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A reverse mortgage is a loan that allows homeowners to turn part of their home equity into cash. Available to people 62 and older, a reverse mortgage can be set up and paid out as a lump sum, a monthly payment, or a line of credit, which can then be used to fund home renovations, consolidate debt, pay off medical expenses, or simply improve one’s lifestyle.

While older Americans, particularly retiring baby boomers, have increasingly drawn on this financial tool, reverse mortgages aren’t for everyone. Find out how they work, their advantages and disadvantages, and alternatives you might consider instead.

How Does a Reverse Mortgage Work?

Usually when people refer to a reverse mortgage, they mean a federally insured home equity conversion mortgage (HECM). That being said, there are two other types of reverse mortgages (more on those below).

To qualify for an HECM, all owners of the home must be 62 or older and have paid off their home loan or have a considerable amount of equity. Borrowers must use the home as their primary residence or live in one of the units if the property is a two- to four-unit home. Certain condominium units and manufactured homes are also allowed. The borrower cannot have any delinquent federal debt. Plus, the following will be verified before approval:

•   Income, assets, monthly living expenses, and credit history

•   On-time payment of real estate taxes, plus hazard and flood insurance premiums, as applicable

The reverse mortgage amount you qualify for is determined based on the lesser of the appraised value or the HECM mortgage loan limit (the sales price for HECM to purchase), the age of the youngest borrower or the age of an eligible non-borrowing spouse, and current interest rates. Generally, the older you are and the more your home is worth, the higher your reverse mortgage amount could be, depending on other eligibility criteria.

The reverse mortgage loan and interest do not have to be repaid until the last surviving borrower dies, sells the house, or moves out permanently. In some cases, a non-borrowing spouse may be able to remain in the home.

Loan Costs

An HECM loan may include several charges and fees, such as:

•   Mortgage insurance premiums

◦   Upfront fee (2% of the home’s appraised value or the Federal Housing Administration (FHA) lending limit, whichever is less)

◦   Annual fee (0.5% of the outstanding loan balance)

•   Third-party charges (an appraisal fee, surveys, inspections, title search, title insurance, recording fees, and credit checks)

•   Origination fee (the greater of $2,500 or 2% of the first $200,000 of the home value, plus 1% of the amount over $200,000; the origination fee cap is $6,000)

•   Servicing fee (up to $30 per month if the loan interest rate is fixed or adjusted; if the interest rate can adjust monthly, up to $35 per month)

•   Interest

Your lender can let you know which of the above fees are mandatory. Many of the costs can be paid out of the loan proceeds, meaning you wouldn’t have to pay them out of pocket. However, financing the loan costs reduces how much money will be available for your needs.

The servicing fee noted above is a cost you could incur from the lender or agent who services the loan and verifies that real estate taxes and hazard insurance premiums are kept current, sends you account statements, and disburses loan proceeds to you.

💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

What Is the Most Common Kind of Reverse Mortgage?

The most common type of reverse mortgage is the HECM, or home equity conversion mortgage, which can also be used later in life to help fund long-term care. HECM reverse mortgages are made by private lenders but are governed by rules set by the Department of Housing and Urban Development (HUD). The current loan limit is $1,089,300.

To qualify for this kind of reverse mortgage loan, you must meet with an HECM counselor, which you can find through the HUD site. When you meet with the counselor, they may cover eligibility requirements, potential financial ramifications of the loan and when the loan would need to be paid back, including circumstances under which the outstanding amount would become immediately due and payable. The counselor may also share alternatives.

The reverse mortgage loan generally needs to be paid back if the borrower moves to another home for a majority of the year or to a long-term care facility for more than 12 consecutive months, and if no other borrower is listed on the loan.

However, a new HUD policy offers protections to a non-borrowing spouse when a partner moves into long-term care. The non-borrowing spouse may remain in the home as long as they continue to occupy the home as a principal residence, are still married, and were married at the time the reverse mortgage was issued to the spouse listed on the reverse mortgage.

In 2021, HUD also removed the major remaining impediment to a non-borrowing spouse who wanted to stay in the home after the borrower’s death. Now they will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often meant a probate filing and had forced many spouses into foreclosure.

Two Other Types of Reverse Mortgages

The information provided so far answers the questions “What is a reverse mortgage?” and “How do reverse mortgages work?” for HECMs, but there are also two other kinds: the single-purpose reverse mortgage and the proprietary reverse mortgage.

Here’s more information about each of them.

Single-Purpose Reverse Mortgage

This loan is offered by state and local governments and nonprofit agencies. It’s the least expensive option, but the lender determines how the funds can be used. For example, the loan might be approved to catch up on property taxes or to make necessary home repairs.

Check with the organization giving the loan for specifics about costs, as they can vary.

Proprietary Reverse Mortgage

If a home is appraised at a value that exceeds the maximum for an HECM ($1,089,300), a homeowner could pursue a proprietary reverse mortgage.

Counseling may be required before obtaining one of these loans, and a counselor can help a homeowner decide between an HECM and a proprietary loan.

Typically, proprietary reverse mortgages can only be cashed out in a lump sum. The costs can be substantial and interest rates higher. This type of reverse mortgage, unlike an HECM, is not federally insured, so lenders tend to approve a lower percentage of the home’s value than they would with an HECM.

One cost a borrower wouldn’t have to pay with a proprietary mortgage: upfront mortgage insurance or the monthly premiums. In some cases, the costs associated with this type of mortgage may cause a homeowner to decide to sell the home and buy a new one.

💡 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.

Pros and Cons of Reverse Mortgages

Reverse Mortgages: Pros and Cons

Pros	Cons
•   No monthly payments •   Flexibility on how you get money •   Can pay back the loan whenever you want •   The money counts as a loan, not as income •   An HECM can be used to buy a new primary residence	•   Rates can be higher than traditional mortgage rates •   Generally requires reducing your home equity •   Must keep up with property taxes, insurance, repairs and any association dues •   Interest accrued isn’t deductible until it’s actually paid

If you’re nearing retirement, it’s easy to see why reverse mortgages are appealing. Here are some of their pros:

•   Unlike most loans, you don’t have to make any monthly payments. The HECM loan can be used for anything, whether that’s debt, health care, daily expenses, or buying a vacation home (although this is not true for the single-purpose variety).

•   How you get the money from an HECM is flexible. You can choose whether to get a lump sum, monthly disbursement, line of credit or some combination of the three.

•   You can pay back the loan whenever you want, even if that means waiting until you’re ready to sell the house. If the home is sold for less than the amount owed on the mortgage, borrowers may not have to pay back more than 95% of the home’s appraised value because the mortgage insurance paid on the loan covers the remainder.

•   The money from a reverse mortgage counts as a loan, not as income. As a result, payments are not subject to income tax. Social Security and Medicare also are not affected.

•   An HECM can be used to buy a new primary residence. You’d make a down payment and then finance the rest of the purchase with the reverse mortgage.

Then again, here are some cons of reverse mortgages to consider:

•   Reverse mortgage interest rates can be higher than traditional mortgage rates. The added cost of mortgage insurance also applies, and, like most mortgage loans, there are origination and third-party fees you will be responsible for paying, as described above.

•   Taking out a reverse mortgage generally means reducing the equity in your home. That can mean leaving less for those who might inherit your house.

•   You’ll need to keep up property taxes and insurance, repairs, and any association dues. If you don’t pay insurance or taxes, or if you let your home go into disrepair, you risk defaulting on the reverse mortgage, which means the outstanding balance could be called as immediately “due and payable.”

•   Interest accrued on a reverse mortgage isn’t deductible until it’s actually paid (usually when the loan is paid off). And a deduction of mortgage interest may be limited.

Alternatives to Reverse Mortgages

A reverse mortgage payout depends on the borrower’s age, the value of their home, the mortgage interest rate and loan fees, as well as whether they choose a lump sum, line of credit, monthly payment, or a combination of those options.

If the payout will not provide financial stability that allows an individual to age in place, there are other ways to tap into cash, including:

Cash-out refi: If you meet credit and income requirements, you may be able to borrow up to 80% of your home’s value with a cash-out refinance of an existing mortgage. Closing costs are involved, but this product lets you turn home equity into cash and possibly lock in a lower interest rate.

Personal loan: A personal loan could provide a lump sum without diminishing the equity in your home. This kind of loan does not use your home as collateral. It’s generally a loan for shorter-term purposes.

Home equity line of credit (HELOC): A HELOC, based in part on your home equity, provides access to cash in case you need it but requires interest payments only on the money you actually borrow. Sometimes a lender will waive or reduce closing costs if you keep the line open for at least three years. HELOCs usually have a variable interest rate.

💡 Recommended: What Are Home Equity Lines of Credit (HELOC)?

Home equity loan: A fixed-rate home equity loan allows you to borrow a lump sum based on your home’s market value, minus any existing mortgages. You make a monthly principal and interest payment each month. Again, lenders may reduce or waive closing costs if you keep the loan for, usually, at least three years.

The Takeaway

A reverse mortgage may make sense for some older people who need to supplement their cash flow. But many factors must be considered, including the youngest homeowner’s age, home value, equity, loan rate and costs, heirs, and payout type. As homeowners are weighing the pros and cons, remember there are other options.

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 Mortgages: simple, smart, and so affordable.

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

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

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

SoFi 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.

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When homebuyers take out a conventional mortgage but don’t have a 20% down payment, they will likely need to get private mortgage insurance. PMI is usually required when the down payment is less than 20% of the home’s value.

In some situations, a lender may arrange for PMI coverage. It then becomes known as lender-paid mortgage insurance. For some homebuyers, LPMI can work in their favor. But for others, having a lender secure private mortgage insurance can end up costing them.

Read on to learn more about LPMI and the pros and cons for homebuyers.

How Does Lender-Paid Mortgage Insurance Work?

Unless 20% or more of a home’s value is paid upon closing, homebuyers can typically expect to be required to purchase private mortgage insurance, or PMI.

While government-back loans tend to have their own insurance programs (for instance, most FHA loans require a mortgage insurance premium for 11 years or the life of the loan), most loans not provided by the government with a loan-to-value ratio higher than 80% require PMI to protect the lender in case of default.

PMI is typically purchased in one of four ways, and it’s a home-buying cost you’ll want to budget for. PMI can be paid:

•   Along with monthly mortgage and insurance payments

•   In one annual premium

•   With one large payment and corresponding monthly payments

•   By the mortgage lender in a LPMI policy

While it may seem that the last option, LPMI, eliminates a task on a homebuyer’s to-do list, there is some fine print to be aware of.

Having LPMI for a loan doesn’t mean the cost is absorbed by the lender. A homebuyer will still pay for the coverage in one of two ways:

•   A one-time payment due at the beginning of a loan.

•   A slightly higher interest rate — usually 0.25% — which increases the monthly mortgage payment. This is the more common arrangement of the two.

So while many homebuyers accept an LPMI arrangement in hopes of saving money, that isn’t automatically the case. Sometimes LPMI is more about convenience than savings.

In fact, unless they’re paying a one-time lump sum, homebuyers could end up spending more for LPMI over the life of their loan than if they had chosen a traditional PMI route. That’s a potential home-buying mistake you’ll want to avoid.

LPMI might be a good choice for a homebuyer planning to keep the mortgage for five to 10 years or stay in the home. It usually takes 11 years to build enough equity to cancel a borrower-paid PMI policy.

💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*

A Pro of LPMI

Before a homeowner writes off lender-paid mortgage insurance altogether, it’s best to look at a potential benefit the arrangement offers over traditional monthly mortgage insurance.

More Affordable Monthly Payment

With LPMI, the monthly payment could be more affordable because the cost is spread out over the entire loan term rather than bunched into the first several years.

Here’s an example. If Sarah buys a home with a 10% down payment and it takes her 10 years to get the loan-to-value ratio down to 78% (a lender automatically drops PMI payments at this percentage if the borrower is in good standing), those 10 years of payments could all include several hundred dollars in addition to her premium and interest payments.

While LPMI may not save Sarah money overall, she may have smaller monthly payments because the additional payments for coverage are stretched out equally over the entire life of her loan rather than the start.

Recommended: How to Get a Mortgage in 2023

… and Potential Cons

In the right situation, LPMI can make sense. But there are potential downsides homebuyers should know about as well.

Rate Never Drops

While having mortgage insurance stretched out over the life of a loan can save some homebuyers money, it can cost others. The higher interest rate — as mentioned, a 0.25% rate increase is common — will never drop, even once the loan balance is less than 80% of a home’s purchase price.

LPMI can end up costing homebuyers more than if they had bought PMI on their own. Much depends on how long the borrower expects to hold the mortgage.

Refi Costs

Some homebuyers navigate toward LPMI because of the initial savings and hope they can refinance in the future.

While this may be a possibility, they must consider the sizable out-of-pocket costs that go along with refinancing, and that refi rates may be higher in the coming years.

No Itemizing

LPMI can’t be itemized if you deduct mortgage interest at tax time.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.

PMI vs LPMI

There are several numbers to take into consideration when choosing between traditional PMI and LPMI, including:

•   the down payment

•   remaining mortgage

•   interest rate (for LPMI, a 0.25% rate increase is common)

•   average mortgage insurance rate (PMI is typically 0.5% to 1.5% of the loan amount per year)

•   anticipated life of the mortgage loan

•   monthly budget.

A borrower may want to not only consider the monthly payment but also the lifetime loan costs.

The difference between PMI and LPMI is different for every homeowner and situation. Taking the time to crunch the numbers is the only way to fully understand the pros and cons of each option.

LPMI Alternatives

LPMI isn’t always the clear winner when choosing between mortgage insurance options. There are alternatives to consider.

Put More Down

A down payment of at least 20% will eliminate the need for PMI entirely. There are several other benefits that go along with larger down payments as well, such as a better loan rate, making this a great option for those who can afford it.

Shop Around

One main disadvantage of LPMI is that the homeowner has little to no control over the price and provider. So when homeowners are responsible for their own PMI, shopping around for the best price becomes an option.

Piggyback Mortgage

A piggyback mortgage makes it possible to avoid PMI with a combination of loans.

It’s important to understand the pros and cons of a piggyback mortgage before deciding on one as an alternative to LPMI to avoid potential financial pitfalls.

Recommended: Second Mortgage Explained: How It Works, Types, Pros, Cons

The Takeaway

If mortgage insurance is necessary to secure a loan, understanding all the options is the first step any house hunter should take. This includes lender-paid mortgage insurance vs. PMI. While LPMI may serve as an overpriced convenience for some, it can be the financially smarter option for others.

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 Mortgages: simple, smart, and so affordable.

---

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

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

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

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

SoFi 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.

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Having a list of what you want in your dream house makes house hunting fun and exciting. But to be a smart homebuyer and get the most for your money, it’s important to focus on some of the more mundane, nuts-and-bolts aspects of a house as you tour.

That way, you won’t overlook flaws that will potentially be pricey to fix. While home inspections play an important role in making sure you don’t buy a money pit, you can do a bit of detective work yourself. Follow this guidance on what to look for when buying a house.

1. The Exterior

While you’re focusing on where you might put a basketball hoop or admiring the property’s beautiful trees, you’d be wise to take a look at these things to consider when buying a house as well.

Roof Damage

Your roof protects you and your possessions from sun, rain, and snow. And roof damage can quickly turn homeownership dreams into a pricey nightmare. To put a price tag on it, a new roof can run $10,000.

Check for obviously cracked or missing shingles. Look for signs of water damage on the ceilings inside, indicating that the roof isn’t keeping rain out. Later, since the roof is hard to see from the ground, you may want to have your home inspection professional take a closer look. You might also invest in a pro roof evaluation to determine how many years the roof has before it needs to be replaced.

You can also avoid future problems by eyeballing the gutters. Are there telltale depressions, muddy spots, or rust stains outside the house which might indicate gutters are leaking?

Siding Issues

Be on the lookout for cracked or warped siding, or for blisters or bubbles that have formed underneath, which can indicate hidden water damage. Siding’s job is to prevent water from entering the house, so water stains on the inside could also signal siding issues.

Bad Foundation

Obvious cracks in the foundation or exterior walls are a warning sign, but pay attention when you step inside the house as well. Signs a foundation might be faulty include: floors that slope, crack, or sink; cabinets that are pulled away from the wall; interior cracks; and doors that stick.

Yard Problems

Most yard issues can be fixed with a little landscaping muscle, but drainage issues can be more costly to resolve. Look for standing water or soggy, low-lying areas in the yard, signs that the space has drainage problems that can compromise the foundation or cause mosquitoes to invade.

💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

2. The HVAC

You’ll want to find out how the home is heated and cooled, and if possible, learn as much as you can about the annual or monthly cost. Then look for these red flags.

Damaged A/C Unit or Furnace

When touring with your real estate agent, ask the agent to turn on the heating and air conditioning system. Listen for any loud noises. Watch for water around the unit itself, a sign of possible drain line or refrigerant problems.

Broken Thermostat

Locate the thermostat and confirm that it appears to be receiving power. If the heat or air cycles on and off in brief cycles while you are touring the home, there may be a thermostat or power issue.

3. The Plumbing

Problems related to water are one of the most important things to look for when buying a house. Be aware of these issues:

Strong Smells (Good or Bad)

As you walk through a potential home, give it a good sniff. Your nose might know if mold or a damp basement is present. If you notice air fresheners or potpourri, don’t assume the homeowner is just a big fan of floral scents. Scents could be a sign that a plumbing issue, water drainage problem, or basement leak will siphon away a lot of your hard-earned cash. Buying a house out of state? Ask your real estate agent to sniff around for you, but plan on visiting in person once you have narrowed the field.

Recommended: Housing Market Trends By Location

Water Spots and Stains

Look at the ceilings and walls, especially those adjacent to bathrooms, for hints of water seeping in. Do you smell fresh paint? It might be covering up mildew. Ask the seller’s real estate agent if any new color is covering up any old mold or possibly water-damaged walls or ceilings.

Rusty or Corroded Pipes

Poke around the basement as well as under and behind bathroom and kitchen fixtures. Look for rust stains in sink basins, or blue stains under pipes, which may be a sign of corrosion.

Low Water Pressure

Ask the real estate agent if you can run the water in the kitchen and bathrooms, then run the sink and shower simultaneously. You’re doing an informal check for low water pressure. If the water is coming from a well on the property, taste it. While unpleasant flavor or odor in well water isn’t always a sign of problems, you’ll want to be aware of it before buying, and you’ll also want to have well water tested for contaminants by a professional during a home inspection. Most well water issues can be fixed, but it would be important to factor the costs into any offer you might make.

Slow Drainage

While the water is running, check that it is also draining properly.

Recommended: What Are the Most Common Home Repair Costs?

4. The Electrical System

Particularly in an older home, you’ll want to have the electrical system evaluated as part of the home inspection. Here are some things you can look for before that stage.

Small Electrical Panel

Ask the real estate agent to show you the panel where the electrical service comes into the home. There is usually a number on it to indicate the number of amps the home has. (Ask the agent if you don’t see it.) An older single-family home, especially, may not have adequate service. To power a small home without electric heating, 100 amps could be sufficient. But 200 amps is the standard for newer homes and updated ones. And even that may not be enough power for an electric heating system, depending on the size of the house. If you plan to add electric heat, a home workshop, or do an addition, you’ll probably need 300-amp service. The cost to upgrade the panel can range from $1,300 to $3,000.

While you are at the panel, look for signs of rust or rodents. Are circuit breakers corroded? If you see visible wiring, is it free from cracks or other damage?

Inadequate Outlets

Outlets in the kitchen or bath that are likely to be exposed to water should be ground fault circuit interrupter (GFCI) protected. (Look for “test” and “reset” buttons in the middle of the outlet.) Plugs that sit loosely in an outlet may indicate the outlets are old. Look for outlets with power strips or splitters plugged in, or with many electrical appliances crowded around them — all signs that the home doesn’t have adequate outlets for modern life.

5. The Functionality

Knowing whether a home would need costly upgrades, especially to the kitchen or baths, is important to your overall budget. If you’re in a hot real estate market and are likely to get into a bidding war, nailing down potential extra costs before you get into negotiations will be especially important.

Number of Bedrooms

Make sure the home has adequate sleeping space for your present needs, and don’t forget to think about the future (are kids in the plan?) as well as the occasional guest when you’re buying a house.

Kitchen Conditions

Kitchens are a big-ticket item, so survey the design and functionality of the kitchen, eyeballing the appliances and cabinetry especially. A major renovation, with new appliances, cabinets, and countertops, can run $14,000 to $40,000, according to home-improvement site Angi. To keep kitchen remodeling costs down, evaluate if the bones of a kitchen are good. Is there enough countertop space to do meal prep? Could you repaint or refinish the cabinets rather than rip them out?

Bathroom Basics

One homebuyer’s cute retro tile and toilet is another’s remodeling nightmare. And adding a bathroom or moving plumbing lines can get time-consuming and expensive. So check to see if the home has the right number of baths and think about how much work, if any, they might need to suit your style.

Whether your taste trends to luxurious rainfall showers or you’re happy with fixtures from the local home center, it’s unlikely to be a low-budget endeavor to redo a bathroom that’s dated or worn. The average bath remodel can cost approximately $11,000 before special fixtures or features.

The price tag heads farther north if you are planning to add a bath. Moving plumbing lines around a structure can get quite time-consuming and expensive. You’ll need permits, and ratcheting up the number of baths can also send your property taxes soaring. Home-improvement shows may make bathroom remodels and additions seem like no big deal, but it could actually wind up being a major endeavor.

Stairs

You probably already know whether a relaxed, one-floor ranch or a tall townhouse suits your style. But while you are touring a home, think about the number of stairs and how you might use the space in the house as you live there. Are the washer and dryer two flights down from the bedrooms, where most of the laundry originates? Is the main bedroom a flight below what would be the baby’s room?

Hardwood or Carpet?

You might tour a home that is fully carpeted and picture in your mind’s eye the gleaming hardwood floors you would reveal in a renovation. Don’t assume that hardwood hides under all carpets. Homes built in the 1950s and after may have carpet over plywood. Ask the real estate agent what is underneath the carpeting.

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

6. The Aesthetic

Creating your homebuying wish list can help you zero in on the things that are important to you in a new home.

Views

There are as many ideal vistas as there are homebuyers, but as you look at a home’s views, think about the seasons. If trees lose their leaves, will the neighbor’s messy backyard be front and center? Especially in urban areas, think about who owns adjoining properties, what might be built there in the future, and how that could affect the view.

Natural Light

Take note of a home’s windows, and especially whether natural light is abundant in the rooms where you will spend the most time. You might love lots of natural light, but in the summer, it can mean high air-conditioning costs. Take window coverings into consideration in your budget.

Water Access

A water view or water access might be a priority for you. Normally, water views are a good thing — picturesque and calming. But in this era of “crazy weather,” a tranquil bay or babbling creek could soon swamp your home. According to a report by the National Oceanic and Atmospheric Administration, rising sea levels are accelerating instances of flooding.

So before you feel as if you’ve got to have a home that’s near a body of water, do your due diligence. Check the home’s flood factor; also find out if your lender would require flood insurance (which typically costs $700 a year but can go much higher) in addition to homeowners insurance before approving a loan.

Recommended: How Much of a House Can I Afford?

Noise

You’ll want to listen as well as look when you tour a property. Can you hear the sound of cars on the nearby road? How heavy is the traffic? Is the house near a train track or an airport, which could mean low-flying planes? In an urban setting, who are your neighbors? A bar or concert venue could mean late-night noise.

Essential Questions to Ask When Buying a House

Most real estate agents will offer some basic information about a house right upfront. By law, they are required to disclose the possible presence of lead hazards if a residence was built prior to 1978; some states also require disclosure of asbestos. Ask these questions to dig a little deeper. If there are already multiple offers on a house, you’ll want to choose priorities from this list — asking too many questions could work against you if you decide to throw your hat in the ring.

•   How old is the heating and air-conditioning system?

•   When was the water heater last replaced?

•   How old is the roof?

•   If there is a septic system, when was the tank last replaced or inspected?

•   What is the water source? Does the home have city water or rely on a well?

•   Does the home have any history of flooding or mold?

•   Is the seller aware of any materials containing asbestos on the property?

•   What comes with the house? (Sellers sometimes remove fixtures, appliances, sheds, or play equipment so don’t rely on things being left behind.)

•   Has the owner made any major improvements in the home since the last property tax assessment? (This could result in a tax hike on the next assessment.)

•   What do you know about the neighbors?

•   Are there any easements on the property? (For example, if power lines cross the property the local electrical supplier may have an easement which allows them to prune or remove trees.)

•   Is there a homeowners association? If so, what are the annual fees?

•   When touring a co-op or condominium, ask whether there are any special assessments currently in place or being discussed.

Becoming a Homeowner

Whether you’re a first-time homebuyer or a home-buying pro, you’ll want to be careful and comprehensive when buying a house. Keeping your eye out for potential problems can save you from falling in love with the wrong house.

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 Mortgages: simple, smart, and so affordable.

FAQ

What are the five most important things to look for in a new home?

Make sure the home’s size, floor plan, and general aesthetic suit your lifestyle and budget. Then consider the amount of work a home might need and whether there are big-ticket needs such as a bad roof or foundation, or a kitchen or bathroom that require remodeling. Factor these into your overall budget.

What should you look for in an initial walk-through of a new home?

Don’t just look at a home: Use all your senses. Listen for dripping water or traffic noises. Sniff the air — does it smell musty or moldy? Feel the floor underneath you. Does it slope or squeak? And listen to your gut as you will likely feel quickly whether a home is right for you.

What are must-haves when buying a new home?

Must-haves are unique to every buyer. For one person, a great view is essential while another may require a certain school district. The important thing is to talk about these early in your home search, and revisit the list as you begin to see properties.

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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.

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

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

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

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

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