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Whether shopping for a home or an investment property, buyers may come across multifamily homes.The first need-to-know, especially for financing’s sake, is that multifamily properties with two to four units are generally considered residential buildings, and those with five or more units, commercial.

Let’s look at whether multifamily homes are a good idea for homebuyers or investors.

What Is a Multifamily Home?

Put simply, a multifamily home is in a building that can accommodate more than one family in separate living spaces. Each unit usually has its own bathroom, kitchen, utility meter, entrance, and legal address.

Of the more than 100 million Americans who rent, around two-thirds live in multifamily homes.

Among the different house types are duplexes, which contain two dwelling units, while a triplex and quadruplex consist of three and four units, respectively. A high-rise apartment building is considered a multifamily property.

What about ADUs? A home with an accessory dwelling unit — a private living space within the home or on the same property — might be classified as a one-unit property with an accessory unit, not a two-family property, if the ADU does not have its own utilities and provides living space to a family member.

Multifamily Homes vs Single-Family Homes

On the surface, the differences in property types may seem as straightforward as the number of residential units. But there are other considerations to factor in when comparing single-family vs. multifamily homes as a homebuyer or investor.

Unless you plan to hire a manager, owning a property requires considerable time and work. With either type of property, it’s important to think about how much time you’re able to commit to handling repairs and dealing with tenants.

If you’re weighing your options, here’s what you need to know about single-family and multifamily homes.

Multifamily Homes	Single-Family Homes
Comprise about 27% of U.S. housing stock.	Represent around 67% of U.S. housing stock.
Can be more difficult to sell due to higher average cost and smaller market share.	Bigger pool of potential buyers when you’re ready to sell.
Higher tenant turnover and vacancy can increase costs.	Often cheaper to purchase, but higher cost per unit than multifamily.
More potential for cash flow and rental income with multiple units.	Less cash flow if renting out, generally speaking.
Usually more expensive to buy, but lower purchase cost per unit.	More space and privacy.
Small multifamily homes (2-4 units) may be eligible for traditional financing; 5+ units generally require a commercial real estate loan.	Greater range of financing options, including government and conventional loans.

Pros and Cons of Multifamily Homes

There are a number of reasons to buy a multifamily home: Rental income and portfolio expansion are two.

Buying real estate is one ticket to building generational wealth. But there are also downsides to be aware of, especially if you plan to purchase a multifamily home as your own residence.

So what are multifamily homes’ pros and cons? The benefits and drawbacks can depend on whether it’s an investment property or a personal residence.

As Investment

Investing in multifamily homes can come with challenges. Take financing.

A mortgage loan for an investment property tends to have a slightly higher interest rate, the qualification hurdles are higher, and a down payment of 20% or more is usually required, though there are ways to buy a multifamily property with no money down.

Government-backed residential loans don’t apply to non-owner-occupied property, but there is a commercial FHA (Federal Housing Administration) loan for the purchase or refinancing of apartment buildings with at least five units that do not need substantial rehabilitation. Another FHA loan program is for new construction or substantial rehabilitation of rental or cooperative housing of at least five units for moderate-income families, elderly people, and people with disabilities. Yet another FHA loan pertains to residential care facilities. Upfront and annual mortgage insurance premiums (MIP) apply.

Before adding a multifamily home to your real estate portfolio, take note of the pros and cons of this investment strategy.

Pros of Investing in Multifamily Homes	Cons of Investing in Multifamily Homes
Reliable cash flow from multiple rental units.	Upfront expenses can be cost prohibitive for new investors.
Helpful for scaling a real estate portfolio more quickly.	Managing multiple units can be burdensome and may require hiring a property manager.
Opportunity for tax benefits, such as deductions for repairs and depreciation.	Property taxes and insurance rates can be high.
Often appreciates over time.

As Residence

Buyers can choose to purchase a multifamily home as their own residence. They will live in one of the units in an owner-occupied multifamily home, while renting out the others.

Owners can use rental income to offset the cost of the mortgage, property taxes, and homeowners insurance while building wealth.

Another advantage is financing. With a multifamily home of two to four units, an owner-occupant may qualify for an FHA, VA (U.S. Department of Veterans Affairs), or conventional loan and put nothing down for a VA loan or little down for a conventional or FHA loan. (It isn’t all hearts and flowers, though. Most VA loans require a one-time funding fee. FHA loans always come with MIP. And putting less than 20% down on a conventional loan for an owner-occupied property, short of a piggyback loan or lender-paid mortgage insurance, means paying private mortgage insurance).

What are multifamily homes’ pros and cons as residences?

Pros of Multifamily Homes as a Residence	Cons of Multifamily Homes as a Residence
Reduced cost of living frees up cash for other expenses, investments, or savings.	Vacancies can disrupt cash flow and require the owner to cover gaps in rent.
Self-managing the property lowers costs and can be more convenient when living onsite.	Being a landlord can be time-consuming and complicate relationships with tenant neighbors.
Potential for federal and state tax deductions.	Less privacy when sharing a backyard, driveway, or foyer with tenants.
Owner-occupied properties qualify for more attractive financing terms than investment properties.

It’s worth noting that an owner-occupant can move to a new residence later on and keep the multifamily home as an investment property. This strategy can help lower the barrier to entry for real estate investing, but keep in mind that loan terms may require at least one year of continued occupancy.

Recommended: Tips to Qualify for a Mortgage

Who Are Multifamily Homes Right For?

There are a variety of reasons homebuyers and investors might want a multifamily home.

Multifamily homes can be helpful for entering the real estate investment business or diversifying a larger portfolio. It’s important to either have the time commitment to be a landlord or to pay for a property manager.

For homebuyers in high-priced urban locations, multifamily homes may be more affordable than single-family homes, given the potential for rental income. It might be helpful to crunch some numbers with a mortgage payment calculator.

Multigenerational families who want to live together but maintain some privacy may favor buying a duplex or other type of multifamily home.

What to Look for When Buying a Multifamily Home

There are certain characteristics to factor in when shopping for a multifamily home.

First off, assess what you can realistically earn in rental income from each unit in comparison to your estimated mortgage payment, taxes, and maintenance costs. Besides what the current owner reports in rent, you can look at comparable rental listings in the neighborhood.

When looking at properties, location matters. Proximity to amenities, school rankings, and transportation access can affect a multifamily home’s rental value.

The rental market saturation is another important consideration. Buying a multifamily home in a fast-growing rental market means there are plenty of renters to keep prices up and units filled.

The vacancy rate — the percentage of time units are unoccupied during a given year — at a property or neighborhood is an effective way to estimate rental housing demand.

Depending on your financing, the condition of a multifamily home may be critical. With a VA or FHA loan, for instance, chipped paint or a faulty roof could be a dealbreaker.

Read up on mortgage basics to learn about what home loans you might use for a multifamily home and their terms.

Finding Multifamily Homes

Like single-family homes, multifamily homes are featured on multiple listing services and real estate websites. Browsing rental listings during your multifamily home search can help gauge the market in terms of vacancy rates and rental pricing.

Working with a buyer’s agent who specializes in multifamily homes can help narrow your search and home in on in-demand neighborhoods.

Alternatively, you can look into buying a foreclosed home. This may help get a deal, but it’s not uncommon for foreclosed properties to require renovations and investment.

The Takeaway

Buying a multifamily home as a residence or investment property can provide rental income and build wealth. It’s also a major financial decision. Whether you’re planning to be an owner-occupant or not will affect your financing, so seriously consider this option and run the numbers to see if you stand to recoup your costs — and ideally make a profit — from the building’s rental income.

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 is the difference between residential and multifamily?

Some multifamily homes — those with fewer than five units — are considered residential real estate. Larger properties with more than five units are commercial real estate.

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Photo credit: iStock/krzysiek73

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.

*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.


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.


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.

SOHL-Q224-1903424-V1

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Investing in a duplex can be a good idea if you can pony up the cost and don’t mind being a hands-on landlord. A key advantage is the ability to live in one of the units or rent both out.

If the purchase will be strictly a rental, duplexes offer the capacity to double your cash flow for less than the cost of two single-family homes. You also have the freedom to make half your home.

Buying a duplex for investment is a popular investment strategy used for breaking into real estate, and they’re in demand in every major city.

What Is a Duplex?

A duplex consists of two living units on top of each other or side by side, along with the land they are built upon.

Each unit has its own entrance and exit, kitchen, bedrooms, and bathrooms. The two units are conjoined by a wall or a floor/ceiling.

Regardless of their layout, the units share the same plot and deed, and are sold as a single property. Unlike a twin home (in which each housing unit sits on its own plot of land) a duplex has one owner.

A duplex is technically a multifamily property but qualifies — as does any building with up to four units — for the same kind of favorable financing that a single-family home does if you make the property your address.

The units may share the same utilities but otherwise operate as separate residences. This allows you to avoid doubling expenses over time when you need to replace a water heater, for instance.

Advantages of Investing in Duplexes

The advantage of buying a duplex, with the freedom to live in half and rent out the other (or not), speaks for itself.

There are other pros. Here are the major ones.

Cash Flow

Whether you’re trying to build or buy a duplex, a key advantage is the cash flow potential that comes from renting out both units.

Alternatively, you can live in one of the units, which will ultimately reduce the risk if the other half sits vacant for an extended period.

The rent from the other unit may cover part or all of your mortgage costs, depending on how much you put down on the property.

Financing If Owner-Occupied

Eligible duplex owner-occupants have financing choices:

•   FHA loans, backed by the Federal Housing Administration

•   VA loans, from the U.S. Department of Veteran Affairs

•   Conventional home mortgage loans

Each of those calls for a low down payment or none at all.

The government-insured loans can be used for properties with up to four units as long as the buyer plans to live in one of the units. FHA loans are favored by first-time homebuyers — those who have not owned a principal residence in the past three years — and buyers with lower credit scores.

For an FHA or VA loan, the owner is to live onsite for at least a year.

Investors who plan to rent out both units must use conventional mortgage loans. They should expect to put down at least 20%. The mortgage rate will likely run a bit higher than for a loan for an owner-occupied property.

A duplex buyer can often use both current passive income and projected rental income to qualify for an FHA or VA loan and conventional mortgage loan but not a VA-backed loan.

Faster Portfolio Building

Unlike starting with a detached single-family home and working your way up, buying a duplex lets you double the number of rentable units you own upfront for less than the cost of two single-family rental homes in most markets.

This cuts down on the amount of time you need to find suitable properties to purchase and the closing costs you need to pay.

Buying a duplex also will also contribute to your real estate portfolio diversification.

Tax Breaks

Owner-occupants may be able to deduct mortgage interest and property tax on their half.

If they have a renter, they may also be able to write off expenses for that half: repairs, insurance, any utility bills, advertising, management fees, and so on. And they can depreciate the rented half of the property. A tax advisor can help determine whether an owner qualifies for deductions.

Risk Mitigation

If you’re living in one of the units, you’re still getting some use out of the property if the other remains vacant. You can even bide your time if you need to make home improvements to the other unit.

Comparatively, if you own a single-family property that sits vacant, that’s cash every month out of your pocket that the home remains empty.

Additionally, lenders view the risk to be more diffused for duplexes, particularly if the owner’s living in one unit. From their perspective, it’s much less likely that borrowers would default on a duplex that serves as their primary residence than they would default on a comparable investment property.

Lower Overhead Cost

The same furnace, AC unit, and hot water heater may serve both units in a duplex. If that’s the case, you may only need to worry about maintaining a single set of utilities for both dwellings.

Disadvantages of Investing in Duplexes

Like all rental properties, the primary disadvantage of duplex is the risk that it remains vacant for an extended period of time, although the risk is mitigated if you’re living in the other unit.

Here are other possible downsides when investing in a duplex.

Possibly Cost Intensive

While it may be more efficient than buying two detached single-family homes, a duplex still might cost more than if you had bought a single stand-alone property.

You’ll have twice the number of kitchens and bathrooms to contend with, which will increase costs if you intend to renovate both units.

The cost of building a duplex may exceed the cost of building a house.

Finally, property insurance for a duplex is usually higher than for a single-family home.

Risk of Vacancies

If one or both of the units in your duplex remain vacant, the opportunity cost and negative impact on your bottom line as property manager could be enormous.

If the average person is spending a lot on rent, that’s either a great sum to put in your pocket or a terrible one to lose.

Make sure you properly research your target market. Just because you stumble on a duplex that looks great doesn’t necessarily mean it’ll rent from day one.

Proximity to Tenants

If you intend to live in one unit and rent the other out, the coziness with your tenants is a double-edged sword. On one hand, you’ll be able to monitor the coming and goings of your neighbor, but on the other, you’ll be right next door if any issues arise.

Where to Find Duplexes and How to Buy One

If a stream of rental income and capital appreciation sound good, it’s smart to start scoping out what’s on the market.

You also can seek prequalification and preapproval for financing.

Don’t expect an easy hunt, as serviceable duplexes in great locations are in demand. When you find one, expect competition, true of any good investment property.

Start by browsing online listings for duplex owners and filtering for properties with two units. It’s also a good idea to find a reputable real estate agent and specifically request to view duplex properties.

Time is of the essence when making offers. A preapproval letter can carry a lot of weight.

The Takeaway

Buying a duplex can be a smart move: You’re getting two potential rental streams under one roof, typically for less than the cost of two single-family homes. Financing is especially attractive if you plan to live onsite.

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 should I look for when investing in a duplex?

Make sure it’s legally zoned as a duplex. Know the neighborhood. See if the numbers would make sense by researching comparable rents and factoring in any repairs. Gauge noise transfer and privacy if you plan to live there and rent the other unit out.

How do I buy a duplex?

Know whether you plan to live at the property, which will affect your financing. Getting preapproved for a mortgage is a good idea. Look at prices in your area, scour online listings, and consider hiring a good buyer’s agent. In most markets, expect competition.

Is it profitable to own a duplex?

Because a duplex usually does not come with HOA fees and consists of two rentable units, it can be profitable. A duplex also might be more appealing to renters than apartments are. And maintaining a duplex costs less than managing two individual rental units.

Do duplexes increase in value?

They often do, but appreciation tends to be lower for duplexes than stand-alone single-family homes.

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Photo credit: iStock/aluxum

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.

*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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOHL-Q125-021

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“Mortgagor” is just another word for someone who is borrowing money from a mortgage lender (the “mortgagee”) to purchase real estate. It’s not every day that you see the term “mortgagor” and it doesn’t roll off the tongue easily. You might even think perhaps it’s misspelled. But when it comes to financial matters, half the battle is understanding the jargon. In this case, the good news is that even if you have never heard of a mortgagor, it’s just another word for being the borrower on a home loan.

The Function of a Mortgagor

The mortgage universe can be a bit complex and it’s helpful to understand the basics of mortgages. So let’s take a closer look at the mortgagor’s role. The mortgagor makes monthly payments to the mortgagee as specified in the loan agreement. The terms of a mortgage can vary widely. For example, depending on the applicant’s credit history, the interest rate may be higher or lower than the average.

A mortgagor may choose from different types of mortgage loans. Some loans have a fixed interest rate and a term of 30 years, though many lenders offer loan lengths of 20, 15, or 10 years. A fixed-rate mortgage has an interest rate that remains the same during the life of the loan. A variable-rate mortgage is one in which the interest rate moves up and down with the market.

The bottom line: Mortgagors must pay back the loan in a timely fashion. If not, mortgagees can force foreclosure of the home or other real estate — the collateral for the loan.


💡 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.

How a Mortgagor Gets a Mortgage Loan

A mortgagor applies to a mortgagee for a mortgage. Conventional mortgage loans are originated by private lenders like banks, credit unions, and mortgage companies. Certain private lenders also originate FHA, VA, and USDA loans; those loans are insured by the Federal Housing Administration, Department of Veterans Affairs, and U.S. Department of Agriculture. Government-backed loans are often easier to qualify for and may have more lenient terms and lower interest rates.

No matter what kind of mortgage loan you seek, expect to jump through some hoops and produce much documentation to prove you are creditworthy and have the means to pay back what you borrow. A prospective lender will do a hard credit inquiry into your credit scores and credit history. So it’s helpful to understand what makes up your credit scores. Important factors include your credit history, how long you’ve had your lines of credit open, your payment history, and debt-to-income ratio, which is the total amount of your monthly debt payments divided by your gross monthly income. If your debt-to-income ratio is high, that may be a no-go in the eyes of a lender, who may see you as tapped out with no real wiggle room to take on a mortgage.

To purchase a home, buyers often take on a mortgage loan for the price minus any money they put forth as a down payment. While you may be able to get an FHA loan with 3.5% down, or a VA loan with no down payment at all, the median down payment is around 13% of the value of the home.

Contractual Obligations of Mortgagors

A deal is a deal is a legally binding deal. Once the ink dries on that mortgage, you’re locked into your commitment to pay as you said you would. If you veer off course, you’re at risk of losing the home, as there is a lien on the real property as collateral for the loan. At the very least, late or missed payments will cause your credit score to dip, which could be problematic the next time you need to show your credit score, be it for a car loan or maybe even to a potential employer.

Equity of Redemption

If this phrase sounds important, it is. You’ll be thankful for it if you have gotten behind on your mortgage. Equity of redemption, also called right of redemption, will give you a chance to get caught up and keep your home before a foreclosure sale.

When you miss payments, the mortgagee can start the foreclosure process. The lender can take back the house and sell it at auction to pay off the debts. If this process has begun, you may be able to redeem the mortgage using equity of redemption. Understand that you’ll need to come up with the money to pay off the principal, interest, and expenses under equity of redemption. Realistically, if you’re in financial trouble, a funding source to pay off the loan is unlikely.

Some states have a law that gives mortgagors the right to redeem the home for a period of time after the foreclosure sale. With the statutory right of redemption, usually the borrower must pay the bid price, plus interest and fees, to the buyer of the property at the foreclosure sale.

Rights of Mortgagors

While it doesn’t have to be a battle royal, when it comes to mortgagee vs. mortgagor, the mortgagee holds the keys to the kingdom. The lender puts up the money, and if the borrower can’t make the mortgage payments, the lender has the right to take the house. That’s not to say you are without a few good things in your back pocket, like the aforementioned rights of redemption. You can also ask that your mortgage be transferred to a third party, but only if the mortgagee is not in possession of the property.


💡 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.

Mortgagors vs Mortgagees

To lessen any confusion, here’s a quick look at who does what.

Mortgagor	Mortgagee
Makes monthly payments	Receives payments
Meet all terms of the mortgage	Sets loan terms, including length of loan, payment due dates, and interest rate, and communicates them clearly
When the loan is paid in full, gets the deed	Can seize property if mortgagor stops paying

The Takeaway

Understanding the lingo can help you be more confident as you embark on your homebuying journey. Do your research, pull together your financial documents, find a home you love and soon you, too, could become a mortgagor.

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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Photo credit: iStock/fizkes

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.

*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.

SOHL0124018

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There are a lot of myths about buying a house: that you need at least a 20% down payment, perfect credit (or close to it), and a specific income level.

But the truth is, you don’t need a particular down payment amount, salary, or a credit score over 700 to become a homeowner. What you do need is insight into the process, preparation, and a game plan.

To help you move ahead with your home-owning dreams, read this guide. You’ll learn answers to these and other questions:

•   What are the requirements to buy a house?

•   How much of a down payment do you need to buy a house?

•   What credit score do you need to buy a house?

•   What documents are needed to buy a home?

8 Requirements to Buy a House

Here’s the scoop on the items you need to line up in order to buy a home. Consider this your checklist to achieving that dream; it can be an especially valuable first-time homebuyer guide:

1. Credit

Your credit score is one of the primary factors lenders will consider when reviewing your mortgage application. It helps a lender evaluate how well you have managed debt and made timely payments in the past.

Being aware of your current score might help you understand what loan programs you may be eligible for.

So what credit score is needed to buy a house, given the possible range of scores from 300 to 850?

•   If you’re aiming for a conventional (nongovernment) loan, you’ll likely need a credit score of at least 620. However, most homebuyers have a score that’s higher than that, and if you have a brag-worthy credit score (say, 740 or above), you may qualify for better loan terms.

•   But what if your score is not so lofty? Don’t fret — you’re not alone. In fact, more than one in 10 buyers in the home market are concerned about an insufficient credit score, according to an April 2024 SoFi survey of 500 people. For a government-backed loan (these include FHA, VA, and USDA loans), you may be able to qualify with a credit score in the 500s. For an FHA loan, 580 is the minimum score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 must put down 10%. Lenders may require a minimum score of 580 for a VA loan; and for a USDA loan, 640.

The government offers periodic free credit reports so consumers can review their credit history, but the reports do not give a credit score. However, seeing your credit report can allow you to recognize and remedy any errors or delinquent accounts.

You can monitor your credit score with a paid service as well. You may find these third-party services are available for free from some banks and credit card issuers, and use one at no cost with this money tracker.

2. Debt-to-Income (DTI) Ratio

Your debt-to-income ratio, or DTI, matters when determining the mortgage amount and the type of loan program you qualify for.

The DTI ratio equates to your monthly minimum debt payments divided by your gross monthly income. To find it, you would add up your monthly payments towards an existing mortgage (or rent) and related expenses (say, property taxes and insurance), plus any credit card debt and student, car, or other loans. Then you would divide that by your monthly salary, before taxes and other deductions are taken out.

Mortgage lenders usually like to see a DTI ratio of 36% or less for conventional loans. However, some will accept up to 45% and possibly even 50%. There is some flexibility out there, but it may require a bit of shopping around if you have a relatively high DTI.

3. Proof of Income

Even if you have a stellar credit score, for the majority of loan programs, you still have to prove your income to the lender to gain loan approval. This helps the lender verify that you have the means to pay the mortgage back.

For mortgage preapproval, you’ll typically need to submit W-2s, your two most recent pay stubs, and your two most recent federal tax returns for the lender to verify your income. (Self-employed applicants will need to submit a year-to-date profit and loss statement and two years of records.)

If you are currently unemployed or have changed jobs recently, it’s wise to know that this may create a hurdle when seeking a mortgage. You might want to delay your home-buying plans until you have a more consistent employment record, or search for a lender that is less rigid in terms of this qualification.

4. Savings for a Down Payment and Closing Costs

As you think about how much house you can afford and consequently how much of a down payment you will need, you will likely want to run some numbers. You might start with a home affordability calculator to help you know your target range.

Now, about that down payment: Perhaps you’ve cobbled together a few thousand, but wonder about what is the average down payment on a house. Many people have heard you need at least 20% down, which can be an intimidatingly high number.

You can breathe a bit easier: Many homebuyers put 13% down — that’s $39,000 on a $300,000 home. Nothing to sneeze at. But 29% of would-be buyers in SoFi’s survey were planning to put down 10% or less — and 7% were exploring zero-down-payment financing options.

The more you can put down, the more likely it is that you could get a lower interest rate. In most cases, you’ll need a 20% down payment to avoid private mortgage insurance or a mortgage insurance premium.

Here’s a glimpse of loan types and down payments of each:

•   Conventional conforming loan. This is the most common type of home mortgage loan and typically has a minimum down payment requirement of 3%.

•   FHA loan. This loan, among a few kinds of government home loans, requires as little as 3.5% down for those who qualify.

•   VA loan. If you qualify for a VA loan, you can usually buy a home with no money down.

•   USDA loan. This income-restricted loan, geared toward rural properties, requires no down payment.

If you are a first-time homebuyer, you can also look into down payment assistance programs. (In the SoFi survey, among people who said having a down payment was their top homebuying concern, 49% had not explored these programs.) An online search for these programs from the Department of Housing and Urban Development (HUD), state and local housing authorities, nonprofits, and other organizations can help you reach your homeownership aspirations. They can offer grants and loans.

The other aspect of buying a house that may require cash: closing costs. These typically add up to between 3% and 6% of your loan. They include items like bank processing costs, title search, appraisal costs, and more. It’s worth noting that some lenders may offer credits toward closing costs; that can be something to keep in mind when you are searching for a lender.

5. Documentation

There are a couple more answers to “What do I need to buy a house?” When preparing to buy a home, you will likely need documents; a lot of documents, in fact. Assembling a file of what’s required can be an important step in getting organized. Here is some paperwork you may want to gather as you begin thinking about working with a mortgage lender:

•   Recent tax returns and W-2 forms as well as proof of other income

•   A letter from your employer verifying your employment

•   For those who are self-employed, a business tax returns and P&L statements

•   Recent bank account, brokerage account, and retirement account statements

•   Student loan, car loan, and credit card statements, to show how much debt you have

•   Titles to your assets, such as a current home or your car

•   A gift letter, if appropriate (a statement that, say, a family member gave you funds toward your down payment)

•   Photo ID

Yes, it can feel like a lot, but starting sooner rather than later and chipping away at the list can make it easier.

6. Preapproved Mortgage

Before you go home shopping, it can be wise to get a preapproval letter from a lender or a few lenders. You submit some credentials that share financial information, and the lender says that you likely qualify for a loan of a certain amount.

While not a guarantee of mortgage approval, this will give you insight into what kind of loan you qualify for. It can also show homeowners that you are a serious shopper who is ready to buy.

Recommended: Mortgage Preapproval vs. Prequalification

7. Mortgage Loan

When you find a property you love and work your way to an accepted offer and contract, you will probably be ready to apply for your mortgage. You will likely have to make decisions about the term of the mortgage (30 years is common, but shorter terms with higher monthly payments are possible, too), the rate (both the percent you’ll pay and whether you go with a fixed or adjustable rate), and other details.

When you submit your application, you will provide documentation of your financial qualifications. You will likely work your way through questions as your file goes through underwriting and you move toward your final approval and closing date. Getting a mortgage isn’t a slam dunk 100% of the time, and in fact in SoFi’s survey of home-shoppers, 11% of would-be homeowners said difficulty securing a mortgage was the biggest challenge they were facing. Here again, going through the mortgage preapproval process can help head problems off early on.

8. Real Estate Agent (Probably)

The vast majority of buyers use the services of a real estate agent or broker, according to the National Association of Realtors® (NAR). In 2022, 86% of homebuyers worked with one.

You can go it alone, but finding a real estate agent who is experienced and knowledgeable can be key to, well, getting you a new set of house keys.

Agents have access to the multiple listing service, which is a comprehensive list of homes for sale by a real estate agent or broker in your desired location.

A buyer’s agent can help you:

•   Build your wishlist and hunt for homes that fit your needs

•   Check out listings in person

•   Write offers and counteroffers, including putting an offer on a contingent house

•   Negotiate with the seller

•   Navigate the complexities of the purchase contract.

Using a real estate agent might also relieve some of the stress that comes with purchasing a home, especially when buying in a hot house market.

Dream Home Quiz

The Takeaway

What do you need to buy a house or condo? First, you’ll want to be on pretty solid financial footing, typically with a good credit score, income history, and DTI, as well as some money saved toward a down payment and closing costs. You may also want to have a good agent and the right documentation in your corner.

If, like many buyers, you are hunting for a mortgage, check out what SoFi Mortgage Loans can offer you. You’ll find competitive rates and access to a host of SoFi perks. Plus, first-time homebuyers who qualify can put as little as 3% down.

Let SoFi Mortgage Loans simplify your path to becoming a homeowner.

FAQ

What are the basic needs to buy a house?

To buy a house, you will likely need documentation of your finances, a reasonable credit score and debt-to-income ratio, a mortgage preapproval, and probably funds for a down payment and closing costs, as well as a real estate agent to help you manage the process. And you’ll need to find a house you can afford: In an April 2024 SoFi survey of 500 would-be homeowners, 42% said finding a home within their price range was the largest challenge they were facing.

How much money should you have before buying a house?

Lenders will likely want to see that you are financially stable and can afford the costs associated with owning a home. In terms of a down payment, the typical amount is 13% of the home’s price, but there are ways to buy a home with less or perhaps with no money down. A down payment of 20% or more will allow you to avoid paying for private mortgage insurance (PMI).

What credit score is good to buy a house?

The credit score needed to buy a house will vary, with 620 being the usual minimum for a conventional loan, though most buyers have a score of 650 or higher. Those with scores of 740 or higher will usually get the best loan terms. There are also programs to help those people with credit scores in the 500s become homeowners.

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

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

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

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


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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If you’re seeking home affordability, you may be looking at the cost to build a manufactured home. A new double-wide sold for an average of $156,300, according to the Manufactured Housing Survey conducted by the Census Bureau, whereas a new single-family home went for an average of $402,600 around the same time.

With such a gap, it’s easy to see the allure of manufactured homes. Yet the price of a manufactured home doesn’t tell the whole story. The land, site prep, any exterior additions, and financing all add to the cost to build a manufactured home.

If you want to take a serious look at what a manufactured home is really going to cost you, here’s what you should know, starting with what is a manufactured home. We’ll also cover the cost of manufactured homes by size, additional costs to consider when building a manufactured home, and how manufactured homes are financed.

What Is a Manufactured Home?

A manufactured home is built entirely in a factory and attached to a permanent chassis. Once construction is complete, it is moved to a lot of the owner’s choosing. The wheels are removed and the chassis is placed on a foundation; pier and beam is most common.

Assembly is completed by attaching the different sections, connecting utilities, adding any exterior elements, touching up the interior, and installing tie-downs.

Manufactured homes were called mobile homes before June 15, 1976, when the Department of Housing and Urban Development (HUD) building standards began. The HUD code regulates home design and construction, strength, durability, fire resistance, and energy efficiency.

Standard dimensions make manufactured homes easier to mass-produce in factories, resulting in quick construction timelines and lower costs.

Are these modular homes? No. Modular homes are also built in factories, but a modular home must meet the same building codes as a site-built home and has a permanent, standard foundation.

The Cost of Manufactured Homes by Size

Manufactured homes typically come in three sizes: single-wide, double-wide, and triple-wide. Each section is designed to fit down a highway, with the maximum width typically set at 16 feet. (Texas adds 2 feet, while North Dakota allows the width to exceed 16 feet in certain circumstances.) A single-wide runs 66 to 80 feet long.

Here’s what you can expect to pay for a new manufactured home as of late 2024, according to the U.S. Census Bureau and HUD’s Manufactured Housing Survey:

•   Single-wide. New single-wide homes usually range from 400 to 1,200 square feet and have an average price of $86,600.

•   Double-wide. Double-wide manufactured homes typically range from 1,000 to 2,000 square feet and average $156,300.

•   Triple-wide. With 2,000 to 3,000 square feet, these homes start at $200,000.

Anything smaller than 400 square feet may be considered a tiny house or a park model. Both are often classified as recreational vehicles, not meant for full-time living.

Additional Costs to Consider When Building a Manufactured Home

How much a manufactured home costs may look deceptively low. There may be costs beyond the sticker price, especially if you want to place the home on raw land and need a land loan.

In addition to the home, you might have to pay for utility connections, exterior additions, taxes, delivery, and setup.

You’ll also want to pay attention to rates and terms of loans you qualify for. Owning the land almost always opens the door to more attractive financing options.

Recommended: How Do Construction Loans Work?

Land Expenses

With a manufactured home, you have the option of renting or purchasing the lot.

•   Rent the lot: Expect a monthly rate of $100 to $1,000. This doesn’t include additional fees from the homeowners association.

•   Buy the lot: $0 to $1,000,000. Land costs depend on size and location; if you inherit land, you may have no cost at all. You might buy a small lot in a resident-owned park, but if it’s a co-op, you’re buying a share in the community.

If you’re buying unimproved land, you may also pay for permits, site clearing and prep, a driveway, drainage, and porch, garage, deck, or other exterior additions. These can add quite a bit to the cost to build a manufactured home.

Utility Connections

If you’re thinking of buying or building a house on raw land, you’ll need a way to connect to utilities. Common costs:

•   Water or well: $3,750 to $15,300.

•   Electric: $0 to $10,000. Some power companies can hook you up for free, while in other areas the cost can be $10,000 or more.

•   Septic: $4,500 to $9,000. Manufactured homes in rural areas will need a septic system if there’s no sewer connection.

Delivery and Setup

Most manufactured home dealers include the cost of delivery and setup when you purchase a home. Some, though, leave delivery and installation for the customer to arrange and pay for.

At a minimum, setup for a manufactured home may involve:

•   Hooking up utilities

•   Testing connections

•   Touching up interior elements, such as where two sections meet

•   Adding skirting

Exterior Additions

If you want a garage, porch, deck, or other exterior structure, you’ll need to add these costs as well. Prices are national averages, as per online cost guide service provider Fixr.com.

•   Porch: $15,000 to $35,000, but can be as low as $5,000 or as high as $50,000.

•   Garage: $23,000 to $45,000

•   Deck: $9,000 to $20,000

•   Landscaping: $8,000 to $15,000

•   Driveway: $3,460 to $6,910

Taxes

You may need to pay sales tax on a manufactured home purchased from a dealer.

That is in addition to property tax you will need to pay each year if you own the land your manufactured home sits on.

Should You Build a Manufactured Home?

Proponents of manufactured homes tout their affordability, quality, and quick construction. It’s possible to build a manufactured home that is much less expensive than buying new construction of a traditional home.

The Consumer Financial Protection Bureau points out that whether the homeowner owns the underlying land affects many aspects of the financing “and can have major implications for the homeowner in terms of cost and security of tenure.”

If you plan to lease the land and feel comfortable absorbing any lot rent increases, then a new manufactured home could be a suitable choice. Some communities are downright upscale, offering pools, tennis, pickleball, golf, fitness centers, clubs for every interest, security, and camaraderie.

Do manufactured homes depreciate? Homes that are not high quality or affixed to a permanent foundation often lose value. A depreciating value also means homeowners may not be able to refinance.

But some data shows that well-maintained manufactured homes in attractive locations actually appreciate in value.

You might want to compare the expected total costs of different types of houses — including a townhouse, condo, and detached single-family home — with a used or brand-new manufactured home.

Financing Costs

When financing a manufactured home, you’ll likely run into several options offered at the sales center. Just be aware that financing may be different from lending for other kinds of homes. One thing that is the same? Your credit score and debt-to-income ratio make a big difference in the interest rate you will be offered.

For one, manufactured homes typically have a repayment period of 25 years or less instead of the 30-year loan that you can obtain for a traditional home. This translates into higher monthly payments.

A new manufactured home attached to a foundation on land you own will be treated like a traditional home as far as financing is concerned. Lenders take into consideration how the manufactured home is titled and deeded. If it’s considered personal property, you may need a large personal loan. A personal loan may have a higher interest rate than a conventional mortgage.

A chattel mortgage is another option for personal property.

An FHA Title I loan could be another possibility. These loans are used to purchase a manufactured home, the lot the home will reside on, or both. There are loan limits.

Recommended: Mortgage Calculator

Dream Home Quiz

The Takeaway

How much does it cost to build a manufactured home? Much less than a traditional home, but be sure you’re looking at all the costs involved. A lot of the total expense of owning a manufactured home will depend on whether or not you own the land.

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

How do you cut down on costs for a manufactured home?

Buyers can cut costs by choosing a standard floor plan, requesting less customization, or opting for a manufactured home that is already built.

How do you pay for a manufactured home?

Manufactured homes can be paid for with a personal loan, a chattel mortgage, a conventional mortgage, or a government-backed loan, depending on the homebuyer’s situation.

What are the best customizations for a manufactured home?

Popular custom finishes include coffered ceilings, fireplaces, built-ins, kitchen islands, upgraded appliances and fixtures, rain showerheads, freestanding tubs, and upgraded lighting.

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Photo credit: iStock/Marje

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.

*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.


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.


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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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