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It’s no secret that a super-hot housing market and inflation have made it hard to afford daily life in many places across America. It’s also delaying the dream of homeownership for many people.

If, however, you are free to move, you might consider putting down roots where houses are more affordable and where homeownership is potentially easier to achieve. To help you consider your options, here is a list of 10 cities where the cost per square foot of housing is lowest.

The average price in the U.S. per square foot at the time of this survey was $169, and the median home price was $397,000. Take a look at these budget-friendly options, and see if you might want to make one of them your home base.

1. Memphis, Tennessee

Average Home Listing Price: $242,500

Average Price Per Square Foot: $92

Memphis ranked as the most affordable place to live based on the cost per square foot of homes in a recent study using data from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics, and Realtor.com. Known as the birthplace of the blues, rock ‘n’ roll, and soul (not to mention where Elvis Presley lived at Graceland), Memphis is a city that is great for low-cost housing as well as music.

2. Cleveland, Ohio

Average Home Price: $183,750

Average Price Per Square Foot: $103

With the average home in Cleveland costing less than half of the national average, this Ohio city is clearly a bargain for aspiring homeowners. In addition to its parks, river frontage, and setting next to a Great Lake, it has a burgeoning foodie scene and world-class art museums.

3. Pittsburgh, Pennsylvania

Average Home Price: $210,000

Average Price Per Square Foot: $134

In the past, Pittsburgh lost some of its younger residents to metro areas with a stronger job market, but today’s affordable housing market and job growth are attracting younger residents again. There are multiple universities in the area, such as the prestigious Carnegie Mellon University, that also attract a vibrant and youthful population.

Recommended: Cost of Living by State Comparison (2023)

4. Indianapolis, Indiana

Average Home Price: $276,250

Average Price Per Square Foot: $134

Indianapolis has a lively downtown area that is quite walkable and full of fun things to do, yet it also offers big-city amenities. Those looking for a more suburban feel can enjoy outer neighborhoods that still feature plenty of shopping and entertainment venues without all the hustle and bustle of being in downtown Indianapolis.

5. Buffalo, New York

Average Home Price: $217,450

Average Price Per Square Foot: $139

Buffalo is currently experiencing a sort of renaissance thanks to a rapidly developing waterfront and being home to one of the nation’s most advanced medical corridors.

Local government support has led to an increasing number of local businesses, which means there are likely some pretty good job opportunities to be found for career builders in Buffalo.

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

6. Birmingham, AL

Average Home Price: $272,450

Average Price Per Square Foot: $144

Birmingham has plenty to recommend it, from great sports teams to root for to its craft brewery scene. Affordability is a major factor. Housing costs are less than the national median in this area. What’s more, residents tend to spend less on food, healthcare, and other typical expenses than those who are located in other areas of the country.

7. Oklahoma City, Oklahoma

Average Home Price: $282,124

Average Price Per Square Foot: $149

Oklahoma City has affordable homes, healthcare, transportation, and other basic living expenses. In addition, it has a vibrant arts scene and plenty of parks with all kinds of activities available.

Recommended: Local Housing Market Trends

8. Detroit, Michigan

Average Home Price: $217,450

Average Price Per Square Foot: $152

Detroit is a city in the midst of a turn-around. On the one hand, there are many fixer-upper and abandoned houses waiting to be rehabbed, but, on the other, the cost of living has been rising. If you want to jump into the affordable housing market and make Detroit your home, you’ll be rewarded with music festivals and the gigantic Belle Isle Park.

9. St. Louis, Missouri

Average Home Price: $245,000

Average Price Per Square Foot: $152

This historic metro area houses almost 3 million people (known as St. Louisans) and is known for being a tight-knit community that is very family-friendly. Hometown loyalty is strong in St. Louis and many residents choose to come back after heading off to college or paying to move somewhere else for a while.

💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

10. Louisville, Kentucky

Average Home Price: $252,500

Average Price Per Square Foot: $152

Families will love spending their weekends in Louisville, thanks to having easy access to the Louisville Zoo, Kentucky Science Center, and the Louisville Slugger Museum. Day by day this city is becoming more diverse! Residents are moving in from around the world and the city is supportive of the LGBTQ community.

Financing a Home

Even the most affordable homes can cost a pretty penny, which is where applying for a mortgage comes in.

Consumers may compare mortgage loan rates and terms from commercial banks, mortgage companies, and certain financial institutions. Typically, certain requirements relating to credit scores and income level help determine if a consumer will receive a mortgage and what their rates and terms are.

When preparing to get a mortgage, it can be helpful to consider multiple lenders, comparing loan terms to get an idea of what might work for an applicant’s financial situation.

Asking lenders for a preapproval or prequalification letter can help mortgage applicants better understand what type of mortgage terms they may be offered.

The Takeaway

It’s possible to find an affordable place to live, where homes cost as little as possible per square foot, and your daily budget may therefore be easier to wrangle. If you are willing to relocate and perhaps move to an up-and-coming town, you may find that your dreams of homeownership can come true sooner rather than later.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility 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.

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

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Homeownership has long been a part of the American dream, and it opens the door to benefits like the mortgage interest deduction for those who itemize deductions on their taxes.

Itemizing typically makes sense only if itemized deductions on a primary and second home total more than the standard deduction, which nearly doubled in 2018.

Here’s what you need to know about the mortgage interest deduction.

What Is the Mortgage Interest Deduction?

The mortgage interest deduction allows itemizers to count interest they pay on a loan related to building, purchasing, or improving a primary home against taxable income, lowering the amount of taxes owed.

The tax deduction also applies if you pay interest on a condominium, cooperative, mobile home, boat, or recreational vehicle used as a residence. The deduction can also be taken on loans for second homes, as long as it stays within the limits.

States with an income tax may also allow homeowners to claim the mortgage interest deduction on their state tax returns, whether or not they itemize on their federal returns.

What Are the Rules and Limits?

The passage of the Tax Cuts and Jobs Act of 2017 was a game-changer for the mortgage interest deduction. Starting in 2018 and set to last through 2025, the law greatly increased the standard deduction and eliminated or restricted many itemized deductions.

For the 2022 tax year, the standard deduction is $25,900 for married couples filing jointly and $12,950 for single people and married people filing separately. For 2023, the standard deduction is $27,700 for married couples filing jointly and $13,850 for single people and married people filing separately.

If you itemize deductions, you’re good to go and can deduct the interest. There’s further good news, as you may also be able to deduct interest on a home equity loan or line of credit, as long as it was used to buy, build, or substantially improve your home.

The loan must be secured by the taxpayer’s main home or second home and meet other requirements. For tax purposes, a second home not used for income is treated much like one’s primary home. It’s a home you live in some of the time.

The IRS considers a second home that’s rented some of the time one that you use for more than 14 days, or more than 10% of the number of days you rent it out (whichever number of days is larger). If you use the home you rent out for fewer than the required number of days, it is considered a rental property—one that you never live in, and not eligible for the mortgage interest deduction.

Generally, your interest-only mortgage is 100% deductible, as long as the total debt meets the limits.

According to the Internal Revenue Service, you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of debt. Higher limitations ($1 million, or $500,000 if married filing separately) apply if you are deducting mortgage interest from debt incurred before Dec. 16, 2017.

You can’t deduct home mortgage interest unless the following conditions are met:

•   You must file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form 1040).
•   The mortgage must be a secured debt on a qualified home in which you have an ownership interest.

Simply put, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you can’t pay the debt, your home can then serve as payment to the lender to satisfy the debt.

A qualified home is your main home or second home. The home could be a house, condo, co-op, mobile home, house trailer, or a houseboat. It must have sleeping, cooking, and toilet facilities.

Know that the interest you pay on a mortgage on a home other than your main or second home may be deductible if the loan proceeds were used for business, investment, or other deductible purposes. Otherwise, it is considered personal interest and is not deductible.


💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.

How Much Can I Deduct?

No doubt you want the answer to that question. In most cases, you can deduct all of your home mortgage interest. How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.

The IRS says that if all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category.)

1. Mortgages you took out on or before Oct. 13, 1987 (called grandfathered debt).

2. Mortgages you (or your spouse if married filing jointly) took out after Oct. 13, 1987, and prior to Dec. 16, 2017, to buy, build, or substantially improve your home, but only if throughout 2020 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).

(There is an exception. If you entered into a written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and you purchased the residence before April 1, 2018, you are considered to have incurred the home acquisition debt prior to Dec. 16, 2017.)

3. Mortgages you (or your spouse if married filing jointly) took out after Dec. 15, 2017, to buy, build, or substantially improve your home, but only if throughout 2020 these mortgages plus any grandfathered debt totaled $750,000 or less ($375,000 or less if married filing separately).

The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home.

What Are Special Circumstances?

Just like you need to understand your home loan options, you need to know the special situations where the IRS says you might or might not qualify for the mortgage interest deduction.

You can deduct these items as home mortgage interest:
•   A late payment charge if it wasn’t for a specific service performed in connection with your mortgage loan.
•   A mortgage prepayment penalty, provided the penalty wasn’t for a specific service performed or cost incurred in connection with your mortgage loan.

Recommended: Guide to Buying, Selling, and Updating Your Home

Is Everything Deductible?

The government is only so generous, and there are many costs associated with homeownership. Some of them are not tax deductible under the mortgage interest deduction, like homeowners insurance premiums.

One caveat: You might be able to write off a portion of insurance, as well as utilities, repairs, and maintenance, if you have a home office and deduct those expenses on Schedule C.

Also not on the list for inclusion in the mortgage interest deduction are title searches, moving expenses, and reverse mortgage interest. Because interest on a reverse mortgage is due when the property sells, it isn’t tax deductible.


💡 Quick Tip: Have you improved your credit score since you made your home purchase? Home loan refinancing with SoFi could get you a competitive interest rate with lower payments.

How to Claim the Mortgage Interest Deduction

An itemizer will file Schedule A, which is part of the standard IRS 1040 tax form. Your mortgage lender should send you an IRS 1098 tax form, which reports the amount of interest you paid during the tax year. Your loan servicer should also provide this tax form online.

Using your 1098 tax form, find the amount of interest paid and enter this on Line 8 of Schedule A on your tax return. It’s not a heavy lift but gets a tad more complicated if you earn income from your property. If you own a vacation home that you rent out much of the time, you’ll need to use Schedule E.

Furthermore, if you’re self-employed and write off business expenses, you’ll need to enter interest payments on Schedule C.

The Takeaway

You can take the mortgage interest deduction if you itemize deductions on your taxes. Keep in mind that it’s typically only worth taking if the write-offs exceed the standard deduction.

The mortgage interest deduction, though, can be a bonus of sorts, especially if you’re a homeowner with a second home.

As with all matters that affect your taxes, you’ll want to consult with your financial advisor about claiming the deduction.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available 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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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Buying a house can be a fraught process, but when the market is hot, the days between offer and closing can feel endless, especially if the mortgage underwriter asks you to write a letter of explanation.

But there’s no need to panic or assume that your mortgage application will fail. The lender is simply seeking clarification about any potential red flags in your financial documents or credit history.

What’s a Letter of Explanation?

A letter of explanation for a mortgage explains details of your financial situation that may need further clarification. Because a mortgage is a large loan, lenders need to know that the borrower is capable of shouldering the mortgage.

Lenders also know that life can’t be boiled down to a spreadsheet, and that it’s not unusual for a mortgage application to include things like a late credit payment or a period of job loss.

To do due diligence, the mortgage underwriter will ask you to explain the situation in a brief letter, which will be added to your mortgage application. Additional documentation and paperwork may be required.


💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

Why Do I Need to Provide a Letter of Explanation?

Common issues that could trigger a request for a letter of explanation include:

• Questions about your income if you don’t have W-2s or are self-employed

• Negative items on your credit report

• Employment gaps

• Your living situation if you don’t pay any rent or mortgage

• A property income or loss you claim

• Credit lines opened after you’ve put in your mortgage application

• Large deposits to, and sometimes withdrawals from, your bank account

Must I Explain a Large Deposit?

If there’s a big or unexplained deposit to your bank account, your lender may want to know where the money came from — and whether that money needs to be paid back.

A lender may also question any uneven income streams, or if deposits don’t line up with your W-2s or your tax returns.

If you received cash from, say, a parent to help with a down payment or closing costs, you may also need a gift letter signed by the giver and recipient stating that the money was a gift, not a loan. Your lender may have a template for a gift letter.

Keep in mind that your lender may be more likely to scrutinize any large deposits or withdrawals within the last 60 days.

Letter of Explanation Template

A letter of explanation is not an autobiography or an admission that you did anything wrong. It’s simply a statement of the reason for any discrepancy or issue, along with any documentation, to back up your current financial picture.

You can keep a letter of explanation brief. It should include:

• Your name and address

• Your lender’s name and address

• A subject line that includes your application number and name

• A brief paragraph explaining the situation

• A polite closing

• Your signed full name

It might look like this:

Date

Lender
Lender’s Address
Lender’s Phone Number

Subject Line (RE: John Doe’s Mortgage Application)

Letter of explanation, naming the specific item being asked about and explaining it to the best of your abilities.

Sincerely,

Applicant’s Name
Applicant’s Address
Applicant’s Phone Number

Enc.: (Relevant documentation).

The tone of the letter should be polite and factual. Remember: Your goal is not to pull on the lender’s heartstrings; it’s to reassure them that your application is solid and you would responsibly pay back your mortgage on time.


💡 Quick Tip: Jumbo mortgage loans are the answer for borrowers who need to borrow more than the conforming loan limit values set by the Federal Housing Finance Agency ($766,550 in most places, or $1,149,825 in many high-cost areas). If you have your eye on a pricier property, a jumbo loan could be a good solution.

4 Tips for an Effective Letter of Explanation

Although being asked to write a letter of explanation may sound like being assigned homework, it’s actually a great opportunity: It means you might be able to qualify for the mortgage you want, even with an imperfect application. Here are some tips to help ensure you get an A+ on this particularly important homework assignment.

1. Keep It Simple

When you’re asked to explain yourself, it can be easy to jump into a broad-reaching narrative starting from childhood, but the best letters of recommendation tend to be short and simple: They clarify the situation being asked about and reassure the lender that the “red flag” situation won’t affect the borrower’s ability to repay the loan.

2. Provide Clear Details

Generally speaking, you’ll want to specifically name whatever item you’re being asked about (late payments on a credit card account ending in 0101; an employment gap between 2/20/2020 and 9/07/2020; etc.).

Then explain. For instance, if you’re being asked about an employment gap, you might let the lender know that you were let go as a result of corporate downsizing and that you freelanced while searching for a new job.

If you’re being asked about late credit card payments, you might let the lender know that you were in the hospital at that time and thus unable to make your credit card payments, or whatever the case may be.

The key is to take responsibility for the issue and provide clear, pertinent details without being too wordy.

3. Be Honest

This may go without saying, but you definitely don’t want to lie in your letter of explanation. For one thing, doing so is likely to keep you from being approved for the mortgage — and for another, it can be considered mortgage fraud, a serious crime that can come with prison time and fines.

4. Acknowledge Responsibility, but Don’t Get Emotional

When writing a letter of explanation, you may be justifying negative items in your credit history that resulted from poor decisions — or just poor circumstances. Nobody’s perfect, but a lender simply wants to make sure you won’t default on your loan.

It can be helpful to acknowledge the ways you’ve adjusted your financial habits in response to a negative item. This helps to reassure the lender that it won’t have an impact on your ability to pay your mortgage.

For example, if you’re writing a letter of explanation to address late rent payments after a layoff, you might add that you’ve since saved up an emergency fund of three months of living expenses in order to avoid being financially blindsided in the future.

However, writing an emotional sob story won’t help. Remember: It’s a good idea to keep it simple, clear, honest, and as short as possible while still covering all those bases.

Getting Your Mortgage Application in Shape

Knowing what documents you need and what a mortgage lender will look at can help get your application in strong shape before you file it. Your lender will scrutinize your credit history and any late payments, especially ones within the last 12 months. But there are ways to proactively tackle any issues on your credit reports.

• Check your credit reports. Knowing what your mortgage lender may see can help you assess where any weak points may be, and what information they may ask for.

• Call the creditor if you have a recent late payment. Creditors know that accidents happen and bills may be misplaced. If your account is otherwise in good standing, it’s possible that a creditor may erase the late payment.

• Focus on additional aspects of your credit. Making sure to pay bills on time and keeping your credit utilization below 30% can help build credit.

• Think twice about opening accounts. Before and after applying for a mortgage, it can be a good idea to be mindful of opening new lines of credit or charging an extensive amount on current cards. Suddenly taking on more debt on credit cards can raise a red flag to lenders, which may result in being asked to write a letter of explanation.

Understanding how a lender will see your mortgage application can give you confidence and may help you head off any potential problems.

Recommended: Preapproved vs. Prequalified: What’s the Difference?

The Takeaway

A letter of explanation is when a mortgage lender needs clarity about a red flag or discrepancy that arises on your application. Knowing what to expect, having documentation ready, and answering any questions the lender may have can all be helpful in getting your home loan approved.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

Photo credit: iStock/scyther5

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SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available 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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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As of 2023, only 21% of people say now is a good time to buy a house according to a Gallup poll. This is due to high home prices and high interest rates. While the average home price has dropped since the last quarter of 2022, prices are still higher than normal. The median home price currently sits at $424,495 and mortgage rates as of June 2023 are 6.67% for 30-year fixed-rate mortgages and 6.03% for 15-year FRMs.

We’ve seen higher home prices and higher interest rates in the past year, so now may not be the worst time to buy. However, whether or not now is a good time to buy a house depends heavily on your unique financial situation and local market dynamics.

Determining When You’re Ready to Buy

Before you assess the current real estate market and pay close attention to interest rate fluctuations, it’s important to understand your financial and personal situation.

Here are a few factors you may want to consider before deciding if a new home is a good play right now.

Making Room in the Budget

When buying a home, the first thing you’ll need to budget for is a down payment.

While 20% of the home’s value is the benchmark, you may only need 3.5% if you apply for an FHA loan. But even 3.5% can be a chunk of change. If you want to buy a $200,000 house, 3.5% is $7,000.

Your home-buying budget should be large enough to cover a down payment as well as closing costs, which typically include homeowners insurance, appraisal fees, property taxes, and any mortgage insurance.

Remaining Consistent

How long do you plan to live in the city where you’re eyeing a home? If you plan on staying in the home long-term, now could be a good time to buy because staying put will give your home time to appreciate (subject to market fluctuations).

Since mortgage lenders pay close attention to job consistency and a steady income, you may also want to consider your job security. Especially during uncertain times, it’s crucial to feel confident knowing you can make your mortgage payments every month.

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

Checking Your Financial Profile

It’s a good idea to check your financial profile. Doing so may help you secure better financing terms when you purchase a home. Lenders will review your credit history, debt-to-income ratio, and assets, among other factors, to determine your eligibility for a mortgage.

Lenders review your credit history to gauge your creditworthiness and the level of risk to lend you money. They look at your debt-to-income ratio to indicate how much of your income goes toward debt payments every month.

If your ratio is high, it can show you’re overleveraged, which may mean you’re not in a position to take on more debt like a mortgage. You may also face a higher interest rate.

Last, a mortgage applicant can list assets like cash and investments. The more assets you have, the less risky lenders view you.

Weighing Renting Vs. Buying

You may want to compare renting vs. buying a home.

If renting a home in your community is less expensive than buying, you may want to hold off on a home purchase. Conversely, if renting is more expensive, you may be more enticed to purchase a new home.

Overall, if you find that these factors point you in the direction of homeownership, it’s possible you’re ready to buy a home and can begin determining the perfect time to pounce.

Observing Interest Rates

When determining if now is a good time to buy a house, buyers should look closely at interest rates.

Financial institutions charge interest to cover the costs of loaning money when they offer you a mortgage. The interest rate they charge is influenced by the Federal Reserve, but mortgage-backed securities are considered to be the main driver.

When interest rates are low, borrowing money is less expensive to the borrower. As interest rates rise, borrowing money becomes more costly. The government has been slashing rates to keep buyers in the market.

But keep in mind that the rate and terms you qualify for will depend on financial factors including your credit score, down payment, and loan amount.

And, if interest rates go down after you purchase your home, you can always choose to refinance your mortgage in hopes of getting a lower rate.


💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.

Timing the Real Estate Market

Essentially, to time any market, you want to aim to buy low and sell high. If you’re going to buy a property, you’ll want to ideally buy when there are more sellers than there are buyers—a buyer’s market.

In a buyer’s market, buyers have an abundance of homes to choose from. This may also give you leverage to ask for more concessions from sellers eager to close a deal, such as a seller credit toward your closing costs or help covering the cost of repairs.

Conversely, in a seller’s market, real estate inventory is low and demand is high, which may drive up home prices.

Recommended: How Does Housing Inventory Affect Buyers & Sellers?

To identify the current market conditions, you may want to visit real estate websites like Zillow, Redfin, Realtor.com, or Trulia to look at inventory in your area or ZIP code.

Typically, it’s a buyer’s market if you see more than seven months’ worth of inventory.

If you see five to seven months of inventory, you’re in a balanced market that isn’t especially beneficial to buyers or sellers.

It’s a seller’s market when there is less than five months’ worth of inventory.

Understanding Local Economics and Trends

Because prices can vastly vary from area to area, real estate is often considered a location-driven market. This means that general rules of thumb might not be valid in every region or city.

Also, local economics may play a role in housing demand. For instance, if a large company decides to move its operations to a city, that city may experience a housing boom that creates a spike in home prices.

That said, hopeful buyers will want to pay close attention to the economic happenings and housing trends in their desired location.

The Takeaway

If you find a home that seems right for you, your employment is stable, and you can get a home loan with a good interest rate, buying may make sense. Then again, with interest rates and home prices still being on the high side, comparing the costs of renting and buying may be called for.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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Installing solar panels in your home allows you to do your part for the planet while also reducing your monthly utility bills. However, the cost to purchase panels and have them installed can be a deterrent. Even if you know you’ll save money over the long term, it may be hard to come up with the funds to pay for the project up front.

Fortunately, there are tax incentives as well as financing options that make paying for a solar system a lot more manageable. Solar financing involves using instruments, like loans and leases, to pay for a solar system in installments over time rather than in one lump sum at the time of purchase. Each financing option has different features, advantages, and drawbacks.

Read on to learn more, including how much solar panels cost today, how much they can help you save, plus solar financing options that can help you cover the initial bill.

The Cost of Solar Panels

The cost of solar panels varies by location, the type of solar panels, and the system’s size, but an average-sized residential system currently runs around $16,000. The actual cost of solar panels can run as high as $35,000. However, federal and local tax incentives and rebates can take more than half of the cost off.

There are also different financing options available that allow you to pay for a solar system in installments rather than in one lump sum up front. The monthly amount owed on a solar loan is typically less than an average utility bill.

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Potential Benefits of Solar Panels

One of the benefits of solar panels is the potential to reduce or completely eliminate your energy bills. Depending on how much sunlight there is where you live, how many panels you install, and your energy use, you could potentially receive enough power through solar panels to completely meet your needs.

Even if your solar panels don’t eliminate your electric bills, it can lead to significant savings. Generally, the initial expense of the purchase of a solar system can be recouped in an average of six to 10 years. After recouping installation costs, the amount you’ll save over the life of your panels will continue to add up.

Another benefit of solar panels is the potential to increase the resale value of your home. Research has shown that, on average, homes with solar panels sell for 4% more than those without them.

For some people, one of the biggest benefits of installing solar panels, however, is knowing that they’re using renewable energy and helping to reduce greenhouse gasses. This could especially be important for those living in a state where the majority of the energy generated is through non-renewable power sources.

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Potential Drawbacks of Solar Panels

While solar panels have the potential to save homeowners money and do a lot of good for the planet, they come with a high price tag. Solar power financing can help make solar energy possible for more people, but not everyone qualifies.

Another drawback to solar energy is that it is sunlight dependent. If there is a long stretch of overcast weather, or if you live in an area that doesn’t get a lot of sun, you might not be able to generate enough solar energy to take care of your energy needs. However, solar batteries (which store excess energy) can help mitigate this issue.

Solar panels and the wiring they require can also use up a significant amount of space. Depending on how many panels you need for your home, it can be difficult to find adequate space with sufficient sun exposure to install a solar system.

Also keep in mind that uninstalling a solar system and moving it can be difficult and costly. As a result, a solar system is not something you can generally take from house to house. It’s best to consider it as an investment in your home.

Saving Money by Installing Solar Panels

More than 2.5 million homeowners in America currently have solar panels. One reason is the savings it can offer over time. Once installed on your roof, solar panels typically last for at least 25 years. If your solar system eliminates your electric bill and you normally spend about $150 a month on electricity, that would bring in a potential savings of $65,000 over the life of the system.

Keep in mind, however, that solar panels don’t always eliminate your electricity bill. And, as with any home improvement project, it’s important to consider the upfront costs, how long you plan to live in your home, and if you can find financing options that work with your budget.

Four Options for Solar Panel Financing

While converting to solar can pay for itself over time, it requires a sizable upfront investment. Here are some options that can help make it easier to foot the bill.

1. Tax Credits and Rebates

A smart solar power financing strategy starts with taking advantage of all available tax credits and rebates. The federal government currently offers a 30% tax credit for solar panels installed through 2032.

Unlike a deduction, a tax credit is an amount of money that you can subtract, dollar for dollar, from the income taxes you owe. So, if you pay $30,000 to install a new solar system, you’ll qualify for a roughly $9,000 tax credit, which equates to $9,000 more in your pocket.

In addition, many states offer rebates that further reduce the cost. To help people learn more about state and local incentive programs, North Carolina State University’s N.C. Clean Energy Technology Center offers a nationwide directory of programs .

2. Solar Panel Leases

A unique option for solar panel financing is a solar lease or power purchase agreement (PPA). With both a lease or a PPA, a company installs the solar system on your roof, and you pay that company for your energy each month, which is typically 10% to 30% lower than your usual electric bill. The company owns the panels and remains responsible for any required maintenance.

Since you don’t own the solar system, however, you can’t take advantage of any tax rebates or other incentives that come with purchasing solar panels outright. Also, solar lease and PPA contracts can extend 25 to 30 years. If you want to move before the contract is up, you would need to find a buyer who wants to take over your contract or could end up paying a hefty cancellation fee.

3. Secured Solar Panel Loans

Since you are adding to and improving your home, you might consider using a home equity loan or home equity line of credit (HELOC) to finance solar panels. This type of financing is secured by the equity you have in your home. Because the debt is secured (which lowers the risk to the lender), you may qualify for a relatively low interest rate. However, if you are unable to repay the loan or credit line, the lender can take your home to recoup its losses. Also, you need to have equity in your home to qualify for a home equity loan or HELOC.

4. Unsecured Solar Panel Loans

An unsecured solar panel loan is an unsecured personal loan that you can use to purchase solar panels. You don’t have to have any equity in your home, or use your home as collateral, to qualify for an unsecured solar panel loan To get approved, the lender considers your income and your credit rating (among other financial factors that vary from lender to lender).

With an unsecured personal loan, you receive a lump sum up front, which you can use for virtually any type of expense, including solar panels. These loans typically have fixed rates so your monthly repayments stay the same over the term of the loan, which is often five to seven years. Because this type of solar panel financing is unsecured, rates can be higher than you might get with a home equity loan or HELOC.

The Tax Benefits of Solar Panels

Installing solar panels can help reduce your federal income tax due in the year the installation is complete. There is a 30% tax credit currently in place for systems installed in 2022-2032. The tax credit expires starting in 2035 unless Congress renews it.

To qualify for the solar panel tax credit, your solar panels must be installed at your primary or secondary U.S. residence between Jan. 1, 2022, and Dec. 31, 2034. You also must own the solar panel system, i.e. you purchased it with cash or solar panel financing but you are neither leasing nor are in a PPA arrangement.

In addition, the system must be new or being used for the first time, and the credit can only be claimed on the original installation of the solar equipment. There is no maximum amount that can be claimed.

The following expenses can be included:

•  Solar PV panels or PV cells (including those used to power an attic fan, but not the fan itself)

•  Contractor costs, including installation, permitting fees, and inspection fees.

•  Balance-of-system equipment, including wiring, inverters, and mounting equipment

•  Energy storage devices that have a capacity rating of 3 kilowatt-hours (kWh) or greater

•  Sale tax on eligible expenses

In addition to the federal tax credit, there are also state-level solar incentives, which vary widely. Generally, getting a state tax break or rebate won’t limit your ability to get solar credits from the IRS.

Your local utility may also offer clear energy incentives, which can help you save money on solar panels. However, this may impact your federal income tax credit.

The Takeaway

There’s no question that solar panels are environmentally friendly. Over time they can also be economically friendly, saving you money on your electricity bill. Doing some research about residential solar panels and general home improvement financing are good steps to take to see if it’s the right choice for your home.

If you are interested in getting a loan to finance a solar system, a SoFi unsecured personal loan could be a good option. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

Consider a SoFi personal loan for solar panel financing.

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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.

​​Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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

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