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The allure of a quick loan can be hard to resist when there is a pressing need for cash. The amount of money needed might not be a lot, but it’s needed quickly. Looking for that small loan, though, might lead to lenders who charge extremely high interest rates and offer loan terms that are difficult to meet.

This is called predatory lending, and it works in the best interests of the lender, not the borrower. When you know what to look for in a reputable lender, however, it becomes easier to avoid becoming a victim of predatory lending practices.

Guide to Predatory Loans and Avoiding Them

Learning more about loans can help you avoid those with predatory rates and terms, ones that can trap you in a cycle of debt. Information and education are a consumer’s best friends when looking for any type of loan. For small loans that seem only to be available through lenders that seem less than reputable, those two things become even more important.

One piece of information that is important when looking for a loan is knowing what your credit report contains. Consumers can access their credit reports at no charge through AnnualCreditReport.com. Personal information, such as your name, current and previous addresses, and your Social Security number, are easy to verify.

Checking the accuracy of items on your credit report is also important because this information is used by lenders to assess your creditworthiness. Lenders want to know how many credit cards and loans you have, if you make your debt payments on time, and other factors.

Once you have a picture of your overall creditworthiness, it’s time to find a reputable lender to work with. It’s a good idea to compare several lenders to find one you feel comfortable working with and is a good match for your financial needs.

What Is Predatory Lending?

Predatory lending often targets consumers with poor credit, no credit, low incomes, lack of education, and/or for other unfair and discriminatory reasons.

Lenders who offer what are considered predatory loans do not have the best interests of their clients in mind — their goal is to make a profit at the expense of their client, even if that means engaging in misleading tactics. They may deceive borrowers into accepting three-digit interest rates or extreme prepayment penalties, for example. This can result in the loan holder struggling to repay what they owe and being caught in a debt cycle.

Recommended: What to Know Before You Borrow Money Online

How Predatory Lending Impacts Borrowers

As mentioned above, predatory lending, with its high interest rates and unfavorable terms, can keep borrowers trapped in a cycle of debt. In other words, they can’t “get ahead” of what they owe, or make a dent in the loan principal. This can be, of course, extremely stressful.

Financial Consequences of Predatory Lending

Those who have predatory loans can face severe financial consequences. Due to the stratospheric interest rates, they may find the amount they owe rising quickly. They may have to refinance their loan multiple times since they can’t pay it off, and each time, new fees can be added. This can damage the borrower’s credit rating as their debt-to-income ratio rises.

Predatory lending can also lead to the loss of an asset, if one was used to secure the loan. For example, if a person used their home or car as collateral, the lender could seize that if the loan goes into default. (Many personal loans are, however, unsecured loans, meaning no collateral is required.)

Predatory Lending Tactics and Practices

Reputable lenders are likely to be transparent about their interest rates, loan terms, and any fees they might charge, such as a personal loan origination fee or prepayment penalties.

Those engaging in predatory lending, however, may not be as transparent. They may try to hide important details about a loan and steer an applicant toward a loan they may not be able to afford.

To make sure a lender is not engaging in predatory lending practices, here’s a look at some things to avoid.

•   An unlicensed lender: A reputable lender will be licensed in the state they are doing business in and will be expected to uphold certain professional standards set by the Nationwide Multistate Licensing System (NMLS)®. Consumers can look up the license status of individual and institutional lenders through NMLS Consumer Access℠.

•   Rushing during the loan process: If you feel like a lender is hurrying you along without addressing your questions or concerns, you might wonder if they’re trying to hide some details about the loan terms or trying to approve you for a loan you might not be able to afford. A reputable lender will take the time to make sure you understand the documents you’re signing at the loan closing and that the loan works for your financial needs.

•   High interest rates and fees: A lender who offers only a high interest rate, one you don’t feel you can afford, probably doesn’t have your best interests in mind. Doing some research on typical interest rates available for your credit score and common fees charged — and comparing lenders who work within those parameters — is a good way to filter out predatory lenders.

•   Overpromising: A lender who tells you they can approve you for a loan regardless of your credit history is likely promising something they won’t be able to deliver on. Lenders typically have thresholds at which they are willing to loan money, outside of which they may decline an applicant.

Recommended: What Is Considered a Bad Credit Score?

Common Types of Predatory Loans

Three common predatory lending examples are payday loans, auto (or title) loans, and subprime mortgages.

Payday loans may come to mind when thinking of predatory loan examples. These types of loans target those who are looking for quick cash and may not think they will qualify for anything else.

Often short-term loans for small amounts, typically $100 to $1,000, payday loans are generally meant to be repaid with the borrower’s next paycheck. They are typically unsecured loans and often have high interest rates. A payday lender may refer to a “fee per $100 loaned” instead of disclosing the annual percentage rate (APR). This tactic hides the extremely high APR that is typical for a payday loan — say, 400% APR.

Similar to payday loans, auto title loans are an example of a predatory loan that is often made to an applicant who cannot qualify for a more mainstream loan. The borrower’s vehicle is used as collateral against the loan, with the borrower signing the title over to the lender. If the loan is not repaid, the lender keeps the title and has ownership of the vehicle.

Subprime mortgages are another predatory lending example. This is a type of mortgage made to a borrower who may not be able to qualify for a conventional mortgage based on the prime rate. Because the lender may perceive this borrower as an increased lending risk, they may offer an interest rate higher than that of a prime mortgage to offset this risk.

How to Spot a Predatory Lender

There are some telltale signs of predatory lending that it’s wise to be aware of. These include high-pressure sales tactics, such as the lender saying you have to sign right away or the offer will expire. They may also say that you are guaranteed for approval, regardless of your credit rating; this could indicate a personal loan scam. Responsible lenders review your credit background and then offer you the appropriate rate and terms.

Red Flags in Loan Terms and Conditions

When considering loans, here are some warning signs that you may be dealing with a predatory lender:

•   Extremely high interest rates. The rates are often significantly higher than average. They may be expressed in an unconventional way, such as not as an annual percentage rate, to make them appear lower.

•   Excessive fees. Some lenders may have fees that are hard to discern. Make sure you check whether there is, say, a prepayment penalty for paying off your loan early, or origination and processing fees. All of these can drive up the overall cost of the lona.

•   Balloon payments. Predatory lenders may entice you with low initial payments, but the amount you owe can then balloon, or grow steeply, as you move further into the repayment process.

•   Frequent refinancing. Some lenders know that borrowers will struggle to make payments and offer the option of frequent refinancing (called loan flipping). This, however, can lead to more fees and interest piling up, creating a debt cycle.

•   Collateral requirements. Some secured loans, which use assets to back the loan, are totally legitimate. But when lenders require collateral along with the other factors mentioned above, it can lead to a scenario where a loan goes into default and a home or car is seized.

What Are Good Lending Practices?

A reputable lender will work with you to find the loan option that best meets your financial needs. That’s not to say it won’t be beneficial to them, but it will be good for both lender and borrower. Just as there are some ways to identify predatory lending, there are ways to identify a lender that does business in an honest manner.

•   Licensed lender. Reputable lenders typically display their lending license for potential clients to see. If you’re meeting with a lender in their office, you may see their license framed and displayed on a wall. If you’re working with an online lender, look for their license information on their website. It might be on their About page, Legal page, or FAQ page.

•   Answering your questions. When you have questions about a lender’s personal loan options, terminology in the loan agreement, or general lending questions, a reputable lender will take the time to answer them and help you understand the process.

•   Competitive interest rates. Generally, lenders offer a range of rates based on the creditworthiness of each applicant. But they will be competitive with other lenders making the same types of loans. You can use an online personal loan calculator to get an idea of how much you might qualify for.

•   Realistic offers. A lender that has your best interests in mind will do what they can to approve you for a loan that you can afford, not one that you will be at risk of defaulting on. A happy client could mean referrals to other potential clients, and that is generally something a lender strives for.

What Can Be Done If You Are a Victim of a Predatory Loan?

One of the first things you can do if you believe you’re a victim of predatory lending is submit a complaint with the Consumer Financial Protection Bureau (CFPB). The bureau will send the complaint to the lending company and work to resolve the issue. The lending company communicates with both the client and the CFPB about the complaint, generally within 15 days with a final response in 60 days.

All complaints submitted to the CFPB are logged in the public Consumer Complaint Database, which can be a good place to check when comparing lenders you’re considering doing business with.

Personal Loans as an Alternative to Predatory Loans

When you need to borrow money quickly, a predatory loan like a payday loan may not be your only option. Lenders offering personal loans are fairly easy to find in today’s marketplace, and many of them are online lenders, which can make the process more streamlined.

If you’re considering a loan as a method to build your credit, a payday loan may not be the right financial tool. Many payday lenders don’t check an applicant’s credit report when making the loan, nor do they report payments to the credit bureaus. Essentially, even if you make regular, on-time payments, your credit score will not benefit from your diligence.

A reputable personal loan lender, however, will check an applicant’s credit report during the loan approval process and report payments to the credit bureaus. In this case, making regular, timely payments can positively impact your credit profile — and not doing so can have a negative impact.

Recommended: Typical Personal Loan Requirements Needed for Approval

Are Smaller, Short-Term Loans the Same as Predatory Loans?

There are reputable lenders that offer short-term loans for small amounts of money. Predatory lenders will exploit a person’s need for quick cash by trying to trick them into an unfair loan agreement they can’t afford. A reputable lender, on the other hand, will work with you to get a loan for the amount of money you need and that you can afford.

Some lenders do have minimum amounts they will lend, sometimes $3,000, $4,000, or $5,000, just as they have maximums of, say, a $50,000 personal loan or even a $100,000 one. If you don’t need this much money, you’d be better off looking at other lenders. There are lenders that will lend smaller amounts, though — even less than $1,000.

What Is the Smartest Way to Get a $5,000 Loan?

A smart way to find a $5,000 unsecured personal loan is to compare interest rates and fees of lenders who loan small amounts. This is easily done through an online personal loan comparison site or by calling a few different lenders. It probably won’t be too difficult to find multiple lenders to compare, as $5,000 is a fairly common personal loan amount.

A good first place to consider is your current bank or credit union. They may offer rate or fee discounts for current customers.

Online lenders may have shorter loan processing times, so if you need the money quickly, that could be a good choice.

The Takeaway

There are times in life when a quick infusion of cash is needed to help deal with a financial emergency or other need. To avoid falling victim to predatory lending, it’s a good idea to step back and take some time to compare lenders. Getting a loan from the closest payday lender on the block will likely mean paying extremely high interest rates and fees, and difficulty paying off the loan. Comparing loan offers can be a smart move.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Is predatory lending a crime?

Many states have enacted anti-predatory lending laws. Some states have completely outlawed payday lending, while others have placed caps on the amount lenders can charge. However, many violations go unpunished because consumers aren’t aware of their rights.

What are the most common predatory loans?

The most common types of predatory loans include payday loans, car title loans, and subprime mortgages.

What APR is considered predatory?

Predatory loans generally have interest rates in the triple digits. Loans with annual percentage rates (APRs) no higher than 36% are considered affordable loans.

What should I do if I suspect I’ve taken out a predatory loan?

If you think you have taken out a predatory loan, collect your loan documents, get guidance from a consumer lawyer or a certified financial counselor, and file a complaint with government agencies. Also, be sure not to sign any more loan documents or refinance the debt with the lender without having received professional guidance.

How can I report a predatory lender?

There are several ways to report a predatory lender. You can file a complaint with the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), your state’s attorney general, your state’s consumer protection agency, and/or the Internet Crime Complaint Center. After a bit of research, you may want to file complaints with multiple organizations.

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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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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This article is not intended to be legal advice. Please consult an attorney for advice.

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If you’re looking to reduce the amount of income tax you’ll need to pay, there are numerous strategies to consider. Familiar moves include contributing to tax-deferred retirement and health-spending accounts, deducting certain taxes and interest, and making charitable donations. More complex maneuvers include timing investments to offset gains with losses.

Because each person’s situation is unique, be sure to check with your tax accountant to find out how a potential strategy might work for you. Note that some of the strategies included in this guide have income limits.

Keep reading to see how many of these 25 tactics you can implement.

25 Ways to Lower Your Taxable Income

As you look through this list of 25 ideas on how to pay less in taxes, you’ll note that some are broad, advising how to reduce either W-2 taxable income or self-employment income. Meanwhile, others are more targeted — for instance, applying only to the self-employed. Keep track of ideas that pertain to your situation so you can explore them further.

1. Contribute to a Retirement Account

Many IRA contributions are tax deductible. If you’re covered by a plan at work, you can contribute up to $23,500 to a 401(k) plan in 2025 ($24,500 in 2026), and an additional $7,500 if you’re over 50 ($8,000 in 2026). You can also contribute $7,000 to an IRA ($7,500 in 2026), or $8,000 total if you’re over 50 ($8,600 in 2026). However, your deduction may be limited depending on income and other factors.

Self-employed individuals can contribute between 25% and 100% of net earnings from self-employment, up to $70,000 for 2025 (up to $72,000 for 2026). Plans available to the self-employed include the Simplified Employee Pension (SEP) plan, solo 401(k), and Savings Incentive Match Plan for Employees (SIMPLE IRA).

2. Open a Health Savings Account

A health savings account (HSA) allows you to deposit money on a pre-tax basis. Contribution limits depend on your health plan, age, and other factors, but most individuals can contribute $4,300 for 2025 and $4,400 for 2026.

Funds can be used to pay for qualified medical expenses or rolled over year to year. You must have a high deductible health plan (HDHP) to contribute to an HSA.

3. Check for Flexible Spending Accounts at Work

In lieu of an HSA, you can contribute up to $3,300 in pre-tax dollars to a flexible spending account (FSA). In 2026, the contribution threshold rises to $3,400. FSAs allow people with a health plan at work to deposit money and then use it to pay for qualifying health care costs. Unlike HSAs, FSAs don’t require an HDHP to qualify. The downside: Only a small portion of funds may be rolled over to the following year.

4. Business Tax Deductions

The IRS guidelines around business deductions change frequently, so it’s wise to watch out for their announcements throughout the year. Some business expenses apply only to self-employed people.

5. Home Office Deduction

When a self-employed person regularly uses a specific area of their home for business purposes, they may qualify to deduct costs associated with that part of the house. The home office deduction can be calculated in two ways (regular or simplified) up to the current gross income limitation. For more information, search for “IRS publication 587.”

When you’re in business for yourself, every moment counts. Online tools can help take the guesswork out of tracking your spending, setting up budgets, analyzing spending habits, and more.

6. Rent Out Your Home for Business Meetings

If you’re self-employed, you can also rent out your home for business events and meetings, collect the income — and not have to pay income taxes on that rental income. To learn specifics, visit https://www.irs.gov/pub/irs-drop/rp-13-13.pdf.

7. Write Off Business Travel Expenses

Travel expenses, as defined by the IRS, are the “ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.” For IRS guidance for both W-2 employees and the self-employed, go to https://www.irs.gov/taxtopics/tc511.

8. Deduct Half of Your Self-Employment Taxes

When calculating your adjusted gross income (AGI) as a self-employed person, using Form 1040 or Form 1040-SR, you can deduct half the amount of your self-employment tax. In 2025 and 2026, the self-employment tax rate is 12.4% for Social Security and 2.9% for Medicare, based on your net earnings.

9. Get a Credit for Higher Education

This tax credit can go up to $2,500 based on tuition costs along with what you paid in certain fees and for course materials. As a first step, income tax owed is reduced dollar for dollar up to your limit. Then, if your tax credit is more than what you owe, you may be able to get up to $1,000 in a refund.

10. Itemize State Sales Tax

Currently, you can deduct a total of $40,000 for itemized state and local income taxes, sales taxes, and property taxes when you use Form 1040 or 1040-SR. If married but filing separately, the total is $20,000 per person. The IRS provides a calculator that you can use to figure out your deduction at https://apps.irs.gov/app/stdc/.

11. Make Charitable Donations

A taxpayer can typically deduct up to 60% of their AGI to qualified charities. However, thanks to a 2025 law, standard deduction filers can deduct up to $1,000 (or up to $2,000 for married couples filing jointly) for cash donations starting in the 2026 tax year.

12. Adjust Your Basis for Capital Gains Tax

If you sell an asset, including but not limited to investments, a capital gains tax is levied on the difference between the purchase price and what it sells for. The adjusted basis also takes into account the costs of capital improvements made, minus decreases such as casualty losses. For more on the topic when selling a home, search for “IRS publication 523.”

Recommended: Should I Sell My House Now or Wait?

13. Avoid Capital Gains Tax by Donating Stock

You may be able to avoid paying capital gains tax if you transfer the ownership of your appreciated stock (held for more than one year). This is something that needs to be handled in exactly the right way; your tax accountant can help.

14. Invest in Qualified Opportunity Funds

If you invest in property through a Qualified Opportunity Fund, the IRS states that you can temporarily defer paying taxes on the gains. Taxes can be deferred (not reduced or canceled) up until December 31, 2026, or until an inclusion event occurs earlier than that date. This is a complex strategy and, again, you may want to get professional advice.

15. Claim Deductions for Military Members

You may be able to deduct moving expenses if you’re a member of the military on active duty who relocated because of a military order and permanent change of location. In this case, you can potentially deduct your unreimbursed moving expenses as well as those for your spouse and dependents. You can calculate relevant expenses on “IRS form 3903, Moving Expenses.”

16. Enroll in an Employee Stock Purchasing Program

In an employee stock purchase plan (ESPP), an employee who works at a company that offers this program can buy company stock at a discount. The company takes out money through payroll deductions and, on the designated purchase date, buys stock for participating employees. Note that only qualified plans have potential tax benefits.

17. Deduct the Student Loan Interest You’ve Paid

You may qualify to deduct student loan interest. Annual deduction amounts are the lesser between the amount of interest paid and $2,500. This deduction is lowered and eliminated when your modified adjusted gross income (MAGI) reaches a certain limit based on your filing status.

18. Sell Your Losing Stocks to Claim Capital Loss Carryover

If you sell stock at less than the purchase price, you’ve experienced a capital loss. You can use that loss to offset any capital gains that year. If you’ve lost more than you’ve gained, this can reduce your taxable income, which could reduce what you owe up to $3,000 for individuals and married couples, and $1,500 for someone married who filed separately.

Recommended: Tax Loss Carryforward

19. Deduct Mortgage Interest

You can deduct the money you paid on mortgage interest on the first $750,000 (or $375,000 if married, filing separately) of mortgage debt you owe. Higher limits exist ($1,000,000/$500,000) if the debt was taken on before December 16, 2017.

20. Deduct Medical Expenses

Under certain circumstances, you can deduct medical and dental expenses for yourself, your spouse, and dependents. You’ll need to itemize on your tax return and can only deduct qualifying expenses that exceed 7.5% of your AGI.

21. Delay IRA Withdrawal Upon Retirement

You can delay IRA withdrawals so that you don’t have more taxable income when you’re a high earner.

22. Ask Your Employer to Defer Income

You pay income tax in the year the income is received. Although there are reasons why employers typically can’t postpone providing paychecks, they may be able to delay a bonus to the following year as long as this is standard practice for them. If self-employed, you can delay sending your end-of-year invoices to bump December payments to the following calendar year.

23. Open a 529 Plan for Education

A 529 plan allows you to save for future educational expenses. Although the contributions themselves aren’t deductible, interest that accrues in the account is tax-free, federally, as well as being tax-free in many states. In other words, when the money is withdrawn to pay college expenses, it is not taxed.

24. Buy Tax-Exempt Bonds

Interest you receive on muni bonds, for example, is not federally taxed (although there may be state and/or local taxes). These are typically very safe investments, although the interest rates may not be what you want.

25. Time Your Investment Gains or Losses

Known as tax loss harvesting, this strategy takes planning because you’ll want to ensure that any investment gains can be offset, as much as possible, by tax losses. So you may decide, as just one example, to hold on to a stock that’s lost significant value — selling it at a time when it can offset a stock sale with a sizable gain.

The Takeaway

High earners looking to reduce taxable income have many avenues to explore — some you’ve likely heard of, with others perhaps new to you. For instance, investors may be able to take advantage of tax loss harvesting, tax loss carryover, or tax efficient investing. Consult your tax accountant about your specific situation. And to take advantage of tax reduction opportunities, it’s important to keep careful track of your financial transactions.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How can I lower my taxable income?

If you’re wondering how to reduce your taxable income, there are numerous strategies that might work for your situation. A good place to start: Contribute to a retirement account, open a health savings account, and learn which taxes and interest you can deduct. Talk to your tax accountant about specific questions you may have.

What are the tax loopholes for the rich?

If you’re looking to reduce your taxable income, consider making charitable donations and investigating investment strategies that offset gains with losses.

Do 401(k) contributions reduce taxable income?

Said another way, are IRA contributions tax deductible? Retirements typically offer some tax benefits with specifics varying based on the type of retirement account. Traditional IRAs have different rules, for example, than Roth IRAs.

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Photo credit: iStock/Petar Chernaev

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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.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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A home inspection costs $300 to $425, and while it may not be required by law or your lender, if you’re purchasing a home, you’ll likely want to consider having a professional take a close look. You may even choose to make your contract contingent on the results. Here’s what you can expect to get for your money.

What Do Home Inspectors Do?

The goal of a professional inspection is to help you avoid being surprised by structural defects, plumbing and electrical issues, or other significant problems when buying a home. In highly competitive local real estate markets, some buyers take the risk of waiving the home inspection (some even go so far as to buy a house sight unseen). But certified home inspectors are trained to find the problems you might not see when you walk through a home that’s for sale (even if you’ve seen the property multiple times).

Many states require inspectors to be licensed, and there are several professional organizations that require their members to follow certain standards of practice. Two of the largest national organizations for certified inspectors are the International Association of Certified Home Inspectors (InterNACHI) and the American Society of Home Inspectors (ASHI), but there are also many state associations.

Below is a list of some of the things on a home inspection checklist that an inspector will look at.

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

Roof Condition

Inspectors aren’t required to stand on a roof to inspect its condition, but they will review the materials used to cover the roof; the gutters and downspouts; any vents, flashing, skylights, etc.; and the general structure of the roof. They’ll also report any evidence of active leaks.

Exterior

This part of the inspection will generally include the exterior walls; the eaves, soffits, and fascia; windows and doors (including garage doors); walkways and driveways; stairs, steps, and ramps; porches, patios, decks, and the like; railings; and any issues that could cause problems with water intrusion.

Structural Soundness

This typically includes looking for cracks or other problems with the home’s foundation, the basement or crawlspace, and other structural components.

Heating and Cooling

The inspector will report on the types of systems used to heat and cool the home and if they are in working order.

Plumbing

This may include checking the main water supply shut-off valve and water heater; running the faucets and flushing all toilets; and reporting drainage problems for sinks, tubs, and showers. The inspector will look for damage, loose connections, leaks, and equipment that wasn’t properly installed.

Electrical

Besides checking a representative number of switches, light fixtures, and receptacles, the inspector will look at the type of wiring used in the home, the electrical panel, the main service disconnect, and any equipment that wasn’t properly installed or repaired. The absence of smoke detectors and carbon monoxide detectors also will be noted.

Insulation and Ventilation

The inspector may note any issues with the insulation used in the home, including the depth and type, and the exhaust systems in the kitchen, bathrooms, and laundry room.

Recommended: First-Time Homebuyer Guide

What Isn’t Included in a Basic Home Inspection?

A basic inspection is a noninvasive, visual assessment of accessible areas of the property, so inspectors may not move rugs, furniture, or other items that block their view. If there’s a problem behind a wall or under the floors, the inspector may not catch it. And you shouldn’t expect the inspector to predict how long the roof, appliances, or HVAC system might last.

You may have to hire specialists as you’re preparing to buy a house, and that could add to your overall costs. Specialized inspections might include looking at the swimming pool, fireplace chimney and flue, a well and/or septic tank, and detached sheds and garages. You also may choose to get separate inspections to search for mold, termites, asbestos, lead paint, or radon gas, and to check for municipal code compliance.

While the cost of a single-family home inspection normally ranges from $300 to $425, the price can go significantly higher depending on the home’s square footage and the addition of specialized inspections.

You’ve probably already looked at numbers with a mortgage calculator or plan to. That’s more money you’ll need to come up with before or during your closing.

Why Get a Home Inspection?

A home inspection can cost hundreds of dollars, but getting one could save you thousands. After all, the home you’re buying could be the biggest investment you’ve ever made.

Once you receive your inspection report, it will be up to you to decide if and how you want to move forward with the purchase. As a buyer, you may have a few options, including:

•   If there are problems, you can give the seller a list of requested repairs (based on the inspection, not your taste) that must be completed and paid for as a condition of the sale.

•   You may request a credit, or a seller concession, that gives you enough to pay for the necessary repairs yourself.

•   You could back out of the deal altogether.

You don’t have to do anything, by the way. If you want the home and you think the price is fair, you can proceed with the transaction even if the report lists major issues. And you’ll know what renovations you should prepare for financially if you move forward with the home purchase. It might even prompt you to begin saving for that work.

Home Inspection Pros and Cons

Is an Inspection Necessary for a New or Renovated Home?

Given the lengthy list of things you have to do when buying a home — everything from researching mortgage rates to getting mortgage preapproval to hiring movers — it might be tempting to waive the inspection. This is particularly true if you’re buying new construction or a home that looks new thanks to a remodel. Fresh paint, that “new home smell,” and some professional staging can be a distraction for eager buyers. But even new construction can have problems, and an inspection can help find red flags. And even if you waive inspection, an insurer may still require a four-point inspection before agreeing to issue an insurance policy on the home.

Recommended: Tips to Qualify for a Mortgage

What Factors Into the Price of a Home Inspection?

When you’re shopping for an inspector, you may want to ask for a written estimate of how much does an inspection cost and a breakdown of line items. Here are some things that could affect the price:

Size

The larger the home, the longer it could take to complete the inspection and the inspection report. Here’s a breakdown of approximate costs based on square footage:

Home Size	Approximate Cost
Under 1,500 sq. ft.	$250
1,500 to 2,500 sq. ft.	$325
2,500 to 3,000 sq. ft.	$380
3,000 to 4,000 sq. ft.	$420
Over 4,000 sq. ft.	$500-plus

Age

Because it may take more time — depending on the condition of the home and the design — the inspection for an older home may cost more than for a newer build of the same approximate size.

Location

If the inspector must travel a long distance to get to the home, the cost estimate may be higher. (The inspector may charge by the mile or a negotiated amount.)

The Inspector

How much experience does the inspector have? Are they licensed by your state and/or certified by a professional association like ASHI or InterNACHI? You may have to pay extra for this expertise.

Additional Costs

The first price you’re quoted may not be the final price you’ll pay for an inspection. If you want additional inspections that require more expertise or specialized equipment, you can expect to pay much more. Inspecting detached structures on the property also may increase the price. Ask about those separate costs and if they’ll be listed on your written estimate.

💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Average Cost of a Home Inspection by Region

The part of the country where the property is located could also have an impact on the cost of a home inspection. If the cost of living is high in an area, it may have an impact on the cost of home inspections.

National Cost Range

As noted above, the national range for a basic home inspection is $300 to $425. This doesn’t include specialized services such as radon or water testing, for example.

But inspections in some areas can be much more expensive.

Regional Price Differences and Trends

The part of the country where a property is located is another potential factor in cost. Spectora, which makes home-inspection software, compiled inspection data from its users to get to the bottom of the question “how much does a house inspection cost by region?” The company reported that the Northeastern U.S. had the highest inspection costs, with the average being $575. Inspectors in certain Zip codes in Florida and Texas reported the highest overall inspection costs, with West Palm Beach County, Florida, weighing in at an average of more than $1,500. Generally speaking, though, the South is the area with the least expensive home inspections, according to the Spectora report.

How Long Does an Inspection Take?

A home inspection typically takes two to three hours onsite, and you may have to wait one or two days to get your inspection report. You may find it helps to research inspectors even before you find a home so you can move quickly when you’re ready to buy. That way you’ll have plenty of time to read the report and decide what you want to do about any points of concern.

What Happens After the Home Inspection?

As soon as you receive the home inspection report, you’ll want to review it thoroughly. Home inspection contingencies, which can allow buyers to get out of the contract if they find something they don’t like, usually have a tight deadline. You may have to send formal notice to the seller that you’re canceling the contract within seven days after signing the purchase agreement. This means the inspection, the report, and any notice to the buyer will all have to happen in a tight window of time. And even if you don’t have an inspection contingency, you’ll no doubt be eager to see if the inspector found anything concerning.

Reviewing the Inspection Report

Your first step in reviewing the inspection report is to study the summary. This will highlight any specific issues that the inspector felt were cause for concern, and may include page numbers where you can find detailed information about any red-flag issues. After you’ve reviewed the major concerns, if any, it’s a good idea to read the inspection report from cover to cover. Problem spots include structural concerns, a deteriorated roof (since a roof can be quite expensive to replace), and water or mold inside the building. Take notes on any issues raised by the inspector that you feel would be costly or otherwise difficult to address — these may be issues to bring up with the seller.

Also keep in mind that there are things the inspector cannot see and won’t address in the report. You may want to schedule an inspection of a septic system, for example, or testing of well water or testing for radon.

Negotiating Repairs or Price Adjustments

Once you’ve made a list of any concerns, you’ll want to call your real estate agent to discuss approaching the seller. If the home wasn’t advertised to buyers “as-is,” you may be able to request that certain repairs be made before closing, or negotiate a lower selling price or a rebate from the seller to allow you headroom in your budget to cover the repair costs. And of course, if severe problems are identified, you may want to move on — that’s where the contingency clause comes into play. Especially in a hot market, you may not be able to use the report as a negotiation tool to lower the price or get the seller to pay for repairs. Still, you’ll have the information you need to make the best decision for your personal needs and goals.

Are Any Fixes Mandatory After an Inspection?

A home inspector’s report isn’t a list of “must-dos.” Most repairs are negotiable. And you may decide not to press the seller for any fixes. But it’s important to be aware of the cost of home repairs that may be needed down the line.

In some cases, a buyer may be denied financing or insurance if the bank or insurer isn’t satisfied with the results of an inspection and the planned repairs. Those items likely would include dangerous structural or electrical defects and/or building code violations.

Tips on Choosing an Inspector

Word-of-mouth references can be a great place to start when you’re looking for a home inspector. There are also plenty of online sites that can help you find local inspectors. And real estate agents often know inspectors whom they have found to be reliable and thorough in the past. Once you have a few names, you can:

Look for Online Reviews

There are several sites that list inspectors, and some offer reviews. You also can ask the inspector for references.

Check Credentials

Is the inspector a member of a professional organization? You may want to ask to see a membership card. And don’t forget to ask for proof of licensing if it’s required in your state.

Ask About Experience

How long has the inspector been in the business? Experienced inspectors likely will have seen several types of homes and know where to look for problems.

Get Pricing Information

You can start by asking about the cost of a basic inspection and what it includes, then go from there. If the inspector does specialized tests you’re interested in (for mold, radon, asbestos, etc.), you can request to have those costs included in the estimate.

Compare Sample Reports

One way to gauge an inspector’s work may be to look at a past report and compare it to other companies’ reports.

Set the Date

Keep your timeline in mind as you consider whom to hire. Things can move quickly in the mortgage process, and you don’t want your inspection to hold up the deal.

Try to be there when the inspector is working, so you can see the home through an unbiased lens. If you can’t be there, you may want to ask your real estate agent to attend.

The Takeaway

It might be tempting to skip the home inspection to save money or time, or to make your offer more appealing. After all, the average home inspection cost is $300 to $425 and could go higher. But a home inspection can provide an important layer of protection and reassurance that the money you’ve budgeted for your new home will be well spent.

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FAQ

Does the buyer or seller pay for a home inspection?

The homebuyer typically pays for a home inspection and hires the inspector.

What’s the biggest warning sign on a home inspection?

There are many issues that can be red flags on a home inspection, but the most serious include structural or foundation problems, significant water damage or an active leak, or bad or outdated electrical wiring. All of these can be very costly to repair and can create safety or health hazards.

Can I back out of a home purchase after a bad inspection report?

Homebuyers may be able to back out of a home purchase if an inspection turns up significant problems, but whether or not you can do so will depend on your contract with the seller. An inspection contingency in your purchase contract could allow you to back out under certain circumstances and retain your deposit. If you aren’t protected by this contingency, you might forfeit your deposit by backing out.

How much should I budget for a home inspection?

The typical home inspection cost averages $300 to $425, but you may want to budget extra if the property being inspected is particularly large or old. You’ll also want to factor in extra funds for any specialized testing or inspection — for example, if the property has a well or septic system or a swimming pool.

Are specialized inspections (e.g., mold, radon) worth the extra cost?

Specialized inspections are generally worth the cost, particularly if they have the potential to uncover an issue, such as mold or radon, that can be invisible to the untrained eye but harmful to human health. Inspections that examine areas of the home that may be especially costly to repair, such as a septic system or well, can also be worthwhile. When in doubt, ask yourself if finding out about a major issue after the fact would be potentially catastrophic, either to your health or to your budget. When you think of the house inspector cost that way, the decision is clear.

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

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Depending on where you work, you may be able to save for retirement in a 457 plan or a 401(k). While any employer can offer a 401(k), a 457 plan is commonly associated with state and local governments and certain eligible nonprofits.

Both offer tax advantages, though they aren’t exactly the same when it comes to retirement saving. Understanding the differences between a 457 retirement plan vs. 401(k) plans can help you decide which one is best for you.

And you may not have to choose: Your employer could offer a 401(k) plan and a 457 plan as retirement savings options. If you’re able to make contributions to both plans simultaneously, you could do so up to the maximum annual contribution limits — a terrific savings advantage for individuals in organizations that offer both plans.

401(k) Plans

A 401(k) is a tax-advantaged, defined contribution plan. Specifically, it’s a type of retirement plan that’s recognized or qualified under the Employee Retirement Income Security Act (ERISA).

With a 401(k) plan, the amount of benefits you can withdraw in retirement depends on how much you contribute during your working years and how much those contributions grow over time.

Understanding 401(k) Contributions

A 401(k) plan is funded with pre-tax dollars, meaning that contributions reduce your taxable income in the year you make them. And withdrawals are taxed at your ordinary income tax rate in retirement.

Some employers may offer a Roth 401(k) option, which would enable you to deposit after-tax funds, and withdraw money tax-free in retirement.

401(k) Contribution Limits

The IRS determines how much you can contribute to a 401(k) each year. For 2025, the annual contribution limit is $23,500; for 2026, it’s $24,500. Workers aged 50 or older can contribute an additional $7,500 in catch-up contributions in 2025 and $8,000 in 2026. In either year, those 60 to 63 can make a catch-up contribution of up to $11,250 instead of $7,500 or $8,000.

Employers can elect to make matching contributions to a 401(k) plan, though they’re not required to. If an employer does offer a match, it may be limited to a certain amount. For example, your employer might match 50% of contributions, up to the first 6% of your income.

401(k) Investment Options

Money you contribute to a 401(k) can be invested in such assets as mutual funds, index funds, target-date funds, and exchange-traded funds (ETFs). Your investment options are determined by the plan administrator. Each investment can carry different fees, and there may be additional fees charged by the plan itself.

Traditional 401(k)s are subject to required minimum distribution (RMD) rules beginning at age 73. If you are still working past age 73 and do not own 5% or more of the business sponsoring the plan, you can delay RMDs until the year you retire. As of 2024, Roth 401(k)s no longer require RMDs. That’s something to consider when you’re thinking about your income strategy in retirement.

Recommended: 5 Steps to Investing in Your 401k Savings Account

Vesting in a 401(k) Retirement Plan

A 401(k) plan is subject to IRS vesting rules. Vesting determines when the funds in the account belong to you. If you’re 100% vested in your account, then all of the money in it is yours.

Employee contributions to a 401(k) are always 100% vested. The amount of employer matching contributions you get to keep can depend on where you are on the company’s vesting schedule. Amounts that aren’t vested can be forfeited if you decide to leave your job — at which point you may decide to open an IRA and roll over your 401(k) into it.

Employers may use a cliff vesting approach in which your percentage of ownership is determined by year. For instance, in year one and two, your ownership claim is 0%. Once you reach year three and beyond, you’re 100% vested.

With graded vesting, the percentage increases gradually over time. So, you might be 20% vested after year two and 100% vested after year six.

All employees in the plan must be 100% vested by the time they reach their full retirement age, which may or may not be the same as their date of retirement. The IRS also mandates 100% vesting when a 401(k) plan is terminated.

457 Plans

A 457 plan is a deferred compensation plan that can be offered to state and local government employees, as well as employees of certain tax-exempt organizations. The most common version is the 457(b); the 457(f) is a deferred compensation plan for highly paid executives. In certain ways, a 457 is very similar to a 401(k), such as:

•   Employees can defer part of their salary into a 457 plan and those contributions are tax-deferred. Earnings on contributions are also tax-deferred.

•   A 457 plan can allow for designated Roth contributions. If you take the traditional 457 route, qualified withdrawals would be taxed at your ordinary income tax rate when you retire.

•   Traditional 457 accounts are subject to RMDs once you turn 73; Roth-designated 457 accounts are not.

•   Annual contribution limits for 457 plans are the same as 401(k)s. For 2025, you can contribute up to $23,500. For 2026, the contribution limit is $24,500. Workers aged 50 or older can contribute an additional $7,500 in catch-up contributions in 2025 and $8,000 in 2026. In either year, those 60 to 63 can make a catch-up contribution of $11,250 instead of $7,500 or $8,000.

One big difference with 457 plans is that these limits are cumulative, meaning they include both employee and employer contributions rather than allowing for separate matching contributions the way a 401(k) does.

Another interesting point of distinction for older savers: If permitted, workers can also make special catch-up contributions if they are in the three-year window leading up to retirement.

They can contribute the lesser of the annual contribution limit, plus the amount of the limit not used in any prior years. The second calculation is only allowed if the employee is not making regular catch-up contributions.

Vesting in a 457 Retirement Plan

Vesting for a 457 plan is similar to vesting for a 401(k). You’re always 100% vested in any contributions you make to the plan. The plan can define the vesting schedule for employer contributions. For example, your job may base vesting on your years of service or your age.

As with a 401(k), any unvested amounts in a 457 retirement plan are forfeited if you separate from your employer for any reason. So if you’re planning to change jobs or retire early, you’d need to calculate how much of your retirement savings you’d be entitled to walk away with, based on the plan’s vesting schedule.

457 vs 401(k): Comparing the Pros

When comparing a 457 plan vs. 401(k), it’s important to look at how each one can benefit you when saving for retirement. The main advantages of using a 457 plan or a 401(k) to save include:

•   Both offer tax-deferred growth

•   Contributions reduce taxable income

•   Employers may match contributions, giving you free money for retirement

•   Both offer generous contribution limits, with room for catch-up contributions

•   Both may offer loans and/or hardship withdrawals

Specific 457 Plan Advantages

A 457 plan offers a few more advantages over a 401(k).

Unlike 401(k) plans, which require employees to wait until age 59 ½ before making qualified withdrawals, 457 plans allow withdrawals at whatever age the employee retires. And the IRS doesn’t impose a 10% early withdrawal penalty on withdrawals made before age 59 ½ if you retire (or take a hardship distribution).

Also, independent contractors can participate in an organization’s 457 plan.

And, as noted above, 457 plans have that special catch-up provision option, for those within three years of retirement.

457 vs 401(k): Comparing the Cons

Any time you’re trying to select a retirement plan, you also have to factor in the potential downsides. In terms of the disadvantages associated with a 457 retirement plan vs. 401(k) plans, they aren’t that different. Here are some of the main cons of both of these retirement plans:

•   Vesting of employer contributions can take several years, and plans vary

•   Employer matching contributions are optional, and not every plan offers them

•   Both plans are subject to RMD rules, unless they are Roth 401(k)s or Roth-designated 457 plans

•   Loans and hardship withdrawals are optional

•   Both can carry high plan fees and investment options may be limited

Perhaps the biggest drawback to 457 plans is that employer and employee contributions are combined when applying the annual IRS limit. A 401(k) plan doesn’t have that same requirement so you could make the full annual contribution and enjoy an employer match on top of it.

457 vs 401(k): The Differences

The most obvious difference between a 401(k) vs. 457 account is who they’re meant for. If you work for a state or local government agency or an eligible nonprofit, then your employer can offer a 457 plan for retirement savings. All other employers can offer a 401(k) instead.

Aside from that, 457 plans are not governed by ERISA since they’re not qualified plans. A 457 plan also varies from a 401(k) with regard to early withdrawal penalties and the special catch-up contributions allowed for employees who are nearing retirement. Additionally, a 457 plan may require employees to prove an unforeseeable emergency in order to take a hardship distribution.

A 457 plan and a 401(k) can offer a different range of investments as well. The investments offered are determined by the plan administrator.

457 vs 401(k): The Similarities

Both 457 and 401(k) plans are subject to the same annual contribution limits, though again, the way the limit is applied to employer and employee contributions is different. With traditional 401(k) and 457 plans, contributions reduce your taxable income and withdrawals are taxed at your ordinary income tax rate. When you reach age 73, unless you have the Roth version of these plans, you’ll need to take RMDs unless you’re still working.

Either plan may allow you to take a loan, which you’d repay through salary deferrals. Both have vesting schedules you’d need to follow before you could claim ownership of employer matching contributions. With either type of plan you may have access to professional financial advice, which is a plus if you need help making investment decisions.

457 vs 401(k): Which Is Better?

A 457 plan isn’t necessarily better than a 401(k) and vice versa. If you have access to either of these plans at work, both could help you to get closer to your retirement savings goals.

A 401(k) has an edge when it comes to regular contributions, since employer matches don’t count against your annual contribution limit. But if you have a 457 plan, you could benefit from the special catch-up contribution provision which you don’t get with a 401(k).

If you’re planning an early retirement, a 457 plan could be better since there’s no early withdrawal penalty if you take money out before age 59 ½. But if you want to be able to stash as much money as possible in your plan, including both your contributions and employer matching contributions, a 401(k) could be better suited to the task.

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Investing in Retirement With SoFi

If you’re lucky enough to work for an organization that offers both a 457 plan and a 401(k) plan, you could double up on your savings and contribute the maximum to both plans. Or, you may want to choose between them, in which case it helps to know the main points of distinction between these two, very similar plans.

Basically, a 401(k) has more stringent withdrawal rules compared with a 457, and a 457 has more flexible catch-up provisions. But a 457 can have effectively lower contribution limits, owing to the inclusion of any employer contributions in the overall plan limits.

The main benefit of both plans is the tax-advantaged opportunity to save for retirement. The money you contribute reduces your taxable income, and grows tax free (you only pay taxes when you take money out).

Another strategy that can help you manage your retirement savings: Consider rolling over an old 401(k) account so you can keep track of your money in one place. SoFi makes setting up a rollover IRA pretty straightforward, and there are no rollover fees or taxes.

Help grow your nest egg with a SoFi IRA.

FAQ

What similarities do 457 and 401(k) retirement plans have?

Both have the same annual contribution limit and regular catch-up contribution limit for savers who are 50 or older, plus a higher catch-up contribution for those 60 to 63.

What differences do 457 and 401(k) retirement plans have?

A 457 plan includes employer matching contributions in the annual contribution limit, whereas a 401(k) plan does not. You can withdraw money early from a 457 plan with no penalty if you’ve separated from your employer. A 457 plan may be offered to employees of state and local governments or certain nonprofits while private employers can offer 401(k) plans to employees.

Is a 457 better than a 401(k) retirement plan?

A 457 plan may be better for retirement if you plan to retire early. You can make special catch-up contributions in the three years prior to retirement and you can withdraw money early with no penalty if you leave your employer. A 401(k) plan, meanwhile, could be better if you’re hoping to maximize regular contributions and employer matching contributions.

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

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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.

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

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

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