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Paying off a mortgage early, if doable, seems like the smartest plan in the world. But the question remains: Should you pay off your mortgage early? Dedicating most of your money to a home loan means you may not be able to fund your business, investments, a college fund, an emergency fund, travel, or fun purchases.

There are a lot of scenarios where your money may be put to better use elsewhere.

Here’s what to consider before you decide to go all-in on paying off your mortgage early.

When Should You Pay Off Your Mortgage Early?

Sometimes, paying off your mortgage early could make sense. For example:

You Have a Rainy Day Fund

You have emergency savings, the 3-6 months of living expenses in reserve that experts recommend.

And your college savings plan, if that’s a need, is funded.

You’re Funding Your Retirement

You’re contributing the max to your 401(k), IRA, and other retirement accounts. If that’s not the case, you may want to do that before paying off the mortgage.

You Want to Reduce Monthly Expenses Ahead of Retirement

If a mortgage takes up a large portion of your monthly expenses, it may make sense to eliminate the mortgage payment if you know you’re going to be on a limited income soon (such as retirement).

You Want to Save on Interest Costs

Take a look at the loan you signed, or any mortgage calculator tool for that matter. On many standard 30-year loans, you may pay just as much or more in interest as you do in principal. Paying off a home mortgage loan early could save you a lot of money in interest over the life of a home loan.

Reasons to Hold Off on Paying Off Your Mortgage Early

If you’re in the fortunate position of contemplating paying off your mortgage early, there are a few reasons to rethink doing so.

Investment Offers Possibility of Higher Return

If investments provide a return greater than the interest rate you’re paying on your mortgage, it may not make sense to pay off your home loan right now. Remember, past performance doesn’t guarantee future returns, so you’ll want to periodically evaluate how investments are performing against your mortgage interest rate. Many investments also have better liquidity than a mortgage. However, you’ll want to make sure to consider your risk tolerance and investment objectives when deciding to invest instead of paying down your mortgage.

What about buying a rental property instead of paying off a mortgage? Purchasing investment property could generate cash flow, and adding to a real estate portfolio is one way to build generational wealth.

You Still Have High-Interest Debt

Mortgages tend to have much lower interest rates than credit cards do. If you’re a “revolver” who carries balances from one month to the next or in a family of revolvers, paying off that debt first makes sense.

Nearly half of U.S. families report carrying revolving credit card balances, and the average revolving balance per cardholder is about $6,500-$6,800, according to recent data.

How to Pay Off Your Mortgage Early

If paying off your mortgage makes sense for your financial situation, it’s helpful to know how to pay off your mortgage early. A handful of strategies may work for different types of mortgages.

Biweekly or Extra Monthly Payment

One strategy homeowners use to pay off their mortgage early is to pay biweekly. If you pay every two weeks instead of monthly ($1,000 every two weeks, for example, instead of $2,000 a month), by the end of the year, you’ll have made a full extra payment. Mortgage servicers may charge fees if you do this, though.

If you want to get more aggressive, making an extra payment every month will decrease the principal quickly. You’ll want to make sure the payment is applied to principal only.

Paying a bit extra every month is one sure way to shrink total interest paid and the loan term. For a mortgage loan of $450,000 at a 5.60% fixed rate for 30 years, total interest paid would be about $480,005. Putting $400 more toward the mortgage payment every month would whittle total interest paid to approximately $355,000 — a savings of around $125,000. And the mortgage would be paid off in 23-24 years instead of 30 years.

Refinance to a Shorter Term

Changing a 30-year mortgage to a 15-year term with a mortgage refinance will likely result in a larger monthly payment (depending on how much you owe) but a substantial amount in interest savings.

With a shorter mortgage term, payments eat into the principal more quickly. If you stack extra payments on top of a 15-year mortgage, you’ll quickly decrease your loan balance on your way to a paid-off mortgage. Refinancing doesn’t have to happen with your current lender, so consider shopping for a mortgage to see what rate and terms you can get if you’re going this route.

Recast Your Mortgage

Recasting your mortgage involves making a large lump sum payment toward the principal and having your lender reamortize the mortgage. Your monthly mortgage payment will be recalculated based on how much you owe after the large payment. The term and interest rate will stay the same.

With a recast, you don’t have to go through the loan application process, and the administrative fee is usually around a few hundred dollars.

To decide on a mortgage recast vs. refinance, weigh the pros and cons of each.

Make Lump-Sum Payments

Making lump sum payments will go far toward paying down your mortgage. Just make sure the payments go directly toward the principal.

Get a Loan Modification

A loan modification alters the terms of your original loan to make it more affordable, often by adjusting the interest rate or extending the loan term. This mortgage relief option is reserved for those experiencing financial hardship.

Changes to the terms of the mortgage are designed to potentially lower the mortgage payment so that the homeowner avoids foreclosure. Talk to your lender if you’re thinking about going this route.

Recommended: Home Loan Help Center

The Takeaway

Paying off your mortgage early is a lofty goal, but if you have other financial needs or can make a better return elsewhere, it may make sense to keep your mortgage. Make sure you consider all options before you make your decision.

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

Do property taxes go up when you pay off your mortgage?

No. Property taxes don’t change based on whether or not you’ve paid off your mortgage. If you do pay off your mortgage, it might seem like you’re paying more because you’ll pay taxes all at once or in a couple of larger installments.

What happens to escrow when you pay off your mortgage?

When a mortgage is paid off, an escrow account, if one was in place, is closed, and any remaining funds are returned to the homeowner. They then become responsible for paying property taxes and insurance directly. If there’s extra money in the escrow account, it will be sent back to the homeowner when the mortgage is paid off, and the escrow account is closed.

How does paying off your mortgage early affect your credit score?

Your credit score won’t be greatly affected by paying off your mortgage early. The account will remain on your credit for 10 years as a closed account in good standing.

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

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

SOHL-Q226-100

Investing in single-family homes is often a good way to build wealth and generate monthly cash flow.

Real estate has proven to be an economic bulwark when stocks and bonds experience downturns. As of late 2025, with the average sales price of homes in the U.S. above its 2022 historic high, the average price is almost $160,000 above where it stood at the start of this decade, according to the Federal Reserve Bank of St. Louis, which tracks the data.

Single-family rental homes have lots of upsides for an investor, but there are also a few reasons to look before you leap.

What Is a Single-Family Home?

The popular image of a single-family home is a stand-alone, one-dwelling structure with its own utilities, entrance, exit, and access to the street. The owners own both the building and the land it sits on, so condos don’t count.

Some government agencies expand this definition to include properties of up to four units, such as duplexes, as well as townhouses.

Why Invest in Single-Family Homes?

Buying investment property offers two key benefits to long-term investors:

•   The potential for capital appreciation

•   Immediate cash flow

Read on to learn some of the key motivators for investing in single-family homes.

Financing

Single-family homes are typically easier to obtain financing for than multifamily homes of five or more units.

A multifamily property meeting that criterion requires a commercial loan, which usually has a higher interest rate and shorter term than a residential mortgage. (Note: SoFi does not offer commercial loans. It does provide loans for residential investment properties of four or fewer units.)

Lenders often require at least 15%-20% down for an investment property. It could be higher, depending on the borrower’s credit score and savings. Then again, there are creative ways to buy a multifamily property with no money down.

Less Volatility

The market for single-family homes is relatively stable and tends to grow more smoothly over the long run compared with other types of homes.

Unlike commercial real estate and apartments, the demand for single-family homes tends to remain relatively strong at all stages of the economic cycle.

Steady Income

Single-family homes may be rented out for longer terms than apartments and usually sit vacant for less time, thanks to the steady demand for single-family housing.

Some contend that single-family rentals feel more like proper homes for tenants and are therefore better cared for than apartments.

You’re also more likely to find more families renting single-family homes than individuals. Families may be more likely to extend the lease if they end up loving the neighborhood and schools, like in a coveted suburb.

Tangible Asset

Many people seek to diversify portfolios with different types of investments. Unlike stocks and bonds, which represent shares of ownership and rights to dividend payments from a company, real estate is a tangible asset.

The tangible factor gives you something physical to hold on to that’s unlikely to disintegrate over the long term. Stocks, bonds, and other intangible investments require the underlying company to remain a going concern.

Inflation Hedge

Inflation is the creeping impact of price increases. When there are concentrated bouts of it over a short period of time, it can rapidly erode the purchasing power of your assets.

Housing has often been touted as an inflation hedge because it has historically held its real value during inflationary markets. This could be because of the following reasons:

1.    Most homebuyers lock in their purchase price through a mortgage.

2.    Rental agreements typically last one or two years, which allows homeowners to gradually raise rents to keep pace with inflation.

3.    Home values typically appreciate over the long run thanks to the intrinsic value of the house and land.

Return on Investment

Thanks to steady demand, single-family homes can match or even exceed the return on investment (ROI) of bigger multifamily properties, with lower volatility than stocks or bonds.

Potential ROI across different real estate properties can be compared using a capitalization rate (cap rate) calculation: net operating income divided by current market value.

Net operating income is your gross annual income from the property minus operating expenses (e.g., repair costs, groundskeeping, property taxes, insurance, utilities not paid by tenants, and any property management fees). Home mortgage loan payments aren’t included in the net operating income formula.

Diversification

Single-family homes could be a good addition to a portfolio of stocks and bonds, but why does portfolio diversification matter anyway? By diversifying assets, you may offset a certain amount of risk and improve returns. When stocks or bonds fall, real estate prices can take much longer to follow.

Things to Know Before Investing in Single-Family Rentals

Because of the high acquisition cost of single-family homes, you’ll want to conduct proper due diligence on your local housing market and target property before you buy. As with all investments, be cautious when investing a significant portion of your cash in one place.

Your Numbers

While the projected rental income on a property looks attractive at a glance, bear in mind that maintenance costs and surprises should be factored in. Vacancy rates, legal issues with tenants, and unexpected repairs can sap your returns over time.

It’s smart to factor in a cash buffer to ensure that money is available on short notice.

Your Target Rental and Housing Market

While the rental income streams of New York and California offer much higher revenue potential, keep in mind that the costs of owning real estate in those areas are enormous as well.

Income is only one side of the rate of return calculation, so make sure you have a good handle on the expenses as well. You can only do that by thoroughly investigating your target housing market and relying on the home appraisal.

The local job market, its dominant industries, and the dependability and growth of local businesses will also shed light on how stable a given market will be over time. Good schools, safe cities, and proximity to workplaces and attractions matter to many renters.

If you’re looking to use the property as a short-term rental, check out the local ordinances, which may prohibit you from doing so.

The 1% and 50% Rules

The 1% rule is a back-of-the-envelope calculation to estimate whether your rental income strategy will be profitable. If the estimated rental income on the property is at least 1% of its purchase price, you should theoretically be able to generate cash flow. If your purchase price was $300,000, for example, the monthly rent should be at least $3,000, according to the rule.

The 50% rule states that you should expect the expenses on your real estate investment to make up approximately 50% of the gross income generated. That’ll give you a quick and dirty estimate to help you start ballparking your net returns.

Obviously, the exact numbers are more complicated. When you have time, you’ll want to run a full comparison of revenues vs. potential costs of your venture.

Your Strategy

This one’s a little more nuanced, as it depends on your goal amount, the time horizon, and your risk tolerance.

Are you looking to build a rental home empire, or are you just looking for a little extra income to supplement your retirement?

Do you intend to tap home equity to buy one or more investment properties? Do you plan to flip or hold the home?

How to Invest in Single-Family Homes

If you’re confident that buying a single-family home is the right choice for you, there are a few ways you can invest.

Buy It Yourself

This is the most capital-intensive and least liquid route. Buying a single-family home in the neighborhood of your choice will net you a reward, as well as the risk that comes with any property.

If you’re handy, you can buy a fixer-upper or a HUD home, a property owned by the U.S. Department of Housing and Urban Development (bidding opens to investors after owner-occupants are given a chance), and renovate it into turnkey condition.

The expense of any contractors or property managers will need to be factored in.

Invest Through a Crowdfunding Platform

If you don’t have copious amounts of capital, you can still fund real estate investment projects through online crowdfunding platforms such as Fundrise. These allow you to diffuse risk while taking part in more aggressive investments than you might have been willing to do by yourself.

Keep in mind that you’ll need to share the benefits with all investors who partake in the process. Another shortcoming is that your funds may be tied up for an extended period of time, which varies by project.

Invest in a Real Estate Investment Trust

Real estate investment trusts (REITs) are corporate entities that specialize in purchasing and financing pools of real estate investments on behalf of their clients. They sell shares that are publicly traded and can specialize in any number of sectors or strategies.

The big benefit of REITs is that they’re one of the most liquid real estate investments out there, as you can buy or sell your shares at almost any time on the open market. However, the market value of each share will fluctuate daily.

In the realm of investment opportunities, REITs often provide better returns than fixed-income assets such as bonds, but REITs carry a higher risk.

There are REITs that specialize in buying and operating single-family rentals. These REITs pay out a major portion of their cash earnings to shareholders.

The Takeaway

When done right, your single-family home investment can offer growth and income and diversify your portfolio. You can start with lower levels of capital by investing in REITs or crowdfunding platforms, but any gains will be diluted. It may be easier to obtain a mortgage for a one-family home or a property with four units or fewer than for a larger multiunit property.

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

Is renting out a single-family home worth it?

It can be. Appreciation and rental income have made single-family homes attractive to investors. Multifamily properties provide more rental income streams but also require more property and tenant management.

How do you value a single-family home rental?

There are a few ways, including looking at recent comparable sales. Another is to calculate the capitalization rate (net operating income divided by property price or value). A third is to use the gross rent multiplier approach (property price divided by gross rental income).

How fast does the value of single-family homes appreciate?

It depends on the market. Lately, appreciation has decelerated. But the median sales price of a house in the last quarter of 2025 was still about $75,000 more than it was five years before.

Photo credit: iStock/Phynart Studio

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

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

SOHL-Q226-101

Qualifying for a home loan can be especially challenging if you don’t have a regular paycheck.

Even if you have a solid credit score, money in the bank, and low or no debt, you can still expect mortgage lenders to check on your income to be sure you can afford your loan payments. And you may face stricter eligibility requirements if you’re a seasonal employee or a freelance or gig worker.

Having an inconsistent income isn’t an insurmountable hurdle, but there are some basic guidelines homebuyers should be aware of as they prepare to apply for a mortgage.

Here, you’ll learn:

•   Can you get a mortgage without a job?

•   How do you apply for a mortgage if you have seasonal income?

•   What sort of income documentation do you need?

•   How can you improve your chances of mortgage approval?

Is Employment Required to Qualify for a Mortgage?

Usually, you’re required to show two years’ worth of employment and income on a mortgage application. Lenders use the information on a loan application to evaluate a borrower’s risk based on a number of factors, including their credit history, assets, how much debt they can comfortably handle, and the amount and reliability of their income.

If you can prove to your lender that you can make your monthly house payment even though you don’t have a traditional employment situation, you still may be able to qualify for a mortgage. In fact, you may be able to get a mortgage without a job at all if you can prove that you have adequate financial resources.

For example, a retired couple may be eligible for a mortgage based on their Social Security and pension payments alone. And if that isn’t enough for a mortgage, income from other sources may push things ahead. For instance, they may be able to qualify if they have a retirement account they can tap, rental property income, or investments that pay dividends or interest. A divorced individual may be able to use alimony or child support payments to qualify for a home loan. And certain types of long-term disability income also may be accepted.

Applying for a Mortgage With Seasonal Income

If you’re earning an income but some or all of your work is seasonal, you should be prepared to provide extra documentation that proves your income is dependable.

For example, seasonal employees who work for the same company (or in the same field) every year should be ready to furnish two years’ worth of W-2 forms and pay stubs or a completed Request for Verification of Employment form (Form 1005). Your employer (or employers) also may have to confirm to your lender that you’re scheduled to work again the next season, also known as a verbal verification of employment.

Remember, the lender wants to be as certain as possible that you can manage your home mortgage loan. If you’ve been working at the seasonal job for less than two years (or if you can’t prove the work will continue), you may not be able to get past the underwriting process. In other words, your mortgage loan wouldn’t be approved.

In that case, you may have to wait until you’ve put in more time on the seasonal job, or you could consider applying with a co-borrower or cosigner to improve your chances of getting a loan.

Part-Time Income vs Seasonal Income

Some points to note about part-time vs. seasonal income:

•   Income documentation requirements are generally less demanding for part-time workers than for seasonal workers.

•   Part-time workers still must provide paperwork that supports the income information on their mortgage application. But if a lender can see that a borrower has year-round employment and a regular paycheck — even if they work fewer than 40 hours a week — that consistency can help with qualifying for a mortgage.

•   Even if you work full-time or overtime in a seasonal job (as a store cashier during the holidays, for example, or at a theme park during the summer), you may have a harder time proving that your income is stable.

Recommended: Mortgage Calculator With Taxes and Insurance

Proof of Income Documentation

Proving income stability can also be a challenge for freelancers and gig workers who are trying to qualify for a mortgage.

Instead of pulling out pay stubs and W-2s to prove their income, as employees with more traditional jobs do, self-employed workers have to round up their 1099s and other documentation from their business, such as bank statements, tax returns, profit and loss statements, etc. They need to share those as proof of income for a mortgage, along with the required information about their personal finances.

Documentation requirements can vary depending on the lender or the type of loan, but freelance and contract workers typically need to provide proof of at least two years of self-employment income to qualify for a home mortgage loan. And if that income is significantly different from one year to the next or is going down instead of up, the lender may have questions about the borrower’s ability to keep up with mortgage payments over the long term.

Something else to keep in mind:

•   Though it may be tempting to take advantage of every tax break for your freelance business, those deductions might affect how a mortgage lender looks at your bottom line.

•   If you’ve accepted some payments under the table to avoid taxes, you won’t be able to count that money as income on your loan application.

Gathering Your Income Documentation

Not having the proper income documentation can slow down the mortgage loan process, so it can be a good idea to gather up your paperwork well before you actually sit down to apply.

If you’re a first-time homebuyer or you aren’t clear on what you might need as a seasonal or self-employed worker, a good lender will walk you through the list, but here are a few things you’ll likely need:

•   Tax returns from the past two years, including personal and business returns if you’re self-employed.

•   Two years’ worth of W-2s or year-end pay stubs or 1099s if you’re self-employed.

•   Bank statements, including personal and business bank statements if you’re self-employed.

•   Verification of your employment. If you’re a seasonal worker, your employer would state that you’re expected to be hired again. If you’re self-employed, you might provide a letter from a CPA verifying that you’ve been in business for at least two years. You also could include a client list with contact information or your company’s website.

•   Statements verifying additional assets.

•   Proof of other income sources, such as alimony and child support, disability income, Social Security, etc.

Improve Your Chances of Mortgage Approval

A stable income can be key to getting a mortgage, but lenders will also consider several other financial factors when evaluating an application. If you want to improve your chances of qualifying for a home loan — and get the lowest interest rate possible — here are a few things to focus on.

Credit Score

Generally, borrowers need a FICO® credit score of at least 620 to qualify for a fixed-rate conventional mortgage. But a higher score (670-739 is considered “good”) could make you more appealing to lenders and help you get a lower interest rate. Before you apply for a loan, it’s a good idea to check on your credit score and make sure your credit reports are accurate and up to date.

Down Payment

Coming up with a larger down payment could boost your chances of being approved for a loan. (The tools in SoFi’s Home Loan Help Center can help you figure out the amount you can afford.)

Debt-to-Income Ratio (DTI)

In general, mortgage lenders like to see a DTI ratio of no more than 36%. To figure out your DTI, add up your monthly bills, such as housing costs and any monthly loan or debt payments, and divide that total by your monthly gross (pretax) income to get your DTI percentage. If your DTI is running high, lowering or eliminating some debt before applying for a mortgage can make you look like less of a risk.

Cash Reserve

Your lender also may want you to see that you have an emergency fund or an asset you can liquidate easily, just in case your income falls short of expectations.

Recommended: Mortgage Preapproval Need to Knows

The Takeaway

If you don’t have a traditional job with a regular paycheck, you may have to jump through a few extra hoops to qualify for a mortgage. But if you can show your lender that you have reliable and consistent income — and a solid credit score and low debt-to-income ratio — you may be able to qualify for a home loan even without a typical 9-to-5 job.

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

Can I qualify for a mortgage using seasonal income?

You can qualify for a mortgage using a seasonal income if you can prove you’ve worked in a seasonal job for at least two years. The money you’ve earned, once documented as proof of income for a mortgage, may help you qualify.

Can I include tips as part of my income when qualifying for a mortgage?

If you keep good records and claim the tips you receive from customers on your income tax return, you may be able to include that money as income on your mortgage application. But if you pocket the money and don’t report it on your taxes, you can’t expect your lender to count it.

Are there any exceptions to the two-year employment requirement when applying for a mortgage as a seasonal or freelance worker?

If you change employers but remain in the same line of work from one year to the next, you may be able to get around a lender’s two-year requirement. Let’s say, for example, you’re a swimming coach. If you move from one county to another but still teach swimming at a community pool, the fact that you changed employers may not affect your income eligibility.

Photo credit: iStock/Prostock-Studio

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

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

SOHL-Q226-106

Buying a house when you have bad credit can be challenging, but it’s doable with planning and preparation. Subprime borrowers (homebuyers with low credit scores) may be eligible for both federally backed loans and conventional mortgages.

If your credit score is less than stellar but you’re ready to buy a home, it’s important to pause and take stock of your finances. This guide will review the strategies and steps involved in securing a mortgage and buying a house when you have bad credit.

How to Buy a House When You Have Bad Credit

Lenders will consider a number of factors — not just your credit score — when determining if you’ll be approved for a mortgage. Your debt-to-income ratio and proof of income represent a couple of things you need to buy a house.

The best plan to buy a house when you have a so-called bad credit score can vary on a case-by-case basis. These eight tips will help you assess your financial situation and figure out how to buy a house despite your credit concerns.

Recommended: Understanding Mortgage Basics

1. Get Your Credit Reports

As the saying goes, knowledge is power. Assessing your credit is a valuable first step to understanding where you stand regarding qualifying for a mortgage.

A credit report can provide a detailed overview of your creditworthiness, including your total debt, payment history, and the ages of your credit accounts. You can request free credit reports from this site or once a year directly from each of the three major credit reporting companies: Equifax®, Experian®, and TransUnion®.

Credit scoring is undergoing changes due to new Federal Housing Finance Agency (FHFA) regulations revising credit score requirements on mortgage loans. While a new FICO® system (FICO 10T) is on the way, lenders can currently utilize a model called VantageScore 4.0 or stick with Classic FICO. You may want to stay apprised of your scores under each of these models.

Upon receipt of your credit reports, it’s important to review any derogatory marks (e.g., late payments) and check for errors. Addressing mistakes could give a quick boost to your credit score.

Many lenders use the FICO score model to calculate credit scores, from 300 to 850, and categorize them like this.

It’s not uncommon for your FICO score to differ slightly among the three credit reporting companies, so mortgage lenders take the average or use the middle score.

According to first-quarter 2026 data from the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, nearly two-thirds of newly originated mortgages went to borrowers with credit scores higher than 760. Only borrowers with credit scores at this level or higher generally receive the most competitive mortgage rates.

According to VantageScore’s Credit Gauge in December 2025, the percentage of people in their subprime-borrower category increased from 18.5% to 19%. VantageScore is a credit-scoring system collaboratively developed by credit bureaus Equifax, Experian, and TransUnion.

2. Plan to Pay a Higher Mortgage Interest Rate

Lenders may consider borrowers with poor credit more likely to default on a mortgage loan. To account for this risk, borrowers with lower credit scores usually face higher interest rates.

A modest increase in the mortgage interest rate can bump up your monthly payment and translate to much more interest paid over the life of the loan. For example, a borrower with a 30-year fixed-rate loan of $250,000 at 8.00% interest would pay $61,621 more over those three decades than a borrower with a 7.00% interest rate.

Paying a higher interest rate may be an unavoidable part of buying a house when your credit is not optimal. One option is to refinance your mortgage later to secure a lower rate and save on interest, especially if you make timely payments and improve your credit over time.

3. Pay Your Other Debts

How much debt you have and your ability to pay it are other factors lenders weigh when approving mortgage loans. This is captured through your debt-to-income ratio. Your DTI ratio is calculated by dividing your monthly debt obligations by your gross monthly income and then multiplying by 100.

Higher DTI ratios tend to mean that borrowers have less ability to make monthly payments. If you want to get approved for a mortgage, a good DTI ratio is under 36%, but it’s still possible to qualify with a higher ratio. You may just pay more interest and need to fulfill other criteria. DTI limits vary by both lender and mortgage type.

Paying off other debts, such as credit cards and student loans, can improve your DTI ratio and signal to lenders that you can afford mortgage payments. Reducing your debt can also boost your credit score by lowering your credit utilization ratio, which is a measure of the amount of available revolving credit you use.

4. Draw Up a Budget

Buying a home is exciting, and it’s easy to lose sight of the true cost of homeownership when shopping for your dream home. But this puts you at risk of becoming “house poor,” meaning you have to spend a disproportionately high share of your monthly income on housing.

Although buying a home is a way to build wealth, having little left over from your paycheck makes it hard to save for retirement and realize other financial goals.

The dreaded B-word, budgeting, is a useful way to ensure that you can afford a home before you walk away with the keys.

An effective budget accounts for both the upfront costs of buying a home (down payment and closing costs) and the long-term expenditures. Besides the loan principal and interest, it’s important to consider property taxes, homeowners’ insurance, and maintenance. Other items you should also take into account include private mortgage insurance (PMI) if you plan to put less than 20% down on a conventional loan or mortgage insurance premiums (MIP) for an FHA loan, no matter the down payment. They add up, but PMI and MIP allow many people to buy homes when they otherwise wouldn’t be able to.

You can get a sense of how much your monthly mortgage payment might be with SoFi’s home mortgage calculator tool.

Recommended: Homeownership Resources

5. Save Up for a Down Payment

If you’re a buyer with subpar credit, putting more money down on a home can be advantageous. A larger down payment means borrowing less money, making the loan less risky to lenders and improving the chances of qualifying with bad credit. A smaller loan amount also accrues less interest.

But of course, saving up for a down payment can be challenging. If you meet first-time homebuyer qualifications, you may be eligible to receive down payment assistance.

Recommended: First-Time Home Buying Guide

6. Opt for an FHA Loan

Buyers with lower credit scores or less money tucked away for a down payment could benefit from an FHA loan. FHA loans are issued by private lenders but are insured and regulated by the Federal Housing Administration.

Borrowers with credit scores of at least 580 may put just 3.5% down. If your credit score is 500-579, you might still qualify, but you’ll need to make a 10% down payment. Even borrowers who have declared bankruptcy in the past may still qualify for an FHA loan.

Keep in mind that borrowers with higher credit scores who qualify for a conventional (nongovernment) mortgage may put just 3% down.

7. See if You Are Eligible for a VA or USDA Loan

The federal government backs other loan types that can help buyers with fair credit.

Active-duty service members, veterans, or certain surviving spouses may use a VA loan to purchase a primary residence. VA loans usually don’t require a down payment. The U.S. Department of Veterans Affairs does not set a minimum credit score for eligibility, but lenders have their own requirements, so it’s important to compare options. VA loans typically come with a one-time funding fee that varies in amount.

The USDA guarantees mortgages issued to low- and moderate-income homebuyers in eligible rural areas. No down payment is needed, but income limits apply. The USDA does not specify a credit score requirement, but lenders do (minimum credit scores generally start in the lower 600s) and will still evaluate a borrower’s credit history and ability to pay back the loan. You’ll pay a guarantee fee (which is like USDA mortgage insurance) of 1% of the loan amount at closing, then an annual guarantee fee of 0.35%.

8. Build Up Your Credit Scores

Raising your credit scores can increase your chances of qualifying and securing better loan terms, but it takes time. Negative marks usually stay on your credit reports for seven years.

Paying bills on time, every time, can gradually build up your credit scores. And, if possible, it’s a good idea to stay below your credit limits and avoid applying for several credit cards within a short amount of time.

Soft credit inquiries do not affect credit scores, no matter how often they take place. Multiple hard inquiries if you’re rate shopping for an auto loan, mortgage, or private student loan within a short period of time are typically treated as a single inquiry.

But outside of rate shopping, many hard pulls for new credit can lower your credit scores and indicate distress in a lender’s eyes.

Recommended: What Are Subprime Mortgages?

The Takeaway

Can you buy a house if you have bad credit? Yes, but you may have to put more money down or accept a higher interest rate to qualify. If taking steps to improve your credit isn’t enough, you might consider using a cosigner or exploring federal loan programs.

Knowing how to buy a house with bad credit is a good first step to making it happen. You can check out this home loan help center to continue your homebuyer education.

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

Is a 500 credit score enough to buy a house?

Yes, but the options are limited. Borrowers with a credit score of 500 might be able to qualify for an FHA loan.

How can I buy a house if I have bad credit and lower income?

Lenders look at your full financial picture and not just your credit scores and income when considering a mortgage application. Certain loan types don’t have strict credit or income requirements either.

What is a good down payment for a house if I have bad credit?

A 20% down payment is ideal, but most borrowers aren’t able to put that much down. Any increase in your down payment could improve your loan terms.

How do I know if I’m eligible for an FHA loan?

FHA loan requirements include proof of employment and the necessary down payment based on the borrower’s credit score (those with scores of 580 or above qualify for the 3.5% down payment advantage). The home must be a primary residence, get appraised by an appraiser approved by the Federal Housing Administration, and meet minimum property standards.

Photo credit: iStock/SDI Productions

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.

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.

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

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

SOHL-Q226-099

This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.

Who doesn’t dream of nabbing a really good deal when shopping for a home? Maybe you’re even considering a fixer-upper, a property that would allow for some sweat equity and would, over time and with work, help you grow your wealth.

If you’ve been studying the real estate listings, you’ve probably seen some potentially excellent deals on repossessed or bank-owned properties.

While the prices may look enticingly low, when it comes to how to buy a foreclosed house, you may be in for a lot of research, a long timeline, and financing issues.

What Is a Foreclosed House?

A foreclosed house is a home that a mortgage lender owns. Homebuyers agree to a voluntary mortgage lien when they borrow funds. If they don’t keep current with their payments and end up defaulting, the lender could take control of the property.

When the lender does so, the house is called a “foreclosed home” and may be offered for sale. Read on to learn more about the foreclosure process.

What Does “Foreclosure” Mean?

A foreclosure is a home that a lender or lienholder has taken from a borrower who hasn’t made payments for a period of time. The lender or lienholder hopes to sell the property for close to what is owed on the mortgage.

Who can place a lien on a home? A mortgage lender or the Internal Revenue Service (IRS) can. So too can the U.S. Department of Housing and Urban Development (aka HUD) for nonpayment of a Federal Housing Administration (FHA) loan, resulting in HUD homes for sale.

A county (for nonpayment of property taxes), a Homeowners Association (HOA), or a contractor also can place a lien on a home.

Recommended: Foreclosure Rates for All 50 States

Types of Home Foreclosures

There are three main types of home foreclosures:

•   Judicial foreclosures: This type of foreclosure occurs when the lender files suit (that is, in court, hence the word “judicial”) to begin the foreclosure process. This usually happens when the borrower fails to make three consecutive payments. If the loan isn’t brought up to date within 30 days of that point, the home can be auctioned off by a sheriff’s office or the court.

•   Nonjudicial foreclosures: Known as a power of sale or a statutory foreclosure, this process is the predominant foreclosure process in 30 out of the 50 states as well as the District of Columbia. The contract in this situation allows for an auction of a foreclosed property to occur without the judicial system becoming involved, as long as certain notifications and waiting periods are appropriately observed.

•   Strict foreclosures: This kind of foreclosure only occurs in Connecticut and Vermont, and these usually only happen when the value of the loan debt is more than that of the house itself. If the defaulting borrower doesn’t become current with their loan in a certain amount of time, the lender gets possession of the property directly, but is not obliged to sell.

How Does the Foreclosure Process Work?

Foreclosure processes differ by state. The main difference is whether the state generally uses a judicial or nonjudicial foreclosure process. A judicial foreclosure may require an order from a judge.

•   Once a borrower has missed three to six months of payments, depending on state law, the lender may post a public notice, sometimes known as a notice of default or “lis pendens,” which means pending suit.

•   A borrower then typically has a few months or longer to attempt to avoid foreclosure. During preforeclosure, a homeowner may apply for a loan modification, ask for a deed in lieu of foreclosure, pay the amount owed, or attempt a short sale.

•   A short sale is when the borrower sells the property, and the net proceeds are short of the amount owed on the mortgage. A short sale needs to be approved by the lender.

•   If none of the options work, the lender might sell the foreclosed property at auction, which is a trustee or sheriff’s sale. Notice of the auction must be given at the county recorder and in the newspaper.

•   If no one buys the home at auction, it becomes a bank or real estate owned (REO) property. These properties are sold in the traditional real estate market or in bulk to investors at liquidation auctions.

•   In some states, under the judicial foreclosure process, borrowers may have the right to redeem their property after the sale by paying the foreclosure sale price or the full amount owed to the lender, plus other allowable charges.

Recommended: Home Affordability Calculator

How to Find Foreclosed Homes for Sale

In addition to checking with local real estate companies for foreclosed homes, there are paid and free sites to search when you’re shopping for a repossessed or foreclosed home.

Among the free sites:

• •   Equator.com
• •   HomePath.fanniemae.com (Fannie Mae’s site)
• •   HomeSteps.com (Freddie Mac’s site)
• •   Realtor.com
• •   foreclosures.bankofamerica.com
• •   irsauctions.gov for IRS auctions
• •   properties.sc.egov.usda.gov for USDA resales
• •   hudhomestore.gov (the official government website for foreclosed homes)

Paid sites include foreclosure.com and RealtyTrac.com, among others.

Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.

How to Buy a Foreclosed Home

Here are the usual steps for buying a foreclosed house. Whether you qualify as a first-time homebuyer or someone who has purchased before, it can be wise to acquaint yourself with the process before searching for a home.

Step 1: Know the Options

Buying foreclosed houses at an auction or through a lender are the main ways to purchase these homes. Keep in mind that a foreclosure is usually an “as-is” deal.

Buying at auction: In almost all cases, bidders in a live foreclosure auction must register and show that they have sufficient funds to pay for the property in full.

Online auctions have gained popularity. You can sign up with a site to find foreclosure auctions in an area where you want to buy. Or you might research foreclosure sales data by county online, at the county courthouse, or from the trustee (the third-party foreclosure sales agent).

It’s important to look into how much the borrower owes and whether there are any liens against the property. The winning bidder may have to pay off liens. It’s smart to hire a title company or real estate attorney to provide title reports on properties you’re interested in bidding on.

Buying from the lender: You can find listings on websites that aggregate REO properties or on a multiple listing service. When checking out the homes you like, take note of the real estate agent’s name. Banks usually outsource the job of selling foreclosed homes to REO agents, who work with standard real estate agents to find a buyer.

REO listings are often priced at or below market value. It’s also good to know that the lender usually clears the title and evicts the occupants before anyone buys a foreclosed home.

Looking at opportunities before foreclosure: If the lender allows a short sale, potential buyers work with the borrower’s real estate agent and the lender to find a suitable price.

With preforeclosures, when borrowers have missed three or more mortgage payments but still own the home, the lender might work with them to avoid foreclosure. Another scenario: The homeowner might entertain purchase offers, whether the home is listed or not.

Step 2: Hire a Real Estate Agent

It’s a good idea not to go with just any agent, even if you like them and have used their services for a standard home purchase, but to find an agent who specializes in foreclosure sales.

That agent can help you search for a home, understand the buying process, negotiate a price, and order an inspection. Your offers might be countered as well, and an agent can help you figure out the best next step. An agent can also help you understand the market in general and ways to smooth your path to homeownership, such as programs for first-time homebuyers.

Step 3: Find Foreclosures for Sale

As mentioned above, there are paid and free sites where one can scan for homes. Some divisions of the government offer foreclosed homes, as do some lenders.

Also, there are real estate companies that specialize in these properties and can help you with your search.

Step 4: Get Preapproved for a Mortgage

If you want to act fast on buying a foreclosed home, you’ll want to get preapproved for a mortgage. Preapproval tells you how much money you are eligible to borrow and lays out the terms of final approval on a mortgage in a preapproval letter.

Preapproval may help you compete with the all-cash buyers who are purchasing foreclosures. As you move through this step, you’re also likely to learn important home buying and financing concepts, such as loan-to-value (LTV) ratio.

(If you are looking into repossessed properties, owner financing or a purchase-money mortgage may not be an option.)

Step 5: Get an Appraisal and Inspection

Buyers of REO properties would be smart to order a home inspection. A thorough checkup can document flaws and help you tally home repair costs.

An REO property appraisal usually consists of an as-repaired valuation, which is the market value if the property is repaired and compared with similar properties, and an as-is valuation. Some lenders also ask for a quick sale value and a fair market value.

You can challenge the results of an appraisal if you think the figures are off and hire another appraiser for an independent assessment.

Step 6: Purchase Your New Home

If you decide to move forward, contact your mortgage lender to finalize your loan and submit your offer with the help of your real estate agent. If your offer is accepted, you may sign the contract and transfer ownership. You may be required to pay an earnest money deposit.

The certificate of title may take days to complete. During that time, the original borrower may, in some states, be able to file an objection to the sale and pay the amount owed to retain their rights to the property. This is called redeeming or repurchasing a home, but it rarely happens. Nevertheless, it’s a good idea not to dig in and start any work on the property until you receive the certificate of title.

Recommended: What’s the Difference Between Preapproved vs Prequalified?

Benefits of Buying a Foreclosed Home

Buying a foreclosed home can be a great deal for a buyer who sees the potential, is either handy or budgets realistically for repairs, and knows the fixed-up value. Some points to consider:

•   Not all foreclosed properties are in poor shape, as you might expect. If a homeowner dies or has a reverse mortgage that ends, a home that was well maintained may be returned to the lender.

•   REO properties rarely have title discrepancies. The repossessing lender usually extinguishes any liens against the property and ensures that taxes are paid.

•   It may be possible to negotiate when buying REO properties. You could ask the lender to pay for a termite inspection, the appraisal, or even the upgrades needed to bring the property up to code.

Risks of Buying a Foreclosed Home

Buying a foreclosed home can be complicated. The process is governed by state and federal laws. Take note of these possible downsides:

•   Some foreclosed homes have indeed been sitting empty and may have maintenance/repair issues, and may require you to have cash available to get the work done.

•   Because many REO properties have sat vacant and most are sold as-is, financing may be a challenge. See below for more details.

•   Many people, especially first-time homebuyers, think foreclosures are offered at a deep discount, but even low-priced homes might get multiple offers above the asking price from buyers eager to snap up a fixer-upper. You might find yourself tempted to pay more than you had expected just to close the deal.

What Are Financing Options for Foreclosed Homes

When it comes to financing the purchase of a foreclosed property, here’s what you need to know:

•   Some sales may be cash only. If you don’t have access to the amount needed, it may be smart to sidestep looking at these kinds of auctions.

•   If the home is in livable condition, you may be able to get a conventional or government-backed mortgage loan.

If you’re planning to finance the purchase of a repossessed home, consider this:

•   Fannie Mae dictates that for a conventional conforming loan, the home must be “safe, sound, and structurally secure.”

•   For an FHA, VA, or USDA loan, the home must be owner occupied (not a multifamily home where you rent out all units) and in livable condition, with a functional roof, foundation, plumbing, electrical, HVAC system, and no peeling paint.

•   A standard FHA 203(k) loan includes the purchase of a primary house and substantial repairs costing up to the county loan limit. But relatively few lenders offer these loans. Also, the application process is more labor intensive, and contractors must submit bids and complete paperwork. Mortgage rates are somewhat higher than for standard FHA loans.

Who Should Buy a Foreclosed Home

Buying a foreclosed home is usually best for people who are prepared for a lengthy and potentially expensive process to buy a home at a good price.

•   You need to do considerable research to find available homes and know how to make an offer.

•   You will likely face a significant amount of paperwork and time delays.

•   Having cash reserves to pay for repairs and deferred maintenance issues is important, as well as dealing with unpaid taxes and liens on the property.

Who Should Not Buy a Foreclosed Home

A foreclosed home may not be the right move for someone who is under time pressure to move into a new home. It can also be a problematic process for those who don’t have a good amount of cash set aside to pay for rehabilitating a property that has been sitting empty or to take care of overdue tax bills and liens.

The Takeaway

Buying a foreclosed home requires vision, risk tolerance, and realistic number crunching. If you need financing, it’s a good idea to get preapproved for a mortgage so that all your ducks are in a row when you spot a potential deal.

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

FAQ

What are the disadvantages of buying a foreclosed home?

Buying a foreclosed home can include a large amount of research as well as a considerable amount of paperwork and potential delays. It may also be necessary to have cash on hand to make repairs, pay back taxes, and remedy liens.

How are repossessed houses sold?

Foreclosed homes may be sold in a variety of ways. Usually, the first attempt will be at an auction. If it fails to sell, a lender or a real estate company (often one that specializes in such repossessed properties) will list the home.

How long does it take for a repossessed house to be sold?

Depending on the state and the specific property, the sale of a foreclosed house may take anywhere from a few months to a few years. The timeline breaks down into two distinct phases: the foreclosure process and the sale process.

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

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

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