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Buying a house at auction could be a great opportunity to scoop up a deal on a property. When homes are auctioned off, either due to foreclosure or other reasons, the highest bidder gets the property. Once the property is yours, you could move in, rent it out, or fix and flip it.

How does a house auction work? In terms of the mechanics, they’re not that different from other types of auctions. If you’ve ever been to an estate auction or charity auction, for example, then you might already have an idea of what to expect. But the dollar amounts are likely higher than you would encounter in a typical auction, so if you’re considering buying a house at auction, it’s wise to study the landscape before you start. Here’s what you need to know.

What Are House Auctions?

An auction is a sale that’s open to the public in which something is sold to the highest bidder. House auctions are regulated by state laws. An auction house or company can run the auction on behalf of whoever owns the home, which may be a bank, lender, or individual. How does an auction house work? Auction companies typically get a share of the sale proceeds in exchange for running the auction.

Real estate auctions can save buyers the time and stress of house-hunting for weeks or months on end. If you’re paying cash for the home — and most auction winners do — you don’t have to go through the home mortgage loan process either.

Why Are Some Houses Sold at Auction?

There are different reasons why a home may be sold at auction, but it’s often due to financial hardship on the part of the owner. For example, a home could be auctioned for sale if the owner:

•   Defaulted on the mortgage payments and the home is in foreclosure

•   Agreed to a short sale with the bank in order to avoid foreclosure

•   Failed to make property tax payments

•   Had their property seized as part of a government forfeiture

•   Didn’t pay homeowners association fees as agreed

In other instances, a homeowner may decide to put a property up for auction simply to unload it quickly. If someone inherits a home, for instance, they might decide to auction it off so they can walk away with cash in hand rather than listing the property on the market and waiting for it to sell.

Recommended: What Is a HUD Home?

How Do Auctions Work?

How does an auction work for a house? It’s not that different from any other type of auction. The auction company can announce the date and time of the auction beforehand, giving prospective bidders a chance to research the details of the property. People place bids on the property, either in person or online, by a prearranged deadline, and the person submitting the highest bid wins.

Types of Auctions

House auctions can be absolute, minimum bid, or reserve. How the auction is structured can depend on the seller’s preferences. Here’s how each type of auction works.

•   Absolute auction. In an absolute auction, the property is sold to the highest bidder. Unless there are no bidders at all, a sale is guaranteed.

•   Minimum bid auction. In a minimum bid auction, the auction company sets a minimum bid amount. Bidders must then submit starting bids that are equal to or above that amount.

•   Reserve auction. In this scenario, a minimum bid is not published but the seller reserves the right to reject any bids that don’t meet their reserve price — sometimes as much as several days after the auction concludes. This means there is no guarantee that the property will actually be sold, even to the highest bidder.

House auctions can be held online or in person. The format may depend on the auction house or again, the seller’s preferences.

Most auctions, including house auctions, also involve a buyer’s premium in addition to the so-called “hammer price” (the winning bid). The buyer’s premium is typically a percentage of the hammer price, usually under 10%. The premium is not part of your bid, but you should know what it is and factor that into your overall budget for bidding so that you don’t exceed your resources.

Types of Bids

In addition to there being different types of house auctions, there can also be different types of bids. The seller has the option to choose whether they’d like bids to be blind or open.

•   Blind bids. In a blind bid auction, bids are not disclosed. In other words, you won’t know what the person next to you is bidding. This type of bidding requires buyers to be able to make an educated guess in order to avoid overpaying for a property.

•   Open bids. In an open bid auction, bidders can see what price everyone else is offering for a property. This type of arrangement offers transparency and makes it less likely that you’ll overbid, however, it can lead to a bidding war if there’s a lot of competition for a property.

If you’re researching how buying a house at auction works, it’s important to know which type of bid arrangement the auction house uses beforehand. Otherwise, you could end up in a situation where bidding gets tricky and you risk going over budget or losing the property.

How Much Should I Bid?

There is no simple answer to this question, as the amount you’ll need to bid to win a house at auction can depend on the terms of the auction itself. If you’re in a minimum bid auction, for instance, then you’ll need to bid at least enough to meet the seller’s base requirements. However, you may need to bid well above the minimum to win the auction.

Doing your research before auction day can help you get a better idea of how much to bid on a house at auction. If you know, for example, that there’s still $100,000 remaining on the mortgage of a foreclosed home then you might set that amount as your maximum bid if there is no minimum.

However, you’d also want to know what the home is worth. If the property’s appraised value is only $70,000, then you’d likely want to adjust your maximum bid down. The more you know about the property, the easier it becomes to establish your minimum and maximum thresholds for bidding.

Example of a House Auction

How does buying a house at auction work in real life? Again, it can depend on several factors, including the state the auction is being held in, the auction company that’s being used, the seller’s preferences, and the home itself. Here’s an example of what an absolute, open-bid auction might look like.

You, along with other prospective buyers, are bidding on a home with no minimum. You know from your research that the property has an appraised value of $80,000 so you decide your maximum bid will be $70,000. Another buyer makes an opening bid of $30,000, which is followed by bids of $35,000, $42,000, $53,000, and $60,000 from the remaining bidders.

At this point, you decide to bid $63,000, which is still under your maximum bid threshold. As the auction continues, buyers one and two stop making new bids. Buyer three counters with $65,000 and you bid $67,000. Buyer three bumps their bid to $69,000, which prompts you to go to $70,000.

If there are no more bids, then you win the property and move on to the next step, which is to arrange payment with the auction company. If buyer three counters with $72,000, you’d need to decide if you want to go above your maximum bid or let the property go.

Buying a House at Auction: In Person vs. Online

Auction companies can host home auctions in person or online. The process is still largely the same, though there are some differences to know.

In Person

At an in-person auction, you and other interested bidders will meet at an appointed date, time, and place to make your bids. An auctioneer will run the auction and accept bids, according to the seller’s preferences. Should you win an in-person home auction, you’ll need to make arrangements for payment that day.

Attending an in-person auction can be more stressful if you’re in an open bidding situation and it starts to get competitive. You might be driven by emotion to make a bid that you otherwise wouldn’t if you felt less pressure to secure a particular property.

Online

Online house auctions also require you to show up at an appointed day and time to place your bids but you’re able to do it from the comfort of home or wherever you happen to be at the moment, as long as you have a strong internet connection. You and other buyers can make bids on the property and again, the winner gets the home.

Buying a house at auction online may be more convenient if you’re not able to go to the auction site in person. You could bid on homes on your lunch break at work or while you’re waiting in the carpool line to pick up kids from school. You may feel less pressure since you’re not surrounded by other eager buyers shouting out bids.

How to Find Real Estate Auctions

There are several ways to find real estate auctions near you, starting with an online search. You can visit real estate auction websites and filter for properties near you by your current location. Auction websites may also allow you to filter by property type or opening bid so you can narrow down your search to find properties that fit your budget. The number of properties available is driven in part by foreclosure rates in each state.

You can also look for home auctions near you using other means, including:

•   Craigslist

•   Facebook

•   Local newspaper advertisements

•   County treasurer or tax assessment notices online

•   County court websites

If you know a local real estate agent, you might also contact them to ask if they know of any upcoming property auctions. Finally, you can ask around with friends, family, or coworkers to see if anyone in your circle has a lead on a home that may be going up for auction.

What Bidders Need to Know

Before buying a house at auction, there are a few rules to be aware of. If you’re a first-time homebuyer or investor, here’s what you’ll need to know.

•   You don’t need a real estate agent to buy a house at auction, though it might be helpful to talk to one informally about how the auction works or the details of a home you’re interested in.

•   Houses sold at auction are usually as-is, meaning that if you buy a home that needs repairs, you’re responsible for making them.

•   Depending on the reason for the auction and who the seller is, you may not be able to get a full home inspection (or any inspection) before buying.

•   You may need to bring cash to the auction house to make a down payment or pay in full for any properties you win.

•   If you’d like to attend a house auction online, you may first need to demonstrate to the auction company that you’re a qualified, legitimate buyer.

•   Failing to follow through on the purchase after winning can result in the loss of any down payment or deposit you’ve made and you could also be barred from participating in future auctions.

It’s usually a good idea to read through the auction company’s policies beforehand so you know what obligations you have in attending the auction and if you win a bid.

Pros and Cons of Real Estate Auctions

Should you buy a house at auction? There are some advantages and disadvantages involved. On the pro side, you could buy a home for much less than what you could purchase one for on the open market. Homes that sell at auction may sell for below their appraised value, which could make it easier to find a bargain on a property. That might appeal to you if home prices are where you live have put home buying out of reach.

How much money you can save when buying a house at auction can depend on how motivated the seller is to get rid of it as well as the overall demand for properties in that area. When you compare the cost of living by state, the cost of living in California is much higher than other areas, largely because of how competitive the housing market is.

In terms of the downsides, most homes at auction are sold as-is. You run the risk of buying a home that looks like a great deal on paper, only to find out that it needs extensive repairs in order for it to be livable. If you’re trying to make some quick money with a fix and flip investment, for example, the final profit may fall short of your goals.

Another concern is ensuring a clear title on the property, particularly if it is in foreclosure or bank-owned. Order a title report on the property and look for secondary mortgage or tax liens. Sometimes the auction agreement will make the buyer responsible for these costs, so it’s a good idea to read the agreement carefully and to buy title insurance as well.

Unless the auction house offers a financing option, you’ll need to have cash on hand to complete the purchase. Coming up with tens of thousands of dollars to buy a home in cash may not be realistic for the average buyer. Last but not least, house auctions aren’t guaranteed. You’ll still need to go through escrow and closing on the property and, during that time, if the original homeowner is able to work out an agreement with the lender or bank that allows them to keep the home, your efforts to try to buy it could come to nothing. Think of winning a house auction as winning the right to buy the house, not winning the house itself.

Recommended: What Is a VA Loan?

Tips to Buying Auction Homes

If you’re interested in how to buy a foreclosed home or bank-owned property at auction, it pays to do your research as mentioned. For example, you might ask these questions before the auction.

•   Why is the home being sold?

•   Is it a foreclosure or bank-owned?

•   Will I be able to inspect the property beforehand or is it being sold as-is?

•   What type of auction is it and are bids open or blind?

•   How much cash will I need to bring? How much would I need to have easily at hand in the event that I have the winning bid?

•   Does the auction house allow financing?

•   What happens if the owner is able to reclaim the property?

The other tip to keep in mind is to know what you can comfortably bid, based on your budget. A real estate agent can also give you some valuable insight into the condition of the local housing market, which may make it easier to identify a good or bad buy.

If you go into a house auction without a firm limit set, it’s easy to go over budget and potentially end up paying too much for a property.

Risks of Buying Houses at House Auctions

House auctions are not risk-free, as you’re not always guaranteed total transparency. Some of the biggest risks to be aware of include:

•   Buying a home as-is, only to find out it needs a lot of work to make it livable. Big-ticket problems that may not be immediately visible might include mold, a defective septic system, or electrical problems.

•   Getting caught in a bidding war and paying too much for a property

•   Tying up all of your cash in an investment property that may take months to become profitable

•   Having your bid superseded if the homeowner is able to work out a last-minute agreement with the bank or lender

Being aware of the risks can help you to decide if buying a house at auction is right for you. And remember that there are other ways to invest in property, without having to own it directly. For example, you might collect dividends from a real estate investment trust (REIT), hold real estate mutual funds or exchange-traded funds (ETFs) in your brokerage account, or buy property alongside other investors through a real estate crowdfunding platform. If you are open to investing in commercial real estate, real estate options contracts are, well, another option.

The Takeaway

If you’re interested in how to buy a house on auction for yourself, it’s important to know what the risks are and what the process involves. At the end of the day, you might find that it’s easier to go the traditional route for buying a home.

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

FAQ

What are the advantages of buying a house on auction?

Buying a house at auction could save you money if you’re able to pay less for a property than you would on the open market. Home auctions can offer opportunities for investors or would-be first-time buyers to save money on the purchase of a property.

What is the benefit of an auction house?

Houses sold at auction can be more affordable than homes sold on the open market. That’s an advantage if you’d like to buy a home, either to live in or as an investment property, but high prices are keeping you out of the housing market.

What happens when you bid at an auction?

When you make a bid on a house at auction, your bid can be topped by another prospective buyer or accepted if it’s the highest bid. If you make a winning bid, then you can move to the next phase, which involves signing the necessary paperwork and arranging payment to assume ownership of the home. \

Photo credit: iStock/bymuratdeniz

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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A real estate contract is one agreement you do not want to sign without reading and understanding fully. Get it right, and you’ll likely have a smooth transaction. Miss something, and you’ll face delays, lost money, or even cancellation of the contract.

What Are Real Estate Purchase Agreements?

When buying a home, you’ll make your offer on a form standardized by your state known as a real estate purchase agreement (also commonly referred to as a real estate purchase contract, a real estate contract, a real estate sales contract, a home purchase contract, or a home contract). This legally binding agreement, in general, says the buyer will pay an agreed-on amount for the purchase of the property, and the seller will convey the title in exchange.

The purchase agreement, or contract, details the terms and conditions of the sale. The fundamentals include the parties in the transaction, a description of the property, the sales price, the closing date, and the date of the title transfer and possession.

Who Prepares the Contract?

The initial offer is most often filled out by the buyer’s real estate agent and sent to the seller for review. Sellers can ask for adjustments to dates, reject or accept contingencies, negotiate the price and repairs, or even reject the offer altogether. The contract is considered a working document until both parties reach an agreement on terms. When signed by both parties, the terms are set and the contract becomes binding.


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

Key Components of a Home Contract

There’s a lot of legal language in a home contract, but the core details are actually quite clear. These are essential details that both buyer and seller need to know so they can complete the transaction in a timely, legal manner.

1. Identity of the Parties

For a legal contract, full identification of the parties in the contract is required, and the parties to the contract must have the capacity to enter into the contract.

2. Property Details

The property must be described with certainty. This is a legal description of the property filed with the county recorder’s office.

3. Details, Rights, and Obligations

Buyers and sellers agree to certain responsibilities and obligations in entering into a real estate contract with each other.

•   Good faith. Parties should act in good faith with each other, meaning neither party should act to destroy or injure the right of the other party to receive the benefits of the contract.

•   Time is of the essence. Parties should understand that deadlines are absolute and must be met. If deadlines need to be adjusted, an addendum with the new dates can be submitted by one party to the other for consideration. A signature validates the change.

•   Legal and tax counsel. All parties should understand the legal and tax ramifications of entering into a contract and may want to consult with appropriate experts.

4. Purchase Price and Financing

Sales price, amount of down payment, and payment method are outlined in the real estate contract. An amount of earnest money is also listed on the contract. Earnest money is a deposit held in escrow by a third party that signals to the seller that the buyer is putting forth a good-faith effort to complete the purchase of the home. Earnest money may be forfeitable to the seller if the buyer does not meet the conditions of the sale. It is also refundable to the buyer under the contingencies outlined in the contract.

5. Contingencies

A real estate sales contract usually includes contingencies, which are terms the buyer or seller sets that must be satisfactorily met for the contract to become binding. One of the most common contingencies is a home inspection. If something on the checklist for a home inspection is not to the buyer’s standards, they are able to cancel the contract and have their escrow money returned to them.

Some other common contingencies are:

•   Financing

•   Sale of the buyer’s home

•   Title review

•   Appraisal

•   Survey

•   Homeowners association document review

When competing against multiple offers in a hot market, buyers have been known to waive some or all contingencies.

6. Closing Date

The closing date is the day the transaction will be finalized. Buyers often wonder how long it takes to close on a house, and the answer can vary widely depending on the property and circumstances of the buyer and seller. If you’re looking for a definitive number, national statistics show an average of 45 days to close.

On the contract, parties will agree to a closing date, identify the title company, and disclose any other terms for the final transfer of the property. At the closing, final signing and transfer of the deed occurs, the transfer of title is recorded, and the buyer often receives the keys to the house (though possession can occur in subsequent days, as per the agreement between the buyer and seller).

7. Possession Date

The possession date is the first day the buyer can occupy the home. Possession can occur immediately after closing, at an earlier date, or at a later date that is agreed on by both parties. It is most often listed as the closing date or the day after closing.

8. What Is Included in the Sale

Buyers can negotiate what is included in the sale of the property. Common items listed are the washer and dryer, refrigerator, and other heavy items that are not easily moved.

9. Closing Costs

Though exact closing costs won’t be listed in the real estate purchase agreement, the contract can be written to name who will pay for closing costs. It’s common, for example, for a buyer to offer an amount over the list price of the property and then ask the seller to help cover the buyer’s closing costs with the overage amount. Wondering how much typical closing costs are? They average 2% to 5% of the loan principal.

10. Addendums

An addendum is an additional document to the real estate purchase agreement that includes more information or buyer requests that were not included in the original contract. It has the power to override the terms of the original contract.


💡 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.

Can Purchase Agreements Be Canceled?

Canceling a contract is different for buyers and sellers. Buyers usually have contingency clauses built into the purchase agreements. If certain conditions of the sale are not met, the buyer can back out of the contract and have their earnest money returned. Some common reasons rest on:

•   Financing

•   Sale of their home

•   A satisfactory home inspection

•   An appraisal

•   Title work

It’s common, for example, for a buyer to cancel the real estate contract if the home has serious issues found during a home inspection. Foundation, electrical, pest, mold, or any other issue found during the home inspection will allow the buyer to cancel the contract if an inspection contingency is in place.

Buyers can also walk away from the purchase agreement for any reason, but they risk losing their earnest money or face court action if the reason and timing for breaking the contract do not fall within the contingencies outlined in the contract.

A seller, on the other hand, has fewer options for canceling the purchase agreement. Sellers can cancel the contract if the buyer fails to meet the conditions and deadlines outlined in the contract. Sellers who default on the contract for other reasons may be forced to pay the buyer an amount equal to the earnest money deposit. They could also face a lawsuit from the buyer to enforce the contract.

The Takeaway

A real estate purchase contract can be lengthy but it’s important to read and understand what you are signing, whether you are buying or selling a property, and to keep on top of the deadline imposed by the closing date in the agreement. Being smart about the contract can protect you as a home changes hands.

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.

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.

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

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What’s your number? That’s not a pickup line; it’s the digits a mortgage lender will want to know. Credit scores range from 300 to 850, and for most types of mortgage loans, it takes a score of at least 620 to open the door to homeownership. The lowest interest rates usually go to borrowers with scores of 740 and above whose finances are in good order, while a score as low as 500 may qualify some buyers for a home loan, but this is less common.

Why Does a Credit Score Matter?

Just as you need a résumé listing your work history to interview for a job, lenders want to see your borrowing history, through credit reports, and a snapshot of it, expressed as a score on the credit rating scale, to help predict your ability to repay a debt.

A great credit score vs. a bad credit score can translate to money in your pocket: Even a small reduction in interest rate can save a borrower thousands of dollars over time.

Do I Have One Credit Score?

You have many different credit scores based on information collected by Experian, Transunion, and Equifax, the three main credit bureaus, and calculated using scoring models usually designed by FICO® or a competitor, VantageScore®.

To complicate things, there are often multiple versions of each scoring model available from its developer at any given time, but most credit scores fall within the 300 to 850 range.

Mortgage lenders predominantly consider FICO scores. Here are the categories:

•   Exceptional: 800-850

•   Very good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Poor: 300-579

Here’s how FICO weighs the information:

•   Payment history: 35%

•   Amounts owed: 30%

•   Length of credit history: 15%

•   New credit: 10%

•   Credit mix: 10%

Mortgage lenders will pull an applicant’s credit score from all three credit bureaus. If the scores differ, they will use the middle number when making a decision.

If you’re buying a home with a non-spouse or a marriage partner, each borrower’s credit scores will be pulled. The lender will home in on the middle score for both and use the lower of the final two scores (except for a Fannie Mae loan, when a lender will average the middle credit scores of the applicants).

Recommended: 8 Reasons Why Good Credit Is So Important

A Look at the Numbers

What credit score do you need to buy a house? If you are trying to acquire a conventional mortgage loan (a loan not insured by a government agency) you’ll likely need a credit score of at least 620.

With an FHA loan (backed by the Federal Housing Administration), 580 is the minimum credit score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 will have to put down 10%.

Lenders like to see a minimum credit score of 620 for a VA loan.

A score of at least 640 is usually required for a USDA loan.

A first-time homebuyer with good credit will likely qualify for an FHA loan, but a conventional mortgage will probably save them money over time. One reason is that an FHA loan requires upfront and ongoing mortgage insurance that lasts for the life of the loan if the down payment is less than 10%.

Credit Scores Are Just Part of the Pie

Credit scores aren’t the only factor that lenders consider when reviewing a mortgage application. They will also require information on your employment, income, and bank accounts.

A lender facing someone with a lower credit score may increase expectations in other areas like down payment size or income requirements.

Other typical conventional loan requirements a lender will consider include:

Your down payment. Putting 20% down is desirable since it often means you can avoid paying PMI, private mortgage insurance that covers the lender in case of loan default.

Debt-to-income ratio. Your debt-to-income ratio is a percentage that compares your ongoing monthly debts to your monthly gross income.

Most lenders require a DTI of 43% or lower to qualify for a conforming loan. Jumbo Loans may have more strict requirements.

How to Care for Your Credit Scores Before Buying a House

Working to build credit over time before applying for a home loan could save a borrower a lot of money in interest. A lower rate will keep monthly payments lower or even provide the ability to pay back the loan faster.

Working on your credit scores may take weeks or longer, but it can be done. Here are some ideas to try:

1. Pay all of your bills on time. If you haven’t been doing so, it could take up to six months of on-time payments to see a significant change.

2. Check your credit reports. Be sure that your credit history doesn’t show a missed payment in error or include a debt that’s not yours. You can get free credit reports from the three main reporting agencies.

To dispute a credit report, start by contacting the credit bureau whose report shows the error. The bureau has 30 days to investigate and respond.

3. Pay down debt. Installment loans (student loans and auto loans, for instance) affect your DTI ratio, and revolving debt (think: credit cards and lines of credit) plays a starring role in your credit utilization ratio. Credit utilization falls under FICO’s heavily weighted “amounts owed” category. A general rule of thumb is to keep your credit utilization below 30%.

4. Ask to increase the credit limit on one or all of your credit cards. This may improve your credit utilization ratio by showing that you have lots of available credit that you don’t use.

5. Don’t close credit cards once you’ve paid them off. You might want to keep them open by charging a few items to the cards every month (and paying the balance). If you have two credit cards, each has a credit limit of $5,000, and you have a $2,000 balance on each, you currently have a 40% credit utilization ratio. If you were to pay one of the two cards off and keep it open, your credit utilization would drop to 20%.

6. Add to your credit mix. An additional account may help your credit, especially if it is a kind of credit you don’t currently have. If you have only credit cards, you might consider applying for a personal loan.

Recommended: 31 Ways to Save for a House

The Takeaway

What credit score is needed to buy a house? The number depends on the lender and type of loan, but most homebuyers will want to aim for a score of 620 or better. An awesome credit score is not always necessary to buy a house, but it helps in securing a lower interest rate.

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 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.

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

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

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

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

SOHL-Q424-112

Ready for homeownership — but looking for something a little bit less overwhelming than a whole house? A condominium might be the perfect fit. But can you purchase a condo with an FHA loan? Yes, under certain circumstances, you can use a loan from the Federal Housing Administration to buy a condo. However, the FHA has to approve condominiums before allowing people to take out FHA-insured loans to purchase them — and finding a condo that’s gone through this approval process (or getting one you have your eye on approved) can be a bit of a challenge. But it’s not impossible! Read on to learn more about FHA-approved condos: what it takes to get approval, where to find condos that have already been approved, and the process of getting an unapproved condo past the finish line.

What Is An FHA-Approved Condo?

To understand what an FHA-approved condo is, it helps to understand what the FHA has to do with purchasing a home in the first place. By offering insurance to lenders, the FHA helps consumers secure low-cost loans with less stringent qualification factors. These FHA loans are commonly used for single-family homes, but can also be used for condominiums, provided the condo is approved by the FHA. Thus, an FHA-approved condo is one that can be purchased with an FHA loan. Pretty simple right? Well, let’s take a closer look.

Benefits of FHA Approval for Condo Buyers

FHA condo approval is beneficial for buyers because finding an FHA-approved condo allows buyers to benefit from the lower overall costs of condo ownership compared to single-family homeownership — and enjoy the lower barrier to entry that an FHA loan can offer to lower-income families, first-time homebuyers, and others facing financial hurdles.

However, not every condo can be approved by the FHA. In order to qualify, it must meet the FHA’s appraisal standards, including safety features as well as financial factors. Entire condominium communities can be approved, and, as of August 2019, an individual unit can also be approved — provided it meets requirements including being “complete and ready for occupancy” and being part of a community with at least five units.

How FHA Approval Impacts Condo Sellers

Sellers, too, benefit from FHA condo approval. Condos that can be purchased with an FHA loan are more attractive to buyers looking for home loans with lower costs and more lenient approval requirements, which means FHA approval is a boon for both parties.

💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Why Does a Condo Need to Be Approved for an FHA Loan?

When the FHA insures loans offered by private lenders, it does so at some level of risk: The loan may never be repaid, in which case it would lose money paying the lost funds back to the lending bank. But borrower delinquency isn’t the only reason a loan might go unfulfilled; if the condominium is falling apart or not financially viable, that could also increase the risk level of the loan. Therefore, the FHA approves condos on a case-by-case basis to help ensure their physical and financial safety for the lender, borrower, and the FHA itself.

How to Get a Condo FHA Approved

If you’re considering buying a condo that doesn’t yet have FHA approval — and you’d like to get that approval to pursue an FHA loan — you can initiate the approval process on a single-unit basis. (Alternatively, you could reach out to the condominium association to see if it is interested in getting the community as a whole FHA approved.) The approval process will require a variety of documentation as well as an appraisal — again, in order to ensure both the physical and financial viability of the community.

Approval Requirements

To achieve FHA approval, condo communities must be demonstrably:

•   Insured

•   Compliant with state and local law

•   In good financial standing

•   In good physical standing

•   Free of any legal action

For single-unit approval, a condo must be:

•   Part of a complex that is not FHA approved

•   Completely built and move-in ready

•   Part of a community with at least five units

•   Not a manufactured home

Minimum Owner-Occupancy Ratios

The FHA maintains minimum owner-occupancy ratios for complexes attempting to get approved. This figure ranges based on a variety of factors, but is usually somewhere between 35% and 50% — meaning between about a third and about half of the condo units must be occupied by their owners.

Financial Stability and Reserve Requirements

The FHA will also assess the financial stability of the condominium complex in order to ensure it’s likely to continue to stay in business for the foreseeable future. For example, 20% of the annual budget must be set aside for reserves, and three years’ worth of financial documents must be provided.

FHA Insurance Requirements for Condos

FHA-approved condos must maintain up-to-date insurance coverage in order to create financial safety for owners and lenders alike.

Restrictions

Condos that don’t meet the eligibility requirements outlined above may not be suitable for FHA approval — and therefore may not be able to be purchased with an FHA loan.

FHA Application and Documentation

In order to get FHA approval, condos will need to prove they meet the requirements with documentation, including financial information, proof of insurance coverage, inspection reports, and more. If you’re attempting to get a single unit approved, the onus may fall on you as the interested party to get this process started. (The seller, if motivated, may also be able to help.)

The Condo Board’s Role in Securing FHA Approval

In order for an entire condominium complex to become an approved FHA condo, the condo board must first meet to decide whether or not board members want to file for FHA approval. If the vote is in favor of seeking approval, the board will need to aid in filing paperwork to begin the application process and to prove the minimum required eligibility factors are fulfilled.

How Long Does it Take for a Condo to Get FHA Approval?

While specifics will vary and delays can occur, the FHA approval process for a condo may take between two and four weeks on average once all the paperwork is in place.


💡 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.

How to Find an FHA-Approved Condo

Fortunately, it’s pretty easy to determine whether or not a condominium you have your eye on is FHA-approved: The U.S. Department of Housing and Urban Development (HUD) offers a searchable database tool that allows you to simply look the property up by address, community name, condo ID, and more.

Leveraging Realtor Expertise

If you have your heart set on purchasing a condo — and on using an FHA loan to do so — a local real estate agent may have the best sense of which complexes in the area are already FHA approved. Some agents may be game to help you get a unit you’re interested in approved on a single-unit basis.

FHA Loan Alternatives for Condos

If you’ve fallen in love with a condo that is, alas, not FHA-approved, take heart: There are different types of mortgage loans worth considering. Many conventional loans these days come with required minimum down payments as low as 3%, though to avoid paying mortgage insurance, you’ll need a down payment of at least 20% of the home’s value. Fortunately, that goal may be a lot more achievable for a condo than a larger single-family home.

In addition, you may be able to use other types of government-insured loans, like VA loans and USDA loans, to buy condos if you qualify. (VA loans are for veterans and their families, while USDA loans are specifically for properties in designated rural areas.)

Benefits and Drawbacks of FHA-Approved Condos

FHA-approved condos, like any other home, have both benefits and drawbacks to consider.

Pros

•   Approved FHA condos can be purchased using an FHA loan, which my offer easier-to-meet qualification requirements and lower costs to borrowers

•   Condos may be overall less costly to own than single-family homes

Cons

•   FHA-approved condos can be harder to find, especially in competitive, fast-moving housing markets

•   Getting a condo FHA approved is a process that takes time and effort, and can be difficult for an everyday consumer to take on

The Takeaway

Purchasing an FHA-approved condo can help buyers hop over some of the primary hurdles to homeownership with lower down payment and minimum credit score requirements. However, not every condo meets the FHA’s strict approval criteria — which means hopeful homeowners may have to choose an alternative mortgage loan type (or keep looking for their dream home).

SoFi offers a wide range of FHA loan options that are easier to qualify for and may have a lower interest rate than a conventional mortgage. You can down as little as 3.5%. Plus, the Biden-Harris Administration has reduced monthly mortgage insurance premiums for new homebuyers to help offset higher interest rates.

FAQ

Can you purchase a condo with an FHA loan?

If the condo in question is FHA-approved, yes, you can — but not all condominiums meet the FHA’s requirements. In order to discern whether or not the condo you’re looking at is FHA approved, you can use the FHA’s searchable database, which allows you to search by address, condo complex name, and more.

What does it mean when a complex is not FHA approved?

If a condo complex is not FHA approved, it may not meet the FHA’s requirements — or the board may simply have not yet filed for approval, which does take some time, effort, and paperwork to do. It also means that the condos will not be able to be purchased with an FHA-insured loan, at least until such approval is obtained.

Are there specific criteria for FHA approval of condos in certain regions?

FHA-approved condos must be in compliance with all state and local guidelines, which can vary by region — so yes, the specific criteria may vary slightly.

Photo credit: iStock/benedek

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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

SOHL1223002

As of mid-2024, the average closing time on a house was 43 days after acceptance of an offer, down slightly from 48 in 2022, according to ICE Mortgage Technology, Inc. Whether that timeline feels swift or slow will depend on your personal circumstances, but once you’ve found a home to buy, it’s natural to want to close the deal quickly.

Online mortgage options can speed this process along, and many home sales can be buttoned up in as little as 20 to 30 days. Still, delays can happen.

Here’s what you need to know in order to get to the closing table.

How Long Does Closing on a House Take?

If you’re paying cash for a house, you’ll typically be able to close quickly.

But let’s assume a home loan will be part of the process. You’ve jumped through the initial hoops of the mortgage loan process an made an offer on a home you like.

If the offer is accepted, you’ll provide an earnest money deposit and sign a purchase contract. The price and any contingencies — conditions that must be met for the deal to proceed — are included in the purchase agreement.

This begins the due diligence period. It includes a title search to verify ownership and look for any liens that need to be paid off to ensure clear title to the new home. Most but not all issues will be reflected in a preliminary title report.

A typical contingency period is 30 to 60 days, though something like the inspection could be required within 10 days or less. Buyers can ask for extensions in writing.

Here are four common contingencies:

Financing Contingency

The mortgage contingency nullifies the deal if you can’t procure a mortgage within a certain time. The contingency language may be specific about the type of loan, down payment, and interest rate.

Getting preapproved for a mortgage is standard, but it’s not a guarantee. After your chosen home is under contract, your mortgage still has to go through underwriting.

Recommended: How Does the Mortgage Preapproval Process Work?

Home Sale Contingency

You may need to sell your current house to complete the purchase. You’ll typically be given 30 to 60 days to do so. In a competitive market, many sellers won’t even consider the offer with a home sale contingency.

But some sellers may employ a kick-out clause, which allows them to keep showing their home and “kick out” the contingent buyers if the sellers receive an offer without a home sale contingency.

Appraisal Contingency

An appraisal is usually required when a home is being financed. If the property valuation is less than your offer, you may walk away from the deal. You could also cough up the difference or ask the sellers to lower the price.

How long after the appraisal to close? About two weeks.

(By the way, if you’re still in the shopping stage, you can put an offer on a house that’s contingent.)

Home Inspection Contingency

A home inspection is generally not mandatory for any loan type but will help ensure that the home is free of issues that may result in expensive repairs. In a seller’s market, many properties are sold as is, meaning sellers won’t negotiate for repairs after the inspection.

In a buyer’s market, sellers might agree to pay for some repairs or to reduce the home’s price.

How a Mortgage Closing Works

You’ve qualified for a mortgage and chosen a lender.

After you’ve supplied income, asset, and other documentation, all of the contingencies have been satisfied, and your mortgage has received final approval from underwriting, it’s time to prepare for closing.

This will be the big day, when signing the closing documents legally transfers ownership from the sellers.

Sign Documents

Three days before your closing date, your lender will provide you with a closing disclosure that outlines the final closing costs and terms of your home loan. You can compare this five-page form with the loan estimate you received after applying for the mortgage.

Paperwork (lots of it) will have been prepared for you, including the deed of trust or mortgage and the settlement statement.

In some cases, everyone gathers in one place to sign closing paperwork. Other times, buyers sign separately from sellers. Forty-seven states and the District of Columbia now allow remote online notarization.

Pay Closing Costs

The lender will usually tell you the amount needed for closing several days before the event. A wire transfer may be arranged a day or two before closing. Or you can present a cashier’s check or certified check that day.

Cash to close includes closing costs (unless you opted for a no-closing-cost mortgage) and your down payment minus your earnest money deposit and any seller credits.

Transfer the Home Title

After signing a mountain of documents, the closing attorney, escrow officer, or title company representative will record the deed, and you will be given the house keys.

Recommended: First-Time Homebuyer Guide

The House Closing Process, Step By Step

Here are the basics.

1.    Seller signs the purchase agreement.

2.    Buyer may order a home inspection.

3.    Buyer applies for the mortgage (and considers asking to lock in the rate).

4.    Lender orders a home appraisal and conducts credit underwriting.

5.    Mortgage is approved.

6.    Buyer provides proof of homeowners and title insurance.

7.    Buyer receives the closing disclosure; notice of closing time, date and location; and what to present at closing, like a photo ID and cashier’s check or proof of wire transfer for cash to close.

8.    Buyer takes a final walk-through, verifying that sellers have made any required repairs and that nothing in the purchase agreement was removed. The buyer can check for leaks, turn on heating and air conditioning, and so forth.

What Causes Delays When Closing on a House?

A buyer and seller agree to a target closing date in the purchase contract, but the closing doesn’t always happen on or before that date.

Financing, appraisal, inspection, and other issues can delay a closing. Here’s a taste of what may cause a postponement:

Lender wants more documentation. Even if buyers were pre-approved, received their mortgage commitment, and were cleared to close, lenders will review credit and bank statements one last time within a few days of closing. Any abnormalities can delay the closing.

The mortgage is denied. Even after preapproval, a home loan may be denied for lots of reasons, sending buyers back to the starting block.

Interest rates surge unexpectedly. This can affect qualification if the loan is not locked.

The appraisal comes in low. A home may appraise for less than the purchase offer. Buyers can request a second appraisal, ask the sellers to renegotiate the price, put more down to cover the difference, or walk away. (This is where having an appraisal contingency is key.)

The inspection reveals that major repairs are needed. If it’s an as-is sale, buyers can walk away if they had an inspection contingency in the contract. They could still try asking the sellers to make certain repairs, request a decrease in the sale price based on the cost of repairs, or ask for a home warranty.

The title is not clear. A contractor’s lien, for example, can cause a closing delay if the contractor can’t be found to settle it.

Buyers can’t sell their house in time. If sellers agreed to a home sale contingency, the clock is ticking. If the buyers’ home doesn’t sell in time, the deal could fall through.

Instrument survey issues. Boundary line encroachments or disputes can hang up a closing.

Unrealistic closing date. Any complication can cause a deadline to fail. An extension must be approved by each party.

The Takeaway

How long does it take to close on a house? The average closing takes place 43 days from the time an offer is accepted, but the timeline varies. Getting to the closing table, in person or remotely, is an accomplishment. It means you qualified and persevered.

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 long does it take to close on a house with cash?

In general, it takes only 2 to 3 weeks to close on a house with cash because there’s no need to wait for a lender to approve a loan. Once seller and buyer agree on a price and the inspection is done (if the buyer requires one), the closing can be scheduled immediately.

How long does it take to close on a house after the appraisal?

It could take anywhere from 2 to 6 weeks to close on a house after the appraisal. If the home appraises for the agreed-upon price and your mortgage documents are all in order, you could find yourself at the closing table in as little as 14 days. Complications with the appraisal, home inspection, or mortgage approval will extend this timeline.

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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