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Assuming a mortgage means that the buyer of a home is able to take over the seller’s existing mortgage. When mortgage assumption is possible, it may help a buyer score a lower interest rate and save money in other ways as well. In times when interest rates are headed upward, an assumable mortgage can be quite a windfall.

But, reality-check time: Mortgages are only assumable in certain situations, and there are pros and cons to consider. If you’re home shopping and want to consider this option, read on to learn more, including:

•   What is an assumable mortgage?

•   How do I know if a mortgage is assumable?

•   What are the benefits of an assumable home loan?

•   What are the downsides of an assumable mortgage?

What Is an Assumable Mortgage?

The meaning of an assumable mortgage is that the buyer, when purchasing a home, takes over the existing mortgage held by the seller. This means the buyer assumes responsibility for the loan’s outstanding balance, its interest rate, and making payments for the entire loan term.

This can be an appealing option if, say, the seller’s mortgage was taken out with a considerably lower interest rate than is currently available. In this scenario, the buyer could stand to save thousands over the life of the mortgage loan.

However, a buyer may also need to finance the amount of equity the seller has in the home.

It’s important to note that not all mortgages are assumable. For those that are, it’s recommended that all parties know in advance what obligations they have when they agree to a mortgage assumption, just as with any other financial agreement.

What Types of Loans Are Assumable?

Typically, home loans that operate outside the federal government’s mortgage loan environment, such as conventional 30-year mortgages issued by private lenders, are not assumable. (How do you know if a conventional mortgage is assumable? It will likely be an adjustable-rate loan, and the seller will have to check with their lender to be sure.)

Certain kinds of mortgages that are insured by the government and issued by private lenders are, however, assumable. A seller usually must obtain lender approval for the assumption, or in the case of USDA loans, agency approval. And the buyer must qualify. These loans include:

•   FHA loans: The Federal Housing Administration (FHA) insures these mortgages, which are popular with first-time homebuyers. With a minimum 3.5% down payment for borrowers with a credit score of 580 or higher, FHA mortgages are assumable.

•   VA loans: Home loans guaranteed by the Department of Veterans Affairs (VA) are also assumable, and — perhaps surprisingly — the buyer does not have to be a veteran or in the military. Note: The seller of these loans may remain responsible for the mortgage if the buyer defaults.

•   USDA loans: Loans guaranteed by the Department of Agriculture (USDA) are assumable only if the current owner is up to date on payments.

One last note about the options above: While assumable mortgages can be part of a wrap-around mortgage, they are not one and the same.

When a mortgage is assumed, the buyer pays the lender every month. With a wrap-around mortgage, which is a kind of owner-financing, the buyer pays the seller.

How to Get an Assumable Mortgage Loan

Here are some points to consider if you are contemplating assuming a mortgage:

•   First, confirm that the loan is assumable. For most conventional mortgages, assumption is not an option.

•   If assumption is possible, the homebuyer must apply for the assumable mortgage and be vetted for creditworthiness and the ability to meet all the contractual requirements. It’s vital that the buyer show that they have the financial assets needed to qualify for the loan.

•   Recognize that the buyer will need to make up any difference between the amount owed and the home’s current value. This means that if the seller of a $300,000 home has a $100,000 mortgage that’s assumable, the buyer would need to be able to put down $200,000 to assume that loan. Obviously, this scenario could present a significant financial hurdle for many prospective homebuyers.

•   If the mortgage lender or agency signs off on the deal, the property title goes to the homebuyer, who starts making monthly mortgage payments to the lender.

•   If the lender denies the application, the home seller must move on, and the buyer would likely resume shopping elsewhere.

Recommended: How to Buy a Multi-Family Property

Why Do Assumable Mortgages Exist?

Actually landing an assumable debt can be beneficial for both a buyer and seller, but the mortgage lending industry may not make it easy to cut a deal. Why? Because as history attests, mortgage lenders may lose money on assumable mortgages.

In the late 1970s and early 1980s, when interest rates were at the highest levels in modern history, assumable mortgage deals were attractive to buyers who could take over a seller’s mortgage at the original loan interest rate. In many cases, this would yield a bargain vs. the then-current rate for a new mortgage. (How high did rates go? In October 1981, 30-year fixed-rate mortgages hit an eye-watering peak of 18.45%.)

Mortgage companies, however, could see that they would lose money if home buyers chose a lower-rate assumable loan over a higher-rate new mortgage loan. That’s one reason mortgage companies began inserting “due on sale” clauses, which mandated full repayment of the loan for most home transactions.

As the FHA and VA began issuing more mortgage loans to homebuyers, they offered more relaxed rules allowing assumption transactions. Mortgages could transfer to the homebuyer as long as they demonstrated the ability to repay the remaining home loan balance, usually after a thorough credit check.

How Do Assumable Mortgages Work?

With an assumable mortgage, the buyer will become the holder of the mortgage originally taken out by the seller. The buyer, as mentioned above, may have to clear certain qualification hurdles to do so.

It’s also important to note that, as briefly mentioned above, the homebuyer must make up any difference between the amount owed on the mortgage and the property’s current value. That could mean the buyer pays cash to make up the difference or takes out a second mortgage.

An example: Say a house is valued at $350,000, and the home seller has a $225,000 balance on the home’s original mortgage. Under the terms of most assumable mortgage loans, the homebuyer would need to deliver $125,000 at closing to cover the difference between the original mortgage and the current estimated value of the home, usually determined by an appraisal.

Another important aspect of how assumable mortgage loans work are the two models possible: a simple mortgage assumption or a novation-based mortgage assumption.

Simple Assumption

In a typical simple mortgage assumption, the buyer and seller agree to engage in a private transaction.

•   This means that the mortgage lender is not necessarily aware of the transfer of the mortgage and therefore the new buyer does not go through the underwriting process with the lender.

•   The home seller usually just transfers the title of the property to the buyer after the buyer agrees to take over the remaining mortgage payments.

•   If the buyer misses monthly payments or defaults on the original mortgage loan, the lender could hold both parties responsible for the debt, and the credit scores of both buyer and seller could be significantly damaged if the debt isn’t repaid. In this scenario, an assumable mortgage home for sale could wind up being problematic for both parties.

Novation-Based Assumption

Unlike a simple mortgage assumption, where mortgage underwriting usually isn’t directly involved, an assumption with novation means the lender is involved.

•   The lender vets the buyer and agrees to the loan transfer.

•   This means the buyer agrees to assume total responsibility for the existing mortgage debt and remaining payments.

•   Under those terms, the original mortgage lender releases the home seller from liability for the remaining mortgage loan debt. The documentation, such as a deed of trust (if used), will be in the buyer’s name alone.

Pros and Cons of Assumable Mortgages

Assumable mortgage loans have upsides and downsides.

Upsides of an Assumable Mortgage

First, consider these pluses:

•   A lower rate may be possible. The buyer may save significant money on the loan if the original mortgage’s interest rate is lower than current rates.

•   Closing costs are curbed. The buyer might also benefit because closing costs are minimized in private home sale transactions between a buyer and a seller.

•   No appraisal is needed. With no need to get a new mortgage on the property, a home appraisal isn’t required for a mortgage assumption, which can save time and money. The buyer could request an appraisal as part of the general home purchase agreement, however.

Downsides of an Assumable Mortgage

Now, the minuses:

•   Upfront cash may be required. To meet the terms of an assumable mortgage, the buyer may need to have a substantial amount of upfront cash or take out a second mortgage to close the deal. This usually occurs when the property’s value is greater than the mortgage balance. The seller has perhaps built up considerable equity over the years.

•   Second mortgages can be problematic. Second mortgages aren’t always easy to obtain, as mortgage lenders may be reluctant to issue a second home loan when the original mortgage still has a balance due. And a second mortgage probably carries closing costs, meaning the seller needs to shell out more cash.

•   The property may be in distress. In some cases, the home seller may be eager to get out of a home that is proving to be too expensive for their budget. Simply put, they might be behind on payments. In that event, the mortgage lender may require the mortgage to be made current (meaning getting up to date on payments) before it will approve an assumable mortgage.

•   FHA loans carry an add-on. If the home seller put down less than 10% of the home’s cost when getting an FHA loan, there will be a mortgage insurance premium for the entire loan term. This would add to the buyer’s monthly costs.

Here’s how this intel stacks up in chart form:

Pros of Assuming a Mortgage	Cons of Assuming a Mortgage
Possibility of a lower interest rate than market rate, saving money over the life of the loan	Buyer must make up difference if home value exceeds mortgage balance
Reduced closing costs	Home may be in distress
Home appraisal not necessary	FHA loans usually carry mortgage insurance premium

Examples of Assumable Mortgages

If you’re hoping to find an assumable mortgage, it will most likely be a government-insured or -issued loan, as mentioned above; perhaps one offered as a first-time homebuyer program. Here’s a bit more about these mortgages and how a loan assumption would work:

•   Federal Housing Authority (FHA) loans: These government loans, which are insured by the FHA, may be assumable. Both parties involved in a mortgage assumption, however, must qualify in certain ways. For instance, the seller must have been living in the home as a primary residence for a period of time, and the buyer needs to be approved via the usual FHA loan application process.

•   Veterans Affairs (VA) loans: If a seller has a loan backed by the VA, it may indeed be assumable. A buyer who wants to take over the loan can apply for a VA loan assumption and doesn’t need to be a current or former member of the military service.

•   U.S. Department of Agriculture (USDA) loans: To assume a USDA loan on a rural property, a buyer will have to show an adequate income and credit to be approved by the USDA.

Recommended: Buying a Home with a Non-Spouse

Who Are Assumable Mortgages For?

Assuming a mortgage can be a good option for those who are property shopping in a time of rising interest rates and would like to take over the seller’s lower-rate loan. This can help save money, and it can also spare the buyer some of the time, energy, and money needed to apply for a new loan.

In addition, an assumable mortgage may work best for buyers with access to cash, as they will probably need to cover the difference between the mortgage amount and the value of the home they are buying.

Who Are Assumable Mortgages Not For?

Those purchasing a home that currently has a conventional mortgage will most likely not be able to take over that loan.

Additionally, if a mortgage is assumable, it’s important to recognize this scenario: If there’s a considerable gap between the mortgage amount and the property’s value, the buyer needs to bridge that. That means either ponying up a chunk of cash or finding a second mortgage, which may not be financially feasible for some prospective homebuyers.

The Takeaway

Assumable home loans are generally difficult to find and to close, and may require the buyer to take on the onerous task of qualifying for a second mortgage. But if the buyer finds that assuming the mortgage will save money over getting a new mortgage (primarily through a lower rate), an assumable mortgage could be a good way to go.

Hunting for a mortgage? SoFi offers home mortgage loans with as little as 3% down for first-time homebuyers, and getting prequalified is quick and easy.

SoFi Mortgage Loans: Fast and flexible.

FAQ

Is it a good idea to assume a mortgage?

Assuming a mortgage can have benefits. If you find an assumable mortgage home for sale, you might be able to take over the seller’s mortgage at a lower rate than what’s currently offered by lenders, thereby saving you money over the life of the loan. Closing costs and schedules might also be leaner. However, mortgage assumption is not always possible, and if it is, you may have to make up the difference between the mortgage amount and the home’s current value.

What is required to assume a mortgage?

To assume a mortgage, the seller must have a loan that allows for assumption. These are usually government-insured or -issued mortgage loans. In addition, you may have to submit credentials to the lender and be approved. You may also have to pay the difference between the mortgage amount and the property’s market value.

How much does it cost to assume a mortgage?

Typically, when you assume a mortgage, you may pay some closing costs, but these could be lower than on a new loan. In addition, there may be a one-time funding fee; for instance, on a VA loan, this amounts to 0.5% of the existing mortgage balance. Last but not least: The buyer is usually liable to pay the difference between the remaining balance on the mortgage and the current value of the home.

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

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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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Buying your first house is a major move, even if the home itself is tiny. Becoming a homeowner can be a great way to start putting down some roots and building equity. And just because it’s called a “starter home” doesn’t necessarily mean you’re twenty-something when you go shopping for one. For many people, the purchase of a first, maybe-not-forever house can come years or decades later.

But what exactly makes a good starter home? How do you know when to jump into the housing market? There are many variables to factor in, such as price, location, type of home, the sort of mortgage you’ll get, your personal finances, and more.

Read on to learn answers to such questions as:

•   Why should you buy a starter home?

•   Should you buy a starter home or wait?

•   How do you buy a starter home?

What Is a Starter Home?

The first step in deciding “Should I buy a starter home?” is understanding what exactly that “starter home” term means. A starter home is loosely defined as a smaller property that a first-time buyer expects to live in for just a few years.

The home could be a condo, townhouse, or single-family home. But generally, when you purchase a starter home, you anticipate outgrowing it — maybe when you get married or have a couple of kids, or because you want more space, a bigger yard, or additional amenities.

A starter house could be brand-new, a fixer-upper, or somewhere in between, but it’s usually priced right for a buyer with a relatively modest budget.

That modest budget, though, may need to be loftier than in years past. The 2022 price of a starter home was $325,000, according to Realtor.com, up 48% from $220,000 in 2019.

That might sound a little intimidating, but remember, that’s the median price. Depending on where you live, there may be entry-level homes selling at significantly lower price points.

Recommended: What Is Housing Discrimination?

How Long Should You Stay in a Starter Home?

Unless you’re a big fan of packing and moving — not to mention the often-stressful process of selling one home and then buying another, or buying and selling a house at the same time — you may want to stay in your starter home for at least two to five years.

There can be significant financial reasons to stick around for a while:

•   Home sellers are typically responsible for paying real estate agents’ commissions and many other costs. If you haven’t had some time to build equity in the home, you might only break even or even lose money on the sale.

•   You could owe capital gains taxes if you’ve owned the home for less than two years and you sell it for more than you paid.

Of course, if there’s a major change in your personal or professional life — you’re asked to relocate for work, you grow your family, or you win the lottery (woo-hoo!) — you may need or want to sell sooner.

What Is a Forever Home?

A forever home is one that you expect to tick all the boxes for many years — maybe even the rest of your life. It’s a place where you plan to put down roots.

A forever home can come in any size or style and at any cost you can manage. It might be new, with all the bells and whistles, or it could be a 100-year-old wreck that you plan to renovate to fit your home decorating style and vision.

Your forever home might be in your preferred school district. It might be close to friends and family — or the golf club you want to join. It’s all about getting the items on your home-buying wish list that you’ve daydreamed about and worked hard for.

At What Age Should You Buy Your Forever Home?

There’s no predetermined age for finding and moving into a forever home. Some buyers plan to settle in for life when they’re 25 or 30, and some never really put down roots.

But according to data from the 2022 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors® Research Group, buyers in the 57 to 66 age range said they expected to live in their newly purchased home longer than buyers from other age groups, with an expectation of 20 years of residence.

Younger buyers (ages 23 to 31) and older buyers (75 to 90) said they expected to stay put for 10 years.

The median expectation for buyers of all ages was 12 years.

Recommended: First-Time Homebuyer’s Guide

Benefits of Buying a Starter Home

Are you contemplating “Should I buy a starter home?” Here are some of the main advantages of buying a starter home:

•   Becoming a homeowner can bring stability to life. A starter home comes with a feeling of “good enough for now” that, for some buyers, is just the right amount of commitment without feeling stuck in the long term.

•   Buying a starter home is also a great way to try on aspects of homeownership that renters take for granted, like making your own repairs and mowing your own yard. The larger the house, the more work it usually brings. With a starter home, you can start small.

•   Buying a starter home is also an investment that could see good returns down the road. While you live in the home, you’ll be putting monthly payments toward your own investment instead of your landlord’s. Depending on market conditions, you could make some money when you decide to trade up, either through the equity you’ve gained when you sell or recurring income if you choose to turn it into a rental property.

•   Homeowners who itemize deductions on their taxes may take the mortgage interest deduction. Most people take the standard deduction, which for tax year 2022 (filing by Tax Day 2023) is:

◦   $25,900 for married couples filing jointly

◦   $12,950 for single taxpayers and married individuals filing separately

◦   $19,400 for heads of households

•   Some homeowners who itemize may be able to do better than the standard deduction. For instance, in some states, a homestead exemption gives homeowners a fixed discount on property taxes. In Florida, for example, the exemption lowers the assessed value of a property by $50,000 for tax purposes.

Downsides of Starter Homes

Next, consider the potential disadvantages of snagging a starter home:

•   While the idea of buying a home just big enough for one or two is a romantic one, the reality of finding a starter home that’s affordable has gotten tougher.

   The outlook has been so bleak, especially in some larger cities, that some Millennials are opting out of the starter-home market altogether, choosing instead to rent longer or live with their parents and save money.

   Who can blame Millennials for taking a different approach to homeownership than their parents? The older members of this generation came of age during the financial crisis of 2008-09, which included a bursting housing bubble that put many of their parents — and even some of them — underwater on a mortgage they may not have been able to afford in the first place.

•   When thinking about whether you should buy a starter home, know that it may require a lot of sweat equity and cash. If you buy a bargain-priced first home, you may be on the hook for spending much of your free time and cash to restore it.

•   Another con of buying a starter home is the prospect of having to go through the entire home-buying process again, possibly while trying to sell your starter home, too. Keeping your house show-ready, paying closing costs, going through the underwriting process, packing, moving, and trying to time it all so you avoid living in temporary lodging is a big endeavor that, when compared with the relative ease of moving between apartments, can be seen as not worth the effort.

•   In some circumstances, you may have to pay capital gains taxes on the sale of your starter home when you move up.

If you aren’t ready to jump into a starter home, an alternative could be a rent-to-own home.

How to Find Starter Homes for Sale

Are you ready to start the hunt? Here are some tips for finding a starter home:

•   Work with an experienced real estate agent who knows your market and spends their days finding homes in your price range.

•   Rethink your house criteria. If you are buying a starter home and figured you’d shop for a three-bedroom, you may find more options and less heated competition if you go for a two-bedroom house.

•   Take a big-picture view. If you’re a young couple with no kids yet, maybe you don’t need to purchase in the tip-top school district. After all, you are at least several years away from sending a little one to their first day of school Or, if prices are super-high for single-family houses, could buying a condo or a townhome work well for a number of years?

   You might also look into purchasing a duplex or other type of property.

Average U.S. Cost of a Starter Home

As noted above, the typical cost of a starter home in the U.S. was $325,000. Keep in mind, however, that there is a huge variation in costs. A rural home may be much less expensive than shopping for a starter home that’s within short commuting distance of a major city, like New York or San Francisco.

Is Buying a Starter Home Worth It?

Deciding whether a starter home is worth it is a very personal decision. One person might be eager to stop living with their parents and be ready to plunk down their savings for a home. Another person might have a comfortable rental in a great town and be reluctant to take on a home mortgage loan as they continue to pay down their student loan debt.

When you consider the pros and cons of starter homes listed above, you can likely decide whether buying a starter home is worth it at this moment of your life.

Tips on Buying a Starter Home

If you’re tired of renting or living with your parents but don’t have the cash flow necessary for anything more than a humble abode, a starter home could be a great way to get into real estate without breaking the bank. Some pointers on how to buy a starter home:

•   Before you buy any home — starter or otherwise — it’s important to sit down and crunch the numbers to see how much home you can realistically afford. Lenders look at your debt when considering your debt-to-income ratio (DTI), but they aren’t privy to other regular monthly expenses, such as child care or kids’ activity fees. Be sure to factor those in.

•   You also may want to look at how much you can afford for a down payment. While a 20% down payment isn’t required to purchase a home, most non-government home loan programs do require some down payment.

   It’s possible to buy a home with a small down payment: The average first-time homebuyer puts down about 6% of a home’s price as a down payment, according to the latest data from the National Association of Realtors (NAR).

   In addition, putting down less than 20% means you may have to pay private mortgage insurance (PMI).

•   You’ll want to explore different mortgage loan products as well, possibly with a mortgage broker. You’ll have to decide between adjustable and fixed rate offerings, 20-year vs. 30-year mortgages, and different rates. You may also be in a position to buy down your rate with points. Getting a few offers can help you see how much house you can afford, as can using an online mortgage calculator.

•   The decision to purchase a starter home is about more than just money, though. You may also want to consider your future plans and how quickly you might grow out of the house, whether you’re willing to live where the affordable houses are, and if you’ll be happy living without the amenities you’ll find in a larger house.

•   Other factors to consider are your current state of financial health and your mental readiness for a DIY lifestyle (which includes your willingness to fix your own leaky toilet or pay a plumber.)

•   If you’re ready to make the leap, there are plenty of home ownership resources available to help you get started on the path to buying your starter home. Your first step might be to check out a few open houses and to research mortgage loans online.

The Takeaway

Buying a starter home can be a good way to get your foot in the door of homeownership, but it’s important to consider your financial situation and your plans for the next two to five years or more before buying a starter house.

Are you house hunting and mortgage shopping? SoFi offers fixed-rate mortgage loans with as little as 3% down for first-time homebuyers, plus competitive rates and variable terms.

SoFi Mortgage Loans: The smart, simple source for financing.

FAQ

How much money should you have saved to buy a starter home?

The average down payment is about 6% of the home purchase price. That number can help you see how much you want to have in the bank, though mortgage loans may be available with as little as 3% down or even zero down if you are shopping for a government-backed mortgage. Worth noting: If your down payment is under 20%, you may have to pay private mortgage insurance.

What is considered a good starter home?

A good starter home will likely check off some of the items on your wish list (square footage, location, amenities, etc.) and will not stretch your budget too much. You want to be able to keep current with other forms of debt you may have as well as pay your monthly bills (which will likely include mortgage, property tax, home maintenance, and more). That financial equation may help you decide whether to buy a starter home or wait.

How much do people spend on a starter home?

As of 2022, the average price for a starter home in the U.S. was $325,000. However, prices will vary greatly depending on location, size, style, and condition.

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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.

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

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

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.

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.

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

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

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

This guide can help you learn the ropes of buying this type of property, including:

•   What is a foreclosed home?

•   What does “foreclosure” mean?

•   How can you find foreclosed homes for sale?

•   How can you buy a foreclosed house from a bank or other source?

•   What are the pros and cons of buying a foreclosed home?

What Is a Foreclosed House?

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

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

What Does ‘Foreclosure’ Mean?

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

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

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

Recommended: Foreclosure Rates for All 50 States

Types of Home Foreclosures

There are three main types of home foreclosures:

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

•   Power of sale (nonjudicial) foreclosures: Sometimes known as statutory foreclosure, this process may take place in 29 out of the 50 states. The contract in this situation allows for an auction of a foreclosed property to occur without the judicial system becoming involved, as long as certain notifications and waiting periods are appropriately observed.

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

How Does the Foreclosure Process Work?

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

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

•   A borrower then typically has 30 to 120 days to attempt to avoid foreclosure. During pre-foreclosure, a homeowner may apply for a loan modification, ask for a deed in lieu of foreclosure, pay the amount owed, or attempt a short sale.

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

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

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

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

Recommended: Home Affordability Calculator

How to Find Foreclosed Homes for Sale

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

Among the free:

•   Equator.com

•   HomePath.fanniemae.com (Fannie Mae’s site)

•   HomeSteps.com (Freddie Mac’s site)

•   Realtor.com

•   reo.wellsfargo.com

•   foreclosures.bankofamerica.com

•   treasury.gov/auctions/irs/cat_All%2066.htm for IRS auctions

•   properties.sc.egov.usda.gov/ (USDA resales)

•   hudhomestore.gov (the official government website for foreclosed homes)

•   vrmproperties.com

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

How to Buy a Foreclosed Home

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

Step 1: Know the Options

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

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

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

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

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

REO listings are often priced at or below market value. Also good to know: The lender usually clears the title and evicts the occupants before anyone buys a foreclosed home.

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

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

Step 2: Hire a Real Estate Agent

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

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

Step 3: Find Foreclosures for Sale

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

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

Step 4: Get Pre-approved for a Mortgage

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

Pre-approval may help you compete with the all-cash buyers who are purchasing foreclosures. Bonus: As you move through this step, you are also likely to learn important home buying and financing concepts, like loan-to-value (LTV) ratio.

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

Step 5: Get an Appraisal and Inspection

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

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

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

Step 6: Purchase Your New Home

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

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

Recommended: What’s the Difference Between Pre-approved vs Pre-qualified?

Benefits of Buying a Foreclosed Home

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

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

•   REO properties rarely have title discrepancies. The repossessing lender has extinguished any liens against the property and ensured that taxes were paid.

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

Risks of Buying a Foreclosed Home

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

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

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

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

What Are Financing Options for Foreclosed Homes

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

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

•   If the home is in livable condition, you may be able to get a conventional or government-back mortgage loan.
If you are planning to finance the purchase of a repossessed home, consider this:

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

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

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

Who Should Buy a Foreclosed Home

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

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

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

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

Who Should Not Buy a Foreclosed Home

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

The Takeaway

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

If you’re shopping for a mortgage, consider what SoFi offers. Our home mortgage loans have competitive, flexible options, and down payments as low as 3% for first-time borrowers or as low as 5% for all other borrowers.

SoFi Mortgages: We make it simple.

FAQ

What are the disadvantages of buying a foreclosed home?

Disadvantages of buying a foreclosed home can include the amount of research involved, the considerable amount of paperwork and potential delays, and the cash often required to make repairs, pay back taxes, and remedy liens.

How are repossessed houses sold?

Foreclosed homes are often sold at auction, by a lender, or by a real estate company (often ones that specialize in such repossessed properties).

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

Depending on the state and the specific property, the sale of a foreclosed house may take anywhere from a few months to a few years.

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

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

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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If you don’t have a 20% down payment on a home, that’s OK. Most buyers don’t. But if you’re in that league and acquire a conventional mortgage, the lender will want extra assurance — insurance, if you will — that you’ll pay the loan back.Private mortgage insurance is usually the price to pay until you reach 20% equity or, as lenders say, 80% loan-to-value.

In an effort to help low- and middle-income borrowers, the Biden-Harris Administration recently reduced monthly mortgage insurance premiums for new FHA loans. Those cuts will not affect homebuyers with conventional loans and private mortgage insurance (PMI).

Can you avoid PMI? Other than coughing up 20% down, you could seek a piggyback mortgage or lender-paid mortgage insurance.

What Is PMI?

Private mortgage insurance is charged by lenders of conventional mortgages, which are loans not insured by a government agency. FHA, VA, and USDA loans are.

The 30-year conventional home loan is the most common mortgage, and 20% down is ideal. But…

You’ve seen home prices lately. Twenty percent down on a $250,000 or $400,000 or $750,000 home is just not doable for many, or most. The average down payment for all buyers has been about 13%, according to the National Association of Realtors.®

PMI is meant to protect the lender from risk. The premiums help the lender recoup its losses if a borrower can’t make the mortgage payments and goes into default.

How Much Does PMI Cost?

PMI is often 0.5% to 1.5% of the total loan amount per year but can range up to 2.25%.

The cost of PMI depends on the type of mortgage you get, how much your down payment is, your credit score, the type of property, the loan term, and the level of PMI coverage required by your lender.

If you’re shopping for a mortgage and you apply for one or more, the premium will be shown on your loan estimate. If you go forward with a home loan, the premium will be shown on the closing disclosure.

Estimate PMI Costs

Use this calculator to estimate PMI based on how much home you can afford.

How to Pay PMI

Most borrowers pay PMI monthly as a premium added to the mortgage payment.

Another option is to pay PMI with a one-time upfront premium at closing.

Yet another is to pay a portion of PMI up front and the remainder monthly.

How to Avoid PMI Without 20% Down

One way to avoid PMI is to make use of a piggyback mortgage. Another is to seek out lender-paid mortgage insurance.

Piggyback Loan

With a piggyback loan, typically an 80/10/10 mortgage, you’d take out two loans at the same time, a first mortgage for 80% of the home price and a second mortgage for 10% of the home value, and put 10% down.

The 80% loan is usually a 30-year fixed-rate mortgage, and the 10% loan is typically a home equity line of credit that “piggybacks” on the first mortgage.

A 75/15/10 piggyback loan is more commonly used for a condo purchase because mortgage rates for condos are higher when the loan-to-value ratio (LTV) exceeds 75%.

Both loans do not have to come from the same lender. Borrowers can tell their primary mortgage lender that they plan to use a piggyback loan and be referred to a second lender for the additional financing.

Because you’d be taking out two loans, your debt-to-income ratio (monthly debts / gross monthly income x 100) will fall under more scrutiny. Mortgage lenders typically want to see a DTI ratio of no more than 36%, but that is not necessarily the maximum.

Piggybackers will need to be prepared to make two mortgage payments. They will want to think about whether that secondary loan payment will be higher than PMI would be.

Lender-Paid Mortgage Insurance

In most cases with lender-paid mortgage insurance (LPMI), the lender pays the PMI on your behalf but bumps up your mortgage interest rate slightly. A 0.25% rate increase is common.

Monthly payments could be more affordable because the cost of the PMI is spread out over the whole loan term rather than bunched into the first several years. But the loan rate will never change unless you refinance.

Borrowers will want to look at how long they expect to hold the mortgage when comparing PMI and LPMI. If you need a short-term mortgage, plan to refinance in a few years, or want the lowest monthly payment possible, LPMI could be the way to go.

When PMI Is No Longer Required

Borrowers generally need to have 20% equity in their home to drop PMI.

The Homeowners Protection Act was put in place to protect consumers from paying more PMI than they are required to. Specifically for single-family principal mortgages closed on or after July 29, 1999, the law covers two scenarios: borrower-requested PMI termination and automatic PMI termination.

Once you’ve built 20% equity in your home, meaning you’re at an 80% LTV based on the home’s original value (the sales price or the original appraised value, whichever is lower), you can ask your mortgage loan servicer — in writing — to cancel your PMI if you’re current on all payments. Your monthly mortgage statement shows your loan servicer information.

The very date of this occurrence, barring no extra payments, should have been given to you in a PMI disclosure form when you received your mortgage.

As long as you’re current on all payments, PMI will automatically terminate on the date when your principal mortgage balance reaches 78% of the original value of your home.

If that LTV ratio is not reached by the midpoint of the mortgage amortization period, PMI must end the month after that midpoint.

PMI vs MIP vs Funding Fees

The upside of PMI is that it unlocks the door to homeownership for many who otherwise would still be renting. The downside is, it adds up.

If you’re tempted to go with a mortgage backed by the Federal Housing Administration, realize that an FHA loan requires up front and annual mortgage insurance premiums (MIP) that go on for the life of the loan if the down payment was less than 10%.

Mortgages insured by the Department of Veterans Affairs come with a sizable funding fee, with a few exceptions, and loans backed by the Department of Agriculture come with up front and annual guarantee fees.

Type of Loan	Upfront Fee	Annual Fee
Conventional	n/a	0.5% to 1.5%+
FHA	1.75%	0.15% to .75%
VA	1.4% to 3.6%	n/a
USDA	1%	0.35%

Recommended: PMI vs. MIP

Ways to Boost a Down Payment

A bigger down payment not only may allow a borrower to avoid PMI but usually will afford a better loan rate and provide more equity from the get-go, which translates to less total loan interest paid.

So how to afford a down payment? You could shake down Dad or Granny (just kidding; Grandma responds better to sweet talk than coercion). For a conventional loan, gift funds from a relative or from a domestic partner or fiance count toward a down payment. There’s no limit to the gift, but you may be expected to come up with part of the down payment. You’ll also need to present a formal gift letter to validate the funds given to you.

A gift of equity is a wonderful thing indeed. When a seller gives a portion of the home’s equity to the buyer, it is shown as a credit in the transaction and may be used to fund the down payment on principal or second homes.

You could look into down payment assistance from state, county, and city governments and nonprofit organizations, which usually cater to first-time homebuyers. And home listings on Zillow now include information about down payment assistance programs that might be available to buyers searching for homes on the platform.

Even if you can’t come up with 20%, it’s all good because PMI doesn’t last forever, and real estate is one of the key ways to build generational wealth.

The Takeaway

What is PMI? Private mortgage insurance, which typically goes along for the ride when a borrower puts less than 20% down on a conventional mortgage. How to avoid PMI? Hunt for lender-paid mortgage insurance or a piggyback loan, or seek gifts or other assistance to fatten the down payment.

SoFi offers fixed-rate conventional mortgages at competitive rates. Qualifying first-time homebuyers can put just 3% down, and others can put 5% down.

Look into all the advantages of getting a home mortgage loan with SoFi.

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

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

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

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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For those of us seeking the appeal of a minimalist life on the water, the cost to build a houseboat will depend as much on how much elbow grease we’re willing to dedicate to the project as it does on the type of materials we decide to use for the job.

A houseboat is a self-propelled vessel with a cabin. There are many styles, giving people wide discretion on how they choose to build their own houseboat.

Let’s break down factors and average costs associated with building a houseboat.

Average Cost of Building a Houseboat

How much does it cost to build a houseboat? Just like the cost to build a house, it depends on size, materials, whether it’s a total DIY job, and more.

The cost of building a single-story 50-foot houseboat is at least $10,000 to $20,000, some sources say. To be clear, this estimate means doing all the work yourself or with the help of friends. A smaller, basic houseboat may cost less than that to build.

Labor costs for professionals like electricians or plumbers will increase your expenses substantially. So understand that you’ll be trading time and know-how for savings.

There are also houseboat kits and plans for sale. Charmingly, some are advertised as DIY pontoon tiny houses.

By contrast, you can choose to purchase a serviceable preowned houseboat that needs some renovations. Used houseboats can go for anywhere from a few thousand dollars to over $1 million for luxury craft that border on liveaboard yachts. Shiver me timbers!

Here’s a rough estimate of the cost of building a houseboat vs. buying a used one.

Building From Scratch Cost	Preowned Houseboat Cost
$10,000 and up for 50 feet	$20,000 and up

Regardless of whether you’re planning to handle the build yourself or you intend to refurbish a used houseboat, you may need financing. How to pay for it? Not with a traditional mortgage. Options include a boat loan and a personal loan.

Homeowners with sufficient home equity may be able to launch their houseboat plans with a home equity line of credit (HELOC), home equity loan, or cash-out refinance.

Recommended: How to Find a Contractor

Factors That Affect the Cost of a Houseboat

Houseboat living has caught on with some retirees, who want to downsize home-wise.

It also could be a choice for minimalists and millennial homebuyers who think outside the box.

Not everyone, of course, will want to be a full-time liveaboard. Some water lovers will be OK with a basic houseboat for cruising and recreation, one that is maybe trailerable. Those are factors that will affect the cost of your preferred houseboat.

Here are factors to consider.

Size

The size of your houseboat will have a major impact on the cost of materials you’ll need. Are you planning to build a single-story or double-decker houseboat? Will this be something that would fit on a standard 50-foot pontoon base, or will you need something more robust to keep it afloat?

Taking the high-end estimate of $20,000 to build a basic 50-foot houseboat, that comes out to roughly $400 per square foot, assuming you don’t hire anyone to help with construction.

Bear in mind that these figures are a very rough estimate that was calculated across a broad average of houseboats.

Design

The design of your houseboat will have a large effect on your options when it comes to layout, maneuverability, and aesthetics.

Before you begin construction, you’ll need to decide on what type of hull best suits your houseboat. Aluminum pontoons are popular.

Catamaran cruisers are maneuverable and may be cheaper to build, but they often compromise on space. These designs are easily outfitted with motors and may be best suited for owners who intend to take them out occasionally.

Those looking for larger accommodations may prefer a type of house called a floating home, which is actually different from a houseboat. It often has a concrete hull and is meant to stay in one place, permanently attached to utilities. The price, though, will usually be much higher than that of a houseboat.

A few sailors may opt to build a yacht, which offers the ideal combination of maneuverability and living space. You’ll have to have a hefty check at the ready or prepare to borrow a boatload if you’re considering this option.

Materials

The most common materials used to build boats intended for habitation are aluminum and fiberglass, but in some cases steel and wood can be construction materials of choice.

A standard pontoon base can cost between $3,000 and $10,000.

The cost of interior finishes largely depends on your personal tastes. They can be affordable if you’re fine with a no-frills setup but can tack skyward for more luxurious tastes and larger vessels. Stainless steel appliances and granite countertops cost money, regardless of whether they go in a house or a houseboat.

Will you want a staircase and flybridge? Budget accordingly.

Location and Water Depth

The environment you intend to keep your houseboat in will affect how much you’ll have to pay to make it seaworthy.

The price of an inboard motor may start around $8,000, and a middle-of-the road outboard may be $15,000 and up. Depending on how large your vessel is, you may need to pay for a larger motor with more horsepower.

Federal regulations governing recreational craft prohibit the majority of houseboats from sailing in deep ocean waters. However, cruises along the shoreline, or in a lake or river, are acceptable options for capable houseboats.

Weather

Whether you decide to launch or keep your houseboat in freshwater or saltwater and local weather patterns will affect houseboat maintenance.

Saltwater is a tougher environment but has a lower freezing temperature than freshwater, which means that you likely won’t have to worry about ice forming in the water.

By contrast, if your houseboat will primarily be in freshwater, you may have to deal with ice. As water freezes into ice, it expands, which can damage your hull or rudder.

Permits and Regulations

Any recreational vessel must meet federal safety requirements and possibly abide by state regulations.

Average Cost of Living on a Houseboat Year-Round

The average cost of living on a houseboat is $11,500 per year, some sources say. This breaks down to around $1,000 per month. Some frugal houseboat enthusiasts report living on as little as $6,000 per year.

Most of these costs encompass mooring fees, utilities, and insurance, but you’ll also need to budget for repairs and applicable local fees. Some houseboat communities have a homeowners association that allows all residents to distribute community expenses like maintenance of the docks.

Does a houseboat cost less than a home sitting on terra firma? Generally, yes. You can build a houseboat for far less than a comparably sized single-family home. As a future liveaboard, though, you might want to compare moorage and other fees to the costs of maintaining a traditional home.

The IRS says a boat with cooking, sleeping, and toilet facilities can be a main or second home, so interest paid on a loan for your houseboat could be included in the mortgage interest deduction if you itemize.

The Takeaway

How much does it cost to build a houseboat? The cost could start at $10,000 for a DIY build and depends largely on size and materials. Hiring skilled labor will add to that substantially. An alternative to building a houseboat is buying a used one and making it your own.

How to pay for these nautical visions? One way, for qualified homeowners, is a HELOC brokered by SoFi.

Borrow what you need, when you need it, and access up to 95%, or $500,000, of your home equity.

Tap your home equity and chart a course toward a houseboat you’ll love.

FAQ

How large can a houseboat be?

Most houseboats range from 20 to over 90 feet in length and 8 to 20 feet in width. In most cases, 40 to 50 feet is the average length for a houseboat to be comfortable as a long-term dwelling.

How long does it take to build a houseboat?

A DIY houseboat project may take 18 months to complete, but the time frame will depend on whether you’re able to work on the houseboat project full time and whether you enlist any help. Remember to factor in time to obtain necessary permits or inspections for your area.

Where can I get financing to build a houseboat?

You may be able to finance your houseboat build through lenders that focus on marine and RV lending. Other options are a personal loan, a HELOC, a home equity loan, and a cash-out refinance.

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Photo credit: iStock/MarkHatfield

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

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

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

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

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