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If your monthly mortgage payment no longer fits your lifestyle or financial goals, you may be able to change it with mortgage refinancing or recasting.

Recasting and refinancing are two ways a borrower can save on mortgage costs — sometimes a jaw-dropping amount.

Recasting vs Refinancing

Recasting is the reamortizing of an existing mortgage. Refinancing involves taking out a new mortgage with a new rate, and possibly a new term, to pay off your old mortgage.

Recasting

If your lender offers mortgage recasting and your loan is eligible, here’s how it works: You make a large lump-sum payment — at least $5,000 or $10,000 might be required — toward the principal balance of the mortgage loan. The lender recalculates the monthly payments based on the new, lower balance, which shrinks the payments.

The lender may charge a few hundred dollars to reamortize the loan.

Mortgage recasting does not change your loan length or interest rate. By recasting, you’ll simply have lower monthly payments but will also pay less interest over the life of the loan. Why? Because the lump-sum payment allows you to pay off the loan much sooner.

If you were to put a chunk of money toward your mortgage and not recast the loan, your payments would not change, though the extra principal payment would reduce your interest expense over the life of the loan.

Who might opt for mortgage recasting? Someone who has received a windfall and wants to put it toward the mortgage. Sometimes it’s someone who has bought a new home but hasn’t sold the previous one. Once the old home is sold, the homeowner can use some of the proceeds to recast the new mortgage.

Another fan of recasting might be someone paying private mortgage insurance who wants to use the lump sum to pay their loan down to 80% of the home’s value.

FHA, VA, and USDA loans are not eligible for mortgage recasting. Some jumbo loans are also excluded. If you want to change the monthly payments on those types of mortgages, you’ll need to refinance your loan.

Refinancing

When you seek refinancing, you’re applying for a brand-new loan with a new rate and terms and possibly from a new lender. Most people’s goal is a lower interest rate, shorter loan term, or both.

While finding a competitive offer might take some legwork, refinancing could help you save money. A lower interest rate for a home loan of the same length will reduce monthly payments and the total amount of interest paid over the life of the loan.

A homeowner who refinances to a shorter term, say from 30 years to 15, will pay much less total loan interest. Fifteen-year mortgages also often come with a lower interest rate than 30-year home loans.

Equity-rich homeowners who’d like to get their hands on cash may find cash-out refinancing appealing.

What about using a HELOC? Borrowers with a strong credit history may be able to refinance to a lower interest rate than a home equity line of credit.

Recommended: Cash-Out Refinance vs HELOC

Pros and Cons of Recasting

Mortgage recasting lowers your monthly mortgage payments and lets you save on total loan interest while keeping the same interest rate.

Since you recast your mortgage with your existing lender, the process is pretty straightforward, and the cost could be as low as $150.

There are some potential drawbacks to mortgage recasting, however. Making a large lump-sum payment means you could be trading liquidity for equity, and creating financial instability if unexpected expenses arise or if the housing market takes a downward turn.

If you have other debts with higher interest rates, you may want to avoid mortgage recasting. It could make more sense to use that money to pay down your higher-interest debt first.

Pros and Cons of Refinancing

If you are eligible to refinance, you won’t need a large cash source in order to lower your mortgage payments. Instead, your main goal is to qualify for a lower interest rate. If you succeed, you will save a lot of money in interest over time.

With a cash-out refi, you can use that money for whatever you need: pay down higher-interest debt, add to the college fund, or remodel your kitchen.

Refinancing involves what looks like a bummer: closing costs, which could range from 2% to 6% of the remaining principal. You’re taking out a new mortgage, after all. Some lenders will let you roll closing costs into your loan.

A lower rate could make it all worthwhile, though. It’s a good idea to calculate the break-even point, when interest savings will exceed closing costs. Everything beyond that break-even point will be savings.

Reducing your loan term with a refi could result in a higher mortgage payment but tremendous interest savings.

Refinancing may make sense for homeowners who are planning to stay put for years; those who want to switch their adjustable-rate mortgage to a fixed-rate one; and borrowers with FHA loans who want to shed mortgage insurance premiums, or MIP, on a loan they’ve paid down or a home that has appreciated. Most FHA loans carry mortgage insurance for the life of the loan.

No matter the home financing topic, find a lender willing to provide transparent answers to your mortgage questions.

And to learn more about general mortgage topics, try this help center for home loans.

The Takeaway

A mortgage recast vs. refinance: different animals with similar aims. A recast requires a lump sum but will shrink payments and total loan interest. A mortgage refinance may greatly reduce borrower costs and sometimes free up cash.

Is your current mortgage working just fine for you, or could a better rate or different term be a big help? What about cashing out some of your equity for any need?

SoFi, a growing online mortgage lender, has competitive rates on mortgage refinancing, including a cash-out refi.

Explore the perks of a mortgage refinance 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.

SOHL0222022

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Saving for a down payment when you have a boatload of bills is no easy task, but first-time homebuyers with good credit have an edge: They often can put just 3% down, and they have access to a host of down payment assistance programs.

A down payment gift from a family member, and sometimes a close friend, is allowed for most loan types. Then there are gifts of equity from home sellers.

Smart Ways to Save Up for a Down Payment

Here’s the lowdown on down payments, from 3% to 20%, to buy a home before you go shopping for a mortgage.

1. Low Down Payment Mortgages

Conventional loans, the most common type of mortgage, are offered by private mortgage lenders, such as banks, credit unions and mortgage companies. Many of those lenders allow a down payment of 3% for a fixed-rate conventional conforming loan.

To qualify, borrowers usually will need to have a credit score of at least 640 and a debt-to-income ratio of 43% or less. Income limits may apply.

Putting 20% down will allow a borrower to avoid private mortgage insurance (PMI) on a conventional loan.

Government-backed loans like FHA and USDA mortgages are designed to help low- to moderate-income borrowers or those with lower credit scores.

An FHA loan requires as little as 3.5% down on one- to four-unit owner-occupied properties as long as the borrower occupies the building for at least one year. To qualify for 3.5% down, your credit score must be 580 or higher. Someone with a credit score between 500 and 579 may qualify to put 10% down.

💡 Our home affordability calculator can help estimate how much mortgage you can afford.

A VA loan, for veterans, active-duty military personnel, National Guard and Selected Reserve members, and some surviving spouses, requires no down payment. Borrowers can buy a property with up to four units, as long as the borrower occupies the property throughout the ownership. There is no stated minimum credit score, but generally speaking, lenders require a minimum credit score of 580 to 620 to qualify.

A USDA loan, for properties in eligible rural and suburban areas, also requires no down payment. Lenders typically want to see a credit score of at least 640, and household income can’t exceed 115% of the area’s median household income.

USDA and VA loans typically come with lower interest rates than conventional or FHA loans, but a USDA loan requires a guarantee fee, a VA loan requires a funding fee, and an FHA loan, upfront and annual mortgage insurance premiums (MIP).

It pays to understand PMI vs. MIP in understanding the total costs of your loan.

And lender-paid mortgage insurance has its pros and cons.

2. State and Local Down Payment Assistance

State, county, and city governments and nonprofit organizations offer down payment assistance programs to help get first-time homebuyers into homes. (By the way, the definition of who qualifies as a first-time homebuyer is more expansive than it seems.)

Down payment assistance may come in the form of grants or second mortgage loans with various repayment or loan forgiveness provisions.

HUD steers buyers to state and local programs.

The National Council of State Housing Agencies has a state-by-state list of housing finance agencies; each offers a wealth of information designed to boost housing affordability and accessibility.

3. Down Payment Gifts

“Hey, Mom and Dad (or Uncle Clyde or Aunt Betty, or My Dear Girlfriend), I’d love it if you gave me a large cash infusion to help me buy a house.” It just rolls off the tongue, right? In fact, one or more loved ones may be willing to pitch in toward your down payment or closing costs.

Under conventional loan guidelines, gift money for a principal or second home is allowed from someone related by blood, marriage, adoption, or legal guardianship, or from a domestic partner or fiance. There’s no limit to the gift, but conventional loans may require borrowers to come up with a portion of the down payment.

FHA guidelines allow gift money from relatives, an employer, a close friend, a charitable organization, or a government agency that provides homeownership assistance.

With USDA or VA loans, the only people who cannot provide gift funds are those who would benefit from the sale, such as the seller, lender, real estate agent, or developer.

A mortgage gift letter signed by donor and recipient will be required, verifying that the down payment funds are not expected to be repaid. A lender may also want to track the gift money.

Then there are gifts of equity, when a seller gives part of the home’s equity to the buyer to fund all or part of the down payment on principal or second homes. For FHA loans, only equity gifts from family members are acceptable.

A signed gift letter will be required.

4. Crowdfunding a Down Payment

Crowdfunding to help buy a house? It’s possible with sites like GoFundMe, Feather the Nest, HomeFundIt, and even Honeyfund, set up as a crowdfunder for honeymoons.

Feather the Nest isn’t associated with a mortgage lender, so donation seekers can decide where to go for a loan. It charges a fee of 5% for every contribution.

HomeFundIt charges no fees, but you must pre-qualify and then use CMG Financial for your home purchase. The site shows a money match toward closing costs for first-time buyers.

GoFundMe charges 2.9% plus 30 cents per gift.

For Honeyfund, U.S. residents receiving U.S. dollars via PayPal are charged 3.5% plus 59 cents per transaction.

5. Retirement Account Withdrawals or Loans

It might be a good idea to explore all options for getting cash before tapping your 401(k) savings account.

As you probably know, taking money out of your 401k before age 59 ½, or before you turn 55 and have left or lost your job, is met with a 10% early withdrawal penalty and income tax on the amount. So withdrawing money early from this tax-deferred account has a painful cost and impairs long-term growth.

A traditional IRA, on the other hand, allows first-time homebuyers to take an early withdrawal up to $10,000 (the lifetime limit) to use as a down payment (or to help build a home) without having to pay the 10% early withdrawal penalty. They still will have to pay regular income tax on the withdrawal.

Your employer’s plan might let you borrow money from your 401k and pay it back to your account over time, with interest, within five years, in most cases. You don’t have to pay taxes and penalties when you take a 401k loan, but if you leave your current job, you might have to repay the loan in full fairly quickly. If you can’t repay the loan for any reason, you’ll owe taxes and a 10% penalty if you’re under 59 ½.

Then there’s the Roth IRA. You can withdraw contributions you made to your Roth any time, tax- and penalty-free.

If you take a distribution of Roth IRA earnings before age 59 ½ and before the account is less than 5 years old, the withdrawal may be subject to taxes and penalties. You may be able to avoid penalties but not taxes if you use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.

If you’re under age 59 ½ and your Roth IRA has been open for five years or more, a withdrawal of earnings will not be subject to taxes if you use the withdrawal to pay for a first-time home purchase.

Recommended: First-Time Homebuyers Guide

The Takeaway

How to afford a down payment on a house? First-time homebuyers may benefit from assistance programs, down payment gifts, and mortgage types that require little down.

SoFi offers a help center for home loans to ease the way. And when you begin the hunt for financing, a good first step is to get pre-qualified and then seek mortgage pre-approval.

Consider SoFi mortgage loans. Qualified first-time homebuyers can put just 3% down, and checking your rate takes only minutes.

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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.

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.

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.

SOHL0222024

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There are many reasons to pursue homeownership, from obtaining a yard for your dog to painting the bathroom whatever darn color you want. But one of the biggest financial reasons to own your own home is to start building home equity.

Home equity is considered one of the most common and accessible ways to build wealth over time, thanks in large part to the appreciation of real estate over time.

You can even leverage your home equity to take out loans and fund your retirement. But what, exactly, is home equity, and how does it work?

What Is Home Equity?

Home equity is the amount of your home value that you actually own. It’s calculated by subtracting your mortgage balance from the market value of your property.

For example, if your home is worth $350,000, and you’ve paid enough toward your down payment and home loan that your mortgage balance is $250,000, you own $100,000 in home equity. (Keep in mind that the $350,000 value might not be what you initially purchase your home for — that figure tends to, though doesn’t always, increase over time, which is part of how equity is built!)

Once you own home equity, you can borrow against it or make a profit if you choose to eventually sell the home.

In short, home equity is pretty great to have. But how is it built?

Building Home Equity

Home equity is primarily built in two ways: paying down your mortgage and seeing the value of your home appreciate over time. Both of these can be nudged a bit to help you build equity faster. Here’s how.

Putting Down a Larger Down Payment

Many buyers, especially first-time homebuyers, take advantage of programs that allow small down payments — sometimes as little as 3% of the home purchase price.

But when it comes to building equity, a higher down payment could help. The more you put down when you’re first purchasing your house, the more equity you have right out of the gate — and if you put down more than 20%, you’ll be able to skip the additional cost of private mortgage insurance, commonly called PMI.

When calculating mortgages, you’ll also see that the higher the down payment you can afford, the lower your monthly mortgage bill.

That said, substantial down payments can be prohibitive for many buyers, and it may make more sense to get in with a lower down payment and start building equity rather than waiting a long time to save up tens of thousands of dollars.

Paying Off Your Mortgage

If making a larger down payment isn’t possible, you might also be able to speed up your equity earnings — and save money on interest over time — by paying off a mortgage early.

Of course, you’ll need to consult your mortgage documentation to ensure that your lender doesn’t charge a prepayment penalty, or if it does, that it would still be a cost-efficient decision to make.

Only some lenders charge a prepayment penalty, and of those that do, only within the first few years (usually three to five).

Paying More Than the Minimum on Your Mortgage

If you can’t afford to pay off your mortgage early in its entirety all at once, you can chip away at the loan over time by making more than the minimum monthly payment.

It’s a good idea to ensure that the additional funding is going directly toward your principal balance (the amount of money you borrowed in the first place). That way, you’re dialing down the amount of interest you’ll pay before it can even accrue.

Staying in Your Home for Five or More Years

Along with chipping away at the amount you owe, the other function that increases equity is allowing your home to appreciate. Although that rise in value isn’t guaranteed, if it’s going to happen, it takes time.

Thus, staying in your home for a longer amount of time (at least five years) gives you a better chance at building enough equity for all the other costs of homeownership to be worth it.

Renovating

Allowing your home to naturally increase in value over time is one thing, but you can also take matters into your own hands and help drive up the value by renovating or remodeling. (Not sure aboutrenovations vs. remodels? Essentially, remodels are more extensive — and expensive.)

While even lower-cost renovations, like painting, can increase the home value a little, major repairs may have major costs associated with them. Sometimes, though, the equity increase you’d gain makes it worth going to the expense in the short term; home improvement loans can help make these efforts more accessible (but again, always look ahead to ensure that debt won’t eclipse the equity you’d stand to build).

Using Home Equity

So once you’ve built home equity, how can you use it?

For one thing, it adds to your overall net worth: The amount of equity you own in your home is value in your name, even if it’s not in cash. But you can also leverage your home equity in a variety of ways to glean actual spending power. Here’s how.

Home Equity for Your Retirement

Many people end up using home equity loans to fund their retirement, as certain types of these loans, such as reverse mortgages, don’t require repayment until the borrower moves out or dies.

That said, it’s important to think through the pros and cons of reverse mortgages, as borrowing against your home equity comes with risk. (For example, if the loan total ends up being more than the value of the home, heirs might lose the house, or need to refinance, if they can’t pay off the reverse mortgage in full.)

Home Equity to Purchase a New Home

Even if you end up moving, your home equity value can be borrowed against to help purchase a new home. In fact, some people end up taking out home equity loans to purchase a second or investment home.

Borrowing Against Home Equity

Along with the above-mentioned ways to use home equity, there are many other equity home loan types that can be used to liquify the cash wrapped up in your home and make it spendable.

Just be aware that these loans come with costs and risks. For example, if the housing market suddenly shifts and your home’s value decreases substantially, you may find yourself in a hole. In fact, if you can’t make the payments, you could even lose your home. Your home, after all, is the collateral for these loans.

Here are a few of the most common ways to borrow against your home equity:

•   A home equity loan offers a borrower a lump sum of cash up front in return for fixed payments on a regular basis throughout the life of the loan.

•   A home equity line of credit (HELOC), on the other hand, works kind of like a credit card: Those who take out HELOCs have the opportunity to tap into their equity and convert it to spendable cash as needed, up to a certain limit. Neither interest rates nor payments are usually fixed. Closing costs may be lower than those for a home equity loan, and sometimes waived entirely if you keep the credit line open for a number of years.

   💡 For more info on HELOCs, check out our Guide to Home Equity Lines of Credit.

•   With a cash-out refinance, a borrower takes out an entirely new mortgage while borrowing a portion of their existing home equity in cash. Closing costs are involved. (Here are details for those deciding between cash refinance vs. HELOC.)

Calculating Home Equity

Phew! That’s a lot of information. To recap, here’s how to calculate your home equity:

Total home value – total mortgage balance left = home equity

Keep in mind, again, that “home value” isn’t the same as “purchase price.” To know for sure what your home value is in the current market, you’d need an up-to-date appraisal, but you can use estimates from Zillow or your favorite real estate agent.

The Takeaway

While nothing is a surefire ticket to wealth, building home equity is one of the most historically reliable ways to do so. And down the line, home equity can be leveraged for a variety of loans.

Still have questions? That’s understandable; homeownership is a complicated topic. To better understand mortgages, SoFi offers a help center for home loans.

If you decide that you’re ready to buy, take a look at mortgage loans with SoFi. You might find a competitive fixed-rate mortgage that’s just the right fit, with as little as 3% down for qualified first-time homebuyers.

Ready to get into your dream home? Check your rate today.

Photo credit: iStock/PC Photography

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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.

SOHL1121057

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If you’re browsing the market for a rental, you’ve likely encountered a dazzling array of condos and apartments. During your search, you’ve probably wondered: “What is the difference between a condo and an apartment?”

Both apartments and condominiums share quite a number of traits but differ in ownership. Apartments are typically large residential complexes owned by a company and operated by professional property managers. Condos are also usually located in large residential complexes, but each condo unit is typically owned by a private owner who doubles as your landlord.

The question of condo vs. apartment gets more complex if you’re debating whether to buy a condo or rent an apartment.

What Is a Condo?

A condo is a residential unit within a collective living community, where each individual condo is owned by a private owner, but the cost of maintaining communal areas is shared by all owners.

While condos are often located in high-rise buildings, they can also take the form of a collection of standalone properties, each designated a “condo unit.”

One benefit to renting a condo is that they’re often close to restaurants, offices, and stores. They also allow you to deal directly with your landlord rather than a management office, which may mean more personalized attention for your needs.

For buyers, the entry price can be significantly lower than the cost of most single-family houses.

What Is an Apartment?

An apartment is commonly known as a rental unit within a building, complex, or community that typically is managed by a property management company, which serves as both landlord and leasing agent for all of the units on the premises.

(In big cities, “apartment” is sometimes used as shorthand for a condo or co-op unit. If you’re choosing between a co-op and a condo to rent or buy, you’ll want to know how they differ, and whether you’re ready to buy an apartment.)

Rental apartments may be located in high-rises but can also be found in larger homes that have been subdivided into separate units.

Apartments usually offer greater mobility than other property types, which makes them a flexible option if you’re only planning on staying in an area for a couple of years. A full-time management office or private landlord takes care of leasing, rent payments, and repairs.

Where They Differ

Now that we’ve covered the condo vs. apartment basics, let’s dive deeper into some key dimensions in where they differ.

Ownership

Each unit in a condo development is usually owned by a private homeowner, who may or may not double as its landlord.

By contrast, apartments are often managed by a property management company that also owns the apartment complex. Effectively, this makes the company the landlord for the entire property.

Condo ownership	Apartment ownership
Private owner and possibly also landlord	Property management company with full-time leasing & maintenance staff

Unless the condo owner retains the services of a property manager, prospective renters can expect to deal with the condo owner themselves when it comes to rental applications, monthly rent payments, and any maintenance issues that arise over the course of their lease.

Prospective apartment tenants will usually submit their application and rent payments through the apartment leasing office, while full-time maintenance staffers are on call to deal with any repairs.

Some landlords may be amenable to your desire to negotiate rent in order to take you on or keep you. Paring the rent is the main goal in such a negotiation, but you can always ask for other benefits in lieu of a rent reduction.

Property Taxes

Renters aren’t responsible for property taxes when it comes to both condos and apartments, making them a non-issue in the apartment vs. condo choice.

However, if you’re deciding whether to purchase a condo, understand that you’re responsible for paying property taxes for your unit every year. If you decide to rent your condo out, you should also expect to be taxed on any rental income you collect.

Design

Condo design	Apartment design
Design and appliances vary widely from unit to unit depending on owner’s choice	Uniform design and appliances across all units within a building

Regardless of structure type, condo owners retain the right to make cosmetic adjustments to the interior of their properties, so renters can usually expect more variety when condo shopping. This also applies to things like appliances and materials.

Apartments typically take the form of multiunit buildings or small housing collectives, but usually share similar, if not identical, layouts and designs regardless of which unit you choose.

Amenities

The amenities of both apartments and condos vary widely and often depend on when and how they were built.

We’ve listed some common amenities that are offered for each; keep in mind that there’s often overlap:

Apartment amenities	Condo amenities
Fitness center Laundry room Community room	Parking space Community pool Park & playground

Generally speaking, condos are more likely to offer customized amenities, like state-of-the-art appliances and granite countertops, that reflect the tastes and habits of their owners. Condo owners are incentivized to make improvements, as it allows them to charge more.

By contrast, apartments are more consistent in design and quality across units. In big apartment complexes, each unit is usually a copy of its neighbors. Depending on your tastes and budget, you can find a variety of apartment types, from luxury to economy.

Fees

Apartments and condos of similar quality and in the same area should rent for around the same cost.

Both condos and apartments often charge the following fees:

•   Application fee

•   First and last month’s rent

•   Security deposit

•   Credit and background check

•   Pet fees and deposit

•   Parking fee

Renters may find that condo owners may be more willing to negotiate on things like fees than apartment management teams, as these are private owners trying to keep their units rented out for income purposes.

A buyer of a condo will pay monthly fees that may cover insurance for and maintenance of common areas, water and sewer charges, garbage and recycling collection, condo management services, and contributions to a reserve account.

Community

Condos usually have a greater sense of community than apartments, given that their residents are likely to stay around longer. In many cases, residents consist of the condo owners themselves.

By contrast, renters living in apartments often intend to stay for only a couple of years. While that’s not to say that there aren’t occasional resident get-togethers at some apartment complexes, you’re less likely to encounter the same faces over several months.

If you’re renting a condo, expect to abide by rules set by the homeowners association. These can sometimes be fairly strict. Apartments have their own set of rules that may be less stringent.

Renting and Financing

Financing a condo allows you to lock in your monthly mortgage payments at a steady long-term rate and gives you the chance to start building equity. In exchange, you’ll be required to make a down payment and be responsible for any taxes, insurance, and HOA fees, among other costs.

By contrast, renting an apartment involves one monthly rent payment, in addition to any utilities you’re responsible for. Of course, when you leave the apartment, you leave with just your security deposit, if all payments have been made and no damage has been done.

Deciding whether it’s better to buy a condo or to rent — or to get a house or condo — are complicated decisions that depend on your personal finances and your lifestyle. If you’re thinking about settling down, have a stable job with steady income, and have enough saved up for a down payment with cash to spare, buying a condo or house may be the right choice for you. However, if you’re still exploring, have variable income with limited savings, and are not sure whether you like an area yet, it may be best to continue renting.

For those trying to decide between renting an apartment and financing a condo or house, this mortgage help center can help provide answers.

Maintenance

Condo rental maintenance	Apartment maintenance
Landlord hires third-party contractors to make repairs	On-site maintenance staff makes repairs

Most apartments have an on-site building supervisor who can address maintenance issues. Given that the owner of a large apartment complex oversees all of the units, they’re incentivized to employ someone full time to attend to the day-to-day affairs. This often means that apartment owners can react faster than condo owners, who sometimes don’t even live on the premises.

By contrast, condo units are usually owned by landlords, and most of them hire a third-party contractor to come in and make repairs as necessary. In some cases, condo owners may be handy and handle the repairs on their own.

If you buy a condo, you’ll have a regular maintenance fee that covers the shared parts of the property, but because condo owners typically own just the interior of their unit, any repairs in the condo unit will be separate. (It’s a good idea to pore over the covenants, conditions, and restrictions to see exactly what is part of your unit or part of the common elements.)

Rules

In terms of rules, every condo landlord is likely to have a different set of rules. However, there are some rules set by the condo board that apply to all residents and common areas, typically in the form of noise restrictions, pets, conduct, and trash pickup.

By contrast, apartments typically have a uniform set of guidelines that apply to all residents. The rules usually are stricter regarding smoking, pets, and modifications you can make to the apartment.

Condominium vs Apartment: A Side-by-Side Comparison

To help sum it all up, here’s a table comparing the condo and apartment traits discussed above.

	Condo	Apartment
Ownership	Private owner	Property management company, if a large complex
Property taxes	Paid by condo owner	Not applicable
Design	Customized by owner	Uniform across all units
Amenities	Parking space Community pool Green space	Fitness center Laundry room Community room Sometimes a pool
Fees	First and last month’s rent Security deposit Credit and background check	Application fee First and last month’s rent Security deposit Pet fees
Community	Typically condo owners and long-term residents	Typically shorter-term renters
Renting & Financing	Condo renters: Monthly rent Utilities Condo owners: Mortgage payment Utilities Property taxes HOA fees Insurance	Monthly rent Utilities
Maintenance	Private owner hires third-party contractors for repairs and maintenance	On-site maintenance staff

Condo vs Apartment: Which One May Be Right for You?

Whether a condo or apartment is right for you depends on your preferred rental experience. If you’re looking for something that feels a little more akin to home and don’t mind dealing directly with your landlord when discussing repairs and rent payments, a condo may be the better option for you.

On the other hand, if you prefer dealing with a full-time staff of property managers, want something more structured, and don’t mind cookie-cutter corporate apartments, an apartment may be the better rental option for you.

Prospective condo buyers will also want to keep their finances and monthly budget in mind when deciding if they want to rent or buy. While the idea of building equity is appealing, it’s not for everyone. You’ll want to thoughtfully evaluate your ability to make monthly payments and whether you want to stick around an area.

The Takeaway

In the condo vs. apartment comparison, you’ll pay similar costs when renting properties of similar quality. Things get more complex if you’re debating whether to buy a condo or rent an apartment, as there are myriad added costs for condo owners in exchange for the chance to build equity.

If you’re in the market to buy a condo, getting a quick rate quote may lead to getting a mortgage with SoFi.

SoFi’s line of fixed-rate mortgages are available for primary residences, second homes, and investment properties, including condos.

FAQ

Why are condos more expensive than apartments?

In general, condos and apartments of comparable quality cost around the same amount to rent.

A condo owner, however, will likely face higher monthly costs than an apartment renter, thanks to the added costs that come with owning a property, including mortgage payments, taxes, insurance, and HOA fees. Over time, the added expense may be offset by the equity built through mortgage payments.

Which retains more value, condos or apartments?

Over the long run, buying a condo will retain more value because of equity build-up. However, unless you plan to own the condo for several years, renting an apartment may save you more money in the short run because renting avoids the ownership and closing costs that come with buying a condo.

Can I get a loan to buy a condo or co-op apartment?

A qualified buyer can finance a condo with a government-backed or conventional mortgage loan.

Getting a loan for buying into a housing cooperative is more difficult. The buyer is purchasing shares that give them the right to live in the unit — personal property, not real property. That’s one reason that most lenders do not offer financing for co-ops, and the few that do may restrict where they lend.

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Photo credit: iStock/Michael Vi

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.

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If you’re at or nearing retirement age and looking for a way to generate cash flow, a reverse mortgage can seem like a great idea — especially given all the star-studded ads for them floating around prime-time TV.

And in some cases, a reverse mortgage can be a helpful financial tool to turn much of your home equity into spendable cash, but there are downsides to consider, too.

In this article, we’ll walk through the pros and cons a homeowner would be smart to weigh in order to make an informed decision about the most popular kind of reverse mortgage: the federally insured home equity conversion mortgage (HECM).

Reverse Mortgages 101

Here are the basics of how reverse mortgages work.

A reverse mortgage is a loan offered to people who are 62 or older and own their principal residence outright or have paid off a significant amount of their mortgage. You usually need to have at least 50% equity in your home, and typically can borrow up to 80% of the equity, based on the home’s appraised value.

The lender uses your home as collateral in order to offer you the loan, although you retain the title. The loan and interest do not have to be repaid until the last surviving borrower moves out permanently or dies. A nonborrowing spouse may be able to remain in the home after the borrower moves into a health care facility for more than 12 consecutive months or dies.

Fees and interest on the loan mean that over time, the loan balance increases and home equity decreases.

Pros of Reverse Mortgages

A reverse mortgage offers seniors the opportunity to turn what may be their largest asset — their home — into spendable cash. There are a variety of ways in which this can be attractive.

Securing Retirement

Many seniors find themselves with a decent amount of their net worth rolled up in their home but without many income streams. A reverse mortgage is a relatively accessible way to cover living expenses in retirement.

Paying Off the Existing Home Loan

While you have to have some of your home loan paid down in order to qualify for a reverse mortgage, any remaining mortgage balance is paid off with reverse mortgage proceeds.

No Need to Move

Those who take out reverse mortgages are allowed to remain in their homes and keep the title to their home the entire time. For established seniors who aren’t eager to pick up and move somewhere new — or downsize — to lower expenses, this feature can be a godsend.

No Tax Liability

While most forms of retirement funding, like money from a traditional 401(k) or IRA, are considered income by the IRS, and are thus taxable, money you receive from a reverse mortgage is considered a loan advance, which means it’s not.

Heirs Have Options

Heirs can sell the home, buy the home, or turn the home over to the lender. If they choose to keep the home, under HECM rules, they will have to either repay the full loan balance or 95% of the home’s appraised value, whichever is less.

Thanks to FHA backing, if the home ends up being worth less than the remaining balance, heirs are not required to pay back the difference, though they’d lose the house unless they chose to pay off the reverse mortgage or refinance the home.

Cons of Reverse Mortgages

As attractive as all of that may sound, reverse mortgages carry risks — some of which are pretty serious.

Heirs Could Inherit a Loss

While heirs may not be forced to pay the shortfall of an upside-down reverse mortgage, inheriting a home in that scenario could come as an unpleasant surprise. Keeping a home in the family is an accessible way to build generational wealth and ensure that heirs have a home base for the future, so the potential for them to lose — or have to refinance — the house can be painful.

Losing Your Home to Foreclosure

Unfortunately, losing your house with a reverse mortgage is a possibility. You’ll still be required to pay property taxes, any HOA fees, homeowners insurance, and for all repairs, along with your regular living expenses, and if you can’t, even with the reverse mortgage proceeds, the house can go into foreclosure.

Reverse Mortgages Are Complicated

As you probably realize this far into an article explaining the pros and cons of reverse mortgages, these loans aren’t exactly simple — and even if you understand the basics, there may be caveats or exceptions written into the documentation.

Before applying for an HECM, you must meet with a counselor from a HUD-approved housing counseling agency. The counselor is required to explain the loan’s costs and options to an HECM, such as nonprofit programs, or a single-purpose reverse mortgage (whose proceeds fund a single, lender-approved purpose) or proprietary reverse mortgages (private loans, whose proceeds can be used for any purpose).

Impacts on Other Retirement Benefits

Although your reverse mortgage “income” stream isn’t taxable, it may affect Medicaid or Supplemental Security Income benefits, because those are needs-based programs. (Proceeds do not affect Social Security or Medicare, non-means-tested programs.)

Costs of Reverse Mortgages

Like just about every other loan product out there, reverse mortgages come at a cost. You’ll pay:

•   A lender origination fee

•   Closing costs

•   An initial and annual mortgage insurance premium charged by your lender and paid to the FHA, guaranteeing that you will receive your expected loan advances.

These can be rolled into the loan, but doing so will lower the amount of money you’ll get in the reverse mortgage.

Reverse Mortgage Requirements

Not everyone is eligible to take out a reverse mortgage. While specific requirements vary by lender, generally speaking, you must meet the following:

•   You must be 62 or older

•   You must own your home outright (or have paid down a considerable amount of your primary mortgage)

•   You must stay current on property expenses such as property taxes and homeowners insurance

•   You must pass eligibility screening, including a credit check and other financial qualifications

Is a Reverse Mortgage Right for You?

While everyone interested in a reverse mortgage needs to weigh the pros and cons for themselves, there are some instances when this type of loan might work well for you:

•   The value of your home has increased significantly over time. If you’ve built a lot of equity in your home, you probably have more wiggle room than others to take out a reverse mortgage and still have some equity left over for heirs.

•   You don’t plan to move. With the costs associated with initiating a reverse mortgage, it probably doesn’t make sense to take one out if you plan to leave your home in the next few years.

•   You’re able to comfortably afford the rest of your required living expenses. As discussed, if you fall delinquent on your homeowners insurance, flood insurance, HOA fees, or property taxes, you could lose your home to foreclosure under a reverse mortgage.

There are options to consider. They include a cash-out refinance, home equity loan, home equity line of credit, and downsizing to pocket cash.

The Takeaway

A reverse mortgage may be a way to turn your home equity into spendable cash if you’re a qualified senior, but there are important risks to consider before taking one out.

Reverse mortgages are just one of many different mortgage types out there — all of which can be useful under the right circumstances.

SoFi offers a range of tools for both potential and current homeowners, including a mortgage calculator tool and a home loan help center with details on everything from basic real estate terminology to housing market trends by city.

Additionally, check out the mortgage loan options through SoFi, including a cash-out refinance and a home equity loan. Please note, not all loan programs are available in all states.

It’s easy to find your rate and explore the options.

Photo credit: iStock/Prostock-Studio

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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.

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