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How to Save for a House

Buying a house is a major rite of passage. While it’s fun to imagine what kind of home you’ll buy (A farmhouse? Mid-century modern?), how you’ll renovate it, and what it will be like to have your own space, buying a home also requires considerable planning and financial discipline.

After all, buying a home is often the largest financial transaction you will ever make, and it can be the biggest investment of your lifetime, too; a key source of growing your personal wealth. Here is the advice you need on:

•  How to prepare for buying a home

•  How to save money for a house, including the down payment

•  How to budget for owning a house.

What You Need to Know Before Saving for a House

Here are some important first steps toward homeownership.

Understand Your Finances

Many people have debt these days, whether student loans, a personal loan, credit card debt, a car loan, or a combination of some (or all) of these. A lot of debt could hinder your ability to save for a home and qualify for a home loan.

A number of factors come into play when you’re applying for a mortgage, including your debt-to-income ratio (DTI). Your DTI looks at how your debt relates to the money you have coming in; what percentage of your income must go to paying what you owe. Lenders use this number to assess your risk as a customer — whether you have too much debt to be able to afford your monthly mortgage payments.

Qualifying DTIs can vary depending upon elements such as credit, type of property, and others. Typically, lenders look for a DTI of 45% or, ideally, lower. They generally prefer that your DTI be closer to 36% or perhaps even lower. For this reason, as you focus on becoming a homeowner, you may want to try lowering or even eliminating your debt.

•   The snowball method involves listing all your debts, then putting extra money toward your lowest balance first while paying the minimum on the others. Once that debt is paid off, you can apply that entire payment to your next debt on top of the minimum, and then rinse and repeat.

•   The avalanche method is similar, however it focuses on the highest-interest balance first. By eliminating that high-interest debt at the start, the theory goes, you’ll pay less debt over time as the money starts to roll downhill into your other payments.

•  The snowflake method is a bit different in that the objective is to put any and all extra money (not already budgeted) toward debt as often as possible. Called micropayments, these can be anything from credit-card cash back to the money you pocket by eating at home instead of a restaurant. That holiday money from Grandma? Goes toward debt. Same with any work bonuses.

Debt consolidation loans or refinancing are two other ways that could potentially allow you to get out from under high interest payments. While they won’t eliminate your debt, with better terms, they could help reduce the number of monthly payments you’re responsible for.

Determine Your Budget

Understanding how much house you can afford is a vital step when you are contemplating buying a house. There are several factors to consider, including the home’s price, meaning how much of a down payment you can make and how much the home mortgage loan for the remaining amount will cost you. (There are other costs to consider, too; more on those below.)

You will likely find this information by doing some research online, trying out home mortgage calculators, and talking to friends and family who are homeowners.

Research Potential Mortgages

As mentioned above, understanding your potential down payment and monthly mortgage payments is an important step.

It’s also wise to acquaint yourself with the different kinds of mortgages. You may think it’s just a matter of snagging the lowest interest rate out there, but there’s more to the equation:

•  Options for low- and no-money-down loans. These are available via various programs, such as VA loans for those who are active members of the military or veterans.

•  Fixed- vs. variable-rate mortgages. One may be a better option than the other, depending on your financial needs and how long you plan to live in the home.

•  The different terms possible for mortgages are another factor. While many people may think of a mortgage as a 30-year commitment, there are also loans ranging from 10 to 40 years in length. Depending on your financial resources and cash flow, you may want something other than a 30-year mortgage.

Establish a Solid Budget

As you look for the best way to save for a house, it’s wise to have a solid budget to help you track your money and make sure it goes where you want. That might mean funneling money toward your down payment fund as well as toward paying off debt. There are different budgeting methods you might use.

One popular one is the 50/30/20 rule. In this budget, you allocate 50% of your after-tax dollars to needs, 30% to wants, and 20% to savings.

There are many tools that can help you with budgeting, including apps. You may find that your financial institution’s app includes ways to track your spending and automate your savings.

Automating your savings can be an excellent way to help save a down payment (you’ll learn more about this in a moment). This means that money is seamlessly transferred from your checking to your designated savings account. You don’t have to expend any effort; nor do you see that money bound for savings sitting in checking where you might spend it.

Save for a Down Payment

While there are (as mentioned above) a variety of ways to save for a down payment, consider the fact that it’s a myth that you must put 20% down on a house. The reality, though, is that the median down payment on a conventional loan was around 18% last year and 9% for first-time homebuyers, according to data from the National Association of Realtors®.

To come to your real-life goal for a down payment, you can start by calculating how much house you can afford.

One option you can look into for your mortgage loan is government programs that offer low or no-down-payment mortgage options:

•  Federal Housing Administration (FHA) loans are government-backed loans. For those that qualify, they may require only a 3.5% down payment with a credit score of 580 or higher. Loan limits apply by property location.

•  United States Department of Agriculture (USDA) loans offer up to 100% financing in rural areas for eligible properties and borrowers. (SoFi does not offer USDA loans, but we do offer FHA and VA loans.)

•  Veterans Administration (VA) loans , as noted above, are available for military service and eligible family members with up to 100% financing.

Even though 20% down isn’t a given these days, it might still be a good idea for a number of reasons if you can swing it. First, you avoid paying private mortgage insurance (PMI), which is used to insure the lender against loss on a loan with less than 20% down. Putting 20% down could potentially mean lower monthly payments, less interest overall, and a quicker path to home equity.

Then, you can find ways to save up for a house, which can range from setting up recurring transfers into a high-yield savings account to investing in the market (more on that below). You might also consider selling stuff you no longer need or want or starting a side hustle to bring in more cash.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


Consider Additional Costs

Saving money for a house involves more than you might think. It might start with a down payment, but it can also include several other important (and not insignificant) expenses. Consider the following:

Closing Costs

In addition to your down payment, you’ll likely need to come to the table with your portion of the closing costs.

These include fees that go along with the home buying and loan approval process, such as lender fees, payments to the home inspector, appraiser, and surveyor, escrow payments, and attorney and title fees. It’s a long list, and these closing costs are typically 2% to 5% of the loan amount.

Moving Costs

Moving costs aren’t insignificant: A basic local move may cost you $480 to $2,880, and a long-distance move can ring in at $2,363 to $6,885. It can be wise to get a couple of quotes from well-reviewed moving companies as you go into house-hunting mode so you can budget appropriately.

One easy way to cut down on moving costs is to DIY the entire process, from finding free moving boxes from friends, family, and grocery stores to loading and driving your stuff across town in a friend’s truck. It’s safe to say that even the most frugal moving strategy, however, will likely incur some costs.

Repairs and Decor

It may be difficult to estimate these costs before you have an accepted offer on a home, but it is good to keep in mind how much renovations, repairs, and decorating could cost.

If you’re moving to a larger space, will you need an extra bedroom set? Are you thinking the backyard is perfect for a fire pit, or even a pool? If you are considering a fixer-upper, repairs or upgrades could be tens of thousands of dollars or more.

One bit of good news here is that you may not have to fork over the cash in order to pay for renovations. The FHA offers 203(k) rehab loans to homebuyers. Eligible improvements include structural repairs, elimination of health or safety hazards, modernization, and adding or replacing roofing. You can also add loan fees and mortgage payments during renovation up to the maximum loan amount.

In addition, considering a fixer-upper could be a more affordable way into the housing market. The property might be available for less than market value due to needed work, and any sweat equity you put into the house could equal larger returns down the road.

That said, keep in mind that not all properties are eligible for financing due to structural or other issues and the costs of home repairs can add up quickly, so it’s essential to do your research in advance.

Additional Costs

In addition, you need to account for such other costs as:

•  Property taxes

•  Private mortgage insurance (PMI)

•  Any HOA fees

•  Home maintenance costs (lawn care, HVAC checkups, pest control, and the like)

•  Utilities (heating a house can be pricier than a small apartment).

Invest in Your Future

As you take steps forward to afford a home, you can choose to invest your money in ways that can help you either get to closing day sooner or save even more than you need.

One way to think of investing for a down payment is to compare it to a retirement plan, where a common approach is to save aggressively when you’re younger, then start to transfer your investments into more stable options as you get close to retirement.

Here are some ways you could apply this philosophy to saving for a down payment:

•   If your timeline is under 3 years, consider a conservative portfolio, or maybe a high-yield savings account.

•   If you are looking at 3 to 5 years, consider a conservative or moderately conservative portfolio that could grow your money faster than a cash-based account.

•   If your closing day is 5 to 10 years or more in the future, consider a moderate or moderately aggressive investment portfolio that could yield higher returns in the long run.

While creating a plan can be a smart first step, that doesn’t mean it will go off without a hitch, especially if it’s long-term. You or your partner might change jobs, unexpected medical expenses might pop up, the heating bill could go way up due to a cold winter — life happens.

That’s why it’s important to check in on your budget periodically, see how you’re doing, rebalance your portfolio if needed, and make adjustments to your plan if you’ve gotten off-track from your goal.

The Takeaway

Saving for a house is a big commitment and involves some focus. You’ll need to budget, consider your down payment and other upcoming costs, and also find ways to help your money grow quickly but safely.

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

How much money should you save before buying a house?

When buying a house, most people focus on the down payment. Currently, most buyers put down about 13%, but mortgages are available with as little as 3% or 0% down, depending on qualifications. In addition, it’s wise to budget for closing costs, home renovation, and furnishing costs, as well as having an emergency fund in place.

What is the fastest way to save money for a house?

There are a variety of ways to quickly save money for a house including tracking and reducing your spending, minimizing debt, automating your savings, considering opening a high-yield savings account or investing in the market (depending on your timeline), and bringing in more income via a side hustle.

How do you realistically save for a house?

To afford a home, it can be wise to pay off or lower your debt, minimize your spending, increase your savings, sell stuff you no longer want or need, and bring in extra income through additional work.


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



*SoFi 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.

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .


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

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Pros and Cons of Buying a Townhouse

A townhouse is a multi-story home that’s owned by individuals and is attached to at least one other similar unit. This type of hybrid dwelling combines features of a single-family home with a condominium — having some of the benefits and challenges of each. It’s also sometimes called a townhome or a row home or row house.

Key Points

•   Townhouses combine features of single-family homes and condos.

•   Townhouses are more affordable than detached homes but may cost more than condos.

•   Maintenance is reduced, and amenities may be included.

•   Owners control both interior and exterior spaces.

•   Lot sizes are smaller than those for freestanding houses, offering less privacy.

Differences Between Townhomes and Condos

Differences between a detached home and a townhouse may be clearer than differences between a townhouse and a condo. After all, a home is a freestanding structure while a townhouse, like a condo, is part of a group of homes.

So, how is a townhouse different from a condo? Well, for one thing, although townhouses would share walls with units that are right next to theirs, there wouldn’t be a dwelling above them or below, as could be the case with a condo.

Typically, people who own a condo are responsible for the interior of their units, while funds that they pay into their homeowners’ association (HOA) are used to maintain shared areas and the outside of the building.

Townhouse owners, though, are usually responsible for maintaining the inside and outside alike, which is more like owning a freestanding house.

Because townhouse owners are usually responsible for more maintenance than condo owners, their HOA fees are often smaller and they typically have more freedom on how to renovate their dwellings. Neither of these is universally true, though, so it’s important to check the specifics of the property of interest.

Potential townhouse owners may be asking themselves, “Is buying a townhouse a good investment? What are the pros and cons?”

Let’s take a look at the pros and cons of buying a townhouse, along with insights into getting a mortgage loan.

Pros of Buying a Townhouse

Having control over the inside and outside of a townhouse might make buying one more appealing than purchasing a condominium. Townhome owners might appreciate how they have more ability to make decisions about their property.
Additional benefits of buying a townhouse include:

More Affordable

A townhouse can be an affordable option in communities with higher home prices, providing a space-savvy housing choice in places where available land can be scarce. Although townhouses may be more expensive than a condominium in a community of choice, they tend to be less expensive than a detached home.

Less Maintenance

Townhouses may be appealing to busy people; there’s no big yard that needs time and attention and, if owners travel for work and/or pleasure, security services that may be covered by HOA fees can help to protect the dwelling without any extra steps needed — and the townhouse complex may even be gated for added security.

Amenities

There may be great shared spaces and amenities for families to enjoy. These can include gyms and pools, and people who own units each have an ownership interest in these common-area benefits — which means they have a legal right to use them.

You Own the Land

Buyers of a townhouse will actually own the land where the building sits. In contrast, the condo owner would only own their unit, not any of the land. This means that someone owning a townhouse is typically less restricted on how the land could be used, perhaps being able to install a patio, for example.

Pay Less in Property Taxes

Owners of a townhouse usually pay less in property taxes when compared to a stand-alone home. This is typically true because of the smaller lot size.

Townhomes could be ideal for first-time homebuyers who are looking for a more affordable option in densely populated areas. It can also be a good choice for people who aren’t interested in doing much home maintenance.

Recommended: Track the Value of Your Home and Real Estate

Cons of Buying a Townhouse

Townhomes may not be ideal for everyone. If you don’t want to share walls with another family, for example, a townhouse may be eliminated.

Other potential downsides of buying a townhouse include:

Limited Lot Size

The limited lot sizes that make it easy to minimize maintenance also means that townhouse owners don’t have the benefits that come with a larger yard, whether that means hosting larger picnics, setting up a swing set for the kids, or creatively landscaping the space.

Less Privacy

Townhouses are less private than single-family homes. While there are no units above or below, as there would be with a condominium, walls are shared and backyards are fairly small. This may be problematic if young children living in the townhouse want to run around and play.

Potentially Many Stairs

Townhouses are built upward to maximize limited land, meaning a townhouse could be three or four stories with only a couple of rooms on each floor. This means stairs. Perhaps lots of stairs. If someone in the home has physical challenges or has recently had surgery — or just needs to carry a giant load of laundry down to the washer/dryer — navigating a townhouse can be difficult.

Less Appreciation

In general, the value of a townhouse does not appreciate as quickly as that of a single-family home. Because of this, it may not make sense to buy a townhouse if the idea is to invest in real estate, rather than simply having a desired place to live.

After reviewing the pros and cons, is buying a townhouse a good idea? Here’s one more consideration: financing the unit.

Financing a Townhouse

Seeking a mortgage loan for a townhouse is similar to getting one for a single-family home. That’s because, unlike a condo purchaser, the buyer of a townhouse also owns the land beneath the dwelling.

When buying a townhouse, lenders will typically want to see a buyer’s monthly income and outstanding debt to determine their debt-to-income ratio and see how much house they can afford. The lender will also check your credit score.

If the townhouse has HOA fees, those would be included in the mortgage calculations. Just as with a single-family home, it can make sense to get preapproved for a dollar amount before townhouse shopping.

The Takeaway

A townhouse can be a good solution for busy people who don’t have time to do lots of upkeep on their property. It’s also a popular choice for first-time homebuyers because of its relative affordability as compared to a freestanding house. Do you play an instrument, need a big yard, or crave solitude? An attached house with limited outdoor space might not be for you. Whatever home you choose, though, you will likely need a mortgage — and getting a loan for a townhouse is similar to getting a mortgage for a freestanding house.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can you hear through the walls of a townhouse?

How much of your neighbors’ noise you can hear through the walls of a townhouse will depend on when and how the house was constructed. Older buildings may have thicker walls than newer homes. But either way, you get cozier with your neighbors when you share a wall. If you want total quiet, townhouse living probably isn’t for you.

Are townhouses hard to sell?

There’s no hard evidence that townhouses are hard to sell. In some communities, such as around large universities, townhouses move quickly as each wave of students and grads seek housing. And because townhouses are a good solution for first-time homebuyers, it’s generally true that as long as an area’s population has lots of new would-be homeowners, townhouses will move.

How is a townhouse different from a condo?

A townhouse will share at least one wall with a property next door. A condo could share walls but it may also have another unit below and above it. Both are fairly low-maintenance properties, but condo owners typically have to follow rules set by a homeowners association while townhouses aren’t always part of an HOA. But the biggest difference is in the ownership structure. Condo owners typically own their interior space. Townhome owners usually own the building and land beneath 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 SoFi.com/legal. Equal Housing Lender.


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



*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.

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.

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

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Home Equity: What It Is, How It Works, and What It Can Be Used For

Home Equity: What It Is, How It Works, and How to Use It

There are many reasons to pursue homeownership, from obtaining a yard for your dog to painting the bathroom whatever darn color you want. But one of the biggest financial reasons to own your own home is to start building home equity.

Home equity is considered one of the most common and accessible ways to build wealth over time, thanks in large part to the appreciation of real estate over time. You can even leverage your home equity to take out loans and fund your retirement. But what, exactly, is home equity, and how does it work?

Key Points

•   Home equity is the difference between a home’s current value and the outstanding mortgage balance.

•   Your equity grows as you pay down your mortgage and as your home’s value increases.

•   Renovations can boost property value and home equity.

•   Home equity can be accessed via loans or lines of credit.

•   Borrowing against home equity carries risks, such as potential foreclosure.

What Is Home Equity?

Home equity is the amount of your home value that you actually own. It’s calculated by subtracting your mortgage balance from the market value of your property. For example, if your home is worth $350,000, and you’ve paid enough toward your down payment and home loan that your mortgage balance is $250,000, you have $100,000 in home equity. (Keep in mind that the $350,000 value might not be what you initially purchase your home for — that figure may have increased over time, which is part of how equity is built!)

Once you have home equity, you can borrow against it. If you sell the home, your equity is the amount of cash you will walk away with (minus any costs associated with the sale).

In short, home equity is pretty great to have. But how is it built?

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


How to Build Home Equity

Home equity is primarily built in two ways: paying down your mortgage and seeing the value of your home appreciate over time. Both of these can be nudged a bit to help you build equity faster. Here’s how.

Making a Larger Down Payment

Many buyers, especially first-time homebuyers, take advantage of programs that allow small down payments — sometimes as little as 3% of the home purchase price. But when it comes to building equity, a higher down payment could help. The more you put down when you’re first purchasing your house, the more equity you have right out of the gate — and if you put down 20% or more, you’ll be able to avoid the additional cost of private mortgage insurance, commonly called PMI.

When calculating mortgages, you’ll also see that the higher the down payment you can afford, the lower your monthly mortgage bill. That said, substantial down payments can be prohibitive for many buyers, and it may make more sense to get in with a lower down payment and start building equity rather than waiting a long time to save up tens of thousands of dollars.

Paying Off Your Mortgage

If making a larger down payment isn’t possible, you might also be able to speed up your equity earnings — and save money on interest over time — by paying off a mortgage early. Of course, you’ll need to consult your mortgage documentation to ensure that your lender doesn’t charge a prepayment penalty, or if it does, that it would still be a cost-efficient decision to make. Only some lenders charge a prepayment penalty, and of those that do, typically only within the first few years (usually three to five).

Making Extra Mortgage Payments

If you can’t afford to pay off your mortgage early in its entirety all at once, you can chip away at the loan over time by making more than the minimum monthly payment. It’s a good idea to ensure that the additional funding is going directly toward your principal balance (the amount of money you borrowed in the first place). That way, you’re dialing down the amount of interest you’ll pay before it can even accrue.

Staying in Your Home for Five or More Years

Along with chipping away at the amount you owe, the other function that increases equity is allowing your home to appreciate. Although that rise in value isn’t guaranteed, if it’s going to happen, it takes time. Thus, staying in your home for a longer amount of time (at least five years) gives you a better chance at building enough equity for all the other costs of homeownership to be worth it.

Increasing Home Value Through Renovations

Allowing your home to naturally increase in value over time is one thing, but you can also take matters into your own hands and help drive up the value by renovating or remodeling. (Not sure about renovations vs. remodels? Essentially, remodels are more extensive — and expensive.)

While even lower-cost renovations, like painting, can increase the home value a little, major repairs may have major costs associated with them. Sometimes, though, the equity increase you’d gain makes it worth going to the expense in the short term. Home improvement loans can help make these efforts more accessible (but again, always look ahead to ensure that debt won’t eclipse the equity you’d stand to build).

That said, it’s important to think through the pros and cons of reverse mortgages, as borrowing against your home equity comes with risk. (For example, if the loan total ends up being more than the value of the home, heirs might lose the house, or need to refinance, if they can’t pay off the reverse mortgage in full.)

How to Use Home Equity

Once you’ve built up a significant amount of equity in your home, you may be able to use it as collateral to get a loan or line of credit. How much is significant? It varies by lender and situation, but typically at least 15% to 20%. But remember that while drawing on your equity can be tempting, you will have to pay back whatever money you take out as well as continue to make your original mortgage payments. That’s why it’s a good idea to consider tapping your home equity carefully in the context of your larger financial goals.

Buying a New Home

It may seem counterintuitive, but you can borrow against your home equity value to help purchase a new home. In fact, some people end up taking out home equity loans to purchase a second or investment home.

Borrowing Against Home Equity

There are several equity home loan types that can be used to liquify the cash wrapped up in your home and make it spendable. Just be aware that these loans come with costs and risks. For example, if the housing market suddenly shifts and your home’s value decreases substantially, you may find yourself in a hole. And if you can’t make the payments, you could even lose your home. Your home, after all, is the collateral for these loans.

Here are a few of the most common ways to borrow against your home equity:

•   A home equity loan offers a borrower a lump sum up front, based on their home equity. In return, they pay it back, typically through regular fixed payments throughout the term of the loan. There are generally closing costs.

•   A home equity line of credit (HELOC) works much like a credit card. A homeowner who takes out a HELOC has the opportunity to draw out cash as needed, up to a certain maximum limit. During the draw period (typically the first 10 years), they can often pay back only the interest on what they’ve withdrawn. After the draw period comes the repayment period, when they will have to pay back any principal, plus interest. Interest rates and payments are usually not fixed. Closing costs may be lower than those for a home equity loan and sometimes waived entirely if the borrower keeps the credit line open for a number of years.

•   With a cash-out refinance, a borrower takes out an entirely new mortgage while borrowing a portion of their existing home equity in cash. There are generally closing costs.

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

How to Calculate Your Home Equity

Phew! That’s a lot of information. To recap, here’s how to calculate your home equity:

Total home value – remaining mortgage balance = home equity

Keep in mind, again, that “home value” isn’t the same as “purchase price.” To know for sure what your home value is in the current market, you’d need an up-to-date appraisal, but you can use estimates from your favorite real estate site or agent.

The Takeaway

While nothing is a surefire ticket to wealth, building home equity is one of the most historically reliable ways to grow your net worth. And down the line, home equity can be leveraged for a variety of loans.

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 is a home equity loan?

A home equity loan provides the borrower with a lump sum of cash up front in return for fixed payments on a regular basis throughout the life of the loan. The borrower’s equity in the home serves as the collateral for the loan, so if the homeowner defaults, the lender may foreclose on the house.

How does a home equity loan work?

A home equity loan lets you use the equity you have in your home to secure a loan. You receive a lump sum. To pay it back, you make regular, fixed payments for the duration of the loan term. If you can’t or won’t make the payments, the lender may be able to foreclose on the house.

How does a home equity line of credit work?

A home equity line of credit (HELOC) lets you use the equity you have in your house to create a line of credit, much like a credit card. Once you’ve set it up, you can borrow (or “draw”) funds up to your HELOC’s maximum during the draw period. As you pay back what you’ve borrowed, the credit line replenishes and you can draw more again until the repayment period, when you are paying back principal and interest. Typically, HELOCs have adjustable interest rates, and your payments will depend on how much you choose to borrow.

Is it a good idea to take equity out of your house?

Whether or not taking equity out of your home is a good idea depends on your financial situation and motivations. Taking out a home equity loan for a month-long luxury cruise is not practical for most long-term financial goals. But taking out a home equity loan to pay for renovations or improvements to your home that will increase its value can potentially increase the worth of the equity you have in your home.

Do you pay back home equity?

When you take out a home equity loan, you start making payments, but technically you’re not paying back home equity, you are paying back the loan you took out. That said, you must pay back the loan or the lender may be able to claim your house.


Photo credit: iStock/PC Photography

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


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



*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.

²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.


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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Tips on How to Shop Around for a Mortgage Lender

Shopping for a car: fun, freeing, and full of fresh new smells. Shopping for a puppy: heartwarming and full of suspicious odors. Shopping for a mortgage: not particularly thrilling or fragrant but one of the most important decisions many consumers will make in a lifetime.

From assessing what they can afford to nailing down a mortgage type, researching the best rates, and ultimately securing a loan, homebuyers must take many steps when shopping for a home loan.

Here are a few tips and tricks on how to shop for a mortgage loan and what to expect along the way.

Key Points

•   To estimate the affordability of a home, review all the costs, including mortgage, taxes, insurance, utilities, maintenance, and emergency funds.

•   Consider fixed-rate loans for stable, consistent payments, or adjustable-rate for lower initial rates (though they may increase later).

•   Research and compare lender quotes to find the best deal. A mortgage calculator and a worksheet can be helpful.

•   Prequalification uses a soft credit pull, which does not affect your credit score; preapproval requires a hard pull, which does.

•   You can choose between working with a mortgage broker or directly with a potential lender to find a loan that fits your needs.

How to Shop for a Mortgage Lender

In order to obtain a home mortgage loan, a buyer first needs a lender. You might work directly with a financial institution, or you may find a mortgage through a mortgage broker (more on that later). Before you can research these options, you’ll need to have a sense of what you can afford to buy and borrow. Start by figuring out how much you might spend on a home and roughly what portion of that you will need to borrow.


💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


Figuring Out What’s Financially Possible

Reviewing monthly spending and estimating how much they can afford is one way for mortgage shoppers to kick off the home-buying process.

A budget or worksheet can be particularly helpful in determining what’s possible, with line items for the mortgage payment, property taxes, insurance, utilities, maintenance, and funds to set aside for emergencies.

A mortgage calculator is useful for estimating the real cost of a home purchase, allowing consumers to plug in and play with the factors that influence a monthly mortgage payment:

•   Loan type

•   Mortgage principal

•   Mortgage interest rate

•   Down payment amount

•   Loan term

•   Estimated property tax

•   Private mortgage insurance, or PMI

•   Homeowners insurance

•   Homeowners association (HOA) fees

Most mortgage calculators allow homebuyers to enter their credit score for a more accurate estimate. Checking your current credit score can help you determine what type of loan you qualify for.

In many cases, a higher credit score can help buyers get a lower interest rate, while a lower credit score could mean higher interest rates or the need for a larger down payment.

Knowing this information can help consumers estimate what range of quotes to expect from mortgage lenders or brokers before they start shopping for a mortgage loan.

Recommended: First-Time Homebuyer Guide

Determining the Best Type of Mortgage

Another step to take when shopping for a mortgage is deciding which type of mortgage loan to apply for.

This process could require some diligent comparison shopping to consider the pros and cons of each option alongside financial and personal needs.

Fixed-Rate Mortgage

A conventional fixed-rate mortgage offers the same interest rate and monthly payment for the entire term of the loan — typically 15 or 30 years.

Adjustable-Rate Mortgage

ARMs generally offer lower interest rates than fixed-rate mortgages, but only for a certain time, such as five or 10 years. After that, the monthly payments will adjust to current interest rates.

No Down Payment Loans

A no down payment loan allows buyers to purchase a house with zero money down at closing, except for the standard closing costs.

Federal Housing Administration Loan

An FHA loan is a government-backed loan that allows qualified buyers to put down as little as 3.5% if they meet several FHA loan requirements, including the payment of mortgage insurance.

Veterans Affairs Loan

A VA loan is a government-backed loan that allows no down payment and no mortgage insurance. It is available to eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. VA loan requirements are worth looking into for buyers who fall into one of these categories.

USDA Rural Development Loan

A USDA Rural Development loan is a government-backed loan for people in rural areas who are trying to become homeowners. As long as buyers’ debt loads don’t exceed their income by more than 41%, they may be able to enjoy a discounted mortgage interest rate and no down payment. (SoFI does not offer USDA loans, though it does offer FHA and VA loans.)

Researching Rates and Deals

Once mortgage shoppers have a better idea of their financial bandwidth and preferred mortgage type, they can begin researching the optimum rates and deals they can get on a home loan.

Mortgage lenders and brokers might offer different interest rates and fees to different consumers depending on the day, even when they have the same exact qualifications. That’s why it can be important not only to understand mortgage basics but to compare what an array of different types of mortgage lenders and brokers are able to quote in the loan estimate.

Bear in mind that mortgage lenders and brokers receive a profit from the loan issuance, so they might be motivated to get consumers to agree to loans with higher fees, interest rates, or origination points.

Shopping around for the best interest rates and deals is a proactive way for homebuyers to avoid more expensive loans and ensure they can strike a deal they’re comfortable with.

How to Shop for a Mortgage Without Hurting Your Credit

When a lender looks at your credit history and score—what is known as a “hard” inquiry—and generates a mortgage preapproval, your credit score typically takes a hit. As you shop for a mortgage, you’ll want to instead first ask for a prequalification, which requires only a “soft” credit pull and won’t negatively affect your rating. It’s important to understand mortgage prequalification vs preapproval as you move forward through the process, as there is a time for each step.

Mortgage Lender or Broker?

One decision to make when shopping for a mortgage lender is whether to work with a lender directly, or to go through a mortgage broker:

•   A direct lender is a financial institution that assesses whether a buyer qualifies for a loan and offers them the funds directly.

•   A mortgage broker is an intermediary between the buyer and financial institution who helps the buyer identify the best direct lender and compiles the information for the mortgage application.

  Long story short, mortgage brokers help homebuyers comparison shop by collecting multiple lender quotes and presenting them all at once. This can be helpful for buyers who don’t want to deal with contacting multiple lenders. That said, the broker typically takes a commission, covered by the buyer, based on the mortgage amount.

In the case of working with a direct lender, it can be a good idea for buyers to deal with a financial institution they already have a relationship with.

Questions to Ask When Considering a Lender or Broker

Sometimes a list of questions can be useful when considering whether a mortgage lender or broker is the right fit. Ask prospective lenders and brokers the following:

•   How is the broker getting paid? It’s fairly common for a mortgage broker to get paid a commission on closed transactions. Asking them whether the fee is embedded in the loan origination fee or how their compensation will be facilitated can help make these costs more transparent to the buyer.

•   Can the lender offer competitive interest rates? If so, how long can they lock them in? While mortgage rates tend to be standard across the industry, lender rates can fluctuate based on the buyer’s credit score and financial history. Once the rate is locked in, there’s a guarantee from the lender that they’ll stay the same for a specific period of time, regardless of industry-wide fluctuations. Finding out if the lender is willing to offer the best rate and lock it in for, say, 60 days can help buyers know that they’re covered until closing time.

•   What are the typical business hours? Whether you’re dealing with a broker or a lender, finding out their availability can be good to determine in advance, especially since many home showings and offers happen on weekends and could require a tight turnaround time.

•   Can they provide a breakdown based on different down payment amounts? It can be useful for buyers to see a wide range of cost comparisons when shopping for a loan. Can the lender provide multiple scenarios with different down payment amounts, interest rates, and fees so the buyer can have a knowledgeable conversation about their budget and what’s possible?

•   What’s the loan processing time? Asking about the anticipated turnaround time for processing the loan (usually around six weeks) can help determine whether the lender will be able to execute the purchase and sale agreement in time for closing.

•   What fees and closing costs can be expected? Inquiring about anticipated charges is an important way for buyers to ensure no surprises or hidden transaction fees down the line. From origination fees charged by the lender to cover the loan processing to closing costs such as home inspection and appraisal fees, HOA fees, or title service fees, a loan estimate can help lay out which charges can be negotiated and which ones are fixed.

Understanding Risks, Benefits of Loan Options

Depending on the loan type, Annual Percentage Rate (APR), whether the interest rate is adjustable or fixed, the down payment amount, and potential prepayment penalties or balloon payments, mortgages have many different benefits and risks.

Working with a lender to calculate how much monthly payments are estimated at the start of the loan, five years in, 10 years in, etc., can help make clear the risks and benefits of certain terms and conditions.

A mortgage worksheet is one way to help illuminate the potential upsides and downsides of a particular mortgage loan alongside the lender.

Negotiating the Best Mortgage Deals

After a suitable sampling of lenders have provided detailed mortgage loan quotes, consumers can compare costs and terms and negotiate the best deal. The mortgage worksheet can be helpful in this part of the process as well.

Being transparent about the fact that you’re shopping around for the best quote can incite lenders and brokers to compete with one another in offering the most favorable option.

Checking With Trusted Sources Before Signing

Once comparisons and negotiations whittle the list of quotes to a few, consumers might wish to consult with reliable sources such as a family member who has experience shopping for a mortgage, a housing counselor, or a real estate attorney to weigh in on the impending agreement. Review the loan documents with a trusted, well-informed source before signing anything.

Since getting a mortgage loan is often considered one of the most expensive commitments many consumers will make in their lifetime, there’s no harm in asking for a little help when making the decision.

Getting Mortgage Preapproval

Once you’ve chosen your mortgage provider, it’s time to consider getting preapproval. While being prequalified for a loan involves consumers submitting their financial information and receiving an estimate of what the lender could potentially offer, preapproval means the lender has conducted a full review of the consumer’s income and credit history and approved a specific loan amount for, typically, 60 to 90 days. This approval usually comes in the form of a letter.

Homebuyers can benefit from getting preapproved for a mortgage in many ways. Not only does it offer them the opportunity to discuss loan options in detail with the lender, but it also helps them understand the maximum amount they could borrow.

In some cases, sharing a preapproval letter with a home seller indicates serious intention to purchase a property. This can prove particularly helpful in competitive markets and bidding wars. Sellers will often go with a preapproved buyer over a prequalified buyer, since it may help the parties get to a closing more quickly.

Shopping for a Mortgage Lender Tips

In a competitive local housing market consumers may feel pressure to line up a mortgage quickly. But it pays to do your homework when shopping for a mortgage. Evaluate your own finances, know your credit score, and then make sure you are aware of the full range of options available to you. (Remember, first-time homebuyers may qualify for special programs.) Keep good records of competing offers from potential lenders or a mortgage broker. Never hesitate to ask about all costs or request clarification of any terms you don’t understand.

The Takeaway

How to shop for a mortgage? First, figure out how much you can comfortably afford and research loan types and interest rates, then compare what lenders offer. Finding the right loan is as important as choosing the right home.

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 to look for when shopping for mortgages?

You want to look for a good interest rate when shopping for a mortgage, but you also want to consider the term of the loan and fees that might affect its total cost. A loan with the lowest monthly payment initially may not always be the most affordable choice over the long haul.

Is it worth shopping around for mortgage rates?

A mortgage is one of the biggest financial decisions most consumers will make, so it’s definitely worthwhile to shop around for the best rates.

How to shop around for the best mortgage interest rate?

Shop for the best mortgage interest rate by checking with various lenders to see what rate you might qualify for based on your credit score and down payment amount. Or work with a mortgage broker who will do this research for a fee.


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


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



*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.

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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.

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8 Steps to Buying a Vacation Home

If you’re like many Americans, you dream of having a beach house, a desert escape, or a mountain hideaway. Perhaps you’re tired of staying at hotels and want the comforts of home at your fingertips. It might be time to consider investing in a vacation home. But where to begin? Let us be your guide.

Key Points

•   Choose a location and amenities that fit personal needs and preferences.

•   Determine financing options, including down payment and interest rates, to manage costs.

•   Calculate all expenses, such as maintenance, utilities, and travel, for a comprehensive budget.

•   Understand tax implications for both personal and rental use of the property.

•   Explore alternatives like shared ownership to defray costs.

How to Buy a Vacation Home

You’re ready to make this dream a reality. Before you do, consider these steps.

1. Choose a Home That Fits Your Needs

As you begin your search for a vacation home, carefully consider your goals and needs. Start with the location. Do you prefer an urban or rural area? Lots of property or a townhouse with just a small yard to care for?

Consider what amenities are important to be close to. Where is the nearest grocery store? Is a hospital accessible?

Think about your goals for the property. Is this a place that only you and your family will use? Do you plan to rent it out from time to time? Or maybe you plan to be there only a couple of weeks out of the year, using it as a rental property the rest of the time.

The answers to these questions will have a cascade effect on the other factors you’ll need to consider, from financing to taxes and other costs.

2. Figure Out Financing

Next, consider what kind of mortgage loan works best for you, if you’re not paying cash. Some borrowers engage a mortgage broker or direct lender to help with this process.

If you have a primary residence, you may be in the market for a second mortgage. The key question: Are you purchasing a second home or an investment property?

Second home. A second home is one that you, family members, or friends plan to live in for a certain period of time every year and not rent it out. Second-home loans have the same rates as primary residences. The down payment could be as low as 10%, though 20% is typical.

Investment property. If you plan on using your vacation home as investment property to generate rental income, expect a down payment of 25% or 30% and a higher interest rate for a non-owner-occupied property. If you need the rental income in order to qualify for the additional home purchase, you may need to identify a renter and have a lease. A lender still may only consider a percentage of the rental income toward your qualifying income.

Some people may choose to tap equity in their primary home to buy the vacation home. One popular option is a cash-out refinance, in which you borrow more than you owe on your primary home and take the extra money as cash.

To get a handle on how much house you may be able to afford, check out our home affordability calculator.

3. Consider Costs

While you determine the goals you’re hoping to accomplish by acquiring a vacation home, try to avoid home-buying mistakes.

A mortgage lender can delineate the down payment, monthly mortgage payment, and closing costs. But remember that there are other costs to consider, including maintenance of the home and landscape, utilities, furnishings, homeowners insurance, property taxes, and travel to and from the home.

If you’re planning on renting out the house, determine frequency and expected rental income. Be prepared to take a financial hit if you are unable to rent the property out as much as you planned.

4. Learn About Taxes

Taxes will be an ongoing consideration if you buy a vacation home.

A second home qualifies for mortgage interest deduction and property tax deductions as long as the home is for personal use. And if you rent out the home for 14 or fewer days during the year, you can pocket the rental income tax-free.

If you rent out the home for more than 14 days, you must report all rental income to the IRS. You also can deduct rental expenses.

The mortgage interest deduction is available on total mortgages up to $750,000. If you already have a mortgage equal to that amount on your primary residence, your second home will not qualify. Changes may be made in the tax code in 2025, so keep an eye on the news for updates.

The bottom line: Tax rules vary greatly, depending on personal or rental use. Consult a tax advisor for help understanding your specific circumstances.

5. Research Alternatives

There are a number of options to owning a vacation home. For example, you may consider buying a home with friends or family members, or purchasing a timeshare. But before you pursue an option, carefully weigh the pros and cons.

If you’re considering purchasing a home with other people, beware the potential challenges. Owning a home together requires a lot of compromise and cooperation. One thing you will want to understand if you are sharing a home is tenancy in common vs. joint tenancy. How you structure your rights to the property has long-term implications for ownership.

You also must decide what will happen if one party is having trouble paying the mortgage. Are the others willing to cover it?

In addition to second home and investment properties, you may be tempted by timeshares, vacation clubs, fractional ownership, and condo hotels. Be aware that it may be hard to resell these, and the property may not retain its value over time.

6. Make It Easy to Rent

If you do decide to invest in a rental home, you have to take other people’s concerns and desires into account. Be sure to consider the factors that will make it easy to rent. A home near tourist hot spots, amenities, and a beach or lake may be more desirable.

Consider, too, factors that will make the house less desirable. Is there planned construction nearby that will make it unpleasant to stay at the house?

How far the house is from your main residence takes on increased significance when you’re a rental property owner. Will you have to engage a property manager to maintain the house and address renters’ concerns? Doing so will increase your costs.

7. Pay Attention to Local Rules

Local laws or homeowners association rules may limit who you can rent to and when.

For example, a homeowners association might limit how often you can rent your vacation home, whether renters can have pets, where they can park, and how much noise they can make. And the local government may have restrictions on whether owners can list their home on home-sharing websites.

Be aware that these rules can be put in place after you’ve purchased your vacation home.

8. Tap Local Expertise

It’s a good idea to enlist the help of local real estate agents.

Vacation homes tend to exist in specialized markets, and these experts can help you navigate local taxes, transaction fees, zoning, and rental ordinances. They can also help you determine the best time to buy a house in the area you’re interested in.

Because they are familiar with the local market and comparable properties, they are also likely to be more comfortable with appraisals, especially in low-population areas where there may be fewer houses to compare.

The Takeaway

Buying a vacation home can be a ticket to relaxation or a rough trip. It’s imperative to know the rules governing a second home vs. a rental property, tax considerations, and more. One thing to sort out early on in the process is how you will finance your vacation house. With that to-do marked off your list, you’re one step closer to relaxing at the pool, in the forest, or by the lake.

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

Is financing a vacation home hard?

Getting together the financing for a vacation home may be somewhat more challenging for buyers who need a mortgage because lenders typically require a larger down payment on a vacation property than they do on a primary residence. Eligible borrowers might put down 3.5% for a down payment on a primary home. The minimum required for a second home is typically 10% and sometimes as much as 20%.

Is it a good idea to buy a vacation home?

Whether buying a vacation property is a good idea for you will ultimately depend on how much you use the home and how you benefit from it (psychologically and financially) vs. how much stress it adds to your life. One way to get a sense of how your life may be impacted is to rent for a while in your chosen location.


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


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



*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.

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.

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