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When you apply for a mortgage, lenders typically require proof of income via pay stubs, W-2s, and tax returns. But with a bank statement mortgage, borrowers can use their bank statements instead of tax documents to verify income.

For self-employed workers, who currently number more than 9 million and sole proprietors (another 20-plus million), using bank statements can demonstrate their real income instead of the lower figure that might be reported on a tax return after deductions.

Read on to learn how you can leverage your bank statements to qualify for a mortgage.

What Is a Bank Statement Mortgage?

A homebuyer who is self-employed, by any name — sole proprietor, independent contractor, a member of a business partnership, freelancer, or gig worker — or anyone else may qualify for a bank statement mortgage loan, also known as a self-employed mortgage, by submitting personal or business bank statements.

A bank statement lists all transactions made in an account during a set period of time, usually a month. The sum of the transactions — deposits, charges, and withdrawals — is used to calculate the beginning and ending balances for that period. In place of tax returns, this account information is used to verify you have enough income and cash flow to cover a down payment and monthly loan payments.

Lenders offering bank statement mortgages may ask for 12 to 24 months of statements to determine the borrower’s net income — how much they earned after taxes and business write-offs. Typically, the bank statements cover the time period immediately preceding the loan application.

How Does a Bank Statement Mortgage Work?

So, what is a bank statement mortgage in practice? As with any mortgages, lenders can consider your credit score, work history, and proof of liquid assets as part of the loan application. But a bank statement mortgage differs in at least one way.

Whether you deposit income from your business directly into a personal bank account or into a separate business account affects how your income is calculated.

Lenders may apply an expense ratio to business bank statements with the understanding that part of the deposits go toward business expenses. This means that only a percentage — usually 50% to 85% — of qualifying deposits is used to calculate income. (However, it’s possible to obtain a lower expense factor with a statement from a certified public accountant or tax preparer.)

If you deposit income to your personal account from your business account, 100% of deposits can count toward calculating the bank statement mortgage you can afford. Without a separate business account, though, deposits to a personal account also receive an expense ratio.

Note that lenders can also factor in your ownership percentage in a business when calculating gross monthly income from business bank statements.

Here’s an example of how these two scenarios would work for the same self-employed person applying for a 12-month bank statement mortgage.

Business bank statement: ($84,000 in deposits / 12 months) x 50% expense ratio = $3,500 gross monthly income

Personal bank statement: $84,000 in deposits / 12 months = $7,000 gross monthly income

With this monthly gross income figure, the lender will assess monthly debt payments to calculate the debt-to-income ratio and determine the loan amount you qualify for.

Recommended: Understanding Mortgage Basics

Who Should Get a Bank Statement Mortgage?

Prospective homebuyers who don’t have consistent cash flow or who lack proof of income from an employer like W-2s and pay stubs could benefit from a bank statement mortgage.

Self-employed workers often claim tax deductions for business expenses to lower their tax liability, which makes their income appear lower on tax forms. Therefore, without using bank statements, many sole proprietors, contract workers, and freelancers will qualify for a smaller mortgage amount than they can actually afford.

Bank statement mortgage loans could also be advantageous for seasonal workers. Since gross monthly income is calculated as an average during the full time period covered by the bank statements, when the deposits occur within that time frame is less important. (Incidentally, if you’re seeking a personal loan there are similar considerations to getting a personal loan when self-employed.)

Recommended: Understanding the Different Types of Mortgage Loans

Pros and Cons of a Bank Statement Mortgage

Bank statement mortgages represent an alternative to conventional mortgage loans that lends itself to self-employed and seasonal workers. But it’s important to consider the pros and cons when shopping for a mortgage.

How to Find a Bank Statement Mortgage

Bank statement mortgages are considered non-qualified mortgages (non-QM), which means they may lack certain features and protections, so not every lender uses them. Though less common than traditional mortgages, many lenders, including banks and credit unions, offer bank statement mortgage loans.

Since bank statement loans are non-QMs, it’s natural to have questions about mortgage terms and requirements.

For instance, it’s worth asking about mortgage points — fees paid to a lender for a lower interest rate — since the limits on points and fees for a qualified mortgage do not apply.

Recommended: Mortgage Calculator

Alternatives to a Bank Statement Mortgage

Prospective homebuyers have a range of financing options to choose from, even if they’re self-employed.

Getting prequalified and preapproved can give you an idea of how much home you can afford, and a specific amount, respectively.

A mortgage loan originator will convey the loan terms you might qualify for and available financing options.

•   Conventional home loan: Conventional loans tend to come with competitive interest rates and are originated, backed, and serviced by private mortgage lenders.

•   FHA loan: Insured by the Federal Housing Administration but administered by approved private lenders, an FHA loan allows for down payments as low as 3.5% and lower credit scores than conventional loans.

•   USDA loan: A USDA loan, backed by the U.S. Department of Agriculture, is designed to make homeownership affordable for low-income buyers in designated rural areas.

•   VA loan: Eligible service members, veterans, and eligible surviving spouses can obtain VA loans, guaranteed by the Department of Veterans Affairs, with competitive interest rates, no down payment, and minimal closing costs.

If you’ve been self-employed for two years, or one year self-employed plus two years in a similar role with comparable income, you may still qualify for one of the above loans.

Recommended: Help Center for Home Loans

The Takeaway

Being self-employed does not prevent borrowers from getting financing for a home purchase or refinance. A bank statement loan could be a solution if your tax returns don’t fully capture what you can afford. But you may also qualify for a conventional loan or other type of financing.

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

Are bank statement mortgages good?

Bank statement mortgages can be advantageous for self-employed homebuyers or refinancers, but they can have higher interest rates and down payment requirements. It’s worth checking to see if you’re eligible for conventional or government-backed loans first.

How much of a down payment is required for a bank statement mortgage?

Typically, bank statement loan lenders require a 20% down payment, or 10% if purchasing mortgage insurance.

Can I use a bank statement loan on a second home?

Yes, bank statement loans can be used for a second home, as well as vacation homes and investment properties.

Do bank statement mortgages work for refinancing?

Yes, homeowners can refinance with a bank statement mortgage, including applying for a cash-out refinance if they have enough home equity.

Photo credit: iStock/PeopleImages

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-Q125-035

Buying a house when you 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 strategies and steps to 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 in 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 expected to change in late 2025 due to new Federal Housing Finance Agency (FHFA) regulations revising credit score requirements on mortgage loans. A new FICO® system and a model called VantageScore 4.0 are coming. You may want to stay apprised of your scores under these as well.

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 third-quarter 2024 data from the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, 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.

A 2024 Money.com analysis showed that VantageScore’s subprime-borrower category included more than 47 million Americans as of February 2024. 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 $61,661 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. An 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 is another factor 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 just may pay more interest and need to fulfill other criteria. DTI limits vary by both lender and mortgage type.

Paying off other debts, like credit cards and student loans, can improve your DTI ratio and signal to lenders that you can afford mortgage payments. Reducing your debt can boost your credit score too, 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 to 579, you might still qualify, but you’ll need to make a 10% down payment. 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 U.S. Department of Agriculture 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.

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 aren’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, not just your credit scores and income, in 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 FHA-approved appraiser, 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-Q125-010

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. Even in late 2024, with the average sales price of homes in the U.S. slightly down from its 2022 historic high, the average price is almost $100,000 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 land it sits on, so condos do not 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

Let’s walk through 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 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 therefore are 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, as 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, and 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 (like repair costs, groundskeeping, property taxes, insurance, utilities not paid by tenants, and any property management fees). Home mortgage loan payments are not 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? Because 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 is 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 also will 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 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 (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 like Fundrise. These allow you to diffuse risk while taking part in more aggressive investments than you might have been willing to 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

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 like bonds, but REITs carry 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 that is 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. One is to look 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 2024 was still about $100,000 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-Q125-022

Before signing your closing documents and walking away with the keys to your new home, it’s important to reexamine the final details of the mortgage. Your lender is required to provide this information ahead of closing in the form of a mortgage closing disclosure.

Paperwork fatigue aside, the closing disclosure deserves careful review, as it outlines the mortgage terms and conditions you’re agreeing to.

What Is a Closing Disclosure?

You may have weighed the different mortgage types and then homed in on one that suited you best.

Maybe you got mortgage preapproval before zeroing in on a property you couldn’t live without (for a while, at least). Now the deal is almost buttoned up.

Here comes the closing disclosure, a five-page form from your lender outlining the home mortgage loans terms, including the loan principal, interest rate, and estimated monthly payment. It also lays out how much money is owed for closing costs and the down payment.

Lenders are required by federal law to provide the mortgage closing disclosure at least three business days ahead of the closing date.

Recommended: Understanding Mortgage Basics

Why the Closing Disclosure Is Important

The mortgage closing disclosure contains all the final terms of your home loan, like how much you pay each month and over the life of the loan. You probably had many mortgage questions for your lender, but all the conditions of your loan, such as your ability to refinance or pay off the loan early, are detailed here.

These specifics can have a significant impact on your personal finances. Just one percentage point difference in the interest rate can cost you thousands in the long run.

When you receive the closing disclosure from your lender, this is a final chance to review the fine print and compare everything with the loan estimate, the three-page document with the loan amount, interest rate, and other key information provided by your lender after you applied for a mortgage.

You may have obtained multiple loan estimates when shopping for a mortgage, but you’ll only get a closing disclosure from the lender you chose to finance with.

Recommended: Mortgage Help Center

What’s in the Closing Disclosure?

Visual learners, rejoice: The U.S. government’s Consumer Financial Protection Bureau maintains a sample closing disclosure with an accompanying checklist and tips on how to read a closing disclosure.

Here’s a breakdown of the components in the closing disclosure.

Loan Terms

The terms include the loan amount, interest rate, and the monthly principal and interest you’ll pay. This section notes if the loan has a prepayment penalty for paying off the mortgage early (a rarity these days) or a balloon payment, a one-time fee due at the end of the loan (ditto).

The closing disclosure will note with a “yes” or “no” whether the amount for any of these items can increase after closing.

Projected Payments

This section shows the factors used for the payment calculation, including the principal and interest, any mortgage insurance, and estimated escrow to pay property taxes, homeowners insurance, and any flood insurance. These add up to estimated total monthly payment for the mortgage.

If you don’t use an escrow account, the bottom of this section will show the monthly costs for property taxes, homeowners insurance, and homeowners association (HOA) dues, if applicable.

Checking these numbers against the original loan estimate from your lender is good practice.

Costs at Closing

Top of mind for many borrowers is the amount of cash needed to close. Usually, you can expect closing costs to be 2% to 5% of the home purchase price.

This section identifies the “cash to close,” which represents the closing costs plus the down payment owed by the borrower.

Loan Costs

Flipping to Page 2, this section provides a summary of expenses associated with taking out the loan. The costs consist of the origination fee, application fee, underwriting fee, and mortgage points if you’ve chosen to purchase any.

Additional costs are categorized under “services borrower did not shop for” and “services borrower did shop for.” The former includes services arranged by the lender, like the appraisal fee, while the latter refers to services the borrower had a choice in procuring, such as the title search and pest inspection fee.

Other Costs

There are other costs that may be due at signing, such as taxes and government fees, prepaids, escrow payments, and HOA fees.

Ensure that each amount is accurate and correctly entered as either borrow-paid or seller-paid.

Calculating Cash to Close

The table in this section shows a side-by-side comparison between the loan estimate and final dollar amount needed to close.

The calculation will account for any deposits paid by the borrower and seller credits negotiated as part of the deal.

Summaries of Transactions

This section provides a detailed look at what the borrower and seller are paying at closing. Costs prepaid by the seller, such as property taxes and HOA fees, may be adjusted to show what portion is owed by the borrower.

Loan Disclosures

Your mortgage comes with conditions, which are outlined on Page 4 of the closing disclosure. You’ll see which apply based on the box that’s checked for each.

Loan Calculations

On the final page, there are loan calculations showing the total amount you’ll pay over the life of the loan, as well as the finance charge, amount financed, annual percentage rate, and total interest percentage.

If you’re just looking into home loans, a mortgage calculator can estimate your monthly payments and total interest paid over the loan term.

Other Disclosures

The lender must disclose other characteristics of the mortgage, if applicable. They include the appraisal, contract details, liability after foreclosure, ability to refinance, and tax deductions.

Contact Information

Refer to this section if you need to contact the lender, brokers, or settlement agent involved with your mortgage.

Confirm Receipt

Signing the mortgage closing disclosure indicates that you received the form, not that you agree to the terms and accept the loan.

What Is the Three-Day Waiting Period?

As of 2015, the Consumer Financial Protection Bureau’s “Know Before You Owe” mortgage rule requires lenders to provide the mortgage closing disclosure at least three business days before closing.

This aims to give borrowers plenty of time to review the final loan terms, ask their lender any clarifying questions, and prevent unexpected costs at closing.

There are a few scenarios that could change the closing disclosure timeline. Your lender must provide another closing disclosure, thus granting three more days, if one of the following issues occurs:

•  A change in the loan APR (one-eighth of a percentage point or more for a fixed-rate loan or one-quarter of a percentage point for an adjustable-rate mortgage)

•  Addition of a prepayment penalty

•  A change in the loan product

How to Check Your Closing Disclosure

All five pages of the closing disclosure contain key information for the borrower to review. It may be helpful to go line by line with your loan estimate in hand to compare the final terms against what the lender previously provided.

Here are a few important items to pay attention to:

•  Review your name and the property information.

•  Check that the loan description and amount match the loan estimate.

•  Make sure that the interest rate is unchanged if you locked it.

•  Ensure you understand all the fees and any changes to them.

What Can and Can’t Change on the Closing Disclosure

There are some costs that can’t be changed on the closing disclosure, while others may increase by a certain percentage or by any amount.

Unless there’s a change in circumstances on the loan, changes can’t be made to the following:

•  Transfer taxes

•  Fees paid to the lender for a required service

•  Fees paid for a required service that the borrower wasn’t allowed to shop separately for

Recording fees and costs for required services from a lender’s written list of providers may not increase by more than 10%.

There are other costs that can change by any amount at any time, including:

•  Prepaid interest, property insurance premiums, or initial escrow deposits

•  Fees for required services by the lender that the borrower shopped separately for

•  Fees for optional third-party services

•  Note that your interest rate can fluctuate if it’s not locked or due to changes on your mortgage application.

What to Do if There’s an Error on the Closing Disclosure

It’s important to notify your lender or settlement agent of any errors on the closing disclosure.

Redoing the closing disclosure could delay the closing and affect your interest rate if your mortgage rate lock expires.

The Takeaway

The mortgage closing disclosure gives a detailed overview of your loan terms and closing costs. Review it promptly with your loan estimate at hand. If you’re uncertain of any information, reach out to your lender to go over the closing disclosure as soon as possible.

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

Does a closing disclosure mean I’m approved?

The loan is approved before you receive the closing disclosure, but a significant change to your credit, income, or debt before closing could affect your approval.

Can you waive the three-day closing disclosure?

You can waive the three-day closing disclosure in the case of a personal financial emergency, such as losing the home if the mortgage doesn’t close in time.

How long after the closing disclosure do you close?

You can close three business days at the earliest after receiving the closing disclosure. Errors on the closing disclosure could delay the process.

Can you be denied after the closing disclosure?

Yes. A dramatic change in your personal finances could cause a lender to reject your mortgage. It’s a good idea to try to avoid changing jobs or taking on new debt near the end zone.

Photo credit: iStock/Khosrork

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-Q125-025

For those who love living near the water — really near — a floating home may be the perfect fit. These unique dwellings provide rooms with a view, a community vibe, and more.

Isn’t this another name for a houseboat? No. Floating homes almost always stay put.

Read on to find out what a floating home is and what type of person might be the best fit for one.

Characteristics of a Floating Home

Floating homes have the following features:

•   Permanently docked. Floating homes sit on the water like houseboats, but they are anchored and permanently connected to land-based utilities. Unlike houseboats, floating homes have no engine.

•   HOA membership. Floating home residents pay homeowners association or moorage fees to maintain the docks and slips and cover common utility bills like water, sewer, and garbage service.

•   Slip might be included. Floating homes are often sold with their slip.

•   What lies beneath. The hull is often made of concrete, although it could be wood, metal, or foam. A houseboat hull is likely made of fiberglass, aluminum, or steel.

Pros and Cons of a Floating House

For water lovers, floating houses offer a unique lifestyle that might fit the bill. But they come with their fair share of drawbacks as well.

Benefits

•   Close community. Floating homes typically are very close to their neighbors. This can mean a tight-knit community.

•   No engine maintenance. Unlike houseboat owners, floating home owners don’t have to worry about the upkeep of an engine.

•   Water, water, everywhere. Forget waterfront homes; floating homes are in the water. For the homebuyer with a love of the outdoors and watersports, the location is unbeatable.

•   Possibly less expensive housing. In certain cities in California, Washington state, and Florida where homes on terra firma might be sky-high, a floating home could cost less. Look into the cost of living by state if you’re thinking about a move.

•   Tend to hold their value. Whereas houseboats tend to depreciate, floating homes may appreciate.

•   Potential for property tax breaks. A floating home might be classified as personal property, not “real property,” so owners may not have to pay property taxes. Instead, they might pay an annual personal-property tax. (Tax laws pertaining to floating homes differ by state, county, and even water body, so it’s important to know the applicable law where the floating home exists.)

Drawbacks

•   Fees. Floating home owners typically pay HOA or moorage fees. They can be sizable and keep rising.

•   Limited locations. Floating homes are pretty rare. That means limited opportunities to purchase one or limited space in moorages to build one.

•   Seasickness or motion sickness. While floating homes aren’t mobile (unless they are, in rare instances, towed), owners will still experience some rocking and rolling, which might not be the best for those with sensitivity toward motion sickness.

•   Weather and water damage. If there’s inclement weather on the body of water, floating home owners may face expenses for repairs. And being on the water all the time can take a toll on wood and metal.

•   Harder to finance. Securing a loan can be a challenge. Some lenders do offer long-term loans (but not FHA or VA loans) for floating houses. They usually require at least 20% down and have a higher rate than traditional mortgage rates. A personal loan might be another option, and a personal loan may streamline the process of closing on your purchase as it could have a shorter timeline.

Recommended: Applying for a Personal Loan with a Co-Borrower

Moorage Rules

The moorage is the community where a floating home stays, usually permanently.

A slip in a moorage may be part of a floating house purchase. Other owners rent a slip. The price of a floating home with slip will be much more but owning your slip likely means less in monthly fees.

Like any neighborhood, moorages will have their own personality based on the residents. As floating homes tend to be close together, the communal spirit may come into play more than in a traditional neighborhood.

Similar to an HOA, moorages have community rules, which could include:

•   Stipulations on renting out floating homes

•   Standards of exterior upkeep of floating homes

•   Quiet hours

•   Share community spaces or equipment

Buyers may want to shop around for a moorage that suits their personality.

Finding a Floating Home to Buy vs. Building One

Because many floating homes are sold along with the slip, buyers don’t have to seek out a new moorage for the property.

Homebuyers in the market for a floating home will have to refine their search to areas where floating homes are popular and communities are established.

The benefit of building a floating home is the technology available today. Modern floating homes typically use different foundations than older floating homes, which could translate to lower maintenance costs down the line.

But a drawback to building a floating home is the stress of finding a moorage that can accommodate it. Float home builders may have to wait for an opening.

Recommended: How to Build a House

Maintaining a Floating House

When it comes to upkeep, floating homes have most of the maintenance of single-family homes, with the added challenge of keeping them afloat.

Floating home owners should keep a close eye on their home’s foundation and reach out to specialists whenever a crack or issue emerges.

Even basic repairs such as plumbing or electrical may require a contractor. Not all plumbers are certified scuba divers, but they may have to be to work on a floating home. That means even basic repairs could cost much more than they would for a land-based home.

Floating houses need ongoing maintenance thanks to exposure to the elements. To keep siding and other exterior parts in good condition may require constant maintenance and more frequent replacement.

Who Should Get a Floating House?

Floating homes can be expensive and fees can add up, so buyers will have to weigh whether this unusual choice among the different types of homes is worth its salt. Floating home buyers may be interested in some or all of the following:

•   A love of water and proximity to nature. With waterfront views around the entire property, floating homes are a great fit for those who love activity on the water and unbeatable sunsets.

•   A sense of community. If a buyer is looking for neighbors nearby and with similar interests, a floating community could be a great fit.

•   Minimalism. When everything has to be hauled from the dock onto a property, it can be exhausting. Floating homes and downsizing may go hand in hand.

•   A go-with-the-flow mentality. This style of living comes with some day-to-day inconveniences. Plumbing and electrical outages are more common in floating homes because of the nature of the hookups. If the moorage is in a remote area, cellphone service and internet access may be limited.

The Takeaway

Floating homes aren’t for everyone, but water lovers may feel the urge to say ahoy to this lifestyle steeped in nature. A floating house has benefits, but inconveniences and fees make this way of living best for a unique type of buyer.
Floating house buyers often need special financing options too, such as a personal loan. Buying at the waterfront but not actually on the water? A conventional home loan is an option if you’re staying on terra firma.

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 is a floating house, and what is the difference between a floating house and a houseboat?

A floating home is permanently docked with a floating foundation. Houseboats have an engine and can move to different locations.

What is the cost of maintaining a floating home?

Maintaining a floating home may be similar to the upkeep on a waterfront or beachfront property. Basic repairs, including plumbing and electric, will likely require a specialist with experience in floating homes, which could be more expensive.

Can you get a loan to buy a floating home?

You could use a floating-home loan, personal loan, or home equity line of credit to buy a floating house, but floating homes are not eligible for a traditional mortgage.

Are floating homes safe?

Most are. Most floating home communities have standards in order to maintain property values. And the homes are usually subject to inspection and enforcement of regulations of the moorage and jurisdiction.

Photo credit: iStock/DR pics24

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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