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Who doesn’t dream of nabbing a really good deal when shopping for a home? Maybe you’re even considering a fixer-upper, a property that would allow for some sweat equity and would, over time and with work, help you grow your wealth.

If you have been studying the real estate listings, you have probably seen some potentially excellent deals on repossessed or bank-owned properties.

While the prices may look enticingly low, when it comes to how to buy a foreclosed house, you may be in for a lot of research, a long timeline, and financing issues.

This guide can help you learn the ropes of buying this type of property, including:

•   What is a foreclosed home?

•   What does “foreclosure” mean?

•   How can you find foreclosed homes for sale?

•   How can you buy a foreclosed house from a bank or other source?

•   What are the pros and cons of buying a foreclosed home?

What Is a Foreclosed House?

A foreclosed house is a home that a mortgage lender owns. Homebuyers agree to a voluntary mortgage lien when they borrow funds. If they don’t keep current with their payments and end up defaulting, the lender can take control of the property.

When the lender does so, the house is called a “foreclosed home” and can be offered for sale. Read on to learn more about the foreclosure process.

What Does ‘Foreclosure’ Mean?

A foreclosure is a home a lender or lienholder has taken from a borrower who has not made payments for a period of time. The lender or lienholder hopes to sell the property for close to what is owed on the mortgage.

Who can place a lien on a home? A mortgage lender or the IRS can. So too can the U.S. Department of Housing and Urban Development (aka HUD) for nonpayment of an FHA loan, resulting in HUD homes for sale.

A county (for nonpayment of property taxes), an HOA, or a contractor also can place a lien on a home.

Recommended: Foreclosure Rates for All 50 States

Types of Home Foreclosures

There are three main types of home foreclosures:

•   Judicial foreclosures: This type of foreclosure occurs when the lender files suit (that is, in court, hence the word “judicial”) to begin the foreclosure process. This usually happens when the borrower fails to pay three consecutive payments. If the loan isn’t brought up to date within 30 days of that point, the home can be auctioned off by a sheriff’s office or the court.

•   Power of sale (nonjudicial) foreclosures: Sometimes known as statutory foreclosure, this process may take place in 29 out of the 50 states. The contract in this situation allows for an auction of a foreclosed property to occur without the judicial system becoming involved, as long as certain notifications and waiting periods are appropriately observed.

•   Strict foreclosures: This kind of foreclosure only occurs in Connecticut and Vermont, and usually these only happen when the value of the loan debt is more than that of the house itself. If the defaulting borrower doesn’t become current with their loan in a certain amount of time, the lender gets possession of the property directly but is not obliged to sell.

How Does the Foreclosure Process Work?

Foreclosure processes differ by state. The main difference is whether the state generally uses a judicial or nonjudicial foreclosure process. A judicial foreclosure may require an order from a judge.

•   Once a borrower has missed three to six months of payments, depending on state law, the lender will post a public notice, sometimes known as a notice of default or “lis pendens,” which means pending suit.

•   A borrower then typically has 30 to 120 days to attempt to avoid foreclosure. During pre-foreclosure, a homeowner may apply for a loan modification, ask for a deed in lieu of foreclosure, pay the amount owed, or attempt a short sale.

   A short sale is when the borrower sells the property and the net proceeds are short of the amount owed on the mortgage. A short sale needs to be approved by the lender.

•   If none of the options work, the lender might sell the foreclosed property at auction — a trustee or sheriff’s sale. Notice of the auction must be given at the county recorder and in the newspaper.

•   If no one buys the home at auction, it becomes a bank or real estate-owned (REO) property. These properties are sold in the traditional real estate market or in bulk to investors at liquidation auctions.

•   In some states under the judicial foreclosure process, borrowers may have the right to redeem their property after the sale by paying the foreclosure sale price or the full amount owed to the lender, plus other allowable charges.

Recommended: Home Affordability Calculator

How to Find Foreclosed Homes for Sale

In addition to checking with local real estate companies for foreclosed homes, there are paid and free sites to search when you are shopping for a repossessed or foreclosed home.

Among the free:

•   Equator.com

•   HomePath.fanniemae.com (Fannie Mae’s site)

•   HomeSteps.com (Freddie Mac’s site)

•   Realtor.com

•   reo.wellsfargo.com

•   foreclosures.bankofamerica.com

•   treasury.gov/auctions/irs/cat_All%2066.htm for IRS auctions

•   properties.sc.egov.usda.gov/ (USDA resales)

•   hudhomestore.gov (the official government website for foreclosed homes)

•   vrmproperties.com

Paid sites include foreclosure.com and RealtyTrac.com, among others.

How to Buy a Foreclosed Home

Here are the usual steps for buying a foreclosed house. Whether you qualify as a first-time homebuyer or someone who has purchased before, it can be wise to acquaint yourself with the process before searching for a home.

Step 1: Know the Options

Buying foreclosed houses at an auction or through a lender are the main ways to purchase these homes. Keep in mind that a foreclosure is usually an “as-is” deal.

Buying at Auction: In almost all cases, bidders in a live foreclosure auction must register and show that they have sufficient funds to pay for the property in full.

Online auctions have gained popularity. You can sign up with a site to find foreclosure auctions in an area where you want to buy. Or you might research foreclosure sales data by county online, at the county courthouse, or from the trustee (the third-party foreclosure sales agent).

It’s important to look into how much the borrower owes and whether there are any liens against the property. The winning bidder may have to pay off liens. It’s smart to hire a title company or real estate attorney to provide title reports on properties you’re interested in bidding on.

Buying From the Lender: You can find listings on websites that aggregate REO properties or on a multiple listing service. When checking out the homes you like, take note of the real estate agent’s name. Banks usually outsource the job of selling foreclosed homes to REO agents, who work with standard real estate agents to find a buyer.

REO listings are often priced at or below market value. Also good to know: The lender usually clears the title and evicts the occupants before anyone buys a foreclosed home.

Looking at Opportunities Before Foreclosure: If the lender allows a short sale, potential buyers work with the borrower’s real estate agent and the lender to find a suitable price.

With pre-foreclosures, when borrowers have missed three or more mortgage payments but still own the home, the lender might work with them to avoid foreclosure. Another scenario: The homeowner might entertain purchase offers, whether the home is listed or not.

Step 2: Hire a Real Estate Agent

It’s a good idea not to go with just any agent, even if you like them and have used their services for a standard home purchase, but to find an agent who specializes in foreclosure sales.

That agent can help you search for a home, understand the buying process, negotiate a price, and order an inspection. Your offers might be countered as well, and an agent can help you figure out the best next step.
An agent can also help you understand the market in general and ways to smooth your path to homeownership, such as programs for first-time homebuyers.

Step 3: Find Foreclosures for Sale

As mentioned above, there are paid and free sites where one can scan for homes. Some divisions of the government offer foreclosed homes, as do some lenders.

Also, there are real-estate companies that specialize in these properties and can help you with your search.

Step 4: Get Pre-approved for a Mortgage

If you want to act fast on buying a foreclosed home, you’ll want to get pre-approved for a mortgage. Pre-approval tells you how much money you are eligible to borrow and lays out the terms of final approval on a mortgage in a pre-approval letter.

Pre-approval may help you compete with the all-cash buyers who are purchasing foreclosures. Bonus: As you move through this step, you are also likely to learn important home buying and financing concepts, like loan-to-value (LTV) ratio.

(If you are looking into repossessed properties, owner financing, or a purchase-money mortgage, will not be an option.)

Step 5: Get an Appraisal and Inspection

Buyers of REO properties would be smart to order a home inspection. A thorough check-up can document flaws and help you tally home repair costs.

An REO property appraisal usually consists of an as-repaired valuation — the market value if the property is repaired, compared with comps — and an as-is valuation. Some lenders also ask for a quick-sale value and a fair market value.

You can challenge the results of an appraisal if you think the figures are off, and you can hire another appraiser for an independent assessment.

Step 6: Purchase Your New Home

If you decide to move forward, contact your mortgage lender to finalize your loan. Submit your offer with the help of your real estate agent. If your offer is accepted, you will sign a contract and transfer ownership. You may be required to pay an earnest money deposit.

The certificate of title may take days to complete. During that time, the original borrower may, in some states, be able to file an objection to the sale and pay the amount owed to retain their rights to the property. This is called redeeming or repurchasing a home, but it rarely happens. Nevertheless, it’s a good idea to not dig in and start any work on the property until you receive the certificate of title.

Recommended: What’s the Difference Between Pre-approved vs Pre-qualified?

Benefits of Buying a Foreclosed Home

Buying a foreclosed home can be a great deal for a buyer who sees the potential, is either handy or budgets realistically for repairs, and knows the fixed-up value. Some points to consider:

•   Not all foreclosed properties are in poor shape, as you might expect. If a homeowner dies or has a reverse mortgage that ends, a home that was well maintained may be returned to the lender.

•   REO properties rarely have title discrepancies. The repossessing lender has extinguished any liens against the property and ensured that taxes were paid.

•   It can be possible to negotiate when buying REO properties. You could ask the lender to pay for a termite inspection, the appraisal, or even the upgrades needed to bring the property up to code.

Risks of Buying a Foreclosed Home

Buying a foreclosed home can be complicated. The process is governed by state and federal laws. Take note of these possible downsides:

•   Some foreclosed homes have indeed been sitting empty and may have maintenance/repair issues, necessitating that you have cash available to get the work done.

•   Because many REO properties have sat vacant and most are sold as-is, financing can be a challenge. See below for more details.

•   Many people, especially first-time home buyers, think foreclosures are offered at a deep discount, but even low-priced homes might get multiple offers above the asking price from buyers eager to snap up a fixer-upper. You might find yourself tempted to pay more than you had expected just to close the deal.

What Are Financing Options for Foreclosed Homes

When it comes to financing the purchase of a foreclosed property, here’s what you need to know:

•   Some sales may be cash-only. If you don’t have access to the amount needed, it’s smart to sidestep looking at these kinds of auctions.

•   If the home is in livable condition, you may be able to get a conventional or government-back mortgage loan.
If you are planning to finance the purchase of a repossessed home, consider this:

•   Fannie Mae dictates that for a conventional conforming loan, the home must be “safe, sound, and structurally secure.”

•   For an FHA, VA, or USDA loan, the home must be owner occupied (that is, not a multi-family home where you will rent out all units) and in livable condition, with a functional roof, foundation, and plumbing, electrical, and HVAC systems, and no peeling paint.

•   A standard FHA 203(k) loan includes the purchase of a primary house and substantial repairs costing up to the county loan limit. But relatively few lenders offer these loans. Also, the application process is more labor-intensive, and contractors must submit bids and complete paperwork. Mortgage rates are somewhat higher than for standard FHA loans.

Who Should Buy a Foreclosed Home

Buying a foreclosed home is usually best for people who are prepared for a lengthy and potentially expensive process to buy a home at a good price.

•   You will need to do considerable research to find available homes and know how to make an offer.

•   You will likely face a significant amount of paperwork and time delays.

•   Having cash reserves to pay for repairs and deferred maintenance issues is important, as well as dealing with unpaid taxes and liens on the property.

Who Should Not Buy a Foreclosed Home

A foreclosed home may not be the right move for someone who is under time pressure to move into a new home.
It can also be a problematic process for those who don’t have a good amount of cash set aside to pay for rehabilitating a property that has been sitting empty or to take care of overdue tax bills and liens.

The Takeaway

Buying a foreclosed home requires vision, risk tolerance, and realistic number crunching. If you need financing, it’s a good idea to get pre-approved for a mortgage so that all your ducks are in a row when you spot a potential deal.

If you’re shopping for a mortgage, consider what SoFi offers. Our home mortgage loans have competitive, flexible options, and down payments as low as 3% for first-time borrowers or as low as 5% for all other borrowers.

SoFi Mortgages: We make it simple.

FAQ

What are the disadvantages of buying a foreclosed home?

Disadvantages of buying a foreclosed home can include the amount of research involved, the considerable amount of paperwork and potential delays, and the cash often required to make repairs, pay back taxes, and remedy liens.

How are repossessed houses sold?

Foreclosed homes are often sold at auction, by a lender, or by a real estate company (often ones that specialize in such repossessed properties).

How long does it take for a repossessed house to be sold?

Depending on the state and the specific property, the sale of a foreclosed house may take anywhere from a few months to a few years.

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SoFi Mortgages
Terms and conditions apply. Not all products are offered in all states. See SoFi.com/eligibility for more information.

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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There are a lot of myths about buying a house: that you need at least a 20% down payment, perfect credit (or close to it), and a specific income level.

But the truth is, you don’t need a particular down payment amount, salary, or a credit score over 700 to become a homeowner. What you do need is insight into the process, preparation, and a game plan.

To help you move ahead with your home-owning dreams, read this guide. You’ll learn answers to these and other questions:

•   What are the requirements to buy a house?

•   How much of a down payment do you need to buy a house?

•   What credit score do you need to buy a house?

•   What documents are needed to buy a home?

8 Requirements to Buy a House

Here’s the scoop on the items you need to line up in order to buy a home. Consider this your checklist to achieving that dream; it can be an especially valuable first-time homebuyer guide:

1. Credit

Your credit score is one of the primary factors lenders will consider when reviewing your mortgage application. It helps a lender evaluate how well you have managed debt and made timely payments in the past.

Being aware of your current score might help you understand what loan programs you may be eligible for.

So what credit score is needed to buy a house, given the possible range of scores from 300 to 850?

•   If you’re aiming for a conventional (nongovernment) loan, you’ll likely need a credit score of at least 620. However, most homebuyers have a score that’s higher than that, and if you have a brag-worthy credit score (say, 740 or above), you may qualify for better loan terms.

•   But what if your score is not so lofty? For a government-backed loan (these include FHA, VA, and USDA loans), you may be able to qualify with a credit score in the 500s. For an FHA loan, 580 is the minimum score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 must put down 10%. Lenders may require a minimum score of 580 for a VA loan; and for a USDA loan, 640.

The government offers periodic free credit reports so consumers can review their credit history, but the reports do not give a credit score. However, seeing your credit report can allow you to recognize and remedy any errors or delinquent accounts.

You can monitor your credit score with a paid service as well. You may find these third-party services are available for free from some banks and credit card issuers, and use one at no cost with this money tracker.

2. Debt-to-Income (DTI) Ratio

Your debt-to-income ratio, or DTI, matters when determining the mortgage amount and the type of loan program you qualify for.

The DTI ratio equates to your monthly minimum debt payments divided by your gross monthly income. To find it, you would add up your monthly payments towards an existing mortgage (or rent) and related expenses (say, property taxes and insurance), plus any credit card debt and student, car, or other loans. Then you would divide that by your monthly salary, before taxes and other deductions are taken out.

Mortgage lenders usually like to see a DTI ratio of 36% or less for conventional loans. However, some will accept up to 45% and possibly even 50%. There is some flexibility out there, but it may require a bit of shopping around if you have a relatively high DTI.

3. Proof of Income

Even if you have a stellar credit score, for the majority of loan programs, you still have to prove your income to the lender to gain loan approval. This helps the lender verify that you have the means to pay the mortgage back.

For mortgage pre-approval, you’ll typically need to submit W-2s, your two most recent pay stubs, and your two most recent federal tax returns for the lender to verify your income. (Self-employed applicants will need to submit a year-to-date profit and loss statement and two years of records.)

If you are currently unemployed or have changed jobs recently, it’s wise to know that this may create a hurdle when seeking a mortgage. You might want to delay your home-buying plans until you have a more consistent employment record, or search for a lender that is less rigid in terms of this qualification.

4. Savings for a Down Payment and Closing Costs

As you think about how much house you can afford and consequently how much of a down payment you will need, you will likely want to run some numbers. You might start with a home affordability calculator to help you know your target range.

Now, about that down payment: Perhaps you’ve cobbled together a few thousand, but wonder about what is the average down payment on a house. Many people have heard you need at least 20% down, which can be an intimidatingly high number.

You can breathe a bit easier: Many homebuyers put 13% down — that’s $39,000 on a $300,000 home. Nothing to sneeze at.

The more you can put down, the more likely it is that you could get a lower interest rate. In most cases, you’ll need a 20% down payment to avoid private mortgage insurance or a mortgage insurance premium.

Here’s a glimpse of loan types and down payments of each:

•   Conventional conforming loan. This is the most common type of home mortgage loan and typically has a minimum down payment requirement of 3%.

•   FHA loan. This loan, among a few kinds of government home loans, requires as little as 3.5% down for those who qualify.

•   VA loan. If you qualify for a VA loan, you can usually buy a home with no money down.

•   USDA loan. This income-restricted loan, geared toward rural properties, requires no down payment.

If you are a first-time homebuyer, you can also look into down payment assistance programs. An online search for these programs from the Department of Housing and Urban Development (HUD), state and local housing authorities, nonprofits, and other organizations can help you reach your homeownership aspirations. They can offer grants and loans.

The other aspect of buying a house that may require cash: closing costs. These typically add up to between 3% and 6% of your loan. They include items like bank processing costs, title search, appraisal costs, and more. It’s worth noting that some lenders may offer credits toward closing costs; that can be something to keep in mind when you are searching for a lender.

5. Documentation

There are a couple more answers to “What do I need to buy a house?” When preparing to buy a home, you will likely need documents; a lot of documents, in fact. Assembling a file of what’s required can be an important step in getting organized. Here is some paperwork you may want to gather as you begin thinking about working with a mortgage lender:

•   Recent tax returns and W-2 forms as well as proof of other income

•   A letter from your employer verifying your employment

•   For those who are self-employed, a business tax returns and P&L statements

•   Recent bank account, brokerage account, and retirement account statements

•   Student loan, car loan, and credit card statements, to show how much debt you have

•   Titles to your assets, such as a current home or your car

•   A gift letter, if appropriate (a statement that, say, a family member gave you funds toward your down payment)

•   Photo ID

Yes, it can feel like a lot, but starting sooner rather than later and chipping away at the list can make it easier.

6. Pre-Approved Mortgage

Before you go home shopping, it can be wise to get a pre-approval letter from a lender or a few lenders. You submit some credentials that share financial information, and the lender says that you likely qualify for a loan of a certain amount.

While not a guarantee of mortgage approval, this will give you insight into what kind of loan you qualify for. It can also show homeowners that you are a serious shopper who is ready to buy.

Recommended: Mortgage Pre-Approval vs. Pre-Qualification

7. Mortgage Loan

When you find a property you love and work your way to an accepted offer and contract, you will probably be ready to apply for your mortgage. You will likely have to make decisions about the term of the mortgage (30 years is common, but shorter terms with higher monthly payments are possible, too), the rate (both the percent you’ll pay and whether you go with a fixed or adjustable rate), and other details.

When you submit your application, you will provide documentation of your financial qualifications. You will likely work your way through questions as your file goes through underwriting and you move toward your final approval and closing date.

8. Real Estate Agent (Probably)

The vast majority of buyers use the services of a real estate agent or broker, according to the National Association of Realtors® (NAR). In 2022, 86% of homebuyers worked with one.

You can go it alone, but finding a real estate agent who is experienced and knowledgeable can be key to, well, getting you a new set of house keys.

Agents have access to the multiple listing service, which is a comprehensive list of homes for sale by a real estate agent or broker in your desired location.

A buyer’s agent can help you:

•   Build your wishlist and hunt for homes that fit your needs

•   Check out listings in person

•   Write offers and counteroffers, including putting an offer on a contingent house

•   Negotiate with the seller

•   Navigate the complexities of the purchase contract.

Using a real estate agent might also relieve some of the stress that comes with purchasing a home, especially when buying in a hot house market.

The Takeaway

What do you need to buy a house or condo? First, you’ll want to be on pretty solid financial footing, typically with a good credit score, income history, and DTI, as well as some money saved toward a down payment and closing costs. You may also want to have a good agent and the right documentation in your corner.

If, like many buyers, you are hunting for a mortgage, check out what SoFi Mortgage Loans can offer you. You’ll find competitive rates and access to a host of SoFi perks. Plus, first-time homebuyers who qualify can put as little as 3% down.

Let SoFi Mortgage Loans simplify your path to becoming a homeowner.

FAQ

What are the basic needs to buy a house?

To buy a house, you will likely need documentation of your finances, a reasonable credit score and debt-to-income ratio, a mortgage pre-approval, and probably funds for a down payment and closing costs, as well as a real estate agent to help you manage the process.

How much money should you have before buying a house?

Lenders will likely want to see that you are financially stable and can afford the costs associated with owning a home. In terms of a down payment, the typical amount is 13% percent of the home’s price, but there are ways to buy a home with less or perhaps with no money down. A down payment of 20% or more will allow you to avoid paying for private mortgage insurance (PMI).

What credit score is good to buy a house?

The credit score needed to buy a house will vary, with 620 being the usual minimum for a conventional loan, though most buyers have a score of 650 or higher. Those with scores of 740 or higher will usually get the best loan terms. There are also programs to help those people with credit scores in the 500s become homeowners.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Mortgages
Terms and conditions apply. Not all products are offered in all states. See SoFi.com/eligibility 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.

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 .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Getting a mortgage can be one of the biggest financial undertakings a person can make. What’s more, it also unlocks the path to what is typically the biggest asset and wealth builder out there: a home of your own.

Whether you’re dreaming of a center hall Colonial or a cool, loft-style condo, the odds are, you will need a mortgage to make home ownership happen. But these days, with mortgage rates rising, snagging that home loan can require a little more knowledge and preparation.

This guide will help you get up to speed and ready your application. Read on to learn:

•   How to get a mortgage right now

•   What matters most to lenders

•   What are the typical mortgage requirements

•   What steps are needed to get a mortgage

What Mortgage Lenders Look At

A good first step to getting a mortgage is to understand how you will be evaluated by lenders so you can put your best foot (or financial profile) forward. Consider the following:

Your Credit Score

Your credit score is an important number: It tells lenders how well you have managed debt in the past. Ideally, you have a good history of paying your bills on time. If, however, you have been late with payments or have defaulted in the past, your credit score may be a red flag as you apply for a mortgage.

•   Typically, you will need a credit score of 620 or higher to qualify for a conventional home loan.

•   However, most people who get approved for a loan have a credit score over 650, and those with scores of 740 or higher may snag the best (meaning lower) rates.

•   If your score is at least 580, you may qualify for a government-backed loan (more on those below).

If your credit score could use some help nudging higher, try these steps:

•   Get a free credit report (one per year) from www.annualcreditreport.com . It will include bill payment history, current debt, and other information lenders typically check on. If you see any errors, report them.

•   Be impeccable with payment deadlines. The timeliness of your payments is the largest contributing factor to your credit score, so optimizing this area can have a positive impact.

•   Manage any situations where you owe money. Unpaid bills that linger and go from 30 to 60 to 90 days (or more) late can bog down your credit score. Prioritize paying overdue bills.

Your credit score is important: The higher your score, the more reliable and credit-worthy you appear.

Debt-to-Income Ratio

Another number that lenders will be interested in is your debt-to-income (DTI) ratio. This shows how the amount of debt you are carrying relates to your income. Here’s how DTI is calculated:

•   Total your monthly minimum debt payments, such as student loans, car loans, credit-card bills, current rent or mortgage and property taxes, and the like.

•   Divide that total debt number by your gross monthly income (that is, before taxes and other deductions are siphoned off).

•   The resulting number is your DTI.

The DTI figure that lenders look for may vary. Some lenders want to see 36%; others will be comfortable with up to 43%. Government-backed loans are likely to accept higher DTI’s than other lenders.

Why does DTI matter? Lenders want to see that you can handle the financial burden of a mortgage without struggling.

Income History

Lenders want to see signs of a positive, stable income. Ideally, you have been employed for at least two years and your income is steady, if not trending upward.

This tells lenders that you are a person they can count on to pay back the funds you borrow. If you have been out of work or have job-hopped recently, it might be wise to wait a bit before applying for a mortgage until you can show that income history that lenders want to see.

Assets

Lenders will likely want to see that you have some assets available, such as cash in the bank or other fairly accessible funds. This is where a healthy emergency fund and money saved for a down payment can be a real boost.

These kinds of savings can reassure a lender that you are ready to buy and, even if you were hit with a major expense or were laid off, you could still pay your monthly mortgage and stay current on your home loan.

Property Type

The kind of property you are planning to buy may make a difference to lenders as well. For instance, if you are seeking to buy a single-family home that will be your primary residence, you may look more attractive to lenders than someone who already has a primary home and is buying a ski condo they will rent out on Airbnb. The former could seem more motivated to stay current on their mortgage payments than the latter.

Get Familiar With the Required Mortgage Documents

Now that you know how lenders size you up for a loan, consider the documents that you will likely need to apply for a mortgage:

•   Proof of income: Get ready to break out those W-2s, 1099s, and tax returns. The lender will need solid proof of your recent income.

•   Credit documentation: You will likely sign a release allowing the lender to review your credit report to assess your history on that front.

•   Proof of assets and liabilities: You will probably need to share bank statements, investment account statements, and other documents to verify what assets you have. Your lender may want to see paperwork regarding any student or auto loans and other debts as well.

These forms allow a lender to consider your level of financial security and whether you are a good risk to offer a mortgage loan.

How to Get a Mortgage: 9 Steps

Now that you understand the paperwork you need and how lenders will look at your qualifications for a mortgage, consider the steps required to actually get the loan you need to buy a home.

1. Checking Your Credit

As mentioned above, it’s wise to check your credit score and review your credit report. If your number and record aren’t optimal, take the necessary steps to improve the situation, such as diligently paying bills on time, clearing up any errors on your record, and taking care of any debt that’s past due.

2. Figuring Out Your Home-Buying Budget

As you contemplate buying a home, develop a budget. You want to be sure that you have an adequate down payment and can afford your monthly mortgage payment. But don’t overlook these costs that need to be part of your budget:

•   Closing costs and related expenses

•   Funds to make any repairs/renovations required

•   Moving expenses

•   Home insurance premium

•   Property taxes

•   Utilities (especially important if you are moving from a rental where your landlord paid some of these costs to your own home)

•   Maintenance and upkeep costs (landscaping, HVAC service, etc.)

These expenses should be tallied and accounted for; you don’t want to wind up with your heating bill becoming a reason to use your emergency fund.

3. Saving for the Down Payment and Closing Costs

One important element of your home-buying budget is the down payment plus closing costs. Here’s how much you are probably going to need to set aside:

•   Down payments for a conventional loan have traditionally been 20% of a home’s cost, but there is some flexibility. A recent survey by the National Association of Realtors found that first-time homebuyers typically put down 13% on a home purchase.

•   Keep in mind that if you put down less than 20%, you will likely have to pay private mortgage insurance (PMI), since your lender may want extra protection in case you default on your loan.

•   Some loans are available with as little as 3% down or even zero money down. You’ll learn more about them below.

•   Closing costs will likely amount to 3% to 6% of the loan amount. They include fees for processing your loan, home appraisal, title search, and other activities.

4. Choosing the Right Mortgage Option

It’s worth reviewing some of the different loans that you may qualify for.

•   Conventional vs. government-backed loans. Conventional loans typically have stricter income, credit score, and other qualifying factors, while government-backed loans may be easier to obtain. Government-backed loans may have lower (or even no) down payment requirements. Examples of these government loans are FHA, VA, and USDA loans.

•   Type of rate: For some borrowers, a fixed-rate loan, with its never-varying monthly payment, may be best. For others, an adjustable-rate one that fluctuates may be more appealing. The payments tend to start out low, which can be attractive for those who may sell their home within a few years’ time. You may also look into mortgage points, which involve paying more upfront to shave down your rate over the life of the loan.

•   Mortgage loan term: Many loans last 30 years, but there are other options, such as 10, 15, or 20 years. The shorter the term, the higher your payment is likely to be.

5. Comparing Mortgage Lenders

Next, it’s wise to review different mortgage lenders and see what kind of rates and terms are quoted. For example, your own bank may offer mortgages and could give you a good rate in an effort to keep your business with them. Or you might look into online lenders, where the process can be more streamlined and the rates possibly better than traditional options.

You might also decide to work with a mortgage broker to get help learning about your alternatives.

6. Getting Pre-Approved for a Mortgage

For this stage, you will begin your actual interaction with a lender. The goal is a pre-approval letter, which can help you as you go home shopping and bid on properties. While not a guarantee of a mortgage, it shows you are serious about buying and are on the path to securing your funding, and it reflects that the lender found you qualified for a mortgage.

You can expect the lender to do a credit check, verify your income and assets, and consider your DTI. If all goes well, the lender will provide you with a pre-approval letter, and you can shop for a home in the designated price range.

It can be wise to get pre-approved by more than one lender. This can help you evaluate different offers and broaden your options when it’s time to apply for a loan.

7. Making an Offer on a Home

With your pre-approval letter done, you are ready to go home shopping. As you tour properties and make offers, you are on your way to getting to an accepted offer. When that happens (a big moment!), you will hopefully be on the path to home ownership. If contract negotiations and the inspection goes well, you will likely move along to the next step.

8. Applying for a Mortgage

Next, it’s time for the full-fledged mortgage application. Expect to submit the following, and possibly more:

•   Two years’ worth of W-2 forms or other income verification

•   A month’s worth of pay stubs

•   Two years’ worth of federal tax returns

•   Proof of other income sources

•   Recent bank statements and documentation of possibly recent sources of deposits

•   Documentation of funds/gifts of money to be used as your down payment

•   ID and Social Security number

•   Details on debt such as student loans and car payments

9. Closing on a Home

As you wait for your closing date, a home appraisal, loan underwriting, title searches, and more are happening. If things progress smoothly, you will be ready to close on your home. You also may wish to bring your real estate agent and/or attorney with you to this meeting. They can help explain everything — especially valuable if you are a first-time homebuyer.

You will gather to sign all your forms, submit your down payment and closing costs (or provide proof of wire transfer), and become a homeowner. Congratulations!

The Takeaway

The path to home ownership can be a long and winding road but worth it as you gain what could be your biggest financial asset. By preparing to present a credit-worthy file and following the steps needed to apply for a home mortgage, you can be on your way to owning your dream house.

When shopping for a home mortgage loan, take a look at what SoFi Mortgage Loans offer. With competitive rates, an easy application process, and flexible options, we think you’ll like what you see.

Are you planning to shop for a home? SoFi can make getting a mortgage loan so simple.

FAQ

How do you improve your chances of getting approved for a mortgage loan?

You can improve your chances of getting approved for a mortgage by checking on your credit score (and improving it, if necessary), showing a debt-to-income ratio of ideally 36% or lower, and having two years’ of a steady job history.

How do I begin a mortgage?

The first step in getting ready to apply for a mortgage can involve checking up on your financial profile to see how it will look to potential lenders and optimizing it. You can then research different kinds of loans and their requirements and get pre-approved by one or more lenders to see what you qualify for. When you have found a home and are ready to apply for your mortgage, you’ll gather the credentials you’ll need (such as proof of income and assets, tax returns, and ID) and fill out your application.

What is the lowest income to qualify for a mortgage?

There is no one set income required to qualify for a mortgage. Much will depend on how much you want to borrow versus your income, how much debt you are carrying, and your credit score. For those who have a lower income, there are government-backed loans that may be suitable; it can be worthwhile to look into FHA, USDA, and VA loans to see what you might qualify for.

What credit score is needed to get a mortgage?

Typically, a credit score of at least 620 is required for a conventional loan, and the higher your score (say, in the 700s or higher still), the more loan options and lower rates you may find. For those with a credit score of at least 580, there are government-backed loan products available.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi 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 and conditions apply. Not all products are offered in all states. See SoFi.com/eligibility for more information.

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 .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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If you’re thinking about buying a home in the not-too-distant future, you may be wondering what kind of property to purchase. Would a single-family house be better, or perhaps a condo unit?

Some important factors: Do you prefer being in a city, perhaps in an apartment or townhome, or are you all about a house with a picket fence? Do you like handling your own gardening and picking your own front-door paint colors, or would you like to delegate that? Do you like neighbors close by or prefer privacy? Does your household include furbabies?

These are some of the considerations that may impact whether a house or a condo is right for you. Each option has its pros and cons, and of course, finances will play a role too.

To decide which might suit you best, take this house vs. condo quiz, and then learn more about some key factors.

Next, you might want to take these pros and cons into consideration as well.

Pros and Cons of Buying a House

A top-of-mind question for many people is, “Isn’t a house more expensive than a condo?” Cost is a factor, especially when buying in a hot market, and there can typically be a significant difference between a house and a condo when you are home shopping.

The median sales price of existing single-family homes was $467,700 in the fourth quarter of 2022, according to St. Louis Fed data, compared with $365,300 for existing condos and co-ops as of April 2022.

Now that you know that price info, look at these pros and cons when buying a house vs. a condo.

Pros of Buying a House

Among the benefits of buying a house are the following:

•   More privacy and space, including storage

•   A yard

•   Ability to customize your home as you see fit

•   Room to garden and create an outdoor space, just as you want it to be

•   Control of your property

•   Pet ownership unlikely to be an issue

•   Sometimes no homeowners association (HOA) or dues

•   Generally considered a better investment

Cons of Buying a House

However, you may have to contend with these downsides:

•   Potentially higher initial and ongoing costs

•   More maintenance inside and out

•   Typically higher utility bills

•   Potentially higher property taxes and homeowners insurance

•   Possibly fewer amenities (such as common areas, a gym, etc.)

If, after taking the quiz and weighing the pros and cons, buying a house feels like the right choice, you can start brainstorming about size, style, location, and price; attending open houses; and looking online.

Learning how to win a bidding war might also come in handy, depending on the temperature of the market.

Pros and Cons of Buying a Condo

A quick look at how condos work before diving in: Condominium owners share an interest in common areas, like the grounds and parking structures, and hold title to their individual units. They are members of an HOA that enforces community rules. Being a member of a community in this way is a key difference between a condo and a house.

Pros of Buying a Condo

Here are some of the upsides of purchasing a condo:

•   More affordable

•   Amenities included (this might include common rooms, a fitness center, and other features)

•   Potentially less expensive homeowners insurance and property taxes

•   Repairs and upkeep of the property typically taken care of

•   Typically lower utility bills

•   Security, if the community is gated or patrolled

•   Access to urban perks

Cons of Buying a Condo

Next, consider the drawbacks of condo living:

•   Less privacy

•   Typically no private yard

•   Rules and restrictions (about noise levels, outside wall colors, pets, and more)

•   Typically less overall space

•   HOA fees

•   Limited parking

•   Slower appreciation in value

Plus, the mortgage interest rate and down payment are often higher on a condo vs. a house of the same value, though that isn’t always the case, especially for a first-time buyer of an owner-occupied condo.

Conventional home loan mortgage lenders sometimes charge more for loans on condo units; they take into consideration the strength of the condo association financials and vacancy rate when weighing risk.

Mortgages backed by the Federal Housing Administration (FHA) are available for condos, even if they are not part of an FHA-approved condominium project, with a process called the Single Unit Approval Program.

An FHA loan is easier to qualify for and requires as little as 3.5% down, but you’ll pay upfront and ongoing mortgage insurance premiums.

What Are the Costs of a House or Condo?

As mentioned above, houses tend to cost more than condos. But here are a few other ways to look at the financials when comparing a condo vs. a house:

•   Condos tend to have lower list prices than houses which may mean a smaller mortgage. However, you also need to factor in monthly maintenance fees and HOAs so you get the full picture.

•   Condos may have assessments from time to time. These are additional charges to fund projects for the unexpected expenses, such as a capital improvement to the entire dwelling.

•   Homeowner fees are growing along with inflation, so when you make your purchase, understand that these charges are not static.

•   Before buying into an HOA community, it’s imperative to vet the board’s finances, including its reserve fund, how often it has raised rates in recent years, whether it has collected any special assessments or plans, and whether it’s facing any lawsuits.

•   If you are buying a house, keep in mind that maintenance and upkeep are your responsibility. This can mean everything from replacing a hot-water heater that’s reaching the end of its lifespan to dealing with roof repairs.

•   Down payments will vary due to several factors. For a condo, a down payment is typically around 10% but can vary considerably from, say, 3% to 20%.

•   With a house, a down payment could be from 3.5% with an FHA loan to the conventional 20% needed to avoid private mortgage insurance, or PMI. Those who qualify for VA loans may be able to buy a house without a down payment.

•   If you are buying a house, make sure to scrutinize property taxes and factor those into your budget. Those are not fixed and can rise over time.

Another smart move: Check out this home affordability calculator to get a better feel for the bottom line.

When Is a Good Time to Buy?

You may know what you’d like to buy (condo vs. a house) and where (in what neighborhood), but do you feel as though now is the right time? If so, fantastic.

You might decide, though, that you want to rent for a while longer under certain circumstances, which can include:

•   Hoping to wait out an overheated market and looking at price-to-rent ratios

•   Wanting to save more money for the down payment and closing costs (the bigger your down payment, the lower your monthlies will likely be)

•   Needing to boost your credit score first

•   Wanting to pay down credit card debt or other debt, which improves your debt-to-income ratio or DTI

•   Needing more time to look at houses and condos before deciding which path to take

The Takeaway

The condo vs. house decision depends on a multitude of factors. Reviewing the pros and cons of buying a condo vs. a house can at least give you a direction to start your search. And so can such givens as knowing that you want to be in a certain location (downtown in a condo instead of in a house on a couple of acres), or that you have lots of dogs and therefore want your own yard, and so forth.

If you’re ready to get prequalified for a home loan, know that SoFi offers competitive mortgage loan rates for single-family homes and condos with as little as 3% down for first-time buyers.

Make mortgage shopping simple with SoFi.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Mortgages
Terms and conditions apply. Not all products are offered in all states. See SoFi.com/eligibility 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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Qualifying for a home loan can be especially challenging if you don’t have a regular paycheck.

Even if you have a solid credit score, money in the bank, and low or no debt, you can still expect mortgage lenders to check on your income to be sure you can afford your loan payments. And you may face stricter eligibility requirements if you’re a seasonal employee or a freelance or gig worker.

Having an inconsistent income isn’t an insurmountable hurdle — but there are some basic guidelines homebuyers should be aware of as they prepare to apply for a mortgage.

Here, you’ll learn:

•   Can you get a mortgage without a job?

•   How do you apply for a mortgage if you have seasonal income?

•   What sort of income documentation do you need?

•   How can you improve your chances of mortgage approval?

Is Employment Required to Qualify for a Mortgage?

Usually, you are required to show two years’ worth of employment and income on a mortgage application. Lenders use the information on a loan application to evaluate a borrower’s risk based on a number of factors, including their credit history, their assets, how much debt they can comfortably handle, and the amount and reliability of their income.

If you can prove to your lender that you can make your monthly house payment even though you don’t have a traditional employment situation, you still may be able to qualify for a mortgage. In fact, you may be able to get a mortgage without a job at all if you can prove that you have adequate financial resources.

For example, a retired couple may be eligible for a mortgage based on their Social Security and pension payments alone. And if that isn’t enough for a mortgage, income from other sources may push things ahead. For instance, they may be able to qualify if they have a retirement account they can tap, rental property income, or investments that pay dividends or interest. A divorced individual may be able to use alimony or child support payments to qualify for a home loan. And certain types of long-term disability income also may be accepted.

Applying for a Mortgage with Seasonal Income

If you’re earning an income but some or all of your work is seasonal, you should be prepared to provide extra documentation that proves your income is dependable.

For example, seasonal employees who work for the same company (or in the same field) every year should be ready to furnish two years’ worth of W-2 forms, pay stubs, tax returns, bank statements, and other financial backup. Your employer (or employers) also may have to write a letter stating you can expect to work again the next season.

Remember, the lender wants to be as certain as possible that you can manage your home mortgage loan. If you’ve been working at the seasonal job for less than two years (or if you can’t prove the work will continue), you may not be able to get past the underwriting process. In other words, your mortgage loan would not be approved.

In that case, you may have to wait until you’ve put in more time on the seasonal job, or you could consider applying with a co-borrower or cosigner to improve your chances of getting a loan.

Part-Time Income vs Seasonal Income

Some points to note about part-time vs. seasonal income:

•   Income documentation requirements are generally less demanding for part-time workers than for seasonal workers.

•   Part-time workers still must provide paperwork that supports the income information on their mortgage application. But if a lender can see a borrower has year-round employment and a regular paycheck — even if he or she works fewer than 40 hours a week — that consistency can help with qualifying for a mortgage.

•   Even if you work full-time or overtime in a seasonal job (as a store cashier during the holidays, for example, or at a theme park during the summer), you may have a harder time proving that your income is stable.

Proof of Income Documentation

Proving income stability also can be a challenge for freelancers and gig workers who are trying to qualify for a mortgage.

Instead of pulling out pay stubs and W-2s to prove their income, as employees with more traditional jobs do, self-employed workers have to round up their 1099s and other documentation from their business (bank statements, tax returns, profit and loss statements, etc.). They need to share those as proof of income for a mortgage, along with the required information about their personal finances.

Documentation requirements can vary depending on the lender or the type of loan, but freelance and contract workers typically need to provide proof of at least two years of self-employment income to qualify for a home mortgage loan. And if that income is significantly different from one year to the next, or is going down instead of up, the lender may have questions about the borrower’s ability to keep up with mortgage payments over the long-term.

Something else to keep in mind:

•   Though it may be tempting to take advantage of every tax break for your freelance business, those deductions might affect how a mortgage lender looks at your bottom line.

•   If you have accepted some payments under the table to avoid taxes, you won’t be able to count that money as income on your loan application.

Gathering Your Income Documentation

Not having the proper income documentation can slow down the mortgage loan process, so it can be a good idea to gather up your paperwork well before you actually sit down to apply.

If you’re a first-time homebuyer, or you aren’t clear on what you might need as a seasonal or self-employed worker, a good lender will walk you through the list — but here are a few things you’ll likely need:

•   Tax returns from the past two years. (Personal and business returns if you’re self-employed.)

•   Two years’ worth of W-2s or year-end pay stubs. (If you’re self-employed, you can use your 1099s.)

•   Bank statements. (Personal and business bank statements if you’re self-employed.)

•   Letter verifying your employment. (If you’re a seasonal worker, your employer would state that you’re expected to be hired again. If you’re self-employed, you might provide a letter from a CPA verifying that you’ve been in business for at least two years. You also could include a client list with contact information or your company’s website.)

•   Statements verifying additional assets.

•   Proof of other income sources. (Alimony and child support, disability income, Social Security, etc.)

Improve Your Chances of Mortgage Approval

A stable income can be key to getting a mortgage, but lenders also will consider several other financial factors when evaluating an application. If you want to improve your chances of qualifying for a home loan — and get the lowest interest rate possible — here are a few things to focus on:

Credit Score

Generally, borrowers need a FICO® credit score of at least 620 to qualify for a fixed-rate conventional mortgage. But a higher score (670 to 739 is considered “good”) could make you more appealing to lenders and help you get a lower interest rate. Before you apply for a loan, it’s a good idea to check on your credit score and make sure your credit reports are accurate and up to date.

Down Payment

Coming up with a larger down payment could boost your chances of being approved for a loan. (The tools in SoFi’s Home Loan Help Center can help you figure out the amount you can afford.)

Debt-to-Income Ratio (DTI)

In general, mortgage lenders like to see a DTI ratio of no more than 36%. To figure out your DTI, add up your monthly bills, such as housing costs and any monthly loan or debt payments, and divide that total by your monthly gross (pre-tax) income to get your DTI percentage. If your DTI is running high, lowering or eliminating some debt before applying for a mortgage can make you look like less of a risk.

Cash Reserve

Your lender also may want you to see that you have a backup emergency fund or an asset you can liquidate easily, just in case your income falls short of expectations.

Recommended: Mortgage Pre-Approval Need to Knows

The Takeaway

If you don’t have a traditional job with a regular paycheck, you may have to jump through a few extra hoops to qualify for a mortgage. But if you can show your lender that you have reliable and consistent income sources, good credit, and can afford your monthly payments, a home loan shouldn’t be out of reach.

How can SoFi help? SoFi’s online application makes it easy for all types of borrowers to get started. And SoFi’s mortgage loan officers can provide one-on-one assistance as you work your way through the mortgage application process, so you can know what’s expected.

With SoFi, it takes just minutes to find your mortgage rate.

FAQ

Can I qualify for a mortgage using seasonal income?

If you can prove you’ve worked in a seasonal job for at least two years, the money you’ve earned, once documented as proof of income for a mortgage, may help you qualify.

Can I include tips as part of my income when qualifying for a mortgage?

If you keep good records and claim the tips you receive from customers on your income tax return, you may be able to include that money as income on your mortgage application. But if you pocket the money and don’t report it on your taxes, you can’t expect your lender to count it.

Are there any exceptions to the two-year employment requirement when applying for a mortgage as a seasonal or freelance worker?

If you change employers but remain in the same line of work from one year to the next, you may be able to get around a lender’s two-year requirement. Let’s say, for example, you’re a swimming coach. If you move from one county to another, but you’re still teaching swimming at a community pool, the fact that you changed employers may not affect your income eligibility.

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Photo credit: iStock/Prostock-Studio

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi 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 and conditions apply. Not all products are offered in all states. See SoFi.com/eligibility for more information.

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

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 .

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