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If you’re shopping for a home loan, you may be wondering if using mortgage points to “buy down” your interest rate is a good move for you.

The answer is … it’s complicated.

Whether you’re buying or refinancing your home, purchasing mortgage points from your lender can lower your monthly payment and reduce the overall amount of interest you’ll pay on your loan. And that’s certainly an appealing prospect.

But it’s important to understand how points work — how much they can cost and how much they might save you over the life of your loan — before you decide to hand over that extra cash up front at your closing.

What Are Mortgage Points?

Mortgage points, also known as discount points, may be used by a borrower to prepay some of the interest on a home loan in exchange for a lower mortgage rate. The borrower pays more up front (the points are paid as a fee at closing) but can end up saving money over time because the interest rate is then reduced for the life of the loan.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

How Do Mortgage Points Work?

Lenders typically base their interest rate offers on several factors, including a borrower’s credit profile and current market rates. But once you receive that initial offer, your lender also may give you the opportunity to buy down your rate through the use of mortgage points. (If the lender doesn’t bring it up, you can ask.)

Every point purchased reduces the interest rate a borrower pays by a predetermined percentage, which can vary from one lender to the next. But let’s say your lender offers you an initial rate of 3.25% and provides a 0.25% rate reduction if you purchase one discount point. If you decide to buy the point, your rate would then be 3%.

Each point you buy typically costs 1% of the amount you’re borrowing, and that money is due up front. So, for example, if your loan is for $200,000, a point will cost $2,000 at closing. If that seems too steep, you may be able to purchase a fraction of a point. A half-point in this scenario would cost $1,000, or three-quarters of a point would be $1,500.

How Do Points Affect Your Mortgage?

Here’s a hypothetical example to illustrate how buying one point could reduce the cost of a 30-year, fixed-rate $200,000 mortgage. (This is a bare-bones example, so the payment amount includes principal and interest only.)

Keep in mind that the borrower in this scenario would have to stay with the loan for the entire 30-year term to get the full savings — and that can be rare these days. Homeowners only stay in a home for an average of eight years, and many refinance their home loans.

That’s why it’s important to factor in your “break-even point” — when the savings from the lower mortgage cost offset what you paid for the discount points — before you make your decision.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

What Is the Break-Even Point?

Paying points on a mortgage can lower your monthly payment and save you thousands of dollars — if you keep the same loan long enough to recover the money you paid up front. If you plan to move or refinance before you reach and pass that threshold, paying points may not make sense.

To calculate the approximate point at which you would get back what you spent on prepaid interest, you can divide the amount you paid for any points by the amount you’ll save each month on your payment. For example, as noted in the chart above, if you purchased one point for $2,000 at closing, you’ll save $27 each month. Divide $2,000 by $27 and you’ll see you can expect to break even in 74 months — or about six years. If you plan to stay in your home much longer than that, buying down your rate could be worth considering.

Can You Buy Points for an ARM?

You can buy points if you decide to go with an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. But it may not be worth it if the points apply only to the ARM’s initial interest rate, which typically lasts for three, five, seven, or maybe ten years. If the rate goes up after that and you decide to refinance, you could lose out on the savings you hoped to get when you paid for the points.

Recommended: How an Interest-Only Mortgage Works

Are Mortgage Points Tax Deductible?

Discount points, which are considered prepaid interest, may be deducted as home mortgage interest if you itemize deductions on Schedule A of your Form 1040. But you’ll need to meet certain criteria in order to deduct mortgage points and you may not be able to deduct all of the mortgage interest and points in the year you paid them.

It’s important to note that only discount points, which represent prepaid interest, are tax deductible. “Origination points,” which also may be referred to as mortgage points, are not tax deductible. These points, which you’ll also pay at closing, refer to the various fees lenders may charge in preparing your mortgage (such as processing, underwriting, administration, or document preparation costs).

Your accountant or tax preparer should be able to answer your questions if you aren’t clear about the amount you can deduct on your annual return.

Is There a Limit on the Points You Can Buy?

The maximum number of points you can purchase to reduce your interest rate may differ based on factors like the financial institution, type of loan you choose, or how much you need to borrow. According to a survey of lenders performed weekly by Freddie Mac, the average number of points reported on 30-year, fixed-rate conventional loans in 2022 was 0.9.

Benefits and Risks of Mortgage Points

Here are some things to consider when you’re deciding if buying points makes financial sense for you.

How Long Do You Plan to Stay in the Home?

If you run the numbers and think you’ll keep your loan past your break-even point, it could be worth paying extra up front. But if it’s a starter home, or you expect to relocate for your career, buying points may not be prudent.

Do You Have Plenty of Money Saved?

Homeownership can be expensive. Are you certain you have enough saved to make a decent down payment, pay for points as well as other closing costs, and still have funds in reserve for the inevitable expenses related to homeownership? If not, you may want to reconsider the benefits of buying down your interest rate.

Did the Seller Agree to Pay Some Closing Costs?

If the seller agreed to pay some or all of your closing costs, you may be able to negotiate discount points as part of that offer.

Do You Plan to Make Extra Payments?

Paying for points could be a smart strategy if you expect to hold on to the same loan for a long time. However, if your goal is to pay off your mortgage early — perhaps by paying more toward the loan principal whenever possible — points may not offer the savings you expected.

Would the Money Be Better Spent on Your Down Payment?

If you have plenty of money saved and you’re trying to decide between increasing your down payment or buying points, you may want to run the numbers to determine which choice will give you a better return on your investment.

If your time horizon is short, you may save more by making a bigger down payment. If you plan to stick around for several years at least, you may choose to put your money toward discount points.

Remember, depending on the type of loan you have, if you make a down payment that’s less than 20%, your lender probably will require that you purchase private mortgage insurance. PMI could add about 0.3% to 1.5% to the cost of your mortgage. And you’ll likely have to pay it every year until your equity in the home reaches 20%.

Pros and Cons of Mortgage Points

Ready to Go Rate Shopping?

Make sure when you shop rates, you’re comparing apples to apples. Some lenders may offer an interest rate that appears lower than others but has a fraction of a point or a point tied to it. If two lenders are offering a 3% interest rate on a 30-year, fixed-rate loan, but one is charging a point to get that rate and one isn’t, the one that isn’t charging the point is offering you a more affordable deal.

Be cautious when comparing mortgage rates: If it isn’t clear how much you’ll pay to borrow, you can ask a loan officer to walk you through your loan estimate and/or to calculate your costs based on different time frames. Lenders are required to disclose information about their products in a way that allows borrowers to make meaningful comparisons.

The Takeaway

What’s the point of mortgage points? They allow homebuyers to reduce their loan’s interest rate by paying some of the interest up front. Buying discount points can save you money on interest over time, but only if you keep the loan long enough to recover the upfront cost.

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.

Photo credit: iStock/Prostock-Studio

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

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

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Saving up for a down payment is a common challenge for many prospective homebuyers. FHA loans allow qualifying borrowers to put as little as 3.5% down on a property, helping lower the barriers to homeownership for many.

With an FHA loan, borrowers may also be eligible for down payment assistance. But there are other out-of-pocket expenses to keep in mind when considering an FHA loan. Let’s take a closer look at FHA loan down payment requirements and how much money you’ll need to get to the closing table.

What Is an FHA Loan?

An FHA loan is a type of mortgage that’s issued by a lender, such as a bank or credit union, but insured by the Federal Housing Administration (FHA). The purpose of the FHA mortgage program is to make homeownership more affordable for low- to moderate-income buyers.

Since FHA loans are government-insured, they offer more flexible eligibility requirements for borrowers who might not qualify for a conventional home loan. FHA loans have lower minimum down payment and credit score requirements, making them popular with first-time homebuyers and applicants with limited savings or poor credit. Compared to conventional mortgages, FHA loan interest rates are typically lower, but will vary depending on the lender and on the borrower’s credit score and finances.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you through the process.

FHA Loan Income Requirements

There aren’t any minimum or maximum income requirements to qualify for an FHA loan. However, there may be income limits for borrowers receiving down payment assistance through a state or local program.

In any case, lenders will look at an applicant’s ability to manage monthly mortgage payments and ultimately repay the FHA loan. Besides savings and assets, lenders assess an applicant’s debt-to-income (DTI) ratio, which measures the percentage of monthly income that goes toward debt payments. A lower DTI ratio is typically viewed as favorable. Depending on the lender, borrowers can get an FHA loan with a DTI ratio of up to 50%. In comparison, conventional loans typically require a DTI ratio of 43% or less.

Recommended: How Much is a Down Payment?

What Is the Down Payment Required for an FHA Loan?

Down payments are calculated as a percentage of the home purchase price. Historically, lenders looked for buyers to put down one-fifth of a home’s purchase price upfront. But you no longer always need to put down 20% on a house. The minimum down payment percentage for FHA loans depends on a borrower’s credit score.

The average down payment on a house in the U.S. was 13% in 2022. But with an FHA loan, borrowers with a credit score of 580 or more may qualify for a down payment of 3.5% of the home purchase price. Those with credit scores between 500 and 579 will need to put 10% of the home price towards a down payment. For a $400,000 house, this translates to $14,000 for a 3.5% down payment and $40,000 for a 10% down payment.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

What Other Cash Will I Need to Close?

Besides the down payment, the remaining amount you need to close on a house will depend mainly on the home’s purchase price. Taking out an FHA loan requires paying an upfront mortgage insurance premium (MIP) of 1.75% of the loan total. It may be possible to roll this cost into the loan, which would increase the loan principal and monthly payment amount.

Buyers will also be on the hook for FHA loan closing costs, which typically range from 2% to 5% of the home’s purchase price. Borrowers can potentially avoid the upfront expense by rolling closing costs into an FHA loan. By financing closing costs, borrowers will pay a portion of the costs each month, plus interest. Note that financing closing costs can increase a borrower’s DTI ratio and potentially impact their ability to qualify for an FHA loan.

An alternative option to cover closing costs would be to ask for seller concessions. FHA loans allow the seller to contribute up to 6% of the home value for closing costs as a seller concession.

Recommended: What Do You Need to Buy a House?

How to Save for an FHA Loan Down Payment

Understanding how much house you can afford is a useful place to start to determine your housing budget and savings goal. Using an FHA loan mortgage calculator can help crunch the numbers to determine your down payment and monthly payment based on different loan terms. Not sure you will choose an FHA loan? Use a home affordability calculator to determine how much house you can afford.

With a savings goal in mind, calculate how much you can set aside each month after paying for debts and expenses. Consider cutting discretionary spending, such as dining out and travel, to increase monthly savings.

Buyers can also get the money they need for an FHA down payment in the form of a gift from family, friends, employer, charitable organization, or government program. Gifted funds need to be accompanied by a gift letter to show the lender that the money is going toward the down payment and doesn’t need to be repaid.

Is Down Payment Assistance Available for FHA Loans?

Borrowers who can’t afford a down payment on an FHA loan may be eligible for financial assistance. Down payment assistance can come in several forms, including grants and forgivable loans. These programs are available through local, state, and federal government programs, as well as nonprofit organizations.

Most down payment assistance programs are geared towards first-time buyers. They may include additional eligibility requirements, such as income limits and participation in homebuyer education courses. Consult a list of first-time homebuyer programs and loans to see what you might be eligible for. If it has been more than three years since you have owned a home, you may qualify for first-time homebuyer status.

Additional Cost Considerations for FHA Loans

In addition to the upfront costs of a down payment, closing costs, and MIP, there are other expenses to plan for.

The MIP includes an additional annual fee besides the 1.75% that’s required for closing. Annual payments range from 0.15% to 0.75% depending on the loan terms and loan-to-value ratio. The total annual cost is divided by 12 and spread out across the monthly payments in a given year. Note that MIP usually spans the life of the FHA loan unless a borrower refinances.

Depending on the property location, borrowers may also need to pay for flood insurance to get an FHA loan.

Pros and Cons of an FHA Loan

FHA loans are popular for their lower down payment mortgage requirements, but they’re not for everyone. Here are some advantages and drawbacks to consider when comparing home mortgage loan options.

Pros:

•   Smaller down payments

•   More lenient credit score requirements

•   No income limits

•   Can finance closing costs

Cons:

•   Required to pass an inspection and appraisal

•   Must be used for a primary residence.

•   Loan limits of $472,030 to $1,089,300 for a single-family home, depending on the cost of living by state.

•   Can require an inspection and stricter standards for the condition of the property.

The Takeaway

What is the minimum down payment for an FHA loan? Borrowers with credit scores of 580 or more can put just 3.5% down, while those with scores between 500 to 579 need to put 10% toward a down payment. The combination of lower minimum credit score and low down payment make FHA loans one attractive option for first-time homebuyers.

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 lowest down payment for an FHA loan?

The lowest down payment for an FHA loan is 3.5% of the loan amount. Borrowers can explore down payment assistance programs to help cover the cost.

What is the down payment for an FHA loan 2023?

The down payment for an FHA loan in 2023 ranges from 3.5% to 10% depending on the borrower’s credit score.

What will disqualify you from an FHA loan?

Borrowers could be disqualified from an FHA loan based on a high debt-to-income ratio, poor credit, or insufficient funds to pay for the down payment, closing costs, and monthly mortgage payment.

Photo credit: iStock/Edwin Tan

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.

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Though putting together enough money to purchase a home has always been tough for younger buyers, rising prices and higher interest rates have made it especially difficult for Gen Z (those born from the mid-to-late 1990s and the early 2010s) to get a foot in the door of the housing market.

As they wait on the sidelines for the chance to buy their first place, many are feeling “real estate FOMO” — the fear that they’re missing out on a major life milestone and opportunity to build wealth that others have managed to achieve. Let’s take a look at some of the obstacles Gen Z is facing and learn the steps that could help as you save for, and search for, a home.

What Does FOMO Mean?

FOMO, or the fear of missing out, is a term used to describe the feeling that others are doing better than you are. Maybe they’re achieving goals that you haven’t yet reached, or experiencing things that you currently don’t have the wherewithal to accomplish (financially or otherwise). FOMO is often used in the context of missing out on a social event — a concert, for example, or a party you weren’t invited to. But it also can pertain to wanting to purchase things others in your social circle have — a better car, clothes, trips, or jewelry, for example.

FOMO spending is when the fear of missing out pushes you to spend money — maybe more than you should — to keep up with your peers. (Older generations often refer to this as “keeping up with the Joneses.”) Real estate FOMO can have that effect. It might lead someone to buy a house before they’re ready, or to get a mortgage loan on a house they can’t comfortably afford. But it also can make homebuyers reluctant to pull the trigger on a purchase, if they think they’ll find a better home at a better price if they just wait a while. And for members of Gen Z, social media can exacerbate those feelings.

How to Deal with FOMO in Real Estate

There are a few different things you may want to consider doing if you think FOMO is getting in the way of making smart homebuying decisions.

If You Feel You Need a Reality Check…

It never hurts to revisit your budget to see how much house you can truly afford. Using a home affordability calculator can help you set some limits. It also may be useful to talk to a financial advisor about how buying a home — or a home at a particular price — could affect your other goals. If you see a property you’re interested in purchasing, run the numbers in a mortgage calculator to get a sense of what your monthly payments would be.

If You Find Yourself Trying to “Time the Market”…

It can be tough to predict when home prices or interest rates will go down. Instead, you might want to talk to a real estate agent about the best time of year to look for housing bargains in your area. Or you could shift your search from a pricey “hot” area to a place where the cost of living is more affordable. Also, if you find a home you think you’ll stay in long-term, you may want to keep mortgage refinancing in mind as an option for lowering costs down the road.

If You’re Feeling Triggered by What Others Have…

Looking at too many listings (or home improvement shows, or friends’ house-proud social media posts) has a way of leading you away from your personal “must-haves.” When that happens, it helps to take a moment (perhaps with a social-media hiatus?) to reprioritize and get back on track.

What Are the Barriers for Gen Z Home Buyers?

Some of the obstacles Gen Z homebuyers face are the same as those would-be homeowners have encountered off and on for generations. Home prices are high. Mortgage interest rates, though nowhere near the double digits they were throughout much of the 1980s, still feel nerve-rackingly elevated. Housing inventory is low. And though inflation is cooling, gas, groceries, and other costs are still taking a toll on household budgets.

But Gen Z has some issues to contend with that other generations may not, including:

Down Payment Costs

Higher-priced houses can require larger down payments, and that can make getting into the housing market increasingly difficult. First-time homebuyers typically put down less than repeat buyers — about 8% compared to 19%, according to the National Association of Realtors® 2023 Profile of Home Buyers and Sellers. That still could be a hefty chunk of change to come up with, however, considering the median home price in the U.S. is currently around $420,000.

Student Loan Debt

A college education may help Gen Z graduates earn a higher salary, but many report that student debt is slowing their progress toward certain milestones, including buying a home. Those college loans can make it even more difficult for younger buyers to save for a down payment or make higher monthly mortgage payments. You can afford a mortgage if you have student loans, but student debt can factor into your debt-to-income ratio (DTI), which may affect whether or not you qualify for a mortgage or what interest rate you’re offered.

Higher Rent Payments

Rising rental costs are another factor that may be affecting Gen Z’s ability to save for a home. According to Zillow’s monthly Observed Rent Index, the typical U.S. rent in March 2024 was $1,983, a 3.6% year-over-year increase.

Adulting = Insecurity

When you’re in a new (or new-ish) career, out on your own with bills to pay, and you’re not sure where life might take you next (a new job, a new town, a new partner, a new baby?), navigating life after college can be daunting enough without the homebuying headaches. While some in Gen Z have found a way to get into the housing market despite the barriers, others are waiting until their personal life feels more stable.

How Does Gen Z Approach Home Buying?

For some in Gen Z, buying a home may not be as significantly linked to achieving success as it was for older generations. (According to a 2023 GoDaddy survey, only 40% of Gen Z respondents chose “yes” when asked if homeownership indicated a person had achieved the American Dream, compared to 44% of millennials, 49% of Gen Xers, and 50% of boomers.) Still, it remains a goal for many, who are finding ways to make it happen — by taking on roommates, moving to a state with a lower cost of living, working a side gig to earn more money, or living with their parents after college to save money.

Where Is Gen Z Buying Homes?

As you might expect, Gen Z-ers who live in or can easily move to more affordable locations are more likely to buy homes than those in large cities where home prices are higher. According to a Redfin report, the typical home price for Gen Z buyers in 2022 was $255,000 or less — much lower than the overall median price in the U.S. that year.

Realtor.com recently listed Jacksonville, NC; Elkhart, IN; Lima, OH; Waterloo, IA; Cumberland, MD; Watertown, NY; St. Joseph, MO; Hinesville, GA; Dubuque, IA; and St. Cloud, MN, as the 10 metropolitan areas with the largest percentage of Gen Z buyers in 2022.

Recommended: Best Affordable Places to Live in the U.S.

Is It Harder for Gen Z to Buy a House?

Gen Zers aren’t facing the double-digit mortgage rates their parents and grandparents paid in the early 1980s. And they aren’t trying to buy a home during a depression or recession. Still, thanks to inflation and other factors — including an uptick in the number of affordable homes being snapped up by investment companies — this is a challenging time to become a homeowner.

According to Redfin, 30% of 25-year-olds owned their own home in 2022 — so it is doable. That homeownership rate is lower than what the baby boomers had (32%) when they were 25. But it’s actually a bit higher than the rate for millennials (28%) and Gen Xers (27%) when they were that same age.

Steps for Gen Z Home Buyers to Consider

For Gen Z, patience, flexibility, and creativity may be the keys to success in today’s tough housing market. Here are some steps to consider as you pursue homeownership:

Know Before You Go

The more you know about the homebuying process, the more confident you can feel about the decisions you make. Get to know the things you can do on the front end (like improving your credit score, lowering your DTI ratio, and researching first-time homebuyer programs and loans). And as you start your home search, consider listing your wants vs your needs, learning about the different types of mortgage loans, and going through the mortgage preapproval process.

Keep Expectations in Check

Here’s where FOMO can really get in your way: The house you can afford may not be anything close to the designer houses you see on social media and TV. But an affordable starter home can be a stepping stone to the home of your dreams. If you aren’t sure what you can manage, talk to a professional, such as your financial advisor, a real estate agent, or a mortgage professional.

Cast a Wide Net

If you can’t afford the trendiest neighborhood or a house directly on the beach, you may want to try searching in areas that are similar or nearby. If you can relocate, you could take your search even broader, looking at states that have what you want but at a lower price.

Recommended: Home Loan Help Center

The Takeaway

If high housing costs and other factors are getting in the way of your plans to buy a home, and you feel a strong sense of FOMO creeping up on you, try not to get sucked into overspending — or turned off to homeownership altogether. Staying true to your budget and your goals, and getting some assistance in finding the right home and home loan, can help you avoid feeling pressured into bad decision-making.

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 does FOMO mean in real estate?

The fear of missing out (FOMO) in real estate is the worry that you aren’t where you should be when it comes to homeownership — perhaps because you haven’t yet purchased a home, or you don’t have the same level of home you see others in your peer group moving into.

What housing markets are dropping the fastest?

According to CoreLogic’s U.S. Home Price Insights report for 2024, several locations on both coasts of Florida are likely to experience price drops this year, as well as the Atlanta-Sandy Springs-Roswell area in Georgia, and the Youngstown-Warren-Boardman area in Ohio and Pennsylvania.

What is the slowest month for the housing market?

Winter is typically the slowest time of year for the housing market, while spring and summer are the busiest seasons.

Photo credit: iStock/gradyreese

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.

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You’re ready to make home improvements. When looking for a trustworthy pro, it’s a good idea to get referrals, check references, get multiple bids, and nail down your financing. Let’s drill down to the details on how to find a good contractor for remodeling and what you need to ask as you move through the process.
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💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

Ask for Referrals

Often the easiest way to find a reputable contractor for your project is through word-of-mouth referrals, whether from a friend, neighbor, family member, or colleague. Maybe you’ve watched your friend remodel the kitchen on social media; you may want to ask for the name of the contractor behind the job. Likewise, if you see a big construction project going up in your neighborhood, you can ask the homeowner for insight on the contractor behind it.

You might also want to ask owners of local lumber yards, where con­tractors do their bulk business, who’s reliable.

Recommended: Refinance Your Mortgage and Save

Search Online for the Top-Reviewed Contractors

Before hiring a contractor to renovate or remodel your home, it’s smart to do your due diligence and collect as many references as possible. But if you’re new to a town or neighborhood, for example, you may wonder how to find a contractor who works in your area.

This is where online reviews come in handy. There are many websites out there that offer lists of licensed contractors with accompanying reviews.

Look at Credentials and Portfolio

As you begin speaking with each potential contractor, ask to see a copy of their contractor’s license and insurance policy, and ask about any specialty certifications or membership to any professional organizations like the National Association of Home Builders, the National Association of the Remodeling Industry, or the National Kitchen & Bath Association.

Be aware that some states require contractor licensing; others, certification or registration. Registration doesn’t guarantee expertise; it’s merely a written record of who is performing the work. Many but not all states have websites where you can verify your pro’s license number. If your property is governed by a homeowners association or condo association, remember that the association may require proof of licensing.

Most reputable builders or contractors should have a website or basic social media presence, but if you can’t find one, request an email link to the contractor’s portfolio to see examples of past projects, from countertop replacement to closet remodels, as well as before and after photos.

Interview Candidates

Once you have a list of potential contractors narrowed down to your three top picks, it’s a good move to interview each of them before you go a step further. Maybe you won’t jibe with one of them, or perhaps another won’t seem as knowledgeable about certain components of construction or remodeling as you’d like for your particular project.

Treat hiring any contractor or handyman just like you would hiring an employee for your work, and if you don’t get a good feeling about the candidate, trust your gut. Communication is key for any successful project, and if the communication feels lacking in the interview process, it’s likely you’ll get frustrated down the line when all the moving parts of a remodeling project are also thrown into the mix.

Check References

After you’ve compiled a list of contractors and interviewed your top candidates, you’ll want to check references. Professionals should be able to provide a list of contacts from past jobs, and if they can’t do so right on the spot, that’s probably a red flag.

When checking references, you might want to ask past customers if the contractor completed the job on time and within budget, if there were any problematic interactions, and how the work has held up since.

Review the Cost Estimate

You could find the perfect contractor for the job, only to learn that the pro is far out of your budget.

It’s smart to get at least three competitive quotes from contractors before you move forward. A cost estimate should include labor, materials, change-order language, and a timeline, at minimum. Many contractors also have payment schedules so you will know when you’ll need to have your finances in order.

One positive if you have second thoughts about the expense: While the cost to remodel a house may not be cheap, if you keep your property modern and up to date, it’s possible you’ll recoup those dollars in resale value down the line.


💡 Quick Tip: Compared to credit cards and other unsecured loans, you can usually get a lower interest rate with a cash-out refinance loan.

Consider the Red Flags

If it’s your first time hiring a contractor, you may not know what to look for — or what’s a red flag. To save yourself headaches down the road, if the contractor checks any of the below boxes, the person’s professionalism might be in question and it’s probably wise to move on to the next candidate.

•   No “before” remodeling pictures

•   No website, social media presence, or reviews

•   No license or certification

•   No references

•   Slow communication

Recommended: The Cost of Living By State

The Takeaway

How to find a contractor for home renovations? Hiring a contractor is a process that you’d be smart to treat like a job interview. It’s a good idea to check references and credentials, get bids, look for red flags, and have financing lined up, whether you take out a personal loan or opt for a home equity line of credit (HELOC).

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

Before you sign on the dotted line for your remodeling job, there are some things about working with a contractor you need to know before locking one in.

What should a remodel contract include?

You’ll want to make sure the contract lays out the overall project budget and scope of work, when payments are due, and how to handle the inevitable changes that will arise.You’ll also want to have a dispute resolution and waiver of the lien clause so that a subcontractor cannot put a lien on your home, and a warranty for the work that is an acceptable time frame for the amount you’ve invested.

What questions should I ask a contractor?

When you’re meeting with each potential contractor, ask about past projects and if they have specific experience doing the type of renovation work that you’d like done. It’s also helpful to ask how they would approach the project and how much of an impact it’ll have on your ability to live in the home while work is taking place.

You’ll also want to inquire about insurance. Ask for proof that the contractor carries an insurance policy that protects you, the homeowner, as well. All of these are things a professional contractor should have and easily be able to produce.

What should you know before hiring a contractor?

Know that there are always bad actors who can take advantage of the huge sums of money that Americans pouring into real estate investment — and that no reputable contractor should be offended if you ask for references, proof of insurance, and all promises in writing.

Photo credit: iStock/BOX39studio

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.

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If you’re one of the more than 20 million Americans working remotely, 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 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 are leaving.

More than 350,000 people left California (the country’s third-highest state in cost-of-living rankings) from April 2020 to January 2022 for Arizona, Texas, Florida, Washington, and other states. This trend slowed in 2023, but the state still lost more than 250,000 people.

Job Relocation

Some companies move personnel out of state, and some employees are good with that. A Graebel report exploring the Great Resignation found that 70% of knowledge workers who resigned in the past two years may have stayed if they’d been offered the same role in a different region of the country.

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 from 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 house and a home mortgage loan. 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. 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 like Facebook Groups and Nextdoor can provide a personal sense of home buying and community. These groups are user-friendly to 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 co-workers 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 like 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 who are interested in buying a house out of state opt to go without an 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 is 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 a real visit. 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 is tentatively greenlighting a specific home loan amount at a particular interest rate, which is not 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 or 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.

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.

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