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Modular homes are increasingly capturing interest as a fast and affordable housing option. The global market for modular homes is forecast to grow from $82 billion in 2022 to $139 billion in 2029. These houses are built from factory-made components and are then constructed on a permanent foundation on a building site. They must meet the Department of Housing and Urban Development standards, as well as local guidelines.

Not to be confused with manufactured homes (previously called mobile homes), which can be moved from location to location, a modular home can be a good option to what are known as stick-built or traditionally constructed homes.

Could one be right for you? Here are the pros and cons of these structures, to help you decide if this might be your next home sweet home.

What Are Modular Homes?

Modular homes are constructed in a way that differs from a traditionally built home. Many of the components are made in a factory and then shipped to the property, where they are assembled on a permanent foundation.

The process is typically less expensive and faster than a stick-built home (meaning ones that are assembled piece by piece at the site).

As briefly noted above, modular homes are permanent structures and are subject to local and federal standards.

Recommended: Mobile vs. Modular vs. Manufactured Homes

How Are Modular Homes Constructed?

One of the biggest differences from a traditional home is the way modular homes are constructed. The house’s components are assembled in a factory and delivered to the homesite in one or more trips. The modules may be akin to three-dimensional boxes that are connected to one another and the foundation at the job site.

The benefit of constructing modular home components in a factory is the controlled environment. Because the parts are assembled under ideal conditions (perfect temperature, humidity, etc.), buyers can usually expect a consistent, high-quality build.

In addition, the actual build can move more quickly. Estimates of the time to build a modular home range from 16 to 32 weeks, depending on how customized the plans are and other variables.


💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.

The Pros and Cons of Modular Homes

As with most things in life, there are pluses and minuses to modular homes. Consider these points to decide if one could be right for you. First, the upsides:

•  Modular homes are typically 10% to 20% less expensive than traditionally built homes.

•  They can be built up to 30% to 60% faster than stick-built homes.

•  Depending on the builder, they may be customized to suit your needs, both in terms of layout/square footage and finishes. You can get a very basic home or a truly luxe, mansion-like one.

•  They can be more energy-efficient than traditionally built houses, and the materials and building process may be more environmentally friendly as well.

•  They are considered better able to withstand environmental threats (flooding, hurricanes) than traditionally built homes.

That said, there are some disadvantages to modular homes to consider:

•  You need to add in some costs to your home-buying budget: the cost of the land, the foundation, and other related expenses. Yes, you are paying for those things when you buy a stick-built house, but it’s already rolled into the price.

•  You will need to investigate how to finance your home. If it’s an already built home, then a home loan will work. But if you are building from the ground up? Rather than getting a mortgage (since you aren’t buying an existing home from a seller), you may want to look into construction loans. Some modular home companies offer their own financing and lending programs.

•  Depending on the modular home company, you may not be able to get every last detail you want. Shopping around can help you find the top features you want in your home.

Modular Home Risks

There are a couple of considerations prospective modular homeowners should be aware of:

•  Finding land can be difficult in some areas. If you love modular homes but want to live in a suburb that has a hot housing market, you may be hard pressed to find a lot that works for you.
(You also may need a land loan to purchase your property if you do find a lot you love.)

•  It may be difficult to make changes once construction has started because so much of the home is pre-built.

•  Bias exists. Some people confuse modular homes with manufactured or mobile homes, which don’t have a foundation, and may therefore avoid them. This could mean a real estate agent might not show buyers a modular home that’s for sale, for example, due to this misperception.

How to Find Modular Homes for Sale

You can shop for pre-existing modular homes on major real estate websites like Realtor.com and also on specialized sites that list this type of home.

To construct a modular home, you can look at such sites as modularhome.org and modularhomeowners.com. Also, with the growing popularity of modular homes, you may well be able to get a word-of-mouth referral from someone in your circle.

How to Choose a Modular Home

When considering a modular home builder, much will depend on the following factors:

•  Do you like the style of the houses they build? The floorplans?

•  Are their prices lining up with your budget? Do they offer financing, if you need it?

•  Where are they located? If their factory is somewhat close to you, which can help reduce transportation expenses?

•  Are you impressed with the quality of their work? Their customer service?

•  Which brands do they partner with? Many manufacturers work with certain vendors for windows, doors, appliances, etc.

💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.²

How to Finance a Modular Home

Financing a modular home will take different paths depending on whether the house is already constructed or you’re building it.

•  For already built homes, you may look into conventional mortgage loans, FHA, USDA, and VA loans, just as you would for any other property you are interested in.

•  If you are building your own modular home, then you will probably need to apply for a construction loan to have the funds to get your house over the finish line.

•  Some modular home companies offer financing options.

•  You might also see if a personal loan could help you afford a modular home. Some lenders will allow you to buy a property with the funds; check with your lender, and understand the interest rate you will be charged.

Are Modular Homes Worth It?

Whether a modular home is worth it is a very personal decision.

For some people, there may be no greater satisfaction than working with a modular builder to specify their dream home and seeing their home come together, usually more quickly and less expensively than other building methods. They can collaborate with their builder and find a house plan that checks off all (or most) of the items on their home wish list.

Many people are thrilled with the eco-friendly aspects of these homes as well.

However, there are also people who find a vintage home more appealing or who would rather walk through an already built home and know exactly what they are buying.

Recommended: How Much Does It Cost to Build a House?

Modular Home Tips

If you’re set on buying a modular home, here are things to consider:

•  Style of home. Modular homes come in various styles, from contemporary to log cabins. It can be wise for buyers to shop around and work with a modular home manufacturer that suits their taste.

•  Manufacturer location. The cost of transporting a modular home can be high. It may be essential for the budget-conscious modular homebuyer to work with a manufacturer close to the home’s final destination.

•  Custom builds. Some modular home manufacturers may offer more customizable options, from floor plans and finishes. Do your research, and find a builder who can check off most of the priorities on your wish list.

•  Timeline. Some modular homes go up relatively quickly, while other manufacturers could be dealing with back orders. If time is of the essence, choose your builder carefully.

The Takeaway

Modular homes are growing in popularity. Components (modules) are factory-built and then assembled on a foundation; this process can be faster and more affordable than buying a traditionally built home. They also often have environmental benefits.

However, they aren’t for everyone: Building your own home is very different than hitting the open houses, and financing a modular home likely takes you on a path that involves a construction loan. If, however, you fall in love with an already built modular home, then you can usually apply for a mortgage from a number of lenders.

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

Is a modular home a good investment?

A modular home can be a good investment. They often offer energy efficiency which is a selling point. However, a modular home’s value will be dependent on the housing market in your area, just as it would be with any other kind of home.

Are modular homes dangerous?

The dangers of modular homes are minimal. As long as the assembly of the modular home complies with local building codes, modular homes are as safe as a traditionally built home.

Is the value of modular homes decreasing?

Modular homes appreciate and depreciate in a way that’s similar to traditional builds.

Where can you get financing for modular homes?

Among the possibilities from various lenders are a construction loan, financing from your builder, or a personal loan.

How long will a modular home last?

With proper maintenance and high-quality materials, a modular home should last as long as, or longer than, any traditionally built home. Some of the first modular homes, built in the early 1900s, are still standing today.

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Photo credit: iStock/turk_stock_photographer

*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.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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.

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.

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

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

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Building a home could take an average of nearly eight months, but a contractor- or owner-built house could stretch the timeline beyond a year.

It’s not as simple as buying a plot of land and heading to Home Depot. Construction permits, financing, and even the weather can lengthen your timeline.

Average Time to Build a House

Despite the extra time it takes to build a home from scratch rather than buy an existing home, it’s no surprise that many Americans are opting to build a home.

Why? To customize a home to their tastes, for one thing. And the narrowing gap between the average cost to build a house and the cost of buying an existing home.

The average cost to build a house, including the land, was nearly $450,000 in May 2022, the National Association of Home Builders reported. The median cost to buy an existing home was a bit over $414,000.

So how long does it take to build a house?

According to the U.S. Census Bureau’s latest home building statistics, from 2021, the average time to build a one-unit residential building is 7.6 months. Here’s the breakdown.

Construction Purpose	Average months
Built for Sale	6.7
Contractor Built	12.6
Owner Built	14.3

This time frame encompasses the entire home building process, from obtaining building permits to picking out the design.

Factors That Affect How Long It Takes to Build a House

As with everything, the devil is in the details, so let’s look at factors that influence how long it takes to build a home.

Type of House

The type of home and design will have a significant impact on the construction timeline.

If you’re buying new construction, it will fall into one of these categories:

•   Tract homes. These go up in a new development. The buyer chooses the design features and lot.

•   Spec homes. With these move-in-ready homes, the buyer still might be able to choose some of the finishings.

•   Custom homes. A builder customizes a house to the buyers’ specifications on their land.

Predesigned home packages likely accelerate the construction timeline, while custom homes are likely to extend it. After all, custom designs require more coordination between architects, engineers, and contractors.

House Size

Naturally larger homes take longer to build than smaller homes.

If you’re planning on a particularly ornate design, make sure you budget extra time (and money) for the project.

Larger properties with complex layouts are also more likely to encounter greater engineering challenges than simpler layouts. It’s also likely that unanticipated issues will arise during the build.

Location

While scenic, remote areas are attractive to many people seeking to build a primary or vacation home, the locale will heavily affect the ease of transporting materials, workers, and equipment.

Rocky terrain will also be more expensive and difficult to excavate and prep for construction. Installing common utilities will be more difficult.

Weather

Unless you’re looking into a modular home vs. a stick-built home, inclement weather can severely delay construction, as many parts of the process cannot be completed in rain or snow.

Your worksite may get flooded due to lack of completed drainage, and building materials may be damaged if not properly protected.

Financing

Homeowners with sufficient equity in their home could apply for a home equity line of credit to fund their new home.

But many people will seek a construction loan. Obtaining a construction loan comes with its own complications.

Expect underwriting to take longer than it does for a typical mortgage, as the lender will want a detailed plan, budget, and schedule for the construction. The lender may also need to approve your builder.

Permits

Construction permits and zoning approval for home building can be significant time drains and are often beyond your control. A good contingency is to find a contractor who is familiar with the local application process.

Materials and Labor

Volatility in material prices and availability made it hard for contractors to plan projects in 2022. As lumber and plywood prices settled down, cement and diesel costs rose. Shortages in cement and concrete products were expected to endure.

The availability of labor slowed construction starts in 2022 and was expected to remain the top challenge for most contractors.

In general, contractors are particularly busy during the spring and summer, so contracting with a builder before those seasons could be a good idea.

The Process of Building a House

Here’s the typical home construction timeline:

•   Buy land and obtain financing

•   Obtain building permits and approvals

•   Excavate the land and prep the foundation

•   Build the framework and install utilities

•   Put in walls, floors, and roof

•   Install fixtures, appliances, and finish the exterior/interior

•   Landscape, pave driveways, and prepare the grounds

•   Get a final inspection from authorities

Shortening the Time It Takes to Build a House

While much of the home building process is outside your control unless you’re actually building the house yourself, there are ways you can mitigate the chance of complications.

Here are a few ways you can shorten the average time it takes to build a house.

Avoid Deviating From the Plan

One of the best ways to avoid lengthening a construction timeline is to ensure that you have building plans finalized well before you break ground, and sticking to them.

Making last-minute changes is anathema to construction timelines.

Communicate

Avoid being the bottleneck when it comes to decision-making. The construction team will likely take their cues from you. So if you’re late answering an email, design query, or request for approval, your contractor will often be unable to proceed without your input.

Reduce Complexity

Keeping things simple will probably lead to a faster build, if that’s a priority. More complex plans clearly lead to lengthier construction times and introduce a greater likelihood that unforeseen problems will arise.

Craft the Contract With Care

The construction contract should contain a deadline for completion and what will happen in the event of a delay.

It’s common for a contract to specify that “substantial completion” must occur by a certain date, and to define that. A clause can express that extensions can be given for unforeseen delays.

When a change is made after a contract is signed, it’s referred to as a “change order.” The change order might specify a deadline extension or new completion date.

Builders who breach the contract may be responsible for damages.

The Takeaway

How long does it take to build a house? It could take seven to 14 months. A construction contract will typically contain a deadline and what will happen if a delay occurs. Allowing for a reasonable schedule can help ensure that your project finishes on time.

3 Home Loan Tips

1. Traditionally, mortgage lenders like to see a 20% down payment. But some lenders, such as SoFi, allow home mortgage loans with as little as 3% down for qualifying first-time homebuyers.
2. 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.
3. When building a house or buying a nontraditional home (such as a houseboat), you likely won’t be able to get a mortgage. One financing option to consider is a personal loan, which can be faster and easier to secure than a construction loan.

FAQ

How long does it take to build a house by yourself?

For the ambitious home builders among us, it takes over 14 months to build a house, on average. The timeline can easily stretch out to two years or longer, depending on your experience and whether or not you choose to employ any assistance.

What causes delays when building a house?

Plenty of factors can delay a build. They include:

•   Owner-caused delays

•   Contractor-caused delays

•   Weather

•   Logistics

•   Obtaining permits and approvals

•   Size and scale of the project

•   Communication

Can I get a loan to build a house?

You can apply for a construction loan or if you already have a home, a home equity line of credit, home equity loan, or cash-out refinance to fund the new home. A personal loan could be used for at least part of the build.

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Photo credit: iStock/acilo

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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

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

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Many manufactured homes take just a week to build. (Yes, a week!) Manufactured homes can be built so quickly because they’re made in a factory — a controlled environment. All of the materials and tradespeople are on hand, and the standard sizes of manufactured homes make for quick and easy builds.

The time it takes for the manufactured home to be placed on land is much longer, however. In this article, you’ll read about:

•   The basics of new manufactured homes

•   The timeline for building and delivering a manufactured home

•   Factors that affect the building timeline

What Is a Manufactured Home?

A manufactured home is built in a factory according to HUD standards. The home, which usually has one, two, or three sections, is transported to a dealer, plot of land, or manufactured home community.

Manufactured homes average a lower cost and shorter construction timeline than traditional homes, but homebuyers should be aware that manufactured homes may depreciate. Then again, depending on the local housing market and the home’s setting, a manufactured home might appreciate.

How much does a new manufactured home cost? The average price nationwide was $130,400 in late 2022, with a single-wide averaging $95,800 and a double-wide $159,400, according to the Manufactured Housing Survey conducted by the Census Bureau and sponsored by HUD.

That helps to show why manufactured housing is gaining in popularity. A recent National Association of Realtors® report shows that manufactured homes account for 8% of home purchases. It’s the second most popular home type, after detached, single-family homes.

Recommended: What Is a Modular Home?

Timeline for Building a Manufactured Home

How long does it take to get a manufactured home? From placing an order to moving in, it could take two to four months. That compares with 9.4 months for a traditional contractor-built home.

The site can be prepared, if needed, while the manufactured home is being built. If you need to develop raw land (i.e., put in your own utility connections, clear the land, or install a driveway), the process could take much longer.

Process of Building a Manufactured Home

Several factors help determine how long it takes to get a manufactured home, start to finish. Keep in mind that sales centers for manufactured homes may be able to offer help or coordinate the process.

Design, Model, and Floor Plan Selection: 1-3 Weeks

You’ll most likely start your manufactured housing journey by choosing your home model, floor plan, design, finishes, exterior elements, and other details of the home. This process can take a week or more.

It’s a good idea to start here, because you may have to wait until the factory is available to build your home. If you choose a model that has already been built, you can save some time.

Financing: 4-8 Weeks

Before construction can begin on your manufactured home, you’ll need to get approved for a loan for the home and, if applicable, the land. You’ll submit your personal information, your income and employment, specs on your chosen manufactured home, who you’re purchasing the home from, and information about where you’re going to place the home.

Most of the time, mobile home financing options depend on whether the home is real property or personal property.

Some manufactured homes qualify for conventional home loans. An option is a government-backed home loan. In most cases, the home must be permanently attached to a foundation and on land that you own or will own: That makes it real property.

An exception is an FHA Title I loan, for the purchase of a new or used manufactured home on land you do or do not own. There are loan limits.

It’s also possible to finance a manufactured home with a large personal loan.

And a chattel mortgage may be used to finance a home that will not be permanently affixed to the land.

Recommended: Credit Score Needed for Personal Loans

Site Selection: 1-4 Weeks

When it comes to placing your manufactured home, you’ll typically be faced with two options: Lease or buy land. It could take time to find the proper setting.

Lease the land: With leased land, you’ll pay a fee — usually between $100 and $1,000 per month — to place your manufactured home on a lot. Lots are typically close together and include utility connections and some community maintenance. Some may feature community amenities like a swimming pool or park.

Purchase land: Many lenders offer financing for a manufactured home with the land. A lot in a community may already have a paved pad and utility hookups. If you need to install your own utilities, you may need to find a contractor to coordinate the exterior elements. Your manufactured home sales center may also be able to help with some of these details. A land loan on its own could take around a month to secure.

Permitting: 1 Week to Several Months

Setting a manufactured home on land requires a permit. Requirements can be found from your county or city. The permitting process can take a few days or a few months, depending on your locale, but be sure to submit all required documents and plans so you don’t face additional delays.

Site Preparation: 1-4 Weeks

Site preparation for raw land can include tree and rock removal, land grading, a driveway, well or water connection, sewer connection or septic system, and other utilities.

Minimal site prep can be completed in less than a week, while more extensive site prep can take up to a month.

Construction: 1 Week

The factory environment makes for quick construction: a few days to a week. Materials, tools, and craftspeople are located in the same factory to increase efficiency. Standard sizes and finishes also account for the short construction timeline.

The manufacturer tests the mechanical systems, such as electrical or plumbing, as your home nears completion.

Transport and Installation: 1-4 Weeks

After construction is complete, you may be wondering how long it takes to set up a manufactured home. While transporting your manufactured home will likely only take a few days at most, you may have to spend more time on the installation of the home.

Once the home has been transported to your site, it is attached to ground anchors and utilities are connected. Then, if you desire, additional exterior elements such as a porch or a garage can be added. Customizations like this will take several weeks to complete.

Factors That Affect the Building Timeline

Type of Manufactured Home

The size and type of your home will affect the building timeline. A triple-wide manufactured home, for example, will take longer to build and will also require more site development. A larger septic system, for example, would be required for a larger manufactured home.

Features of the Home

Some custom features like French doors will take additional time to build into your home. But manufacturers say these features usually add only a little time to the process.

Backlog

Although the actual construction of your home may only take a week, you may need to wait for months for the manufacturer to begin construction due to a backlog.

The Takeaway

Financing, permitting, and finding and developing land all take much more time than the construction of a manufactured home. It could take two to four months from the time you order a manufactured home to move-in day.

3 Home Loan Tips

1.    Traditionally, mortgage lenders like to see a 20% down payment. But some lenders, such as SoFi, allow mortgages with as little as 3% down for qualifying first-time homebuyers.

2.    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.

3.    When building a house or buying a non-traditional home (such as a houseboat), you likely won’t be able to get a mortgage. One financing option to consider is a personal loan, which can be faster and easier to secure than a construction loan.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How do you speed up the process of building your manufactured home?

If you want to build a manufactured home faster, you can shop builders to check on their availability and get your finances in order. Know which loans apply to the home’s setting, leased or owned land, and consider getting preapproved. You can also select a manufactured home that is already built rather than design your own custom home.

Are manufactured homes cheaper?

Manufactured homes are usually cheaper than traditional homes. The average sales price for a new double-wide manufactured home (not including land) was $159,400 in late 2022, compared with the median sales price for a new single-family home, $442,100, around the same time, according to the U.S. Census Bureau and HUD.

Do manufactured homes take a shorter time to build?

Manufactured homes take much less time to build than other forms of housing. Because the homes are built in a controlled environment, manufacturers can avoid weather delays and supply shortages and can schedule trades (like plumbing) more efficiently. Everything is in one spot, and the standard dimensions of manufactured homes make construction efficient.

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Photo credit: iStock/uptonpark

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.

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

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

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Buying a home is exciting, but coughing up the down payment can be a downer. That’s where down payment assistance enters the picture. Government and nonprofit programs help unlock the door to homeownership for qualified buyers.

It makes sense to put down as much as you can comfortably afford on a down payment. The more you put down, the less you’ll be borrowing, which translates to lower monthly payments and less interest paid over the life of the loan. But many people put down less — in some cases far less — than 20% of the home’s purchase price, the amount often recommended to buyers.

In an April 2024 SoFi survey of 500 people intending to purchase a home, almost a third of respondents (30%) said they were planning to put down between 11% and 20%. Almost one in five (19%) said they would put down 6% to 10%. Ten percent of buyers were aiming for a 5% down payment or less, and fully 7% of people were exploring no-down-payment options. First-time buyers who finance their home are especially likely to have a lower down payment, according to data from the National Association of Realtors®.

Down Payment Defined

Depending on their financial situation, homebuyers may qualify for down payment assistance from the government or a private entity.

Down payment assistance programs come in several forms. Some offer homebuyers loans and grants that can be applied directly to down payments and, in some cases, help with closing costs, too.

The down payment — which covers the upfront “out of pocket” cost of getting a mortgage — is usually made at the mortgage closing and can be paid with a check, cashier’s check, or electronic payment.

The down payment covers a reasonable percentage of the total home purchase price, with the mortgage covering the remainder. Lenders typically won’t approve a mortgage loan unless the borrower pays upfront cash — anywhere from 3.5% to 20% in most cases — against the total price of the property.

💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

Homebuyer Assistance Programs and Qualifications

If a first-time homebuyer can’t afford a down payment, that opens the possibility of financial assistance.

The programs that tend to provide the most financial assistance to homebuyers — state and federal governments and local, regional, and national nonprofits — will likely need an applicant to clear hurdles in order to qualify for down payment help.

These criteria usually lead that list:

•   The three-year rule. The buyer must not have owned a home in the past three years. In most scenarios, government agencies and private charities deem anyone who hasn’t owned a home in the previous three years, even a repeat buyer, a “first-time home buyer.”

•   Must be for a primary home. Homebuyers should be clear if the money is going to the purchase of a primary residence. If the home is an investment property designed to draw rent, financial assistance providers usually won’t issue a green light on funding.

•   Income limits. First-time homebuyers may have to meet income limits. The buyer may also have to keep the home price below a specified limit.

•   Funding caveats. Depending on the funder, the first-time homebuyer may have to take a homebuyer education course and may be asked to contribute some money to the down payment.

New homebuyers looking for financial help — and who qualify for that help — can get financial aid from a variety of sources, both public and private.

The help can be substantial.

According to a report from the Urban Institute, up to 51% of potential homebuyers residing in the report’s U.S. metropolitan areas studied would qualify for some form of home down payment assistance. Upon applying, those homebuyers would be in line to receive between $2,000 and $39,000.

Yet in SoFi’s recent survey, only 38% of potential homebuyers who said not having an adequate down payment was their biggest challenge had explored down payment assistance programs. Actively looking for down payment assistance could be a good move. When that search begins, the following funding sources may be a good place for homebuyers to start.

Recommended: First Time Homebuyer Guide for 2023

HUD, the Gatekeeper

A good source for state and nonprofit home down payment assistance is the Department of Housing and Urban Development, or HUD.

HUD is a federal gatekeeper, steering homebuyers to various state and nonprofit programs and offering home buying and down payment advice from HUD home assistance counselors.

Each state may have different rules and requirements, so it’s a good idea to talk to either the state agency directly or to a qualified advisor through the HUD housing counselor portal.

Federal, State, and Local Government Grants

Government grants might be the optimal form of down payment assistance, as it’s free money. Grants usually come from federal, state, or local governments and nonprofit groups.

Each government agency or charitable group has its own rules for down payment assistance grants, but in general, you have to pass an eligibility test (the common criteria are listed above) to qualify.

Again, HUD does not offer direct grants to individuals but works through local governments and nonprofit organizations to make financial assistance and counseling available.

💡 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.

Federal Government Loans

While technically not deemed direct down payment assistance, U.S. government-insured housing loans consist of low-interest loans to new homebuyers that enable them to make lower down payments, thus making it easier to afford both a home loan and a down payment.

Federal home loans usually come from three agencies:

The Federal Housing Administration. The FHA provides loans from private lenders to qualified homebuyers. The primary qualifier is a FICO® credit score of 580 or above. A borrower with a credit score of 500 to 579 who brings a 10% down payment to the table may also qualify for an FHA loan. In SoFi’s survey, only 49% of homebuyers had heard of FHA loans, yet these can be a great solution for buyers.

U.S. Department of Agriculture. The USDA offers direct home-buying assistance to rural homebuyers. Loans enable qualified homebuyers to purchase a home with no down payment. The home must be in a qualified rural area, and borrowers’ adjusted annual income cannot exceed 115% of the median income in the area, among other criteria. These loans, too, can fly under the radar with shoppers. In SoFi’s survey, only 4 in 10 buyers (41%) had heard of USDA loans.

There is no minimum credit requirement for a USDA loan, but applicants with a credit score below 640 are subject to more stringent guidelines to qualify.

Department of Veterans Affairs. The VA provides home purchasing assistance to current members of the armed forces, military veterans, and eligible spouses of deceased U.S. military members. Similar to a USDA home loan, a VA loan requires no down payment.

Applicants must meet the VA’s — and the lender’s — standards for credit and income, and be purchasing a primary home.

Forgivable Loans

These loans come from lenders, usually in two forms: deferred payments and forgivable loans.

Forgivable loans are basically second mortgages that borrowers don’t have to repay if they remain in the primary home for a specific time period (for example, 10 years).

Forgivable loans usually have a 0% interest rate, making it easier to afford a home down payment.

State Down Payment Assistance

Assistance programs vary by state. Still, some commonalities exist — especially the urgency to help economically struggling homebuyers afford a home down payment.

These states are examples of that:

Arizona. By and large, homebuyers in most Arizona counties can apply for home down payment assistance through the state’s Department of Housing Home Plus Program.

Homebuyers will need a FICO® credit score of 640 or higher and an annual income of $126,351 or less. Additionally, the purchase price of the home can’t be higher than $371,936.

Florida. The Sunshine State offers home down payment assistance programs via Florida Housing Finance Corp.

•   HFA Preferred and HFA Advantage PLUS Second Mortgage. These down payment and closing cost programs offer 3%, 4%, or 5% of the total loan amount in a forgivable five-year second mortgage.

•   Florida Assist. Eligible homebuyers receive up to $10,000 through an interest-free second mortgage. The money doesn’t have to be paid back unless the homeowner sells or refinances the property.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Government and nonprofit funding are the primary vehicles for down payment assistance, but homebuyers may also seek down payment help from family and friends, retirement and investment funds, or even microlenders.

However a buyer approaches home down payment assistance, the keys are planning, research on available programs, and a disciplined approach to budgeting.

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.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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Rent-to-own homes are properties rented by individuals who intend to buy the property at the end of their lease term. Typically, the renter and the property owner sign a rent-to-own agreement that states the agreed selling price and includes an upfront option-to-buy fee.

Both parties can benefit from this type of agreement. The seller continues to receive rental income until the home is sold, and the buyer has time to save for a down payment, build their credit score if necessary, and shop for a mortgage. But there are potential downsides as well, such as the tenant losing their fee or the seller dealing with a renter who tries to renege on their arrangement.

In this guide, you’ll learn such information as:

•   How does rent-to-own work?

•   What are the two types of rent-to-own contracts?

•   How does a rent-to-own contract benefit the seller?

•   What should sellers know about entering into a rent-to-own contract?

What Are Rent-to-Own Homes?

Rent-to-own homes are properties that a renter plans to buy from their landlord after a set period, often between one to three years. This type of arrangement benefits potential buyers who otherwise may not be able to follow the traditional home-buying process. Perhaps they have a low credit score or can’t afford a down payment right away. If so, this type of arrangement gives the buyer time to improve their financial situation and save for a down payment. For instance, it might be a wise move for some first-time homebuyers.


💡 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 throughout the process.

How Do Rent-to-Own Homes Work?

So how does rent-to-own work? Here is how this kind of an agreement might unfold:

•   First, know that there are two kinds of rent-to-own arrangements. With a lease option, you usually have the choice of buying the home at the end of the lease or walking away. With a lease purchase, you are entering into an obligation to buy the property at the end of the rental term. (You’ll learn more about the differences between these deals in a minute.)

•   The monthly rental price may be higher than the market rate determined by the cost of living in your state or area. The reason why: The amount paid will often include rent credits. What are rent credits? This is money put toward the downpayment on the home when the lease is up and the renter moves forward with buying it. Discuss and read any agreement carefully before signing to understand any rent credit provision.

•   If you are entering into a deal with rent credits, here’s how the math might look. Say the price of the home is $100,000. A tenant-buyer might put $5,000 toward a down payment. This could be paid as an additional $416.67 per month above the standard rental price over the course of a year-long lease.

In this rent credit example, the tenant-buyer would only need to borrow $95,000 since they have paid the homeowner $5,000 already. For people committed to renting to own, this is a way to build equity sooner. However, if you walk away from the property at the end of the lease in a lease-option arrangement, that rent credit money may not be refunded.

•   The renter may also pay a nonrefundable upfront fee. This is called an “option fee” and gives the renter the option to buy the house when the lease ends. Option fees are typically between 1% to 5% of the home’s value. If the renter chooses not to buy the house, they likely lose the money.

The Process for Selling a Rent-to-Own Home

A renter typically has one to three years to exercise an option to buy a home. The process for the seller generally includes the following:

1. Prepare the necessary legal documents that detail the agreement — lease-option or lease-purchase. A lawyer may consult to draw up this paperwork. Rent-to-own agreement terms vary, and it is a good idea for tenants to also consult a lawyer to make sure their agreement suits their situation.

2. Collect a nonrefundable deposit and option fee (typically, this is 1% to 5% of the purchase price). The deposit will go toward the down payment for the house.

3. Collect monthly rent for one to three years. A portion of the rent may go toward the eventual purchase of the home and lower the amount paid at the end of the lease term.

4. If the two parties signed a lease-option agreement, the renter has the option to buy the home after the agreed amount of time. If the renter decides not to buy, the seller usually keeps the down payment money collected.

5. If the renter signed a lease-purchase agreement, the renter must purchase the home after the agreed amount of time and at the agreed-upon price. If they don’t do so, the tenant will usually lose the money paid for fees and the rent credits. In addition, the seller can sue them for breach of contract.

💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.

Pros and Cons of Selling a Rent-to-Own Home

The biggest pro for sellers regarding a rent-to-own home is that they stand to make more money. The biggest downside to selling a rent-to-own home is that there is no guarantee a renter will close the deal.

The Advantages of Selling a Rent-to-Own Home

The list that follows highlights some of the key pros of selling via a rent-to-own arrangement.

•   The seller can earn rental income while preparing to sell the property.

•   This is useful if they have to move, buy another home, and pay two mortgages.

•   Sellers often earn additional rent by offering rental credits on a property, which provides an income stream.

•   Sellers keep the upfront option fee paid by the renter should the renter decide not to buy the property. They may also keep the rent credits.

•   Sellers will likely sell the home for a better price than the market price because there are typically no real estate commissions paid out.

•   A renter who plans to buy the home may be more motivated to pay on time and more inclined to take care of the property, lowering the seller’s maintenance costs.

The Disadvantages of Selling a Rent-to-Own Home

Next, consider the cons of entering into a rent-to-own arrangement.

•   There is no guarantee that a renter will buy the home at the end of the lease. They may not be able to qualify after shopping around for a mortgage or have enough for a downpayment despite making payments toward it.

•   The renter may fall delinquent with payments and refuse to vacate the property when the lease is up.

•   The renter may not take care of the property if they decide not to buy it.

•   The seller may be responsible for the upkeep of the property for the rent-to-own lease period.

•   The seller is responsible for any unpaid utility bills the tenant falls behind on bill payments.

•   The seller could wind up having to take legal action if a renter agrees to buy the home at the end of the lease but then refuses to do so.

Recommended: Things to Know When Renting Out an Airbnb

When Rent-to-Own Works

These rent-to-buy arrangements can have their benefits. Here’s how rent-to-own can work for the seller and the buyer.

•   A rent-to-own agreement can benefit a potential buyer by giving them time to build their credit score and save for a down payment while learning about the mortgage loan process.

•   The seller benefits because they still receive rental income during that time rather than leaving the home vacant while they try to sell it. In addition, the seller may receive above-market rent as the tenant accrues their down payment. They may also save on some of the expenses of selling a home.

When Rent-to-Own Doesn’t Work

While rent-to-own homes can work, this arrangement may not be the right choice for all sellers. Some points to consider:

•   It can take time, perhaps years, before the renter is financially equipped to buy the home. So if the seller needs money now, this is probably not a good option.

•   Also, if home prices are dropping, the seller may want to sell the home sooner rather than later. Or, since the home price is often determined in advance, the tenant might look for a price adjustment to reflect market conditions.

•   Conversely, if home prices rise and the property’s selling price was previously set, the seller might feel as if they are missing out on the opportunity to reap a higher figure for the property.

•   Lastly, a seller might regret entering into a rent-to-own agreement if the tenant finds problems with the home and demands a lower purchase price.

Recommended: Should You Buy an Investment Property While Renting?

Types of Rent-to-Own Contracts

As mentioned briefly above, there are two main types of rent-to-own agreements: lease option and lease purchase. Both types of arrangements allow the renter to buy the home at the end of what is typically a one- to three-year term, but there are some key differences to the agreement requirements.

Lease-Option Agreement

With a lease-option contract, the renter pays an option fee when they sign, which is typically around 1% to 5% of the purchase price of the home. Built into the rental payments are usually rent credits, which is extra money set aside for a down payment from the renter. The purchase price of the home is probably decided in advance, though sometimes it is only set when the lease agreement expires. If the latter, the price will be based on a home appraisal.

The renter can still decide not to buy the home at the end of a lease-option contract, but they will lose the rent credit amount they have paid and forfeit the option fee.

Lease-Purchase Agreement

With a lease-purchase agreement, the renter still rents the home for usually one to three years, and a percentage of the rent goes toward the down payment. In addition, the purchase price is typically determined upfront.

The difference with this type of agreement is that the renter is obliged to buy the home when the lease is up.

If the renter cannot buy the home at the end of the lease (say, they decide to move to another area or they can’t qualify for a mortgage), they lose their claim to the home and the money put toward the down payment. In addition, the seller may sue them for breach of contract.

How to Sell a Rent-to-Own Home

If you are selling a home as a rent-to-own property, heed this advice:

•   It’s a good idea for sellers to first establish a rental agreement with the renter before entering into a lease-purchase or lease-option agreement. That way, the seller can claim a deposit for the property in case the renters do not take care of it or they drop out of the contract.

•   The option-to-buy agreement will likely stipulate the price of the home, the option-to-buy fee, and the rent credits that will go toward the purchase price.

•   The option-to-buy agreement can provide the owner/seller with the document they need if they have to evict the renter. This could occur if the tenant refuses to buy the home or to leave at the end of the lease term.

•   With a lease-purchase agreement, the document drawn up will be legally binding and specify the arrangement for the tenant to buy the home at the end of the rental term. If the tenant should fail to buy the property at the end of the lease, the seller could sue.

•   In both of these scenarios, it can be wise to have legal counsel to advise and to draw up documents.

Ask the Right Questions Before You Sign the Contract to Sell

First, manage your expectations. There is no guarantee that tenants who sign a rent-to-own agreement will ultimately buy the home. Many don’t.

However, two aspects are under your control:

•   Consult with a skilled real estate lawyer who can structure the paperwork to protect your interests. Their expertise can help you avoid feeling as if you are losing money if your tenant leaves at the end of the lease.

•   Also, property owners can maximize the likelihood of a sale if they choose their tenants wisely. You can ask for references from previous landlords and look into a potential renter’s employment history to assess their ability to pay rent and ultimately qualify for a mortgage.

The Takeaway

Rent-to-own contracts can be beneficial for both buyers and sellers. For buyers who cannot qualify for a mortgage because they have poor credit or do not have enough for a downpayment, renting to own can give them time to save for a down payment and build their credit score.

For sellers in this scenario, they continue to collect rental income until the home is sold rather than leaving the property vacant until they find a buyer. This is particularly valuable if they are buying another home and taking on two mortgages. The seller can also save money on real estate commissions and other aspects of selling a home.

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 two benefits of owning a home vs. renting one?

Buying a home is an investment. Over time, the value of the home can increase, and, as the owner pays down the mortgage, they build equity and wealth. Another advantage of homeownership: potential tax deductions. The home mortgage interest deduction can allow homeowners to deduct the mortgage interest from their taxable income, thereby reducing their tax burden.

Can you rent-to-own a house in California?

Yes, you can rent-to-own a house in California. However, as with rent-to-own agreements in any area, each party should be aware of the pros and cons of the arrangement. There are financial and legal implications to consider for both the tenant and the seller.

What is the meaning of lease-to-own?

Lease-to-own, or rent-to-own, usually means that the tenant pays rent on a property for a number of years and has an option to purchase it at the end of the lease. In some cases, at the beginning of the rental period, the tenant commits to buying the home at a specific price in the future.

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Photo credit: iStock/recep-bg

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

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

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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.

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 .

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