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Legislation providing for a tax credit for first-time homebuyers was introduced in Congress in 2021 but is still making its way through Congress as of June, 2023. A revamp of the first-time homebuyer tax credit from 2008, the proposed First-Time Homebuyer Act of 2021, would modify the first-time homebuyer tax credit, increasing the allowable dollar amount of the credit from $8,000 to $15,000.

Unfortunately, this bill hasn’t passed, so there is currently no federal tax credit for first-time homebuyers. (A separate bill, the Downpayment Toward Equity Act of 2021, was introduced in the House of Representatives and the Senate in 2021, provides financial assistance specifically to first-generation homebuyers to help them purchase a home that they would occupy. This hasn’t passed either.)

Here’s everything you need to know about the history of the first-time homebuyer credit and what the future may hold.

What Is the First-Time Homebuyer Tax Credit?

The first-time homebuyer tax credit refers to a tax credit given in tax years 2008, 2009, and 2010 worth up to $8,000. It’s possible the term may also be used in the future as legislation for a new first-time homebuyer tax credit was introduced in the House of Representatives in April 2021.

The new proposed first-time homebuyer tax credit would typically be worth up to $15,000 for buyers whose adjusted gross income doesn’t exceed 160% of the median income for the area.

Recommended: The Cost of Living By State

First-Time Homebuyer Act of 2008

For first-time homebuyers who purchased a home between April 9, 2008, and May 1, 2010, a one-time tax credit of 10% of the purchase price, up to $7,500 in 2008 and increased to $8,000 in the next two years, was available. It was part of the Housing and Economic Recovery Act of 2008. The credit was for home purchases of up to $800,000 and phased out for individual taxpayers with higher incomes.

For home purchases made between April 9 and Dec. 31, 2008, the credit had to be repaid over 15 years, making it more of an interest-free loan than a true credit. Homebuyers taking advantage of the tax credit in the following years had repayment of the credit waived. Homebuyers who left the property before a three-year period were required to repay a portion of the credit back to the IRS.

Proposed First-Time Homebuyer Act of 2021

The First-Time Homebuyer Act of 2021 would allow qualified buyers a refundable tax credit of $7,500 for individuals and $15,000 for married couples filing jointly.

This bill amends the 2008 law to allow for higher purchase prices, revises the formulas for income, and revises rules pertaining to recapture of the credit and to members of the armed forces. It was introduced in the House by Rep. Earl Blumenauer of Oregon in April 2021 but is not yet law as of June 2023.

What Can Be Deducted After Buying a Home?

Amounts eligible for the proposed tax credit would include the purchase price of the home. The amount of the credit is 10% of the purchase price.

Given that the maximum is $7,500 per individual and $15,000 per married couple filing jointly, if you and your spouse purchased a home with a mortgage loan of $500,000, the 10% credit would amount to $50,000. You would receive a tax credit of $15,000 if you filed jointly.

If you purchased a home for $102,000 with a spouse, 10% of that would be $10,200. You would be able to claim $10,200 for the credit if you filed jointly.

Here are some possible deductions now for homeowners who itemize, though most taxpayers take the standard deduction instead:

•   Mortgage interest on up to $750,000 of mortgage debt (or up to $375,000 if married and filing separately), including discount points paid to reduce the interest rate on the mortgage.

•   Up to $10,000 of property taxes when combined with state and local taxes.

•   Home office if you’re self-employed or a business owner but not an employee of a company.

If you sell your main home and have a capital gain, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 if you file a joint return with your spouse.

Recommended: Mortgage Interest Deduction Explained

Who Is Eligible for the First-Time Homebuyer Act of 2021?

First-time homebuyers purchasing a principal residence would be eligible for the tax credit. Not your first time buying a house? You may still be able to qualify.

A first-time homebuyer is defined as someone who has not owned an interest in a property for the past three years. So even if you had owned a home in the past, you might be eligible to receive this credit if it hadn’t been in the last three years.

Other qualifications include:

•   A modified adjusted gross income that is under 160% of the area median income.

•   Purchase of a property that is not above 125% of the area median purchase price.

•   Must live in the home as a principal residence for the tax year.

•   Must be over 18 years of age.

To note: If you claimed a first-time homebuyer credit under the 2008 law, you would be able to claim it again. But you could claim the new credit only once, for a first purchase. Also be aware that a copy of the settlement statement must be attached to your taxes.

How Does the Tax Credit Work?

If the bill passed, the new homeowner would file for the first-time homebuyer tax credit on their taxes. The credit would first be used to offset any taxes owed by the homebuyer. Then, as a refundable tax credit, the homebuyer would get money back on top of the amount of the credit after their tax bill had been paid.

For example, if you owed $4,000 in taxes after accounting for withholdings, and you qualified for a $15,000 tax credit, you’d apply that toward the amount you owe in taxes. You would get the rest back ($11,000) from the IRS.

Taxpayers must stay in the home for the duration of the tax year in order to receive the credit. If the property is sold within four years, taxpayers may need to pay a portion of the tax credit back. The amount is subject to a schedule, which is as follows:

•   Dispose of property before the end of Year 1: Repay 100% of the credit

•   Dispose of property before the end of Year 2: Repay 75% of the credit

•   Dispose of property before the end of Year 3: Repay 50% of the credit

•   Dispose of property before the end of Year 4: Repay 25% of the credit

Homebuyer Tax Credit vs Homebuyer Grant

Another first-time homebuyer program has been introduced in Congress to help with the costs of obtaining a home. The Downpayment Toward Equity Act would award a grant of up to $25,000 to first-generation homebuyers who come from socially and economically disadvantaged groups.

The down payment would need to be for a principal residence and would not need to be repaid after 60 months of occupancy. More details on the two proposed programs can be found below:

First-Time Homebuyer Act of 2021	Downpayment Toward Equity Act of 2021 Grant
Available to homeowners who have not owned a home in the last three years	Available to first-generation homebuyers, meaning individuals whose parents do not currently own residential real estate or individuals who have been placed in foster care at any time
Credit against taxes of 10% of the purchase price, up to $15,000, available as a refundable tax credit	Up to $25,000 available, and possibly more for high-cost areas
For buyers whose income doesn’t exceed 160% of the median income for the area	Income may not exceed 120% of the median income for the area, except in high-cost areas, where the limit increases to 180%
Must be a principal residence	Must be principal residence
No specified number of units	1-4 units will qualify
Allowed on purchase amounts up to 125% of the median purchase price of a home	Must come from a socially and economically disadvantaged group
Must not dispose of the residence before the end of the tax year. Has a schedule for amount of the credit that is recaptured if the home is sold in a certain period of time	After 60 months of occupancy, the grant does not need to be repaid
Has been introduced in the House and has been referred to the Ways and Means Committee. Has not passed as of early 2023	Has been introduced in the House but has not passed as of early 2023
Must be at least 18 years of age	Assistance can be used for the costs to acquire the mortgage as well as home modification costs for those with disabilities
Must attach the settlement statement to your taxes	Can be combined with other assistance programs, such as the first-time homebuyer tax credit

Help for First-Time Homebuyers

Although new federal legislation hasn’t yet delivered support to first-time homebuyers, there are other first-time homebuyer programs that can help with costs.

A first-time homebuyers guide will walk you through the process of buying your first home and help answer questions.

Are you crunching numbers? Try this mortgage calculator tool. Keep in mind that some private lenders (like SoFi) allow a down payment for first-time buyers that may be even lower than FHA loans.

The Takeaway

A first-time homebuyer tax credit of up to $15,000 has been proposed for qualified buyers. That would take some of the pressure of taking the plunge into homeownership. But Congress has not passed legislation to put the credit in place.

If home buying remains mysterious, the SoFi loan help center can help clear the fog.

SoFi Mortgages: simple, smart, and so affordable.

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

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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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For the average American, no single expense is as large as the cost of purchasing a home. Because the price is so high, a mortgage is usually necessary. And in most cases, a home purchase requires a down payment plus monthly mortgage payments.

What you’ll pay each month on a $300,000 mortgage will depend on several factors, such as the interest rate and mortgage term. These numbers will differ for everyone, so you must do some math to know your monthly cost, and it’s important to consider the total cost of a home purchase as well.

Total Cost of a $300K Mortgage

There is more than one element to the total cost of a $300,000 mortgage. It can be a lot to take in, especially for first-time homebuyers. However, we can generally break the total costs of buying a home into upfront and long-term costs.

Upfront Costs

Even in the beginning stages of your home purchase, there are some costs you will have to pay. Upfront costs of a home purchase include:

•   Earnest money: Earnest money is also known as a good faith deposit. This is a sum of money you put down to show a seller you are serious about buying their home.

•   Down payment: When you buy a home, you typically must pay a portion of the home price upfront, known as a down payment. While down payments can be up to 20% of the home price, they are often a much lower percentage. How much you put down upfront can impact your mortgage rate and thus your monthly costs.

•   Closing costs: Closing costs cover administrative activities involved in buying a home, such as the cost of an appraisal, lender’s fees, and a charge to record the property transfer.

Long-Term Costs

Most of the money you spend on your home will probably be long-term costs. Your monthly mortgage payment will likely be the biggest of these. The monthly payment you make against the loan you obtained to purchase the home will cover the principal plus interest. Some other long-term costs are:

•   Property taxes: In most cases, you must pay taxes on your home. These can be significant, often totaling thousands of dollars annually.

•   Home maintenance: Homes usually require ongoing maintenance, and these costs can be more variable than other ongoing costs.

•   HOA Fees: Some homes, such as townhouses and condos, may have an ongoing homeowners association fee to cover landscaping, pools, and general maintenance.

Estimated Monthly Payments on a $300K Mortgage

The monthly payment on a $300,000 mortgage depends on your down payment, annual percentage rate (APR), and term. You must factor each into the equation to estimate your monthly mortgage payment.

For example, suppose you secure a 30-year fixed $300K mortgage at 4.5% APR. In this case, the monthly payment would be $1,520. On the other hand, if you have a 15-year fixed $300K mortgage at 4% APR, the monthly payment would be $2,219. As you can see, APR and terms can have a big impact on your monthly mortgage payment.

Monthly Payment Breakdown by APR and Term

A monthly $300K mortgage payment amount can vary widely, even if you know you will have a $300,000 loan. Use a mortgage calculator to estimate your monthly payment. Here are a few examples of how these calculations may vary depending on the APR and term:

APR	15-year term	30-year term
3.00%	$2,072	$1,265
3.50%	$2,145	$1,347
4.00%	$2,219	$1,432
4.50%	$2,295	$1,520
5.00%	$2,372	$1,610
5.50%	$2,451	$1,703
6.00%	$2,532	$1,799
6.50%	$2,613	$1,896

How Much Interest Is Accrued on a $300K Mortgage?

The amount of interest you accrue on a $300,000 home mortgage loan will, again, depend on several factors. However, the most important factors are the mortgage term and APR. When comparing two 30-year mortgages, the one with a lower APR usually accrues less interest. When comparing 15-year vs. 30-year terms with the same APR, the 15-year term will generally accrue less interest.

For instance, a 15-year mortgage with a 3.0% interest rate results in a total of $72,914 of interest over the life of the loan. Meanwhile, a 30-year mortgage with a 6.0% interest rate results in $347,515 of interest. There are also different types of mortgage loans, which can affect how much you ultimately pay.

$300K Mortgage Amortization Breakdown

As we have observed, APR and term significantly impact the interest you pay. However, the term can also affect how much you pay per month. The following table breaks down the amortization schedule of a 30-year $300,000 loan with a 5.0% APR:

Year	Beginning balance	Interest paid	Principal paid	Ending balance
1	$300,000.00	$14,899.49	$4,426.03	$295,573.90
2	$295,573.90	$14,673.04	$4,652.48	$290,921.36
3	$290,921.36	$14,434.99	$4,890.53	$286,030.78
4	$286,030.78	$14,184.78	$5,140.74	$280,890.00
5	$280,890.00	$13,921.77	$5,403.75	$275,486.20
6	$275,486.20	$13,645.31	$5,680.21	$269,805.93
7	$269,805.93	$13,354.71	$5,970.81	$263,835.05
8	$263,835.05	$13,049.20	$6,276.32	$257,558.68
9	$257,558.68	$12,728.10	$6,597.42	$250,961.21
10	$250,961.21	$12,390.57	$6,934.95	$244,026.19
11	$244,026.19	$12,035.76	$7,289.76	$236,736.37
12	$236,736.37	$11,662.81	$7,662.71	$229,073.59
13	$229,073.59	$11,270.75	$8,054.77	$221,018.76
14	$221,018.76	$10,858.67	$8,466.85	$212,551.84
15	$212,551.84	$10,425.47	$8,900.05	$203,651.73
16	$203,651.73	$9,970.13	$9,355.39	$194,296.27
17	$194,296.27	$9,491.48	$9,834.04	$184,462.17
18	$184,462.17	$8,988.35	$10,337.17	$174,124.94
19	$174,124.94	$8,459.47	$10,866.05	$163,258.84
20	$163,258.84	$7,903.54	$11,421.98	$151,836.80
21	$151,836.80	$7,319.16	$12,006.36	$139,830.40
22	$139,830.40	$6,704.89	$12,620.63	$127,209.72
23	$127,209.72	$6,059.21	$13,266.31	$113,943.34
24	$113,943.34	$5,380.47	$13,945.05	$99,998.24
25	$99,998.24	$4,667.01	$14,658.51	$85,339.67
26	$85,339.67	$3,917.04	$15,408.48	$69,931.15
27	$69,931.15	$3,128.72	$16,196.80	$53,734.29
28	$53,734.29	$2,300.05	$17,025.47	$36,708.77
29	$36,708.77	$1,429.00	$17,896.52	$18,812.20
30	$18,812.20	$513.37	$18,812.15	$0.00

What Is Required to Get a $300K Mortgage?

Getting a $300,000 mortgage generally requires a combination of a sufficient income and a large enough down payment. For example, if your gross annual income is $75,000 and you want to borrow $300,000 with a 30-year mortgage at 5.0%, you would probably need to make a deposit of at least $30,000 on a property.

Running the numbers in a housing affordability calculator can help you pinpoint the costs. The numbers above result in spending about 23% of your income on housing. This falls comfortably below the 30% threshold. Above that point, the Department of Housing and Urban Development (HUD) considers you “price burdened.”

Credit score can also matter when applying for a home. There’s no definite rule, as your income, down payment, and other factors will also be a part of the decision. However, you should generally have a credit score of at least 620 to apply for a conventional loan.

The Takeaway

Buying a home is usually the largest expense for the average American. The monthly payment you will make on your home depends on several factors, but the most important are the APR and term. A shorter term and a lower APR will reduce how much you pay overall, though a shorter term will increase your monthly payment.

It’s important to align your purchase with factors like your annual income and down payment. Our Home Loan Help Center can be a good resource. Buying a house that you can afford will help you make your monthly payments comfortably — so you can relax and enjoy your new home.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much house can I afford on $70,000 a year?

How much house you can afford on a $70,000 salary depends on several factors, such as your APR, term, and down payment. With a $30,000 down payment, a mortgage rate of 5.0%, and $2,500 of monthly expenses (not including rent), you can afford a home up to $300K.

Can I afford a 300K house on a 50K salary?

You might be able to afford a $300K house on a $50K salary if you can secure a low APR and have a sizable down payment. However, you’ll want to review your monthly expenses to make sure you have room in your income to pay the mortgage.

How much is 20% down on a $300,000 house?

To put 20% down on a $300,000 house, you’ll need $60,000. People often believe you must put 20% down to qualify for a mortgage. While this might be true for some lenders, it isn’t always the case.

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Photo credit: iStock/Morsa Images

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

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

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

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Closing costs average 3% to 6% of your mortgage loan principal. So even if you’ve saved for a down payment on a new place, you are likely going to have to dig somewhat deeper to afford to seal the deal. How deep, you ask? For buyers, closing costs can add up to a significant sum.

Whether you are a first-time homebuyer or a seasoned property purchaser, it’s wise to know what to expect, in terms of both money and process, when it’s time to gather at the closing table. Payments will be due from both the buyer and the seller.

Get ready to delve into this important home-buying topic and learn:

•   What are closing costs?

•   How much are closing costs on a house?

•   Who pays closing costs?

•   How much are closing costs for the buyer and the seller?

•   How can you lower closing costs?

What Are Closing Costs?

Closing costs are the fees needed to pay the professionals and businesses involved in securing a new home. These range from fees charged by appraisers, real estate agents, and title companies, to lender and home warranty fees.

Here are some key points to know:

•   When you apply for a mortgage loan, each lender must provide a loan estimate within three business days. This will give you information such as closing costs, interest rate, and monthly payment. Review those closing costs carefully.

•   Your closing costs will depend on the sale price of the home, the fees the chosen lender charges, the type of loan and property, and your credit score.

•   Closing costs are traditionally divided between the buyer and seller, so you won’t necessarily be on the hook for the whole bill. That said, the exact division between buyer and seller will depend on your individual circumstances and can even be a point of negotiation when you make an offer on a house.

How Much Are Closing Costs?

As noted above, average closing costs on a house typically range from 3% to 6% of the mortgage principal. Let’s say you take out a $300,000 mortgage loan to buy a house with an agreed-upon sale price of $350,000. Your closing costs could be between $9,000 and $18,000, or 3% and 6%.

Be aware that a “no closing cost mortgage” often means a higher rate and a lot more interest paid over the life of the loan. The lender will pay for many of the initial closing costs and fees but charge a higher interest rate.

Good news if you are buying a HUD home: HUD will pay some of the closing costs as well as the real estate commission fee usually paid by the seller.

Recommended: First-Time Homebuyer Guide

Calculate Closing Costs

The tool below is a home affordability calculator, and it’s a great way to also see what the potential closing costs and additional monthly costs would be based on how much home you can afford.

Who Pays Closing Costs?

Typically, closing costs are paid by both the buyer and the seller. Each has their own responsibilities to uphold.

Some fees are specific to the purchase and are payable by the buyer. These include title search, prepaid interest on the mortgage loan, and more.

Other costs are the seller’s responsibility: paying the real estate agent and so forth. Read on to learn more about who pays for what when closing on a home sale.

How Much Are Closing Costs for a Buyer?

Typically, the buyer pays the following closing costs:

•   Abstract and recording fees: These fees relate to summarizing the title search (more on that below) and then filing deeds and documentation with the local department of public records. You may find that abstract fees can cost anywhere from $200 to $1,000, and recording fees in the range of $125.

•   Application fee: Your lender may charge you to process your application for a home mortgage loan. This could cost up to $500.

•   Appraisal and survey fees: It is easy to be wooed by pristine wood floors and dining room walls covered in vintage wallpaper, but surface good looks will only get you so far. You and your lender want to make sure that your potential new home is actually worth the purchase price. This means paying professionals to delve more deeply and provide a current market value. These home appraisal and survey fees are typically due at closing. This is usually in the $300 to $400 range, but could be considerably higher, depending on the home, its location, and other factors.

•   Attorney costs: Working with a real estate attorney to review and vet documents may be an hourly rate (typically $150 to $400 per hour) or a project fee ($500 to $2,000). The specifics will vary depending on the individual professional you use, your location, and how complex your purchase is.

•   Credit reporting, underwriting, and origination fees: The lender may charge anywhere from $10 to $100 per applicant to check their credit score; underwriting fees (often in the $400 to $900 range) may also be added to closing costs. Origination fees can be about 1% of your loan’s value and cover the costs of the lender creating your loan documents.

•   Flood certification fee: The lender may require a flood certification, which states the flood zone status of the property. This could cost anywhere from $20 to $300, depending on your state.

•   Home inspection fee: This will likely cost between $300 and $500, but it could go higher. This is paid by the buyer, who is commissioning the work to learn about the home’s condition. In some cases, it may be paid at the time of service vs. at closing.

•   Homeowners insurance: Your lender may require you to take out homeowners insurance. The first payment may be due at closing. The exact amount will depend on your home value and other specifics of your policy.

•   Home warranty: A home warranty is optional and can be purchased to protect against major mechanical problems. A warranty plan may be offered by the seller as part of the deal, or a buyer can purchase one from a private company. Your lender, however, will not require a home warranty.

•   Mortgage points: Each mortgage point you choose to buy costs 1% of your mortgage amount and typically lowers your mortgage rate by 0.25% per point. That point money you are paying upfront is due at closing. All the mortgage fees will be spelled out in the mortgage note at the closing.

•   Prepaid interest: Some interest on your mortgage is probably going to accrue between your closing date and when the first payment is due on your loan. That will vary with your principal and interest rate, but will be due at closing.

•   Private mortgage insurance: Often lenders require PMI if you make a down payment that is less than 20% of the purchase price. Putting less money down can make a buyer look less reliable when it comes to repaying debt in the eyes of lenders. They require this premium to protect themselves. This is usually a fee that you pay monthly, but the first year’s premium can also be paid at the time of closing. Expect a full year to cost between .5% and 2% of the original loan amount.

•   Title search and title insurance fees: When a title search is done to see if there are any other claims on the property in question, the buyer typically pays the fee, which is usually in the $75 to $200 range. The lender often requires title insurance as a protection. This is likely a one-time fee that costs between 0.5% and 1% of the sale price. If your house costs $400,000, the title insurance could be between $2,000 and $4,000.

As you see, some of these fees will vary greatly depending on your specific situation, but they do add up. You’ll want to be sure to estimate how much closing costs are for a buyer and then budget for them before you head to your closing.

Recommended: How Long Does It Take to Close on a House

How Much Are Closing Costs for a Seller?

You may also wonder what closing costs are if you are selling your home. Here are some of the fees you are likely liable for at closing:

•   Real estate agent commission: Typically, the seller pays the agent a percentage of the sale price of the home at closing, often out of the proceeds from the sale. The commission is likely to be in the 5% to 6% range, and may be equally split between the buyer’s and seller’s agents.

•   Homeowners association fees: If the home being sold is in a location with a homeowners association (HOA), any unpaid fees must be taken care of by the seller at closing. The actual cost will depend upon the home being sold and the HOA’s charges.

•   Property taxes: The seller must keep these fees current at closing and not leave the buyer with any unpaid charges. These charges will vary depending on the property and location.

•   Title fees: The seller will probably pay for the costs associated with transferring the title for the property.

It’s important for sellers to anticipate these costs in order to know just how much they will walk away with after selling a home.

How to Reduce Closing Costs

Closing costs can certainly add up. Here are some ways to potentially lower your costs.

•   Shop around. Compare lenders not just on the basis of interest rates but also the fees they charge. Not every mortgage lender will charge, say, an application, rate lock, loan processing, and underwriting fee. See where you can get a competitive rate and avoid excess fees.

•   Schedule your closing for the end of the month. This can lower your prepaid interest charges.

•   Seek help from your seller. You might be able to get the seller to pay some of your closing costs if they are motivated to push the deal through. For instance, if the property had sat for a while, they might be open to covering some fees to nudge the deal along.

•   Transfer some costs into your mortgage payments. You may be able to roll some costs into the mortgage loan. But beware: You’ll be raising your principal and interest payments, and might even get stuck with a higher interest rate. Proceed with caution.

Other Costs of Buying a Home

In addition to your down payment and closing costs, you also need to make sure that you can afford the full monthly costs of your new home. That means figuring out not only your monthly mortgage payment but all the ancillary costs that go along with it.

Understanding and preparing for these costs can help ensure that you are in sound financial shape for your first few years of homeownership:

Principal and interest. Your principal and interest payment is the amount that you are paying on your home loan. This can be estimated by plugging your sales price, down payment, and interest rate into a mortgage calculator. This number is likely to be the biggest monthly expense of homeownership.

Insurance. Your homeowners insurance cost should be factored into your monthly ownership expenses. Your insurance agent can provide you with details on what this policy will cover.

Property taxes. Property tax rates vary throughout the country. The rates are typically set by the local taxing authorities and may include county and city taxes. It’s important to factor in these costs as you think about your ongoing home-related expenses.

Private mortgage insurance. As mentioned, PMI may be required with a down payment of less than 20%. PMI is usually required until you have at least 20% equity in your home based on your original loan terms.

Homeowners association fees. If you live in a condo or planned community, you may also be responsible for a monthly homeowners association fee for upkeep in the common areas in your community.

Of course, these are just some of the things to budget for after buying a home. Your needs will depend on whether you are moving a long distance, whether you have owned a home before, and other factors. It’s a lot to think about, but it’s an exciting time.

The Takeaway

Before buyers can close the door to their new home behind them and exhale, they must be able to afford their down payment, qualify for a mortgage loan, and pay the closing costs — usually 3% to 6% of the loan amount. A home loan hunter may want to compare estimated closing costs in addition to rates when choosing a lender. It can be a wise way to keep expenses down.

SoFi Mortgage Loans offer competitive rates and a simple online application process. What’s more, qualifying first-time homebuyers can put as little as 3% down.

Looking for a home loan? View your rate in just minutes.

FAQ

How can I estimate closing costs?

Typically, closing costs will cost between 3% and 6% of your home loan’s amount.

When do I pay closing costs?

Your closing costs are typically paid at your closing. That is when you take ownership of the property and when your home mortgage officially begins.

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

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

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Real estate agents — both on the seller’s side and the buyer’s side — typically get paid at closing from the seller’s proceeds. The majority of real estate agents are paid via a commission vs. a set fee, which means the higher the sales price, the more money the agent gets paid.

Commissions are split evenly between the buyer’s and seller’s agents. The brokerage each real estate agent or Realtor® works for snags a portion of the commission as well. (Realtors are real estate agents who belong to the National Association of Realtors, requiring them to adhere to a certain code of ethics; we’ll use the terms interchangeably here.) Here’s an example of how a Realtor gets paid.

Real Estate Commission: An Example

Let’s say a home sells for $500,000 with a typical commission of 6%:

Total commission fee: $500,000 X 6% = $30,000

The commission is split evenly between the two sides:

•   Listing agent side = $15,000

•   Buyer’s agent side = $15,000

Real estate agents share their commissions with the brokers representing them. (A broker is an agent who also has an additional license to supervise other agents.) Let’s assume that the broker fee is 1% of the sales price (the broker’s split can go up to 50%, but we’ll use an easy 1% split here).

•   $500,000 sale price X 1% broker’s fee = $5,000

Subtract the broker fee from the total commission and the agent ends up with the rest.

•   $15,000 total commission – $5,000 broker’s fee = $10,000 agent commission

Typically, four people get paid from the seller-paid real estate commission. It may look something like this:

•   Listing agent = $10,000 (2% of sales price)

•   Listing agent broker = $5,000 (1% of sales price)

•   Buyer agent = $10,000 (2% of sales price)

•   Buyer agent broker = $5,000 (1% of sales price)

A Real Estate Agent’s Responsibilities

To earn their commission, real estate agents often have a lot of responsibilities. Their duties include:

•   Providing market data and helping to set a listing price

•   Placing ads and putting up yard signs

•   Photographing the property

•   Listing the property in the MLS, a listings database

•   Scheduling showings

•   Placing lock boxes

•   Guiding first-time home buyers

•   Smoothing over difficult relationships

•   Navigating offers and counter offers

•   Negotiating home contracts

Making a living through commissions can be challenging for real estate agents, but it can also be very rewarding.

Recommended: How to Find a Real Estate Agent

Who Pays the Realtor Commission?

It is expected that the seller pays the real estate agent commission fee for both the buyer’s and seller’s agents. At settlement (also called the “closing”), the money for the commission comes out of the seller’s proceeds. If the sales price of a home is $500,000 and the sellers owe $250,000 on their mortgage, then the commission and other fees would be subtracted from the $250,000 that remains after the sellers pay off their mortgage.

How Much Are Realtor Fees?

It is common to see real estate agent commission fees between 5% and 6%. This includes both the seller’s and the buyer’s real estate agents’ fees. The money is usually split evenly between the two sides. If the commission is 6%, for example, 3% would go to each side.

Can You Negotiate Who Pays the Real Estate Agent?

The Realtor fee is negotiable, though it is extremely rare for a buyer to pay it. Some ideas to help reduce your fee if you are selling your home:

•   Barter. Do you have a photographer friend who can take photos of your home? Offer up skills in exchange for a lower commission.

•   Hire a newer agent. A newer agent may accept a lower commission to gain experience.

•   Pay attention to market conditions. If homes aren’t moving in your market, you may be able to negotiate a lower commission.

Take time to interview potential Realtors using these suggested questions. When you’re buying a home, look for an agent with a strong network. (These agents may be the first to hear about so-called “whisper listings.”) Be sure the commission outlined in the listing agreement you sign matches what you agreed on.

How Is an Agent’s Commission Determined?

An agent’s commission is determined by the compensation agreement they have with their brokerage. As noted above, after the commission is split between the buyer’s and the seller’s agents, it’s then split again between the agent and the broker.

When Do Agents Receive Their Commission?

Agents usually receive their commission after the home mortgage loan has been funded and the sale closes. Their brokerage receives a wire with the funds and the agent’s portion of the commission is released to them shortly thereafter.

How Do the Agents Share Their Commission?

It is customary for agents to share the commission 50/50. If the listing has a 6% commission on it, 3% would go to the buyer’s agent and 3% would go to the seller’s agent.

What Is Dual Agency?

Dual agency is when a real estate agent represents both the seller and the buyer in a transaction. It must be disclosed to both parties because real estate agents are bound by a fiduciary duty to serve their clients. An agent who represents both seller and buyer will earn more commission.

Is Paying a Real Estate Commission Worth It for the Seller?

For many sellers, it’s painful to look at the closing documents and see how much of the sales price goes to different agents, title insurance companies, concessions, and so forth. But a lot of sellers like having someone to guide them through the complexities of real estate law, and sensitive issues that the sale of a home creates.

Recommended: How to Buy a House Without a Realtor

Alternatives to a Percentage-based Commission

There are real estate brokerages that advertise services for a flat fee. Usually, the flat fee is very low and may only include a listing on the MLS with photos. They usually don’t offer to schedule showings or manage the listing in any other way.

The Takeaway

Working with a real estate agent who earns a commission isn’t painful when you’re a buyer because the fee is almost always covered by the seller, and you will have an agent on your side to help you negotiate.

Another way to be money-smart when you’re buying is to get a good rate on a home loan. SoFi Mortgages offer competitive interest rates, low down payment options, and a guaranteed on-time close* (which you and your Realtor will love).

See your home loan rate in minutes.

FAQ

Do sellers pay realtor fees?

Yes, sellers pay realtor fees for both the buyer and the seller.

Do buyers pay Realtor fees in Texas?

No, the seller pays the realtor fees in Texas, with very few exceptions.

Do buyers pay Realtor fees in Washington state?

No, the seller usually pays realtor fees in Washington state, but it is negotiable.

How much does a new Realtor make in Illinois?

According to ZipRecruiter.com, the average pay for a first-year real estate agent in Illinois is $82,481. The range for first-year salaries is between $18,866 and $153,998.

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Photo credit: iStock/RyanJLane
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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

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.

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

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