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If you own one or more rental properties and you’re considering selling this year, it’s important to think about the impact that capital gains tax on rental property could have on your profit — and on your future goals for that money.

Planning ahead is key to minimizing the hit to your bottom line. So read on for some capital gains tax basics and a few strategies that can help rental property owners lower the tax burden when they decide to sell.

Capital Gains in Real Estate

When you invest in real estate, the expectation, or hope, at least, is usually that when you sell it, you’ll make a nice profit on the deal. It’s one reason so many people have been investing in single-family rental homes in recent years.

You may already have a plan for how you’ll use that profit — to make another investment, for example, or put money toward your retirement. But if the value of the property has increased substantially during the time you’ve owned it, you should also be prepared to hand over some of your gains to the IRS to cover the capital gains tax.

What Is a Capital Gain?

When you determine how much your house is worth, find a buyer, and sell this capital asset for more than you paid for it, the increase in value is referred to as a capital gain.

Capital gains taxes are the taxes you pay on the profit you made because of that increase in value. The tax isn’t applied while you own the asset, such as a rental property. It hits only when you profit from the sale.

Short-Term vs Long-Term Capital Gains

The length of time you owned the property before selling it determines whether your profit is a short-term or long-term capital gain. This distinction can significantly affect how your gains are taxed.

•   Short-term capital gains: If you sell the property after owning it for a year or less, the profit is considered a short-term capital gain, and you’ll be taxed at your ordinary income tax rate for the year you made the sale. Tax rates are always subject to change, but the maximum you could pay for short-term capital gains on a rental property is 37%.

•   Long-term capital gains: If you sell after holding the property for more than a year, the profit is considered a long-term capital gain, which makes it subject to preferential capital gains tax rates. Long-term capital gains tax rates are set at 0%, 15%, and 20%, based on your filing status and income.

How Capital Gains Tax Works on Rental Properties

If you’ve ever sold a home, you’re probably familiar with the “home sale exclusion” that eligible home sellers can use to avoid or reduce the capital gains tax on the sale of their primary residence.

Unfortunately, this exclusion typically doesn’t apply to a property used as a rental. (Though there may be an exception if you lived in the property during part of the time you owned it and rented it the rest of the time.)

Factors Affecting the Capital Gains Tax You May Pay

Without the home sale exclusion, the primary factors that will go into deciding how much you ultimately could be taxed on your gains include:

•   How long you’ve owned the property

•   How much you paid for the property

•   How much you spent on improvements to the property

•   How much you claimed in depreciation

•   How much your property was sold for

•   What your filing status and taxable income were in the year you made the sale

Recommended: Guide to All Things Home

Calculating Capital Gains on Rental Property Sales

These steps can help you estimate the gain on the sale of a rental property:

1.    Start by determining your cost basis (or adjusted cost basis if you made major improvements). This is the price you originally paid for the property, plus money you spent on major improvements (such as additions and upgrades) and selling expenses, minus the amount you claimed for depreciation over the years and/or casualty and theft losses.

2.    Next, calculate the capital gain. To do this, subtract your adjusted cost basis from the net proceeds of the sale. (Net proceeds are the amount the seller walks away with after all the closing costs are paid and any home loan balance is paid off.)

Strategies to Minimize Capital Gains Tax on the Sale of Rental Property

Several strategies could potentially help sellers avoid paying capital gains tax on real estate, either by legally deferring or minimizing their gains.

1031 Exchange

A 1031 exchange is an effective but complicated strategy that allows the owner of an investment property to defer capital gains taxes if the sale’s proceeds are reinvested into a replacement or “like-kind” property.

The IRS has several rules regarding the type of property that can be used in the exchange, the timeline, and other details, so you may want to consult with a tax professional if this strategy appeals to you.

Tax-Loss Harvesting

With tax-loss harvesting, you can sell long-term positions in your investment portfolio that have produced capital losses, replace them with similar (but not identical) investments, and then use the loss to offset the gains from the sale of your rental property.

If your losses exceed your gains, you can even use the excess to offset up to $3,000 of ordinary income that year, with any remaining losses carried forward to future years. But again, you’ll likely need some professional help to make sure you’re getting the most out of your investments and that you’re following IRS rules.

Installment Payments

If you prefer to spread your capital gains tax liability over several years, you may want to consider receiving installment payments from the buyer instead of a lump sum. With this method, you would pay capital gains tax only on the portion of the gain you receive each year until the property is paid off.

Convert the Rental Property to Your Primary Residence

If you move into the rental property and make it your primary residence before the sale, you may be able to use the home sale exclusion to reduce your capital gains.

Of course, there are IRS rules: To qualify, you must own and occupy the property as a principal residence for two of the five years immediately before the sale. But the ownership and occupancy don’t have to be concurrent, so if you’ve lived in the property as your primary residence for at least 24 of the last 60 months, the gains may qualify for the tax exemption.

Reporting Capital Gains on Rental Properties

The IRS has specific rules for reporting the capital gains on a rental property.

You can start by ensuring you have a copy of Form 4797. Typically, the person who closes the transaction is required to file this form to report the sale of a business property.

You’ll use Form 4797 along with other records and receipts to report the capital gains from the sale on your tax return. It’s important to have the original closing documents from your purchase, the closing documents from the sale, receipts related to major improvements, records of any depreciation claimed, and any other relevant paperwork related to the property. This way, you or your tax professional can more accurately complete the appropriate tax forms and schedules when it’s time to file your tax return.

Filling out these forms can be challenging, especially if it’s your first time selling a rental property and dealing with capital gains. You may want to work with a tax attorney or another professional for the job to ensure you’re fully compliant with IRS rules.

State-Specific Capital Gains Taxes

Depending on where you reside, you may also have to pay capital gains taxes to your state. Most states have a capital gains tax rate between 2.5% and 13.3%, although some states (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming) don’t charge any capital gains tax.

Impact of Capital Gains on Investment Strategy

Smart planning can help investors manage and mitigate the impact of capital gains. Some things to consider include:

•   Timing: If you can put off selling an asset until you’ve held it for at least a year, you can qualify for the lower long-term capital gains tax rate. Delaying may also make sense if you decide to wait until you have investment losses that can offset the profit from the sale of your rental property.

•   Reinvestment opportunities: Reinvesting the profit from your sale into investment property could open up new opportunities to grow your money — and possibly reduce or defer your tax liability (if, for example, you choose to do a 1031 exchange). A financial advisor can help you figure out your next move and what might be a good fit for your goals.

•   Think holistically: How does selling or not selling the rental property fit into your overall investment plan? It might be better to sell for a profit now and pay the taxes than to wait and end up losing money on the sale.

Recommended: Small Business Loans for Rental Property

Common Mistakes to Avoid with Capital Gains Taxes

Ultimately, it’s your responsibility as the seller to make sure your capital gains tax is accurately calculated and paid on time. Getting the amount wrong or failing to pay could result in IRS penalties. Some common mistakes to avoid include:

•   Failing to report capital gains: It’s important to report all capital gains, whether you think you’ll owe taxes on the amount or not.

•   Miscalculating the cost basis: This number is key to determining your gains (or losses) and, therefore, what you’ll owe the IRS.

•   Record-keeping errors: Keeping good records can make calculating your capital gains tax easier, and you may need to provide those records and receipts if the IRS asks for documentation.

Working with Tax Professionals

Selling a rental property and the variables that can go into calculating and reporting the gain on your tax return can be a little different for every sale. There’s no one-size-fits-all process for DIYers to replicate, and let’s face it, decoding the tax code can be pretty difficult if it isn’t your line of work.

For that reason, it can be helpful to seek guidance from a tax attorney or an experienced tax professional specializing in real estate. This will help ensure that you’re maximizing your tax breaks in compliance with necessary legal procedures.

The Takeaway

Understanding how to avoid capital gains on the sale of a rental property and doing some proactive planning can make a big difference to your bottom line. And the more money you can keep from the sale, the more you’ll have to put toward your other financial goals — whether they’re personal, for your business, or both.

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 short-term capital gains?

Short-term capital gains are profits from the sale of an asset held for one year or less. (Long-term gains, as you might imagine, are the profits from an asset held longer than a year.)

Can I avoid paying capital gains tax on the sale of a home?

If the home is your primary residence, the IRS allows you to exclude a portion of the capital gain from its sale. For example, an individual could exclude up to $250,000, while a married couple filing jointly could exclude up to $500,000.

Do most states tax capital gains?

Most states also collect tax on capital gains, with rates varying between 2.5% and 13.3%. However, some states don’t collect tax on capital gains at all.

Photo credit: iStock/everydayplus

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SOHL-Q126-115

Sometimes, our dream home is right under our nose. Buying a house from a relative may be the perfect solution, but you should be aware of how to negotiate and seal the deal.

An adult child may have her heart set on buying her parents’ home because of the memories it holds. Another person might want to purchase Grandma’s home so they can retire in Florida. Others may have a relative who wants to give them a good deal.

Whatever the case, if you’re buying a house from your family, you’ll want a harmonious handoff.

Buying a House From a Relative

It’s important to understand the home-buying process before making any real estate purchase.

And knowing what is needed to buy a home is useful before buying a home.

Buying a house from family, though, is a bit different than a deal between strangers. First of all, whether you’re a first-time homebuyer or not, it’s important to consider how crafting the deal can affect familial relationships.

By not hiring real estate agents, you might keep negotiations and planning in the family. If that’s the case, it’s a good idea to have regular check-ins to ensure that both parties feel comfortable about the next steps and are ready to move forward.

After an initial meeting, you should take notes of important details about the arrangement and make copies for everyone to review. That way, everyone is clear on the expectations.

Do You Need Real Estate Agents and Other Pros?

Even though buying a house from family is a personal affair, it can be helpful to bring in professionals to make sure the process goes smoothly, you do everything legally, and both parties walk away feeling satisfied and respected.

A lawyer or real estate agent can help ensure you create the purchase contract properly, you make state-required property disclosures, and that the house sells for fair market value — what the property would sell for on the open market.

A title company can protect the buyer from any liens and ensure that no one else has a claim on the home. Even with a high level of trust between family members, this can be a smart step to take to protect the buyer.

It can also be helpful to consult a tax professional to be aware of any tax implications of the agreement.

Determine the Purchase Price

You can decide on the fair market value by reviewing the sales price of recently sold comparable properties in the area of the home or by hiring an appraiser to conduct an objective property valuation. Keep in mind that lenders usually require an appraisal.

Once both parties have an idea of the market value, they can decide how much the buyer will pay. In some cases, this will be the fair market value. In other scenarios, a family member may offer to pay closing costs or provide a cash gift or gift of equity (described below).

Draft the Purchase Agreement

When both parties are ready to move forward, it’s time to draft a purchase agreement. The legally binding real estate purchase contract will outline the price and payment terms.

Buyers who need a home loan can send the contract to their lender when applying for a mortgage.

Prepare for Scrutiny

There are two main types of real estate transactions: arm’s length and non-arm’s length.

In an arm’s-length transaction, the buyer and seller do not have a relationship and are acting in their own self-interest.

When someone buys a home from a family member, it’s a non-arm’s-length transaction. These deals may be subject to more scrutiny because the chance of mortgage fraud increases.

In a non-arm’s-length transaction, the sale price of the home must be equal to what it would be between strangers unless a gift of equity is on the table.

A heads-up for anyone whose elderly family member needs to go to an assisted living facility or nursing home and plans to fund their stay with Medicaid: To prevent Medicaid applicants from simply giving away a home or other resources to qualify for the low-income medical program, the federal government has a look-back period of five years. The exception is California, which currently has a 2.5-year look-back period. The government penalizes Medicaid applicants who gift or sell assets for less than fair market value during that time.

Know How the Gift of Equity Works

One thing sellers may want to consider is giving the relative a gift of equity or selling for less than fair market value.

The maximum amount of the discount without reporting it as a gift to the IRS is $19,000 per recipient in 2025.

Spouses splitting gifts may each contribute $19,000 a year, and they must always report the gift. You and the seller can learn more about gift taxes on the IRS website.

That doesn’t mean sellers have to pay a gift tax; they can apply it to their lifetime gift exclusion. The lifetime gift and estate tax exemption is $15 million, or $30 million for a couple, in 2025.

For the vast majority of people, the gift and estate tax exemption allows for the tax-free transfer of wealth from one generation to the next. Homeownership in general helps build generational wealth.

Here’s another plus for buyers: Most lenders allow the gift to count as a down payment.

A lender will require a gift letter signed by the sellers for a cash gift or a gift of equity sale. The letter will confirm that the gift is not a loan.

Know How to Finance the Home

When buying a home from a family member, many buyers will still need to take out a home loan. Even with a discount or a special offer from a family member, it can be hard to purchase a home outright.

When taking out a loan, should you go with a mortgage broker or direct lender? Each has pluses and minuses.

Any mortgage loan officer or broker should be willing to answer your mortgage questions, including those about fees, points, and mortgage insurance.

Weighing different types of mortgage loans (including conventional conforming mortgages, jumbo loans, and government-backed loans) and loan terms (usually 30 years) can help you make a more informed decision.

After applying for mortgages, you’ll receive loan estimates. It’s important to compare mortgage APRs, fees, and closing costs.

After you choose a mortgage and close on the home, your mortgage servicing outfit will handle your payments.

The Takeaway

How do you buy a house from a family member? For starters, consider calling in professionals, including a lawyer to help draft a contract. Make sure you and the seller understand how the gift of equity process works. When everyone is well informed, buying a house from a relative can be seamless.

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 initial steps should you take when buying a house from a relative?

You should first consider how buying property from family members can affect familial relationships. During negotiations and planning, you should ensure that both parties feel comfortable, and distribute written copies of all the important details to all involved.

What is the gift of equity, and how does it help buyers?

The gift of equity allows the selling of property for less than its fair market value, allowing sellers to transfer part of their home’s value to their relative as a credit. Most sellers count the gift as a down payment, helping buyers secure a smaller mortgage and reduce their payment at closing.

What should you consider when taking out a home loan?

When deciding to take out a home loan, you should determine whether a mortgage broker or a direct lender makes more sense. You should also consider different kinds of loans and loan terms, and compare mortgage APRs, fees, and closing costs.

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.

SOHL-Q126-111

Homebuyers who want modern touches and few maintenance worries may opt to purchase a new construction or have a home built to order.

In December 2025, the median price of a new home was $414,400, according to the U.S. Census Bureau. As homebuyers have found a shortage of existing homes on the market in recent years, new-home construction has worked to fill the gap, with many builders offering incentives. Here’s a guide to understanding this market and learning some of the lingo.

Understanding New Construction Homes

On the upside, newly constructed homes can come with warranty-backed electronics, energy efficiency, and high-end features.

But new construction isn’t without potential snags, such as construction delays and the mounting price of upgrades.

The type of new construction you choose will determine the cost and ability to customize and may also affect your home loan options.

•   Tract homes: These go up in a builder’s new development. The buyer chooses the lot and design features.

•   Speculative, or spec, homes: These are move-in-ready homes, but the buyer still might be able to choose some of the finishes. It’s a good idea to understand the difference between standard property features and upgrades.

•   Custom homes: A builder tailors a house to the buyers’ specifications on their land.

How Do I Buy a New Construction Home?

The first step is to get preapproved for a mortgage and hire a real estate agent. You’ll choose a builder, go over your desired home features, and sign the builder contract, which will include the anticipated timeline, the cost, and all other details.

Mortgage options for a tract or spec home are the same as buying an existing home: conventional or government-backed home loans.

Those who are building a custom home might use a construction loan for the build and then obtain a mortgage once the home is complete. There are, however, Federal Housing Association, Veterans Affairs, U.S. Department of Agriculture, USDA, and conventional construction-to-permanent loans, also called single-close loans.

Figuring Out the Costs of New Construction

How much does it cost to build a new house? For 2,200 square feet, it could cost $330,000, but of course, there are many variables, including location, the price of labor and materials, and your taste.

For a spec home, it might be a good idea to look at comparables in your area. For a new build, HomeAdvisor suggests budgeting for each phase of the project, as well as the necessary time to complete it.

In normal times, expect to spend about 60% of your budget on materials, HomeAdvisor says.

If you are buying a staged model house, the upgrades may be considered marketing costs, and the home may have been walked through many times. You might also have room to negotiate.

Pros and Cons of Building or Buying a New Construction Home

Buying new has its pros and potential cons.

Pros

Everything’s new: Novelty can be a lure all its own. From a practical standpoint, new items signal less maintenance for years.

Additionally, with a from-scratch property, homebuyers may also be able to build their house on the precise plot of land that they want. Buying an existing home could mean having more neighbors nearby or fewer choices about the size or borders of the property.

Warranties: Appliances, roofing, and the heating, ventilating, and air conditioning (HVAC) system may be covered by manufacturer and construction warranties. Replacement or repair may be guaranteed for years, which can be a big relief when buying new construction as opposed to buying an existing home. Ask most homeowners about typical home repair costs, and they’ll describe the opposite of fun.

Energy efficiency: Homebuilding has been moving toward energy efficiency, or green architecture. Features such as solar panels, treated windows, efficient lighting, and energy-saving appliances curb home energy expenses over the life of owning a home.

Reduced homebuyer competition: If a buyer opts to build a new home on an undeveloped tract of land, chances are low that a competing homeowner wants to build in that exact location at the same time.

Buying discounts: A local contractor has ties to building supply companies and hardware stores. These business-to-business connections may translate into lower costs.

Cons

Land-starved locations and zoning: The denser a community — think a big city or large suburb — the harder it may be to find land to build on. Moreover, local zoning regulations often regulate the size and type of new homes that can be built on residential lots.

Potential building delays: It takes seven to 12 months on average for a contractor and 12.1 months for an owner to build a house, according to Census Bureau data., That’s a significant wait, but building delays are fairly common and add to the bottom line. If a homebuyer needs to rent, for instance, while the house is being constructed, any delays could mean extra housing expenses.

New-home buyers can prepare for changes by touring similar finished homes in the community, researching the builder’s reputation, and speaking to residents. It’s also a good idea to talk with the builder about common construction delays and how unexpected costs are handled.

Negotiating price may be harder: When working with a homebuilding company, negotiating may not be possible. Many builders attach a minimum price to the construction of a new home.

Upgrades add up: If wood floors, glass-front cabinets, and premium tile are must-haves, be prepared to pay for them. There is usually a starting price attached to newly constructed homes. Upgrades can add substantial costs to a new home.

Buying Tips for Newly Built Homes

Prepare to breathe in that new-house smell, but first, lay the foundation.

Line Up Financing

When it comes to buying any type of house, getting prequalified is good. Getting preapproved is more serious because you will have to let lenders vet your finances and give you a specific amount you qualify for.

Lenders can also recommend the best kind of financing for a new build.

Hire a Real Estate Agent

Homebuyers who want to make a new dream home a reality may want to find a good real estate agent. Here’s one reason why that’s important: The sales contact from the home construction company is hired to represent the seller (i.e., the builder or developer). A buyer’s agent can champion buyers’ interests, negotiate the contract, and answer questions.

Ask for Builder Concessions, and Sign the Contract

Homebuyers aren’t likely to get a builder to slash a new home’s sales price, but they might be able to gain some concessions. Some builders may offer upgrades at a reduced price to incentivize a homebuyer to buy.

Upgrades may include higher-grade carpet, granite countertops, a more advanced HVAC unit, or higher-end kitchen appliances. It doesn’t hurt to ask.

Once you’re pleased with your decisions, you’ll sign the builder contract to buy a spec home or start construction on a new home.

The Takeaway

Newly constructed homes have obvious appeal, but they can come with potential delays and other drawbacks. Buyers who have their heart set on a brand-new home will find that financing often works the same way as it does for an existing-home purchase.

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

Can you negotiate the price of a new construction home?

Negotiating the price of a new construction home can be challenging, as many builders set a minimum price. However, it might be possible to negotiate upgrades or concessions instead of a price reduction. Homebuyers can work with a real estate agent to help them negotiate with the builder.

What is a realistic budget for building a house?

A realistic budget for building a house will vary depending on the location, size, and desired features. In general, a 2,200-square-foot home requires a budget of around $330,000, not including the cost of land. But cost can increase or decrease depending on the specific materials and finishes chosen.

What are the pros and cons of buying a new construction home?

New construction homes may offer modern features, warranties, and improved energy efficiency. However, buyers should also consider potential construction delays, upgrade costs, and limited flexibility on base pricing. Understanding these trade-offs can help buyers decide whether new construction is the right fit.

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.

SOHL-Q126-113

Deciding whether to pick a 15- or 30-year mortgage largely boils down to what kind of monthly payment you can afford and whether you need financial flexibility.

There’s a reason that the 30-year fixed-rate home loan is by far the most popular. It offers manageable payments that ideally allow room in the budget for other needs and wants.

But borrowers who can afford higher monthly payments and would prefer a lower interest rate may find 15-year mortgages compelling.

How Does a 15-Year Mortgage Work?

When choosing a mortgage term, borrowers who opt for a 15-year fixed-rate loan over a 30-year fixed-rate loan will pay it off faster and save significantly more in interest over the life of the loan. Variable-rate mortgages can be useful in certain situations, but comparison requires more customized calculations, and we will not discuss them here. The main trade-off if you choose a 15-year loan is a significantly higher monthly payment than for a comparable 30-year home loan.

Fifteen-year mortgages typically carry lower interest rates than 30-year mortgages. Consequently, the combination of a lower rate and compressed payoff time means a much lower interest cost overall.

A 15-year mortgage loan for $300,000 with a rate of 4.60% would result in $115,862 in interest paid. The interest on the same loan amount with a 30-year term at 5.80% would be about $333,693, a difference of $217,831.

However, in this example, the basic monthly payment would be $2,310 for the 15-year term vs. $1,760 for the 30-year term. An online mortgage calculator can help you compare how interest rates and term length affect total interest paid and monthly payments.

Lenders charge lower rates for 15-year mortgages because they cost less to underwrite than 30-year loans. Generally speaking, the longer the term of a loan, the riskier it is to lenders, and they price this into the loan through a higher interest rate.

Here are the main pros and cons of 15-year mortgages.

When to Consider a 15-Year Fixed-Rate Mortgage

You might want to consider a 15-year fixed-rate mortgage if you’re trying to pay off the loan faster, you want to save on total interest paid, want a lower rate, and can afford the higher monthly payments.

If you’re buying a home close to retirement and are interested in building generational wealth, a 15-year mortgage is also an attractive option as it ensures a faster payoff.

The 15-year mortgage is more frequently used for refinancing than buying, thanks to the lower rate and because most borrowers who choose to refinance are usually several years into their loan.

Consequently, borrowers who have longer-term mortgages with higher interest rates may want to consider refinancing to a 15-year home loan to save on interest costs. However, if you qualify as a first-time homebuyer or are already on a fairly tight budget, a 15-year mortgage might be more than your family finances can handle.

30-Year Mortgage vs 15-Year Mortgage

Borrowers will find the payments on 30-year mortgages to be much more affordable than on 15-year mortgages. The longer the repayment term, the lower the monthly payment, potentially leaving more cash in your pocket every month.

Increased cash flow may allow borrowers to pursue other opportunities, such as preparing for retirement or shoring up emergency savings. Paying off higher-interest debt is also a good plan.

Homeowners may want to have enough cash to add or expand a home office, renovate the kitchen, and generally maintain the value of their home.

What about vacations and buying stuff? Yes and yes.

And some borrowers will also want to set up a college fund.

Like most things, 30-year home loans have upsides and downsides to consider.

When to Consider a 30-Year Fixed-Rate Mortgage

You may wish to consider a 30-year fixed-rate mortgage if you’re looking for the most affordable option when buying a home.

Fixed-rate 30-year home loans are the most straightforward and common type of mortgage loan on the market.

Given that home prices are relatively high and interest rates have not dropped substantially in recent years, 30-year home loans are often more attractive than other options. Despite the higher overall interest cost, the lower monthly payments on 30-year mortgages make it easier to afford a home.

Borrowers always have the option of paying off a mortgage early. Every extra principal payment reduces your overall loan balance and the amount of interest that compounds over time.

The final thing to consider is that a 30-year mortgage provides a greater tax benefit than a shorter-term mortgage if you take the mortgage interest deduction.

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Recommended: Mortgage Prequalification vs. Preapproval

Should You Choose a 15-Year or 30-Year Mortgage?

For many homebuyers, the choice of 15- vs. 30-year mortgage will not be voluntary: The monthly payments will force the decision.

If you can choose one or the other, you’ll want to calculate whether you’re able to comfortably commit to a series of high monthly mortgage payments in exchange for the earlier loan payoff and interest savings. Consider whether the lower monthly payments of a 30-year mortgage could leave you with spare money that you could put to better use.

Your income level, career stability, and debt-to-income ratio may largely determine your choice.

Recommended: Home Loan Help Center

The Takeaway

Deciding between a 15- vs. 30-year mortgage depends on your personal budget and financial goals. If you can swing the shorter term, you’ll benefit from a lower interest rate, faster loan payoff, and substantial interest savings.

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 a 30-year mortgage better than a 15-year mortgage?

A 30-year mortgage has lower monthly payments, but a 15-year loan will have less interest over the life of the mortgage. Which is better is a matter of personal choice and affordability.

Is it better to pay off my mortgage for a long period?

If your monthly budget is fairly tight or you have other debts you need to pay off, yes. You’ll pay a lot more in total interest with a long-term home loan than you would with a shorter-term one, but payments will be more affordable.

Can I pay off my 30-year mortgage in 15 years?

Yes, you can pay off the balance ahead of schedule but read your mortgage documents first. Some loans have a prepayment penalty that you will need to factor into your decision.

Are the interest rates for a 30-year mortgage higher than a 15-year mortgage?

Yes, the interest rates for 30-year mortgages are typically higher than 15-year mortgages. Lenders increase the interest rate because of the extra risk of longer-term loans.

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SOHL-Q126-098

It’s possible to get a home loan while on maternity leave. The process may involve your lender verifying your “temporary leave income,” your regular income, and your agreed-upon date of return. Anyone on a standard temporary leave is considered employed, whether the absence is paid or unpaid.

Read on to learn more about buying a home while pregnant and how pregnancy impacts your ability to get a mortgage.

Buying a House While Pregnant

Hey, why not take on two of the biggest life stressors at once? Sometimes it just happens that way, with parents preparing for a baby and a new home.

First, consider if you can wait until later to buy a home. This may reduce your overall stress levels during your pregnancy and avoid the added pressure of a deadline that may lead to hasty decision-making.

And unless an employer is covering moving expenses, add that sizable cost to all the rest.

But if the move can’t be avoided because of a job relocation or other circumstances, it may be important to find a home before the baby arrives. There may be a silver lining: Saving for a down payment later on could interfere with goals like saving for a child’s college tuition.

Another possible benefit to buying a house while pregnant is that the relocation could lead you to a better school district or area to raise your child.

Ultimately, the decision whether to buy a house while pregnant is personal.

💡 Quick Tip: Want the comforts of home and to feel comfortable with your home loan? SoFi has a simple online application and a team dedicated to closing your loan on time.

What Is the FMLA?

FMLA gives eligible employees job protection and up to 12 weeks of unpaid leave a year in the event of:

•   Childbirth

•   Adoption or foster child care

•   Care for a spouse, child, or parent with a serious health condition

•   A personal serious health condition

•   Qualifying exigencies arising from covered active duty or “call to covered active duty status”

In the case of childbirth, the FMLA guarantees that an employee can return to their job or an equivalent one after pregnancy and that they’ll receive health care benefits during their leave.

Employees are eligible if they work for a company that has 50 or more staffers and have completed at least 1,250 hours of work in the previous year.

In addition to the FMLA’s 12 unpaid weeks off, more and more states are enacting paid family leave laws. Currently, 13 states plus the District of Columbia have made this mandatory. And your employer may cover your pregnancy, childbirth, and recovery thanks to short-term disability insurance benefits, which are a percentage of your normal earnings.

Recommended: How Much Does It Cost to Adopt a Child?

How Maternity Leave Impacts a Mortgage

Before diving into the nuances of maternity leave and its impact on qualifying for a mortgage, here’s a quick refresher course on the home-buying process.

Mortgage approval from a lender primarily hinges on two factors:

•   Creditworthiness: How likely is the borrower to pay back the loan, based on their credit history?

•   Ability to pay: Does the borrower generate enough income and have a suitable debt-to-income ratio to make the monthly mortgage payments?

The lender may contact the borrower’s employer to verify their employment status and income.

There are several income-related factors that impact a pregnant borrower’s ability to get a home loan. Consider the following points:,,

•   As long as the lender can verify that the borrower is employed — recall that someone on temporary leave is considered employed — and generates enough income to cover the mortgage, it could be enough.

•   Expectant borrowers aren’t legally required to disclose their pregnancy to a lender. However, the employer can tell the lender about impending maternity leave when they call to verify employment status.

•   If a borrower is going on unpaid leave, the period without pay may qualify as a financial hardship, which a borrower is required to inform a lender of.

•   The lender can’t assume the mother-to-be won’t return to work after maternity leave. In fact, lenders assume that the mother will return to work after maternity leave and continue bringing home paychecks.

•   Before loan approval, the lender will ask the borrower for written notice of her intent to return to work and may ask for an expected return date.

•   The mortgage lender may request a tax slip from the last calendar year if the borrower is a salaried employee.

•   The lender may approve the mortgage if the borrower’s employer verifies in writing that the borrower will return to their previous position or a similar one after their maternity leave. The lender will also consider the timing of the first payment.

•   If the borrower will have returned to work by the time the first mortgage payment is due, the lender can consider regular income in qualifying for the mortgage.

•   If the borrower will return to work after the first mortgage payment due date, the lender must use the borrower’s temporary leave income or regular employment income (whichever is less) and may add available liquid financial reserves.

•   VA loans don’t count temporary leave income toward qualifying for a mortgage.

Should I Buy a Home While on Maternity Leave?

Those who qualify for a mortgage while on maternity leave may ask themselves, “Should I buy a house while on maternity leave?”

As mentioned, moving can be an incredibly stressful process, pregnancy or no pregnancy. And even if you have a budget for a baby, life has a way of throwing surprises at you.

Homeownership can also come with financial surprises. Most homeowners report paying for an unexpected repair within the first year.

Having a child and buying a home require saving some significant cash. Through careful budgeting, it is possible to do both simultaneously. It’s your call. Just remember that taking the double plunge could give you time to review what you need to buy a house.

Recommended: First-Time Homebuyers Guide

The Takeaway

Pregnancy is not a legal limiting factor in the case of a mortgage, but getting a home loan while on maternity leave depends on your income, savings, work return date, and credit history.

Whether you’re on temporary leave or not, it may be worth taking a look at your home loan options.

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

Does being on maternity leave affect getting a mortgage?

It can, but only with regard to a homebuyer’s reported income. If buyers anticipate an unpaid maternity leave, they may need a sizable savings account.

Should you buy a home on maternity leave?

Buying a home while on maternity leave depends on your family’s needs and finances. But moving can add more stress to taking care of an infant.

Who does FMLA cover?

The Family and Medical Leave Act provides 12 weeks of unpaid, job-protected leave per year for eligible employees in the case of childbirth, adoption or foster child care, or care for a spouse, child, or parent with a serious health condition, for example.

Photo credit: iStock/FatCamera

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.

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