SoFi

Many homebuyers finance their home purchase with a mortgage that’s paid back over a specific term, often 15 or 30 years. Borrowers may seek to pay off the loan ahead of schedule, a process known as mortgage curtailment, with the goal of saving on interest and getting out of debt.

Before you start making extra payments on your home loan, let’s take a closer look at the meaning of mortgage curtailment, its potential benefits, and factors to consider.

How Mortgage Curtailment Works

At a high level, mortgage curtailment involves additional payments on the mortgage principal to reduce the length of the home loan and pay off a mortgage early. Monthly mortgage payments have four components: principal, interest, taxes, and insurance.

When you make your first mortgage payment, and for the initial portion of your loan, a greater share of the payment goes toward interest. As the principal balance gets paid off, less interest accrues, and a greater share of the payment goes toward the principal. Mortgage curtailment speeds up this process by applying extra funds to the principal on top of the monthly payment. This is why it’s sometimes called “mortgage principal curtailment.”

The decision to curtail a mortgage is usually up to the borrower. Occasionally, mortgage principal curtailment can occur to refund overpayment of fees or during a cash-out refinance to bring the loan into compliance.

Recommended: The Mortgage Loan Process Explained in 9 Steps

Differences Between Curtailment and Prepayment

If you’re thinking about mortgage curtailment, you may also run across the term “prepayment,” a general term for making early payments on a loan. A mortgage prepayment could be a curtailment (in which you pay off some of the principal — but not all that you owe — early). Or it could be a complete prepayment of the loan, in which you pay off the entire amount of principal owed. So in short, curtailment is a form of prepayment and the terms are often used synonymously.

Benefits of Mortgage Curtailment

Paying off a home loan early with mortgage curtailment has its advantages. Notably, borrowers can potentially save thousands of dollars on interest by whittling away at the principal early.

Taking out a 15-, 30-, or even 40-year mortgage can be daunting. But chipping away at the principal with extra payments can shave years off the loan term. Besides offering peace of mind, getting out of mortgage debt frees up cash for other financial goals.

Putting more money toward the mortgage principal also builds home equity faster than making only your monthly payments. Greater home equity can increase net worth and boost the return on investment should you decide to sell your home. Additionally, homeowners can leverage their home equity for a variety of loans, whether for repairs and renovations or to purchase a new property before selling their home.

Calculating Mortgage Curtailment Savings

To understand how curtailment helps save money, let’s crunch the numbers with an example of principal curtailment on a mortgage. Suppose a borrower has a $350,000 home loan with a 30-year term and 5.00% interest rate. If the homeowner made regular monthly payments, this would amount to $326,393 in interest over the life of the loan.

In this scenario, tacking on an extra $100 to the $1,878 monthly payment and applying that toward the principal would save $40,846 in interest and reduce the loan term by almost four years. Meanwhile, contributing an additional $400 to the principal each month would translate to $116,557 less in interest payments and paying off the mortgage in under 21 years.

Using a mortgage calculator can help estimate your monthly payment and how much interest you’d pay without mortgage curtailment.

Factors to Consider Before Curtailing

While curtailment can help save on interest and shorten the loan term, it’s important to take your personal financial situation into account. Any high-interest debt, such as credit cards, would be worth addressing first before allocating funds toward extra payments on a mortgage principal. It’s also good practice to have some cash reserves set aside for an emergency fund prior to curtailing a mortgage.

Here are some other factors to consider in the decision-making process.

Prepayment Penalties

Paying off a mortgage early can come with a cost — literally. Depending on the mortgage agreement, borrowers may be on the hook for covering a prepayment penalty, a fee imposed by the lender to offset the loss in interest income the lender will experience if a borrower prepays.

Different types of mortgages have varying terms and requirements. Reach out to your lender or check the fine print to see if prepayment penalties apply.

Opportunity Costs

Putting more money toward the mortgage principal is one way to increase wealth and get out of debt. But it’s worth considering the opportunity cost of mortgage curtailment versus using funds for other financial goals, such as retirement savings.

The money used for mortgage curtailment could potentially get a higher return on investment if invested in stocks, a Roth 401(k), or other retirement fund. When comparing how much interest you might save through mortgage curtailment vs. estimated earnings from investments, it’s important to factor in how much you expect the property to increase in value, as you will be building equity, not just saving on interest charges.

Tax Implications

Homeowners who itemize deductions on their tax returns can claim what they paid in mortgage interest, capped at a maximum of $750,000 in debt. The mortgage interest deduction also extends to home equity loans or lines of credit if the money borrowed is used for home improvements.

If total write-offs don’t exceed the standard deduction amount ($15,750 for single or married filing separately and $31,500 for married filing jointly), then an itemized deduction may not be worth it.

Strategies for Mortgage Curtailment

Borrowers have options for their mortgage curtailment strategy. Partial curtailment involves making additional payments (which might be monthly or at another frequency) on the loan principal. Borrowers still make regular monthly payments until the loan is paid off, but with each added payment, the mortgage amortization is updated to reflect the reduced principal balance. This approach offers flexibility for homeowners to adjust their extra payments based on their financial situation.

Alternatively, borrowers can pursue total curtailment to pay off the entire outstanding mortgage principal in one lump sum. Depending on how much you owe, this could require significant savings or a windfall from, say, an inheritance.

Alternatives to Mortgage Curtailment

There are other ways to save on a mortgage that are worth looking into as you consider whether curtailment is right for you.

To take advantage of lower interest rates, homeowners can consider a home loan refinance. When doing so, choosing a mortgage term that’s shorter can save on interest payments over the life of the loan.

Borrowers who put less than 20% down on a house are required to pay private mortgage insurance (PMI) until they reach 20% equity. Making additional payments can put borrowers on a path to hitting 20% and getting out of PMI early, at which point they can decide if mortgage curtailment is a worthwhile long-term strategy.

Recommended: How to Get a Home Loan

The Takeaway

Mortgage curtailment involves making extra payments to reduce the principal on a home mortgage loan. Mortgage curtailment can reduce the total interest paid on a home loan as well as the loan term. It’s important to evaluate how curtailment impacts other financial goals, such as building up an emergency fund and saving for retirement, before making an extra payment on your home loan.

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 the difference between mortgage curtailment and prepayment?

People often use the terms interchangeably, but curtailment curtails (shortens) the loan term and the amount of interest you’ll pay. Prepayment might mean making extra payments via curtailment or it could mean paying off the entire loan early.

How much can I save by curtailing my mortgage?

Total savings depends on the loan amount, repayment term, and the timing and amount of additional payments. For example, paying $100 extra each month on a 30-year, $350,000 loan with a 5.00% interest rate would save more than $40,000 in interest payments.

Will curtailing my mortgage affect my credit score?

Making additional payments each month won’t affect your credit score. But paying off a mortgage in full reduces your length of credit history, which could impact your credit score, although the interest savings might well be worth it.

Photo credit: iStock/kate_sept2004

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-Q126-227

Historically speaking, mortgage rates have remained relatively low since the Great Recession, with some fluctuation at times due to market conditions. As a result, a generation of homebuyers has become accustomed to a low 30-year fixed-rate mortgage.

But with mortgage rates on the rise, it can put a sour taste in the mouths of people trying to join the ranks of homeowners in the country. They may be thinking that they missed an opportunity to buy a home. However, it’s important to look at the history of mortgages and mortgage rates to put the current conditions into context.

The History of Mortgage Rates

The modern history of mortgage lending in the U.S. began in the 1930s with the creation of the Federal Housing Administration. From the 1930s through the 1960s, a combination of government policy and demographic changes made owning a home a normal part of American life. During this time, the 30-year fixed-rate mortgage became the standard for home mortgage loans.

When discussing the fluctuation of mortgage rate trends, analysts usually refer to the average 30-year fixed-rate mortgage. Here’s a look at the trend of these mortgage rates since the 1970s.

The 1970s

Throughout the 1970s, mortgage rates rose steadily, moving from the 7.00% range into the 13.00% range. This uptick in rates was due, in part, to the Arab oil embargo, which significantly reduced the oil supply and sent the U.S. into a recession with high inflation — known as stagflation.

As a result, Federal Reserve Chairman Paul Volcker made a bold change in monetary policy by the end of the decade, raising the federal funds rate to combat inflation. Though the Federal Reserve doesn’t directly set mortgage rates, its monetary policy decisions can still impact many financial products, including mortgages.

The 1980s

The average 30-year fixed-rate mortgage hit an all-time high in October 1981 when the rate reached 18.63%. The Federal Reserve’s tight monetary policy affected this high borrowing cost and put the economy into a recession. However, inflation was under control by the end of the 1980s, and the economy recovered. Mortgage rates moved down to around 10%.

The 1990s and 2000s

Mortgage rates continued a downward trend throughout the 1990s, ending the decade at around 8.00%. At the same time, the homeownership rate in the U.S. increased, rising from 63.9% in 1994 to 67.1% in early 2000.

Several factors led to a housing crash in the latter part of the 2000s, including a rise in subprime mortgages and risky mortgage-backed securities.

The housing crash led to the Great Recession. To boost the economy, the Federal Reserve cut interest rates to make borrowing money cheaper. Mortgage rates dropped from just below 7.00% in 2007 to below 5.00% in 2009.

Recommended: US Recession History: Reviewing Past Market Contractions

The 2010s

Mortgage rates steadily decreased throughout most of the 2010s, staying below 5.00% for the most part. The Federal Reserve enacted a zero-interest-rate policy and a quantitative easing program to prop up the economy during this time following the Great Recession. This helped keep mortgage rates historically low.

The 2020s

The Federal Reserve reduced the federal funds rate to near-zero levels in March 2020, causing a drop in rates of various financial products. The effects of the fallout from the COVID-19 pandemic pushed mortgage rates below previous historic lows. The average 30-year fixed-rate mortgage hit 2.77% in August 2021.

However, with inflation reaching levels not experienced since the early 1980s, the Federal Reserve reversed course. The central bank started to tighten monetary policy in late 2021 and early 2022, which led to a rapid increase in mortgage rates. In May 2022, the average mortgage rate was above 5.00%. While this was below historical trends, it was the highest rate since 2018. From there, the 30-year fixed rate mortgage crept upward, reaching a high of 7.79% in October 2023 before declining to 7.17% in April 2024.

Recommended: How Inflation Affects Mortgage Interest Rates

Why Do Mortgage Rates Change?

As we can see from looking at interest rate fluctuations, major economic events can significantly impact mortgage rates both in the short and long term. As noted above, this has to do primarily with the Federal Reserve.

Federal Reserve actions influence nearly all interest rates, including mortgages through the prime rate, long-term treasury yields, and mortgage-backed securities. The Federal Reserve sets the federal funds benchmark rate, the overnight rate at which banks lend money to each other.

This rate impacts the prime rate, which is the rate banks use to lend money to borrowers with good credit. Most adjustable short-term rate loans and mortgages use the prime rate to set the base interest rates they can offer to borrowers. So, after the Federal Reserve raises or lowers rates, adjustable short-term mortgage loan rates are likely to follow suit.

Longer-term mortgage rates have also risen and fallen alongside economic and political events with movement in long-term treasury bond yields. In the short term, a Federal Reserve interest rate change can influence mortgage markets as money moves between stocks and bonds, affecting mortgage rates. Longer-term mortgage rates are influenced by Fed rate changes but don’t experience as direct an effect as short-term rates.

Recommended: Federal Reserve Interest Rates, Explained

Can Changing Rates Affect Your Existing Mortgage?

If you have a mortgage with a variable interest rate, known as an adjustable-rate mortgage, changing rates can affect your loan payments. With this type of home loan, you may have started with an interest rate lower than many fixed-rate mortgages. That introductory rate is often locked in for an initial period of several months or years.

After that, your interest rate is subject to change — how much and how often depends on the terms of your loan and interest rate fluctuations. These changes are generally tied to the movement of interest rates, but more specifically, they relate to which index your adjustable-rate mortgage is linked to, which can be affected by the Fed’s actions.

However, most adjustable-rate mortgages have annual and lifetime rate caps limiting how high your interest rate and payments can go.

If you took out a fixed-rate mortgage, your initial interest rate is locked in for the entire time you have the home loan, even if it takes you 30 years to pay it off.

Recommended: What Is a Good Mortgage Rate?

The Takeaway

If you’re in the market to buy a home, it might be tempting to rush and buy when mortgage rates drop a bit or to put off buying until rates hopefully decrease in the future. However, choosing the perfect time to buy a home based on the ideal rate can be difficult. You’re probably better off letting your need for a home and your personal financial situation drive your decision-making. (Do you have a down payment saved up? Is your debt under control?) When it’s time to buy, do your research and choose the best mortgage available for your personal situation.

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 the 30-year fixed-rate mortgage, and why is it important?

The 30-year fixed-rate mortgage is a home loan with an interest rate that remains the same for the entire repayment period. It became the standard in the U.S. between the 1930s and 1960s due to government policy and housing market expansion. Analysts often use it as a benchmark when discussing mortgage rate trends.

Why did mortgage rates rise so sharply in the 1970s and 1980s?

Mortgage rates increased due to high inflation and economic instability, particularly during the stagflation period of the 1970s. The Federal Reserve raised interest rates aggressively to control inflation, which pushed mortgage rates to record highs. In 1981, rates peaked at over 18.00%.

What caused mortgage rates to fall in the 2000s and 2010s?

Mortgage rates declined due to actions taken by the Federal Reserve during and after the financial crisis. Lower interest rates and economic stimulus measures made borrowing cheaper. This trend continued through the 2010s, keeping rates historically low.

Why did mortgage rates increase again in the 2020s?

After reaching record lows during the COVID pandemic, mortgage rates rose due to high inflation. The Federal Reserve increased interest rates to stabilize the economy. This led to a rapid rise in mortgage rates between 2022 and 2023.

Do changing interest rates affect existing mortgages?

It depends on the type of mortgage you have. Adjustable-rate mortgages can change over time based on market conditions, which can affect your payments. Fixed-rate mortgages, however, keep the same interest rate for the life of the loan, regardless of market changes.

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-Q126-269

In housing markets teeming with buyer demand, it’s not uncommon to put an offer on a home only to be outdone by a competing offer. If two or more potential buyers want a property badly enough, they may find themselves locked in a bidding war.

Some market watchers think that pent-up demand from homebuyers and increasing seller activity will make for a busy home-buying market in 2026. And let’s face it: Some markets are always competitive, and new “hot” markets are born regularly.

Here’s how to increase your chances of winning a bidding war so you don’t have to bid adieu to a home you really want.

Know How a Bidding War Works

Bidding wars usually take place in a seller’s market, when demand outpaces housing inventory. They also occur when there are multiple interested parties and when there is some sort of constraint, such as timing.

When a seller’s agent receives offers for a property that has attracted a lot of buzz, the agent may set a date by which would-be buyers should make their highest and best offer. Sellers can accept the best offer, counter one offer while putting the others to the side while awaiting a decision, or counter one offer and reject the others.

This brings up a salient point: It’s true that you can buy a house without a real estate agent, but an experienced agent can guide you through offers and counteroffers, contingency snags, and more.

Line Up Your Financing

One of the best things you can do to be prepared for a potential bidding war, or really any time, is to get your finances and financing in order.

Be sure to know how much house you can afford, including a down payment and monthly payments.

Determine if you qualify for a mortgage by going through the prequalification process with several lenders. Familiarize yourself with the types of mortgage loans that are available: government-backed loans or conventional loans, fixed-rate or adjustable-rate options.

Taking the next step beyond prequalification and go through the mortgage preapproval process. Getting preapproved for a mortgage will give you a specific amount that a lender is tentatively willing to let you borrow. A preapproval letter shows sellers that you are a serious candidate to buy a home. Many experts recommend getting at least three preapproval letters from three lenders.

A preapproval letter shows sellers that you are a serious candidate to buy a home. Many experts recommend getting at least three preapproval letters from three lenders.

Lessen or Drop Contingencies

Contingencies are certain conditions that must be met before a real estate deal becomes binding. Potential buyers can back out of a deal without penalty if the contingencies aren’t met.

A clean offer, one with as few contingencies as possible, is attractive to sellers in a competitive market.

In a typical real estate market, a common contingency is the mortgage contingency, or financing contingency, which allows homebuyers to exit the deal and have their earnest money returned if they cannot secure financing by the agreed-upon deadline.

Another is the inspection contingency. Based on the findings of a professional inspection, the buyer may be able to negotiate repairs or the price, which are known as seller concessions if the sellers are agreeable, or cancel the contract.

Waiving contingencies shows your eagerness to triumph, but it comes with risk. The biggest is losing your earnest money deposit if you hit a snag.

Be Quick About Any Remaining Contingencies

Sellers want to avoid spending a lot of time with a potential buyer only to have the deal fall through. If you’re including appraisal and inspection contingencies, do what you can to expedite them.

The real estate purchase contract includes any contingencies, the sales price, the closing date, and the date of the title transfer and possession. The contract is considered a working document until both parties agree on the terms.

Use an Escalation Clause

Unsurprisingly, one of the best ways to win a bidding war is by offering more money.

You may want to include an escalation clause in the contract if you assume there will be multiple offers. The clause asserts that if another buyer makes a competing offer, your bid will automatically increase by a certain amount, up to a limit, to exceed the offer.

Say you put a $400,000 offer on a home, with an escalation amount of $10,000 and a ceiling of $430,000. If someone else bids $410,000, you will automatically bid $420,000, up to your ceiling.

Stay Flexible

A willingness to be flexible can give you a leg up in the eyes of a seller.

For example, a seller might be moving across the country for work and need to close by a specific date. So if you can get the appraisal and inspection done swiftly, that could be a huge plus.

Alternatively, sellers may need to stay in the house for a while. Working with them on their specific needs could give you an edge.

Pay With Cash

If you are able to do it, buying a house with cash can be very attractive to sellers. The process is typically much faster than going through a lender, and sellers don’t want to worry about financing issues that might hold up the deal or cause it to fall through.

It’s even possible that a seller would choose a cash offer over a slightly higher offer backed by a mortgage.

Increase Your Deposit

There are timeless standards for how to make an offer on a house. One is determining the size of your earnest money deposit.

The deposit, held in escrow by the title company, secures the real estate contract. It tells the seller that you are serious about buying the house.

Earnest money is typically 1%-3% of the purchase price but can be more in a competitive market. If you close on the home, the deposit will be applied to your closing costs.

Write a Personal Letter

When sellers are choosing a buyer during a bidding war, they’re often just looking at numbers on a page. Consider writing an offer letter, aka a love letter, to humanize the transaction.

You might want to make a case for why you’re the ideal candidate to buy the home and note commonalities: You’re a ceramicist and noticed an artist’s studio in the backyard. You have dogs; they have a dog. That big elm reminds you of the one at your childhood home.

Be complimentary about the things you like about the house and how it has been maintained. And be concise.

The Takeaway

Whether you’re buying in a time of burgeoning bidding wars or not, it’s good to know how they work. The tactics help homebuyers understand the lay of the real estate land — contingencies, earnest money, escalation clauses, love letters — and use them to best effect.

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

FAQ

Can a homeowner refuse to sell a house to a particular buyer?

Yes, a seller can refuse to sell a home to a buyer without penalty as long as there is no purchase agreement in place and as long as the refusal is not a violation of the Fair Housing Act. The act prohibits housing discrimination based on sex, race, color, familial status, or national origin.

When should you walk away from a bidding war?

You’ll know you should walk away from a bidding war when you run the numbers on a home mortgage calculator and determine that the monthly payments just aren’t feasible (or are doable but will keep you awake nights). Other reasons to walk away include that the home was pricey for the market or a stretch for your budget at its initial asking price, there are multiple bidders, or the house wasn’t your dream home to begin with.

What is an escalation clause in a bidding war?

An escalation clause is a provision in an offer that automatically increases a buyer’s bid if a competing offer comes in higher, up to a set limit. It can help buyers stay competitive without constantly submitting new offers, but it may also push them closer to their maximum budget.

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-Q126-241

Congratulations! You’ve found a house you love and want to buy. You may even be in the final stages of closing on this dream home. But sometimes, homebuyers may need to access what’s known as an escrow holdback: a way of setting aside funds at the closing for repairs that are most definitely needed as you take ownership.

For example, what happens if a blizzard hits the week before your scheduled closing, revealing a leaky roof that needs major (pricey) repairs?

This wasn’t something that showed up in the initial inspection report. Or maybe it did show up in the inspection report, but the issue is suddenly much more pressing in light of said snowstorm. Either way, these repairs can’t be made at this particular time because it’s winter and, well, it’s snowing outside.

What’s a buyer to do? In this scenario, an escrow holdback could be a path to funding the necessary repairs without blowing your closing date. Here, you’ll learn more about escrow holdbacks, including:

• •  What is an escrow holdback?
• •  How does an escrow holdback work?
• •  What qualifies for an escrow holdback?
• •  What if your situation doesn’t qualify for a holdback?

Escrow Holdbacks Defined

Before defining escrow holdbacks, here’s what escrow is: Typically, it’s money held by a third party as assets (such as real estate) are being transferred.

An escrow holdback agreement, however, occurs when money is set aside at the closing of a home to complete repairs. Generally, the seller is the one supplying the money, though not always.

Money is held in an escrow account until the repairs are completed. The funds can then be released. Another name for an escrow holdback that you may hear used is “repair escrow.”

This may sound like a pretty good arrangement, but an escrow holdback isn’t a possibility for every borrower and in every scenario. Consider the following:

• •  The lender’s underwriter will review the appraisal and any accompanying inspection reports to confirm that the sales price is met and that the property does not show evidence of any deferred maintenance items that can have an effect on things like safety, soundness, or structural integrity.
• •  These are often referred to as health and safety issues. Health and safety issues can affect whether the home is eligible for financing.
• •  Most lenders will not close a loan on a home that has been called out for things such as missing railing, stairs, fencing, and much more.

It’s not hard to imagine a situation where a homebuyer needs the seller to repair something that cannot be completed until after the contract’s closing date, as in the snowstorm example above. Depending upon the repair, a lender may allow for the seller to place a specific amount of funds in escrow for what’s known as defect cure, which must be completed within a specified period of time.

These repairs could be expected or unexpected as the parties move through the home-buying process. Generally, the appraiser calls out the more obvious issues that hurt a home appraisal and may recommend further inspection by an expert for something noted in their report. If an appraiser requests an inspection, the lender’s underwriter may review the report and require some repairs.

Another example of a situation in which an escrow holdback could be a valuable tool: when a seller needs the proceeds from the sale of the home in order to comply with the repair request.

These are examples of how and when an escrow holdback could be warranted and beneficial. If you’ve never been through the home-buying process before and all this is making you a bit nervous, consult a first-time homebuyer’s guide for help.

Recommended: How to Afford a Down Payment on Your First Home

How Does the Escrow Holdback Process Work?

If you’re curious about how the escrow holdback process works, consider these points that spell out the process in more detail:

• •  Normally, the first step is the buyer’s and seller’s agents negotiating any required repairs through an addendum to the purchase contract. This is drawn up by the real estate agents and signed by all parties.
• •  The document will likely outline the repairs that the buyer (or lender) would like the seller to make, the timeframe for those repairs, and details about how and when the payments to the contractors are to be made.
• •  This contract addendum is then sent to the escrow company (or the attorney) and to the lender, who will review the document. The underwriter of the loan will have the last say as to whether the escrow holdback is approved.
• •  If it is approved, then the closing may proceed as initially planned. However, not all holdback requests will be approved. The lender may have conditions around the approval of an escrow holdback. These can include but are not limited to such requirements as improvements having to be completed within 180 days of the mortgage closing date.

The lender may have conditions around the approval of an escrow holdback. These can include but are not limited to such requirements as improvements having to be completed within 180 days of the mortgage closing date.

• •  The lender will likely establish an escrow completion account with the title company from the purchase proceeds. This is typically equal to 100%-120% of the estimated cost for completing the improvements and more.
• •  Once the repairs are completed, another inspection occurs to verify that the work has been satisfactorily finished. The escrow account can then release the funds.

It’s important to note that not all transactions qualify for an escrow holdback. The criteria can vary between lenders, property, and even type of transaction (sale of existing property or of a new construction home).

What Qualifies for an Escrow Holdback?

Generally, lenders prefer that repairs take place prior to the closing, but exceptions can be made — such as when repairs must be delayed due to inclement weather.

This may limit escrow holdbacks to repairs that require some work on the outside of the home, such as repairs to a roof, yard, or plumbing accessed outdoors.

Here are some types of repairs that affect property value and residents’ safety and may qualify for an escrow holdback. These are probably already on your list of things to look for when buying a house:

• •  Patio problems
• •  Pest control
• •  Roof repair
• •  Septic tank issues
• •  Sprinkler system problems
• •  Yard cleanup

Again, there are no sure things or guarantees of how an escrow holdback will work. That’s because it is ultimately up to all of the involved parties to agree on the terms.

Beyond the weather causing a delay, lenders often look to determine whether the repairs present a risk to the property (their collateral) or present health and safety issues to the prospective occupants. As you might imagine, a lender generally won’t want to make a loan for a property that they believe could threaten the health or safety of its occupants.

Recommended: The 10 Steps to Buying a House

What if Your Situation Doesn’t Qualify for a Holdback?

Say you believe there is an issue that merits an escrow holdback, but the lender doesn’t approve it. Now what? There’s not much, unfortunately, that you can do in this situation. The most likely scenario is that the closing date will need to be pushed out to make time for any required repairs before loan closing.

As you pursue an escrow holdback, it might be helpful to understand that some lenders’ guidelines may not offer escrow holdbacks under any conditions.

This could be due to the fact that the follow-up involved in closing the holdback is too arduous. Or perhaps there are difficulties in getting the repairs completed within the specified period of time given. If lenders have been burned in any of these ways in the past, they may decide the process is too risky.

In the event that a lender refuses an escrow holdback agreement, you might have to delay your closing. If the lender also refuses to make a loan, you (the buyer) could be in a very tough spot. Even if you’re willing to pay for the cost of repairs in order to move forward with the lending process, this may not be in your best interest. You do not yet own the property, and issues can arise from financing repairs to it.

It may be wise to get your real estate lawyer’s and real estate agent’s opinions about how to handle this kind of difficult situation. They can help you explore any options that exist.

The Takeaway

Escrow holdbacks can be a way to solve for needed repairs of a property you are interested in buying or have already begun to purchase. By keeping funds in this kind of account, the parties involved may be able to satisfactorily complete the work needed and pay for it in a clear and equitable way.

No matter your situation, you’ll likely want to work with a lender that can help you navigate the home-buying process. While you’re shopping for a mortgage, check out customer service reviews in addition to rates and terms.

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 deposit different from a holdback?

They are different in real estate, although both may be held in escrow (or held by a third party in the transaction). A deposit is money provided by the buyer early in the sale process to show the seller that they are interested in proceeding with the purchase of a property. A holdback is typically provided by the seller near the closing of the deal and refers to funds that are held back to pay for a repair to the property, which needs to be done within a certain period of time after the closing.

Who holds escrow funds?

Escrow funds are held by a neutral, independent third party known as an escrow agent or holder, which can be a bank, a specialized escrow company, an attorney, or a trust company.

What is a release of escrow holdback?

If funds have been withheld to pay for repairs, an inspection will be done to confirm the repairs have been completed. At that point, if the repairs are satisfactory, the escrow holder will release the funds to pay for the repair. Any remaining funds are typically returned to the seller.

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-Q126-261

If you’re one of the millions of Americans working remotely full-time, you might be tempted to buy a house out of state. Or maybe you just need a change of scenery.

Buying a house long distance can be a challenge, but it’s doable with a plan in place.

Why Buy a House in Another State?

There are multiple reasons to consider buying a house in a different state. Here are some.

Affordability

People may be lured by the cost of living of a state and its quality of life or trying to escape high costs in the state they’re leaving.

More than 229,000 people left California (the country’s third-highest state in cost-of-living rankings) from July 2024 to July 2025 for Arizona, Texas, Nevada, Washington, and other states.

Job Relocation

Some companies move personnel out of state, and some employees are good with that. A recent Graebel report exploring the Great Resignation found that 80% of mobile employees agree they’re more likely to remain with their company long-term because it invested in their relocation.

Family Reasons

Some folks choose to buy a house out of state to be closer to parents, children, or grandchildren. And people in their 40s, especially, may have aging parents and financial concerns on their minds.

Retirement

Americans entering retirement may want to buy a home in a state where the weather and lifestyle are more appealing. When it comes to a home, some may want to downsize.

How to Purchase a Home in Another State

Buying a house out of state may be a challenge, but people do do it.

It can be tough to buy a house if you already have a home mortgage loan on a house. Homeowners have been known to use a home equity loan or bridge loan to fund the down payment on another house.

A personal loan can fund travel and moving costs.

If you’re ready to move on, it might be a good idea to sell and maybe ask for a leaseback. If you’re in a hurry, learn how to sell a house fast.

1. Virtually Explore

It’s easy to research cities, states, and communities online. There’s a listicle for almost everything.

For example, maybe you’re interested in the safest cities in the U.S.

Or the 50 most popular suburbs.

It can also be helpful to explore housing market trends by city.

Areavibes, BestPlaces, and HomeSnacks provide rankings or information about places. Coldwell Banker introduced Move Meter to compare locations across the country. Or you could use Google Maps or Google Earth to study an out-of-state home’s proximity to schools, medical centers, law enforcement agencies, parks, and restaurants.

2. Link Up to Social Media

Social media platforms such as Facebook groups and Nextdoor can provide a personal sense of home buying and community. These groups are user-friendly for newcomers, and many group members are happy to answer questions about life in their city or town.

3. Ask Co-Workers, Friends, or Family

If you’re moving out of state for a job, check in with future coworkers for advice about the homes and neighborhoods. If you’re moving near friends or family members, pick their brains. Is this going to be a good spot for you?

Moving is stressful enough. If you’re one of the growing number of people interested in financially downsizing, you may want to just exhale and enjoy when you land.

4. Consider Talking to a Relocation Specialist

Yes, home relocation professionals exist. And they do everything from connecting clients with a real estate agent to finding a long-distance moving company, scouring school districts, securing a storage space, and supervising a contractor’s work if the client is buying or building a house.

Relocation companies can also suggest local service providers and transport pets and vehicles across state lines.

Relocation services are often free of charge because the specialists earn their money from third-party vendors such as real estate firms and employers transferring employees.

If you’re not inclined to hire a relocation specialist, here’s some helpful reading before making a big move:

• •  How to move across the country
• •  How to move to another state
• •  The ultimate moving checklist

You can look into the safety record of carriers on the U.S. Department of Transportation website.

5. Find a Reliable Real Estate Agent

A brave few choose to buy a house out of state without using a real estate agent.

It’s true that you can buy a house without a Realtor® — but even a local home sale may be challenging without a buyer’s agent in your corner.

Partnering with an experienced real estate agent who’s based in the area where you hope to move could be highly beneficial.

Besides familiarity with neighborhoods, schools, and vibe, a buyer’s agent can walk a future homebuyer through local zoning regulations and the permit process.

6. Consider Visiting IRL

It’s not that rare to buy a house sight unseen. That can work out.

But someone looking to buy a house in a new state may want to visit in person. You may receive short notice on a viewing date, so it could be helpful to budget for out-of-state travel as part of the buildup to buying a home in another state.

While a real estate agent can act as a proxy for homebuyers, there may be nothing like being onsite during the home inspection of a property you’ve made an offer on.

Then again, if you adore a property and must have it, you might waive some contingencies in the case of multiple offers.

7. Get Preapproved for a Mortgage

It can be easier to find a real estate agent or relocation specialist with a mortgage preapproval letter in hand.

When a lender preapproves a mortgage (a credit check and a review of financial assets is typical), it’s tentatively greenlighting a specific home loan amount at a particular interest rate, which isn’t locked unless the lender offers a lock.

Obtaining preapproval tells home sellers that you’re qualified for a home loan up to a certain amount.

8. Handle the Closing Online

Get ready, because closing on a house may take only 20-30 days.

In some cases, everyone huddles to sign closing paperwork. Other times, buyers and sellers sign separately.

But most states have approved remote online notarization, when buyers join a video call, present their government-issued IDs to a title company rep and a notary, and sign all paperwork electronically.

The Takeaway

Buying a house out of state requires investigation and probably a good real estate agent. Getting preapproved for a mortgage can ease the path to a new address.

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

Where’s a good place to start when buying a house out of state?

Many people often start by researching cities, states, and communities online. You can link up with local residents on social media sites to get real-life perspectives from them.

Should I talk to a relocation specialist when considering moving out of state?

Yes, talking to a relocation specialist can be helpful. They provide a comprehensive range of services, including connecting clients with a real estate agent, recommending moving companies, and researching school districts.

Is it a good idea to get preapproved for a mortgage?

Yes, it can be easier to find a real estate agent or relocation specialist when you’ve been preapproved for a mortgage. Taking this step shows that you’re a serious, qualified buyer.

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-Q126-222