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Cosigning a mortgage is a tremendous thing to do for a loved one. Your income and credit history can help someone whose finances aren’t on solid footing still get the house they want (or need). But being a cosigner can also be disastrous for your finances: Any missteps by the borrower could impact your credit score and ultimately leave you on the hook for paying the mortgage.

So once the paperwork is signed and the borrower is making progress on repayment, can the cosigner be removed from the mortgage? The path isn’t easy, but there are ways of doing it. Below, we’ll walk you through how to remove a cosigner from a mortgage in a few different ways.

Ways to Remove a Cosigner from a Mortgage

It’s a common scenario: At one point in time, you cosigned a mortgage but no longer wish to be on it. Maybe you helped out a loved one who was a first-time homebuyer and who needed assistance getting a loan. And now, perhaps to more easily secure a loan for yourself, or maybe just for financial peace of mind, you want to be relieved of your responsibilities. Here’s how to remove yourself as a cosigner from a mortgage — but fair warning, it’s not easy. (Before following any of these steps, make sure you are in fact a cosigner vs. a guarantor; the two are somewhat different.)

1. Mortgage Refinancing

The easiest way to remove a cosigner from a mortgage is to have the primary borrower refinance it. As the cosigner, you can’t force this; the borrower is the only one who can choose to refinance, and they have to meet mortgage refinancing eligibility requirements to do so.

When can a cosigner be removed from a mortgage? The timing is right if the borrower:

•   Needs a strong enough credit score to qualify on their own

•   Needs a steady enough (and high enough) income to qualify on their own

•   Must be willing to refinance — including paying mortgage refinance fees, such as closing costs

If the borrower is unable, or unwilling, to get a mortgage refinance, you won’t be able to remove yourself as cosigner using this strategy.

Recommended: Cosigner Responsibilities on a Loan

2. Mortgage Loan Assumption

How to get a cosigner off a mortgage loan without refinancing? If a mortgage is assumable, it means you can sign it over to another qualified borrower, with the same terms and interest rates. This is a potential tactic when selling your home during times of high mortgage interest rates; if you have a low interest rate, you can make your home more attractive to buyers by letting them assume the loan rather than get a new loan at a higher rate. (The buyer will also likely have to take out a separate loan to pay the difference between the remaining mortgage balance and the sale price.)

But assumable mortgages can also be a handy tool for mortgages with co-borrowers and cosigners. For instance, spouses or domestic partners who plan to separate but are co-borrowers on a loan might be able to use an assumable mortgage to simply put the mortgage fully in one person’s name. If the borrower on a cosigned loan is willing, this could also be a way to get the cosigner off a mortgage.

Not all mortgages are assumable, but government-backed loans, such as FHA loans or VA loans are. Even so, the lender has to approve the mortgage assumption, and the borrower for whom you cosigned has to be on board, so it’s not a done deal.

3. Requesting a Mortgage Cosigner Release

In some instances, a loan may have language in the agreement about a “cosigner release,” which simply means the cosigner can ask to be removed if certain conditions are met (though the lender can still say no). This is more common for other types of loans, such as student loans, but you can absolutely ask the mortgage lender if they’d include a cosigner release in the contract before signing on the dotted line.

Even if there’s nothing in the mortgage agreement about cosigner release, you can always reach out to the mortgage lender and ask to be removed. While it’s a long shot (there’s really no benefit to the lender), it could work if the borrower has strong credit, few debts, and a lot of income.

Even if there’s nothing in the mortgage agreement about cosigner release, you can always reach out to the mortgage lender and ask to be removed. While it’s a long shot (there’s really no benefit to the lender), it could work if the borrower has strong credit, few debts, and a lot of income.

4. Selling the House

Finally, at any point, the borrower can sell the home. The proceeds from the sale first go toward the existing mortgage to pay it off before they can pocket any profit. And as soon as that mortgage is paid off, you’re home free (or home-loan free, rather).

How to Remove Yourself as a Cosigner on a Mortgage

No matter which tactic you take — refinancing, loan assumption, cosigner release, or selling the house — you as the cosigner have little control over the process. Instead, the borrower has to take action, and in most cases, the lender has to agree.

Here are some tips if you want to be removed from a mortgage you cosigned:

•   Help the borrower improve their credit score: You could help the borrower make a budget and set up automatic payments so they can stay on top of on-time payments for all their bills.

•   Help the borrower increase their income: Tailor your help to where the borrower is on their career journey. If the borrower is fresh out of college, help them improve their resume or make connections that could lead to a job. If the borrower is already established in a career, provide coaching for how they might negotiate a raise, or help them find a side hustle or part-time job.

•   Have a frank discussion: Because the borrower essentially holds all the power, make sure they understand why you want to be removed from the loan. Help them understand the financial pressures you may be facing. If your relationship is solid, the borrower should hopefully want to do what they can to remove you from the loan.

Recommended: Does Being a Cosigner Show Up on Your Credit Report

Factors to Consider Before Removing a Cosigner from a Mortgage

Before you attempt to remove yourself as a cosigner from the mortgage, consider a few factors:

•   The borrower’s situation: As much as you may want to take your name off the mortgage, you won’t get very far if the borrower doesn’t have a good credit score and steady income. In addition, if the borrower has no interest in removing the cosigner, there’s very little you can do.

•   Lender policies: Some mortgage lenders may not allow cosigner release. While it doesn’t hurt to ask, this is not a common practice among lenders.

•   Assumable mortgages: Not all mortgages are assumable. While a government-backed loan is typically assumable, most conventional mortgages are not.

•   Costs: If the primary borrower could theoretically refinance the mortgage on their own (and is willing), keep in mind there will be closing costs. You may need to step in and help the borrower cover these costs if that’s the only thing preventing them from moving forward.

The Takeaway

Cosigning a mortgage is a generous act for a loved one, but it also puts your finances in jeopardy. Luckily, there are ways to remove yourself, as long as the borrower is willing and able. And if you’re a homeowner wondering can you remove a cosigner from a mortgage, the answer is yes. The easiest path forward is refinancing the mortgage, but you can also explore strategies such as cosigner release, mortgage assumption, and when all else fails, selling the house.

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

FAQ

What is a cosigner release on a mortgage?

A cosigner release is an option in the mortgage agreement that allows a cosigner to request to be removed from the mortgage, usually once the borrower has improved their credit score, increased their income, and made a series of on-time payments. Cosigner releases are uncommon for mortgages; it’s more likely to find a cosigner release on a student loan.

Is it easy to remove a cosigner from a mortgage?

Releasing a cosigner from a mortgage is not easy. The borrower must be willing to take action, and they’ll need to have strong credit and steady income. Even then, not all lenders will allow for the cosigner to be released or the mortgage to be assumed by the primary borrower. The easiest path forward is for the primary borrower to refinance the mortgage, if they can qualify on their own.

Can a cosigner be removed from a mortgage without refinancing?

Yes, a cosigner can be removed from a mortgage without refinancing, though refinancing is the easiest path forward. Alternate options include asking for a cosigner release; having the primary borrower assume the mortgage; and selling the house to pay off the mortgage

When can a cosigner be removed from a mortgage loan?

A cosigner can be removed from a mortgage loan when the borrower meets all the requirements to qualify on their own. Even if a borrower can qualify, however, lenders can reject requests for cosigner release and mortgage assumption. Borrowers and cosigners may have more luck by having the borrower refinance on their own.

Are there any fees associated with removing a cosigner from a mortgage?

There may be fees associated with removing a cosigner from a mortgage, depending on the route you take. The easiest way to remove a cosigner is to refinance the mortgage without them. However, there are mortgage refinance costs to consider, including closing costs, which are usually 2% to 5% of the new mortgage; loan application fees; title search; and a home appraisal. Similarly, assuming a mortgage may include a one-time funding fee.

Photo credit: iStock/RealPeopleGroup

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

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

SOHL-Q225-035

If you’re cash poor and home equity rich, a cash-out refinance could be the ticket to funding home improvements, consolidating debt, or helping with any other need. With this type of refinancing, you take out a new mortgage for a larger amount than what you have left on your current mortgage and receive the excess amount as cash.

However, getting a mortgage with a cash-out isn’t always the best route to take when you need extra money. Read on for a closer look at this form of home refinancing, including how it works, how much cash you can get, its pros and cons, and alternatives to consider.

What Is a Cash-Out Refinance?

A cash-out refinance involves taking out a new mortgage loan that will allow you to pay off your old mortgage plus receive a lump sum of cash.

As with other types of refinancing, you end up with a new mortgage which may have different rates and a longer or shorter term, as well as a new payment amortization schedule (which shows your monthly payments for the life of the loan).

The cash amount you can get is based on your home equity, or how much your home is worth compared to how much you owe. You can use the cash you receive for virtually any purpose, such as home remodeling, consolidating high-interest debt, or other financial needs.

💡 Quick tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with a mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

How Does a Cash-Out Refinance Work?

Just like a traditional refinance, a cash-out refinance involves replacing your existing loan with a new one, ideally with a lower interest rate, shorter term, or both.

The difference is that with a cash-out refinance, you also withdraw a portion of your home’s equity in a lump sum. The lender adds that amount to the outstanding balance on your current mortgage to determine your new loan balance.

Refinancing with a cash-out typically requires a home appraisal, which will determine your home’s current market value. Often lenders will allow you to borrow up to 80% of your home’s value, including both the existing loan balance and the amount you want to take out in the form of cash.

However, there are exceptions. Cash-out refinance loans backed by the Federal Housing Administration (FHA) may allow you to borrow as much as 85% of the value of your home, while those guaranteed by the U.S. Department of Veterans Affairs (VA) may let you borrow up to 100% of your home’s value.

Cash-out refinances typically come with closing costs, which can be 2% to 5% of the loan amount. If you don’t finance these costs with the new loan, you’ll need to subtract these costs from the cash you end up with.

💡 Quick tip: Using the money you get from a cash-out refi for a home renovation can help rebuild the equity you’re taking out. Plus, you may be able to deduct the additional interest payments on your taxes.

Example of Cash-Out Refinancing

Let’s say your mortgage balance is $100,000, and your home is currently worth $300,000. This means you have $200,000 in home equity.

If you decide to get a cash-out refinance, the lender may give you 80% of the value of your home, which would be a total mortgage amount of $240,000 ($300,000 x 0.80).

From that $240,000 loan, you’ll have to pay off what you still owe on your home ($100,000). That leaves $140,000 (minus closing costs) you could potentially get as cash. The actual amount you qualify for can vary depending on the lender, your creditworthiness, and other factors.

Common Uses of Cash-Out Refinancing

People use a cash-out refinance for a variety of purposes. These include:

•   A home improvement project (such as a kitchen remodel), a replacement HVAC system, or a new patio deck

•   Adding an accessory dwelling unit (ADU) to your property

•   Consolidating and paying off high-interest credit card debt

•   Buying a vacation home

•   Emergency expenses, such as an unexpected hospital stay or unplanned car repairs

•   Education expenses, such as college tuition

Qualifying for a Cash-Out Refinance

Here’s a look at some of the typical criteria to qualify for a cash-out refinance.

•  Credit score Lenders typically require a minimum score of 620 for a cash-out refinance.

•  DTI ratio Lenders will likely also consider your debt-to-income (DTI) ratio — which compares your monthly debt payments to monthly gross monthly income — to gauge whether you can take on additional debt. For a cash-out refinance, many lenders require a DTI no higher than 43%.

•  Sufficient equity You typically need to be able to maintain at least 20% percent equity after the cash-out refinance. This cushion also benefits you as a borrower — if the market changes and your home loses value, you don’t want to end up underwater on your mortgage.

•  Length of ownership You typically need to have owned your home for at least six months to get a cash-out refinance.

Tax Considerations

The money you get from your cash-out refinance is not considered taxable income. Also, If you use the funds you receive to buy, build, or substantially improve your home, you may be able to deduct the interest you pay on the cash portion from your income when you file your tax return every year (if you itemize deductions). If you use the funds from a cash-out refinance for other purposes, such as paying off high-interest credit card debt or covering the cost of college tuition, however, the interest paid on the cash-out portion of your new loan isn’t deductible. However, the existing mortgage balance is (up to certain limits). You’ll want to check with a tax professional for details on how a cash-out refi may impact your taxes.

Cash-Out Refi vs Home Equity Loan or HELOC

If you’re looking to access a lump sum of cash to consolidate debt or to cover a large expense, a cash-out refinance isn’t your only option. Here are some others you may want to consider.

Home Equity Line of Credit

A home equity line of credit (HELOC) is a revolving line of credit that works in a similar way to a credit card — you borrow what you need when you need it and only pay interest on the amount you borrow. Because a HELOC is secured by the equity you have in your home, however, it usually offers a higher credit limit and lower interest rate than a credit card.

HELOCs generally have a variable interest rate and an initial draw period, which can last as long as 10 years. During that time, you can make interest-only payments. After the draw period ends, the credit line closes and payments of principal and interest begin. Keep in mind that HELOC payments are in addition to your current mortgage (if you have one), since the HELOC doesn’t replace your mortgage.

Home Equity Loan

A home equity loan allows you to borrow a lump sum of money at a fixed interest rate you then repay by making fixed payments over a set term, often five to 30 years. Interest rates tend to be higher than for a cash-out refinance.

As with a HELOC, taking out a home equity loan means you will be making two monthly home loan payments: one for your original mortgage and one for your new equity loan. A cash-out refinance, on the other hand, replaces your existing mortgage with a new one, resetting your mortgage term in the process.

Personal Loan

A personal loan provides you with a lump sum of money, which you can use for virtually any purpose. The loans typically come with a fixed interest rate and involve making fixed payments over a set term, typically one to five years. Unlike home equity loans, HELOCs, and cash-out refinances, these loans are typically unsecured, meaning you don’t use your home or any other asset as collateral for the loan. Personal loans usually come with higher interest rates than loans that are secured by collateral.

Pros of Cash-Out Refinancing

•  A lower mortgage interest rate With a cash-out refinance, you might be able to swap out a higher original interest rate for a lower one.

•  Lower borrowing costs A cash-out refinance can be less expensive than other types of financing, such as personal loans or credit cards.

•  May build credit If you use a cash-out refinance to pay off high-interest credit card debt, it could reduce your credit utilization (how much of your available credit you are using), a significant factor in your credit score.

•  Potential tax deduction If you use the funds for qualified home improvements, you may be able to deduct the interest on the loan when you file your taxes.

Cons of Cash-Out Refinancing

•  Higher cost than a standard refinance Because a cash-out refinance leads to less equity in your home (which poses added risk to a lender), the interest rate, fees, and closing costs are often higher than they are with a regular refinance.

•  Mortgage insurance If you take out more than 80% of your home’s equity, you will likely need to purchase private mortgage insurance (PMI).

•  Longer debt repayment If you use a cash-out refinance to pay off high-interest debts, you may end up paying off those debts for a longer period of time, potentially decades. While this can lower your monthly payment, it can mean paying more in total interest than you would have originally.

•  Foreclosure risk If you borrow more than you can afford to pay back with a cash-out refinance, you risk losing your home to foreclosure.

Is a Cash-Out Refi Right for You?

If you need access to a lump sum of cash to make home improvements or for another expense, and have been thinking about refinancing your mortgage, a cash-out refinance might be a smart move. Due to the collateral involved in a cash-out refinance (your home), rates can be lower than for other types of financing. And, unlike a home equity loan or HELOC, you’ll have one, rather than two payments to make.

Just keep in mind that, as with any type of refinance, a cash-out refi means getting a new loan with different rates and terms than your current mortgage, as well as a new payment schedule.

The Takeaway

A cash-out refinance can be a useful way to obtain better mortgage terms and get extra money to fund important projects or emergency needs. Since it draws on the equity in your house, it can be a particularly good strategy to use when you want to make improvements in your home that will increase its value.

Turn your home equity into cash with a cash-out refi. Pay down high-interest debt, or increase your home’s value with a remodel. Get your rate in a matter of minutes, without affecting your credit score.*

FAQ

Are there limitations on what the cash in a cash-out refinance can be used for?

No, you can use the cash from a cash-out refinance for anything you like. Ideally, you’ll want to use it for a project that will ultimately improve your financial situation, such as improvements to your home.

How much can you cash out with a cash-out refinance?

Often lenders will allow you to borrow up to 80% of your home’s value, including both the existing loan balance and the amount you want to take out in the form of cash. However, exactly how much you can cash out will depend on your income and credit history. Also, you typically need to be able to maintain at least 20% percent equity in your home after the cash-out refinance.

Does a borrower’s credit score affect how much they can cash out?

Yes. Lenders will typically look at your credit score, as well as other factors, to determine how large a loan they will offer you for a cash-out refinance, and at what interest rate. Generally, you need a minimum score of 620 for a cash-out refinance.

Does a cash-out refi hurt your credit?

A cash-out refinance can affect your credit score in several ways, though most of them are minor.

For one, applying for the loan will trigger a hard pull, which can result in a slight, temporary drop in your credit score. Replacing your old mortgage with a new mortgage will also lower the average age of your credit accounts, which could potentially have a small, negative impact on your score.

However, if you use a cash-out refinance to pay off debt, you might see a boost to your credit score if your credit utilization ratio drops. Credit utilization, or how much you’re borrowing compared to what’s available to you, is a critical factor in your score.

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

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

SOHL-Q225-043

With more than 200 million users in at least 220 countries worldwide, Airbnb has the power to draw guests from all over and boost income for owners. The average Airbnb host earns more than $14,000 per year via the application, with guests paying an average of $84 per night for a single room and $136 per night for two rooms, or $149 per night for an entire home. If the rental is in a high-demand area, rates may be significantly higher.

Renting to travelers on Airbnb is an interesting way to make money, but how does it work for owners? Let’s take a look at Airbnbs, how they work, and what’s involved in running one. Stick around and you’ll be able to decide if being an Airbnb host suits your style.

What Is Airbnb?

Airbnb is a company that connects guests with hosts. Bookings, payments, and customer service issues can be handled through its platform.

Airbnb does not own any properties — it is simply a booking service. The real value of Airbnb is how ubiquitous it is. Guests looking for units with cooking facilities or unique stays will check Airbnb first. Potential hosts know Airbnb as an opportunity to make extra cash. Bringing these two groups of people together is the magic of Airbnb.

How Does Airbnb Work?

The concept behind Airbnb is pretty simple:

1.    A host lists a property on the platform.

2.    A guest finds the property and books through Airbnb.

3.    The host approves (or denies) the reservation.

4.    Payment is processed.

5.    The guest completes the stay.

6.    Hosts are paid about 24 hours after guests check-in.

How Airbnb works for owners is much like a hotel, where visitors change frequently. The average guest books a unit for four nights, though it is also common for hosts to see guests book longer stays. The short-term rental market is much different from the market a traditional landlord sees.

💡 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.

Who Books on Airbnb?

The guests who book on Airbnb come from the company’s 200 million users. The site is widely known and easy to use.

One of the things to know when renting out an Airbnb is that hosts have a lot of control over who is able to book their Airbnb. Hosts can specify guest requirements in the booking settings. These requirements can include positive reviews from previous stays on the guest’s profile, agreement to house rules, and ID upon check-in.

How Does Airbnb Work for Hosts?

So, exactly how does Airbnb work for homeowners?

Hosts own and manage the properties on Airbnb. The hosts determine the conditions of the rental, such as:

•   Check-in and check-out times

•   The rental rate

•   Cleaning fees

•   How guests access the unit

•   What areas and amenities are available for guest use

•   House rules

•   Cancellation policy

Recommended: Is Investing in Single-Family Homes a Good Idea?

Hosts sign up for Airbnb so that their property is listed on the website. Guests can browse these listings and choose what property they think will work best for them.

When hosts sign up to receive guests, they provide details on the type of property, whether it’s shared or private, how many guests can stay, how many bedrooms there are, how many beds there are, if the bathrooms are shared or private, and so on.

Hosts set the prices of their Airbnb stays, as well as discounts if they wish. The application may suggest offering a 20% new listing discount off your first three bookings. Some hosts offer a 10% weekly discount, a 20% monthly discount, or whatever feels right to them, but many choose competitive pricing over special discounts. Airbnb does not require hosts to offer discounts.

Good photos of the property are essential. Hosts will also add a title and description of the property. They can open the reservation up to anyone or narrow it to an experienced Airbnb user who has good reviews.

They can also select what amenities are available. Basics include TV and Wi-Fi, a kitchen, air conditioning, and free or paid parking. But some properties advertise an indoor fireplace or outdoor grill, a fire pit, pool table, or lake or beach access. A piano or outdoor shower or the ability to ski in/out of the property might draw guests looking for these specific features.

As you finish, you’ll set up your calendar, select a cancellation policy, set house rules, choose how guests can book, and prepare for your first guest. You’ll also select the safety features in the home, such as a smoke alarm, carbon monoxide detector, fire extinguisher, and first-aid kit.

Recommended: First-Time Homebuyer Programs

How Much Can You Earn With Airbnb?

While the average host earns more than $14,000 per year, a lot of hosts make much more, and some homeowners find income from Airbnb to be a viable way to make payments on their home mortgage loan. Several variables come into play when it comes to how you can earn with an Airbnb.

•   Location. Location matters when you’re hosting an Airbnb. If you’re near national parks or city centers, you may be able to charge more for your rental. If you’re in a suburban area that doesn’t receive many visitors, it may be a bit harder (but not impossible) to regularly rent out your unit.

•   Dates. If you’re renting out an Airbnb unit during peak season or a date near a concert or popular festival, you may be able to charge more than during a down season.

•   Number of beds and guests you can accommodate. Generally, the bigger your place, the more you can charge. Guests can justify spending more on a rental unit if they are able to split the cost with other guests.

•   Luxe digs. If your property is unique or incredibly luxurious, you may be able to rake in more money per night.

💡 Quick Tip: Apply for a cash-out refi for a home renovation, and you could rebuild the equity you’re taking out by improving your property. Plus, you may be able to deduct the additional interest payments on your taxes.

How Much Does It Cost to List on Airbnb?

It doesn’t cost you anything to list your property on Airbnb. The company only charges homeowners its fee once a property is booked by a guest.

How Much Does Airbnb Take From a Host?

Airbnb charges hosts 3% of the booking subtotal (the nightly charge plus the cleaning fee, which the host sets). But that’s not the only fee the company collects. When guests book, they generally pay a 14.2% service fee that goes directly to Airbnb. Fees could be as high as 16.5% if, for example, the guest pays in a different currency from the local one.

Airbnb says these fees help the process run smoothly by covering customer support, marketing to guests, protection for hosts, and educational resources for hosts.

What Kind of Property Can You Advertise on Airbnb?

There are all kinds of Airbnbs that can make homeowners some extra money, from renting out extra rooms to hosting guests in a private villa. Guests can stay in a house, apartment, or in an individual bedroom within a home, which may or may not have a private entrance. If you’ve invested in a duplex, renting out one-half of the property on Airbnb could be an option.

Some hosts rent an RV parked on their property, or a houseboat, treehouse, tent, or yurt. (And if you happen to own a castle, cave, Moroccan riad, or windmill, you’re welcome to rent that out as well.)

The only requirement Airbnb has is that the space is used specifically for lodging, and that if it is a boat or mobile home, it will be semi-permanently attached to a set location and parked in a privately owned space. Bear in mind that your municipality, homeowners association, or condominium rules may also govern what you can do with your property.

Recommended: What Is a Duplex?

How to Become an Airbnb Host

If you already have a property that can be converted to a short-term rental and a municipality that allows it, becoming an Airbnb host boils down to signing up for the service and adding pictures of your listing. You’ll start to earn money once bookings are complete.

If you don’t already have a property, you can work with a real estate agent to acquire one. You’ll want to look for a property in an area that is legal for short-term rental. You may want one that is in a high-demand area, commands a strong rental rate, has abundant support services (cleaning services, handyman services, etc.), and has the potential to rent out multiple rooms or beds.

The Takeaway

How does Airbnb work for homeowners? Property owners host guests who find their listing on the Airbnb platform. After check-in, hosts get paid, less a percentage of the nightly rental rate and cleaning fee. It’s a solid way to make extra cash if you’re willing to supervise bookings and cleaning. Some owners even purchase properties with Airbnb rentals in mind.

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

FAQ

How much does it cost to list on Airbnb?

There is no charge to list your property on Airbnb. Airbnb takes its fee — typically 3% — from the total booking fee a guest pays (usually a nightly charge plus a cleaning fee). Guests also pay a fee, usually 14.2% of the booking subtotal.

How much do homeowners make on Airbnb?

The average Airbnb host makes $14,000 per year, though the amount you make will vary based on your location, number of guests you can accommodate, and condition of the property.

How do I Airbnb my own house?

Any owner can create a listing on Airbnb for free. You’ll want to make sure your local government or homeowners association allows short-term rentals and you’ll need to set up your house with amenities and arrange for cleaning before and after each stay. Don’t forget to explore Airbnb’s insurance policy to make sure you’re comfortable with the coverage.

Do homeowners stay with you in Airbnb?

Some homeowners rent rooms within their own living space and might be present during a guest’s stay. Other homeowners rent their personal space but clear out during the guest’s visit. And some host guests in properties they own specifically for use as short-term rentals.

Photo credit: iStock/CreativaStudio

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

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

SOHL-Q225-019

If you’re wondering whether it’s cheaper to buy or build a home, the numbers say that purchasing a house is typically cheaper — but that may vary with location and the kind of house you want to live in.

However, if you crave the process of creating a home from scratch and want total personalization, you might prefer to build. And it might actually wind up being a better financial move than buying an existing house in your area.

Here, take a close look at this topic so you can decide which option suits you best.

Is It Cheaper to Build a House or Buy a House?

If you let the numbers tell the story, it may be cheaper to buy a house than build one yourself. Then again, it may cost you less to build the house you want, especially if that house won’t be too large or elaborate.

In 2024, the third-quarter average cost to build a house from the ground up, according to a NAHB (National Association of Home Builders) survey, ranged from about $138,000 to $524,000 — not including the land cost, which could add $3,000 to $150,000 to the price, dependent on location and property size. The typical cost to buy a home was approximately $360,000. That’s a lot of numbers that can make a straight comparison difficult.

Prices can of course vary. If you are building a simple new home (perhaps it’s a one-level layout) in an area with a low cost of living, new construction might be quite affordable vs. buying. Much will depend on the particulars of your

Cost of Buying a House

As mentioned, sales figures suggest that it can be often cheaper to buy an already built house than to build a brand-new one. But, when it comes to buying an existing home, the price paid to the seller may only reflect a portion of the actual cost of home ownership.

Even if an individual can afford the home listing price, there are often additional expenses — like closing costs and any renovation or repair fees. Here’s a closer look.

Identifying Existing Wear and Tear

For pre-built homes, age is one factor. The older a house, the more likely it is to need some upkeep and extra care.

Before buying an existing house, a home inspection conducted by a certified professional can help future homeowners to stay informed about the current state of the house. You’ll want to be prepared for any major repairs or structural improvements that are needed.

Typically, the buyer is responsible for paying for a home inspection, which can add several hundred dollars to the purchasing costs. However, that can be an important look at the home’s condition and can let you know about and negotiate upcoming expenses. For instance, if the hot-water heater is nearing the end of its lifespan, the house needs rewiring, or the foundation definitely needs work, you could then try to get the seller to address some of all of the associated costs.

Evaluating Home Improvement Costs

When you buy a home, you will likely want to make some changes. Perhaps you want to install a heat pump, swap out the kitchen appliances, add a half-bathroom, strip off wallpaper, or simply buy new furniture to make the place yours.

These kinds of changes will add to the listed purchase price. For that reason, it’s often worth evaluating the cost of future alterations when estimating the cost of buying a house — whether such changes are large or small.

Ongoing Repairs, Maintenance, and Warranties

Even if repairs are not required right away, it can be useful to review the age of an existing home, along with that of its parts. When you build a home, everything is likely to be brand new. When you buy a home, you could have systems and appliances that are decades old and in rough shape.

Although buyers may not want to replace the roof at the time of purchase, mulling over the average lifespan of major home features (like roofing) can be beneficial. Some questions:

•   When were the house features last updated?

•   How well have these features been maintained? (The term “deferred maintenance” may signal you have some work to do.)

•   What will need repairs first in the near future?

Here’s one extra maintenance detail to think over: Older homes may not be as energy-efficient as newly built houses, meaning that — without upgrades to existing systems — it could cost a buyer more each month to heat and cool the house. Such ongoing and future expenditures may, over time, offset any savings received early on from buying instead of building a new home.

Cost of Constructing a New House

So, compared to buying an existing house, how can a buyer evaluate how much the cost of building a new home might be? The average single-family home cost about $162 per square foot, after subtracting the land investment and the cost of a contractor’s overhead and profit, to build at the end of 2024. However, that figure is just a mathematical average. The individual cost can still vary greatly, depending on a home’s location, the builders chosen, property lot size, materials used, and other variables.

Calculating Construction Costs

The NAHB estimates that construction costs amount to almost 64.4% of the average single-family new home build (finished lot costs comprise about 13.7% of the sales price). Included in the construction costs are things like:

•   Building permit fees

•   Land preparation

•   Excavation and foundation work

•   Frame construction and sheathing

•   Roofing pricing

•   Plumbing, electricity, and HVAC

•   Windows and doors

•   Appliances

•   Flooring

•   Clean-up

Put another way, if a new house costs $300,000 total, $193,200 of that would go toward construction, including materials and labor.

Recommended: The Cost of Living in California

Interior Finishes

On top of those costs, individuals interested in building a new home may also want to ponder the cost of interior finishes. According to the NAHB, interior finishes (such as walls, stairs, and doors) amount to about 24.1% of new home building costs.

While the actual amount will depend largely on a home buyer’s specific choices, based on this average, $72,300 of a $300,000 home would go toward interior costs, such as painting, trim, doors, plumbing fixtures, appliances, and lighting.

Pros and Cons of Building a House

While on paper it can sometimes appear cheaper to buy a house than to build a new one, it may also be helpful to look deeper than just the listing price of a finished house for sale. Here, some of the pros to building your own home:

•   A brand-new house could require less maintenance and upkeep for years into the future. In many newly built homes, items such as appliances, roofing, and HVAC may be covered initially by manufacturer and construction warranties. In that case, were something to break (if under warranty), the out-of-pocket expense could be covered (and not up to the buyer to pay for).

•   A customized home may appeal on another level as well. Having a home that is designed exactly as you like can be incredibly satisfying. It can reflect your personal taste and address every need.

On the con side, consider these points:

•   When it comes to how long it will take to build a home, it’s likely a lot longer than buying one. In 2022, the most recent year’s data available, it took an average of 10.1 months to complete a contractor-built new home, according to the U.S. Census Bureau. Not all buyers may want to wait around that long to move in.

•   As previously mentioned, building a home can be more expensive than buying one that is already built.

•   You will need to wrangle permits (or have someone do it for you) when going through the steps of building your own home.

•   With a built-from-scratch home, buyers could also run a higher risk of ballooning construction costs or extended delays, which might result in extra interim costs too. While construction on the new home is being finished up, for instance, a buyer may need to pay for another place to stay.

•   Also, there’s stress involved when delays and extra expenses crop up. You need to have time available to interact with your building team, too, which can be an issue for some people.

Pros and Cons of Buying a House

Next, let’s consider the benefits and drawbacks of buying a house. On the plus side:

•   As described above, buying a house often costs less than building one.

•   If you buy a house vs. build one, you will likely be able to move in more quickly. In fact, you might even be able to move in right away, without any renovations.

•   When you buy a house, what you see is what you get. There won’t be any surprises as construction gets underway, and with luck, no areas that don’t wind up looking the way you’d imagined they would.

Now, for the downsides of buying vs. building a house:

•   It may not be exactly the house you want, and you may not be able to remodel it to become your dream house.

•   You may have to deal with the stress of bidding wars and other nuances of house hunting, especially in a hot housing market.

•   The home you buy may have maintenance issues and may not be as energy-efficient as a new home.

Recommended: First-Time Homebuyers Guide

The Takeaway

It is typically faster and less expensive to buy an existing home vs. building one. However, whether it is cheaper to build or buy a house can come down to individual situations and variables like desired locations and home amenities or design features. For different people, the main motivating factor may vary, and the choice of buying or building will reflect a very personal preference.

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

FAQ

Is it cheaper to build a home or buy?

It is typically cheaper to buy a home vs. building one. But right now, price surges in both construction and the market are challenging American homebuyers and home builders, and impeding housing and economic growth, according to NAHB data.

How can I save money to build a house?

If you want to save money to build a house, you can track and reduce your spending, grow your money in a high-yield savings account, pay down high-interest debt, and also try to earn more via a side hustle.

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

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People often use the terms “pending offer” and “contingent offer” interchangeably, but there is actually a difference when you are talking about real estate.

When a property is said to be contingent, that means the seller accepted an offer that is contingent on particular conditions requested by the buyer. These conditions could involve anything from an inspection to financing.

If, however, you see a house on the market switch to pending, there’s a different status involved. The seller has accepted an offer, and all contingencies have either been waived or addressed.

Yes, the distinction may be subtle. However, the bottom line is that neither status actually means a property is sold. If you have found your dream home and it says “contingent” or “pending,” there is still a chance you could snag it.

Contingent Offers vs. Pending Offers

Here’s a closer look at the difference between contingent and pending offers.

What is a Contingent Offer?

When a home’s status switches to contingent, it means contingencies stand in the way before the deal is done. If closing on a home is a race, then buyers still have miles ahead of them when they enter the contingency process.

There are many types of contingencies buyers can include in their offer that make it easier for them to back out of a real estate deal, but these are some of the most common:

•   Financing contingency. The buyers put some money or the promise of a mortgage behind their offer, right? This condition ensures that if the buyers aren’t approved for a mortgage, they’re not on the hook for finding cash to buy the property.

Some buyers choose to have a preapproval letter in hand to make the financing contingency move faster.

•   Inspection contingency. A home inspector is paid to search the property top to bottom to uncover any issues. With a home inspection report in hand, buyers can ask the sellers to solve the issues or give them a credit against the purchase price of the home.

With this contingency, buyers can also walk away from a deal based on the findings of the inspection. Alternatively, if both parties don’t come to an agreement on repairs or credits, they can terminate the deal.

•   Appraisal contingency. In order for a buyer to secure financing for a home, it must be professionally appraised for the value of the offer or more. If the home appraises for less than the offer, the buyer can either make up the difference in cash, negotiate with the seller for a lower offer, or walk away from the deal.

Recommended: What Is a Mortgage Contingency?

•   Home sale contingency. If buyers need to sell their existing home to help finance the purchase of a new home, they may include a home sale contingency in the offer. That means if an offer on their home falls through, they’re no longer on the hook to buy the home they made an offer on.

Contingencies are in place to protect buyers and sellers in the event of snags throughout the negotiation process.

Prospective buyers can include as many contingencies as they like in an offer, and if the sellers agree, the buyers will need to work through each one before they make it to closing.

For people salivating over a hot property that looks taken, contingencies may signal opportunities for a deal to fall through. If you have your heart set on a home that’s contingent, you can hold out hope. Thanks to contingencies, there’s a chance the existing offer will fall through.

💡 Quick Tip: Don’t overpay for your mortgage. Get a great rate by shopping around for a home loan.

What is a Pending Offer?

Just because a home is pending doesn’t mean the deal is done. A home often enters pending status once buyer contingencies are cleared, but it can also enter pending status immediately if a buyer makes an offer without contingencies.

A pending home sale may still fall through, but the buyer and seller have worked through most of the contingencies. For a pending sale to fall through, there likely has been an unexpected issue with the inspection or financing.

In fact, a pending home is still on the market. The listing agent and seller can choose to continue showing the home and even accept other offers while its status is pending. However, this is largely up to the sellers and their agents.

Recommended: First-Time Homebuyer Guide

Can Pending and Contingent Homes Take Other Offers?

If a home is contingent and the buyers are still working through the inspection, financing, or selling their current home, a competing buyer can make a backup offer on the property. If the initial offer falls through for any reason, the seller can take the other buyer up on their offer.

It’s up to the sellers whether they will accept a backup offer or not, but if the buyer loves the property, it can’t hurt to ask.

In many markets, a home with pending status means it’s not open to additional offers, but the deal isn’t sealed. It’s not over till it’s over, and the buyers could still back out based on their contingencies, as outlined above.

A home could be marked “pending, taking backups,” indicating that the seller is still showing the house and accepting backup offers.

When a home is pending or contingent, it’s not against the law for another buyer to ask for a tour, express interest in the home, or even make a competing offer. But compared with a home that is not under contract, a contingent or pending property is less likely to end up going to a competing buyer.

While you may make offers on these properties, don’t get your hopes up. Depending on how close the buyer and seller are to closing, it may not be legally possible for the seller to accept another offer.

Additionally, the closer a home gets to closing, the more complicated competing offers can be. This is when a seasoned real estate agent may come in handy. They will understand the market, process, and legalities better than most first-time buyers do as well as how to navigate a hot housing market.

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

The Takeaway

Contingent vs. pending: Though some use the words interchangeably, the two statuses are different. A contingent deal may have a long way to go, as buyers firm up financing, await an appraisal, or sell their current home. A pending property is nearer to closing, but the deal still isn’t final.

Buyers eyeing a dream property may hold out hope that contingent or pending deals fall through. In that case, having everything set up for a backup offer could pay off.

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

FAQ

For a home deal, how long does it take from pending to closed?

How long it takes for a house to move from pending status to sold depends in large part on what issues are still being resolved. Generally, it can take anywhere between a week to two months. For cash deals, it tends to be on the lower side of that range; for financed deals, more likely the middle to the high end.

Can you still make an offer on a home that is contingent?

You may be able to make an offer on a house that’s already in contingent status, meaning that the sale will go forward if certain conditions are met. The catch is that most likely, if those conditions are successfully met, the sale will go forward with the original buyer. Your offer will be most likely to succeed if the contingencies are not met and the sale falls through. Then you could potentially be next in line as a buyer.

Can a home seller accept another offer while pending?

Generally, no, if the home is pending, the seller has probably accepted the first offer and can’t accept two offers on their home simultaneously. However, they may be open to backup offers, especially if there are obstacles to the sale going through. If you are interested in buying a pending property, just realize that even if the seller is accepting backup offers, it’s a long shot.

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

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

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