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If you’re looking for help with your finances, such as creating a budget or paying down debt, a financial coach could help you learn these money management skills. A financial coach teaches clients the fundamentals of finance and helps them develop good money habits that they can use now and in the future.

Read on to learn about the benefits of working with these professionals and how to find and hire a financial coach.

What Is a Financial Coach?

There are different kinds of financial professionals, including financial advisors and planners. So what is a financial coach exactly? A financial coach is a professional who helps clients learn about the basics of sound financial management. This includes saving money, paying off debt, creating a financial plan, and learning good money habits overall.

A financial coach can also help you prioritize your financial goals — such as buying a house or a car, putting money away for your child’s education, or saving for retirement — and then work with you to map out a plan to make it happen. This professional might even help you choose the best type of bank account for your needs.

A financial coach will typically meet with you over a series of weeks or months to help you improve your money management skills. In addition to concrete action plans like coming up with a budget or developing a debt repayment strategy, a coach can also help you understand the underlying feelings you have about money. These sentiments may impact your behavior, and the coach can then work with you to enhance your attitude toward your finances.

Rather than managing your money for you, a financial coach teaches you the strategies to do it yourself. This can help instill in you confidence in your abilities, so that you can make your own informed financial decisions.

Benefits of Working With a Financial Coach

If you’re struggling to save money or pay off debt or if you’re new to managing your money — for instance, maybe you’re a recent grad who’s living on your own for the first time — working with a financial coach can be helpful. This professional can assist you with putting together a plan to reach your financial goals, improve your relationship with money, or teach you the fundamentals of finances, depending on what you need.

Here are some of the specific ways a financial coach can help you.

Setting Financial Goals

After speaking with you and reviewing your financial situation, a financial coach can help you establish clear financial goals. These might include:

•  Starting an emergency fund with at least three to six months’ worth of living expenses to tide you over in the event of a large unexpected bill or a job loss

•  Setting up a budget

•  Paying down debt, such as credit card debt

•  Saving money in a type of account that maximizes the amount of interest you earn, like a high-yield savings account

•  Creating a financial plan to help you buy a house or save for your children’s education

It’s worth noting that if you’re interested in learning about investing, a financial coach can help you understand the basics about different investment options, but a coach is not licensed to offer investment advice or recommend specific financial products. If you’re looking for investment advice and recommendations, you may need a financial advisor instead.

Creating Personalized Strategies

When you work with a financial coach, they will typically tailor their approach to your individual needs. Rather than a one-size-fits-all treatment, you’ll get techniques suited to your particular goals, personality, and financial situation.

For instance, if your number-one priority is to pay down the high-interest credit card debt you owe, a financial coach will help identify the debt repayment strategy that resonates most strongly with you. If you’re the type of person that needs small steady successes to stay motivated, they might recommend the snowball debt repayment approach. With this method, you pay off your smallest debts first. The idea is that each time you cross a debt off your list, you feel a sense of accomplishment and get a burst of momentum that can keep you going.

On the other hand, if your priority is to minimize the interest you’ll pay, the financial coach might recommend the debt avalanche method, which focuses on paying off the debts with the highest interest first. This approach can potentially save you money in the long term.

Recommended: Emergency Fund Calculator: Estimate Your Safety Net

Where to Find a Financial Coach

Financial coaches, also sometimes referred to as financial counselors, are not required to be trained or licensed. However, the Association for Financial Counseling and Planning Education (AFCPE) does offer formal training and financial counselor accreditation. You can find an accredited financial counselor (AFC) by checking the AFCPE website for trained professionals in your area.

In addition, ask family and friends for recommendations for any financial coaches they’ve worked with. You can also consult other financial professionals you deal with, such as your accountant or financial advisor, to see if they might have suggestions for a good financial coach.

Questions to Ask When Hiring a Coach

Once you have the names of several financial coaches, reach out to each one to find out about their background and style of coaching. You can also get a feel for whether their personality and approach is a good fit for you.

As you’re preparing to hire a financial coach, similar to choosing a financial advisor, you can ask them a series of questions, including:

•  What kind of training do you have? To learn about a coach’s qualifications, find out if they have had any formal training or accreditation, and if they do, ask what their training consisted of. Also, inquire how many years of experience they have as a coach.

•  Do you have a specialty? Financial coaches may focus on particular areas such as debt management or credit-related issues. Sometimes they specialize in working with certain types of individuals, including small business owners and military service members.

•  Over how long a period do you typically work with clients? Does the coach tend to work with clients for a certain number of weeks? Or is it more likely to take a few months?

•  How often will we meet ,and how long is each session? Find out if they typically meet with clients weekly, for instance, and for generally how long per meeting. Also, some coaches offer virtual meetings as well as in-person meetings, so consider asking about that option as well.

•  What is your working process like, and what kinds of methods do you use? Briefly explain to the coach what you’re hoping to get out of coaching and then ask what their approach might be to help you realize your goals.

•  How much do you charge? Financial coaches typically charge hourly rates and work on a fee-only basis. While their rates can vary widely, $100 to $300 an hour is typical, with $257 as the average hourly rate for a financial coach, according to the National Financial Educators Council. By comparison, the cost of a financial advisor is more likely to be based on a percentage of the value of a client’s portfolio.

Along with gathering all of the information above, carefully consider the coach’s personality based on your conversation. Is this a person you would feel comfortable working with? That’s also an important component of finding and hiring a financial coach.

Recommended: What Is a Fiduciary Financial Advisor?

The Takeaway

Hiring a financial coach can be beneficial if you need help creating a budget, paying down debt, or honing your money management skills. This kind of professional can help you create a structured plan to build your bank account, save for the future, and reach your goals, but they do not directly manage your money. Carefully screening financial coach candidates and understanding their fees are important steps in the selection process.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What’s the difference between a financial coach and advisor?

A financial coach provides clients with information about the fundamentals of finances and teaches them the basic skills of money management, including budgeting, saving, and strategies for paying off debt. A financial advisor can provide clients with a more comprehensive financial plan for their future, give them investment recommendations, and help them manage their investment portfolio.

How often should I meet with my financial coach?

Financial coaches typically meet with clients weekly or every other week to provide information and check in on their progress. Talk to your coach to see what type of meeting schedule makes the most sense for your situation and goals.

Can I find a financial coach who specializes in my situation?

Yes, you should be able to find a coach that specializes in your situation. Financial coaches specialize in many different areas, including debt management, credit, budgeting, and saving. If you search for a coach on the Association for Financial Counseling and Planning Education (AFCPE) website you can read about their background and see exactly what their specialty is.

Photo credit: iStock/Hiraman

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

SOBNK-Q424-008

Regional banks generally offer a more localized banking experience vs. national banks and, often, more competitive rates and fees. However, national banks generally have a larger footprint and provide a wider array of products and services, which could make it the more practical option.

If you are trying to choose which one best suits your needs, read on. Here’s a closer look at regional vs. national banks to help you decide which type of bank is the right fit for your money needs.

Understanding Regional Banks

Regional banks can be an important financial services option that fills the gap between small, local banks and larger national networks.

Defining Regional Banks

Regional banks are financial institutions that tend to operate within a specific geographical area, which might be one state or multiple neighboring states (such as, say, the Southwest) or even multiple regions. As defined by the Federal Reserve, however, regional banks are those with total assets between $10 billion and $100 billion. This makes them larger than community banks (with under $10 billion in assets) but smaller than the largest national institutions, which often hold trillions of dollars in assets.

Regional banks usually offer a wide variety of banking products, including checking accounts, savings accounts, certificates of deposit (CDs), personal and business loans, and sometimes investment products. They often tailor their products and services to meet the needs of the local populations in the areas they serve, and are known for their personalized customer service and strong ties to the community.

Depending on their size and operations, a regional bank may hold a state or a national bank charter. Either way, they are typically insured by the Federal Deposit Insurance Corporation (FDIC). This means your money is protected up to $250,000 per depositor, per account category, per insured financial institution, in the very rare event of bank failure. Co-owners of joint accounts at the same bank are each insured up to $250,000 for the combined amount they have across joint accounts at that financial institution.

Recommended: Traditional Banking Compared to Online Banking

Geographic Footprint and Reach

As mentioned above, the footprint of a regional bank can range from one or two states to many different states in a specific region of the country, such as the Midwest or Northeast. This means that their branches and ATMs are primarily located within the bank’s operational region.

Their often limited footprint might pose some inconveniences if you travel frequently or anticipate moving. However, these banks typically offer online and mobile banking, enabling you to access and manage your accounts remotely. Some regional banks will also partner with a national ATM network to offer customers fee-free cash withdrawals nationally.

Understanding National Banks

National banks are typically larger networks, with greater assets and potentially a broader array of services.

Defining National Banks

National banks are large financial institutions that, as the name implies, operate on a nationwide scale. They aim to serve the diverse needs of individuals, businesses, and government entities by offering a broad array of services. These can include personal and business banking, consumer and commercial loans, and investment services. National banks tend to be household names, like JPMorgan Chase, Wells Fargo, and Bank of America.

National banks have a national bank charter, which means they are regulated at the federal level. They are chartered and regulated specifically by the Office of the Comptroller of the Currency. You can tell a bank is a national bank if it has an “N.A.” (short for National Association) as part of its legal name. An online bank can be a national bank. Like most regional banks, national banks are insured by the FDIC.

Nationwide Presence and Scale

With assets typically in the hundreds of billions or even trillions of dollars, national banks dominate the financial industry and hold a major share of the market. They usually have extensive networks of branches and ATMs throughout the country, offering customers convenient access to banking services regardless of location. To compete with online banks, national banks also offer an array of online and mobile banking services, enabling customers to manage their accounts from any location.

Many national banks also have a global presence, offering physical branches in multiple countries around the world.

Key Differences Between Regional and National Banks

Next, compare the ways in which a regional bank vs. national bank can vary.

Size and Asset Base

Local banks vs. national banks differ significantly in terms of size and asset base.

Regional banks have assets of $10 billion to $100 billion, while national banks can typically claim $100 billion and up in this realm. For this reason, regional banks may be limited in their capacity to handle large-scale corporate banking needs or massive infrastructure projects. While some regional banks may have assets in the tens of billions, the largest national banks often hold assets in the trillions of dollars.

In terms of geographical footprint, national banks tend to operate on a much larger scale, with upwards of 1000 branches per bank across the country, compared to around 100 branches for each regional bank.

Lending Practices and Products

While both regional and national banks offer consumer and business loans, there are some key differences in their lending policies and products.

•   Regional banks tend to have more flexible lending practices, particularly for local residents and small businesses. Due to their knowledge of the local market, they may be willing to offer financing to local businesses and startups that might not qualify for a business loan with a national bank. Some regional banks also specialize in niche loans that serve the needs of their local clientele. For example, a regional bank in a coastal area might offer boat loans or financing targeted to the fishing industry.

•   National banks, on the other hand, typically offer a wider array of lending products, including large commercial loans. They also tend to have standardized lending practices, with more stringent requirements. This can make it harder for individuals and businesses that lack a substantial credit history or sufficient collateral to qualify for loans.

Customer Service and Community Involvement

Another facet to consider when comparing a regional bank vs. national bank:

•   Regional banks tend to offer a more personalized customer service compared to national banks. Due to their smaller scale of operations, bank staff often build close relationships with customers and are able to provide tailored advice and more customized solutions to banking issues. Regional banks may also play an active role in supporting local communities through sponsorships, charity events, and financial literacy programs.

•   National banks generally offer customer service through a variety of channels (such as in-person, by phone, and via online chat) but may have a more standardized approach due to their size. This can lead to a more uniform but less personalized customer experience. Many national banks also engage in corporate social responsibility programs, supporting nationwide charities and offering public education programs on budgeting and money management.

Recommended: Savings Account Calculator

Advantages of Regional Banks

Regional banks offer a number of benefits that can make them a good choice for many individuals and businesses. Here are some perks to consider:

•   Attractive rate and fees: Regional banks may offer more favorable interest rates on savings accounts and loans to compete with national banks. They also tend to charge lower fees for ATM usage, account maintenance, and overdrafts.

•   Personalized service: Regional banks generally prioritize building long-term customer relationships and can often tailor their services to the needs of residents and businesses in the area.

•   Flexible lending criteria: These banks may be more inclined to work with local residents and businesses and offer loans to those who may not qualify under the stricter guidelines of national banks.

•   Community focus: Regional banks often prioritize community involvement and reinvest in the local area through loans, sponsorships, and other initiatives.

Advantages of National Banks

National banks also come with a host of benefits. Here are some to keep in mind:

•   Convenient nationwide access: National banks typically have branches and ATMs across the country, making it easy to access banking services wherever you are, even while traveling or relocating to a new area.

•   Diverse product offerings: From basic checking accounts to sophisticated investment and wealth management services, the breadth of services at national banks allow customers to meet all of the banking needs in one place.

•   Advanced technology: National banks may have more resources to invest in the latest technology than smaller regional banks.

•   Stability and reputation: The large asset base and established reputation of national banks can provide a sense of security, particularly during periods of economic volatility.

Recommended: How to Deposit a Check

The Takeaway

When choosing between a regional and a national bank, you may want to consider what matters most to you. If you value personalized customer service, lower fees, and flexible lending criteria, a regional bank may be the better choice. If, on the other hand, you want nationwide access to branches, a broad range of financial products, and advanced digital services, a national bank could be a better fit.

If you are shopping for a new bank, in addition to thinking about national vs. regional banking, you may want to consider online banks as well.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are regional banks considered community banks?

While they share similarities, regional banks and community banks are different types of banks. Community banks are smaller, with assets under $10 billion, and they focus on serving local neighborhoods. Regional banks, by contrast, have assets between $10 billion and $100 billion, and typically operate across multiple states or regions, though not nationwide. While both types of banks emphasize local involvement and customer service, regional banks tend to have a broader geographic footprint and tend to offer more services than community banks. Community banks, on the other hand, may offer a more localized experience.

Which type of bank typically offers better interest rates?

Regional banks often provide better interest rates on savings accounts and loans compared to national banks. One reason is their lower overhead costs. Another is that they tend to take a more community-oriented and flexible approach in setting rates. Conversely, national banks, with higher operational expenses and a more standardized approach to rates, may not be as competitive on this front.

Can national banks lend across state lines more easily?

Both national and state-chartered banks can make loans across state lines. Interest rates can vary, however, so it’s a good idea to compare offers from both national and local lenders to find the best rates and terms on a loan.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

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

SOBNK-Q424-003

Wire transfers and money orders (SoFi currently offers domestic wire transfers, but not money orders) are two payment methods using guaranteed funds. This offers assurance to the recipient of the payment that the funds will go through. While both wire transfers and money orders enable you to move money safely, the two methods are vastly different.

So what is the difference between money orders and wire transfers? Money orders are a low-cost form of paper payment with low transaction limits and a slower process. Wire transfers are electronic; while they cost more, consumers can send much more money via wire transfer — and faster.

What Are Money Orders?

A money order is a guaranteed paper payment method that you can purchase at a bank or credit union, post office, Walmart, MoneyGram or Western Union, or even some supermarkets and convenience stores. Money orders generally cost between one and a few dollars, though they can vary by vendor, denomination, and other factors.

Unlike a personal check, which draws funds from your checking account once the recipient deposits the payment, money orders require payment from the sender up front. You can pay for a money order with cash or a debit card. You typically cannot pay with a check, nor can you usually buy a money order with a credit card.

Money orders do not require a bank account, but they are usually limited to $1,000 domestically (and $700 internationally). This makes them less ideal for larger purchases. Money orders also require that you hand the paper order over to the recipient or send it in the mail, which can delay the payment.

Pros and Cons of Money Orders

So what are the pros and cons of money orders? Consider them both:

Benefits of Money Orders

Here are some of the advantages of using money orders:

•   Low cost: Money orders can cost less than a dollar and typically no more than a few bucks.

•   No bank account required: Approximately 4.5% of American households don’t have a bank account; money orders offer them a secure way of making payments.

•   Safety measures: Money orders do not have any account information on the paper (unlike personal checks) and are prepaid, offering more assurances to the recipient. Also, they can be reversed if not yet cashed, giving the payor some recourse if a mistake has been made. (If a money order has been cashed, then you likely can’t get a refund.)

•   Ease of purchase: You can buy money orders at many locations you may be visiting during a day of errands, including convenience stores, supermarkets, the bank, the post office, Walmart, and MoneyGram and Western Union.

Recommended: How to Manage a Checking Account

Drawbacks of Money Orders

While money orders offer an easy way to send guaranteed payments, they do have some disadvantages:

•   Low limits: Money orders are typically capped at $1,000 (even less when sending an international money order). If you need to make a larger payment, you’ll have to consider options like wire transfers or a cashier’s check.

•   Security concerns: While money orders do offer safety measures to protect your funds, consumers should be cautious. Because you have to fill out the money order after purchasing it, you risk losing it (or having it stolen). If a criminal gets their hands on it before you complete it, they could easily fill it out to themselves and take the money. In addition, money orders are not done online; this means they could become lost in the mail.

•   Speed: Because money orders are prepaid, recipients can usually access the funds faster than they could with a personal check. However, electronic payment methods, such as peer-to-peer payment apps and wire transfers, can get money to them faster, without the need to mail a piece of paper.

What Are Wire Transfers?

A wire transfer is an electronic transfer of funds that is administered by banks, credit unions, and transfer service agencies (like Western Union and MoneyGram). Wire transfers are a secure form of guaranteed payment that consumers can use to send money domestically and internationally.

Wire transfers are bank-to-bank transfers. No physical cash is moved; rather, the sender initiates a wire transfer by paying the fee and providing information about the recipient and their bank account.

While domestic wire transfers may take up to three days, they can be completed in the same day in some cases (say, if the payor and payee bank at the same financial institution). This can make them a fast way to send large payments from, say, one checking account to another.

Unlike money orders, wire transfers do not have low transaction limits; people may send up to $100,000 via wire transfer — or even more. This makes wire transfers ideal for major transactions, like buying a house. Wire transfers are also a secure way to send money to family members living in another country.

Recommended: 50/30/20 Budget Calculator

Benefits of Wire Transfers

Wire transfers offer consumers a number of advantages, including:

•   High amounts: Wire transfers allow you to send large sums of money, as long as you have the funds available in your bank account.

•   Safety measures: Wire transfers can be even safer than money orders. The money is guaranteed, and wire transfers are harder to reverse once initiated — offering greater assurance for the recipient that their money is coming. As long as you provide the correct bank information when conducting a wire transfer, you can be confident that the recipient will get their money.

•   Speed: Though wire transfers can take up to three days domestically, they can be faster (arriving even on the same day) if the payor and payee keep their accounts at the same bank. International wire transfers often take between one and five days. This offers a convenient way to move large sums of money efficiently.

•   Ease of purchase: You can conduct wire transfers in person, over the phone, or even online. This makes it easy to wire money domestically and internationally.

Drawbacks of Wire Transfers

So what are the disadvantages of wiring money? Here are a few to consider:

•   Higher cost: Wire transfer fees can cost more than other options. Each institution has its own fee structure, but in many cases, both the sender and the recipient may have to pay wire transfer fees. Fees are generally higher for international wire transfers; senders may also have to pay for currency conversions when sending money abroad. For instance, sending an international wire transfer could cost up to $50 (see details below).

•   Difficult to reverse: Wire transfers are almost impossible to reverse once they’re initiated — and unless the financial institution made a mistake, they are impossible to reverse once the recipient’s bank has accepted the transaction into the checking account, savings account, or other deposit account.

•   Security concerns: While wire transfers are a safe way to send money electronically, this payment method is popular with criminals. Consumers need to stay vigilant and learn to recognize wire transfer scams and other common money scams. In general, you should only wire money to people you know.

When to Use a Money Order Over a Wire Transfer

While both money orders and wire transfers allow you to send guaranteed funds, there are times when a money order makes more sense, like when:

•   You’re transferring a small amount of money: Money orders are more affordable. If you need to transfer less than $1,000, a money order can save you significantly on fees.

•   You don’t have a bank account: Money orders are a great way for people without bank accounts to send money securely.

When to Use a Wire Transfer Over a Money Order

Likewise, there are times it may make more sense to use a wire transfers, like when:

•   You’re transferring a large amount of money: Money orders are usually capped at $1,000 while wire transfer limits may be $100,000 or higher. Many real estate transactions require wire transfers because of this.

•   You’re sending money internationally: Money orders may make sense if you can hand the piece of paper over to the recipient, but when you’re sending money internationally, money orders could stand the risk of getting lost in the mail. (Not to mention international mail may take longer.) Wire transfers are an efficient and safe way to send money internationally.

Keeping Yourself Safe When Using Wire Transfers and Money Orders

Whether you’re using a wire transfer or money order, there are a few things you can do to protect yourself and your finances, like:

•   Only sending money to someone you know: Scammers use both wire transfers and money orders to trick people out of their money. Avoid such scams by only sending money to people you know and trust.

•   Triple-checking all account info: To ensure your money goes to the right person, it’s a good idea to verify that all the information is correct, including the person’s name and bank account information. In the case of money orders, filling it out immediately upon purchase makes it harder for a person to access your money if the document were lost or stolen .

•   Verifying the transfer service: If possible, it’s a good idea to stick to a bank or credit union you trust for wire transfers and money orders. If you’re not using your financial institution, it’s wise to thoroughly vet the vendor before purchasing the money order or conducting the wire transfer.

The Takeaway

Both money orders and wire transfers offer secure methods for sending guaranteed funds. Money orders are more affordable but have lower transaction limits and may take longer. Wire transfers are electronic; while they cost more, they allow you to quickly send significantly more money — and with added security.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are wire transfers or money orders used more?

Both wire transfers and money orders are popular methods for sending money — but they’re used in different scenarios, which makes it difficult to compare usage statistics. Consumers often use money orders when they’re sending less than $1,000 and wire transfers for larger transactions.

That said, the Federal Reserve reported originating more than 193 million wire transfers in 2023. In the same year, the U.S. Postal Service reported processing 63 million money orders.

Are money orders or wire transfers safer?

Wire transfers are generally considered safer than money orders. While both wire transfers and money orders offer ample security features, money orders are susceptible to being lost or stolen since they are a form of paper payment. Wire transfers, on the other hand, are wholly electronic — processed only by the banks involved.

What are some alternatives to wire transfers and money orders?

Alternatives to wire transfers and money orders include cashier’s checks, peer-to-peer payment apps, and bank-to-bank transfers. Depending on the transaction and the relationship with the recipient, you may also be able to use the old standbys: cash and personal checks.

Photo credit: iStock/South_agency

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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If you own an Airbnb property or are contemplating offering one on the popular rental platform, you probably know that doing so can bring in a welcome stream of income. You also probably know that it can take time and energy to keep things running smoothly. Guests may cancel at the last-minute; your property’s dishwasher might break; and an array of other scenarios may arise, demanding your attention.

In this situation, you might want to find a cohost to assist you. A cohost can simplify the process by assisting with bookings, housekeeping, answering guests’ questions, and more responsibilities.

A cohost could be a friend or family member, a person you find and pay for their services, or a professional with whom Airbnb connects you.

Here, you’ll learn more about this option including:

•   What is Airbnb?

•   How does Airbnb work?

•   How does Airbnb work for hosts?

•   How to become an Airbnb cohost?

What Is Airbnb?

Airbnb is an online marketplace for private home stays (whether that means renting out a room, a floor of a house, or a whole property) as well as vacation experiences.

How does Airbnb work for hosts? Owners sign up to rent out a room, apartment, or house for a home stay. (Even treehouses turn up among the properties.) The hosts set their rates, and share their rental policies. Guests can then book via the Airbnb platform, which assists with communications and administrative tasks for a commission.

More than four million hosts now operate worldwide, with over 150 million users globally who have booked over one million stays. It’s a proven platform for coaxing an income stream out of any property, and it can be an enticing endeavor for first-time homebuyers.


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

Who Books on Airbnb?

All kinds of people book on Airbnb: Recent grads, families, retirees, wedding guests, digital nomads, and more. Both frugal travelers and posh jetsetters alike are looking for lodging. Many people prefer the authenticity of an Airbnb to a cookie-cutter hotel or motel room.

How does Airbnb work for guests? They search for and book a property based on location, price, available dates, and desired amenities, among other factors.

When potential guests submit inquiries, owners receive immediate notification of the reservation request. Airbnb has technology in place to block guests with a record of negative behavior (such as property damage) from reserving properties.

How Does Airbnb Work for Owners and Cohosts?

There are many things to know when renting out an Airbnb. Here’s how Airbnb works for owners: Those who list new properties on Airbnb receive step-by-step instructions for setting up their space. They can be matched with a successful Superhost (that’s Airbnb’s term for highly rated and reliable hosts) to assist them.

If you bring aboard a cohost, they will be verified by Airbnb (submitting ID may be required). Once approved, they will have full privileges to help you with managing and optimizing your listing(s). Tasks can include:

•   Managing booking and reservation-related tasks

•   Answering prospective and current renters’ questions

•   Stocking and otherwise maintaining the property

•   Updating the listing as needed

•   Enhancing guests’ experience.

Recommended: Is It Smart to Buy an Investment Property While Renting?

How Much Do Airbnb Owners Get Paid?

If you are offering a property for rent on Airbnb, you are probably interested in turning a profit. So how does Airbnb payment work? The price you charge for your property and the number of nights you book will determine how much you earn.

If you consider this in more detail, the income from an Airbnb depends on a variety of factors, including the size of the property for rent, amenities (does it have a spa-style bathroom? A swimming pool?), the tourism market, local housing market trends, and the number of other Airbnbs you’re competing with.

Looking at the Airbnb site and sizing up your competition can help you determine how much to charge and how rates vary over the year.

In terms of how much Airbnb owners get paid of the amount renters pay, consider that most hosts pay a service fee of 3% of the rental subtotal (the nightly cost plus any fees you charge guests, such as cleaning charges). Airbnb doesn’t charge its hosts a payment processing fee.

In addition, guests usually pay Airbnb a 14% service fee on top of the subtotal.


💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.

How to Become an Airbnb Owner with a Cohost

Want to launch your property on Airbnb with the help of a cohost? The platform makes it simple:

•   Go to the listing(s) where you’d like to add a cohost.

•   Click on “Cohosts” and then “Invite a Cohost.”

•   Add their location and their email or phone number, and click “Next.”

•   You’ll be prompted to select permissions for this person; then click “Next.”

•   You can add a note if you like, and then hit “Send.”

Airbnb will then handle inviting and verifying the cohost and adding them to your listing. You can have up to 10 cohosts per listing.

In terms of how to become an Airbnb cohost, the person you’ve invited will likely have to accept your invitation and then provide information and ID to Airbnb.

Airbnb Owner Requirements

Here are some of the owner requirements to offer a property as a rental on Airbnb:

•   Be of legal age. Perhaps it goes without saying, but minors shouldn’t be involved in renting out properties on the platform. While it may sound like a cool summer project for a teenage cousin to help manage a family lakehouse, that would be a no-go.

•   Make sure renting your property is legal. Depending on the home’s geographical area, a host may need to register the property or obtain a short-term rental license. Or you may not be allowed to rent out your property at all. A call to your city hall may be the best way to learn the details.

•   Know the tax implications. In some tax areas, Airbnb will handle the calculation, collection, and remittance of any local occupancy taxes on your behalf. In other locations, you may be responsible for this.

•   Cover yourself. Hosts should understand the liability insurance that Airbnb automatically applies to rentals. Hosts may want to also confirm that their homeowners’ insurance policy provides coverage for short-term rentals.

Recommended: What Is the Cost of Living by State?

Pros and Cons of Being an Airbnb Owner

As you consider becoming an Airbnb host with a cohost or without, you may want to review the benefits and disadvantages of renting in this way.

Pros of Being an Airbnb Owner

Are you thinking about how to become an Airbnb host for others? Among the upsides to consider are the following:

•   Hosting short-term rentals can bring in cash. This can help ensure you’ll have resources to make your home loan payments.

•   Income from rentals can fund renovations and other improvements, or it could help finance your long-term financial goals.

•   A successful rental history can increase the value of your property when you’re ready to sell.

•   Many people find hosting a rewarding activity, both as a business and a personal pursuit.

Cons of Being an Airbnb Owner

Here are some of the downsides of being an Airbnb owner:

•   It can be a big leap to give total strangers the key to your home. For instance, if the property is your primary residence, you will have to vacate for bookings. If your home contains treasured furniture or tableware, you may worry about damage.

•   Some cities, towns, and homeowners associations have passed legislation against short-term rentals.

•   Owners who rent their properties, even a few days a month, must pay taxes on the earnings.

•   While Airbnb provides insurance coverage automatically to hosts, you may want to make sure your homeowners insurance can cover short-term rentals as well.

•   It can be a time-consuming endeavor, and some people may find being a host to be frustrating in some ways.

Writing an Airbnb Host Listing

A successful Airbnb host listing is typically a combination of an enticing portrait of your property and all the vital, nitty-gritty details.

Usually, the listing will share:

•   A short introduction, which delivers an overview and highlights why it’s a terrific property

•   Room-by-room descriptions

•   Details about the property/outdoor features

•   Information about the location and things to do nearby.

Be sure to define terms that bookers may not know, such as what is a duplex or pergola.

Tips on Hosting on Airbnb as an Owner with a Cohost

Here are some ways to collaborate with a cohost:

•   Have your cohost manage the calendar, set holiday/peak rates, and answer questions.

•   Ask your cohost to share ideas for area attractions that draw guests. Mention these in your listing, including distances from your property.

•   Talk to your cohost about personal touches they think would please guests, like sharing a list of good local restaurants that don’t require reservations.

•   Ask your cohost to create house rules and determine how to share and enforce them with guests.

•   Have your cohost review the property and highlight anything that needs maintenance or that could be improved.

•   Give your cohost the job of restocking the property after each guest stay.

The Takeaway

If you’re considering offering a property on Airbnb or are already doing so, a cohost could make the management easier. A cohost could be a family member who helps out for free, or they could be a paid professional who manages a number of Airbnb rentals and has considerable experience. A cohost could help you boost the success of your hosting on this popular platform.

Are you just pondering becoming an Airbnb host and currently eyeing the perfect bungalow to rent out? Finding the best mortgage for your purchase is an important step.

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 percentage does Airbnb take?

Airbnb typically collects a flat service fee of 3% of the rental fee subtotal. In addition, the guest pays Airbnb a 14% fee directly.

How much do owners have to pay Airbnb?

Airbnb will deduct a 3% fee from a rental subtotal (which includes the nightly fee, plus any other fees the host charges, such as a cleaning fee).

Do Airbnb hosts get all the money?

Here’s how Airbnb payment works: Airbnb hosts do not get all the money. They typically pay 3% of the subtotal (nightly plus other fees) to Airbnb and then get the rest. Airbnb doesn’t charge any payment processing fees.

Photo credit: iStock/AJ_Watt

*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-criteria for more information.

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Rent-to-own homes are properties rented by individuals who intend to buy the property at the end of their lease term. Typically, the renter and the property owner sign a rent-to-own agreement that states the agreed selling price and includes an upfront option-to-buy fee.

Both parties can benefit from this type of agreement. The seller continues to receive rental income until the home is sold, and the buyer has time to save for a down payment, build their credit score if necessary, and shop for a mortgage. But there are potential downsides as well, such as the tenant losing their fee or the seller dealing with a renter who tries to renege on their arrangement.

In this guide, you’ll learn such information as:

•   How does rent-to-own work?

•   What are the two types of rent-to-own contracts?

•   How does a rent-to-own contract benefit the seller?

•   What should sellers know about entering into a rent-to-own contract?

What Are Rent-to-Own Homes?

Rent-to-own homes are properties that a renter plans to buy from their landlord after a set period, often between one to three years. This type of arrangement benefits potential buyers who otherwise may not be able to follow the traditional home-buying process. Perhaps they have a low credit score or can’t afford a down payment right away. If so, this type of arrangement gives the buyer time to improve their financial situation and save for a down payment. For instance, it might be a wise move for some first-time homebuyers.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you throughout the process.

How Do Rent-to-Own Homes Work?

So how does rent-to-own work? Here is how this kind of an agreement might unfold:

•   First, know that there are two kinds of rent-to-own arrangements. With a lease option, you usually have the choice of buying the home at the end of the lease or walking away. With a lease purchase, you are entering into an obligation to buy the property at the end of the rental term. (You’ll learn more about the differences between these deals in a minute.)

•   The monthly rental price may be higher than the market rate determined by the cost of living in your state or area. The reason why: The amount paid will often include rent credits. What are rent credits? This is money put toward the downpayment on the home when the lease is up and the renter moves forward with buying it. Discuss and read any agreement carefully before signing to understand any rent credit provision.

•   If you are entering into a deal with rent credits, here’s how the math might look. Say the price of the home is $100,000. A tenant-buyer might put $5,000 toward a down payment. This could be paid as an additional $416.67 per month above the standard rental price over the course of a year-long lease.

In this rent credit example, the tenant-buyer would only need to borrow $95,000 since they have paid the homeowner $5,000 already. For people committed to renting to own, this is a way to build equity sooner. However, if you walk away from the property at the end of the lease in a lease-option arrangement, that rent credit money may not be refunded.

•   The renter may also pay a nonrefundable upfront fee. This is called an “option fee” and gives the renter the option to buy the house when the lease ends. Option fees are typically between 1% to 5% of the home’s value. If the renter chooses not to buy the house, they likely lose the money.

The Process for Selling a Rent-to-Own Home

A renter typically has one to three years to exercise an option to buy a home. The process for the seller generally includes the following:

1. Prepare the necessary legal documents that detail the agreement — lease-option or lease-purchase. A lawyer may consult to draw up this paperwork. Rent-to-own agreement terms vary, and it is a good idea for tenants to also consult a lawyer to make sure their agreement suits their situation.

2. Collect a nonrefundable deposit and option fee (typically, this is 1% to 5% of the purchase price). The deposit will go toward the down payment for the house.

3. Collect monthly rent for one to three years. A portion of the rent may go toward the eventual purchase of the home and lower the amount paid at the end of the lease term.

4. If the two parties signed a lease-option agreement, the renter has the option to buy the home after the agreed amount of time. If the renter decides not to buy, the seller usually keeps the down payment money collected.

5. If the renter signed a lease-purchase agreement, the renter must purchase the home after the agreed amount of time and at the agreed-upon price. If they don’t do so, the tenant will usually lose the money paid for fees and the rent credits. In addition, the seller can sue them for breach of contract.

💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.

Pros and Cons of Selling a Rent-to-Own Home

The biggest pro for sellers regarding a rent-to-own home is that they stand to make more money. The biggest downside to selling a rent-to-own home is that there is no guarantee a renter will close the deal.

The Advantages of Selling a Rent-to-Own Home

The list that follows highlights some of the key pros of selling via a rent-to-own arrangement.

•   The seller can earn rental income while preparing to sell the property.

•   This is useful if they have to move, buy another home, and pay two mortgages.

•   Sellers often earn additional rent by offering rental credits on a property, which provides an income stream.

•   Sellers keep the upfront option fee paid by the renter should the renter decide not to buy the property. They may also keep the rent credits.

•   Sellers will likely sell the home for a better price than the market price because there are typically no real estate commissions paid out.

•   A renter who plans to buy the home may be more motivated to pay on time and more inclined to take care of the property, lowering the seller’s maintenance costs.

The Disadvantages of Selling a Rent-to-Own Home

Next, consider the cons of entering into a rent-to-own arrangement.

•   There is no guarantee that a renter will buy the home at the end of the lease. They may not be able to qualify after shopping around for a mortgage or have enough for a downpayment despite making payments toward it.

•   The renter may fall delinquent with payments and refuse to vacate the property when the lease is up.

•   The renter may not take care of the property if they decide not to buy it.

•   The seller may be responsible for the upkeep of the property for the rent-to-own lease period.

•   The seller is responsible for any unpaid utility bills the tenant falls behind on bill payments.

•   The seller could wind up having to take legal action if a renter agrees to buy the home at the end of the lease but then refuses to do so.

Recommended: Things to Know When Renting Out an Airbnb

When Rent-to-Own Works

These rent-to-buy arrangements can have their benefits. Here’s how rent-to-own can work for the seller and the buyer.

•   A rent-to-own agreement can benefit a potential buyer by giving them time to build their credit score and save for a down payment while learning about the mortgage loan process.

•   The seller benefits because they still receive rental income during that time rather than leaving the home vacant while they try to sell it. In addition, the seller may receive above-market rent as the tenant accrues their down payment. They may also save on some of the expenses of selling a home.

When Rent-to-Own Doesn’t Work

While rent-to-own homes can work, this arrangement may not be the right choice for all sellers. Some points to consider:

•   It can take time, perhaps years, before the renter is financially equipped to buy the home. So if the seller needs money now, this is probably not a good option.

•   Also, if home prices are dropping, the seller may want to sell the home sooner rather than later. Or, since the home price is often determined in advance, the tenant might look for a price adjustment to reflect market conditions.

•   Conversely, if home prices rise and the property’s selling price was previously set, the seller might feel as if they are missing out on the opportunity to reap a higher figure for the property.

•   Lastly, a seller might regret entering into a rent-to-own agreement if the tenant finds problems with the home and demands a lower purchase price.

Recommended: Should You Buy an Investment Property While Renting?

Types of Rent-to-Own Contracts

As mentioned briefly above, there are two main types of rent-to-own agreements: lease option and lease purchase. Both types of arrangements allow the renter to buy the home at the end of what is typically a one- to three-year term, but there are some key differences to the agreement requirements.

Lease-Option Agreement

With a lease-option contract, the renter pays an option fee when they sign, which is typically around 1% to 5% of the purchase price of the home. Built into the rental payments are usually rent credits, which is extra money set aside for a down payment from the renter. The purchase price of the home is probably decided in advance, though sometimes it is only set when the lease agreement expires. If the latter, the price will be based on a home appraisal.

The renter can still decide not to buy the home at the end of a lease-option contract, but they will lose the rent credit amount they have paid and forfeit the option fee.

Lease-Purchase Agreement

With a lease-purchase agreement, the renter still rents the home for usually one to three years, and a percentage of the rent goes toward the down payment. In addition, the purchase price is typically determined upfront.

The difference with this type of agreement is that the renter is obliged to buy the home when the lease is up.

If the renter cannot buy the home at the end of the lease (say, they decide to move to another area or they can’t qualify for a mortgage), they lose their claim to the home and the money put toward the down payment. In addition, the seller may sue them for breach of contract.

How to Sell a Rent-to-Own Home

If you are selling a home as a rent-to-own property, heed this advice:

•   It’s a good idea for sellers to first establish a rental agreement with the renter before entering into a lease-purchase or lease-option agreement. That way, the seller can claim a deposit for the property in case the renters do not take care of it or they drop out of the contract.

•   The option-to-buy agreement will likely stipulate the price of the home, the option-to-buy fee, and the rent credits that will go toward the purchase price.

•   The option-to-buy agreement can provide the owner/seller with the document they need if they have to evict the renter. This could occur if the tenant refuses to buy the home or to leave at the end of the lease term.

•   With a lease-purchase agreement, the document drawn up will be legally binding and specify the arrangement for the tenant to buy the home at the end of the rental term. If the tenant should fail to buy the property at the end of the lease, the seller could sue.

•   In both of these scenarios, it can be wise to have legal counsel to advise and to draw up documents.

Ask the Right Questions Before You Sign the Contract to Sell

First, manage your expectations. There is no guarantee that tenants who sign a rent-to-own agreement will ultimately buy the home. Many don’t.

However, two aspects are under your control:

•   Consult with a skilled real estate lawyer who can structure the paperwork to protect your interests. Their expertise can help you avoid feeling as if you are losing money if your tenant leaves at the end of the lease.

•   Also, property owners can maximize the likelihood of a sale if they choose their tenants wisely. You can ask for references from previous landlords and look into a potential renter’s employment history to assess their ability to pay rent and ultimately qualify for a mortgage.

The Takeaway

Rent-to-own contracts can be beneficial for both buyers and sellers. For buyers who cannot qualify for a mortgage because they have poor credit or do not have enough for a downpayment, renting to own can give them time to save for a down payment and build their credit score.

For sellers in this scenario, they continue to collect rental income until the home is sold rather than leaving the property vacant until they find a buyer. This is particularly valuable if they are buying another home and taking on two mortgages. The seller can also save money on real estate commissions and other aspects of selling 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 two benefits of owning a home vs. renting one?

Buying a home is an investment. Over time, the value of the home can increase, and, as the owner pays down the mortgage, they build equity and wealth. Another advantage of homeownership: potential tax deductions. The home mortgage interest deduction can allow homeowners to deduct the mortgage interest from their taxable income, thereby reducing their tax burden.

Can you rent-to-own a house in California?

Yes, you can rent-to-own a house in California. However, as with rent-to-own agreements in any area, each party should be aware of the pros and cons of the arrangement. There are financial and legal implications to consider for both the tenant and the seller.

What is the meaning of lease-to-own?

Lease-to-own, or rent-to-own, usually means that the tenant pays rent on a property for a number of years and has an option to purchase it at the end of the lease. In some cases, at the beginning of the rental period, the tenant commits to buying the home at a specific price in the future.

Photo credit: iStock/recep-bg

*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-criteria for more information.

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