homebuyers who qualify, though others may be able to buy a home in a “targeted area” designated by the state or Department of Housing and Urban Development and claim a mortgage tax credit.

Keep in mind that different mortgage types may have fixed or variable interest rates. Most fixed-rate loans are eligible for an MCC.

Recommended: First-Time Homebuyer Guide

How Does It Work?

Getting a handle on tax credits and deductions can be confusing as a new homeowner, and that’s OK.

To reiterate, an MCC lets you claim a tax credit for a portion of the mortgage interest paid in a year. This lowers your tax liability, which is the amount you owe to the federal government.

The portion of the mortgage interest you can claim with an MCC, known as the tax credit percentage, depends on the state you live in. Generally, the tax credit percentage ranges from 10% to 50% of a homeowner’s total annual mortgage interest.

The tax credit percentage, the mortgage amount, and interest rate are needed to calculate the total MCC. Note, however, that an annual MCC deduction is capped at $2,000 and can’t exceed a recipient’s total federal income tax liability after factoring in other deductions and credits.

It’s helpful to show how claiming an MCC works in practice. You’ll need to know some mortgage basics, like the interest rate, before getting started.

For instance, a homeowner with a $250,000 mortgage, 3.5% interest rate, and tax credit percentage of 20% could receive a first-year MCC tax credit of $1,750.

Here’s how to break this calculation down by steps:

1.    Determine the mortgage loan balance ($250,000), interest rate (3.5%), and tax credit percentage (20%)

2.    Multiply the loan balance and interest rate to calculate the total interest paid ($250,000 x 0.035 = $8,750)

3.    Multiply the total interest paid by the tax credit percentage to calculate the MCC tax credit ($8,750 x 0.2 = $1,750)

The $1,750 would be applied to your total federal tax bill, rather than deducted from your income. Let’s take a closer look at how claiming an MCC in this example would affect your federal income taxes.

	With an MCC	Without an MCC
Income	$70,000	$70,000
Mortgage Interest Paid	$7,000 (total mortgage interest – MCC tax credit)	$8,750
Taxable Income	$63,000	$61,250
Federal Taxes Owed (22% tax rate)	$13,860	$13,475
MCC Tax Credit	$1,750	0
Total Federal Tax Bill	$12,110	$13,475

In this example, a mortgage credit certificate could lower the amount owed in federal income taxes by $1,365. If you don’t have a mortgage yet, use this mortgage calculator to estimate your interest rate, loan amount, and, on the amortization chart, interest paid.

Mortgage Credit Certificate Pros and Cons

The mortgage credit certificate program was established by the Deficit Reduction Act of 1984 to make homeownership more affordable for low- and moderate-income first-time homebuyers. While an MCC tax credit can provide financial benefits, there are some potential drawbacks to consider, too.

Here’s a side-by-side comparison of MCC pros and cons to help you figure out if an MCC is right for you if you’re a first-time buyer.

Pros	Cons
You can receive up to $2,000 in savings on taxes owed every year you’re paying mortgage interest, and carry over unused portions to following years.	A portion of MCC benefits may be subject to a recapture tax if you move before nine years, have a significant increase in income, or experience a gain from the home sale.
MCCs can reduce the cost of interest and decrease your debt-to-income ratio to help with mortgage preapproval and qualification.	If you have limited tax liability, a MCC tax credit may not pose much benefit since it’s nonrefundable.
MCCs are eligible with most fixed-rate mortgage options, including FHA, VA, USDA, and conventional loans.	Obtaining a MCC may come with processing fees, depending on the lender.
First-time homebuyer requirement is more flexible than other programs and can be waived for active military and veterans or if purchasing a home in targeted areas designated by federal and state government.	The mortgage tax credit cannot be applied to a secondary residence and might not be reissued when refinancing.

How to Get a Mortgage Credit Certificate

Borrowers are issued an MCC through their lender before closing. Thus, it’s important to discuss options early in the process and when shopping for a mortgage.

Eligibility for an MCC varies by location. State housing finance agencies (HFAs) have established requirements for obtaining an MCC, if one is offered. These include limits on household income, loan amount, and home purchase price.

Other criteria to get an MCC include the following:

•   HFA-approved lender: The HFA may require borrowing from an approved list of lenders.

•   First-time homebuyer status: Borrowers must not have owned a principal resident in the past three years.

•   Primary residence: Only owner-occupied homes are eligible for an MCC.

•   Homebuyer education: HFAs may require borrowers to participate in education courses during the purchase process.

Claiming a Mortgage Credit Certificate on Your Taxes

To claim the MCC each year on your taxes, fill out IRS Form 8396. You’ll need to know the amount of interest you paid on the mortgage that year and the tax credit percentage set for the MCC.

Once complete, you’ll also know if any credit can be carried over for the following tax year.

The Takeaway

What is a MCC? A mortgage credit certificate is a federal income tax credit on a portion of the mortgage interest paid annually for low- to moderate-income first-time homebuyers or people purchasing a home in a targeted area.

The home buying process is a serious undertaking, especially for first-time homebuyers. To get up to speed, SoFi’s mortgage help center is a useful place to start and have your mortgage questions answered.

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

Who gives you the mortgage credit certificate?

A mortgage credit certificate program is administered by state-level housing finance agencies and issued by mortgage brokers or lenders.

Does everyone get a mortgage credit certificate?

No, mortgage credit certificates have borrower income limits and other eligibility requirements. For context, only 10,836 MCCs were issued in 2022, down from 22,298 issued in 2019, likely due to the fact that some states have discontinued their MCC program.

Can I refinance with a mortgage credit certificate?

A mortgage credit certificate does not prevent you from refinancing, but you’ll lose the MCC on your current loan. Many programs, though, allow borrowers to apply to receive a new MCC issued with their refinanced mortgage.

How do I know if I have an MCC?

Borrowers apply for an MCC prior to closing and receive a physical copy with a unique certificate number from their local or state government.

Do I lose my mortgage credit certificate if I refinance?

The original mortgage credit certificate becomes void if you refinance, but you may be able to have the MCC reissued if the principal balance on the refinanced loan is lower than the original.

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Photo credit: iStock/Morsa Images

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.

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.

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.

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.

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Mortgage bankers originate, sell, and service residential mortgages for consumers on behalf of the lender they work for. They also may provide escrow services. A mortgage banker plays a central role as people navigate the complexities of applying for a mortgage.

Mortgage bankers are often the first and last point of contact. Getting a home mortgage loan that works for your financial situation, as well as saves you money, is incredibly valuable.

What Is a Mortgage Banker?

An individual or an institution that originates, sells, or services a mortgage can be considered a mortgage banker.

Individual mortgage bankers work for a single lending institution and help applicants sort through the different mortgage types. Mortgage bankers are also called mortgage lenders or mortgage loan officers when referred to in this way.

Customers who want help understanding mortgages or who have questions about mortgages can be assisted by mortgage bankers.

Mortgage bankers can get homebuyers on the right road with mortgage preapproval. They serve as the primary point of contact for buyers’ lending needs.

A mortgage banker can also be an institution, such as a bank, credit union, or other direct mortgage lender. When talking about a mortgage banker that services a loan, for example, it’s in reference to the institution.

A mortgage loan originator employed by a credit union, bank, or a subsidiary of a bank does not have to obtain a loan originator license. Nonbank mortgage loan originators must be licensed in the states where they do business and must be registered with the Nationwide Multistate Licensing System & Registry.

The licensing requirements were put in place after the mortgage meltdown of 2008 to protect consumers from predatory lending and to prevent fraud.

Recommended: Home Loan Help Center

Services Offered by a Mortgage Banker

At their core, mortgage bankers have the ability to create or sell a new mortgage loan. They also have the ability to service it once the loan closes.

Originate Loans

Mortgage bankers originate loans, meaning they take an application and create a new mortgage for a residential home. The loan is usually sold to Fannie Mae or Freddie Mac.

Sell Loans

Mortgage bankers sell loans so they can engage in more lending. If it’s a conventional loan, the sale typically goes to the government-backed enterprises, Fannie Mae or Freddie Mac. This increases lenders’ liquidity so they can originate more loans to more customers instead of carrying the amount of the loan on their books.

Service Loans

Once the mortgage has closed, the lender needs to be paid every month. This is what mortgage servicers do: They take on the day-to-day task of making sure your payment gets to all parties that need to be paid. Servicing loans is usually in reference to the mortgage banker as an institution, not the individual mortgage loan officer.

How Do Mortgage Bankers Make Money?

Individual mortgage bankers may make money from a salary, commission, or a combination.

Institutional mortgage bankers make money from origination fees, mortgage points, mortgage servicing, mortgage-backed securities, and the yield spread premium. The yield spread premium is how much money they make based on what they charge a customer relative to how much it costs to obtain that financing.

Differences Between a Mortgage Banker and a Loan Officer

Mortgage banker and loan officer, or loan originator: These terms are often used interchangeably.

However, while a mortgage banker can refer to both individuals and institutions, a loan officer is always an individual.

Differences Between a Mortgage Banker and a Mortgage Broker

In your research to get the best mortgage, you may have also come across mortgage brokers. Though applying for a mortgage will have the same requirements whether you go through a mortgage broker or a mortgage banker, a mortgage banker is different from a mortgage broker in who they work for and how they obtain your mortgage.

A mortgage banker works for a single lending institution that makes loans directly to consumers. The lending decision and underwriting are typically made at the bank level, which can streamline the process.

A mortgage broker works with many different lenders. This is helpful if you want to shop around or need to find a specialty loan not offered by all lenders.

See also: Calculator for mortgage payments

When Is It Better to Have a Mortgage Banker Than a Broker?

Your best bet for finding a home loan with terms most favorable to your financial situation is to shop around for a mortgage. A mortgage banker is closer to the lending process than a mortgage broker, but a broker has access to a greater number of lenders.

Be sure you’re comparing apples to apples on the mortgages offered to you by studying the loan estimate you’re given by each lender after applying.

The Takeaway

A mortgage banker can play a major role in getting you to the closing table with the right loan. By any name — mortgage banker, loan officer, loan originator — this person is a key guide during the home-buying journey.

If you’re looking for a traditional home loan, jumbo loan, refinance, or home equity loan, see the competitive deals SoFi offers.

SoFi home loans come with appealing rates, low down payment options, and on-time closings. You may be able to lock in your rate for up to 90 days. Terms apply.

Get your personalized rate in minutes.

FAQ

What does a mortgage banker do?

A mortgage banker can originate, sell, and service loans for customers.

Is a mortgage banker similar to a mortgage broker?

Not really. A mortgage banker works for a single lender and makes loans directly to you. Mortgage brokers do not lend money but instead find a lender to work with their buyer.

How do you choose a mortgage banker?

Shopping around for a mortgage banker can help you choose one that works for your budget and financial situation.

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Photo credit: iStock/Lacheev
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 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.

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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Mortgage life insurance, aka mortgage protection insurance, covers the balance owed on your home loan in the event of your death.

It’s meant to protect your loved ones from having to worry about monthly mortgage payments or being forced to move if they can’t continue making payments.

Whether you might need mortgage life insurance depends on your health history, whether you’re the sole earner for your family, and whether you already have a traditional life insurance policy.

How Does Mortgage Life Insurance Work?

Unlike standard life insurance, mortgage life insurance is designed to pay a death benefit (typically the mortgage balance) to the lender rather than to heirs. The lender pays off the mortgage.

The length of the policy will be the mortgage term.

Mortgage life insurance is usually structured to match the declining balance on your mortgage and expires after your home is paid off. Depending on your age and mortgage size, the cost can be hundreds of dollars a month.

By contrast, term life insurance lasts for a set number of years and will pay a death benefit during that time to designated beneficiaries, who can use the lump sum however they want to. Term life tends to be the most affordable kind of life insurance.

A term life insurance policy will charge fixed premiums for 10 to 30 years. Mortgage life insurance premiums may be fixed for only five years.

(By the way, mortgage life insurance is a totally different animal than private mortgage insurance. PMI is insurance you typically must purchase if you put less than 20% down on a conventional loan.)

Different Options for Mortgage Life Insurance

There are a few variations on how mortgage protection insurance can be structured. Here’s how the most common ones function.

Decreasing Mortgage Principal

A decreasing mortgage principal policy ties the payout benefit directly to the outstanding mortgage principal balance.

The policy payout will automatically account for the declining balance as you pay off your home loan over time, along with any extra payments you make.

This is the most common type of mortgage insurance policy.

Level

A level payout policy keeps the death benefit at the same amount over the term of the mortgage loan, no matter how much has been paid off. This means that any payments or prepayments of principal have no effect on the death benefit.

Because these mortgage insurance policies are structured more like traditional life insurance policies, they sometimes allow for the direct payout of excess benefits to beneficiaries.

Recommended: Home Loan Help Center Is There to Inform

Mortgage Life Insurance Advantages

If you’re the sole breadwinner for your family, you might want to consider upsides of mortgage life insurance.

No Medical Exam

Unlike traditional life insurance, mortgage life insurance sellers don’t require a medical exam. This can help people qualify for mortgage life insurance when they might be rejected for traditional life insurance or find the quoted premiums too high.

You Can Add Riders

Home mortgage life insurance policies often allow you to tack on riders. A living benefits rider will allow you to directly access your policy’s benefits as a source of funds in the event you’re diagnosed with a terminal illness. This can be especially helpful when health insurance might fall short.

Another common add-on is a “return of premium” rider, which calls for returning a set amount of premiums paid if the policy ends without ever being used.

Many of these riders are also available for most term life insurance policies.

Mortgage Life Insurance Drawbacks

If you’re in good health or prefer benefit payouts with no strings attached, you may want to give thought to some drawbacks of mortgage life insurance.

Expensive for Healthy Homeowners

Individuals who are in good health won’t be able to benefit from a cheaper rate on their mortgage life insurance policy. That’s because insurers do not factor medical exams into their premium calculation.

The lack of a medical exam means insurers must cover all their bases: People with a poor health history and those in good health will pay the same rates.

Decreasing Payout

While your monthly mortgage life insurance premiums will remain constant, the potential payout benefit will continue to decrease as you pay down your mortgage over time.

If there’s no mortgage left, there’s no payoff. Ouch.

The only way around this is to apply for a mortgage insurance policy with a level payout benefit, which ensures that the payout remains the same regardless of how much time is left on your mortgage. This may be more expensive than a typical decreasing mortgage balance policy.

No Flexibility

Mortgage life insurance policies pay out to the mortgage lender. Your loved ones won’t see any cash during this transaction, which isn’t ideal if you’d like them to have the money for other purposes like day-to-day living costs, college costs, or investing.

If flexibility of use for any benefit payout is important, you may be better served by traditional life insurance.

Difficult to Get Quotes

It’s hard to gather quotes for mortgage life insurance online, unlike other kinds of insurance. That’s a concern because prices can vary widely.

Recommended: How to Shop for a Mortgage

Is Mortgage Life Insurance a Good Idea?

Unless you’re having difficulty qualifying for a reasonable rate on a traditional life insurance policy because of poor health, term life insurance is likely to have lower premiums than mortgage life insurance and will provide a direct payout to beneficiaries.

For some homeowners, the benefit payout to the lender, not heirs, will be a dealbreaker. Others may be willing to accept this restriction because they either have health conditions that make it difficult to qualify for traditional life insurance or because they want to ensure that the payout is dedicated toward housing payments or, in a sense, mortgage relief.

You also may want to learn about putting your house in a trust, to protect your home if you become incapacitated and to avoid the probate process.

The Takeaway

Mortgage life insurance ensures that your mortgage will be paid off if you die. If mortgage protection insurance isn’t your cup of tea, it could be worth looking into term life insurance to protect your loved ones.

While responsibility is on your mind and you’re hunting and gathering mortgage minutiae, look into a SoFi Home Loan or Refinance, or a SoFi-brokered home equity line of credit.

SoFi offers an array of mortgage home loan advantages. Click, scroll, and prepare to be impressed.

FAQ

Does mortgage life insurance pay off the mortgage?

Yes. Mortgage life insurance offers enough coverage to pay off your mortgage if you were to die.

Is mortgage life insurance the same thing as mortgage protection insurance?

Yes. Most policies only pay out when the policyholder dies, but a few also cover a post-accident disability or a temporary job loss.

When is mortgage life insurance a good idea?

Mortgage life insurance could be a good idea for homeowners whose health conditions keep them from qualifying for term life insurance.

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Photo credit: iStock/Inside Creative House

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 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.

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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When looking for a property to buy, you might consider a single-family detached home, a townhouse, a condo, a co-op apartment, or something else.

Let’s look at the pros and cons of buying a townhouse vs. a condo.

What Is a Townhouse?

At first glance, a townhouse might look like a detached multifloor home, but a closer look will show that it’s attached to at least one similar unit.

Townhouses are often found in urban areas where space is at a premium. They often come with a front or back yard. Owners own the inside and outside of their unit and the land it sits on.

The townhome community may have a homeowners association and maintenance fees.

Benefits of Buying a Townhouse

There are at least three upsides to purchasing a townhouse.

Owner Rights

Because people who buy a townhouse own the land it’s on, they have more freedom in how to use the yard. A yard or patio can open possibilities for a grilling spot or dog or child play area.

They also have at least some freedom of choice about the appearance of the inside and outside of the structure.

Price

In communities with high home prices, townhouses may be an affordable alternative for first-time homebuyers.

House hunters from millennial homebuyers to empty-nesters may also find a townhouse a sweet spot between a condo and a traditional detached home with yard.

Plus, because lots tend to be smaller than ones with detached homes on them, property taxes are usually lower as well.

Low Maintenance

Smaller yards mean less yardwork, ideal for busy people and those who are downsizing their home and responsibilities.

The townhouse complex may be gated and have security, and some have pools, gyms, and other shared recreational spaces whose maintenance is covered by homeowner fees.

Disadvantages of Buying a Townhouse

When you think of townhouse living, keep in mind the close quarters with neighbors and possible HOA fees and rules.

HOA

Townhouse communities are less likely to have an HOA than condominiums are, but if they do, the resident-led board will collect ongoing fees to cover common areas and any community perks such as a pool. The HOA will also enforce community rules.

Lack of Privacy

Because of the shared walls, a townhouse provides less privacy than a detached home (although more than many condo buildings, where you may have a unit above and below yours. Townhouse living may therefore create some challenges for families with young children.

What Is an Apartment?

An apartment is a room or set of rooms within a building. In major cities, some people refer to buying a condo or co-op shares as buying an apartment.

Condo owners own everything within their unit and have an interest in the common elements. “Buying a co-op apartment” really means holding shares in the housing cooperative that owns the property.

Then there are people and companies that buy a multifamily property like an apartment building and rent out the units. An owner could decide to live in one of the units and serve as an on-site landlord.

Benefits of Living in an Apartment

Let’s look at some benefits of buying a condo.

Low Maintenance

You won’t typically need to make many repairs, mow the grass, or paint. That’s covered by the monthly or quarterly fees you’ll pay.

Low Utilities

First, condos tend to be smaller than single-family homes, which can reduce the cost of heating and cooling the space, and take less electricity to keep it well lit.

HOA

If the building has an HOA, the association will take care of property maintenance and enforcement of rules.

Disadvantages of Living in an Apartment

Apartment life can come with disadvantages, too. Here are a few.

Parking

You may or may not have a parking space set aside for you, and street parking isn’t always a given in busy locales. Even if you have a parking spot, if people come to visit, they may not easily find anywhere to park.

Noisy or Nosy Neighbors

If you appreciate quiet calmness, you may not find all you’d like in condo living. Neighbors are nearby and they may appreciate louder and more frequent interactions than you’d prefer. If you’re in a crowded city, surrounding events can contribute to the jostling and noise.

Limited Space

If you’re used to living in a house, you could find a more compact apartment to be challenging as you try to fit in your belongings. Plus, it isn’t unusual not to have yard space or a patio, which further limits the amount of space you have to use and enjoy.

Differences Between a Townhouse and an Apartment

When comparing apartment or condo vs. townhouse, keep in mind these differences.

Townhouse	Apartment/Condo
Single-family unit that shares one or more walls with another home	Room or rooms within a building
May have a small yard or patio	If an HOA is in place, it will collect fees to cover most maintenance.
Gives owner some control over how to change the exterior and use yard	Typically comes with lower utility bills than a traditional home
Can be more affordable than traditional detached homes in markets with high prices	May not come with convenient parking
If there’s an HOA, fees are usually lower because owners are responsible for much of their own upkeep	Means you may have noisy or nosy neighbors
May not provide as much privacy as desired	Often has less space than some other types of homes
Thanks to the land ownership, financing is similar to a traditional mortgage	It can be harder to finance a condo than a townhouse

3 Home Loan Tips

1.    Traditionally, mortgage lenders like to see a 20% down payment. But some lenders, such as SoFi, allow home mortgage loans with as little as 3% down for qualifying first-time homebuyers.

2.    Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

3.    Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

FAQ

Do townhomes appreciate as much as houses?

In general, townhomes do not appreciate as quickly as single-family detached homes, thanks to the amount of land that comes with traditional stand-alone homes.

Are townhouses a bad investment?

In some circumstances, a townhouse may be a good investment. The price, current market conditions, and location are factors.

Are fees higher for a townhouse or condo?

Condo HOA dues are typically a lot higher than townhouse fees (if the townhouse community even has an HOA). Condo communities usually have many more amenities to maintain.

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Photo credit: iStock/Auseklis

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 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.

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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A duplex or townhouse can be a more affordable alternative to a detached single-family home, yet offer a taste of that homeownership. These medium-density housing choices are sandwiched between suburban and high-density development.

When deciding on a duplex vs. townhouse, consider the amount of space you need, the amount of maintenance you want to do, your budget, and whether the rental component of a duplex — or Aunt Jill, Cousin Joe, or Mom next door — appeals to you.

Let’s take a deep dive into the differences between a duplex and townhouse.

What Is a Duplex?

A duplex is a single structure with two conjoined units on one plot of land. Each unit has its own entrance, kitchen, bedrooms and baths. The two units often share the yard, laundry area, and garage space, but that isn’t always the case.

A duplex shouldn’t be confused with a “twin home,” which is two homes that share a wall, but where each unit and the land it sits on is individually owned. The lot line actually runs through the common wall.

Buying a duplex is often touted as a good investment because owners can rent out one side while living in the other.

Types of Duplexes

There are two common configurations when it comes to duplex living:

•   Side by side. The shared wall is in the middle.

•   Up and down. When the units are in an upstairs and downstairs arrangement, the dividing wall is the floor/ceiling.

What Are the Pros and Cons of Duplex Living?

Duplexes are in demand, often by first-time homebuyers.

Owner-occupants have a big financing advantage: If you buy a multifamily property of four or fewer units and plan to live onsite, you can use an FHA loan with a low down payment or a VA loan, if you’re eligible, with no down payment at all.

There are other upsides, and potential downsides, you may want to consider before deciding on a townhouse vs. duplex.

What Is a Townhouse?

You get the idea about duplexes. Now let’s look at what is a townhouse. A townhouse is an individually owned home with two or more stories and at least one shared wall.

You own the inside and outside of your unit and the land it rests on, whereas a condo owner owns the interior of the condo. A townhouse has a separate entrance but may share communal spaces.

Townhouses are often found where land is in short supply. This is particularly true in areas that transition from dense, urban cities to the suburbs. They make good use of the space with their vertical nature and shared walls.

They are typically lower priced than detached single-family homes. By the way, the U.S. Census Bureau, which tracks residential construction, considers townhouses and duplexes single-family homes. Getting a mortgage on a townhouse is similar to obtaining a home mortgage loan for a freestanding house.

Townhome ownership has been rising, and the National Association of Home Builders (NAHB) says the long-term prospects for townhouse construction remain positive as homebuyers seek medium-density residential neighborhoods such as urban villages.

The NAHB reports that townhouses made up almost 15% of new single-family homes in the second quarter of 2024, and the number of new townhouses being constructed has been on the upswing in recent years.

What Are the Pros and Cons of Townhouse Living?

As the prices of traditional single-family homes have gone through the roof in most markets, townhomes have become popular as starter homes.

And downsizers may be attracted to townhouses, whose cost may be lower than their detached counterparts.

Townhouses make great use of space, but they also have less privacy, and you may need to follow the rules of a homeowners association (HOA), if one exists. (In the condo vs. townhouse comparison, condos come with an HOA, but not all townhouse communities do.)

Financing a townhouse works just like financing any single-family home. Here are pros and cons of buying a townhouse compared with a detached single-family home.

Recommended: Home Loan Help Center

Weighing the Differences Between Duplexes and Townhouse

Taking a look at living in a duplex vs. a townhouse side by side, they have commonalities but also differences. Here are some.

Structure and Design

A townhome typically is in a planned unit development where the homes share walls and community spaces. A duplex is structured to share a yard and a wall with only one neighbor.

Purchase Price

Cost will vary based on square footage, neighborhood, amenities, lot size, and other factors. A duplex will usually cost more than buying a townhouse, but the tradeoff is that you can rent out one side.

Maintenance Cost

A townhouse may have HOA dues, though they might not be ample because owners are responsible for much of their own maintenance. A duplex owner will need to maintain both units and the yard. A comparison will depend on the size and age of the properties and more.

Rental Income

If you plan to rent out a townhouse you buy, it’s a single unit. A duplex has two units, so it may be easier to make the financials work.

Privacy

With a townhome, you’ll be living in a community. Compare that with a duplex, where you’re sharing space with one neighbor.

Then again, having a single neighbor might feel less private than if you had many.

Investment Value

The ability to rent at least one side of a duplex holds more investment value than a townhome. The townhome may also have HOA rules about renting that may not jibe with your idea of how to use your property.

The Takeaway

The difference between a townhouse and a duplex is largely about what type of property fits your lifestyle. A duplex can offer a larger yard and rental potential, but a townhouse may bring that single-family home vibe at a lower price point than either a duplex or a detached single-family house.

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 townhomes becoming more popular?

The market share of townhomes is rising. According to the National Association of Home Builders, townhouses composed almost 15% of single-family home starts in Q2 2024 and townhouse starts were at an all-time high in a data series that dates back to 1985.

Which is a better investment: a duplex or a townhouse?

A duplex may be the better investment because you have the potential to rent out both units or live in one and collect rent from the other.

Is it faster to build a duplex or a townhouse?

A lot of factors affect how long it takes to build your new home: size, location, materials, weather, subcontractors, the city or county building department, and the complexity of your building plans. Many townhomes are built at once and may become available more quickly. Construction of a duplex is more like a house.

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Photo credit: iStock/peterspiro

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