People who find that they can no longer make their mortgage payments have options to explore, including a short sale, which is when a home is sold for less than the borrower owes.
A short sale is a way to avoid foreclosure. It works much like a traditional home sale, except that the lender must approve the offer.
Key Points
• In a short sale, the lender lets the homeowner sell the house at a sale price lower than the mortgage balance to avoid foreclosure, after reviewing the offer.
• A successful short sale can help sellers avoid foreclosure and its associated challenges.
• Short sales can be risky for buyers due to properties being sold “as is” and potential additional fees.
• A short sale negatively impacts credit scores, but generally less severely than a foreclosure, allowing for faster recovery in obtaining future credit.
• Written confirmation of debt forgiveness is crucial for short sale sellers to minimize future complications with lenders and credit.
The Short Sale, in Short
If the borrower is able to negotiate a short sale, the lender agrees to take the money from the sale proceeds — even though that sum is lower than the balance of the loan — in lieu of foreclosing on the home.
Short sales were common a decade and a half ago, when the housing crisis and the Great Recession left many homeowners underwater on their mortgages. Since then, the percentage of short sales has dropped significantly, as housing values and employment rates have risen.
During a mortgage foreclosure, a lender repossesses and sells a property to satisfy outstanding debt.
In a short sale, the lender agrees to allow the borrower to sell the property for less than the mortgage balance and costs of the sale.
How Does a Short Sale Work?
A short sale may be a viable option if the remaining balance on a home loan is greater than the amount the property can fetch on the open market. Otherwise, a borrower could repay the full amount of the mortgage by selling the home.
Here’s how the short sale process generally goes:
1. Borrowers typically send their lender a hardship letter proving that they are facing a long-term financial challenge.
2. The lender decides whether to approve the sale or work out a plan, like extending the loan term or allowing the borrower to make interest-only payments for a set amount of time.
3. If a short sale plan is accepted, the homeowner works with the lender to determine the schedule for the sale. If the lender is already on the path to foreclosure, a short sale will typically need to happen quickly.
4. The sellers and their real estate agent will review the number of liens (such as a home equity line of credit or second mortgage) against the property. Having several of these can sometimes get in the way of a short sale, since all lenders must approve the sale. Buyers should be sure to ask about liens, as well.
5. The owner puts the home up for sale and selects among competing offers. Once an offer is chosen, the lender must approve the sale and agree to accept the sale price in lieu of full payment of the loan.
Who Benefits from a Short Sale?
For the buyer, a short sale can be an opportunity to get a home at a fair market price or lower.
And because the lender has an incentive to sell the property quickly and prevent further costs, the lender might offer attractive financing to the buyer, such as a lower interest rate or credit toward closing costs.
For the seller, a successful short sale can mean avoiding foreclosure and the challenges that come with it.
Are There Drawbacks to a Short Sale?
Mortgagors may want to look at a short sale as a last resort. Short sales still have a significant negative effect on an individual’s credit, affecting the ability to take out a home loan or other forms of credit in the short term.
It may be difficult for potential lenders in the future to tell the difference between a short sale and a foreclosure on a credit report, according to the Federal Trade Commission. Both can stay on the record for up to seven years, but generally a borrower’s credit can recover faster from a short sale.
Short sellers may want to get written confirmation of the sale from their lender, along with a copy of the final settlement statement, in case future lenders have trouble distinguishing a short sale from foreclosure or have questions about amounts or dates.
Someone with a foreclosure on their record generally needs to wait two to seven or more years before qualifying for a new mortgage, depending on what kind it is.
Is the Deficiency Completely Forgiven?
After a short sale, in some states, the lender can seek a personal judgment against the borrower to recover the deficiency amount (the difference between the outstanding loan amount and the proceeds from the sale of the house). If a lender agrees to waive the deficiency, that provision must be included in the short sale agreement
How a Short Sale Affects Buyers
A short sale can be risky for buyers as well. Home sales are usually closed “as is.” If a property inspection did not catch a needed repair, that can lead to unpleasant surprises.
Buyers may also be responsible for fees they wouldn’t pay during a typical sale. For example, if the seller employs a short sale negotiator to reach a deal with the lender, the buyer may be asked to pay this charge.
How Long Does a Short Sale Take?
Short sales can be time-consuming transactions, taking anywhere from a few weeks to a few months or more.
It can take a while for lenders to review a buyer’s short sale application for approval, especially if multiple lienholders are involved.
How Often Do Short Sales Fall Through?
Because short sales are often slow and complicated, with many steps before a house can be sold, they fall through fairly frequently.
For example, a lender may reject a borrower’s qualifications or the price offered by a buyer. Foreclosure proceedings or a declaration of bankruptcy could throw a wrench into a short sale. Or sellers could get their finances in order and decide they want to keep their house and continue paying their mortgage.
The sale can also fall apart if the seller declines to pay certain fees in order for the lender to approve the transaction.
Both sellers and buyers in a short sale may want to practice patience when entering into this kind of transaction and bear in mind that all their hard work could come to naught.
The Takeaway
If a mortgage becomes too heavy a burden, a short sale can be a lifeline. Still, leaving a lender short will hurt a borrower’s credit and can be a drawn-out process. An option short of a short sale might be refinancing the mortgage with a more favorable interest rate or better loan terms.
SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.
A new mortgage refinance could be a game changer for your finances.
FAQ
Is a short sale good or bad for the buyer?
A short sale offers the buyer some benefits. They have the chance to buy a property at a good price from a very motivated seller. However, there are disadvantages, too. The property will likely be sold “as is,” and there may be fees involved that wouldn’t be part of a conventional sale.
Why do sellers choose a short sale?
If they can’t pay the mortgage, homeowners may choose a short sale over a foreclosure. A short sale will have a negative impact on their credit, but typically not as much as with a foreclosure, and there is the possibility with a short sale that the lender may waive any remainder of the debt.
Do you still owe money after a short sale?
That depends on your agreement with your lender. Ideally, you would be able to get debt forgiveness, meaning that even if your house sold for less than what you owe on the mortgage that difference (or “deficiency”) would be forgiven by the lender. If you don’t have that assurance from your lender, you could be on the hook for that money.
Photo credit: iStock/:EyeEm Mobile GmbH
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.
*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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
If you’re like many Americans, you’ll need to take out a home mortgage to buy a house. A home of your own will likely be one of the biggest purchases you’ll ever make, and the terms and interest rates you will end up paying can have big financial consequences.
That’s why it’s important to do what you can to find the best mortgage rates, from having a healthy credit score to comparing lenders to hitting the negotiating table to find the best deal.
Putting Your Financial House in Order
Before you start shopping for a mortgage, take a look at your credit score. A low credit score may be a signal to lenders that lending to you is risky. Those with a lower credit score may find it difficult to get a mortgage — running into limited options — or may be offered loans with higher interest rates.
Generally speaking, the higher your credit score, the easier it will be to get a mortgage. You may be offered better rates, and you may have an easier time negotiating with different types of mortgage lenders. In general, you’ll need a credit score of 580 and the ability to make a 3.5% down payment to qualify for a Federal Housing Administration (FHA) loan. A conventional loan will typically require a credit score of at least 620, but requirements may vary by lender.
Thankfully, an individual’s credit score isn’t set in stone. Those interested in maintaining a good credit score have a few options. First up is requesting your credit report from the three major credit reporting bureaus: TransUnion®, Experian®, and Equifax®. Review each report for errors and contact the appropriate credit bureau if you spot anything that’s incorrect. Credit reports can be ordered from each of the three credit bureaus annually, for free.
Other strategies for building a credit score include paying down credit cards to lower your credit utilization ratio, and making on-time payments for bills and other loans.
Considering a Bigger Down Payment
As a general rule of thumb, lenders may require borrowers to make a 20% down payment when they buy a home. However, many lenders require much smaller down payments, some as low as 3%. And if you qualify for a VA loan, you may not need a down payment at all.
If a borrower makes a down payment smaller than 20%, their lender may require them to purchase private mortgage insurance that will protect the lender in case the borrower fails to make mortgage payments. A larger down payment could potentially help borrowers avoid paying PMI.
As you’re shopping for mortgages, carefully consider how much money you can afford to put down, as a larger down payment can also have an impact on your interest rate.
Typically, a larger down payment translates into a lower interest rate, because taking on a larger stake in a property signals to lenders that you are less risky to loan money to.
Understanding Fixed-Rate vs. Adjustable Rate Mortgages
When shopping for a mortgage, you will typically be offered one of two main financing options: fixed-rate and adjustable-rate mortgages. The difference between the two lies in how you are charged interest, and depending on your situation, each has its own benefits.
Fixed-Rate Mortgage
A fixed-rate mortgage has an interest rate that stays the same throughout the life of the loan, even if there are big shifts in the overall economy. Borrowers might choose these loans for their stability, predictability, and to potentially lock in a low interest rate. Fixed-rate mortgages shield borrowers from rising interest rates that can make borrowing more expensive.
That said, fixed-rate mortgages may carry slightly higher interest rates than the introductory rates offered by adjustable-rate mortgages. Also, if interest rates drop during the lifetime of the loan, borrowers are not able to take advantage of lower rates that would potentially make borrowing cheaper for them.
Adjustable-Rate Mortgage
Interest rates for adjustable-rate mortgages (ARM) can change over time. Typically ARMs have a low initial interest rate. (One popular ARM is the 5/1 adjustable-rate mortgage, which is fixed for the first five years.
However, as the Federal Reserve raises and lowers interest rates, interest rates may fluctuate. That said, there may be caps on how high the interest rate on a given loan can go.
ARMs don’t provide the same stability that their fixed-rate cousins do, but lower introductory interest rates may translate to savings for borrowers.
Once you have a sense of whether a fixed- versus adjustable-rate mortgage is for you, you can narrow your field and start looking at lenders.
Comparing Lenders
When choosing a lender, start your search online, taking a look at a variety of lenders, including brick-and-mortar banks, credit unions, and online banks. The rates you see on lenders’ websites are typically estimates, but this step can help you get the lay of the land and familiarize yourself with what’s out there.
As you shop for mortgage lenders, consider contacting them directly to get a quote. At this point, the lender will generally have you fill out a loan application and will pull your credit information. Many lenders will do a soft credit pull, which won’t impact a potential borrower’s credit score, to provide an initial quote.
Borrowers can also work with a mortgage broker who can help identify lenders and walk them through any transactions. Be aware that mortgage brokers charge a fee for their services.
When choosing a home mortgage loan, interest rates aren’t the only cost to factor in. Be sure to ask about points and other fees.
Points are fees that you pay to a lender or a broker that are frequently linked to a loan’s interest rate. For the most part, the lower the interest rate, the more points you’ll pay.
The idea of points may feel a little bit abstract, so when talking to a lender, ask them to quote the points as a dollar amount so you’ll know exactly how much you’ll have to pay.
If you plan to live in a house for the long term, say 10 years or more, you may consider paying more points upfront to keep the cost of interest down over the life of the loan.
Home loans may come with a slew of other fees, including loan origination fees, broker fees, and closing costs. You’ll pay some fees at the beginning of the loan process, such as application and appraisal fees, while closing costs come at the end. Lenders and brokers may be able to give you a fee estimate.
When talking with a lender, ask what each fee includes, since there may be more than one item lumped into one fee. And be sure to ask your lender or broker to explain any fee that you don’t understand.
Once you’ve gathered a number of loan options, you can choose the best deal among them. There may also be room to negotiate further. When you send in an application, lenders will send you a loan estimate with details about the cost of the mortgage.
At this point, the loan estimate is not an offer, and borrowers have time to negotiate for better terms. Negotiating points may include asking if interest rates can be reduced and if there are other fees that can be lowered or waived.
A strong credit score or the ability to make a bigger down payment could be leverage. It may also help to let the lender know if you do other business with them.
For example, a bank may waive certain fees if you are already a customer of theirs. Also let lenders know if you have other options that offer better rates. Lenders may try to match or beat competitors’ rates to attract you as a customer.
If you negotiate terms that you are happy with, request that they are set down in writing. Lenders may charge a fee for locking in rates, but it may be worth it to eliminate uncertainty as you settle on the right deal.
As you prepare to buy a home, it’s critical to shop around for lenders that offer the best deals, examine the fine print, and then put matters into your own hands, negotiating the details to settle on the deal that’s right for you.
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.
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Most people consider a “good” mortgage rate to be the lowest average current rate available. But here’s what they may not realize: Not everyone will qualify for the best rates out there.
So what is a good mortgage rate? It can be different for every borrower, depending on their financial situation and credit score.
Many factors go into determining the mortgage rate you can get. Once you understand what these variables are, the better equipped you’ll be to navigate the mortgage market and find the best loan for your situation.
This guide will get you on your way.
Key Points
• A good mortgage interest rate is the lowest current rate available to you. Rate averages are influenced by economic conditions, personal factors, and property location.
• Comparing lenders is essential to find the best mortgage rate, and the APR provides a comprehensive cost measure.
• Market conditions and housing demand significantly impact mortgage rates. Strong demand tends to lead to higher rates and slower demand means lower rates.
• Your credit score, income, down payment, and loan term affect mortgage rates. A higher score, steady income, and larger down payment will generally win you a better rate.
• Property location impacts mortgage rates, with higher costs of living in certain areas often leading to higher interest rates.
What Is a Mortgage Interest Rate?
If you’re a first-time homebuyer, you may have a lot of questions about mortgage interest rates. The interest rate on a loan is the cost you pay to borrow money. You pay the interest each month as part of your regular payments for your loan.
There are different types of mortgage rates. With a fixed rate mortgage, your interest stays the same over the life of the loan. This means your monthly payment will always be the same.
An adjustable-rate mortgage (ARM) changes with the prime interest rate, which is influenced by the federal funds benchmark set by the Federal Reserve (the Fed). An ARM typically starts with a fixed rate for the first five to seven years, and then might fluctuate, based on the prime rate. This could potentially make your payments much higher, depending on the state of the economy.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
How Do Mortgage Interest Rates Work?
So what is a good mortgage interest rate? Interest rates are always changing. A variety of factors determine mortgage rate changes. Some you have control over, and others you don’t.
One of the critical factors that’s outside your control is what’s happening in the economy. Major economic events have a significant effect on interest rate fluctuations. For instance, if employment rates are high, the interest rate typically rises as well.
Inflation, which limits consumers’ purchasing power, also plays a role. Since 2022, inflation has been on the rise, and the Fed has raised interest rates numerous times to try to tame it.
Your personal financial situation also affects the interest rate you get, as outlined below.
How Lenders Determine Your Mortgage Rate
In addition to the economic factors and the influence of the Fed, your unique financial situation will help determine the mortgage rate you qualify for.
Here are a few key factors lenders typically consider when determining your rate.
Credit Score
Most lenders review your credit history to determine if you’re eligible for a mortgage.
With this in mind, you want to make sure you check your score regularly and that you’re doing everything you can to keep your score as high as possible, like paying your bills on time and keeping your credit balances low.
Credit report agencies will assign you a credit score by evaluating these factors. The most common model is the FICO® credit score, which ranges from 300 to 850.
Usually, if you have a credit score of 800 or higher, it’s considered exceptional, whereas a credit score between 740 and 799 is considered very good.
A credit score of 739 to 670 is good, and a score between 669 and 580 is fair. A score of 579 and lower is considered poor. A low credit score indicates that a borrower represents a higher risk. Borrowers with these credit scores may have trouble getting approved for a loan.
It’s important to note that specific credit score requirements may depend on the loan you apply for.
Income and Assets
Your income is another important factor lenders use to determine if you’re eligible for a mortgage. Lenders prefer borrowers with a steady income. To determine if you qualify, lenders evaluate your income and other assets, such as investments.
Also, your debt-to-income ratio (DTI) is essential information. Your DTI indicates what percentage of your monthly income is used for debt payments. This number gives lenders an idea of how well you’re doing financially.
If your DTI ratio is high, it may show that you’re not in a position to take on more debt. A lender might give you a higher interest rate or deny your mortgage application altogether.
Down Payment Amount
Sometimes your down payment amount can lower your interest rate or even determine what loans you’re eligible for. Lenders may see you as less of a risk if you put more money down.
A good standard tends to be a 20% down payment. A 20% down payment may help you get the most favorable interest rates.
However, if you’re applying for a government-backed loan, you may not need such a big down payment. For example, a Veterans Affairs mortgage requires no money down, and a Federal Housing Administration (FHA) loan only requires 3.5% down.
The loan term you select, such as 15 or 30 years, can also make a difference in the interest rate you receive. In general, a shorter-term loan will have a lower interest rate than a longer-term loan. However, your monthly payments will be higher with a shorter-term mortgage.
There are also several types of mortgage loan categories, including conventional, FHA, USDA, and VA loans. Each loan product may have very different rates.
Finally, as discussed, with a fixed-rate mortgage, your interest rate will remain the same for the life of the loan. But if you choose an adjustable-rate mortgage, your interest rate will vary after an initial fixed rate.
Before you take out any loan, it’s important to compare all of your options to make sure you find the best rate available.
Location
Where your property is located can also play a role in the interest rate you receive. Some real estate markets are simply more costly than others. For instance the cost of living in California tends to be higher than it is in some other locations.
In addition to your financial situation and location, and the type of loan you’re applying for, there are some other things that may influence the mortgage rate you get. They include:
The lender you choose
Different lenders offer different mortgage rates and terms. Shop around to find the best rate you can qualify for.
Housing market conditions
This factor is out of your control, but it’s good to understand how it works. If demand for houses is strong, mortgage rates tend to rise. And the opposite is true: When demand slows, rates tend to decrease. Knowing what the housing market is doing when you’re shopping for a home loan can help prepare you for what to expect.
What Is Considered a Good Mortgage Rate
Currently, in late-May 2025, the average rate on a 30-year fixed-rate mortgage is 6.86%, according to Freddie Mac. Anything below or close to that number might be considered good.
But again, what’s a good mortgage rate for you depends on your financial situation and many other factors. A good rate is what you can qualify for. Be sure to compare rates from different lenders to get the best deal and the lowest rate you can.
As you’re comparing your options, be sure to look at the loan’s APR (annual percentage rate). An APR gives borrowers a more comprehensive measure of the cost to borrow money than the interest rate alone does.
The APR includes the interest rate, any points, mortgage broker fees, and other charges you pay to borrow money. So when you’re comparing options, you’ll want to review each lender’s APR to indicate the true cost of borrowing.
To get an idea of what your mortgage payments might be, you can use a mortgage calculator.
How to Get a Good Mortgage Rate
Now that you know the answer to the question, what is a good interest rate for a mortgage?, you’ll want to make sure you get the best rate for you. Making sure your finances are in order before you apply for a mortgage will likely help you obtain a better interest rate and loan terms. Here are some ways to do that.
• Pay off higher-interest debt. If you have debt like credit card debt, you’re likely paying a lot of money in interest. That money could be going toward other things like a mortgage payment. Second, carrying a large amount of debt means you lower your chances of approval for a home loan. Pay off as much of your debt as you reasonably can.
• Save more for a large down payment. Buyers who put down less than 20% may end up paying for private mortgage insurance (PMI), which typically costs between 0.46% and 1.5% of the loan amount annually.
• Review your credit history and check for errors. You can get a free copy of your credit report from the three major credit bureaus or from AnnualCreditReport.com. If you spot any errors, be sure to alert the credit bureaus right away. Correcting any mistakes may help improve your ability to get a home loan.
The Takeaway
What is a good interest rate on a mortgage? Your financial health, the health of the economy, the loan type and term, and other factors help determine the actual rates you’re offered. What you can do is work to strengthen your credit and financial situation and pay down debt you have, such as credit card debt.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
What is the 30-year mortgage rate right now?
Right now, as of late-May 2025, the average rate on a 30-year fixed-rate mortgage is 6.86%, according to Freddie Mac.
What is a good interest rate for a mortgage now?
A good rate for a mortgage now is anything below the average rate for a 30-year mortgage, which is 6.86% in late-May 2025. But a good mortgage rate can be different for every borrower, depending on their financial situation and credit score, as well as the type of home loan they’re applying for, among other factors.
Is 5.50% a good rate for a mortgage?
Currently, in 2025, 5.50% is considered a good rate for a mortgage, compared to the average rate for a 30-year fixed-rate mortgage, which is 6.86%.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
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.
*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.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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.
When the idea of buying a home comes up, many people imagine a sweet house with a white picket fence: the classic American dream. But in truth, purchasing a home can mean buying an apartment, especially if you are a city dweller, or it might even include buying an apartment complex, where you can both live and earn some rental income.
Apartment living can be perfect for those who love urban life, singles, small families, and empty-nesters. However, it’s not only in cities that you will find apartments: There are beach condos, suburban and rural buildings that house more than one family, and other options available. Wherever it may be located, owning a complex can be a way to enjoy the apartment lifestyle and make money. Typically, an apartment complex is defined as a residential property with five or more units.
Here, you’ll learn the full story on real estate options that may be available when you’re considering the purchase of an apartment complex.
Key Points
• Research and due diligence when buying a building are crucial, including financial and physical condition assessments.
• A budget for down payment and ongoing expenses will be essential, along with securing a multifamily property loan.
• You may want to hire a property management company that can help manage tenants and operations effectively.
• You’ll need to carefully consider legal and tax implications, including liability for accidents and crimes.
• Buying an apartment complex offers you potential for passive income and wealth growth, along with tax benefits and depreciation.
Condo vs Co-Op
If you are considering becoming an owner and resident of an apartment complex, you will likely encounter the terms “condo” and “co-op.” Both a condominium and a housing cooperative involve multi-unit buildings, but there are key differences between a condo and a co-op. It can be important to understand these points upfront.
Ownership
When you buy what is known as a condo, you own the unit. The exterior of the units and land are usually considered common areas, owned collectively.
If you buy into a co-op, you don’t own your apartment. You purchase shares or an interest in the entire building. So, you don’t “buy” a co-op apartment; you become a shareholder in the corporation that owns the co-op.
You’ll usually sign a contract or a lease agreement that allows you to live in one of the co-op units.
Oversight
Both condos and co-ops answer to an oversight body. For condos, it’s a homeowners association. For co-ops, it’s the residents who own shares in a nonprofit corporation that owns the building.
When it comes to buying and selling, the co-op association can influence the deal. Most require a prospective buyer to be approved by the co-op board.
💡 Quick Tip: Mortgage loans are available with flexible term options and down payments as low as 3%.*
Costs
Here are some of the key differences for residents of co-ops and condos:
• Co-ops tend to cost less per square foot and often have lower closing costs. But some lenders aren’t keen on co-ops or require higher down payments. And some co-op documents outright prohibit financing.
• Co-op monthly fees tend to be higher than condo fees. A co-op shareholder’s fee could include payments for the building’s mortgage and property taxes, security, amenities, and utilities.
• Condo owners pay property taxes on their unit, which may provide them with a tax deduction.
• With a co-op, the monthly dues for maintenance include the property taxes associated with the units, technically owned by the corporation, which receives one property tax bill. Each resident’s portion of that bill is tax-deductible.
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House vs Apartment
If you are pondering whether to buy an apartment complex or a house, consider some of these key lifestyle differences.
• Unlike a co-op apartment or a condo, houses stand alone, and some folks prefer that breathing room. Hey, communal living isn’t everyone’s cup of tea.
• Along with the home, the owner owns the land that the home sits on, as well as any detached structures on their property like a garage or pool house.
• Similar to a condo, homes may require HOA fees that cover costs relating to security, maintenance, and access to any amenities in the neighborhood.
• A house typically will cost more than a condo or co-op apartment, but it usually appreciates faster than a condo. However, in hot housing markets, an apartment or an apartment complex could prove to be an excellent investment.
• With a house, there’s that yard to mow. Then again, you can have your own garden. With an apartment complex, you may or may not have common outdoor space, whether a courtyard or a roof garden. If it is part of the property, as the owner, you will be responsible for its maintenance.
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Finding the Right Real Estate Agent
While buyers can search for an apartment complex on their own, professional help is often a smart move.
Whether you’re a first-time homebuyer or a seasoned one, listing your top priorities can help an agent narrow down the options. Examples of things that could be important to you:
When choosing a real estate agent to work with, it can be smart to speak to a few and ask them key questions to determine if they’ll be a good fit.
Think of it as a job interview and review their qualifications, learn more about their area of expertise, and find out how much it’s going to cost to work with them. Some questions worth asking are:
• How many clients do you currently work with?
• How many apartment units/complexes have you helped clients buy?
• Do you have references?
• What is your availability to show apartment buildings?
• How quickly do you typically respond to emails and phone calls?
• What are your fees? Do you have a network of professionals who can help with other aspects of buying and owning an apartment complex?
Renting is not always cheaper than buying, but at the same time, any type of homeownership comes with added costs that renters don’t have to incur.
Before deciding whether to buy or rent, it’s best to ask yourself some important questions. And then you might want to check out a rent vs. buy calculator.
There are many calculators available, but they can only provide a loose idea of what may be a better deal long term, so that’s worth keeping in mind. Each calculator will have a different methodology.
Obviously, buying an apartment complex brings a different set of financial obligations and expenses to the table. Consider those vs. potential rental income carefully.
Next, take a closer look at the responsibilities that come with buying an apartment complex vs. just a single apartment.
Why Buy an Apartment Complex?
While the practicality and value of buying an apartment complex will depend on each person’s needs, goals, and financial situation, there are a few ways to tell if buying a multifamily building is a good opportunity.
• Income. You can earn rental income as an owner of an apartment complex. If you live in one unit and rent out the others, you will have a form of passive income coming your way.
• Wealth building. When you buy an apartment complex, you may well be building your wealth long-term as your equity in the property grows and its value potentially increases over time.
• Tax incentives. You may benefit from mortgage interest, depreciation, and other deductions come tax time.
• Supplemental income. You may be able to earn additional funds via providing laundry machines, parking spots, and the like.
However, you must also consider these obligations:
• Time and energy. You will likely have to invest a significant amount of time in shopping for and purchasing an apartment complex. Not only are you considering whether there’s a unit you yourself would like to live in, but you must also think about the real estate investment you will be making.
For instance, is the building structurally in good shape? What kind of capital improvements may be required in the future? And if you do become an owner, you will either need to find and hire a management company or be on-call for tenant issues and repairs 24/7 yourself.
• Funding. Buying one apartment can be pricey enough. Buying a multifamily building? More so. You will need to spend time getting your financing in order, and also recognize that you lose the liquidity of, say, cash in the bank or investments when you purchase real estate.
• Ongoing expenses. You must have an operating budget and be ready to finance the maintenance issues that are bound to occur. Also, as residents move out, you will need to expend time, energy, and resources to re-rent units. And what if an apartment sits empty for a while? Can you handle that in terms of cash flow?
• Liability. If an accident or crime were to occur at the property, you could be liable. It’s important to understand, prepare for, and protect yourself in the event of such incidents.
Steps to Buy an Apartment Complex
Soon-to-be apartment buyers will want to understand that getting their finances in order and securing a mortgage loan are some of the final steps toward the goal.
1. Do Your Research
Before you go shopping or apply for a loan, it’s important to understand the responsibilities of owning an apartment complex and to know the four different types of buildings, from Class A (best condition and amenities) to Class D (likely older and in need of repair).
You will probably want to learn more about the housing market and cost of living in areas you are considering. You want to feel comfortable that the area you are investing and living in is stable or on the upswing to protect your business interests and enhance your daily life.
2. Develop Your Budget
Purchasing an apartment complex can involve a six-figure down payment and a positive financial standing. You will also need to have worked through the cash flow implications of owning a multifamily building, including a budget for maintenance and reserves for unexpected expenses.
3. Get Preapproved for Your Loan
Finding the right financing may require a different path than getting preapproved for the purchase of a single-family home. You will need to find a lender who serves borrowers for multifamily properties. It’s likely you will need to have detailed financials prepared for this investment as well.
Don’t be surprised if you need up to 30% as a down payment, and recognize that your financial projections may count more toward your mortgage approval than your credit history.
If you are thinking of buying an apartment complex and living in one of the units, consider the upsides and downsides.
First, the pros of buying an apartment complex:
• Income. As an owner/tenant, you should be bringing in a stream of passive income which can build your personal wealth. This can be enhanced by offering additional amenities to tenants, such as laundry facilities or onsite parking.
• Wealth growth. You will likely build equity in your property, and the value of your building may increase over time.
• Tax deductions. As the owner of an apartment complex, you may be able to claim deductions and depreciation on your taxes.
• Convenience. In terms of your own residence, apartment life appeals to many who want an urban lifestyle or the ease of maintaining a smaller footprint.
On the other hand, consider these potential negatives:
• Expense. Buying a multifamily property will likely require a hefty down payment and an ongoing investment of funds to operate and maintain the building. You may have to cover loss on income also if, say, a tenant moves out and it takes several months to re-rent the unit.
• Time and energy. Maintaining your property, its financials, and tenant needs 24/7 is a major commitment. It’s not a simple side hustle in most cases!
• Liability. If someone were to be injured on your property or a crime were to occur, you might be liable.
• Lack of flexibility. As a resident of an apartment, you may lack the opportunity to customize your home as you could with a single-family house. You probably can’t add another bathroom or expand the kitchen much, for instance.
Tips on How to Buy an Apartment Complex
If you think buying an apartment complex is right for you, follow these tips to help make your ownership dreams come true:
• Do your due diligence. Scrutinize not just the structure and its mechanicals but also its financial records. You may want to review copies of leases and tax returns and have an appraisal done.
• Consider your financing carefully. You might get financing from the seller, a commercial bank, or a private lender. You may want to look into what are known as non-recourse loans which, if you were to default, would not allow the borrower to seize your personal property. These loans are typically costlier than recourse loans but can be a smart move for some borrowers.
• Get the right support. You’ll likely want to be advised by a real estate attorney with experience in this realm, and you may want to interview and hire a property management company to help you handle the sometimes constant demands of owning an apartment complex.
The Takeaway
Are you ready to buy an apartment complex and possibly live in it? If so, it’s wise to be aware of the differences between a condo and co-op building, the financing and expenses involved, and how it may impact your cash flow, tax returns, and net worth. When securing financing, not all lenders will offer funding for multifamily properties, so it’s wise to shop around. If, however, you are simply shopping for an apartment in a building that someone else owns, you’ll likely have a more streamlined path (and many lenders to consider) as you pursue homeownership.
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.
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FAQ
Is it profitable to buy an apartment complex?
Many factors determine whether it is profitable to buy an apartment complex. You will have to consider the cost of the property and its financing, maintenance expenses, the local housing market, occupancy rates, and many other variables. As with any business venture, it may or may not be profitable.
What questions should you ask when buying an apartment building?
When buying an apartment building, it is important to understand the condition of the building and improvements that will need to be made in the future, current and past occupancy rates and rents (ask to see leases), and the tax returns of the current owner (to know what the cash flow is likely to be like). It’s also wise to personally inspect each unit and request an appraisal.
How can you make money when investing in apartments?
It is definitely possible to make money when investing in apartments, but it’s not a given. You will need to have the means to afford the purchase, manage cash flow successfully, understand the rental market in your area, and keep up with maintenance and other liabilities while turning a profit. Working with an experienced, highly recommended real estate attorney and management company may contribute to your success.
About the author
Jacqueline DeMarco
Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.
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You’ve decided to buy a home. Luckily, you’ve found a real estate agent who can help you find homes to look at and assist with negotiations and inspections. But what if that agent also works for the seller? That is called dual agency, and there’s a lot to consider before agreeing to the arrangement.
Here’s what future homebuyers need to know about dual agency to help decide if it’s the right choice for them.
Key Points
• Dual agency involves one agent representing both the buyer and the seller in a real estate transaction.
• Dual agency is banned or limited in eight states, and some others warn against it.
• Agents must disclose their dual agency status to both parties in the transaction.
• Possible advantages to using a dual agent include smoother communication and some potential for commission discounts.
• Disadvantages of using a dual agent include their potentially split allegiances and the risk of less favorable pricing and/or terms.
What Is Dual Agency?
A dual agent represents both the buyer and seller in the same real estate deal. Dual agents are also sometimes referred to as transaction brokers.
Dual agency can be controversial and is banned or severely limited in eight states: Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, Vermont, and Wyoming.
Other states do not explicitly make it illegal, but some do warn against using a dual agent.
For example, the New York Department of State issued a memo advising consumers to be extremely cautious when signing on with a dual agent because in doing so they forfeited their right to an agent’s loyalty.
However, in every state where dual agency is legal, the law requires agents to disclose their work with both the buyer and the seller. Both buyer and seller must agree to use a dual agent and sign a consent form indicating they understand what they are agreeing to.
Dual agency may also refer to deal-making of seller’s agents and buyer’s agents at the same real estate company.
For example, Keller Williams, one of the largest real estate firms in the nation, has both seller’s and buyer’s agents. If one of its seller’s agents puts a home on the market, there’s a decent chance that one of its buyer’s agents may have a client for the property.
This is less controversial and poses fewer issues as it is still two separate people overseeing the seller’s and the buyer’s interests.
Real estate agents are legally bound to represent the best interests of their clients. This means agents must disclose any information they have that may or may not help their clients in the negotiating phase.
The obligation to disclose could pertain to information on home inspection reports, defects with the house, or anything else that affects the property’s value.
While representing a buyer, an agent must also disclose any existing relationship with the seller.
A seller’s agent must disclose any relationship with potential buyers and all offers made on the property—unless, in general, the seller has instructed his agent in writing to withhold certain kinds of offers.
Real estate agents are also expected to put their clients’ financial best interests above their own. This could mean putting in an offer below asking price, which would reduce their own commission.
With all of that in mind, it becomes clear that issues of loyalty and confidentiality become challenging in a dual agency situation.
💡Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.
Pros of Dual Agency
Smoother communication: Having one agent representing both the buyer and seller could help create a smoother communication path. Because the person represents both parties, they may be able to speed up any negotiations. In this case, the dual agent may also understand both the seller’s and the buyer’s timelines, their schedules, and any internal deadlines better than two separate parties could. Buyers wouldn’t have to wait for the seller’s agent to call back and sellers wouldn’t have to wait for a buyer’s agent to call back, because with dual agency they are the same person.
Potentially more information on the home: A dual agent may be able to obtain more information on the home than an agent just representing the potential buyer. In turn, they can relay any pertinent information, such as structural issues, inspection reports, and any updates made to the home, to the potential buyer.
Potentially more access to a larger pool of homes: Remember, dual agency also means a buyer’s agent and seller’s agent working for the same agency. That means, if one home doesn’t work out, the two agents could look internally to find more potential homes their agency represents for the would-be buyers. They may even be able to find a few homes that haven’t hit the market yet.
Possibility for a discount on commission: In a typical real estate transaction, the seller’s agent and buyer’s agent split the commission. A dual agent may be willing to negotiate down their commission since they are double-ending the deal.
Dual agents still have to do their job: In the end, even dual agents must present all offers, prepare all paperwork, present all disclosure agreements, and help to complete the deal.
Buyers (and sellers) won’t get special treatment: Agents only working for one side will likely be willing to go all out for their client to ensure that the client gets the best deal. An agent working for both sides may be more tempted to get the best deal for themselves to maximize the commission (hey, it’s just human nature to look out for No. 1). A buyer (and a seller) usually wants loyalty above all else when looking for a home. Homebuyers may want to seek out someone who knows what’s needed to buy a house and has their back.
Buyers (and sellers) may not get the price they want: Again, a dual agent’s allegiances are split down the middle during the deal-making process. A seller’s agent is meant to promote the home and get the seller the best price for the home with the fewest contingencies.
A buyer’s agent is on a mission to find every tiny thing that needs to be fixed with the home to get the buyer the best deal they can. If a person is representing both sides, how can they do both? It’s important to discern an agent’s allegiances before signing on the dotted line.
No pushback from the other agent: In a two-sided real estate deal, the two agents will typically go back and forth on the home’s price, any reductions the buyer may want in exchange for repairs, the home’s inspection report, and much more. This creates a system of checks and balances for both sides, which can be important when negotiating a fair deal. However, if one person is playing both sides, things may get muddled, hurting both the seller and the buyer.
The Takeaway
Dual agency is rare in the real estate world because most buyers and sellers want to find an agent who is loyal to them and has their best interests at heart. Still, if you find yourself in a dual agent situation, there is much to know.
There’s another important decision most homebuyers must make: getting the right home loan. Different lenders may offer different terms, rates, or perks that may fit a buyer best.
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
Is having a dual agent a good idea?
Dual agency isn’t necessarily a good idea and is banned or strictly limited in eight states. A dual agent’s allegiance may be split between the buyer and seller, and most buyers will prefer a dedicated agent. Real estate agents are fiduciaries and obligated to put their client’s interests before their own, but that may be difficult when they have clients on both sides of a transaction.
What is a common challenge with dual agency?
A common challenge with dual agency is that the agent’s allegiance is split since they represent both the buyer and the seller. While this can facilitate some communications, it may raise problems in terms of whose interests the dual agent is representing.
Do dual agents get double commission?
Typically, in a real estate deal, the agent representing the buyer and the agent representing the seller divide the commission between them. If there is a dual agent — someone who represents both parties s
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 conforming, FHA, and VA purchase loans only. Rate will lock for 91 calendar days at the time of pre-approval. 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.
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.
