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Buying health insurance can be intimidating when you’re not under an employer’s umbrella. The various types of health insurance plans, the wide range of costs, and the numerous ways to research and buy a policy can make the process daunting at first.

Here’s a guide to help you sort through the basics to find the plan that’s right for both your budget and your health needs.

What Is Individual Health Insurance?

The term “individual health insurance” is a little confusing. In most cases it means a policy purchased by an individual. But individual insurance also includes family coverage. Depending on your situation, you could be buying an individual health care plan that covers just you, or your spouse and dependents as well.

Young adults aging out of coverage under their parents’ plan may also need to buy individual health insurance.

You may find yourself shopping for private health insurance for you and your family if you no longer have employer-based insurance.


💡 Quick Tip: Your insurance needs depend on your age, dependents, assets, possessions, and economic situation. As your circumstances change, so should your insurance plans.

Types of Individual Health Insurance Plans

When you start your search for health insurance, prepare for alphabet soup — HMO, PPO, HDHP. Individual insurance comes in a lot of forms.

Choosing the right coverage for you starts with determining which type of plan best meets your needs. Here’s a quick look at the different types of health plans available and who might benefit most from each.

HMO

HMO plans limit coverage to health care providers who are under contract with the health maintenance organization. You usually need to have a referral from your primary care doctor to receive care from a specialist or other provider in the HMO network.

Care from providers out of the HMO network is typically not covered, except in the case of an emergency and for routine services with an obstetrician/gynecologist. HMO coverage is usually confined to specific geographic areas.

Some insurers offer a similar setup called exclusive provider organization plans, with coverage only if you use doctors, specialists, or hospitals in the plan’s network, with the exception of emergencies.

May be best for: People looking for the lowest-cost plans, who don’t need coverage outside their geographic area, and who don’t mind changing doctors to stay in the HMO network.

PPO

Members of preferred provider organization (PPO) plans pay less when they use network providers. Care outside the network is covered but at an additional cost. No referrals are necessary.

Some insurers offer a similar type of plan called point of service. As with a PPO, plan members pay less for care from network providers, but they are free to go outside the network. Like an HMO, they must use a network primary care doctor and get a referral to see a specialist.

May be best for: Individuals who can afford higher premiums and perhaps higher out-of-pocket costs in return for the freedom to see specialists and other providers outside the network.

High-Deductible Health Plan

This is a health plan that charges a deductible of $1,400 or more for an individual or $2,800 or more for a family for 2022. A deductible is the amount you pay out of pocket for health care costs before insurance coverage kicks in.

In return for higher deductibles, these plans usually charge significantly lower premiums. (Preventive care is usually covered at 100% when you stay in the network.)

You can combine a high-deductible health plan with a tax-advantaged health savings account. Contributions to an HSA are tax-free and can be used to pay for qualified medical expenses.

May be best for: People who don’t use a lot of health care services and are willing to risk high out-of-pocket costs, and those who are looking to start an HSA to save for future health care expenses.

Recommended: Benefits of a Health Savings Account

Catastrophic

These low-premium, very-high-deductible health plans are designed, as the name implies, to cover only dire circumstances.

The plans cover the essential benefits defined by the Affordable Care Act, though there may be limits on preventive care and the number of covered visits to a primary care provider.

Deductibles are, well, high: in 2023, $9,100 for an individual, according to healthinsurance.org.

The plans will help if you become seriously ill or are injured, but you’ll pay out of pocket for many other health care costs.

Catastrophic plans are only available to people under age 30 and to people with a hardship or affordability exemption. They can be purchased on healthcare.gov or directly from carriers.

May be best for: People in between coverage plans looking for a short-term buffer against large medical bills should an accident or serious illness occur. These plans are generally not viewed as suitable for anyone looking for traditional health care coverage.

Short-Term Health Insurance

Short-term plans are designed to provide temporary emergency coverage when you are between health plans or outside enrollment periods. Depending on what state you live in, short-term coverage can last up to 12 months, sometimes with the possibility of renewal for up to 36 months.

Short-term plans are not compliant with the Affordable Care Act and therefore do not have to provide essential coverage such as preventive, maternity, and mental health care and treatment for preexisting conditions.

Deductibles and out-of-pocket costs can be significantly higher than those of traditional health plans.

May be best for: Like catastrophic insurance, this is generally considered suitable only for people looking for stopgap coverage while they are otherwise uninsured.

Recommended: Beginner’s Guide to Health Insurance

Choosing an Individual Health Plan

It’s best to consider a number of factors beyond the premium price to determine the most affordable choice that meets your needs.

Consider how you typically use health care: Are you generally healthy and only need to go to the doctor for annual physicals? Or are you treating a chronic condition that requires consistent care?

It might be a good idea to try to project what the coming year will look like in terms of how you use health care. From there you can take into account what’s most important to you, including costs, providers, and pharmaceutical coverage.

Some questions to possibly ask as you compare plans:

What would my cost-sharing be? This includes out-of-pocket costs such as deductibles, copays, and coinsurance.

Does the plan have an annual or lifetime limit on how much I’d spend out of pocket? Every plan that is ACA compliant must publish a summary of benefits and coverage that you can check to see how the plan covers costs. In addition, most insurers and health care organizations have online tools that can help you compare plan costs.

Are my doctors in the plan’s network? You can check with the insurers or directly with your providers. If your providers are not in the network of the least expensive plans, ask yourself what is most important to you: lower costs and changing doctors or higher costs and keeping current providers.

Are my medications covered? Most plans have a formulary, a list of drugs that are fully or partly covered under the plan. You can access the plan’s formulary on the insurers’ websites. The lists change from year to year.

An experienced agent or broker who sells plans that are on the Health Insurance Marketplace and off the exchange can help you compare the broad range of plans to determine which one is right for your needs. (Agents and brokers often get a commission from insurance companies for selling plans, but the customer does not pay extra for enrolling with them.)

Or you can shop on your own for exchange plans and determine if you qualify for premium subsidies on Healthcare.gov . You can compare off-exchange plans through one of the many online brokers or directly with insurers.

The Takeaway

Shopping for an individual health insurance policy requires time, knowledge, and patience. But armed with the basics and some tools, you’ll have the best chance to find coverage that will meet your health care needs and budget.

When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.

Find affordable auto, life, homeowners, and renters insurance with SoFi Protect.

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Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance. Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.
SoFi Agency and its affiliates do not guarantee the services of any insurance company.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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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Personal insurance planning can pay off by shielding you from unexpected financial losses. Find out why insurance is important, and how to pay for it.

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Townhouses offer convenience and amenities that appeal to a range of homebuyers. They’re also growing in popularity, with new townhouse construction up more than 28% from 2020 to 2021. Construction costs also increased during the same time period.

Whether you’re building an investment property or your own new home, determining the project cost is essential before breaking ground. The cost to build townhouses depends on the size, location, number of units, onsite amenities, and the style of the building.

What Is a Townhouse?

A townhouse, also called a townhome, is a type of single-family home that has two or more floors and a shared wall with at least one other home. Compared to different home types, like duplexes and triplexes, each townhouse is individually owned and has its own entrance. Given the high-density design, townhouses tend to be more common in urban and suburban communities.

Townhouses often have their own yard or garage, but may share other communal amenities, such as a pool or tennis court, with neighboring townhouses. These shared facilities are typically governed by a homeowner’s association (HOA), which townhouse owners pay fees to for managing amenities and providing services like landscaping and snow removal.

If choosing between a condo or townhouse, another distinction is that townhomes usually have more autonomy in customizing the exterior of their home and outdoor living space, and more responsibility for that space as well.

Recommended: What is a Townhouse?

What Determines the Cost of Building a Townhouse?

The cost to build townhomes depends on a variety of factors. The type of townhouse, size, number of units, location, and additions like garages and basements all contribute to the total construction cost.

Here’s what to consider when estimating how much to build a townhouse.

Type of Townhouse

There are different types of townhouse layouts and configurations, including traditional, stacked, and urban.

•   Traditional: Generally organized in a row with two floors of living space, a basement, and garage.

•   Stacked: Refers to townhouse units stacked in a multi-floor building, which typically have their own entrances.

•   Urban: Similar to traditional townhomes, but often have more modern and spacious floor plans and higher prices.

Another key decision when purchasing a new construction home or townhome is whether to go with a modular or stick-built design. The components of a modular townhome are manufactured off-site, saving time and labor.

Stick-built townhouses are constructed on-site using a wooden frame and finished with a brick or vinyl exterior. This type of construction allows for greater customization, but generally comes at a higher cost than modular townhomes.

Recommended: Pros and Cons of Building a Townhouse

Square Footage

The cost to build a townhouse is impacted by the size, which is measured in square feet.

Townhomes cost between $111 to $125 per square foot on average. Because townhouses share walls and occupy smaller lots, they’re often more affordable than detached single-family new construction, which breaks down to an average of $150 per square foot.

Using the square footage to estimate total townhome cost is a fairly straightforward calculation. For instance, builders can expect to pay between $222,000 and $250,000 to erect a 2,000-square-foot townhouse based on the average range. Bear in mind that does not include the cost of the building site.

With these estimates, you can compare mortgage rates and determine what financing you qualify for.

Number of Rooms

The interior layout, including the number and types of rooms, is a key determining cost factor.

Not all rooms are created equal though, with kitchens and bathrooms being the most expensive due to appliances, tiling, plumbing, and more complex electrical work. The living spaces and bedrooms are generally simpler and cheaper to build.

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

Number of Units

By definition, townhouses are built in groups. Leveraging economies of scale to build multiple units or a complex could reduce the cost per unit. Keeping the design and floor plan consistent across units can also lower the price.

So, how much does it cost to build a townhouse complex? That depends on the extent of amenities included, as well as the number of units.

Location

Location, location, location. Where you choose to build a townhouse will impact the cost of construction and its value once completed.

The cost of labor varies significantly between regions. Paying builders and contractors typically accounts for 40% of new home construction expenditures. The location of the townhouse also matters in terms of costs related to accessing the site and sourcing materials.

Additions

Wondering how much to build townhomes with attractive amenities? Here’s what you can expect to pay for common townhome add-ons.

•   Basement: Building a basement foundation costs between $24,000 and $44,500 on average.

•   Driveway: The materials and installation costs for a new driveway range from $2 to $15 per square foot depending on the material used.

•   Fencing: More affordable fence materials like wood, vinyl, and composite range from $10 to $45 per linear foot.

•   Garage: Cost varies by size, with one-car garages ranging from $10,500 to $27,000 and double garages costing between $14,500 and $40,300.

•   Pool: Expect to pay between $28,000 and $66,500 for an in-ground pool, with vinyl and fiber-glass lining typically costing less than concrete.

•   Shed: Adding a storage shed ranges from $300 to $15,000, with pre-fabricated options usually costing less than custom builds.

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Construction Cost for Building a Townhouse

Construction costs are often the deciding factor when thinking of buying or building a house. Townhouses are generally less expensive to build per unit than a detached single-family home.

In addition to the factors discussed above, townhouse construction involves a range of pre-construction costs, like purchasing land, building permits, and architectural or design fees. The materials and labor usually account for the majority of the expenses to build a townhouse.

Townhouses can be designed as starter homes or luxury properties, and project budgets can be structured according to the target market and expected return on investment. Still wading into the waters of homebuying? Consult a Home Loan Help Center for useful tips and guides to master the basics.

Recommended: Construction Loans for Building a House

The Takeaway

How much does it cost to build a townhouse? In short, it depends on the type of townhouse, size, number of units, location, and added amenities. But you can estimate roughly $111 to $125 per square foot or $225,000+ for a 2,000 square-foot abode, not including land cost.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How many townhouses can fit on an acre?

The number of townhomes that can fit on an acre will depend on what’s permitted by local zoning, as well as space allocated for landscaping, parking, and other amenities. However, an acre can accommodate around 20 two- or three-story townhomes.

How much are utilities in a townhouse?

Utility costs vary by location, unit size, personal energy use, and equipment used for heating and cooling. Due to their smaller footprint, townhomes typically have lower utility bills than single-family homes.

Should I buy a townhouse or single-family home?

There are pros and cons with either type of home. Townhomes may require less maintenance and include extra amenities, while single-family homes can offer more space and discretion in how you design and decorate your home’s exterior.

What are the disadvantages of living in a townhouse?

Living in a townhouse can mean less privacy from your neighbors and noise from shared walls.

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Photo credit: iStock/vkyryl

*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.

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 for more information.

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

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A home title policy — also called title insurance — protects homeowners and lenders from claims and litigation stemming from title defects. Title insurance, according to the American Bar Association, allows for a secure transfer of ownership from one party to another.

To address top questions surrounding home title policies, we’ve compiled this guide. You’ll learn:

•   What is title insurance for a home?

•   How does it work?

•   What are common title issues?

•   What does the home title policy cover?

•   What are the different types of home title policies?

By the end, you still won’t be thrilled to pay this additional cost at closing, but you may understand better what it protects.

What Is a Home Title Policy?

A title policy on a home is an insurance policy that protects against title defects. Title issues aren’t common, but when they occur, the amount of money involved can be massive. Home title policies are required by lenders to protect their investment in your property. That’s right, just like mortgage insurance, it’s not really for you. In fact, these policies are also called lender’s title insurance policies.

Confusingly, you can also buy a home title policy that provides the exact same protection for you: This is called an owner’s title insurance policy. If you want to be completely protected as a homebuyer, you need to purchase both. (Ugh!)

What could go wrong that necessitates this layer of insurance? If, for example, the seller didn’t have the full right to sell the property because there was another property owner and the title company missed this in their title report, the title company is responsible for the error. The title company could pay for litigation costs or payouts for property owners.

Title issues that could potentially arise include:

•   Existing mortgages

•   Undisclosed heirs that have claims on the property

•   Tax or construction liens

•   Property line disputes

•   Judgments involving the property, such as in the case of a divorce

•   Deeds, wills, or trusts with errors

•   Easements or encroachments that may restrict access and/or devalue the property

•   Notary mistakes

•   Errors in public records

•   Fraud and forgeries

💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

How Does a Home Title Policy Work?

There are two parts to a home title policy: a title search and a policy issuance. After real estate purchase contracts are written and the property is in escrow, homeowners select a title company to conduct a title search.

In the title search, the title company looks through public records for defects (or problems, like those listed previously). If the search turns up a mortgage lien issue, judgment, or other issue, it will need to be addressed before ownership can be transferred.

If the title search hasn’t revealed any issues, the title company will issue the policy when the transfer of ownership is recorded. The borrower pays a one-time fee for the home title policy in their closing costs.

Recommended: What Is Escrow?

What Does the Home Title Policy Cover?

The title search helps eliminate risk, but it’s still a possibility that title problems can arise. That’s where the title policy for a home comes in. After the policy has been issued, should any additional items come up, the title company will litigate those issues for the benefit of the lender — but only up to the amount of the loan. As the loan balance decreases, so does the amount of home title insurance coverage.

One important thing to note is the home title policy that you get is usually a lender’s title insurance policy. What this means is the lender is protected against legal claims against the home. The borrower’s claim to the home — their equity — is not protected unless the borrower also purchases an owner’s title policy.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

Home Title Policy Requirements

Home title policies aren’t required by a governing body like a city or state — they’re required by the lender. When a borrower seeks funds for a home mortgage loan, the lender has certain requirements that the borrower must meet in order for them to issue that mortgage. One of these is a home title insurance policy. Borrowers must pay for a home title policy in order to close the loan. Lenders want to make sure the property the borrower selected is free to be bought and sold and their investment is protected.

Recommended: First-Time Homebuyer Programs

Pros and Cons of a Home Title Policy

It’s worth summing up the benefits and drawbacks of a home title policy.

Pros	Cons
The title search can reveal title defects before you close on a home.	Home title policies are required.
The title insurance can litigate up to the amount of the mortgage if there is an issue.	They’re expensive.
	If it’s a lender’s home title policy only, it won’t protect the equity in your home.

When buying a home, you’ll encounter lots of different types of insurance. It’s worth taking a few minutes to familiarize yourself with the definitions.

Types of Home Title Policies

As noted above, home title policies come in two types: lender’s title insurance and owner’s title insurance.

Lender’s home title policies protect the lender from losses that come from title issues or defects. If title issues arise, the title company will cover losses or litigate for the lender up to the amount of the mortgage.

Owner’s home title policies protect the amount of equity an owner has in the home. If someone has a claim or brings suit against the title of the home, it is possible homeowners could lose the amount of equity they have in their home.

Fees for these policies vary widely by state. But for a typical home valued at around $400,000, you can expect to pay about $2,000 to purchase both types of title insurance and to pay for the title search. Fortunately, this is a one-time cost — unlike other types of homeowners insurance you might buy, you won’t have to renew your title insurance every year.

The Takeaway

It’s not exciting to pay for a home title policy, but the expense is more palatable once you understand what it protects. If you purchase both lender’s and owner’s home title policies, you’ll be well protected in the event of an unexpected claim or ownership dispute on your new home.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is it worth shopping around for title insurance?

Title insurance can be costly so it is worth it to shop around. The insurer your lender typically uses might be an affiliate. So there could be a financial benefit to your lender if you use their partner company, but that doesn’t mean there will be a financial benefit to you. Comparison shopping could save you money.

What is the disadvantage of title insurance?

The chief disadvantage of title insurance is its cost, and the fact that it is usually required by a lender. Beyond that, keep in mind that lender’s title insurance only covers the lender in the event of a title problem — it doesn’t protect the equity that you have in the home. For that, you would need a second owner’s title insurance policy.

What is the difference between title and mortgage insurance?

Lender’s title insurance, which is paid for by the borrower, protects the lender in the event that a title dispute arises on the property. Mortgage insurance protects the lender in the event that the borrower defaults on the loan.

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Photo credit: iStock/Wasan Tita

*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.

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

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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Buying a house for the first time is a major life moment, both emotionally and financially. For many people, it’s the biggest investment they will ever make. With the median price of a house hitting $436,800 in 2023 (ka-ching), it’s not a purchase to be made lightly.

If you’re buying your first home, you may expect it to be the same as those quick, fun-and-done experiences portrayed on reality TV shows. In truth, however, it’s a process with a steep learning curve and many moving parts, from figuring out your home-shopping budget to satisfying your final mortgage contingencies. There can be minor hiccups and major missteps along the way.

There are so many things to know as a first-time homebuyer, it’s better to educate yourself in advance rather than learn as you go. To that end, this guide will cover the 10 most common first-time homebuyer mistakes to avoid, including:

•   Not knowing how much house you can afford

•   Failing to include other factors, like insurance and repairs, in your budget

•   Waiving an inspection because you’ve found your dream house

10 Home-Buying Mistakes to Avoid

Home-buying mistakes are easy to make, especially when buying a house for the first time. Review these 10 common first-time homebuyer mistakes before searching for your dream home — so you can ensure you’ll avoid them.

1. Forgetting to Check Your Credit

When’s the last time you checked your credit? It’s absolutely crucial to know your credit score when buying a house.

Why? You may not qualify for a mortgage if your credit score is too low. For most types of mortgage loans, you’ll need a 620, though lenders also consider other factors, like your down payment and your debt-to-income (DTI) ratio. You’ll get better rates if you wait to apply for a mortgage until your score is 740 or above.

The lesson? Don’t let a low credit score rule out buying your first home, but if it’s on the lower side, maybe consider taking some time to build your credit score before shopping for a house.

Recommended: Tips for Buying a House With Bad Credit

2. Not Being Realistic About What You Can Afford

Before you start looking at listings online or working with a real estate agent — and certainly before you try to get preapproved for a mortgage — calculate how much house you can afford.

Once you know the number, avoid looking at houses above your limit.

So how do you calculate how much house you can afford? There are a few easy methods:

•   DTI: Think about your debt-to-income ratio (your debts divided by your gross income). When adding a monthly mortgage payment into your current DTI calculation, the percentage shouldn’t pass 43%. That’s typically the highest ratio mortgage lenders will accept.

•   28/36 rule: With this method, your max mortgage payment should be 28% of your gross income, and your total debts — mortgage and otherwise — should be no more than 36% of your gross income.

•   35/45 rule: Spend no more than 35% of your gross income on debt and no more than 45% of your after-tax income on debt.

•   25% after-tax rule: After adjusting for taxes, your mortgage should not account for more than 25% of your income.

💡 Quick Tip: You deserve a more zen mortgage. SoFi Mortgage Loan Officers are dedicated to closing your loan on time — backed by a $5,000 guarantee offer.‡

3. Putting Too Much or Too Little Down

In their eagerness to become homeowners, many first-time buyers make the mistake of going overboard and directing every bit of money they have to the purchase.

If you have to drain your emergency savings to manage the down payment on a home, you might want to dial down the amount or wait and save up a bit more. Consider what could happen if the home needs a costly repair or, worse, if you or someone in your family suddenly has an expensive medical bill. That’s a good example of when to use an emergency fund.

Conventional wisdom says to put 20% down (and it does help you to avoid paying private mortgage insurance (PMI). But with housing costs so high, that’s all but impossible for most homebuyers. Instead, focus on the minimum down payments required for the type of loan you’re considering:

•   Conventional loan: As low as 3%

•   FHA loan: As low as 3.5%

•   VA loan: As low as 0%

Remember, though, that if you put down very little, you’ll need to borrow more. Your monthly payments will be higher, and you could pay more interest over the life of the loan.

4. Forgetting About Homeowners Insurance and Property Taxes

Your monthly mortgage loan payment is more than just the cost of your home. You’ll also need to cover the cost of homeowners insurance and property taxes, which are often paid into an escrow account. Depending on the type of mortgage and how much you’ve paid, you may also have to pay for PMI. Together, these all increase your monthly payment — sometimes substantially. When you look at a home, the real estate agent should be able to show you property tax history so you can get an idea of what you’d pay each year. You can also work with an insurance agent to simulate insurance quotes for various homes you’re considering.

Property taxes will change from year to year, and you can always change your homeowners insurance to lower the cost, even if you pay for it through the escrow account. It may be a good idea to bundle home and auto policies together to take advantage of a discount.

Recommended: How Much Homeowners Insurance Do You Need?

5. Failing to Budget for Home Repairs and Maintenance

Forgetting to budget for homeowners insurance and property taxes is one of the most common first-time homebuyer mistakes — but those expenses aren’t the only ones people forget to budget for when buying a house for the first time.

If you’ve been accustomed to calling a landlord whenever something breaks in a rental, reset your expectations. Now, you’ll have to take care of basic home maintenance — like replacing air filters, cleaning the gutter, resealing wood decks, and cleaning the chimney — and repairs. When the air conditioner is blowing hot air, the oven stops working, or your roof starts leaking, you’re on the hook for the repairs.

Some issues may be covered by homeowners insurance (but there’s still a deductible!), but other issues caused by general wear and tear are solely your responsibility. And then there are other possible costs, like higher utility bills and homeowners association fees, that can eat into your budget.

6. Not Hiring a Qualified Home Inspector

It may be tempting to waive the home inspection when you’re trying to buy the home of your dreams — especially if you have some stiff competition to be the winning bidder for an in-demand property.

Sorry to say, this is a risky strategy. A home inspection might reveal critical information about the condition of a home and its systems, from electrical problems to hidden mold; from a failing septic system to a leaky roof. What you learn in an inspection could reveal that your dream home is actually a money pit.

What’s more, your inspection report might serve as a useful negotiating tool: You could use it to ask for repairs or to work out a better price from the seller. And if you really aren’t happy with the inspection results, you may be able to use it to cancel the offer to buy.

And in the grand scheme of things, an inspection isn’t too expensive. The average home inspection costs $300 to $500.

Recommended: The Ultimate Home Inspection Checklist

7. Overlooking the Neighborhood and Surrounding Area

You may have fallen in love with a specific home, but when you buy a house, you’re also buying the neighborhood that comes with it, so to speak.

How are the surrounding properties maintained? Do the people seem friendly? If you have kids or are planning on having them, do you see other families with young children? How are the schools in the area? What’s the traffic like? How’s the noise level? What restaurants and stores are nearby?

Think about your ideal community — and then try to find a dream home in that type of community.

8. Letting Your Emotions Get the Best of You

Buying your first home or any home thereafter can be a roller coaster, so it’s important to prepare yourself psychologically as well as financially. If you’ve ever talked to someone buying a house, you know there are potential pitfalls all through the purchasing process.

You might fall in love with the perfect house and find it’s way over your budget. You might get annoyed with the sellers or their real estate agent, especially during the negotiation process. You might disagree with your partner about priorities.

All of these scenarios can cause a person to behave emotionally. It might make you want to walk away from a great deal. It might lead you to barrel ahead with a purchase, even when warning lights are flashing.

Our advice to a first-time homebuyer? Recognizing that this will be a challenging and, at times, stressful process (especially because you are new to it), take a deep breath, and proceed calmly. Find tools that help you move ahead with patience and a sense of calm, best as you can. With your eye on the prize — namely, your first home — you’ll get there.

Recommended: Improving Your Relationship With Money

9. Not Considering Future Resale Value

Houses are more than a place to live — they’re an investment. While you certainly want to prioritize buying a home you’ll be happy in, it’s also a good idea to think about how much the property might be worth in five, 10, 15 years and beyond.

It’s impossible to predict the market, but you can feel more confident about strong future resale value by choosing a house with multiple bedrooms and bathrooms, a well-appointed kitchen, and a yard. Other features, like a finished basement or a garage, may also make it easier to sell the home in the future.

10. Not Having an Emergency Fund

One of the basic tenets of personal finance is building an emergency fund. And here’s some blunt advice for first-time homebuyers: You’re going to need an emergency fund.

House emergencies can happen at any time: A tree falls on your roof, a toilet starts to leak, your dog destroys the carpet, you name it. Having money socked away to cover these expenses is crucial when buying a home.

6 Smart Moves for First-Time Homebuyers

We’ve covered some of the most common first-time homebuyer mistakes, so let’s shift gear to smart moves you can make when buying your first home.

1. Get Paperwork Moving ASAP

What do first-time homebuyers need when getting a mortgage? Here are some of the most common docs to start putting together:

•   Proof of income: Lenders will often want to see two months’ worth of pay stubs or bank statements that confirm your income. They’ll also want your tax returns from the previous two years.

•   Proof of funds: To take you seriously, lenders want to know you have enough money to cover a down payment and closing costs.

•   Proof of identification: This could include a government ID, a passport, or your driver’s license.

Early in the process, you can furnish this basic information to get prequalified at various lenders. They’ll also run a credit check during the prequalification process.

Being prequalified simply allows lenders to give you an idea of what types of mortgages (fixed rate vs. variable rate, 15-year vs. 30-year, etc.) you might get approved for. It’s not a promise of approval, but it does help set expectations as you start to browse listings.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

2. Check Out First-Time Homebuyer Programs

It’s wise to shop around for a few different mortgage quotes, but it would be a rookie mistake to overlook some great, government-sponsored programs that make buying a house more affordable. These include:

•   FHA loans: These mortgages are designed for those with low to moderate incomes. They typically offer low down-payment requirements, low interest rates, and the ability to get approval even if you have a fair credit score.

•   USDA loans: These provide affordable mortgages to those with a lower income who are planning on buying a home in a qualifying rural area.

•   VA loans: These mortgages help those on active military duty, veterans, and eligible surviving spouses become homeowners. If you can check one of those boxes, you may be eligible for a home loan with no down payment requirement and no PMI.

3. Consider Additional Costs Beyond the Mortgage

As we’ve discussed above, the actual monthly house payment is not your only cost. Your full mortgage payment includes property taxes, homeowners insurance, and, potentially, PMI.

But before you even get to the point of making monthly payments, consider these upfront costs of buying a house:

•   Closing costs, which are traditionally paid for by the buyer.

•   Home inspections, which we highly recommend.

•   Moving costs, whether just renting a truck or hiring movers.

4. Get Preapproved

Mortgage prequalification isn’t a commitment for the lender or buyer — it’s just a first step. If you appear to meet a lender’s standards, you could move on to the preapproval stage.

Getting preapproved for a home loan involves submitting additional income and asset documentation for a more in-depth review of your finances.

Once the lender approves these aspects of your loan application, you’ll receive a conditional commitment for a designated loan amount — called a preapproval letter — and have a better idea of what your loan terms will be.

Mortgage preapproval can help demonstrate to sellers that you’ve completed the first step in getting a mortgage because your credit, income, and assets have already been reviewed by an underwriter. This can smooth the bidding process and could give you an edge over others in a competitive situation with multiple offers.

Recommended: How Long Is a Mortgage Preapproval Good For?

5. Choose the Right Type of Mortgage

You may qualify for various types of mortgage loans. Spend some time researching the different types so you have a better understanding of how they’ll impact your payments for the next several decades.

For instance, you’ll want to know the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). You’ll also want to understand how a 15-year term affects your monthly payments when compared to a 30-year term — but also how a longer term increases the amount you’ll pay in interest.

Other mortgage types to understand include:

•   Conventional loans vs. government-issued loans

•   Conforming vs. nonconforming loans

•   Reverse mortgages, jumbo mortgages, and interest-only mortgages

6. Shop Around for the Best Mortgage Rates

Finally, remember that you don’t have to go with the first mortgage offer you get. It’s worth your while to get multiple offers so you can compare interest rates, down payment requirements, terms, and more.

The Takeaway

Buying a house for the first time can be a stressful experience, but remember: At the end of it all, you’ll have a place you can call yours. You’ll build equity over time, and the house may increase in value. Just make sure you research the most common first-time homebuyer mistakes so you know how to avoid them.

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 are some common mistakes first-time homebuyers make?

Some common home-buying mistakes for first-time homebuyers include forgetting to check (and improve) their credit, not calculating how much home they can actually afford, and forgetting to consider additional expenses, like inspections, homeowners insurance, property taxes, closing costs, and increased utilities. First-timers may also forget to consider the neighborhood as a whole or the future resale of the home.

What are the two largest obstacles for first-time homebuyers?

Two large obstacles for first-time homebuyers include rising housing prices and credit score requirements. Those who don’t already have equity in a current home may have more trouble coming up with a down payment on a new home. First-time homebuyers may also lack the credit score needed to get the best possible rate on a new mortgage.

What are three common mortgage mistakes?

Three common mortgage mistakes are 1) buying up to the limit you’re approved for rather than calculating how much you’re comfortable paying; 2) skipping the home inspection to expedite the process or make your offer more appealing to buyers; and 3) not considering related expenses you’ll have to budget for, including homeowners insurance, property taxes, and repairs and maintenance.

What are the most common mistakes that homebuyers make?

Homebuyers make a number of common mistakes, such as making an unnecessarily large down payment, forgetting to budget for related costs, buying more house than they can afford, and not shopping around for the best mortgage loans.

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Photo credit: iStock/Drazen Zigic

*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.

^‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
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 .

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 for more information.

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

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