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If you’re thinking about refinancing your home loan or paying off your mortgage early, you might request a mortgage payoff statement. The amount due on this document is likely to be different from your current balance because it includes interest owed until the payoff date and any fees due.

Read on to learn more about what a mortgage payoff statement or letter is and when you might need one.

What Is a Mortgage Payoff Statement?

Starting with mortgage basics, a mortgage is a loan used to purchase different types of real estate, including a primary home. A bank or other lender agrees to lend money, which the borrower commits to pay back monthly for a set period of time and with interest.

The different types of mortgage loans include conventional and government-insured mortgages and reverse mortgages.

There are jumbo loans, which exceed the dollar limits set by the Federal Housing Finance Agency, and home equity loans.

Say you have a mortgage and want to know exactly how much you’d need to pay to satisfy the loan. A mortgage payoff letter will tell you that magic number. Unlike your current balance, the payoff amount includes interest owed up to the day you intend to pay off the loan. It may also include fees that you’re on the hook for and haven’t paid yet.

Your monthly mortgage statement, on the other hand, only shows your loan balance and the amount due for your next monthly payment.


💡 Quick Tip: You’ve found an award-winning home. Enjoy an award-winning mortgage experience, too. SoFi has knowledgeable Mortgage Loan Officers to guide you through the process.

How Does a Mortgage Payoff Statement Work?

You can request a payoff statement from your loan servicer at any time. Note: Your mortgage servicer may be different from your lender. The company that manages your loan handles billing, accepts loan payments, keeps track of your principal and interest, and fields questions from borrowers.

You may request a payoff statement for any type of loan, including mortgages, student loans, personal loans, and auto loans. However, if you need your mortgage payoff statement, go to your mortgage servicer directly. The name and contact information of your mortgage servicer is included in your monthly statements.

When you make the request from the company that handles your mortgage servicing, you’ll need to provide the following details:

•   Your name

•   Address

•   Phone number

•   Your loan number

•   The date you want your payoff to be effective if you’re seeking to pay off your mortgage early.

Asking for a payoff statement does not necessarily mean that you intend to pay off your loan immediately. You may simply be determining whether or not paying off your mortgage early is feasible, for example. The request itself does not initiate the prepayment process.

Traditional lenders, such as brick-and-mortar banks, may mail you a paper mortgage payoff statement. Online lenders may send a payoff statement online.

Recommended: 5 Tips for Finding a Mortgage Lender

What Information Do Mortgage Payoff Letters Contain?

All mortgage payoff letters tend to contain similar information, including:

•   Payoff amount: The amount of money that would satisfy the loan.

•   Expiration date: The date through which the payoff amount is valid. The letter may also include an adjusted amount should you pay before or after the expiration date.

•   Payment information: The letter will also usually tell you who to make the final check out to and where to mail it.

•   Additional charges: You will be alerted to any additional fees and charges that you’ll need to include.

💡 Quick Tip: 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.

Do You Need a Mortgage Payoff Statement?

There are a few common situations in which you might need a payoff statement.

•   Refinancing a mortgage: When you refinance your mortgage, your chosen lender pays off your old home loan with a new one, preferably with a lower interest rate and possibly a new term. When you seek to refinance, your new lender may ask you to provide a payoff statement on your current loan.

•   Prepaying a mortgage: It’s possible to pay off a mortgage early. A payoff statement will show you exactly how much you’d need to pay to do so. Most prepayment penalties for residential home loans that originated after January 10, 2014, are prohibited. Still, check before you decide to prepay.

•   Working with a debt relief company: If you’re having trouble managing your debts, you’ve fallen behind on payments, or you otherwise need mortgage relief, you may choose to work with a debt relief company that can help negotiate with your lenders. The company will need to see payoff statements to get an idea of the scope of your debt.

“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.

•   Collections and liens: A lender might send you a payoff statement if you’ve fallen behind on your payments and they are sending your debt to a collection agency. In this case, the payoff statement may tell you how much you need to pay to stop the collection action.

   If your lender decides to seize your home to recoup unpaid mortgage payments, they may place a lien on the property. They may send a payoff statement that alerts you that your property will be seized if the specified amount isn’t paid in full.

There are other ways to figure out how much you owe on your mortgage loan. You can talk to your lender and ask for a verbal payoff quote. This will provide an estimate, but understand that it is not a legal agreement and isn’t binding.

The Takeaway

If you have a home loan, you may want to request a mortgage payoff statement, especially if you’re thinking about refinancing or paying off your mortgage early. Requesting the mortgage payoff letter does not initiate any formal processes, so it’s fine to think of it as an information-gathering exercise.

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.

FAQ

How do I get my mortgage payoff statement?

Contact your loan servicer to request your mortgage payoff statement.

When should I get my mortgage payoff statement?

Request your mortgage payoff statement when planning to prepay your mortgage, refinance, or consolidate debt.

How long does it take to get a mortgage payoff statement?

Generally speaking, you should receive your mortgage payoff statement within seven business days of your request.

Photo credit: iStock/Vadym Pastukh

*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.

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.

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.

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Buying your first house is a major move, even if the home itself is tiny. Becoming a homeowner can be a great way to start putting down some roots and building equity. And just because it’s called a “starter home” doesn’t necessarily mean you’re twenty-something when you go shopping for one. For many people, the purchase of a first, maybe-not-forever house can come years or decades later.

But what exactly makes a good starter home? How do you know when to jump into the housing market? There are many variables to factor in, such as price, location, type of home, the sort of mortgage you’ll get, your personal finances, and more.

Read on to learn answers to such questions as:

•   Why should you buy a starter home?

•   Should you buy a starter home or wait?

•   How do you buy a starter home?

What Is a Starter Home?

The first step in deciding “Should I buy a starter home?” is understanding what exactly that “starter home” term means. A starter home is loosely defined as a smaller property that a first-time buyer expects to live in for just a few years.

The home could be a condo, townhouse, or single-family home. But generally, when you purchase a starter home, you anticipate outgrowing it — maybe when you get married or have a couple of kids, or because you want more space, a bigger yard, or additional amenities.

A starter house could be brand-new, a fixer-upper, or somewhere in between, but it’s usually priced right for a buyer with a relatively modest budget.

That modest budget, though, may need to be loftier than in years past. The 2022 price of a starter home was $325,000, according to Realtor.com, up 48% from $220,000 in 2019.

That might sound a little intimidating, but remember, that’s the median price. Depending on where you live, there may be entry-level homes selling at significantly lower price points.

Recommended: What Is Housing Discrimination?

How Long Should You Stay in a Starter Home?

Unless you’re a big fan of packing and moving — not to mention the often-stressful process of selling one home and then buying another, or buying and selling a house at the same time — you may want to stay in your starter home for at least two to five years.

There can be significant financial reasons to stick around for a while:

•   Home sellers are typically responsible for paying real estate agents’ commissions and many other costs. If you haven’t had some time to build equity in the home, you might only break even or even lose money on the sale.

•   You could owe capital gains taxes if you’ve owned the home for less than two years and you sell it for more than you paid.

Of course, if there’s a major change in your personal or professional life — you’re asked to relocate for work, you grow your family, or you win the lottery (woo-hoo!) — you may need or want to sell sooner.

What Is a Forever Home?

A forever home is one that you expect to tick all the boxes for many years — maybe even the rest of your life. It’s a place where you plan to put down roots.

A forever home can come in any size or style and at any cost you can manage. It might be new, with all the bells and whistles, or it could be a 100-year-old wreck that you plan to renovate to fit your home decorating style and vision.

Your forever home might be in your preferred school district. It might be close to friends and family — or the golf club you want to join. It’s all about getting the items on your home-buying wish list that you’ve daydreamed about and worked hard for.

At What Age Should You Buy Your Forever Home?

There’s no predetermined age for finding and moving into a forever home. Some buyers plan to settle in for life when they’re 25 or 30, and some never really put down roots.

But according to data from the 2022 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors® Research Group, buyers in the 57 to 66 age range said they expected to live in their newly purchased home longer than buyers from other age groups, with an expectation of 20 years of residence.

Younger buyers (ages 23 to 31) and older buyers (75 to 90) said they expected to stay put for 10 years.

The median expectation for buyers of all ages was 12 years.

Recommended: First-Time Homebuyer’s Guide

Benefits of Buying a Starter Home

Are you contemplating “Should I buy a starter home?” Here are some of the main advantages of buying a starter home:

•   Becoming a homeowner can bring stability to life. A starter home comes with a feeling of “good enough for now” that, for some buyers, is just the right amount of commitment without feeling stuck in the long term.

•   Buying a starter home is also a great way to try on aspects of homeownership that renters take for granted, like making your own repairs and mowing your own yard. The larger the house, the more work it usually brings. With a starter home, you can start small.

•   Buying a starter home is also an investment that could see good returns down the road. While you live in the home, you’ll be putting monthly payments toward your own investment instead of your landlord’s. Depending on market conditions, you could make some money when you decide to trade up, either through the equity you’ve gained when you sell or recurring income if you choose to turn it into a rental property.

•   Homeowners who itemize deductions on their taxes may take the mortgage interest deduction. Most people take the standard deduction, which for tax year 2022 (filing by Tax Day 2023) is:

◦   $25,900 for married couples filing jointly

◦   $12,950 for single taxpayers and married individuals filing separately

◦   $19,400 for heads of households

•   Some homeowners who itemize may be able to do better than the standard deduction. For instance, in some states, a homestead exemption gives homeowners a fixed discount on property taxes. In Florida, for example, the exemption lowers the assessed value of a property by $50,000 for tax purposes.

Downsides of Starter Homes

Next, consider the potential disadvantages of snagging a starter home:

•   While the idea of buying a home just big enough for one or two is a romantic one, the reality of finding a starter home that’s affordable has gotten tougher.

   The outlook has been so bleak, especially in some larger cities, that some Millennials are opting out of the starter-home market altogether, choosing instead to rent longer or live with their parents and save money.

   Who can blame Millennials for taking a different approach to homeownership than their parents? The older members of this generation came of age during the financial crisis of 2008-09, which included a bursting housing bubble that put many of their parents — and even some of them — underwater on a mortgage they may not have been able to afford in the first place.

•   When thinking about whether you should buy a starter home, know that it may require a lot of sweat equity and cash. If you buy a bargain-priced first home, you may be on the hook for spending much of your free time and cash to restore it.

•   Another con of buying a starter home is the prospect of having to go through the entire home-buying process again, possibly while trying to sell your starter home, too. Keeping your house show-ready, paying closing costs, going through the underwriting process, packing, moving, and trying to time it all so you avoid living in temporary lodging is a big endeavor that, when compared with the relative ease of moving between apartments, can be seen as not worth the effort.

•   In some circumstances, you may have to pay capital gains taxes on the sale of your starter home when you move up.

If you aren’t ready to jump into a starter home, an alternative could be a rent-to-own home.

How to Find Starter Homes for Sale

Are you ready to start the hunt? Here are some tips for finding a starter home:

•   Work with an experienced real estate agent who knows your market and spends their days finding homes in your price range.

•   Rethink your house criteria. If you are buying a starter home and figured you’d shop for a three-bedroom, you may find more options and less heated competition if you go for a two-bedroom house.

•   Take a big-picture view. If you’re a young couple with no kids yet, maybe you don’t need to purchase in the tip-top school district. After all, you are at least several years away from sending a little one to their first day of school Or, if prices are super-high for single-family houses, could buying a condo or a townhome work well for a number of years?

   You might also look into purchasing a duplex or other type of property.

Average U.S. Cost of a Starter Home

As noted above, the typical cost of a starter home in the U.S. was $325,000. Keep in mind, however, that there is a huge variation in costs. A rural home may be much less expensive than shopping for a starter home that’s within short commuting distance of a major city, like New York or San Francisco.

Is Buying a Starter Home Worth It?

Deciding whether a starter home is worth it is a very personal decision. One person might be eager to stop living with their parents and be ready to plunk down their savings for a home. Another person might have a comfortable rental in a great town and be reluctant to take on a home mortgage loan as they continue to pay down their student loan debt.

When you consider the pros and cons of starter homes listed above, you can likely decide whether buying a starter home is worth it at this moment of your life.

Tips on Buying a Starter Home

If you’re tired of renting or living with your parents but don’t have the cash flow necessary for anything more than a humble abode, a starter home could be a great way to get into real estate without breaking the bank. Some pointers on how to buy a starter home:

•   Before you buy any home — starter or otherwise — it’s important to sit down and crunch the numbers to see how much home you can realistically afford. Lenders look at your debt when considering your debt-to-income ratio (DTI), but they aren’t privy to other regular monthly expenses, such as child care or kids’ activity fees. Be sure to factor those in.

•   You also may want to look at how much you can afford for a down payment. While a 20% down payment isn’t required to purchase a home, most non-government home loan programs do require some down payment.

   It’s possible to buy a home with a small down payment: The average first-time homebuyer puts down about 6% of a home’s price as a down payment, according to the latest data from the National Association of Realtors (NAR).

   In addition, putting down less than 20% means you may have to pay private mortgage insurance (PMI).

•   You’ll want to explore different mortgage loan products as well, possibly with a mortgage broker. You’ll have to decide between adjustable and fixed rate offerings, 20-year vs. 30-year mortgages, and different rates. You may also be in a position to buy down your rate with points. Getting a few offers can help you see how much house you can afford, as can using an online mortgage calculator.

•   The decision to purchase a starter home is about more than just money, though. You may also want to consider your future plans and how quickly you might grow out of the house, whether you’re willing to live where the affordable houses are, and if you’ll be happy living without the amenities you’ll find in a larger house.

•   Other factors to consider are your current state of financial health and your mental readiness for a DIY lifestyle (which includes your willingness to fix your own leaky toilet or pay a plumber.)

•   If you’re ready to make the leap, there are plenty of home ownership resources available to help you get started on the path to buying your starter home. Your first step might be to check out a few open houses and to research mortgage loans online.

The Takeaway

Buying a starter home can be a good way to get your foot in the door of homeownership, but it’s important to consider your financial situation and your plans for the next two to five years or more before buying a starter house.

Are you house hunting and mortgage shopping? SoFi offers fixed-rate mortgage loans with as little as 3% down for first-time homebuyers, plus competitive rates and variable terms.

SoFi Mortgage Loans: The smart, simple source for financing.

FAQ

How much money should you have saved to buy a starter home?

The average down payment is about 6% of the home purchase price. That number can help you see how much you want to have in the bank, though mortgage loans may be available with as little as 3% down or even zero down if you are shopping for a government-backed mortgage. Worth noting: If your down payment is under 20%, you may have to pay private mortgage insurance.

What is considered a good starter home?

A good starter home will likely check off some of the items on your wish list (square footage, location, amenities, etc.) and will not stretch your budget too much. You want to be able to keep current with other forms of debt you may have as well as pay your monthly bills (which will likely include mortgage, property tax, home maintenance, and more). That financial equation may help you decide whether to buy a starter home or wait.

How much do people spend on a starter home?

As of 2022, the average price for a starter home in the U.S. was $325,000. However, prices will vary greatly depending on location, size, style, and condition.

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.

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.

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.

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.

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.

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If you’re shopping for a home loan, you may be wondering if using mortgage points to “buy down” your interest rate is a good move for you.

The answer is … it’s complicated.

Whether you’re buying or refinancing your home, purchasing mortgage points from your lender can lower your monthly payment and reduce the overall amount of interest you’ll pay on your loan. And that’s certainly an appealing prospect.

But it’s important to understand how points work — how much they can cost and how much they might save you over the life of your loan — before you decide to hand over that extra cash up front at your closing.

What Are Mortgage Points?

Mortgage points, also known as discount points, may be used by a borrower to prepay some of the interest on a home loan in exchange for a lower mortgage rate. The borrower pays more up front (the points are paid as a fee at closing) but can end up saving money over time because the interest rate is then reduced for the life of the loan.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

How Do Mortgage Points Work?

Lenders typically base their interest rate offers on several factors, including a borrower’s credit profile and current market rates. But once you receive that initial offer, your lender also may give you the opportunity to buy down your rate through the use of mortgage points. (If the lender doesn’t bring it up, you can ask.)

Every point purchased reduces the interest rate a borrower pays by a predetermined percentage, which can vary from one lender to the next. But let’s say your lender offers you an initial rate of 3.25% and provides a 0.25% rate reduction if you purchase one discount point. If you decide to buy the point, your rate would then be 3%.

Each point you buy typically costs 1% of the amount you’re borrowing, and that money is due up front. So, for example, if your loan is for $200,000, a point will cost $2,000 at closing. If that seems too steep, you may be able to purchase a fraction of a point. A half-point in this scenario would cost $1,000, or three-quarters of a point would be $1,500.

How Do Points Affect Your Mortgage?

Here’s a hypothetical example to illustrate how buying one point could reduce the cost of a 30-year, fixed-rate $200,000 mortgage. (This is a bare-bones example, so the payment amount includes principal and interest only.)

Keep in mind that the borrower in this scenario would have to stay with the loan for the entire 30-year term to get the full savings — and that can be rare these days. Homeowners only stay in a home for an average of eight years, and many refinance their home loans.

That’s why it’s important to factor in your “break-even point” — when the savings from the lower mortgage cost offset what you paid for the discount points — before you make your decision.


💡 Quick Tip: 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.

What Is the Break-Even Point?

Paying points on a mortgage can lower your monthly payment and save you thousands of dollars — if you keep the same loan long enough to recover the money you paid up front. If you plan to move or refinance before you reach and pass that threshold, paying points may not make sense.

To calculate the approximate point at which you would get back what you spent on prepaid interest, you can divide the amount you paid for any points by the amount you’ll save each month on your payment. For example, as noted in the chart above, if you purchased one point for $2,000 at closing, you’ll save $27 each month. Divide $2,000 by $27 and you’ll see you can expect to break even in 74 months — or about six years. If you plan to stay in your home much longer than that, buying down your rate could be worth considering.

Can You Buy Points for an ARM?

You can buy points if you decide to go with an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. But it may not be worth it if the points apply only to the ARM’s initial interest rate, which typically lasts for three, five, seven, or maybe ten years. If the rate goes up after that and you decide to refinance, you could lose out on the savings you hoped to get when you paid for the points.

Recommended: How an Interest-Only Mortgage Works

Are Mortgage Points Tax Deductible?

Discount points, which are considered prepaid interest, may be deducted as home mortgage interest if you itemize deductions on Schedule A of your Form 1040. But you’ll need to meet certain criteria in order to deduct mortgage points and you may not be able to deduct all of the mortgage interest and points in the year you paid them.

It’s important to note that only discount points, which represent prepaid interest, are tax deductible. “Origination points,” which also may be referred to as mortgage points, are not tax deductible. These points, which you’ll also pay at closing, refer to the various fees lenders may charge in preparing your mortgage (such as processing, underwriting, administration, or document preparation costs).

Your accountant or tax preparer should be able to answer your questions if you aren’t clear about the amount you can deduct on your annual return.

Is There a Limit on the Points You Can Buy?

The maximum number of points you can purchase to reduce your interest rate may differ based on factors like the financial institution, type of loan you choose, or how much you need to borrow. According to a survey of lenders performed weekly by Freddie Mac, the average number of points reported on 30-year, fixed-rate conventional loans in 2022 was 0.9.

Benefits and Risks of Mortgage Points

Here are some things to consider when you’re deciding if buying points makes financial sense for you.

How Long Do You Plan to Stay in the Home?

If you run the numbers and think you’ll keep your loan past your break-even point, it could be worth paying extra up front. But if it’s a starter home, or you expect to relocate for your career, buying points may not be prudent.

Do You Have Plenty of Money Saved?

Homeownership can be expensive. Are you certain you have enough saved to make a decent down payment, pay for points as well as other closing costs, and still have funds in reserve for the inevitable expenses related to homeownership? If not, you may want to reconsider the benefits of buying down your interest rate.

Did the Seller Agree to Pay Some Closing Costs?

If the seller agreed to pay some or all of your closing costs, you may be able to negotiate discount points as part of that offer.

Do You Plan to Make Extra Payments?

Paying for points could be a smart strategy if you expect to hold on to the same loan for a long time. However, if your goal is to pay off your mortgage early — perhaps by paying more toward the loan principal whenever possible — points may not offer the savings you expected.

Would the Money Be Better Spent on Your Down Payment?

If you have plenty of money saved and you’re trying to decide between increasing your down payment or buying points, you may want to run the numbers to determine which choice will give you a better return on your investment.

If your time horizon is short, you may save more by making a bigger down payment. If you plan to stick around for several years at least, you may choose to put your money toward discount points.

Remember, depending on the type of loan you have, if you make a down payment that’s less than 20%, your lender probably will require that you purchase private mortgage insurance. PMI could add about 0.3% to 1.5% to the cost of your mortgage. And you’ll likely have to pay it every year until your equity in the home reaches 20%.

Pros and Cons of Mortgage Points

Ready to Go Rate Shopping?

Make sure when you shop rates, you’re comparing apples to apples. Some lenders may offer an interest rate that appears lower than others but has a fraction of a point or a point tied to it. If two lenders are offering a 3% interest rate on a 30-year, fixed-rate loan, but one is charging a point to get that rate and one isn’t, the one that isn’t charging the point is offering you a more affordable deal.

Be cautious when comparing mortgage rates: If it isn’t clear how much you’ll pay to borrow, you can ask a loan officer to walk you through your loan estimate and/or to calculate your costs based on different time frames. Lenders are required to disclose information about their products in a way that allows borrowers to make meaningful comparisons.

The Takeaway

What’s the point of mortgage points? They allow homebuyers to reduce their loan’s interest rate by paying some of the interest up front. Buying discount points can save you money on interest over time, but only if you keep the loan long enough to recover the upfront cost.

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.

Photo credit: iStock/Prostock-Studio

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.

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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.

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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It can feel as if paying rent every month is akin to throwing money away. You don’t grow equity in a home, nor do you have a place to call your own or customize as you see fit (farmhouse kitchen sink, anyone?).

Perhaps you’re wondering if the time is right to buy a home or at least start saving for one. Maybe you’ve caught DIY fever and have ideas about what your dream home would look like and have been watching videos of how to redo a backsplash and plant some annuals. Or maybe you are planning on enlarging your family and think it’s time to become a homeowner, since a yard and playroom sure would be nice.

But there are other considerations, especially financial ones, to contemplate as well. The housing market has been hot, and pulling together a down payment plus affording a home loan may stretch your budget. Maybe renting is your best bet after all.

“Am I financially ready to buy?” is certainly one question you will likely want to answer. But it’s not the only issue. Here, learn the four signs that you may be ready to join the ranks of first-time homebuyers.

Renting a Home vs. Owning a Home: Pros and Cons

One important way to know if you are ready to be a first-time homebuyer is to consider the pros and cons of owning vs. renting.

First, take a closer look at the benefits of owning:

•  You know what your housing payments will be in terms of your mortgage amount, especially if you opt for a fixed-rate mortgage.

•  Month by month, you will build equity in your home.

•  As your equity grows, you may be able to borrow against it for other financial goals.

•  Owning a home can be a step toward building your net worth.

•  You may qualify for tax deductions.

•  On-time payments can help build your credit history.

•  You can customize your home to reflect your particular needs and tastes.

Now, here are the cons of owning a home:

•  You often need to come up with a down payment, which can be hard to save for. There are also closing costs to be paid.

•  You need to qualify for a mortgage.

•  You also need to budget for property taxes and related expenses such as insurance.

•  It will be your responsibility to pay for home repairs and upgrades, which may make having a healthy emergency fund more important. If, say, the furnace conks out, there’s no landlord to call for help.

•  Your mortgage, as well as taxes and other expenses, could add up to more than rent.

•  You are making a long-term commitment to owning a home. While, of course, you can always sell a property, it’s in your best interest to stay put and recoup closing costs and other expenses vs. picking up and moving frequently.

Next, think over the pros of renting:

•  It could be cheaper than owning. Your rent could be less than the mortgage, and you won’t have property taxes to pay.

•  Repairs and maintenance will likely be your landlord’s responsibility.

•  You’ll have the flexibility to move more easily when you want to.

•  You don’t need to come up with a down payment or qualify for a mortgage loan.

Last of all, take a look at the cons of renting:

•  You won’t be building equity in a property as you make your monthly rental payment.

•  Your net worth will not grow with rising property values.

•  You won’t have the security of ownership and its costs. Your landlord could raise your rent or decide not to rent the property any longer.

•  Your payments typically don’t build your credit history.

•  While you can likely decorate as you please, you won’t be able to upgrade or renovate as you might with a home you own. For instance, even if your landlord did allow you to get a new smart fridge, you probably couldn’t take it with you when you move.

💡 Quick Tip: Buying a home shouldn’t be aggravating. Online mortgage loan forms can make applying quick and simple.

Renting a Home vs. Owning a Home Differences

Deciding whether to buy or rent is a major decision that can involve your financial and personal needs and aspirations. Here are some specifics:

•  Renting a home offers you more flexibility in terms of when and where you move; you will likely feel less anchored in a property.

•  Renting may well be less expensive: You don’t need to come up with a down payment, and rent may cost less than a mortgage or a mortgage plus property taxes.

•  However, when you have a mortgage, you are likely building equity and wealth, which you may choose to borrow against in the future (say, with a cash-out refinance). You may not have that feeling of “throwing money away” every month on rent.

•  When you buy a home, you are on the hook for that monthly payment, but, if you have a fixed-rate loan, it is more predictable than rent which may fluctuate with the housing market.

•  As a homeowner, you would be liable to pay taxes and insurance, as well as bankroll any renovations and upgrades to your home.

•  When you own your own place, you can personalize it to suit you, whether that means putting in a spa bathroom, knocking down walls, or building a patio.

Buying a Home vs. Renting an Apartment

When it comes to deciding whether to buy a property or rent a home (say, an apartment), there is no right or wrong answer.

•  Renting is often more affordable, allowing you to save money and perhaps meet other money goals like paying down debt.

•  Renting is more flexible in most cases. If you rent an apartment, you are able to move at the end of your lease (or possibly before) without a lot of hassle.

•  When you rent an apartment, your landlord is probably covering property taxes and will be responsible for repairs, such as HVAC upgrades or a clogged sink.

That said, when you buy a home, you may find the following:

•  A bigger financial commitment may be required (down payment, closing costs, property taxes, home maintenance), but you are building equity and possibly growing your wealth.

•  You can make your place yours and renovate it to suit your taste.

•  Buying a home vs. renting an apartment can give you a sense of security: You won’t have a landlord who can raise your rent by a major amount, and you can put down roots in a community.

4 Signs You May Be Ready to Buy

If you think owning a home vs. renting is right for you, here are four signals that you may be ready to move ahead.

1. Your Budget Is Big Enough to Cover the Expenses

Home ownership isn’t all gain, no pain. Expenses may include:

•  Down payment and closing costs

•  Mortgage payments, including property taxes, homeowners insurance, and, if applicable, private mortgage insurance

•  Repair and maintenance costs, including HOA dues, if applicable.

How can you budget for these upfront and ongoing expenses? One way is to take a look at the average amount each of these costs in the housing market where you plan to buy a home to get a sense of how home-related expenses may affect your finances in the larger picture.

Doing some number crunching with a home affordability calculator may be enlightening.

You may get excited about buying a fixer-upper when watching home improvement shows. A common mortgage for such homes is an FHA 203(k), backed by the federal government, which includes money for the purchase price and some repairs and renovations.

Buyers will need to get bids for all the repairs they hope to fund with the loan. For less extensive repairs/improvements, there’s a Limited 203(k).

If the desired renovation is on the smaller side and you acquire a traditional mortgage, cash or a personal loan are options.

You can get an idea of how much your chosen home repair or improvement costs will be with this home improvement cost calculator.

💡 Quick Tip: 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.

2. You Plan on Staying Put for a While

Buying a home signals more of a commitment to location than renting. If you’re likely to relocate in the coming couple of years, renting may be the right move.

Here’s why: If you buy a home and sell it soon after, there’s a chance you’ll barely break even. That’s because real-estate commissions and other factors will come into play. And the financial and emotional stress of selling again soon after buying can be significant. On the other hand, if you can see yourself staying put in your new home for a while, it might be a sign to start shopping.

3. You Have Good Credit

Your good or better credit profile may have been advantageous when applying for a place to rent.

The credit you’ve spent years building will likely pay off in a bigger way once you make the move to own, with improved lending terms such as a lower mortgage rate offered.

What credit score is needed to buy a house? The average American’s credit score remains in the range considered “good.” But applicants with “fair” and even “poor” credit scores can and do secure mortgages.

Here’s how credit scores are usually classified:

•  Excellent: 800–850

•  Very good: 740–799

•  Good: 670–739

•  Fair: 580–669

•  Poor: 300–579

If you’ve spent years building your credit and your number reflects that, then you might be financially ready to buy a home.

Credit score requirements for loan program eligibility and pricing can vary from lender to lender, so you may want to shop around.

4. Rents in Your Area Are High

In many markets, the rising price of rent could make buying more enticing than ever. It may be a smarter move to invest your money toward homeownership vs rent.

Two big factors to consider are:

•  How long you plan to stay in your home

•  The price-to-rent ratio, which compares the median home price and median annual rent in a given area.

Several websites (such as Zillow, Trulia, and Realtor.com) have tools that allow you to assess the dollars and cents of renting vs. buying. Estimating your break-even point of renting vs. owning a home could be another useful way to answer the question of whether it’s a good time to buy a home.

It’s best to take the calculations with a grain of salt, though. These are general estimates, and no one can predict the future of housing prices, rents, and taxes.

The Takeaway

When considering whether to buy vs. rent, there’s not one right decision. It’s a matter of which scenario suits your life and your financial situation at a given time.

Signs that you may be ready to buy a home can include having an adequate budget for the costs involved and a good credit profile, a desire to put down roots, and an understanding of the price-to-rent ratio in your target area.

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.

FAQ

What are the advantages of owning vs. renting a home?

There are several pros to owning vs. renting a home. You can build equity in your home and potentially grow your net worth. What’s more, you can personalize your home however you like. You’ll also have stability in terms of both knowing your housing costs every month (versus a surprise rent hike) and putting down roots in a community.

What are 3 disadvantages to owning a home?

There are several cons to owning vs. renting a home. You may face higher costs (down payment, closing costs, mortgage, plus property taxes). In addition, you will be responsible for home maintenance, which can be pricey and require your time and energy. You’ll likely have less flexibility in terms of moving, too.

What is the main reason to avoid renting to own?

Renting to own can be problematic if you change your mind. You can wind up losing your down payment and other charges.

*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.

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.

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.

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.

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.

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When you’re ready to buy a house and need a home loan, a mortgage broker can help you shop for a mortgage, or you can go straight to a direct lender such as a bank or credit union and get the mortgage on your own.

Which way of shopping for a mortgage is better? If you have credit issues or other needs, using a broker to see an array of options might make sense. But if your financial health is solid and you want to save time and money, applying with a direct lender could be a good course of action.

In any case, it’s smart to get a few quotes and compare offers for the same type of loan and term.

What Is a Mortgage Broker?

A mortgage broker is like a personal shopper for home loans and serves as an intermediary between the mortgage seeker and lenders, including banks, credit unions, and private mortgage companies.

With a single application, a broker will provide you with access to different types of mortgage loans and, if you choose one, will walk you through underwriting.

Mortgage brokers are licensed and regulated. You’ll want to ensure that any broker you’re interested in working with is credentialed by checking the Nationwide Multistate Licensing System & Registry consumer access site. You can also check platforms like the Better Business Bureau and Yelp to see what past clients say.

Brokers are compensated by the borrower or lender. Borrower fees typically range from 1% to 2% of the total loan amount. Lender commissions may range from 0.50% to 2.75% of the total loan amount, but lenders usually pass the costs on to borrowers by building them into the loan.

How to Find a Mortgage Broker

You could ask your current lending institution, friends, family members, or real estate agent for a referral to a mortgage broker. After checking licensing, you may interview more than one broker before deciding on one. You might want to ask about their fees, lenders they work with, and experience.

What Is a Direct Lender?

In the mortgage broker vs. lender dichotomy, a direct lender is the bank, credit union, or mortgage company that originates, processes, and funds mortgages.

Mortgage loan officers, processors, and underwriters work for the company. Loan originators usually work on commission.

A loan officer may offer a mortgage at various price points, from a loan with discount points for a lower rate to a no-closing-cost loan, which is when the lender agrees to pay the closing costs in exchange for a higher interest rate.

Recommended: First-Time Homebuyer Guide

How to Find a Direct Lender

Most people have a relationship with a bank or credit union, so you can always start by getting a quote there. But there are myriad online mortgage lenders and it’s worth considering these options. Pulling up the day’s mortgage rates online will conjure a list of direct lenders advertising their rates.

What Are the Pros of Working With a Mortgage Broker?

Because they are able to offer a variety of quotes from different sources, brokers can be useful if you’re looking to easily compare mortgage options.

They may offer specialized loans, and because loan brokers set their own profit margins, negotiating could be easier.

A broker could be useful if you have concerns like a fair or bad credit score or student loan debt.

What Are the Cons of Working With a Mortgage Broker?

Brokers may have preferred lenders that don’t necessarily offer the best interest rate. If paid by lender commission, a broker could be tempted to steer a borrower to a more expensive loan.

If paid by lender commission, a broker could be tempted to steer a borrower to a more expensive loan.

Brokers’ loans may take longer to close.

Broker fees tend to be higher, but that could be because the mortgages offered are sometimes more complex. And mortgage brokers may charge borrowers directly (the fee of 1% to 2% of the total loan amount).

What Are the Pros of Working With a Direct Lender?

By working with a direct lender, you’ll skip the broker fees, and you may get a better rate with lower closing costs (although both lenders and brokers can offer “rebate pricing” — a higher interest rate in exchange for lower up-front costs).

A direct lender typically does all the loan processing, underwriting, and closing in-house.

You may be able to negotiate underwriting or origination fees.

What Are the Cons of Working With a Direct Lender?

Comparing rates and terms on your own from a sample of lenders takes time.

You’re limited to the loan programs of the institutions where you decide to shop.

What Works for My Situation?

You’ve probably toyed with at least one home affordability calculator and gotten preapproved for a loan.

Once you’ve found a home and your offer has been accepted, it’s decision time on a lender. You are not required to stay with the lender you used for pre-approval.

If you have a sparse credit history, subpar credit, or other challenges, a mortgage broker might be able to find a loan program that’s a good fit.

But if you have solid credit, a strong income, and assets, you may be able to save time and money by working with a direct lender.

What about rates? In weighing mortgage broker vs. bank, there might be no difference to speak of. The rate you’re offered depends more on your qualifications than on the lender.

The mortgage loan process can seem mysterious, and a broker or a loan officer at a direct lender can act as a loan seeker’s guide.

That guide should be willing to answer all of your mortgage questions, including those about points, fees, mortgage insurance, and the closing timetable.

You’ll receive loan estimates after applying. When comparing mortgage offers, it’s important to look at more than the interest rate. Be sure to compare annual percentage rates, or APRs, as well.

Look at the fees in the “loan costs” section, and compare closing costs.

The Takeaway

If you’re in the market for a mortgage, you might think the choice comes down to mortgage broker vs. direct lender. But you may get loan quotes from both and compare them. It’s called shopping, and a home is a rather important purchase. And as with any form of shopping these days, it’s easily done with a phone or computer, from the comfort of your couch.

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.

FAQ

Is it better to use a broker or a direct lender?

If you have a challenging credit score, or limited credit history, or other financial complexities, a broker might be the way to go. But if your finances are solid you may find going the direct lender to be the most cost-effective way to obtain a home loan.

Why use a mortgage broker instead of just going to a bank?

A mortgage broker can research possible rates from a wide range of lenders, which could save you time. And if you have a challenging financial situation or credit history, a broker might be able to steer you to a lender who will work with your profile.

Does a mortgage broker charge a fee?

Yes. A borrower may have to pay a mortgage broker’s fee of 1% to 2% of the loan amount. When the lender pays a broker a commission, it may range from 0.50% to 2.75% of the total loan amount and these costs are passed on to the borrower by being built into the loan.

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.

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.

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.

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