FICO® Scores, issued by the Fair Isaac Corporation, are one of the most popular types of credit scores. FICO Scores were first introduced in 1989, and there are currently 16 distinct FICO versions in use today. FICO Score 8 and FICO Score 9 are two of the more popular versions (or models).
Keep reading to learn more on FICO Score 8 and FICO Score 9, including how each works, how they differ, and which score lenders use the most.
Key Points
• FICO Score 8 remains more widely used by lenders, while FICO Score 9 adoption is increasing but not yet universal.
• FICO Score 9 provides a more comprehensive evaluation of a borrower’s creditworthiness due to its updated scoring model.
• FICO Score 9 reduces the impact of medical debt on credit scores, unlike FICO Score 8, which treats all collection accounts similarly.
• Your scores on both models should be relatively similar, as all FICO Scores take into account payment history, amounts owed, length of credit history, credit mix, and new credit.
What Are FICO Scores?
A FICO Score is a type of credit score produced by the Fair Isaac Corporation. They list five factors that can affect your FICO score:
• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• Credit mix (10%)
• New credit (10%)
Your FICO Score is a three-digit number that ranges from 300 to 850, and can help lenders decide how much of a credit risk you might be. Lowering your credit card utilization is one way that you may be able to build your credit score.
While the Fair Isaac Corporation does share the broad information that makes up a FICO Score, they do not share exactly what goes into a FICO Score. The same is true of other companies that produce credit scores. When you look at VantageScore vs. FICO Scores, for example, you may find that the same person has varying scores, though they’re usually fairly close across all scoring companies.
FICO is constantly tweaking its model to make it as predictive as possible, which is why there are multiple FICO Score versions used.
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How Different FICO Score Versions Are Used
Different FICO Score versions are used depending on the type of loan and the lender’s preferences. Here’s a breakdown:
FICO Score 8 (Most Common)
• Widely used for credit card approvals, auto loans, and personal loans
• Known for being sensitive to high credit card utilization
FICO Score 9 (Improved Model)
• Used by some lenders for personal loans and credit cards
• More lenient on medical debt and paid collection accounts
• Incorporates rent payment history, if reported
FICO Score 2, 4, and 5 (Mortgage Scores)
• Specifically used in mortgage lending
• Required by Fannie Mae and Freddie Mac for home loans
• Older models that focus heavily on payment history and derogatory marks
FICO Auto Score 8 & Auto Score 9
• Tailored for auto loan approvals
• Gives more weight to auto loan payment history
FICO Bankcard Score 8 & Bankcard Score 9
• Used for credit card approvals
• Score ranges from 250 to 900
• Places more emphasis on credit card behavior and revolving credit usage
FICO Score 10 and 10T (Newest Versions)
• Not yet widely adopted
• FICO 10T incorporates trending data, which looks at credit usage patterns over time
• More predictive and accurate, but lenders are slow to switch due to compatibility issues
Lenders choose specific versions based on the type of risk they want to assess and the industry standards they follow.
Key Features of FICO Score 8
FICO Score 8 is one of the most widely used credit scoring models by lenders to assess a borrower’s creditworthiness. It places a strong emphasis on payment history and credit utilization, with late payments and high credit card balances significantly impacting the score.
Additionally, FICO Score 8 does not differentiate between paid and unpaid collection accounts. This model is favored for its balanced approach to evaluating risk while helping lenders make more accurate lending decisions.
Key Features of FICO Score 9
FICO Score 9 introduces several enhancements over FICO Score 8, offering a more refined assessment of creditworthiness. It disregards paid collection accounts, which can positively impact borrowers who have settled past debts. Additionally, it reduces the negative impact of medical collections compared to other types of debt.
The model also incorporates rental payment history when reported, providing an opportunity for renters to build credit. These improvements aim to provide a fairer and more accurate reflection of a consumer’s financial behavior, helping lenders make better-informed decisions.
Which Do Lenders Use More: FICO Score 8 or FICO Score 9?
Lenders predominantly use FICO Score 8 for most credit decisions, as it’s the most widely adopted version of the FICO Score. FICO Score 9 is newer and includes some improvements. As of now, though, many lenders still rely on FICO Score 8 because it has been in use longer and has a more established track record.
Major Differences Between FICO Score 8 and FICO Score 9
FICO Score 8 and FICO Score 9 are two different models of the FICO Score credit score model. Here’s a look at the major differences between FICO Score 8 and FICO Score 9:
Medical Debt:
• FICO Score 8: Treats medical debt the same as other types of debt, potentially lowering your score.
• FICO Score 9: Excludes medical debt from the score if it’s paid off, making it less impactful once paid.
Collection Accounts:
• FICO Score 8: Does not differentiate between types of collections, meaning both paid and unpaid collections can harm your score.
• FICO Score 9: More lenient on paid collection accounts, which won’t negatively impact the score once they’re settled.
Rent Payment History:
• FICO Score 8: Does not consider rent payments when calculating the score.
• FICO Score 9: Includes rent payment history if it’s reported, which can benefit renters with a positive payment history.
Authorized User Accounts:
• FICO Score 8: Considers authorized user accounts as part of the score, even if the primary account holder is not using the card responsibly.
• FICO Score 9: De-emphasizes authorized user accounts to avoid inflating scores based on potentially inactive accounts.
Credit Utilization:
• FICO Score 8: Focuses on credit utilization ratios, especially for credit cards, to assess creditworthiness.
• FICO Score 9: Similar in its approach to credit utilization, but may calculate this slightly differently to reflect more accurate borrower behavior.
Overall, FICO Score 9 offers a more updated approach to certain types of debt and credit behaviors compared to FICO Score 8, but FICO Score 8 is still more commonly used.
FICO scores, produced by the Fair Isaac Corporation, are one of the more popular types of credit scores used by 90% of lenders. FICO Score 8 and FICO Score 9 are two different versions of the FICO score model.
According to the Fair Isaac Corporation, FICO Score 8 is still the most widely used version of the FICO score, and FICO Score 9 is also still widely used by lenders, even though both models have been available for over a decade.
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FAQ
Is FICO 8 or FICO 9 better?
FICO 9 is considered an improvement over FICO 8, as it reduces the impact of medical debt, disregards paid collections, and includes rental payment history if reported. However, FICO 8 remains widely used by lenders, so its relevance depends on the lender’s preference and the borrower’s financial situation.
What is a good FICO 8 score?
A good FICO 8 score typically falls between 670 and 739. This range indicates that a borrower is considered low-risk by lenders, which can lead to better loan terms and interest rates. Scores above this range are considered very good or excellent, further enhancing borrowing opportunities and financial benefits.
Which FICO score is most important?
The different FICO score models are similar, and none is considered to be more important than any others. Different lenders may use different FICO score models depending on which model they find most advantageous for their purposes.
Is FICO score 8 still used?
Yes, even though FICO Score 8 was first introduced in 2009, it is still widely used in the lending industry. However, over time, lenders will likely start migrating to newer FICO scoring models, such as FICO Score 9, FICO Score 10, and FICO Score 10T.
Is a FICO score of 8 good to buy a house?
It is important to understand that FICO Score 8 refers to the eighth version of the FICO credit scoring model, and not to an actual FICO Score of 8. FICO scores have a minimum of 300, so it is impossible to have a FICO Score of 8. To buy a house with a mortgage, you will likely need to have a FICO Score in the good range (meaning a score of at least 670), though requirements vary by lender.
Do any lenders use FICO 9?
Yes, some lenders use FICO Score 9, especially for personal loans and certain types of credit evaluations. However, FICO Score 8 remains the most widely used version. FICO 9 enhances rental payment reporting and reduces the impact of medical debt, making it appealing for specific lending situations.
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One rule of thumb when buying a home is to not spend more than three times your annual salary. If you earn $60K a year, that means you can afford to spend around $180,000 on a house, maybe a bit more if you have little or no other debts. However, depending on where you want to live, interest rates, and how much debt you’re carrying, that figure could change significantly.
This article looks at the factors you should consider when deciding how much house you can afford. Following this guide is the best way to get a realistic idea of how much house you really can get on a salary of $60,000.
• It’s a general rule of thumb to not spend more than three times your annual salary on a home.
• The 28/36 rule suggests housing costs should be no more than 28% of gross income and total debt no more than 36%.
• The size of your down payment directly impacts monthly payments and the overall affordability of a home.
• Home affordability varies significantly by location, influenced by local cost of living, house prices, and property taxes.
• Various types of home loans are available, including conventional, FHA, USDA, and VA loans, each with different criteria.
What Kind of House Can I Afford With $60K a Year?
A salary of $60,000 is below the national median income of $83,730, according to Census data. While you will probably qualify for a mortgage in most states with that salary, it won’t buy you much of a home in areas with a high cost of living, such as New York or California.
How much house you can afford on $60,000 a year depends on how affordable your city is, your debt-to-income ratio (DTI), interest rates, and how much you can save for a down payment.
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Your Debt-to-Income Ratio
Another rule of thumb is the 28/36 rule. This rule holds that you should spend no more than 28 percent of your gross income on overall housing costs (including mortgage, taxes, and insurance) and no more than 36 percent on all debt combined (mortgage, credit card bills, car payment, student loan, etc.).
So, if you earn $60,000, your housing costs should be less than $16,800, or $1,400 a month, and your debt and housing costs should not exceed $21,600, or $1,800 a month. This calculation reflects your DTI ratio. To get a sense of how much you might be able to borrow and still walk away under your 28/36 maximums, try putting your numbers into a home affordability calculator.
Lenders look at how much debt you have when they determine if you qualify for a mortgage. From the lender’s point of view, the less you are paying each month in debt, the less likely you are to default on your mortgage loan, and the better the loan terms they can extend. A higher ratio means you are using more of your income to cover existing debt.
Your Down Payment
How much do you have saved up for a down payment? Your down payment directly affects how much you will have to pay each month in principal and interest. According to the National Association of Realtors®, the average first-time buyer pays about 9 percent of the home price for their down payment, while repeat buyers put down 23 percent. The more you put down, the lower your monthly housing cost. Whatever your salary, you can borrow more and buy a more costly house if your monthly payments are less.
Home Affordability
How affordability is a measure of how affordable homes are in a certain area. Some areas have a higher cost of living, higher average house prices, and higher property taxes. For example, New Jersey has high property taxes, but South Carolina and Mississippi tend to have low property taxes. It also costs more to buy necessities in New Jersey than in South Carolina or Mississippi.
Your credit score is another factor to consider in the home affordability equation. A higher credit score will mean you should qualify for a lower interest rate with a lender and better loan terms. Better loan terms mean (you guessed it) lower monthly payments, which might give you the bandwidth to borrow a little more.
How to Afford More House with Down Payment Assistance
Federal, state, and local government, private entities, and charitable organizations offer down payment assistance in the form of low-rate loans, cash grants, tax credits, and interest rate reductions. Some of the programs are offered to specific professionals, such as nurses, teachers, or first-time homebuyers, and some programs are neighborhood-based.
Property tax abatement and federal tax credits to first-time buyers are applied automatically. However, the U.S. Department of Housing and Urban Development (HUD) maintains a semi-complete list of programs listed by state, county, and city. Note that applying for down payment assistance can add weeks or months to the homebuying process.
• Conventional mortgages require a down payment that can be as low as 3%.
• FHA loans backed by the Federal Housing Administration require 3.5% down.
• VA mortgages from the U.S. Department of Veterans Affairs require 0% down.
• United States Department of Agriculture (USDA) loans offer loans to people in rural areas with no down payment.
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Home Affordability Examples
Below are some hypothetical examples for buyers who make $60,000 a year with different savings for a down payment and monthly debt payments. The interest rate is 7%, and property tax rates are assumed to be average.
The Saver with a Down Payment
Gross annual income: $60,000 Amount of money for a down payment: $12,000 Monthly debt: $250 Property taxes: 1.12%
SoFi estimates that you can comfortably afford a home that costs $120,000. Bear in mind that you can expect to pay closing costs of around $4,800 in addition to the down payment and the monthly charges below. Here is a breakdown of the costs:
Home Loan: $108,000 Down Payment: $12,000 Total Monthly Payments $953
• Principal and Interest: $719
• Property Taxes: $113
• Private Mortgage Insurance: $90
• Homeowners Insurance: $31
The Buyer with A Bigger Down Payment and Some Debt
Gross annual income: $60,000 Amount of money for a down payment: $35,000 Monthly debt: $300 Property taxes: 1.12%
In this scenario, thanks to the larger down payment, you might just be able to afford a home that costs $200,000 (again, closing costs would come into play). Here is a breakdown:
Home Loan: $165,000 Down Payment: $35,000 Total Monthly Payments $1,484
• Principal and Interest: $1,097
• Property Taxes: $187
• Private Mortgage Insurance: $100
• Homeowners Insurance: $100
💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.
How to Calculate How Much House You Can Afford
Keeping a budget to track your monthly expenditures is the first step to calculating how much house you can afford. Once you know how much you are spending each month on food, entertainment, your car, clothing, and utilities, you can add up these expenses and subtract them from your monthly income (don’t include rent here). What you have left is the amount you can afford to spend on housing expenses.
If you spend no more than 25% to 28% of your monthly income on housing, and your monthly income is $5,000, you can afford to spend about $1,400 on mortgage and housing expenses.
You can also try putting different numbers into a mortgage calculator to see how different combinations of down payment amount or home cost affect monthly payments.
How Your Monthly Payment Affects Your Price Range
Your monthly payment is made up of principal and interest. If you can afford to pay more each month, you can afford a more costly house. That is, provided you don’t have too much debt. However, if you can, coming up with a bigger down payment in the beginning will likely reduce the interest rate offered by your lender and your monthly payments. You should feel comfortable with the cost of your monthly housing expenses going into a home purchase, but if your earnings or credit score increase notably after a few years, you can always look at a mortgage refinance.
💡 Quick Tip: Backed by the Federal Housing Administration (FHA), FHA loans provide those with a fair credit score the opportunity to buy a home. They’re a great option for first-time homebuyers.
Types of Home Loans Available to $60K Households
Conventional loans, FHA loans, USDA, and VA loans are the common loans available.
• Conventional loans. These are the most common. They typically require a credit score of at least 620. Some will allow a down payment as low as 3 percent, but that will mean your monthly payments will be higher because you will have to borrow more.
• FHA loans. FHA loans provide a percentage of the cost of a home depending on the buyer’s credit score. Home buyers with a credit score over 580 can borrow up to 96.5 percent of a home’s value. Home buyers whose credit scores are between 500 to 579 can qualify for a loan as long as they have a 10 percent down payment.
• USDA: These loans serve borrowers earning below a certain income level who want to buy homes in designated rural areas.
• VA: VA loans require no down payment and are offered to qualified military service members, veterans, and their spouses.
The Takeaway
The 28/36 rule holds that if you earn $60K and don’t pay too much to cover your debt each month, you can afford housing expenses of $1,400 a month. Another rule of thumb suggests you could afford a home worth $180,000, or three times your salary.
What size mortgage a lender might allow for you will depend on your debt-to-income ratio and your credit score, among other factors. But it’s up to you to make sure you can comfortably afford your payments based on your budget.
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FAQ
Is $60K a good salary for a single person?
A salary of $60,000 is below the national median income which was $83,730 in 2024, according to Census data. On this income, you might struggle to buy a home in areas with a high cost of living unless you have a large down payment.
What is a comfortable income for a single person?
Average monthly expenses for one person in 2023 totaled $4,641, or $55,692 annually, according to the U.S. Bureau of Labor Statistics, so earning more than this amount would be an adequate income as long as the cost of living where you live isn’t significantly above average, which varies widely among the states. But what any individual considers comfortable will depend on their spending habits.
What is a livable wage in 2025?
A livable wage variest widely depending on where you live, according to the Living Wage Institute at the Massachusetts Institute of Technology, which estimates specific living wages among different household types in different states. For a family with two adults and two kids, a livable wage in 2025 might range from around $85,000 annually in Alabama or Kentucky to more than $146,000 in Massachusetts.
What salary is considered rich for a single person?
On average, an annual income of $731,492 is required to claim a spot among the top 1% earnings category, according to IRS data.
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Paying off your mortgage ahead of time might sound like an incredibly savvy thing to do — and in some cases, it is. But it’s not the right money move for everyone. And paying off a mortgage in just five years? It’s an aggressive strategy that may or may not be the smartest choice.
• Paying off a mortgage in 5 years requires a strategic plan and financial discipline.
• Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff.
• Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.
• Refinancing to a shorter loan term or a lower interest rate can also help expedite mortgage payoff.
• It’s important to consider the financial implications and feasibility of paying off a mortgage in 5 years before committing to this goal.
Benefits and Risks of Paying Off a Mortgage Early
Achieving homeownership is, well, an achievement. And since you’re here reading an article about paying a mortgage off early, you’re clearly an overachiever.
Paying off any kind of debt early usually seems advisable. But for most of us, our home is the single largest purchase we’ll ever make — and paying off a six-figure loan in only a few years could wreak havoc on the rest of your finances.
In addition, some mortgages come with a prepayment penalty, which means you could be on the line for additional fees that might eclipse whatever you’d stand to save in interest payments over time. (Mortgages tend to have lower interest rates than many other common types of debt anyway.)
That said, if you have the cash, paying off your home early can lead to substantial savings, not to mention helping you build home equity as quickly as possible.
Let’s take a closer look at the risks and benefits of paying off a mortgage early.
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Benefits of Paying Off a Mortgage Early
The main benefit of paying off a mortgage early is getting out of debt. Even minimal interest is an expense it can be nice to avoid.
Additionally, paying off your home early means you’ll have 100% equity in your home, meaning you own its whole value, which can be a major boon to your net worth.
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Risks of Paying Off a Mortgage Early
Paying off a mortgage early may come with risks, and not just prepayment penalties (which we’ll touch on again in a moment). In many instances, it can be a plain old bad financial move.
Depending on what your cash flow situation looks like, and what the interest rate on your mortgage is, you might stand to out-earn early payoff savings if you funnel the extra cash to your investment or retirement accounts instead. (You can use this mortgage calculator to see how much interest you stand to pay over the lifetime of your home loan — and then compare that to how much you might earn if you invested that money instead.)
Additionally, if you have other forms of high-interest debt, like revolving credit card balances, it’s almost always a better idea to focus your financial efforts on those pay-down projects instead.
“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.
And if you have historically taken the home mortgage interest deduction on your taxes, it’s also worth talking with your tax advisor about what impact paying off your mortgage early will have on your deductions. (For 2025, the standard deduction for married couples filing jointly is $31,500. For single taxpayers and married people filing separately, it’s $15,750. In 2026, married couples have a standard deduction of $32,200 and single people and married people filing separately can deduct $16,100.)
To recap:
Benefits of Paying Off a Mortgage Early
Risks of Paying Off a Mortgage Early
Saving money on interest over time
Possible repayment penalty; possible loss of tax deduction
Building home equity quickly
Lost opportunity for investment growth, which could outweigh interest savings
No longer having to make a mortgage payment every month
Less money for other important goals, such as paying down credit card debt
Watching Out for Prepayment Fees
One of the biggest risks of paying off a mortgage before its full term is up is the potential to run into prepayment penalties. Some mortgage lenders charge large fees to make up for the interest they’ll be missing out on.
Fortunately, avoiding prepayment penalties on home loans written after 2014 is easier: Legislation was passed to restrict lenders’ ability to charge those fees. But if your mortgage was written in 2013 or earlier — and even if not — it’s a good idea to read the fine print before you hit “submit” on your lump-sum payment, and ideally before you accept the contract at all.
Steps to Paying Off a Mortgage Early
You’ve assessed the risks and benefits and decided that paying off the mortgage early is the right move for you. Nice!
Now let’s take a look at how to get it done.
Pregame: Considering Repayment Goals When House Shopping
This option won’t work if you’ve already found and moved into a home, but if you’re still in the home-shopping portion of the journey, looking at inexpensive homes can be a great first step toward paying off your mortgage fast.
After all, if the home has a lower price tag, it’ll be easier to reach that goal in a shorter amount of time. Ideally, you want its value to appreciate, so you’ll still want to shop around before just choosing the lowest-priced house on the block.
Maybe you signed your home contract years ago and are just now considering getting serious about early mortgage repayment. Take heart! There are some easy steps to follow to make your mortgage disappear in five years or so.
1. Setting a Target Date
The first step: figuring out exactly when you want the mortgage paid off. Choosing your target date will make it easier to figure out how much additional money you need to send to your lender each month.
Five years is a pretty tight timeline for this kind of debt repayment process, but it could be doable depending on your earnings and commitment.
2. Making a Higher Down Payment
The higher your down payment, the less loan balance you’ll have to pay down, so if you can manage it, offer as much as you can right at the start. There are many assistance programs for down payments that might boost your offer and put you on track for paying down your mortgage early.
Also, realize that first-time homebuyers — who can be anyone who has not owned a principal residence in the past three years, and some others — often have access to down payment assistance.
3. Choosing a Shorter Home Loan Term
Obviously, if you want to pay your mortgage off in a shorter amount of time, you can consider choosing a shorter home loan term; most conventional mortgages are paid off over 30 years, though it’s possible to find loans with 15- or even 10-year terms. Just remember your monthly payment will be higher on a shorter-term loan.
4. Making Larger or More Frequent Payments
One of the most achievable ways for most borrowers to pay off a home loan early is to pay more than the monthly minimum, either by adding extra toward the principal in the monthly payment or by paying more than once per month.
Unless you’re due for a six-figure windfall, chipping away at the debt this way might be the smartest option. But how does one come up with the additional money to funnel toward that goal?
5. Spending Less on Other Things
As with most debt repayment strategies, chances are you’ll need to find other ways to cut back on spending in order to set aside more money to put toward the mortgage. This could be as small as bringing your lunch from home instead of getting takeout or as serious as choosing to give up a car. “Combat the urge to impulse spend by instituting a holding period on all purchases. Before hitting the buy button, wait 24 to 48 hours. After the holding period, come back to the shopping cart and reevaluate. In some cases, you might not even remember why you wanted it in the first place,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.
6. Increasing Income
Another option, if there’s just nothing left to cut? Finding ways to increase your income, perhaps by starting a side hustle or asking for that long-overdue raise.
💡 Quick Tip: A Home Equity Line of Credit (HELOC) brokered by SoFi lets you access up to $500,000 of your home’s equity (up to 90%) to pay for, well, just about anything. It could be a smart way to consolidate debts or find the funds for a big home project.
How Much House Can You Afford Quiz
The Takeaway
Pay off a mortgage in five years? While paying off your home loan early could help you save money on interest, sometimes the money is better spent on other financial goals and projects. So it pays to take a close look at the numbers, just as you did when you got your mortgage in the first place.
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 I really pay off a mortgage in five years?
Whether or not you can pay off a mortgage in five years depends on the size of both your home loan and your income, as well as your other debts. It is certainly possible to pay off a loan in five years, but it might not be the best use of your money. If paying off your mortgage prevents you from paying off other higher-interest debt, or if you might earn more by investing the money than you would save on interest, paying off the mortgage may not be the smartest move.
Do I have to refinance if I want to pay off my mortgage in five years?
You don’t have to refinance in order to pay off your mortgage in five years. Borrowers can usually make extra lump-sum payments to the principal on their home loan to chip away at what they owe without refinancing.
Should you pay off your mortgage before you retire?
It might seem like a good idea to pay off your mortgage before retiring — after all, you’ll be on a fixed income and a loan payment can be a large monthly bill. But if you have limited savings, you might not want to tie it up by putting it toward your loan payoff. And if the money you would use to pay off your home loan might earn more if invested somewhat conservatively, you might be better off sticking with your loan for now.
Photo credit: iStock/fizkes
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.
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.
If someone asked you to describe your “dream home,” what picture would pop into your mind? A single-family home with a big backyard, or a high-rise condo with a view? Maybe you’ve always longed to live on a houseboat.
Only you can decide which of the many house types out there is best for you or your family. This guide to the different types of homes available to buyers could help narrow your search.
Key Points
• There are a wide variety of home types, including apartments, condos, co-ops, single-family homes, tiny houses, townhomes, modular homes, manufactured homes, cabins, floating homes, and more.
• Detached, land-heavy homes typically cost more and carry more maintenance burden, while smaller or shared-wall types (condos, townhomes) tend to be more affordable but come with trade-offs.
• Popular types of home architectural styles include Cape Cod, contemporary, farmhouse, midcentury modern, split-level, and more.
• The best home-type for you will depend on your priorities: privacy, budget, location, community, maintenance load.
• To purchase a home, you’ll need a down payment, a solid credit score to qualify for the best available interest rate, and a good debt-to-income ratio.
As you think about where you’d like to live or what you need to buy a house, you can probably rule out a few of these home types right away. From there, it may be helpful to look at the pros and cons of different home types side by side to narrow your search.
1. Apartments
The definition of an apartment can get a bit complicated because it changes depending on where you live. When someone talks about how to buy an apartment in New York City, for example, they might be referring to a condo or co-op.
Generally, though, an apartment is one of several residential units in a building owned by one person or company, and the owner rents each unit to individual tenants.
There are some pluses to that arrangement, especially if you take advantage of amenities like a gym or swimming pool. Monthly costs for utilities and insurance may be low, too. Because it’s a rental, though, you can’t build any equity. Also, if you want to stay or go, or make some changes to the apartment, you’re typically tied to the terms of your lease.
Pros and Cons of Renting an Apartment
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Pros:
• Do not need a big down payment
• Repairs usually aren’t the tenants’ responsibility
• Lower monthly bills (especially if rent includes utilities)
• May have shared amenities
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Cons:
• May have to come up with a large security deposit
• Tenants don’t build equity (so there’s no return on investment)
• Tenants can lose their deposit if they break their lease
• Can’t make changes without permission
2. Condos
If you like some of the upsides of apartment living but you want a chance to build equity with each payment, you may enjoy owning a condo. Condo living isn’t for everyone — a house vs. condo quiz could help you decide between those types of homes — but a condo is a good choice for some.
You’ll share walls with other residents but will own your unit. That means you’ll be in charge of the repairs and upkeep on the interior, but you won’t have to worry about lawn maintenance, cleaning and fixing the pool, or exterior repairs. (You’ll likely pay a monthly or quarterly fee to cover those costs, though.)
When you purchase a condo, you’ll have a chance to build equity over time as you make your home loan payments, but if the homeowners association (HOA) is poorly managed, your condo may not increase in value the way a home you care for yourself might.
Pros and Cons of Buying a Condo
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Pros:
• Owners often can build equity
• Mortgage may be less expensive than that of a single-family home
• Less maintenance than a single-family home
• Shared amenities
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Cons:
• Owners pay for interior maintenance
• Less privacy than a single-family home
• Condo fees add to monthly payment
• Single-family homes may increase in value faster
3. Co-ops
When it comes to condos vs. co-ops, it’s important to understand the differences if you’re shopping for a home or plan to.
The main difference is the ownership arrangement: When you buy into a co-op, you aren’t purchasing your unit; you’re buying shares of the company that owns the property. The market value of your unit determines the number of shares you own. Your shares determine the weight of your vote in what happens in common areas, and you’ll also split maintenance costs and other fees with your fellow residents based on how many shares you own.
Because co-op residents don’t actually own the units they live in, it can be challenging to find financing. Instead of a mortgage, you may have to get a different type of loan, called a co-op loan or share loan. And because of co-op restrictions, it may be difficult to rent out your unit.
Still, buying into a co-op may be less expensive than a condo, and you may have more control over how the property is managed.
Pros and Cons of Buying into a Co-Op
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Pros:
• Often less expensive than a similarly sized condo
• Shareholders have a voice in how the property is managed
• Partners may have a say in who can purchase shares
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Cons:
• May be difficult to find financing
• May require a larger down payment than a condo purchase
• Co-op restrictions can make it tougher to buy in, and to rent your unit
4. Single-Family Homes
When someone says “house,” a single-family home is the type of structure most people probably think of — with a backyard, a garage, maybe a patio or front porch. Even if the yard is small, the house sits by itself. That can mean more privacy and more control over your environment.
Of course, that autonomy can come with extra costs, including higher homeowners insurance, taxes, maintenance and repairs, and maybe HOA fees.
The down payment and monthly payments also can be challenging, but buyers usually can expect the value of their home to increase over time.
And if you need money down the road — for a child’s education or some other planned or unexpected expense — you may be able to tap into home equity. Or you might plan to pay off the mortgage in 20 or 30 years and live rent-free in retirement.
• Change or update your house in any way you choose (following HOA rules, if they apply)
• Rent out your house if you choose, or renovate and sell for a profit
• May have shared amenities as part of an HOA
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Cons:
• Single-family homes tend to cost more than condos
• Maintenance and repairs can get expensive
• Property taxes (and HOA fees if applicable) can add to homeownership costs
• Putting in and maintaining a pool or gym may be up to the homeowner
• Utilities and energy costs are often higher than in condos or townhomes
5. Tiny Homes
Tiny homes, which usually have 400 square feet of living space or less, have a huge fan base. Some tiny houses are built to be easily moved, giving the owner physical freedom. Some are completely solar-powered and built to be eco-friendly. Many can be constructed from kits.
One downside is finding a place to legally park the tiny home. In most parts of the country, they are classified as recreational vehicles, not meant to be lived in full time, and usually only allowed in RV parks or campgrounds.
Another challenge is tiny house financing. Options include a personal loan, builder financing, a chattel mortgage (a loan for a movable piece of personal property), and an RV loan if the tiny house meets the Recreational Vehicle Industry Association’s definition of an RV: “a vehicular-type unit primarily designed as temporary living quarters for recreational, camping, or seasonal use.”
A not-tiny consideration is making use of such a small space. Many people may not last long in a tiny home.
Pros and Cons of Buying a Tiny Home
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Pros:
• Low costs all around
• Environmentally efficient
• Easy to relocate if on wheels
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Cons:
• Limited legal parking locations
• Financing can be a challenge
• It’s tiny!
6. Townhomes
A townhome or townhouse can look and feel like a detached house, in that it has its own entrance and may have its own driveway, basement, patio or deck, and even a small backyard. But these row houses, which are often found in cities like New York City, San Francisco, and Washington, D.C., and usually have multiple stories, share at least one common wall with a neighboring home.
Those shared walls can make buying a townhouse more affordable than a comparable detached home. And owners who belong to an HOA with neighboring homes generally don’t have to worry about exterior upkeep, although owners of townhouses classified as fee simple are responsible for exterior maintenance of their structure and sometimes the surrounding yard.
The HOA also may offer some amenities, but that monthly or quarterly HOA fee will add to overall costs, and may rise over time.
Pros and Cons of Buying a Townhome
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Pros:
• May cost less than a similar single-family home
• Little or no outdoor maintenance
• Shared amenities
• Several mortgage options
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Cons:
• HOA fees may be high
• HOA restrictions
• Multiple levels may be a problem for some
• Less privacy, more noise from neighbors
7. Modular Homes
A modular home is made up of sections that are built in a factory, transported to a homesite, and assembled on a foundation there. This makes them different from traditional stick-built homes, which are constructed completely on-site. Both types of houses are held to the same local, state, and regional building codes.
Because the assembly-line part of the process is cost-effective, a modular home may be less expensive. Also, because weather isn’t a factor for part of the work, you can probably expect fewer delays.
Most modular homes are sold separately from the land. So if you already own a piece of property or like the idea of building outside a traditional neighborhood, a modular home might be a good choice.
Many people who choose a modular home use a construction loan for the build or a construction to permanent loan. A personal loan or use of home equity from an existing home are other options.
Pros and Cons of Buying a Modular Home
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Pros:
• Can be less expensive than a similar stick-built home
• May experience fewer construction delays
• Quality is as high or higher than a site-built home
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Cons:
• Land, site prep, and other costs are separate on new modular homes
• Future buyers may prefer stick-built homes
• Financing can be tricky
8. Manufactured Homes
Manufactured homes, formerly known as mobile homes, are built completely off-site and then transported to the homesite and placed on a temporary or permanent foundation.
Manufactured homes are not held to the same local, state, and regional standards as stick-built or modular homes. Instead, they must conform to construction and installation standards set by the U.S. Department of Housing and Urban Development, and local land use and zoning regulations restrict where they can be placed.
Of course, there are plenty of communities that are designed just for manufactured homes, although the land in many of these “parks” is rented, not owned.
A growing number of lenders are providing conventional and government-insured mobile home financing. The loans, backed by the Federal Housing Administration (FHA) or U.S Department of Veterans Affairs (VA), are offered by approved lenders.
The most common method of financing is an installment contract through the retailer. Depending on your situation, a personal loan or chattel loan could provide a shorter-term path to financing a manufactured home.
Pros and Cons of Buying a Manufactured Home
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Pros:
• The entire home is built off-site, so no weather delays
• More affordable than other detached homes
• May be able to move the home from one site to another
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Cons:
• Financing may be more challenging
• Lot fees may be high and rising
• You own the home but not the land under it
9. Cabins
Most people tend to think of a cabin as a cozy second home that’s made of logs or covered in cedar shakes, but there’s no reason a cabin can’t be your primary residence.
Just as with any other type of property, the price of a cabin can vary based on size, age, location, and amenities. If there’s an HOA, those fees can add to the cost.
If you’re considering a cabin because you’re buying a vacation home — aka a second home — know that loans for second homes have the same rates as primary homes. A 20% down payment is typical.
Pros and Cons of Buying a Cabin
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Pros:
• You’re buying your very own getaway
• You’re buying a rental property
• Could become your primary home in the future, or a legacy for future generations
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Cons:
• A second home could mean two loan payments and two sets of bills
• You might have to do repairs at inconvenient times
For owners, the big advantage of a multifamily home is that it offers flexibility. Homeowners can buy a home with multiple units and rent out the spaces for extra income. Or an adult child or parent might decide to move into that secondary space.
These properties can be a good investment.
Do accessory dwelling units make a property a multifamily? It depends. Fannie Mae says a property may be classified as a two-unit property or single family with ADU based on the characteristics of the property.
Pros and Cons of Buying a Multifamily Home
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Pros:
• Can share costs with others (renters or family members)
• Keeps multigenerational family members close but gives them their own space
• Can be a good investment
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Cons:
• May be more expensive than a single-family home
• Managing renters could be stressful
• Lack of privacy
11. Houseboat or Floating Home
Living in a home that’s actually on the water — not just near it — can be a dream come true … or a challenge.
Some floating homes are as big as a small house — and are built to be lived in in the same way — only on a floating foundation. Houseboats or liveaboards are typically much smaller than floating homes and more mobile, and they may not have the amenities a larger home can offer.
There are also substantial differences in what it can cost to buy and maintain these water residences. A floating home may cost much more upfront than a houseboat, but the insurance, taxes, and day-to-day costs of keeping a houseboat operating can run higher. And there may be more loan options available, including traditional mortgages, for those buying a floating home.
Pros and Cons of Living on a Houseboat
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Pros:
• Constant view of water and nature
• Often cheaper than traditional housing, with lower property taxes and maintenance costs
• Reduced carbon footprint and often simpler, more eco-friendly living
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Cons:
• Regular maintenance can be time-consuming and costly
• Strict rules and regulations can limit where you can dock and how you can use your houseboat
• Smaller living areas can be restrictive, especially for larger families
12. Duplexes and Triplexes
Duplexes and triplexes make for a good home and also a solid investment opportunity. These multi-unit properties allow you to live in one unit while renting out the others, providing a steady stream of passive income. This arrangement can significantly offset your mortgage and other living expenses, making homeownership more affordable and financially viable.
Additionally, living on the property can help you keep a closer eye on maintenance and tenant relations, ensuring that everything runs smoothly and that your investment remains in good condition.
• Renting out the additional units can provide a steady stream of passive income
• Multiple units can reduce the financial impact of a single vacancy
• Multi-unit properties often appreciate in value over time
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Cons:
• The purchase price of a duplex or triplex is typically higher than that of a single-family home
• Managing multiple tenants can be time-consuming and may require more hands-on involvement
• Living in close proximity to tenants can sometimes lead to privacy issues
Luxury Homes
Luxury homes are a class apart, offering an unparalleled level of comfort, style, and sophistication. These properties are designed to provide a premium living experience, often featuring spacious and elegantly appointed rooms, high-end finishes, and state-of-the-art amenities.
Beyond the physical attributes, luxury homes are often located in prime areas, offering access to the best schools, shopping, dining, and entertainment options. These properties are typically situated in prestigious neighborhoods or gated communities, providing a sense of security and privacy.
But you get what you pay for, and luxury homes can run into the millions. You may need a jumbo loan to finance the property, and those come with stricter qualification criteria, including high credit scores and significant cash reserves.
Pros and Cons of Buying a Luxury Home
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Pros:
• Luxury homes can enhance your daily living experience
• Owning a luxury home can be a symbol of success and wealth
• Luxury homes tend to hold their value well and appreciate over time
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Cons:
• The purchase price is significantly higher than most other home types
• Maintenance, utilities, property taxes, and insurance for luxury homes can be much higher
• The pool of potential buyers for a luxury home is smaller, which can make it more challenging to sell or rent out
Comparing House Types
Whether you’re thinking about buying a single-family home, condo, tiny home, houseboat, or townhome, it’s important to keep your priorities in mind. Here are a few things to consider:
Finding Your Fit
If privacy is a priority, you might consider a …
• Single-family detached home
• Tiny home (on a large lot)
• Modular or manufactured home
• Cabin
• Luxury home
If space is a priority, you might consider a …
• Single-family detached home with an open floor plan
• Larger condo, townhome, or co-op
• Larger floating home
• Luxury home
If affordability is a priority, you might consider a …
• Smaller single-family home
• Condo, co-op, or townhome
• Tiny house
• Modular or manufactured home
• Cabin
If a sense of community is a priority, you might consider a …
• Single-family home with community amenities
• Condo, co-op, townhome, or apartment
• Multifamily home
If uniqueness is a priority, you might consider a …
• Tiny home
• Cabin
• Floating home or houseboat
If schools are a priority, you might consider …
• Any home in a neighborhood that’s conducive to families with young children
If public transportation is a priority, you might consider a …
• Condo, co-op, townhome, multifamily home, or single-family home in a larger town or city
Popular Types of Home Architectural Styles
Home architectural styles vary widely, each offering unique aesthetic and functional features that cater to different tastes and lifestyles. Below are 11 options to consider.
1. Cape Cod
Typically featuring a steeply pitched roof with a small overhang and a central chimney, Cape Cod homes are often one or one-and-a-half stories tall with dormer windows to increase attic space. The exterior is usually clad in shingles or clapboard, and the interior is characterized by cozy, efficient layouts with hardwood floors and wood-paneled walls.
2. Colonial
A colonial home is a symmetrical, two-story design with a centered front door, evenly spaced multi-pane windows, and a simple, traditional look. It often features brick or wood siding, a gabled roof, and a classic, balanced layout with living areas downstairs and bedrooms upstairs.
3. Contemporary
A contemporary home features clean lines, open floor plans, and large windows that bring in natural light. It often uses modern materials like glass, steel, and smooth wood finishes. The design focuses on simplicity, minimal ornamentation, and a seamless connection between indoor and outdoor spaces.
4. Craftsman
A craftsman home is known for its warm, handcrafted feel, featuring a low-pitched roof, wide front porch with thick square or tapered columns. It also may have exposed beams or rafters. These homes often use natural materials like wood and stone, with built-in cabinetry and detailed woodwork inside for a cozy, inviting look.
5. Greek Revival
Greek Revival homes are often large and grand. They feature tall columns or pilasters, symmetrical facades, and a bold, prominent entryway. These homes often have white or light-colored exteriors, pedimented gables, and large windows. The overall look is grand, formal, and elegant, emphasizing strong architectural lines and historic character.
6. Farmhouse
A farmhouse-style home is warm, simple, and functional, often featuring a large front porch, gabled roof, and spacious, open interior layout. Natural materials like wood and stone are common, along with neutral colors and cozy finishes. The style balances rustic charm with comfortable, family-friendly design.
7. Midcentury Modern
A midcentury modern home is known for its clean lines, minimalist design, and integration with nature. These homes often feature flat or low-pitched roofs, large windows, and open floor plans that emphasize natural light and indoor-outdoor flow. Materials include wood, glass, and steel.
8. Ranch
Ranch homes — the most popular home style — are single-story homes with long, low, horizontal layouts. They usually feature an open floor plan, large windows, and easy access to the outdoors, often through sliding doors leading to a patio or yard. The style emphasizes simplicity, accessibility, and casual living.
9. Split-Level
A split-level home has staggered floor levels, typically with a main living area on one floor and short sets of stairs leading to upper and lower levels. This layout provides separation between spaces, such as bedrooms upstairs and a family room or basement downstairs. The style maximizes square footage on smaller lots while maintaining an open feel.
10. Tudor
A Tudor home is known for its steeply pitched roofs, tall narrow windows, and decorative half-timbering on the exterior. The design often includes brick or stone details, giving it an old-world, storybook charm. Inside, you’ll often find cozy rooms, wood accents, and traditional craftsmanship.
11. Victorian
A Victorian home was built in the Victorian era, and often features intricate trim, patterned shingles, and vibrant exterior colors. These houses usually have steep roofs, bay windows, and wraparound porches. Inside, Victorian homes tend to include detailed woodwork, high ceilings, and a mix of formal, elegantly styled rooms.
The Takeaway
Understanding the different types of homes before you begin your search for a place to live can help you find your dream home more quickly, and free you up to take on other homebuying tasks. Besides choosing the type of home you want, you’ll also have to decide how to finance this important purchase if you’re not paying cash. A good way to start is to shop and compare rates.
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 type of house is cheapest?
Condos, co-ops, townhomes, and manufactured homes all tend to be less expensive than single-family homes. Among new single-family homes, modular homes tend to be the least expensive because they are made in a factory and assembled on-site.
What is the difference between a modular and manufactured home?
A modular home is built in sections at a factory and transported to the site for assembly, often adhering to local building codes. A manufactured home, or mobile home, is entirely constructed in a factory and placed on a permanent chassis, following federal standards.
Which home type is best for first-time buyers?
The best type of home for first-time buyers depends on their lifestyle, preferences, budget, and goals. Condos and townhomes generally have lower prices and less maintenance, but single-family homes offer more space and privacy.
Can you get a mortgage for any type of home?
Yes, you can get a mortgage for various types of homes, including condos, townhomes, and single-family homes. Each has specific requirements and may involve different loan programs, but most lenders offer mortgages for these home types, making it accessible for buyers to finance their purchase.
What style of home is most popular?
Ranch-style homes are currently very popular due to their single-story design, which offers easy accessibility and open floor plans. Modern and contemporary styles are also gaining traction, especially among younger buyers, for their sleek designs and energy efficiency.
Photo credit: iStock/CatLane
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*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.
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.
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
A home that’s for sale by owner opens the door for you to buy the property without a middleman — though you may choose to use your own real estate agent to facilitate the transaction. A for-sale-by-owner deal can differ from a typical real estate transaction in a few important ways, so study this guide before you start perusing listings.
Key Points
• Buying a for-sale-by-owner (FSBO) home allows direct interaction with the seller, potentially offering more ability to negotiate and more information about the property.
• FSBO buyers might benefit from using their own real estate agent to protect their interests.
• Before making an offer, buyers should shop for a mortgage and consider getting preapproved.
• It’s a good idea to include contingencies in your purchase agreement, such as a satisfactory home inspection and appraisal.
• If foregoing a buyer’s agent, consider hiring a real estate attorney or transactional agent to assist with contract negotiation and ensure legal protection.
When homeowners choose the FSBO (“fizz-bo”) route, they take on all of the responsibilities real estate agents would typically shoulder in the homebuying process, from listing the house and showing it to negotiating and closing the deal.
The main motivation for doing so is often cash. Sellers who go it alone can save money on the real estate commission fee. If neither side uses an agent, the deal sidesteps the typical amount the seller would typically pay in commissions.
On the buyer’s side there can be a number of benefits of buying a house for sale by owner. First of all, the lack of a listing agent means you have more direct contact with the seller, which might give you more negotiating power. The seller will also likely have detailed knowledge of the house and neighborhood, which can be a bonus as you decide whether or not you want the property.
However, you may run into some pitfalls with FSBO properties. A seller may love her home and overprice it, potentially complicating matters when you get an appraisal.
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First-time homebuyers can
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Using a Buyer’s Real Estate Agent
The home’s seller may not want to use a listing agent, but you can still engage the services of a buyer’s agent. You may already be working with an agent who can contact a FSBO seller for you. Or you may need to look for an agent who is willing to take on the job.
In some cases, buyer’s agents may be hesitant to work on a FSBO property. They may be wary of taking on extra liability, or extra work for which they will not necessarily be compensated.
That said, a buyer’s agent can negotiate the sale on your behalf and walk you through the complicated paperwork. If the seller is putting the contract together, your agent can also check the work to make sure you don’t run into any problems. Bear in mind, though, that your agent will need to be paid for these services, and you might be the one footing the bill. Although in the past it was common for sellers to cover agents’ commission, you will now need to have a representation agreement with your agent, defining compensation, before touring homes. You can still ask the home’s owner to pay your agent’s fee as a negotiation tactic, but you can’t count on it happening, particularly with a FSBO home where the seller isn’t paying an agent of their own.
Here’s what to expect in the FSBO buying process.
Shopping for a Mortgage
Before making an offer on a home, it’s a good idea to shop for a mortgage to get an idea of the terms different lenders offer and how much you are likely to pay each month.
A mortgage calculator can help you understand how down payments of various sizes will affect the numbers. And you may consider getting preapproved for a mortgage to see exactly how much you can afford to spend.
In an FSBO situation, homeowners may have no experience with the home financing process, and getting prequalified or preapproved for a home loan may remove some roadblocks on your path to making a purchase.
Viewing the Home
Your agent can contact the seller and set up an appointment to view the home. When you visit, be on the lookout for sagging floors or cracks in walls that might indicate structural issues. Test windows. Look for water damage on ceilings or walls that may be a sign of a leaky roof.
Since the seller will most likely be showing the house, take this opportunity to get as much detail about the home’s history as possible. What repairs have been made recently, and which ones haven’t been made in a while? It’s smart to ask about any warranties, and to be sure they will remain after a sale.
When buying a home for sale by owner, it’s unwise to skip an inspection. Home inspectors go over the house with a fine-toothed comb, looking at structure, plumbing, electricity, and appliances to see whether they need repair now or in the near future. (This home inspection checklist shows you what should be covered.)
If the inspector finds any problems, you can ask the seller to fix them, credit you the cost of repairs, or reduce the sales price. If you’ve already signed a purchase agreement, severe problems found during an inspection can be a reason to pull out of the contract.
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Negotiating a Sale Yourself
If you decide not to use a buyer’s agent, you and the seller will have to negotiate the sale and write up the purchase contract yourself. You may also choose to hire a transactional agent or attorney who can help you write the contract and ensure it is done legally and in a way that protects your rights. If you do decide to go it alone, below are a few things to keep in mind.
Before making an offer on a house, check comparable properties in the neighborhood and see if the listing price is reasonable. Doing so can help you pin down what a reasonable offer is.
Consider offering less than the listing price. The seller may ask you to come up in the asking price, but if you start too high, it’s difficult to negotiate down again. You can use the neighborhood comps you’ve researched as a negotiating tool.
Including Contingencies
Contingencies are certain conditions that must be met in order to close the deal. Some common contingencies are a satisfactory home inspection and property valuation, also known as an appraisal. If a home is appraised at less than the agreed-upon price, a lender may be unwilling to loan the buyer the money. In that case, the appraisal contingency can be an opportunity to negotiate the sales price.
A clear title is another common contingency. The title is a document that shows who has owned and now owns the home. The title company will make sure there are no liens or disputes associated with the property. If there are unresolvable issues, the clear-title contingency gives the buyer a way out of the contract.
Negotiating Fees
It can’t hurt to ask for seller concessions, such as closing costs that the seller agrees to pay. A seller may agree to help pay for property taxes, attorney fees, appraisal inspections, and the like. Even in a seller’s market, if the property has been sitting, possibly because the price was too high, a seller may offer a financial incentive to move the home.
Putting Earnest Money in Escrow
Your earnest money deposit is the money you submit with your offer to demonstrate your serious intent to buy.
The listing agent would usually put this money into escrow. But if you’re going it alone, it’s a good idea to engage a title company or escrow company to hold the money for you until the sale goes through.
If you give the money directly to the seller, they may refuse to give it back to you if a contingency causes the deal to fall through, which could mean suing to retrieve your cash.
Determining When You’ll Get Possession
Be sure your purchase agreement specifies when you will take possession of the new house and receive the keys. Possession may take place immediately after closing, or the contract may give the seller time to move.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
The Takeaway
Buying a house for sale by owner can come with challenges and opportunities. It may make sense to engage a professional real estate attorney to help you negotiate and deal with the documents. Another option is to engage a buyer’s real estate agent who can help safeguard your interests.
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.
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FAQ
Is an FSBO house always cheaper?
A house that is for sale by owner isn’t always a great deal. Some owners, lacking the pricing advice usually provided by a real estate agent and having a strong emotional attachment to their property, might actually overprice their home when they list it for sale. Make sure you have the property inspected and appraised before you buy.
How can I determine if a FSBO house is fairly priced?
In the early phase of your home-buying process you can get a sense of whether or not a home is fairly priced by searching real estate sites for “sold” prices for similar properties in the area. If you are making an offer, you can enlist the help of a buyer’s agent. You should also hire an appraiser to value the property.
Can I buy a FSBO house without a real estate agent?
You can buy a house directly from its owner without the help of a real estate agent, but it’s more work for you and you’ll want to make sure your needs are represented in the transaction. If you choose to go without a real estate agent, engage the services of a real estate attorney to ensure the sale contract protects your interests.
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*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.
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This article is not intended to be legal advice. Please consult an attorney for advice.
‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.
Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.
HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.
SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.
If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.
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