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It’s no secret that the price tags of single-family homes — the ideal dwelling in terms of space, independence, and resale value — have spiked, and many current homeowners have been reluctant to let go, but a buyer whose heart is set on a single-family home may be able to follow a playbook to find their prize.

Buying a single-family home isn’t dramatically different from purchasing another type of property, but the process has a few variations.

Here are some guidelines.

What Is a Single-Family Home?

The definition would seem easy enough, but it does vary according to real estate experts and government sources.

The U.S. Census Bureau says single-family homes include fully detached and semi-detached homes, row houses, duplexes, quadruplexes, and townhouses. Each unit has a separate heating system and meter for public utilities, and has no units above or below.

According to other definitions of a single-family home, the building has no shared walls; it stands alone on its own parcel of land. In some places, the number of kitchens the home has informs the definition.

Unlike a multi-family property, a single-family home is meant for one person or household. Among the types of houses out there, including condos, co-ops, townhouses, and manufactured homes, the single-family home remains the holy grail for many Americans.

Recommended: How to Buy a Multifamily Property

Benefits of Purchasing a Single-Family Home

While condos and townhouses may come with shared amenities and lower maintenance, traditional detached single-family homes come with different perks. When people buy a single-family home, they’re looking for benefits specific to this property type.

Spacious, Quiet, and Intimate

A single-family home is typically larger than a condo or townhome. Moreover, since the property is often on its own lot without shared walls, a single-family home offers more space and more privacy inside and outside the home.

Possibly No HOA

A co-op association or a condo or townhouse homeowners association sets and enforces rules and collects fees to pay for shared amenities. Anyone who buys into an HOA community must live by the CC&Rs: the covenants, conditions, and restrictions. They can be lengthy, and the ongoing fees can constantly rise.

You may be able to buy a detached single-family home with no HOA and paint your mailbox, or house, pink or purple, unless you live in a city like Palm Coast, Florida, that allows only earth tones and light or pastel hues but no colors that are deemed “loud, clashing, or garish.”

Then again, HOAs are becoming more common for detached single-family homes in planned communities. In fact, about 65% of single-family homes built in 2020 were in an HOA, Census Bureau data shows.

Single-Family Home Appreciation

Generally, single-family homes are in higher demand than multi-family or other properties. Because of both the building and demand, when a person buys a single-family home, the value may faster.

Possibilities for Renovation and Expansion

When people buy single-family homes, they’re buying into the potential to expand or renovate extensively. If the lot is big enough, single-family homeowners could put an addition on the property.

Single-family homes can be an attractive buy simply because of the option to expand in the future, unlike properties with shared lots or walls.

How to Buy a Single-Family Home

Ready to buy a single-family home? Anyone from a first-time buyer to a seasoned investor may find appeal in a single-family home.

Recommended: First-Time Homebuyers Guide

1. Draw Up Your Financial Priorities

First, it’s important to look at finances. Your credit scores can have a significant impact on getting approved for a mortgage.

To get a clear read on credit, but not scores, buyers can request free credit reports from the three major credit bureaus.

Additionally, it can be helpful for a qualified first-time homebuyer — who can be anyone who has not owned a principal residence in three years, some single parents, and others — to look into specialty mortgages to see if they qualify for them.

An FHA loan may allow a down payment as low as 3.5%. A USDA loan requires nothing down, and a VA loan, usually nothing down. Some conventional lenders allow qualifying first-time buyers to put just 3% down.

It’s important to know, though, that all FHA loans require an upfront and annual mortgage insurance premium, regardless of the down payment size. VA loans require a one-time “funding fee.” And borrowers with conventional conforming loans who put down less than 20% will pay private mortgage insurance until their loan-to-value ratio drops to 80% and they request removal, or to 78%, when it falls off.

2. Decide on Your Preferred Type of Housing

No two houses are alike, just as no two homebuyers are. Everyone has different tastes and priorities about where they want to call home.

Before hitting every open house in town, consider deciding on must-haves for a single family detached home, including privacy, proximity to businesses, size, and style. This could help determine if a single-family home is the right fit.

3. Arrive at Your Price Point

Armed with an understanding of the type of house, it’s time to think about the price point. In addition to thinking about the down payment, buyers will want to calculate a monthly mortgage payment and total loan costs.

Figuring out a price point before looking at homes can take the emotion out of the process. That way, buyers have a budget in mind and a “do not exceed” amount before they fall for a home.

4. Search for a Good Real Estate Agent

Buying a single-family home can be fun, stressful, and fast-paced. Working with a trusted real estate agent can make the process a little easier.

To find a real estate agent, you might consider:

•   Reaching out to friends for referrals

•   Checking out local real estate association websites

•   Using an agent selling homes in the area you want to buy in

You might want to interview more than one agent, asking about their experience, availability, and philosophy. The choice of agent will likely come down to a combination of personality match and experience.

5. Find Your Neighborhood

Armed with an agent and budget, it’s time to dive deeper into neighborhoods. Once again, the choice of where to search will come down to the buyer; there’s no one “right” place to buy a single-family home.

As buyers explore neighborhoods, they might prioritize the following:

•   School district

•   Walkability

•   Proximity to workplace

•   Community resources

•   Budget

An experienced agent can help buyers distill their priorities and even point them in the right direction. Typically, buyers will have to balance the above elements, as it might not be possible to check all the boxes in a single neighborhood.

6. Tour Homes With Your Agent

Once buyers decide what neighborhoods they want to buy a single-family home in, it’s time to start touring properties.

When touring a single-family home with an agent, try to allot between half an hour to an hour. In the case of open houses, prospective buyers can walk in at any time, but private home tours require a buyer’s agent to gain access to the property.

When buying a single-family home, everyone will have their own checklist of what they want, which might include:

•   Listing price

•   Number of bedrooms and bathrooms

•   Storage space

•   Floorplan

•   Plot of land

•   Deck and porch

•   Garage and driveway

It could help to take photos or notes while touring a home to refer to them long after you’ve left the property.

7. Choose a House and Bid

Found a place and ready to make an offer? Time to get a home loan in order. Luckily, buyers will have a good idea of what they can offer on a property based on their finances with the upfront legwork.

Your agent can help with negotiating a house price.

How to make an offer? It pays to understand comps and the temperature of the market, and then:

•   Figure out the offer price

•   Determine fees

•   Budget for an earnest money deposit

•   Craft contingencies

With an offer drawn up, it’s time to submit it to the seller and wait for the next steps.

8. Review the Process and Get Ready to Move

Buying a single-family home isn’t a done deal once an offer is submitted. Typically there will be a back and forth, perhaps over offer price or contingencies.

Once everything is agreed on, and the inspection is resolved, it’s time to tally moving expenses and pack up.

9. Head to Closing and Move Into Your New Property

The final part of buying a single-family home is closing day. During closing, the buyer and seller meet with their agents to go over paperwork, and settle any outstanding costs, and formally turn over property ownership.

Next, it’s just moving everything in and settling in. Even after closing, homeownership may feel overwhelming, but there are plenty of resources to make it easier.

SoFi’s Home Financing Options

Ready to buy a single-family home? SoFi Mortgages can help make that dream a reality. With a variety of terms and competitive rates, home sweet home may be closer than you think.

Qualifying first-time homebuyers can put just 3% down, and others, 5%.

Kickstart your single-family home search by finding your rate.

FAQ

How much does it cost to buy a single-family home?

Zillow put the typical cost of a single-family home at $337,560 in March 2022. The National Association of Realtors® gave the median sales price of existing single-family homes as $382,000 for the same month.

New construction costs more. The average sales price of new houses sold in February 2022 was $511,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development.

Can you buy a single-family home with no money down?

If a buyer qualifies for a mortgage-backed by the Department of Veterans Affairs or Department of Agriculture, or one issued directly by those agencies, they may be able to purchase a home with no down payment.

What are the most important things to consider when buying a house?

Location (including property tax rate, quality of schools, walkability, crime rate, access to green space, and the general vibe), your ability to cover all the costs, duration of your stay, and square footage may be important.

How much should you have in savings to buy a single-family house?

Enough to cover a down payment, closing costs, and moving fees while ideally preserving an emergency fund.

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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.

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

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

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

Photo credit: iStock/jhorrocks
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Lusting for buying a house together, with a non-spouse? Buying a home with a significant other is a big investment and commitment, but it can more easily open the door to homeownership.

If you’re buying a house with a lover, or a friend, parent, or sibling, here are a few things to know.

What You Should Know When Buying a House Unmarried

Before sharing a mortgage and house, a few heart-to-hearts about your purchase partner’s financial health and yours are in order. Being frank about debts, income, and projected job security is important. It’s a good idea to explore what-ifs as well.

Here’s a list of suggested questions to answer before crafting a legally binding cohabitation agreement:

•   Is the down payment to be evenly divided?

•   Will mortgage payments, insurance, property taxes, any mortgage insurance and HOA dues, repairs, and utilities be split evenly? If not, how will they be divided up?

•   What will happen if one person is unable to save money enough to make mortgage payments for a while?

•   What will happen if one homeowner dies or unmarried couple decides to move?

•   If one person leaves and the mortgage is refinanced to remove one of the signers, who pays for the refinancing?

Most lenders underwrite each individual on the home loan. The weaker link will most likely determine the rate at which you can borrow money as a duo. Here’s why: When lenders pull credit scores from the three main credit reporting agencies, they usually focus on the middle score. Let’s say your middle score is 720, and your co-borrower’s is 650. Lenders will use the lower of the two for the application.

Fannie Mae is an exception. For a conventional conforming loan, a lender will average the middle credit scores of the borrowers.

Even a small change in interest rate can result in significantly more money paid over time. (See for yourself with this online mortgage calculator.)

Buying a Home Married vs Unmarried

Married couples often merge their finances and operate as a single unit. If spouses are pulling from the same pool of money, they don’t generally mind shortages from a partner when the mortgage payment is due.

Unmarried co-borrowers going in on a house together may need each party to pull its weight each and every month.

Then there’s this: What if a co-owner dies?

For the most part, a spouse has the legal right to inherit property from their partner whether or not the deceased spouse had a will. Domestic couples may have no automatic right to inheritance if a co-owner dies without a will in place (dying intestate).

Additionally, depending on the state and the way the married couple holds title, the surviving spouse will receive a partial or full step-up in basis upon the first title owner’s death, meaning the property’s cost basis will be reset to fair market value when one spouse dies. If the inheriting spouse decides to sell the property, the stepped-up basis will greatly minimize capital gains taxes owed or translate to none owed at all.

The step-up in basis is one way that some families harness generational wealth through homeownership. Unmarried co-owners should be clear about how they hold title and what that means in case one partner dies.

How to Handle the Title

Two or more unmarried people can take title to a house. The main two forms are:

Tenancy in common. This arrangement allows equal or unequal ownership; that is, one person may own 60% of the property and the other person, 40%. If one owner dies, their share of the property passes to their heirs. It does not pass automatically to the surviving co-owner.

Tenancy in common allows one owner to transfer their interest to another buyer or use their share as collateral for financial transactions. And creditors may place liens on that person’s share of the property.

Joint tenancy with right of survivorship. Each person owns 50% of the house. Upon the death of one of the tenants, the property passes automatically to the surviving owner.

If you want to sell your share, you don’t have to ask for permission to do so. Any financing involving the property must be approved by both parties. Creditors trying to collect a debt from one of the homeowners may petition the court to force a sale in order to collect.

A third option is sole ownership, when only one person is on the title. The person left off the title risks walking away with nothing if the relationship sours.

Preparing for the Mortgage Application

The mortgage process is mostly the same whether applying solo or with a co-borrower.

It begins by getting a feel for how much house both of you can afford. Getting pre-qualified and using a home affordability calculator are quick ways to estimate your maximum budget.

Are you aware of each other’s credit scores, incomes, and debt burdens?

Is each of your debt-to-income ratios around 36%, max? If so, good, because this is a team effort.

Have you agreed on the type of loan that fits your needs? If not, a mortgage broker or direct lender can guide you.

Do you want the standard 30-year mortgage term, or is it in the budget to seek a shorter term, which will mean higher monthly payments but less interest paid?

Combining forces can make homeownership possible, especially for first-time homebuyers and anyone in a hot market. That’s exciting.

How to Make the Property Purchase 50/50

When each co-owner has a 50% share of the property, the status is joint tenants with right of survivorship.

Your real estate agent or attorney will need to be careful about the wording in the deed. It should reflect the desire to create joint tenancy, not tenancy in common.

What Happens If You Part Ways?

It’s a good idea to go into the deal with a written buyout agreement, just in case.

But if a pact is not in place, here are steps you could take to acquire the co-borrower’s share:

1.    Hire an independent appraiser to determine the property value.

2.    Find the difference between the mortgage balance and appraised value. That’s the equity in the house. If you each have a 50% share in the house, divide equity by two.

3.    Negotiate the buyout price. If you can’t come up with cash, take any refinancing costs into consideration and …

4.    Apply for a cash-out refinance. You’ll need to qualify on your own.

5.    Have a real estate agent create a detailed purchase agreement. You are the buyer, and the co-owner is the seller.

6.    If your refinance is approved, you will sign a deed transferring the seller’s interest in the property to you. The cash-out refi loan will pay off the original loan and, with luck, will provide the cash to pay your former co-borrower.

7.    The former co-owner signs a certificate of title, deed of sale, loan payoff, and statement of closing costs to make you the sole owner.

If that route is not viable, you may need to get the co-borrower to agree to sell the house. If yours is an assumable mortgage, good. They’re in demand.

The Takeaway

Buying a house with someone you are not married to works similarly to purchasing a property when married. Hopeful co-owners will apply for a mortgage as individuals. In general, the more solid each is financially, the better the chances of a “yes” and a good rate.

SoFi welcomes co-borrowers. Look into the advantages of an online mortgage lender like SoFi, which include low down payments, low fixed rates, and refinancing.

Finding your rate takes just minutes.

FAQ

What happens if one of us is not on the mortgage?

If two people’s names are on the deed but just one is on the mortgage, both are owners of the home but only one is liable for repaying the mortgage loan.

What needs to change if I get married?

If co-borrowers marry, the deed will need to be updated.

To add a spouse’s name to the deed, you must file a quitclaim deed. You can transfer the ownership rights from yourself to yourself as well as other people. Once a couple marries, they may want to hold title with rights of survivorship if they do not already.

Can I add my partner’s name to the mortgage after buying the house?

No. You’ll need to refinance your mortgage.

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

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

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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Owning your own home is a quintessential part of the American Dream. It’s a haven, a space that is completely your own, offering stability and comfort for you and your family. If you have been dreaming about homeownership, you may be trying to determine if buying a home is a good investment.

People often buy homes when the timing is right in their lives; they’re mostly out of debt, they’ve saved for a down payment, they’ve built up their credit score, and they have a solid career. If you have the means, buying a home can be a great decision. For others, it may make sense to rent for a few more years to save and learn how to buy a house.

While houses are often seen as investments, they are different from stocks or mutual funds. Sure, you buy your home with the hope that the value increases over time, but it’s also an asset you use every day. And owning a home requires regular maintenance and unexpected costs.

If you’re wondering “Is buying a house a good investment?” you’ll have to do some personal reflection and take a look at your finances and future plans. There are a lot of factors to consider and only you can determine when you’re ready to buy. Here are six questions to consider when deciding if it’s time to buy a house.

When Buying a House is a Good Investment?

In order to determine if buying a home is not a good investment move for you, you’ll need to estimate the amount of time you plan to own the house.

If you don’t plan to own the house for at least three to five years, you may not break even when you sell the home. When you buy a home, you pay for more than just the house and those costs can add up.

You’re often paying for appraisals, mortgage application fees, inspections, movers, real estate agent fees, and that can add up to thousands of dollars. In order to offset all those fees, your home would generally have to appreciate by 15% to 20% prior to selling. It can be difficult to make those gains back in just three years. If you plan to live somewhere for less than five years, it could make the most financial sense just to rent property.

Do You Have Sufficient Savings to Buy a House?

In order to buy a home, you’ll generally have to take out a mortgage to finance your home purchase. Lenders will scrutinize your mortgage application, reviewing your credit report, employment history, and earnings to make sure you are able to make the monthly mortgage payments. Before you even get to that stage, you’ll have to save for a down payment and closing costs.

In addition to the initial cost of buying a home, there are continuing costs you’ll have to account for, such as home insurance, property taxes, general maintenance, and emergency home repairs. When you are renting, if the kitchen sink springs a leak, your landlord will take care of it.

But when you own a home, those repairs will be entirely your responsibility. Having an emergency fund saved up will help you deal with unexpected costs associated with homeownership.

One way to save for your down payment is to use a SoFi Invest account. At SoFi, you can begin investing with as little as $100 and you’ll gain access to a team of financial advisors who can work with you to establish your financial goals and create a plan to help you get there. If owning a home is your goal, investing with SoFi could help you get there.

Are You Confident in the Housing Market?

While the price of homes has continued to rise over the past 10 years, there has also been an increase in demand and a decrease in available housing . This can make it difficult for first-time homebuyers to find a suitable home that is in their price range. It’s important to be prepared as you start to look at homes. Understand your budget and make sure you have saved enough money to make a solid down payment on the property.

Are You Ready for the Responsibility?

When you own your own home, you have a lot of freedom to make the space completely your own. With all of this flexibility comes a lot of responsibility. If the house has a yard, you’ll be responsible for regular maintenance and upkeep.

Will you need to buy a lawn mower? If you live in an area with harsh winters, will you need to get a snow blower or hire someone to clear the driveway after each snow storm? If the roof starts to leak, you’ll have to fix it or hire someone to complete the repairs.

Make sure you are ready for the financial responsibility that comes with owning a home before you make the purchase. You’ll have to account for repairs, improvements, general upkeep, insurance, and taxes.

Are You Willing to Live with a Long-Term Loan?

Part of the process of learning how to buy a house is educating yourself on how mortgages work and the different types available. Generally, there are two types: fixed rate and adjustable-rate mortgages.

A fixed-rate mortgage keeps your payment level over time, typically 15 or 30 years, because the interest rate remains stable. The interest rate on a flexible-rate, mortgage loan fluctuates over time. They usually start out lower than a fixed-rate loan, but often rise in later years. To see what a mortgage could mean for you, take a look at SoFi’s mortgage calculator.

While it may seem daunting to take on a 30-year obligation, a mortgage helps you build equity in an asset that generally increases in value as time passes. Is a house a good investment? Historically, yes, if you think long term.

Over the years, homeowners build up equity in the house as they methodically pay off more and more principal with less monthly payments on each loan payment. Many smart borrowers pay extra each month toward the principal to pay off the mortgage sooner.

Ready to Buy? Consider a SoFi Mortgage

When you’re ready to take the next steps in your home-buying journey, consider taking out a SoFi mortgage loan. SoFi offers both adjustable-rate and fixed-rate mortgages, so you can choose the option that works best for you.

Applying for a loan with SoFi is easy—we offer pre-qualification online in under two minutes.

Ready to buy your new home? Learn how a SoFi mortgage can help you buy the house of your dreams.

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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.

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

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

Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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Multifamily property has the power to generate cash flow and build wealth. Yet it also has the power to drain you of your free time and become the biggest money pit of your life.

If you’re looking to buy a multifamily property and avoid common headaches, you have your research cut out for you.

What Is a Multifamily Property?

Multifamily property consists of multiple units in a single building. This includes duplexes, triplexes, fourplexes, condominium buildings, student housing, apartment complexes, age-restricted communities, low-income housing, and townhomes.

The units in a full multifamily housing property must have separate entrances, kitchens, bathrooms, and utility meters.

Multifamily property investing is more popular than ever. In fact, 2021 saw more than $890 billion in loans originated for commercial real estate — a 45% increase over 2020. Multifamily properties accounted for $376 billion of that.

There’s a reason that individual investors gravitate toward two- to four-unit properties, other than ease of management. Residential loans of 30 years with a fixed rate are available for properties with one to four dwelling units. FHA, VA, and USDA loans are available for those properties if they are owner-occupied.

For five or more units, a commercial loan is required. Commercial loans usually come with a higher down payment requirement, higher interest rate, and shorter-term, meaning significantly higher mortgage payments.

Why Buy a Multifamily Property?

Buying a multifamily home can jump-start your own real estate portfolio and investment portfolio. Here’s how.

Recommended: First-Time Homebuyers Guide

Income From Flipping

Multifamily homes can be improved and then resold for a profit: ”flipped.” Buying a multifamily property, remodeling, and then reselling can be even more profitable than flipping single-family homes because as you remodel, you can increase rents.

Once you increase rents, the property becomes more valuable, both in terms of monthly income, cash flow and overall worth.

The ‘BRRRR’ Method

BRRRR stands for buy, rehab, rent, refinance, repeat. An investor buys a property, renovates it, and rents out the newly refurbished units for more money. After that, they can refinance the property to take out extra cash to buy a new property to renovate.

This method works well with larger multifamily properties because the rehabbing of multiple units can be done while other units that are not being renovated can still bring in some income.

Cash Flow

Multifamily homes were designed for cash flow. Space and amenities are optimized to bring in money for the investor. On the other hand, single-family homes are designed for comfort. The added space of a single-family home may not bring as high of a return as a multifamily property.

Quick Portfolio Expansion

Buying multifamily properties allows investors to acquire multiple units with one transaction, so they may have a favorite in the single-family vs. multifamily comparison. Additionally, investing in multifamily properties can allow an investor to quickly generate income, which could be enough to acquire more properties.

Reduced Risk

A multifamily property lessens risk exposure. When you have single-family homes, vacancies have a bigger effect on your monthly cash flow. With one or more multifamily properties, the risk is spread across a number of properties. In other words, there are units still rented that can help cover the costs of the units that are vacant.

Analyzing the Investment Potential of a Multifamily Property

Investors can use a number of methods to determine if it makes sense to buy a multifamily property or not. Here are some of the most common calculations you can use to make that determination for yourself.

Cash Flow

In real estate investing, cash flow is money that’s generated by the property and money spent on the property. Positive cash flow means income exceeds expenses. You could also call it profit.

Investors have differing amounts that they consider acceptable. Some real estate investors bank on the appreciation of the property instead of the amount of cash flow.

The 1% Rule

The 1% rule states that the gross rents should be 1% or more of the purchase price. The 1% rule is hard to apply in high-income areas where the purchase price of a property is high relative to the rents it generates.

Gross Rent Multiplier

The gross rent multiplier (GRM) compares the gross annual rents to the fair market value of a property. It doesn’t take expenses into consideration and is meant to be a simple calculation to determine if a property is worth exploring further.

The lower the GRM, the more gross rent there is compared with the purchase price.

Cash on Cash Return

The cash on cash return is the annual amount earned compared with the amount of cash invested. It’s expressed as a formula: annual net cash flow divided by cash investment. This is helpful for investors who want to know how much cash is brought in by their cash investment each year.

Capitalization Rate

The capitalization rate, or cap rate, is the amount of net operating income divided by the purchase price. This number indicates how long it will take to get back all your money in an investment.

Recommended: What Is Cap Rate and How Do You Calculate It?

Internal Rate of Return

The IRR measures the rate of return over an amount of time. It takes into account both cash flow and expected appreciation.

Recommended: Mortgage Payment Calculator

How to Buy a Multifamily Property

You may be able to use 75% of documented rental income to help finance mortgage interest on your loan.
And again, multifamily homes with four or fewer units can be financed more traditionally, while five or more units require a commercial mortgage.

Getting pre-approved for a mortgage for your multifamily investment property is one of the best things you can do to get started. After a mortgage officer has examined your finances and greenlighted an amount, you can go shopping for your multifamily investment properties.

Find a Multifamily Home

To narrow your search for a new multifamily property here, you’ll want to decide what it is you’re looking for. Keep a few of these factors in mind:

•   Location: Do you have an area that you have expertise in? Are you going to manage the property yourself? These are some questions you’ll want to ask yourself to determine if you can buy a multifamily property near or far.

•   Price range: After you’ve looked at where you want to potentially invest, you’ll get a good sense of what properties will cost by looking at real estate listings. Keep in mind that you can count 75% of documented rents toward the purchase price for many loan types, so the price you’ll be looking at will be much different than if you were looking for a single-family home.

•   Type of property: Are you looking for a fourplex or an apartment complex? Duplex or 55+ community? There are a lot of choices to make between different property types and whether or not they’ll bring you a profit.

•   Profit potential: Are you looking to invest for appreciation or cash flow? Many properties with a lower price tag in the Midwest may be better for cash flow, while properties on the West Coast may appreciate more. Take a look at both and decide on your investment strategy.

•   Condition: Do you have the resources and team in place to take on a multifamily property that needs a lot of work? Or would you rather have something turnkey? You’ll want to be sure you know what resources you can commit to the project before you get in over your head.

Choose a Loan

The type of rental property used may determine what type of loan you’re able to get. If this is your first rental, you may want to consider living in one of the units so you can qualify for owner-occupied financing, which usually comes with lower rates and down payment requirements.

Choose a lender that can answer your questions about mortgages.

Make an Offer and Close

Working with an a real estate agent, you’ll submit a competitive offer for the property you’ve chosen. Some buyers use cash to make the most competitive offer, while others need financing.

Renovate and Get Ready for Your Tenants

No matter what class of property you buy, the rental units will almost always require some work. Whether it’s a simple clean or a major renovation, these things are both tax-deductible and will improve the value, not to mention rentability, of your property.

Create a Management Plan

To make sure you’re running a business, and it’s not running you, you need to have a solid plan in place for how the rentals will be managed. How are repairs going to be taken care of? What’s your process when a rental turns over? How are you going to keep up with laws and ordinances?

Having a plan helps. Even so, you’ll learn as you go and will need to adjust this plan.

The Takeaway

How to buy a multifamily property? Do your research and choose a property that you’ll have the ability to finance and manage. Investing in rental properties and multifamily investing is not easy, but it can generate cash flow and create family wealth.

If you need help buying a multifamily home, give SoFi Mortgages a look. SoFi offers financing for two- to four-unit properties, single-family homes, condos, and townhouses.

FAQ

Is buying a multifamily property a good investment?

Finding a multifamily property that is a good investment will depend on the investor’s analysis of the property. This can include the price, condition, gross rent multiplier, capitalization rate, and a number of other factors that will make renting the units successfully.

What are the different kinds of multifamily properties?

•   Duplexes, triplexes, fourplexes

•   Townhouses

•   Apartment buildings

•   Condominiums

•   Bungalow courts

•   Mixed-use buildings

•   Student housing

•   Age-restricted housing units

•   Low-income housing units

What is the best way to finance a multifamily home?

Some would argue that an FHA loan with 3.5% down is one of the best ways to finance a home with up to four units. The owner must live in one of the units to qualify for this type of 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.

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

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.

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.

Photo credit: iStock/Andrey Sayfutdinov
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Government-backed mortgages can be easier for potential homebuyers to qualify for as these loans are insured by the federal government, which brings down the risk for lenders. There are three main types of government-backed mortgages that can help consumers — and especially first-time homebuyers — reach their goal of homeownership.

Let’s take a closer look at these different types of government-backed mortgages and how these government-backed insured mortgages work.

What Is a Government-Backed Mortgage?

Essentially, a government-backed mortgage is a mortgage loan that a federal government agency insures. These types of mortgages are typically easier to qualify for than conventional home loans, as the lender takes on less risk due to the government insurance that forms the safety net underpinning the loan.

Of course, consumers can also apply for non-government-backed mortgages, so it’s important to do your research before applying for home loans to see which mortgages best suit your financial needs.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

How Do Government-Backed Mortgages Work?

Let’s take a closer look at how government-backed home loans work. To start, they are insured by one of three different federal agencies.

•   Federal Housing Administration (FHA loans)

•   U.S. Department of Agriculture (USDA loans)

•   U.S. Department of Veterans Affairs (VA loans)

The way this works is that if the borrower defaults on the loan, the government repays the lender instead. This greatly reduces the risk that the lender faces, which means they can in turn extend more favorable interest rates to borrowers who may not normally qualify for low interest rates. Many government-backed loans also don’t require a down payment.

Most of these loans are not issued by the government. Consumers still have to apply with private lenders and it’s a bit hit or miss which (if any) types of government-backed loans a private lender might offer.

A government-backed loan works differently than a conventional loan. To start, conventional loans don’t have any government backing and therefore have stricter eligibility requirements. Typically, government-backed loans also have different mortgage insurance requirements than conventional loans and may charge more upfront fees.

Borrowers who choose a government-backed loan also have to meet different eligibility requirements than borrowers who choose a conventional loan. For example, only members of the military or select family members can qualify for a VA loan.

Different Types of Government-Backed Mortgages

There are three different types of government-backed mortgages: FHA, VA, and USDA loans. Each type of mortgage is designed to meet the unique needs of different borrowers. Some consumers may qualify for all three loan types or they may meet the requirements and qualify for just one type of mortgage-backed loan. In some cases, a borrower may not qualify for any of these loans.

•   FHA loans This loan type is backed by the Federal Housing Administration and it tends to be much easier to qualify for than USDA and VA loans. FHA loans are popular with first-time homebuyers. Having a credit score of at least 580 is a must and a down payment of 3.5% is necessary. Those with a credit score in the 500 to 579 range can still qualify, but only if they make at least a 10% down payment. The main disadvantage of FHA loans is they require mortgage insurance initially. If the borrower makes a downpayment of 10% or more, after 11 years the lender can remove the mortgage insurance requirement, but many borrowers need to refinance to escape this insurance.

•   USDA loans Low- or moderate-income borrowers looking to buy a home in a rural area or select suburban areas may qualify for the USDA’s Rural Development Guaranteed Housing Loan Program. There are a few different types of USDA loans and which one a borrower can qualify for depends on their credit score and income. There are no down payment requirements with USDA loans, but there are mortgage insurance requirements. There is no way to remove mortgage insurance from the loan, however the insurance payments are typically lower than those for conventional or FHA loans.

•   VA loans VA loans are only available to active-duty service members, veterans, reservists, National Guard members, and certain surviving spouses. There are no credit score requirements for VA loans or down payment requirements, although some lenders may have their own credit score requirements. There are no mortgage insurance requirements for VA loans, but there are some extra closing costs that can equate to 1.4% to 3.6% of the loan amount.

Pros and Cons of Government-Backed Mortgages

There are some unique advantages and disadvantages associated with government-backed mortgages:

Pros

•   Can be easier to qualify for than conventional loans

•   Lower down payment requirements (or no down payment at all)

•   Lower credit score requirement (or no requirement at all)

•   Potentially lower interest rates

Cons

•   VA and USDA loans can be hard to qualify for

•   You may need to pay mortgage insurance for the life of the loan

•   Not all lenders offer government-backed mortgages

Examples of Government-Backed Mortgages

There are three types of government-backed mortgage. They are USDA loans, VA loans, and FHA loans. Here is how a USDA loan might work: Let’s say you are home-shopping in an area with a population under 20,000. If you have an average or only slightly above-average salary for the area and a credit score of 640 or higher, you might qualify for a USDA loan. (So, for example, if the median annual income in the area is $62,000, you could qualify with a salary of $71,300 or less.) If you borrowed $100,000, you would have a $1,000 mortgage insurance cost upfront, and you would pay about $29 per month for mortgage insurance after that.

If your military service history makes you eligible for a VA loan, you would likely need a credit score of at least 580 to go with a VA loan. You wouldn’t need a down payment or mortgage insurance, but you would pay an upfront funding fee of between 0.5% and 3.6% of the loan amount unless exempt. Your purchase would need to be a primary home, but unlike with the VA loan, there are no restrictions on where that home could be located or what your annual income might be.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Is a Government-Backed Mortgage Worth It?

Whether or not a government-backed mortgage is worth it depends entirely on the borrower’s other home loan options. It’s generally a good idea to shop around with different lenders for the best possible deal. Spend some time comparing potential interest rates, fees, and mortgage insurance requirements to see which loan will cost the most in the long run. First-time homebuyers often find government-backed mortgages especially attractive, in part because it can be difficult to come up with a down payment for a first home.

The Takeaway

Government-backed mortgages can be a great option for borrowers, especially those who don’t qualify for a conventional mortgage. While these government-backed mortgage loans can be hard to qualify for if the borrower doesn’t meet unique requirements (like being a military member or buying a home in a rural area), they can have more relaxed credit score and down payment requirements than those of conventional mortgages.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What are government-backed mortgages?

Government-backed mortgages are mortgage loans insured by a select federal government agency. There are USDA, FHA, and VA loans available to eligible borrowers. Because these loans are insured by the federal government, the private lenders who issue them take on much less risk and can work with borrowers who wouldn’t traditionally qualify for a home loan.

What are the benefits of a government-backed mortgage?

Often, government-backed mortgages are much easier to qualify for than conventional mortgages. They typically have lower credit scores and downpayment requirements. Because these loans are insured by the federal government, lenders can work with “riskier” borrowers to whom they may not normally offer a conventional home loan.

What are the three types of government-backed loans?

The three main types of government-backed loans are FHA, VA, and USDA loans. The Federal Housing Administration offers FHA loans, the U.S. Department of Agriculture backs USDA loans, and the Department of Veterans Affairs is responsible for VA loans.

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Photo credit: iStock/Prostock-Studio

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

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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