Condo vs Townhouse: 9 Major Differences

Condo vs Townhouse: 9 Major Differences

If you’re looking to buy a condo or townhome, understanding the distinctions may help you home in on the choice that better suits your lifestyle and needs.

Read on to learn the major differences between these two kinds of property among the range of different house types.

What Is a Condo?

A condominium is a private property within a larger property, whether that be a single building or a complex.

Residents share amenities like clubhouses, gyms, pools, parking, and the common grounds, and pay homeowners association (HOA) dues to support those shared assets.

If you buy a condo, you’ll own your interior space only.

What Is a Townhouse?

You know what a typical townhome looks like, but what is a townhouse exactly? It’s a single-family unit that shares one or more walls with another home, usually has two or more floors, and may have a small backyard or patio.

If you buy a townhouse, you’ll own the interior and exterior of the unit and the land on which it sits. Upkeep of the exterior could be split between you and the HOA.

Recommended: House or Condo: Which is Right For You?

Condo vs Townhouse: Differences

Both are part of a larger structure, and both usually share one or more walls, but some similarities end there. Here are the key differences.

1. Construction

In the condo vs. townhouse debate, construction differs. A townhouse will share at least one wall with a property next door. A condo could have another unit below and above it, in addition to neighbors on either side. That could mean sharing all surrounding walls and floors/ceilings.

2. Actual Ownership

If you’re considering townhouse vs. condo, what would you actually own?

With townhomes, the buyer owns the land and the structure. That could mean some creativity with decorating the lot or the home’s exterior.

With condos, the buyer owns the interior of the unit and an “interest” (along with all of the other owners) in the common elements of the condominium project.

3. Community

With both condos and townhouses, residents will get a feel for their neighbors. With shared walls and spaces, residents may have more social relationships with their community than they would with a single-family home.

It may be important for buyers to research the community when condo shopping. Is the condo social? Does it plan a lot of events, or do people generally keep to themselves? Since there are many shared spaces, understanding how the community functions could directly affect living there.

If a townhome isn’t part of an HOA, living in the complex could feel similar to living in a single-family home. In that case, it could be up to the buyer to create their sense of community.

4. Homeowners Associations

Condos come with an HOA, a resident-led board that collects ongoing fees that can range from $200 to several thousand dollars, and mandates any special assessments.

The HOA also enforces its covenants, conditions, and restrictions (CC&Rs).

Not all townhouse communities have an HOA, but if they do, townhouse owners usually pay lower monthly fees than condo owners because they pay for much of their own upkeep.

5. Obligations and Regulations

What’s the difference between a townhouse and a condo regarding rules and regulations?

Condo owners will be required to meet all HOA standards. That could dictate anything from what residents want to hang on their doors to whether they can have pets, how many, and whether Biff is a service animal or emotional support animal. (Or, if a state like Florida has a new law on that matter, abiding by it.)

If an owner wants to renovate their condo, they may have to get the work approved by the HOA.

If a townhome is part of an HOA, many of the above restrictions could apply. However, if it’s not an HOA community, townhouse owners have more freedom to decorate the exterior of their home or maintain their landscape as they see fit.

6. Insurance

Condos have their own form of property insurance. HO-6 provides coverage for the interior of a condo and the owner’s personal belongings. In addition, the entire building needs to be insured, which is paid for with HOA dues.

If a townhouse is part of an HOA community, each property requires HO-6 insurance and coverage for the community through HOA dues.

When a townhouse isn’t part of an HOA, buyers are typically required to have homeowners insurance.

7. Fees and Expenses

HOA fees for condos are usually higher than for townhouses because they cover exterior maintenance and shared amenities.

If townhouse owners are part of an HOA, they’ll usually pay lower monthly fees because they pay for much of their own upkeep.

Condo owners don’t have to worry about repairing the roof or replacing siding. Everything exterior-facing is managed collectively, paid for with HOA dues, but those fees may be high and on the rise.

8. Financing

It can be harder to obtain financing for a condo than for a townhouse.

Condos may be eligible for conventional mortgage loans and government-insured loans, part of mortgage basics. Lenders of conventional loans will review the financial health of an HOA, whether most of the units are owner-occupied, and ownership distribution.

The FHA and VA maintain respective lists of approved condos.

In the case of a townhouse, the financing process is similar to that of a traditional mortgage because a townhouse includes the land it’s built on. Its value is factored into the process.

9. Resale Value

A large factor in a condo holding value is the management, which isn’t always in the hands of the owner. Strong management can help a condo maintain or grow in value. Additionally, where the condo is located will influence resale value.

Condos generally hold value but don’t see the boost in resale expected with single-family homes. Similarly, buying a townhouse will not usher in the appreciation of most single-family homes. HOA or not, townhomes won’t always make sense for the buyer looking for an investment.

Condo vs Townhouse: Which May Be Right for You?

Condos and townhomes have their fair share of differences, as well as some similarities.

Overall, condos can offer a low-maintenance property where owners simply look after their condo interior. With condo ownership comes the added perk of shared amenities.

But condos come with monthly HOA fees, which must be factored into any purchase. Additionally, the community association and its management of the property will likely have a large impact on deciding to buy a unit or not. Condo buyers may be more community-minded, as they share space with their neighbors.

Townhouses offer more freedom and privacy than condos. Owners may have the option of personalizing their exterior and enjoying outdoor space if the property has a patio or backyard.

Townhomes generally require more responsibility and upkeep than a condo, even if there’s an HOA involved. Exterior maintenance will be required.

The Takeaway

Townhouse or condo? The perfect fit is up to the individual, but buyers may want to take a hard look at monthly fees, community rules, how social they intend to be, and precisely what they own and must maintain.

3 Home Loan Tips

  1. To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.
  2. Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for pre-approval within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
  3. 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.


Between condos and townhouses, which is cheaper to buy?

The cost of a condo and townhome will vary based on location and size, but condos are often less expensive than townhouses because they come with no land.

Do you own the land around a condo if you buy it?

No. The purchase of a condo only includes the interior.

Is the resale value higher for a condo or townhouse?

In general, condos and townhomes don’t appreciate as quickly as single-family homes. The value will vary based on area, upkeep, and other conditions.

Between condos and townhouses, which has better financing options?

Financing a townhome is like financing a single-family home. A buyer can choose from multiple types of mortgages.

Financing a condo, on the other hand, involves a lender review of the community or inclusion on a list of approved condominium communities. Because a private lender could see a condo as a riskier purchase, the interest rate could be higher unless a large down payment was made.

Photo credit: iStock/Inhabitant

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 Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See 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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Mortgage Servicing: Everything You Need to Know

Mortgage Servicing: Everything You Need to Know

“Where do I send my payment?” is one of the first questions on a homebuyer’s mind after closing on their mortgage. Your mortgage servicer hopes you know the answer, because your point of contact is no longer your loan officer.

A mortgage servicer is often different from your lender.

To navigate the finer points of mortgage loan servicing, here’s a handy guide to help.

What Is Mortgage Servicing?

A mortgage servicer is the company that manages your mortgage payments. A mortgage servicer is not the same thing as a mortgage lender; nor is the company the holder of your mortgage note.

Because of the way the mortgage market works, a servicer is needed to ensure that all the correct parties are paid on time and that any issues with the borrower or the loan are handled properly.

How Does Mortgage Servicing Work?

Mortgage servicing begins after you close on your loan. At this point, a servicer may take over from the lender to manage the day-to-day needs of the loan.

The mortgage note likely will have already been sold on the secondary mortgage market to a government-backed home mortgage company such as Fannie Mae or Freddie Mac. These companies then bundle similar mortgage types and sell them as investments.

From the borrower’s point of view, one company gave them a loan, one company holds their mortgage note, and yet another company is responsible for taking care of the administrative tasks of the loan (though some borrowers will have the same lender and servicer).

Most borrowers will only see who the company taking care of these tasks is. That’s the mortgage servicer, which collects your payments, responds to your inquiries, and ensures that the proper entities are paid, including the owner of your mortgage note and all parties that need to be paid from your escrow account.

Which Parties Are Involved in Mortgage Servicing?

Mortgage servicing has a few layers.


The servicer collects payments and sends money to the mortgage note holder and the entities paid from an escrow account for property tax, homeowners insurance, any mortgage insurance premiums, any HOA dues, etc.


The lender originated your loan. It may be the same entity that services your mortgage loan, but the lender also can transfer or sell the rights to service your mortgage. Even if your loan stays with the same company, the person who originated your loan won’t be who you contact when you need to make a payment.


Investors buy your mortgage when it is bundled with other mortgages of the same type from one of the government-backed home mortgage companies (such as Fannie Mae or Freddie Mac) and some financial institutions. Holders of mortgage-backed securities receive a portion of principal and interest payments.

It’s an important mechanism for growth in the housing market. As lending institutions sell mortgages to another entity, they are able to originate more new mortgages to more families.


Mortgage servicers have to follow federal mortgage servicing regulation rules. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are both involved with regulation of mortgage servicing. States can also be involved with the regulation of mortgage servicers.

The FTC enforces laws that protect borrowers from deceptive mortgage practices and takes actions against companies that use illegal practices against people facing foreclosure. The CFPB watches out for consumers by ensuring that mortgage servicing companies comply with federal consumer protection laws.

What Do Mortgage Servicing Companies Do?

Mortgage servicing companies have three main roles.

Collecting Payments

A mortgage servicing company is responsible for collecting payments from borrowers and passing that funding on to the mortgage note holder. When borrowers are unable to pay or are going through a hardship, it is the mortgage servicing company they are to contact. The servicer can advise homeowners on their options, including loan modification, a short sale, or a deed in lieu of foreclosure.

If a homeowner is unable to continue payments and foreclosure is unavoidable, the servicer initiates the process and maintains the property until it is sold.

Maintaining Escrow Accounts

Mortgage servicing companies are also responsible for maintaining escrow accounts.

They will take your mortgage payment, which is divided into principal and interest that goes to the holder of your mortgage note, and a payment into an escrow account for taxes, insurance, and any mortgage insurance and HOA dues. By maintaining the escrow account, the mortgage servicer can ensure that all the entities are paid on time.

Not all mortgages require an escrow account. Whether a new home loan will require one is among the mortgage questions to ask your lender.

Keeping in Touch With Borrowers

In the event a new servicer is secured, the transfer must be done in a timely manner that enables the new servicer to comply with applicable laws and duties to the consumer. Borrowers should receive a letter at least 15 days before the date of the transfer.

Do I Need to Know Who My Mortgage Servicer Is?

Yes. Your mortgage servicer is your primary point of contact for paying back your mortgage. It is essential that you know who your servicer is and where to send your mortgage payments.

It is possible for the rights of servicing your mortgage to be transferred to another company. In this case, the terms of your mortgage won’t change, just the company that administers your mortgage.

How to Find Out Who Your Mortgage Servicer Is

There are several ways to find out who your mortgage servicer is.

Billing Statement

At closing, you provided an address where the servicer should send statements. The name and contact information of your mortgage servicer will be included in the statements sent to you. This is how most new homeowners find their servicer’s information.

Payment Coupon Book

In addition to a mortgage statement you’ll receive every month, you’ll also be mailed a coupon book at the beginning of your mortgage servicing.

MERS Servicer Identification System

The MERS® Servicer ID is a free service where you can find the name of your servicer or mortgage note holder. You can call 888-679-6377 or input your information online .

To find your servicer with this system, you’ll need to provide one of these three things:

•   Property address

•   Borrower name and Social Security number

•   The unique mortgage identification number

The Takeaway

Before mortgage servicing is even a thought, you’ll need to find a mortgage. And that means finding the right lender.

As you shop around, take a look at SoFi’s home loans with flexible terms and competitive rates.

SoFi’s help center for mortgages covers everything from home-buying basics to calculators, refinancing questions, and first-time homebuyer tips.

By the way, SoFi allows qualifying first-time buyers to put just 3% down.


Why do I need a mortgage servicing company?

A mortgage servicing company ensures that your payments get to the right parties. Many mortgages are not held by the lending institutions that originated them; instead, they’re sold as investments on the secondary mortgage market.

If that’s the case, your mortgage payment will be sent to the institution that bought it, which is often Fannie Mae, Freddie Mac, or Ginnie Mae; the mortgage servicing company keeps a small percentage.

Money held in escrow by the mortgage servicing company, including taxes, homeowners insurance, and any mortgage insurance premiums, will be paid by the mortgage servicer.

Can my mortgage servicer change?

Yes. Your mortgage servicer may transfer the mortgage servicing rights for your loan to another company.

Your old servicer generally should send a notice at least 15 days before the transfer of the servicing rights, and your new servicer will send a notice within 15 days afterward, unless it was combined with the first notice.

Is my mortgage servicer different from the lender?

Often, yes. Your mortgage servicer can be the same company as the one that originated your loan, but it’s not unusual for another servicer to take over the management of payments.

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 Equal Housing Lender.

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

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

Photo credit: iStock/LaylaBird

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Selling a House With a Mortgage: Can You Do It?

Selling a House With a Mortgage: Can You Do It?

Can you sell a house with a mortgage? Sure. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.

Selling a house with a mortgage isn’t hard. Sure, there’s a bit of paperwork involved, but a professional lender and real estate agent can guide you through the mortgage selling process.

Here’s everything you need to know about selling a home with a mortgage.

What Happens to Your Mortgage When You Sell Your Home?

When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.

A Typical Sale

In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.

A Short Sale

A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).

In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction is lengthy (up to 120 days!) and involves a lot of paperwork. It’s not common in areas where values are rising.

When You Buy Another House

There are several roads you can take when you buy another house before selling your own. You may have the option of:

•   Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.

•   Including a home sale contingency in your real estate contract. The home sale contingency conditions the purchase of the new home upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.

•   Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.

Selling a House With a Mortgage: Step by Step

Here are the steps to take to sell a home that still has a mortgage.

Get a Payoff Quote

To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance showed on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.

The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.

Determine Your Home Equity

Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on existing mortgage is $250,000, your equity is $150,000.

When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.

Secure a Real Estate Agent

A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.

Set a Price

With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.

Accept a Bid and Open Escrow

After an open house and a slew of showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage pre-approval?

Did you connect with a particular family? You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.

Review Your Settlement Statement

You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.

Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction, and pinpoints how much money you’ll net by selling your home.

Selling a House With a Negative Equity

If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.

You don’t need to go through a short sale; you just pay the difference between the amount left on your mortgage note and the purchase offer at closing.

The Takeaway

Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your mortgage remainder, your closing costs, and any second mortgage. The rest is your profit.

If you’re thinking about buying or selling, browse topics from the SoFi mortgage help center and get answers to your mortgage questions.

And then, when you’re in the market for your next mortgage, on a primary home, second home, or investment property, see what SoFi offers. Competitive rates and flexible terms make a home loan from SoFi an attractive option.

Find your rate in a snap. There’s no obligation.


Who is responsible for the mortgage on the house during the sale?

The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.

What happens if you sell a house with a HELOC?

When you sell a home that has a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.

What happens to escrow money when you sell your house?

Your mortgage escrow account will be closed, and any money left will be refunded to you.

Can I make a profit on a house I still owe on?

Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.

Can I have two mortgages at once?

Yes, if your lender approves it.

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 Equal Housing Lender.

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

Photo credit: iStock/Beton studio

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Rolling Closing Costs Into Home Loans: Here's What You Should Know

Rolling Closing Costs Into Home Loans: Here’s What You Should Know

You may be spared the pain of paying closing costs upfront, depending on the type of loan and the lender’s criteria, but you’ll either be given a higher interest rate on the mortgage to cover those costs or see the costs added to your principal balance.

Heard of a no closing cost mortgage or refinance? Sounds divine, but mortgage closing costs are as certain as death and taxes. They must be accounted for, one way or the other.

If you’re thinking about what’s needed to buy a house, keep closing costs in mind.

What Are Closing Costs?

A flock of fees known as closing costs on a new home are part and parcel of a sale. They typically range from 2% to 5% of the home’s purchase price.

Closing costs include origination fees, recording fees, title insurance, possibly points, appraisal fee, property taxes, and homeowners insurance. Some of the costs are unavoidable; lender fees are negotiable.

Closing costs come into play when acquiring a mortgage and when refinancing an existing home loan.

You may cover closing costs with a cash payment at closing, with your down payment, or by tacking them on to your monthly loan payments. You may also be able to negotiate with the sellers to have them cover some or all of the closing costs.

Can Closing Costs Be Rolled Into a Loan?

If you’re buying a home and taking out a new mortgage, your lender may allow you to roll your closing costs into the loan, depending on:

•   the type of home loan

•   the loan-to-value ratio

•   your debt-to-income (DTI) ratio

Rolling closing costs into your new mortgage can raise the DTI and loan-to-value ratios above a lender’s acceptable level. If this is the case, you may not be able to roll your closing costs into your loan.

If your loan-to-value ratio is too high, you may be forced to pay private mortgage insurance. In that case, it may be worth it to pay your closing costs upfront if you can.

If you hear of someone who’s taken out a mortgage and says they rolled their closing costs into their loan, they may have actually acquired a lender credit — the lender agreed to pay the closing costs in exchange for a higher interest rate in a “no closing cost mortgage.”

A no closing cost refinance works similarly.

Not all closing costs can be financed. For example, you can’t roll in the cost of homeowners insurance or prepaid property tax. Some of the costs that may be included are the origination fees, title fees and title insurance, appraisal fees, discount points, and the credit report fee.

What about government-backed mortgages? Most FHA loan closing costs can be financed.

VA loans usually require a one-time VA “funding fee.” A borrower can roll the funding fee into the mortgage.

USDA loans will allow borrowers to roll closing costs into their loan if the home they are buying appraises for more than the sales price. Buyers can then use the extra loan amount to pay the closing costs.

Finally, for FHA and USDA loans, the seller may contribute up to 6% of the home value as a seller concession for closing costs.

How to Roll Closing Costs Into a Home Loan

When you’re refinancing an existing mortgage and you roll in closing costs, you add the cost to the balance of your new mortgage. This is also known as financing your closing costs. Instead of paying for them up front, you’ll be paying a small portion of the costs each month, plus interest.

Pros of Rolling Closing Costs Into Home Loans

If you don’t have the cash on hand to pay your closing costs, rolling them into your mortgage could be advantageous, especially if you’re a first-time homebuyer or short-term homeowner.

Even if you do have the cash, rolling closing costs into your loan allows you to keep that cash on hand to use for other purposes that may be more important to you at the time.

Cons of Rolling Closing Costs Into Home Loans

Rolling closing costs into a home loan can be expensive. By tacking on money to your loan principal, you’ll be increasing how much you spend each month on interest payments.

You’ll also increase your DTI, which may make it more difficult for you to secure other loans if you need them.

By adding closing costs to your loan, you are also increasing your loan to value, which means less equity and, often, private mortgage insurance.

Here are pros and cons of rolling closing costs into your loan at a glance:

Pros of Rolling In Costs

Cons of Rolling In Costs

Allows you to afford a home loan if you don’t have the cash on hand Increases interest paid over the life of the loan
Allows you to keep cash for other purposes Increases DTI, which can lower your ability to secure future credit
May allow you to buy a house sooner than you would otherwise be able to Increases loan to value, which may trigger private mortgage insurance
Reduces the amount of equity you have in your home

Is It Smart to Roll Closing Costs Into Home Loans?

Whether or not rolling closing costs into a home loan is the right choice for you will depend largely on your personal circumstances. If you don’t have the money to cover closing costs now, rolling them in may be a worthwhile option.

However, if you have the cash on hand, it may be better to pay the closing costs upfront. In most cases, paying closing costs upfront will result in paying less for the loan overall.

No matter which option you choose, you may want to do what you can to reduce closing costs, such as negotiating fees with lenders and trying to negotiate a concession with sellers in which they pay some or all of your costs. That said, a seller concession will be difficult to obtain if the housing market in your area is competitive.

The Takeaway

Closing costs are an inevitable part of taking out a home loan or refinancing one. Rolling closing costs into the loan may be an option.

If you’re in the market for a mortgage or a refinance, check out home loans with SoFi.

SoFi allows qualifying borrowers to roll closing costs into the mortgage. And SoFi’s fixed rates and terms are worth taking note of.

Get rolling and find your rate today.


What is a no closing cost mortgage?

The name of this kind of mortgage is a bit misleading. Closing costs are in play, but the lender agrees to cover them in exchange for a higher interest rate or adds them to the loan balance.

How much are home closing costs?

Closing costs are usually 2% to 5% of the purchase price of a home.

Can you waive closing costs on a home?

Some closing costs must be paid, no matter what. But you can try to negotiate origination and application fees with your lender. You may even be able to get your lender to waive certain fees entirely.

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 Equal Housing Lender.

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

Photo credit: iStock/kate_sept2004

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What Is a Mortgage Contingency? How Does It Work and Why Is It Important?

What Is a Mortgage Contingency? How It Works Explained

You found a gem of a home that many others are eyeballing. You make an offer and cough up earnest money to show that you mean business. You’ve been pre-approved for a mortgage, so financing seems a shoo-in — until you hit a snag. That’s when a mortgage contingency becomes important.

If you’re unable to obtain financing by the deadline, you can walk away from the purchase agreement and have your earnest money returned.

Some non-cash buyers consider waiving the mortgage contingency to make their offer more competitive in a hot market, but of course, that involves risk. Here’s the scoop on the financing contingency.

What Is a Mortgage Contingency?

A mortgage contingency allows homebuyers to exit the purchase contract without legal repercussions should they be unable to secure financing by the agreed-upon deadline.

Should something unexpected happen, like a job loss or the inability to sell an existing home, the buyers are able to back out of the contract and have their earnest money returned when a financing contingency is in place. An earnest money deposit isn’t small potatoes for those who are competing against multiple offers: Buyers might put up to 10% of the home’s sale price toward their good-faith deposit.

A mortgage contingency also protects both buyers and sellers from uncertainty in the real estate transaction. It’s one of several contingencies that buyers might include in the contract when the property listing status changes to contingent but not yet pending.

Recommended: What Is the Difference Between Pending and Contingent Offers?

The Mortgage Contingency Clause

The mortgage contingency clause gives the buyers a time frame to go shopping for a mortgage or move beyond pre-approval. Though the clause may vary from contract to contract, most will allow buyers to back out of the contract if they do not directly cause the financing to fail. The earnest money held in escrow is returned to the buyer.

Even when buyers have mortgage pre-approval, financing can fall through at the last minute. This is the legal “out” if that happens.

How Mortgage Contingency Works

Buyers find a home and write a contract for the purchase of the property with the help of a buyer’s agent or real estate attorney. Many include in their offer a mortgage contingency, which has a deadline. If the sellers agree to this contingency (and other conditions of the offer), they sign the contract. The mortgage contingency becomes legally binding at this point.

Next, buyers complete a full application with the lender of their choice. The lender will review the buyer’s finances in-depth, and mortgage underwriting will make a final decision on whether or not to approve the loan.

If the mortgage is denied, the buyers are able to exit the contract and have their earnest money returned when a mortgage contingency is included.

In the absence of a mortgage contingency, the sellers would be able to keep the buyers’ earnest money and put the property back on the market to find another buyer.

How Long Does a Contingency Contract Last?

When buyers submit an offer, they will suggest a deadline for mortgage financing alongside the mortgage contingency. Typically, the time frame to secure a loan is 30 to 60 days.

Mortgage Contingency Clause Elements

Some mortgage contingency clauses are simple and give the buyers absolute discretion in obtaining financing acceptable to them. In others, financing is more specifically described. This variance depends on your contract and state law. Elements can include a mortgage contingency deadline, type of mortgage, amount needed, closing fees, and interest rate.

Mortgage Contingency Deadline

The mortgage contingency deadline is how long the buyer has to find approval for a mortgage. The deadline is often suggested by the buyer in the contract when an offer is made on the property.

When the seller signs the offer, the contingencies become legally binding and must be followed in good faith. Should a buyer need an extension of the deadline, an addendum must be submitted to and agreed upon by the seller.

Type of Mortgage

There are many different types of mortgages a buyer can use to purchase property, so while one loan may not work for a buyer’s situation, another may.

Buyers may have the option of selecting a conventional or government-insured loan, a jumbo loan, a mortgage with a term of 30, 15, or other years, or an interest-only mortgage. A lender can help walk buyers through their options.

Amount Needed

A mortgage contingency clause can also designate the amount needed to secure the loan. A mortgage calculator tool can help buyers estimate how much a mortgage payment is going to be and the total amount a borrower can qualify for.

Closing Fees

The mortgage contingency can stipulate what closing fees and mortgage points are acceptable.

Maximum Interest Rate

An interest rate can be specified that the lender must provide before the mortgage contingency is satisfied. This makes it so the buyer can back out of the contract if the costs are too high.

Can You Waive a Mortgage Contingency?

Yes. Mortgage pre-approval can help make your offer more competitive, but you may still waive the mortgage contingency. In that case, your earnest money is at risk, and you’re not able to renegotiate the contract if the appraisal comes in low.

Keep in mind that FHA and VA loans do not allow buyers to waive the appraisal (which is an important part of the financing contingency).

Reasons to Waive a Mortgage Contingency

There are some scenarios where it doesn’t make sense to include a mortgage contingency in the contract. Situations such as:

•   When the buyer is able to pay cash for the property. Cash buyers do not have to include a mortgage contingency.

•   When seller financing is involved. If the transaction is made with owner financing, buyers do not need to include a mortgage contingency.

•   When competition is extremely high. It might be a good idea to look at this option as a last resort, but in a market where sellers only accept offers without contingencies, going in without a mortgage contingency could help win the contract.

Other Common Types of Contingency Clauses

The financing contingency isn’t the only common one in a contract. Some others are:

•   Inspection contingency. This is a contingency that allows the buyer to exit the contract should the property fail a home inspection.

•   Appraisal contingency. This contingency is connected to the financing contingency. Should the property fail to appraise for the amount needed to finance the loan, the buyer would have the option of renegotiating or dropping the contract.

•   Title contingency. A property needs to be free of title defects for the sale of the property to go through.

•   Sale of home contingency. This contingency allows buyers to sell their current home before completing the purchase of a new home.

Recommended: How to Read a Preliminary Title Report

The Takeaway

A mortgage contingency protects homebuyers’ ability to get their earnest money back if financing falls through, but waiving the mortgage contingency in a hot market could put some house hunters at the front of the line.

Are you shopping for a home loan in earnest? Consider SoFi Mortgage Loans for owner-occupied primary residences, second homes, and investment properties.

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Can you waive a mortgage contingency?

Yes. Even if you need to obtain financing, waiving the mortgage contingency is an option.

What does no mortgage contingency mean?

No mortgage contingency means that buyers are willing to take on the risk of losing their earnest money if they are unable to secure financing by the closing deadline.

Should you waive mortgage contingency?

Homebuyers willing to take the risk of losing their earnest money to the seller to better compete are best poised to waive the mortgage contingency. Buyers who are not willing to risk their earnest money should not waive the mortgage contingency.

How long does a mortgage contingency usually take?

A mortgage contingency is usually set between 30 and 60 days.

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