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A mortgage servicer is a company that manages a home loan. They may send your statement and collect and process your payment every month, as well as provide customer support.

A mortgage servicer is often different from your lender, or the institution that approved your application and loaned you the funds to buy your property.

To help you understand 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 isn’t necessarily the same as a mortgage lender, nor is the company the holder of your mortgage note.

Because of the way the mortgage loan 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.

💡 Quick Tip: SoFi’s Lock and Look + feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

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.

On the borrower’s side, here’s how it works: One company gives 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 the company that’s taking care of these tasks. 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.

Recommended: What Is Mortgage Underwriting?

Which Parties Are Involved in Mortgage Servicing?

Mortgage servicing has a few layers.

Servicer

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 (homeowners association) dues, etc.

Lender

When it comes to mortgage servicer vs. mortgage lender, 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.

Investor

Investors buy your mortgage when it’s 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. They may include holders involved in 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.

Maintain Escrow Accounts

Mortgage servicing companies are also responsible for maintaining escrow accounts.

They will take your mortgage payment, which is usually 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.

Keep 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.

💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to 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.

Do I Need to Know Who My Mortgage Servicer Is?

Yes, it’s good to have this information. 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.

Recommended: 6 Simple Ways to Reduce Your Mortgage Payment

How to Find Out Who Your Mortgage Servicer Is

There are several ways to find out who your mortgage servicer is. Here’s where to look:

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 typically be mailed a coupon book at the beginning of your mortgage servicing.

MERS Servicer Identification System

The Mortgage Electronic Registration Systems (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 on the MERS site.

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

A mortgage servicer handles the day-to-day management of a mortgage, sending out statements and collecting payments, for instance. They’re an important part of making sure a home loan runs smoothly.

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

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

FAQ

Why do I need a mortgage servicing company?

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

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.

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.

Photo credit: iStock/LaylaBird

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

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

SOHL-Q126-234

If you’re like many Americans, your home is the single most valuable asset in your portfolio. That 6-figure investment doesn’t just keep a roof over your head — it can provide a source of wealth and stability for years, and potentially generations, to come.

But sometimes, you need access to that wealth now, preferably in the form of cold, hard cash. And while refinancing can be one way to access your home’s value, you may not want to change your interest rate or other mortgage terms. Fortunately, there are ways to take equity out of your house without refinancing, though many of them come with their own costs and risks. Below, we’ll dive into all the details so you can make an informed decision.

Can You Pull Equity Out of Your Home Without Refinancing?

The short answer: Yes, there are ways to get equity out of your home without refinancing (though cash-out refinancing is also an option). From home equity loans to HELOCs and reverse mortgages, there are a lot of ways to turn your home’s value into cash money, though they all come with their own pros and cons to consider.

Ways to Get Equity Out of Your Home Without Refinancing

Here are five ways to get equity out of your home without refinancing.

Home Equity Loan

A home equity loan is, as its name suggests, a loan that draws from the value of your home equity, which is the amount of your home’s value that you actually own (i.e., what you’ve paid back to your mortgage lender). You can take out a home equity loan without refinancing, and if you’ve been building equity for a while, doing so can be a relatively low-cost way to access a large lump sum of money in one fell swoop.

A home equity loan is sometimes known as a second mortgage, since it’s secured by the same asset as your original mortgage — your home. And just like your mortgage (and many other types of loans), a home equity loan is usually repaid in regular, fixed installments over a predetermined period of time, or term. This could be 10-20 years long.

Of course, home equity loans do come with drawbacks to consider. For one thing, your home will be at risk of foreclosure if you fail to repay the second mortgage, just as it is with the first. And although interest rates may be relatively low, closing costs apply, which can amount to thousands of dollars.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, works in a similar way to a home equity loan, but instead of receiving a lump sum payment, you get access to a flexible line of credit based on your home equity, which you can tap into as needed. You can think of it a little bit like a credit card, except your “credit limit” will be based on the equity you’ve built in your home.

HELOCs may be offered at a fixed or variable interest rate and usually consist of a draw period followed by a repayment period, so you’ll have a certain amount of time to draw from the HELOC and then a certain amount of time to pay it back. Most HELOCs allow borrowers to take out up to 80%-90% of their home’s value, minus whatever they owe on their mortgage loan — in other words, up to 90% of their home equity. Keep in mind that HELOCs may also be subject to origination fees and other upfront costs that can increase their overall expense.

Recommended: HELOC Repayment Calculator

Reverse Mortgage

A reverse mortgage is similar to a home equity line of credit. One type, a home equity conversion mortgage (HECM), is backed by the Federal Housing Administration (FHA) and is specifically for homeowners age 62 and over. Rather than making regular monthly repayments on the loan, the total isn’t due until you no longer live in the home.

Since interest and fees are added each month, the loan total goes up over time, while your home equity, in turn, goes down — and if you (and any co-borrowers) die, the reverse mortgage is due immediately. Thus, this option might not be the right choice for those hoping to leave their home to their surviving family members. If the idea of an HECM appeals to you, you can meet with an HECM counselor to learn more.

Home Equity Investment

Otherwise known as a home equity agreement (HEA), a home equity investment allows an investor to essentially buy some of your home’s future equity. This gives you access to cash up front without requiring you to pay back a loan over time, which many would call a win-win situation. Of course, in the long run, if your home appreciates substantially in value, you may end up paying a high rate of return to the investing company and having less of your home’s value to create long-standing wealth for you and your family. Furthermore, not everyone can qualify for this relatively new financial arrangement.

Personal Loan

You might already know about personal loans, which, yes, can be taken out even by nonhomeowners. But if you do own your home, you may be able to put down the deed as collateral, which could reduce the cost of the loan (since a secured loan is less risky to lenders) while also offering you the flexibility to use the borrowed money in just about any way you want.

Pros and Cons of Refinancing to Pull Out Home Equity

Of course, even with all the options described above, mortgage refinancing is still an option for those hoping to pull equity out of their homes. Here are some of the drawbacks and benefits of refinancing to pull out home equity, at a glance.

When Is It Worth Refinancing?

If your financial situation and market conditions have changed such that you’d likely qualify for a lower overall interest rate and better loan terms, refinancing a mortgage may be worthwhile, and if you need short-term cash, a cash-out refinance might be an option worth considering. That’s especially true if you plan to use the money for home improvements, in which case, you may qualify for additional tax deductions.

Recommended: How to Refinance a Home Mortgage

The Takeaway

While cash-out refinancing offers a readily available way for many homeowners to access their home’s equity value as cash, there are plenty of other options worth considering. A HELOC, secured personal loan, and even a reverse mortgage can all help homeowners put some extra money in their pockets, as long as they know the potential drawbacks of each method.

SoFi now offers flexible HELOC options to turn your home equity into cash. Access up to 85% of your home equity, or $350,000, to finance home improvements or consolidate debt. Competitive interest rates and repayment terms up to 20 years could result in lower monthly payments versus other loans. And the online application process is quick and convenient.

FAQ

Is it possible to withdraw home equity without refinancing?

There are many ways to take equity out of your home without refinancing. Some of the most popular options include home equity loans, home equity lines of credit (HELOCs), and reverse mortgages. However, it’s important to understand that each of these options comes with its own costs and associated risks.

What is the best way to take equity out of your home without refinancing?

There’s no one easy answer to this question, because the “best” way depends on your personal financial situation and how much cash you need access to. That said, home equity lines of credit (HELOCs) offer flexibility when it comes to the amount you withdraw, which could save you from paying back money you didn’t need to borrow in the first place. Personal loans secured with your home’s deed may also be a relatively inexpensive and flexible option.

Is taking equity out of your house a good idea?

Like any debt, taking equity out of your home could be a good decision or a bad one, depending on what you’re planning to use the funds for and how that action will shape your future finances. For instance, if you plan to use your home equity loan to make home improvements that could increase the property’s value substantially, doing so might be a smart investment. Meanwhile, taking out a reverse mortgage — which will decrease your home’s equity over time — to go on a lavish vacation might be less advisable.

Photo credit: iStock/boggy22

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.

SOHE-Q126-085

When your mortgage payment comes due every month, it may look like a single bill. But in reality, you’re likely paying four separate things: principal, interest, taxes, and insurance (PITI). PITI is an acronym that bundles these four elements together. But in order to better understand where exactly your monthly mortgage money is going, it’s important to look at each part separately.

Understanding PITI

As discussed above, PITI is the acronym for the four basic components of a monthly mortgage payment. PITI includes:

• •   Mortgage principal: the amount you borrowed from the bank
• •   Mortgage interest: the amount the bank charges you for the loan
• •   Property taxes: the amount levied by the local government
• •   Homeowners insurance: the amount that covers the cost of repairing or replacing your home under certain covered circumstances

Importance in Mortgage Payments

Together, these amounts add up to your total monthly mortgage payment — though that amount isn’t the same as your total monthly home expenses, which also include things such as utilities and maintenance. (More on that below.)

Breaking down your PITI and calculating each separate component helps you better understand where your money is going each month. During the home-buying process, it helps you narrow your home search to those that are actually in your budget. And later, knowing what PITI stands for and what numbers comprise the components of your PITI will help you if you need to request a mortgage interest deduction on your taxes.

Breaking Down PITI Components

You pay the principal and interest to your mortgage lender. These include both the money you borrowed and the money the bank is charging you for the service of offering the loan. Keep in mind that the amount of principal versus interest will change over the lifetime of the loan in a process known as amortization. To get a full picture of how that works, try out a mortgage calculator that includes an amortization chart.

Meanwhile, your property taxes and homeowners insurance will likely flow into an escrow account in order to pay those bills as they come due. Property taxes are almost always included in your mortgage payment, and if you owe money on your home, you’ll have to carry homeowners insurance. (Even if you don’t, buying a policy is a good idea. After all, if you’re like many Americans, your home is likely the single most valuable asset in your portfolio.)

Finally, there are also other components that may be part of your monthly mortgage payment, though not part of your PITI. These include extras such as PMI (private mortgage insurance) or HOA fees. Not every home purchase will come with these payments, but if you make a down payment of less than 20%, some sort of mortgage insurance is usually inevitable.

Recommended: Property Tax and Your Mortgage: Everything You Need to Know

How PITI Affects Home Affordability

PITI in real estate affects home affordability in a pretty straightforward way: Knowing your PITI ahead of time helps you ensure you’re making an offer on a house that’s truly within your budget. Knowing the cost of a home is one thing, but knowing how much the mortgage will actually take out of your account each month is another. One important rule of thumb: Most lenders prefer your PITI to be less than or equal to 28% of your gross (pretax) monthly income.

Fortunately, there are some things you can do to lower your interest rate, which lowers your overall PITI. By keeping your debt-to-income ratio (DTI) low and maintaining a good credit score, you can help ensure you get the lowest interest rates possible, which may expand your home-buying power by qualifying you for a lower rate, no matter the purchase price.

Calculating Your PITI

These days, the easiest way to calculate your PITI is by using an online mortgage calculator with taxes. You’ll need to estimate the home’s annual property taxes based on county records and add the insurance premium quoted to you into the mix.

Keep in mind, however, that PITI can (and likely will) change over time, as both tax rates and your insurance premiums change each year. Although a fixed-rate mortgage keeps your “PI” static, the “T” and “I” may change your overall monthly mortgage payment over the course of its term. To ensure long-term affordability, consider how increases in each of these categories may work with your budget.

PITI vs Non-PITI Expenses

As discussed above, PITI doesn’t cover the whole range of homeownership expenses. Along with additional extras such as HOA fees and mortgage insurance, owning a home also means paying monthly utilities, as well as any regular repair and maintenance costs.

Those costs can add up, especially if you’re not expecting them. One common rule of thumb is to set aside 1%-4% of your home’s value for repairs each year, with exact figures depending on where you live. (In other words, in some expensive states, such as Hawaii, California, and New York, repair costs may be even higher.)

Strategies to Manage and Reduce PITI

Keeping your PITI low keeps your housing expenses low, and while some parts of your mortgage may seem set in stone, others are more negotiable.

For example, did you know that you can challenge property tax assessments (that determine the amount of “T” in your PITI)? Once your home is valuated, if you disagree with the findings, you may reach out to your county or local government to challenge them. Doing so may lower your taxable property value. (Be warned, however, that if the current valuation doesn’t include recent renovations or, say, a new outbuilding, the taxable value could actually rise.)

Additionally, shopping around for insurance can go a long way toward lowering the second “I” in your PITI. Different insurance companies have different proprietary algorithms and different rates for similar coverage. Additionally, you can play with how much coverage you buy, but use caution before skimping on protecting your home.

Finally, if you already have a home mortgage loan but your creditworthiness profile has substantially improved (and market interest rates are lower than they were when you took out the loan in the first place), refinancing may serve to substantially lower the “P” and initial “I” in your PITI. Remember, though, that you’ll pay closing costs again, so factor in that expense before deciding whether this is the right financial move for your situation.

Recommended: What Is a Home Inspection

The Takeaway

The acronym PITI describes the four most basic elements of a monthly mortgage payment, but they’re far from the only costs associated with homeownership. Still, understanding PITI can help you find a home that’s within a reasonable purchase price range in the short term, and taking strategic steps to reduce your PITI can help you keep your costs low for years to come.

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

FAQ

How does PITI change over the life of the loan?

If you have a fixed-rate mortgage, your principal and interest payments will always amount to the same total, though the ratio of how much of those funds go toward interest versus principal will shift over the lifetime of the loan in a process known as amortization. Your property tax rate and insurance rate may change over time based on the valuation of your home, changes in the local tax code, and insurance premium changes (or a change in insurers). Thus, your monthly housing cost could shift or even increase over time, even if the loan is fixed-rate.

Can I pay property taxes and insurance separately from my mortgage?

In most cases, you’ll pay property taxes and homeowners insurance together with the mortgage, and the funds go into an escrow account where they pay their respective bills as they come due. However, it’s possible to secure an escrow waiver from your home lender, which would allow you to pay these expenses separately.

How does PITI affect my ability to qualify for a mortgage?

Lenders calculate your PITI before approving your mortgage application, and if your PITI is too high, you may not get approved. Generally speaking, lenders like to see your PITI equal to or less than 28% of your gross monthly income, though some lenders may approve you if your PITI is slightly higher.

What happens if I can’t afford the full PITI payment?

If your financial circumstances change and you can no longer afford to pay your mortgage, your first move should be to contact your lender. They may be able to negotiate or offer a mortgage assistance service. Talking to a U.S. Department of Housing and Urban Development foreclosure avoidance counselor could also help, but simply allowing your loan to fall into default could lead to home foreclosure.

Photo Credits: iStock/

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

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

SOHL-Q126-267

Buying a home can be exciting, exhausting, and, no matter how smoothly the process may go, one of the most stressful things you can do in life. Not having enough money to adequately finance a purchase makes it all the more daunting. Fortunately, there are first-time homebuyer programs available in every state, making it easier for many people to access the resources they need to buy their new home, and to feel more secure through the whole process.

Keep in mind that first-time homebuyers don’t actually have to be buying their first home. A first-time homebuyer is defined as anyone who hasn’t had an ownership interest in a primary home in the past three years.

The U.S. Department of Housing and Urban Development (HUD) also includes in its list of qualified homebuyers:

• •  A single parent who has only owned a home with a partner while married
• •  A displaced homemaker who has only owned a home with a spouse
• •  Someone who has owned a principal residence not permanently affixed to a permanent foundation
• •  Someone who has only owned a property that wasn’t in compliance with state, local, or model building codes

Here are the homebuyer programs that qualified first-time buyers have available to them in the Northeast.

Maine

Thinking of buying a home in the land of lobster and lighthouses? You’ll want to learn about the market and assess your financial situation before you start searching for a home mortgage loan. (A guide to the different types of mortgage loans can help.)

The scoop on the Maine market: Prices in the Pine Tree State were up 7.2% in March 2026 when compared to the prior year, with homes selling for a median of $390,300, according to Redfin. The three most competitive cities for homebuyers were Cumberland Center, Brunswick Station, and Westbrook.

💡 Learn about Maine first-time homebuyer programs

New Hampshire

The housing market in the Granite State is hot. From March 2025 to March 2026, home prices rose 0.1% to a median sale price of $500,100, according to Redfin. And 36.5% of the homes sold above their list prices. Still, there are good opportunities for first-time homebuyers in the state, and there are first-time homebuyer assistance programs to help you reach your homeowning goal.

💡 Learn about New Hampshire first-time homebuyer programs

Vermont

The Green Mountain State is paradise for outdoorsy types with forests, lakes, and mountains. However, the housing market has cooled down in the last year: The number of homes sold decreased by 4.9% between March 2025 and March 2026. Prices were up 9% as well, according to Redfin.

Homebuyers may need help to afford a home, with the median price here hitting $437,800. Fortunately, the state has several first-time homebuyer programs to offer.

💡 Learn about Vermont first-time homebuyer programs

Massachusetts

Glorious New England scenery, a rich history, and diverse cultural and educational opportunities are just some of the things Massachusetts has to offer residents. It’s no wonder that home prices here outpace the national average. Prices in Massachusetts were down 2.8% in the year ending March 2026, Redfin reports. The median sale price in the state is now $645,500.

At the same time, the median number of days a home stays on the market has increased by six days year over year, an indicator that the market is cooling. There are still plenty of opportunities for the first-time homebuyer in Massachusetts.

💡 Learn about Massachusetts first-time homebuyer programs

Rhode Island

This small state is big on charm: Rhode Island’s miles of coastline offer beautiful beaches and picturesque inlets, and you’ll also find dynamic cities and rural small towns here. There’s a lot for the first-time homebuyer in Rhode Island to get excited about. But prices here are well above the national median of $436,705. The median property value is $535,700, up 6.5% year over year, according to Redfin. Wondering what a down payment would look like on a given property price? Use a mortgage down payment calculator to do the math.

💡 Learn about Rhode Island first-time homebuyer programs

Connecticut

You’re looking at a competitive market in the Constitution State: In March 2026, home prices in Connecticut were up 5.4% year over year. The median price of a Nutmeg State home is $444,100, according to Redfin, and the number of days a property stays on the market is increasing. Fortunately you can still find affordable homes in Torrington and New Britain, among other affordable places in Connecticut.

💡 Learn about Connecticut first-time homebuyer programs

New York

The housing market in New York state can be challenging, especially for first-time buyers. Home prices in the Empire State in March 2026 were up 7.3% over the prior year, with a median sale price of $599,200. The number of days on the market rose as well. A stunning 34.3% of homes sold above their listing prices.

💡 Learn about New York first-time homebuyer programs

New Jersey

The Garden State saw record real estate sales in some areas in recent years as city dwellers fled to the suburbs. In the year ending March 2026, home prices in New Jersey were up 4% over the prior year, and the median sales price was $546,700. The median days on the market increased by six days year over year to 49. Buyers in New Jersey need to prepare themselves to compete in this market.

💡 Learn about New Jersey first-time homebuyer programs

Pennsylvania

Thinking of buying a home in Pennsylvania? Prices rose 6.1% from March 2025 to March 2026 to a median of $309,500, Redfin reported. It’s a seller’s market here, so you may have to compete to get the home you want, especially in cities such as Lower Allen (home prices were up more than 39.6% in a year) and Strasburg (up 51.5%). Harrisburg, York, and Scranton ranked as some of the best affordable places to live in Pennsylvania.

💡 Learn about Pennsylvania first-time homebuyer programs

The Takeaway

Qualifying first-time homebuyers have many options available to them in the Northeast, including down payment assistance. If you’re looking to buy your first home and aren’t sure how to get started, researching homebuyer programs is a great place to start. Once you know what kind of assistance you may qualify for, it’s a good idea to estimate just how much house you can really afford using a home affordability calculator.

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

FAQ

Who qualifies as a first-time homebuyer?

A first-time homebuyer is not necessarily someone purchasing their very first home. In many cases, it includes anyone who hasn’t owned a primary residence in the past three years. Certain groups, such as single parents or displaced homemakers, may also qualify under specific criteria.

What types of assistance do first-time homebuyer programs offer?

These programs often provide help with down payments, closing costs, and access to lower-interest mortgage loans. The goal is to make homeownership more affordable and accessible.

Are first-time homebuyer programs available in every state?

Yes,each state may offer its own set of programs with different eligibility requirements and benefits. It’s important to research what’s available in your specific location.

Why is it important to understand local housing market conditions?

Housing markets can vary significantly by state and even by city. Factors such as home prices, competition, and inventory levels can affect your buying strategy. Understanding these conditions can help you make more informed decisions and set realistic expectations.

How do I estimate what I can afford to buy?

Before starting your home search, it’s important to evaluate your financial situation, including income, savings, and debt. Using tools such as a home affordability calculator can provide a clearer picture of your budget. This can help ensure you choose a home that fits your long-term financial goals.

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

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

SOHL-Q126-236

Whether you’re buying a home or an investment property, it’s important to understand property ownership rights in real estate. Each type of real property has a classification of ownership that determines what can be done with that asset. A freehold estate refers to real property where the owner has full ownership rights, allowing the property to be passed down indefinitely.

This guide will take a closer look at the definition of freehold estates and the implications for property owners.

Definition of Freehold Estate

What is a freehold estate? A freehold estate is an estate in land that has an undefined duration of ownership, while a nonfreehold estate involves leased property rights with a specific termination date.

In other words, an owner of a freehold estate has exclusive and indefinite rights to the property. This means that it can be passed on to heirs or beneficiaries for any amount of time. The specifics depend on the type of freehold estate, which this guide will elaborate on below.

Types of Freehold Estates

There are three main types of freehold estates: fee simple absolute, fee simple defeasible, and life estate. Conditions for ownership and how the property may be used vary between each type.

• •   Fee simple absolute: This is the most common type of freehold estate. It gives property owners complete rights to a property’s title in perpetuity and to use the land without restriction, as long as you pay property taxes and avoid violating any active easements and local land use regulations.
• •   Fee simple defeasible: This type of freehold estate operates similarly to fee simple absolute but with more restrictions. For example, fee simple defeasible could require that a farm remain as agricultural land. If a buyer violates these conditions, even after closing, the property could legally revert to the seller or a specified heir or third party. Keep these conditions in mind if making an offer on a home with a fee simple defeasible situation.
• •   Life estate: This type of estate is a form of joint ownership that allows a grantee to receive the title to a property upon the grantor’s death, rather than going through probate. Life estates are often created by property owners who want to streamline the process of giving their home or land to a child or heir after they pass. The grantor may continue occupying their home, but selling the property or mortgage refinancing would require the grantee’s approval.

Rights Associated With Freehold Estates

A freehold estate is the highest degree of property ownership, giving the owner the right to use the land for any lawful purpose, unless otherwise restricted by an encumbrance or fee simple defeasible ownership.

With a freehold estate, the property owner has an unlimited duration of ownership. They have the right to sell their home or property, lease it to others, and pass it down to heirs.

Freehold vs Leasehold Estates

There are nonfreehold estate arrangements to become familiar with, too.

If you’ve ever rented an apartment, you’re likely familiar with the concept of a lease agreement. A leasehold estate operates on the same principles. Put simply, it refers to a tenant’s exclusive right to occupy a property for a specific period of time.

When comparing a leasehold and a freehold estate, the key difference is the duration of the occupant’s rights. Leasehold estates are temporary and dictated by the terms of the lease, while freehold estates grant an indefinite duration of ownership.

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Creation and Transfer of Freehold Estates

If you own a home or property, you’re already in possession of a freehold estate. How the property is transferred will depend on the type of freehold estate. One way to transfer ownership is through a life estate.

Setting up a life estate can be done through a life estate deed. This legal document is filed with your local recording office to ensure the other person, known as the remainderman, is added to the deed. Again, using a life estate helps an heir receive the property faster by avoiding probate. Creating a life estate is serious business, and it isn’t the only way to transfer property to avoid probate, so it’s wise to consult an estate planning expert before you sign anything.

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Limitations on Freehold Estates

There are limitations to any type of property ownership, including freehold estates. Of note, there could be a legal claim against a property from a party other than the owner, known as an encumbrance. There are multiple types of encumbrances, including easements, liens, and encroachment.

An easement grants land use rights or property access to a third party. For example, a utility may have an easement to run a gas line through a property, or an easement can grant access to a shared driveway. This might have an impact on how much a house is worth.

Properties may be encumbered by a lien, which gives another party the right to seize the property for nonpayment of a debt, such as home mortgage loans, property taxes, or homeowners association fees. Since the estate serves as collateral, the property can be sold if it’s needed to recoup unpaid debts.

Encroachments can also limit the use of freehold estates. An encroachment occurs when a neighbor has built a structure that intrudes on a property, limiting its full use.

During the home-buying process, in addition to ordering a home inspection, buyers typically request a formal title search to make sure there aren’t any encumbrances or claims against the property, which could delay closing.

Freehold Estates in Different Jurisdictions

Freehold estates exist in different jurisdictions in the U.S. and abroad. In the U.S., they’re dictated by state and local laws.

Local zoning outlines how a property can be used in a specific area, as well as building dimensions and characteristics. Some common types of zoning include residential, commercial, agricultural, and industrial. Residential zoning may also differentiate between single-family and multifamily properties.

Freehold Estates in Estate Planning

Freehold estates are often referred to as “estates of inheritance,” since the estate is transferred to the owner’s heirs upon death. Including freehold estates when doing estate planning can give you peace of mind that loved ones will have fewer legal and financial hurdles to deal with. Otherwise, the transfer of property and other assets can get held up in probate court.

The Takeaway

Buying real estate is a major investment. Freehold estates provide owners with indefinite property rights, though there can be limitations depending on encumbrances and the type of freehold estate arrangement.

Unless you’re a real estate professional, some of these terms may go beyond your needs. However, understanding your rights as a property owner and if there are any claims against your property is essential for protecting your investment when you’re buying a home or other property.

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FAQ

How does a freehold estate differ from fee simple ownership?

Fee simple ownership is a type of interest that property owners can have in a freehold estate. Fee simple ownership lets you do as you wish with a property, barring any liens or local laws, while the other types of freehold estates carry more conditions for how a property is used and transferred.

Can a freehold estate be taken away by the government?

A freehold estate could be taken by the government through eminent domain or when the owner dies if there aren’t any heirs or beneficiaries. Eminent domain allows governments to claim private property if it’s necessary for public use and after compensating the owner.

Are there any restrictions on selling a freehold estate?

A freehold estate can be sold or bequeathed as the owner sees fit, without conditions and restrictions. However, there may be specific restrictions for how the property is used if conditions were set by the seller. This is known as fee simple defeasible ownership.

Photo credit: iStock/Kirpal Kooner

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