SoFi

If you think you need a down payment of 20% of a property’s price in order to start home shopping, think again. Most homebuyers put down a significantly smaller amount. Opting for a lower down payment has the benefit of getting you into a home sooner than if you scrimped and saved for years. And you might reap the benefit from market appreciation as soon as you own a property.

Prospective homeowners may explore such options as mortgages with lower down payments (some are even available with 0% down to qualified borrowers), as well as down payment assistance programs.

Learn more here, including:

•   What is a down payment?

•   How much money should you put down to buy a house?

•   How can you lower down payment requirements when buying a property?

What Is a Down Payment?

First, the basics: What exactly is a down payment? A down payment is the amount of money that goes paid, in cash, toward the purchase price of the home. It must cover the gap between the purchase price of the home and the amount of the mortgage.

A down payment determines what kind of loan you can get, whether or not you’ll pay private mortgage insurance (PMI), what your monthly payment will be and even what your interest rate will be. A down payment doesn’t include closing costs.


💡 Quick Tip: Don’t overpay for your mortgage. Get a competitive rate by shopping around for a home loan.

How Much Should You Put Down on a House?

You might be wondering how much is a down payment and how long it will take you to save that down payment amount for. Here are some options to consider when it comes to down payment amounts:

•   20% Down payment: Many people believe mortgage lenders say this is the amount they must come up with, though that is not true. Yes, a bigger down payment lowers your mortgage. Your monthly mortgage payment is lower because of your higher down payment, and you’ll pay less interest over the life of the loan. Also, when your down payment is above 20%, your lender does not require you to purchase PMI, which can save you hundreds of dollars each month.

But paying 20% can take a lot of cash out of your pocket when you buy your home. For example, 20% on a home that costs $400,000 is $80,000 dollars. There are many people who want to buy a property, but simply can’t come up with that amount of cash or at least not until they’ve saved for a considerable amount of time.

•   8% Down payment: This is the average down payment on a house for first-time homebuyers, according to the National Association of Realtors®. (For repeat homebuyers, the figure jumps to 19%.) Making this much of a down payment means you won’t avoid PMI in most cases, but you’ll be able to buy a home with a smaller down payment and without having to save as much money. For a house that costs $400,000, that’s $32,000 you need to come up with.

•   3% to 5% Down payment: With a down payment between 3% and 5%, you’ll have a higher monthly payment because your loan amount is higher than if you were able to make a larger down payment. You’ll also pay more each month because of the PMI payment. Lower down payments mean you’ll also pay more interest over the life of the loan.

However, the main benefit of a low-down-payment loan is you’re able to buy a home sooner than if you wait to save a full 20%. For a $400,000 home, a 3% down payment is $12,000 and a 5% down payment is $20,000. Some loans have the option of eliminating PMI once the loan’s remaining principal balance drops to or below 80% of the original mortgage.

•   0% Down payment: Zero down payment options come with higher monthly payments, and there may be certain restrictions or qualifications (say, a certificate of eligibility for military members). They may be niche programs specific to a group of people or locality. Some zero-down programs do not require PMI, but may have an upfront cost to fund their own mortgage insurance, like USDA loans (more on those in a minute).

Considerations to Determine Your Down Payment

The large amount of cash typically needed makes first time homebuyers wonder how they can afford a down payment and if it’s possible to figure out how to lower a down payment on a house. A couple of points to consider:

•   It is possible to get a lower mortgage payment by paying down principal on your home with a larger down payment. A 20% down payment on a house eliminates the need to pay PMI every month, which saves you even more on your monthly payment. In this way, a larger down payment can benefit your cash flow and overall financial situation.

•   However, 20% of the price of a home in your market may be hard to save for. You can learn how to buy a house with no money down, but there are also 3%, 3.5%, or 5% down payment options available. A lower down payment may be able to help you buy a home sooner. You can begin reaping the benefits of home ownership that much soon and hopefully your home’s value will rise, contributing to your personal wealth.

Recommended: First-Time Home Buyer Programs

How to Lower Down Payment Requirements?

If you’re moving towards purchasing a home, you might be wondering if you can lower your down payment before closing. Generally speaking, you have a handful of options for lowering your minimum down payment amount requirement as you take out a home mortgage loan and become a homeowner.

Buy a Home in an Area Approved for USDA Loans

USDA loans have 0% down payment requirements, so if you can find a home in an area approved by USDA (typically but not always in a rural location), you may be able to get a 0% down payment loan. For the USDA loan, there are property and income requirements which are determined by the county you live in (or want to live in).

Use a VA Loan to Buy a Home

Qualifying veterans, active duty, National Guard, and Reserve members of the military can use a VA loan, a mortgage that comes with zero-down-payment financing.


💡 Quick Tip: Apply for a VA loan and borrow up to $1.5 million with a fixed- or adjustable-rate mortgage. The flexibility extends to the down payment, too — qualified VA homebuyers don’t even need one!^{†^}

Pay the Minimum Amount for a Down Payment

One solution is to look for a loan without potentially restrictive eligibility requirements, as with a USDA or VA loan, and instead shop around for a loan that has low down payment policies. Many lenders offer mortgages with as little as 3% down, which may work well for some homebuyers.

Find a Down Payment Assistance (DPA) Program

Down payment assistance programs vary from area to area as far as requirements and amounts go. If you really need down payment assistance, try to buy a home in an area that offers one of these options. DPAs are usually reserved for first-time homebuyers or low- to moderate-income buyers. They typically come in three forms:

•   Second mortgage. DPAs are often offered in the form of a second mortgage with low or zero interest rates. Some second mortgages may not need to be repaid after living in the home for a certain period of time, while others may only need to be repaid when the property is sold.

•   Grant. With a grant, the money you receive is not expected to be repaid. However, there may be requirements for living in the home as a primary residence for a certain number of years for the grant to be forgiven.

•   Tax credit. Tax credits can reduce the amount of federal tax you owe if the local housing finance agency (HFA) issues you a mortgage credit certificate. This certificate can free up money for down payment and closing costs.

Some examples of DPA programs across the U.S. include:

•   Kentucky: Borrowers can receive up to $10,000 repayable over a 10-year period at 3.75% interest via the Kentucky Housing Corporation.

•   California: CalHFA has down payment assistance loans of up to the lesser of 3.5% of the purchase price or appraised value to qualifying homebuyers.

•   New York City: The HomeFirst Down Payment Assistance Program offers up to $100,000 for first-time homebuyers who qualify.

•   Montana: Borrowers can qualify for up to $15,000 in assistance for a down payment from Montana Housing. Repayment is either due when the home is sold or in the form of a 15-year loan.

•   Chenoa Fund: The Chenoa Fund is a nationwide down payment assistance program for creditworthy individuals on FHA loans up to 5% of the down payment needed for low- to moderate-income households. Both repayable and forgivable options are available.

In some areas, DPA programs can be hard to find or difficult to qualify for. Your lender can be an excellent resource if you need help buying a home with a small down payment. Discuss options with a representative and see what is available.

Negotiate for Lender Credits

Lenders want your business, especially in a high-rate environment. You can ask for credits to be applied to your closing costs. When your closing costs are covered by the lender, you can put more of your money toward your down payment.

Ask for Seller Concessions

When you negotiate the purchase of property, you can ask for seller concessions. These typically determine home’s purchase price and which closing costs the seller is willing to pay. Like lender credits, you can put more of your own money towards the down payment when a seller can cover some of your closing costs.

Ask for a Gift from Family

Of course, not every prospective homebuyer is blessed with a relative who has money in the bank they might give you or lend to you with generous repayment terms. But if you are in a spot and unable to come up with the funds otherwise, you might see if anyone is able and willing to help you out.

The Takeaway

While they may come with higher monthly mortgage payments, lower down payment mortgages can help borrowers buy homes sooner. Lowering your down payment requires a good amount of research on the part of the borrower, exploring different loans, programs, and other options to help you afford a property.

Even then, you may not find a perfect solution. That’s why it can be important to choose a mortgage partner who’s willing to be with you every step of the way.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much money to put down on a house in 2024?

Deciding on how much money to put down depends on your individual financial situation, the area in which you live, and programs you’re able to qualify for. While putting down 20% could save you the money you would pay towards PMI, you may be able to get into a house sooner by paying a lower down payment amount (from 0% to 3.5%). First-time homebuyers are currently putting down 8% on average.

How can I get my house down payment lowered?

To get your down payment lowered, you can try: financing with a zero-down loan (such as a USDA or VA loan), asking for seller concessions, negotiating for lender credits, and looking for down payment assistance programs.

Will mortgage interest rates go down 2024?

It is looking likely that mortgage interest rates will stabilize or decline. At the start of 2024, both the Mortgage Bankers Association and Fannie Mae were calling for rates to decline to the 6% to 6.5% range in the year ahead.

Does having a cosigner lower your down payment?

A cosigner can help you qualify for a mortgage, but it won’t change the requirements of the mortgage. Different loan programs will each have their own down payment requirements.

Photo credit: iStock/aydinmutlu

*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.

SOHL0124009

Shopping for a car: fun, freeing, and full of fresh new smells. Shopping for a puppy: heartwarming and full of suspicious smells. Shopping for a mortgage: not particularly thrilling or fragrant but one of the most important decisions many consumers will make in a lifetime.

From assessing what they can afford to nailing down a mortgage type, researching the best rates, and ultimately securing a loan, homebuyers must take many steps when shopping for a home loan.

Here are a few tips and tricks on how to shop for a mortgage loan and what to expect along the way.

How to Shop for a Mortgage Lender

In order to obtain a home mortgage loan, a buyer first needs a lender. You might work directly with a financial institution, or you may find a mortgage through a mortgage broker (more on that later). Before you can research these options, you’ll need to have a sense of what you can afford to buy and borrow. Start by figuring out how much you might spend on a home and roughly what portion of that you will need to borrow.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Figuring Out What’s Financially Possible

Reviewing monthly spending and estimating how much they can afford is one way for mortgage shoppers to kick off the home-buying process.

A budget or worksheet can be particularly helpful in determining what’s possible, with line items for the mortgage payment, property taxes, insurance, utilities, maintenance, and funds set aside for emergencies.

A mortgage calculator is useful for estimating the real cost of a home purchase, allowing consumers to plug in and play with the factors that influence a monthly mortgage payment:

•   Loan type

•   Mortgage principal

•   Mortgage interest rate

•   Down payment amount

•   Loan term

•   Estimated property tax

•   Private mortgage insurance, or PMI

•   Homeowners insurance

•   Homeowners association (HOA) fees

Most mortgage calculators allow homebuyers to enter their credit score for a more accurate estimate. Checking your current credit score can help you determine what type of loan you qualify for.

In many cases, a higher credit score can help buyers get a lower interest rate, while a lower credit score could mean higher interest rates or the need for a larger down payment.

Knowing this information can help consumers estimate what range of quotes to expect from mortgage lenders or brokers before they start shopping for a mortgage loan.

Recommended: First-Time Homebuyer Guide

Determining the Best Type of Mortgage

Another step to take when shopping for a mortgage is deciding which type of mortgage loan to apply for.

This process could require some diligent comparison shopping to consider the pros and cons of each option alongside financial and personal needs.

Fixed-Rate Mortgage

A conventional fixed-rate mortgage offers the same interest rate and monthly payment for the entire term of the loan — typically 15 or 30 years.

Adjustable-Rate Mortgage

ARMs generally offer lower interest rates than fixed-rate mortgages, but only for a certain time, such as five or 10 years. After that, the monthly payments will adjust to current interest rates.

No Down Payment Loans

A no down payment loan allows buyers to purchase a house with zero money down at closing, except for the standard closing costs.

Federal Housing Administration Loan

An FHA loan is a government-backed loan that allows qualified buyers to put down as little as 3.5% if they meet several FHA loan requirements, including the payment of mortgage insurance.

Veterans Affairs Loan

A VA loan is a government-backed loan that allows no down payment and no mortgage insurance. It is available to eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. VA loan requirements are worth looking into for buyers who fall into one of these categories.

USDA Rural Development Loan

A USDA Rural Development loan is a government-backed loan for families in rural areas who are trying to put homeownership within reach. As long as buyers’ debt loads don’t exceed their income by more than 41%, they can enjoy a discounted mortgage interest rate and no down payment.


💡 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.

Researching Rates and Deals

Once mortgage shoppers have a better idea of their financial bandwidth and preferred mortgage type, they can begin researching the optimum rates and deals they can get on a home loan.

Mortgage lenders and brokers might offer different interest rates and fees to different consumers depending on the day, even when they have the same exact qualifications. That’s why it can be important not only to understand mortgage basics but to compare what an array of different types of mortgage lenders and brokers are able to quote in the loan estimate.

Bear in mind that mortgage lenders and brokers receive a profit from the loan issuance, so they might be motivated to get consumers to agree to loans with higher fees, interest rates, or origination points.

Shopping around for the best interest rates and deals is a proactive way for homebuyers to avoid more expensive loans and ensure they can strike a deal they’re comfortable with.

How to Shop for a Mortgage Without Hurting Your Credit

When a lender looks at your credit history and score—what is known as a “hard” inquiry—and generates a mortgage preapproval, your credit score typically takes a hit. As you shop for a mortgage, you’ll want to instead first ask for a prequalification, which requires only a “soft” credit pull and won’t negatively affect your rating. It’s important to understand mortgage prequalification vs preapproval as you move forward through the process, as there is a time for each step.

Mortgage Lender or Broker?

One decision to make when shopping for a mortgage lender is whether to work with a lender directly, or to go through a mortgage broker:

•   A direct lender is a financial institution that assesses whether a buyer qualifies for a loan and offers them the funds directly.

•   A mortgage broker is an intermediary between the buyer and financial institution who helps the buyer identify the best direct lender and compiles the information for the mortgage application.
Long story short, mortgage brokers help homebuyers comparison-shop by collecting multiple lender quotes and presenting them all at once. This can be helpful for buyers who don’t want to deal with contacting multiple lenders. That said, the broker typically takes a commission, covered by the buyer, based on the mortgage amount.

In the case of working with a direct lender, it can be a good idea for buyers to deal with a financial institution they already have a relationship with.

Questions to Ask When Considering a Lender or Broker

Sometimes a list of questions can be useful when considering whether a mortgage lender or broker is the right fit. Ask prospective lenders the following:

•   How is the lender getting paid? It’s fairly common for a mortgage broker to get paid a commission on closed transactions. Asking them whether the fee is embedded in the loan origination fee or how their compensation will be facilitated can help make these costs more transparent to the buyer.

•   Can they offer competitive interest rates? If so, how long can they lock them in? While mortgage rates tend to be standard across the industry, lender rates can fluctuate based on the buyer’s credit score and financial history. Once the rate is locked in, there’s a guarantee from the lender that they’ll stay the same for a specific period of time, regardless of industry-wide fluctuations. Finding out if the lender is willing to offer the best rate and lock it in for, say, 60 days can help buyers know that they’re covered until closing time.

•   What are the typical business hours? Whether it’s a broker or a lender, finding out their availability can be good to determine in advance, especially since many home showings and offers happen on weekends and could require a tight turnaround time.

•   Can they provide a breakdown based on different down payment amounts? It can be useful for buyers to see a wide range of cost comparisons when shopping for a loan. Can the lender provide multiple scenarios with different down payment amounts, interest rates, and fees so the buyer can have a knowledgeable conversation about their budget and what’s possible?

•   What’s the loan processing time? Asking about the anticipated turnaround time for processing the loan (usually around six weeks) can help determine whether the lender will be able to execute the purchase and sale agreement in time for closing.

•   What fees and closing costs can be expected? Inquiring about expected charges is an important way for buyers to ensure no surprises or hidden transaction fees down the line. From origination fees charged by the lender to cover the loan processing to closing costs such as home inspection and appraisal fees, HOA fees, or title service fees, a loan estimate can help lay out which charges can be negotiated and which ones are fixed.

Understanding Risks, Benefits of Loan Options

Depending on the loan type, Annual Percentage Rate (APR), whether the interest rate is adjustable or fixed, the down payment amount, and potential prepayment penalties or balloon payments, mortgages have many different benefits and risks associated with their purchase.

Working with a lender to calculate how much monthly payments are estimated at the start of the loan, five years in, 10 years in, etc., can help make clear the risks and benefits of certain terms and conditions.

A mortgage worksheet is one way to help illuminate the potential upsides and downsides of a particular mortgage loan alongside the lender.

Negotiating the Best Mortgage Deals

After a suitable sampling of lenders have provided detailed mortgage loan quotes, consumers can compare costs and terms and negotiate the best deal. The mortgage worksheet can be helpful in this part of the process as well.

Being transparent about the fact that you’re shopping around for the best quote can incite lenders and brokers to compete with one another in offering the most favorable option.

Checking With Trusted Sources Before Signing

Once comparisons and negotiations whittle the list of quotes to a few, consumers might wish to consult with reliable sources such as a family member who has experience shopping for a mortgage, a housing counselor, or a real estate attorney to weigh in on the impending agreement. Review the loan documents with a trusted, well-informed source before signing anything.

Since getting a mortgage loan is often considered one of the most expensive commitments many consumers will make in their lifetime, there’s no harm in asking for a little help when making the decision.

Getting Mortgage Preapproval

Once you’ve chosen your mortgage provider, it’s time to consider getting preapproval. While being prequalified for a loan involves consumers submitting their financial information and receiving an estimate of what the lender could potentially offer, preapproval means the lender has conducted a full review of the consumer’s income and credit history and approved a specific loan amount for, typically, 60 to 90 days. This approval usually comes in the form of a letter.

Homebuyers can benefit from getting preapproved for a mortgage in many ways. Not only does it offer them the opportunity to discuss loan options in detail with the lender, but it also helps them understand the maximum amount they could borrow.

In some cases, sharing a preapproval letter with a home seller indicates serious intention to purchase a property. This can prove particularly helpful in competitive markets and bidding wars. Sellers will often go with a preapproved buyer over a prequalified buyer, since it may help the parties get to a closing more quickly.

Shopping for a Mortgage Lender Tips

In a competitive local housing market consumers may feel pressure to line up a mortgage quickly. But it pays to do your homework when shopping for a mortgage. Evaluate your own finances, know your credit score, and then make sure you are aware of the full range of options available to you. (Remember, first-time homebuyers may qualify for special programs.) Keep good records of competing offers from potential lenders or a mortgage broker. Never hesitate to ask about all costs or request clarification of any terms you don’t understand.

The Takeaway

How to shop for a mortgage? First, figure out how much you can comfortably afford, research loan types and interest rates, then compare what lenders offer. Finding the right loan is as important as choosing the right home.

SoFi makes shopping for a mortgage loan easy and you can get your rate in just minutes.

FAQ

What to look for when shopping for mortgages?

You want to look for a good interest rate when shopping for a mortgage, but you also want to consider the term of the loan and fees that might affect its total cost. A loan with the lowest monthly payment initially may not always be the most affordable choice over the long haul.

Is it worth shopping around for mortgage rates?

A mortgage is one of the biggest financial decisions most consumers will make, so it’s definitely worthwhile to shop around for the best rates.

How to shop around for the best mortgage interest rate?

Shop for the best mortgage interest rate by checking with various lenders to see what rate you might qualify for based on your credit score and down payment amount. Or work with a mortgage broker who will do this research for 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.

SOHL20006

As winter approaches, it may make sense — practically and financially — to prepare for the season ahead. Seasonal weather can transform minor issues into major ones, and cracks and holes around doors and windows can allow the money you spend on heating to literally fly away.  

Here, some smart moves for protecting your home, from the top of the chimney to the water heater in the basement. Plus, you’ll learn ways to finance improvements that will help get (and keep) your property in top condition.

Ways to Winterize a House

While the steps to winterize a home may differ in Alaska vs. Texas, it still helps to get ahead of any issues that may arise. No one wants to wind up with a leaky roof or an ice-cold home during a cold snap. 

It can be a smart move to start planning to winterize several months before the season arrives. The timing of the first frost varies from state to state, and of course, there are some regions of the U.S. that enjoy mild temperatures year-round. It may help to check the National Weather Service’s data that forecasts the first frost for each state to assist in your winterization preparation timeline. 

The following tips for winterizing a house may help you reduce future repair costs and heating bills. 

Protect Pipes or Pay the Piper

When deciding how to winterize a house, you may first consider how to address plumbing leaks and other issues.

Angi.com reports that the average burst pipe repair costs $500, but charges of up to $3,000 are not uncommon. Pipes in unheated areas of a home, including basements, attics, and garages, are among the most likely to sustain damage. But pipes running through exterior walls (including those in kitchens and bathrooms) in the heated parts of your home can also freeze.

Protecting the plumbing is clearly a situation where being proactive may save you a bundle. Pipe insulation can range from $0.50 to $1.50 or more per foot depending on whether you opt for tubular foam, spray foam, fiberglass, rubber or other kinds of insulation. Compare that to the $3,000 figure above to repair a significant leak, and the rewards of winterization can quickly become clear.

Adding insulation to attics (typically a $1,500 to $6,000 job), crawl spaces, and basements can help to keep those areas warmer, which can also help to keep pipes from freezing. (Yes, many houses have pipes in the attic.) What’s more, the E.P.A. says that homeowners can save up to 15% on heating and cooling costs by pumping up their home’s insulation. The higher an insulation’s R value, the better it may keep your home toasty. It can be a wise move to check the U.S. Department of Energy’s map and guide for more details on this topic.

Address HVAC Maintenance and Repair

Nobody wants the heating system to perform poorly during the winter — much less have it break down.

It’s a good idea to schedule a professional maintenance appointment (about $300 on average), including a filter change, before freezing temperatures arrive. Afterward, it’s best to change the filter at least every 90 days to keep your system operating optimally.

Additionally, maintenance and repairs to the heating, ventilation, and air conditioning (HVAC) system and cleaning out vents can improve airflow in your home.

One good move (if you haven’t already made it) can be to install a smart thermostat. If people in a home are away during reasonably regular times of the day or you want to lower the thermostat at night, it can make sense to install a programmable thermostat to save on energy costs. You could quickly shave $140 off your annual energy bill and plunk that into a high-yield savings account or your emergency fund.

It may be time to consider a new HVAC system for some people. The Department of Energy’s Energy Star program provides tips to homeowners to decide if replacing an HVAC system would be a good move.

Signs that it might be time to replace the unit include:

Buying a house is a major step, and planning to purchase a home can be a lot of fun. You get to figure out where you’d hang your favorite artwork, plant a vegetable garden, put the PlayStation — and maybe contemplate taking on some DIY projects yourself.

But there’s another, more nuts-and-bolts aspect to your pursuit of the American Dream: how to budget for a house. Most people in the U.S. are homeowners, with the latest Census data revealing that 65.6% had attained this status in the second quarter of 2024. So that’s a good indicator that buying your own home is within reach.

Doing so will likely require you to be smart about your finances, both as you save and then take on the responsibility of owning a home. To help you be successful in this pursuit, read on for the intel you need, such as:

•   How do I know how much house I can afford?

•   What are the costs/fees to consider?

•   What will my ongoing costs be?

•   How can I budget for a house?

Up-front Expenses

First, consider how much you would have to fork over if you find that perfect center-hall Colonial or loft-style condo. Once an offer on a new home is accepted, there are certain costs the buyer needs to pay right off the bat and, in most cases, out of their own pocket. These are called up-front expenses. Here are a few to prepare for as you consider how to budget for a house:

Down Payment

You may have heard of the traditional 20% down payment guideline, which helps you avoid paying private mortgage insurance (PMI) on applicable loan programs. Additionally, a higher down payment can sometimes result in better mortgage loan terms (such as a lower interest rate) which may translate into lower monthly mortgage payments.

Yep, it’s a lot of money to try to save, but if you can swing it, in the long run, applying a 20% down payment will likely save you from paying thousands of dollars in additional mortgage interest over the life of the loan. Can’t pull together that big a chunk of change? Look into your options for a mortgage lender with lower or no down payment. Some options:

•   The minimum down payment for a first-time homebuyer on a conventional loan can be as low as 3%. You may also need a certain credit score of, say, 620, to qualify for this kind of mortgage.

•   An FHA government loan that is open to everyone typically requires a down payment of at least 3.5%.

•   Veteran VA loans or government USDA loans may allow eligible borrowers to finance up to 100% of their home’s cost. In other words, no down payment is required.

It’s worth noting that, regardless of the size of your down payment, buying may still significantly reduce your overall monthly expenses, compared to your current rent and real-estate market conditions.

3% to 5% Closing Costs

You can likely expect to pay an estimated 3% to 5% of your home price for closing costs, and should save accordingly. For example, if you buy a home that costs $300,000, you may be required to pay between $9,000 and $15,000 in closing costs.

Worth noting: Some costs are fixed and not tied to the price. In these cases, the percentage can be higher for the lower range and lower for the higher purchase price range.

What exactly comprises closing costs? This can be bank charges like origination fees and any points you may have purchased to buy down your interest rate. There are also costs like the appraisal fee, a title search, and others.

Keep in mind that there are alternatives to paying the closing costs out-of-pocket, such as requesting a seller credit, requesting a lender credit, or tapping an applicable down payment assistance program. These can help you minimize this expense.

Moving Costs

Don’t forget when budgeting for buying a house that you will need funds to actually move in. Unless you’re lucky enough to have a generous pal with a van, you are probably going to have to hire a moving company when it’s time to get settled in your new home. The average cost of moving the contents of a three-bedroom home 1,000 miles is $4,800 according to research by U.S. News & World Report.

These costs can vary widely, of course. If you are moving with just a bedroom’s worth of furniture versus a whole house, your price tag will be lower. It’s wise to comparison-shop for moving companies and factor this expense into your own budgeting for a home move.

If you are moving for work reasons, check with your company to see if it offers a relocation package to help cover some or all of the moving costs.

New Furniture and Appliances

Your new house may not have the same dimensions and style of your old house. That could mean that you need to buy new furniture and appliances. When budgeting for buying a house, you might want to talk to friends or relatives who have moved recently and inquire about unexpected expenses as well. For example, it’s not uncommon when you move to have to purchase such items as new locks, shower rods, and window treatments. These can add up quickly.

You might want to start a savings account for these types of purchases — some of them may be unexpected and costlier than you imagined.

Recommended: First-Time Homebuyer Guide

Ongoing Expenses

Now that you’ve figured out the details related to the actual purchase, consider the expenses that will accrue once you are a homeowner. This is a very important step when budgeting for buying a house. These recurring charges are a vital part of the calculations of how much home you can afford.

Monthly Charges

First, consider how much you’ll be spending every month on your monthly mortgage payment and related costs. PITIA (principal, interest, property taxes, homeowners insurance, and other assessments) is an acronym describing all the components of a mortgage payment. Here’s how it breaks down:

•   P: The principal is the “meat” of the monthly payment amount — paying down the principal will reduce the loan balance.

•   I: Interest is what you are charged for borrowing the money.

•   T: Taxes refer to your property taxes.

•   I: This “I” refers to insurance. This includes both your homeowners and mortgage insurance, if applicable.

•   A: The other assessments refer to things that may be applicable to the home you purchase such as homeowners association dues, flood or earthquake insurance, and more.

HOA Dues

HOA stands for homeowners association. These dues usually apply to a condo, co-op, or property owned in a planned community.

The charge is usually monthly (but it could also be charged quarterly or annually), and it typically goes to maintaining the community (landscaping, garbage collection, repairs, and upgrades).

Before purchasing a property with HOA dues, it can be important to ask the Homeowners Association for a complete HOA questionnaire. With this in hand, you can view how healthy the association is, whether there is any outstanding litigation due to structural or other issues, etc. These could mean increased costs down the road.

Maintenance and Lawn Care

Your budgeting probably won’t stop once you’ve moved and settled into your new home. Expenses will likely continue to knock on your door — landscaping, roof repair, and water heater replacement are just a few items that might require ongoing financial consideration.

You may want to budget for 1% to 4% of the cost of your home in maintenance each year to pay for these expenses. However, deferred maintenance costs may require more funding, depending on the age, quality of construction, where you live, and more.

Pest Control, Security, Utilities

The cost of electricity, gas, water, and internet services differ from market to market. This is also true with pest control, and services that help ensure your home is secure and safe. You could find yourself paying more (or even less) for these services in your new home.

How Much House Can You Afford Quiz

Planning Ahead

So now that you understand the costs associated with homeownership, whether they are one-time or ongoing, you can get to work on how to budget for a house.

Ideally, you want to cover the homebuying costs and then be able to afford your monthly carrying costs without racking up debt. The standard advice is that your monthly housing expenses should account for up to 28% of your monthly pre-tax income. Given how expensive some housing markets can be, it’s not uncommon to find people spending more than that right now.

Here, some advice on figuring out what you can afford.

Target Mortgage Costs

Do your research on the different types of mortgage loan programs. Determine what your price range is given the current interest rates. Find the programs that may best suit you, so you’ll feel confident you can bid and afford a home once you have your down payment saved. Don’t forget to factor in those other PITIA expenses mentioned above as you think about your own monthly income and cash outflow when you’re a homeowner.

Build a Budget

Once you have these costs calculated, you can then start budgeting for buying a house. You’ll want to accumulate your down payment, while taking care of current bills and other financial obligations, of course.

•   Create a line item budget. You’ll want to note how much money you have coming in and how much goes out toward your needs (housing, food, medical expenses, debt repayment). Then you’ll see what’s left for your wants (think travel, dining out, clothes, entertainment) and start saving it, whether for your future home or retirement.

   Don’t skimp, though, on establishing an emergency fund. In a pinch, these funds can keep you from using your credit card and running up even more debt.

•   Assess where you can save more. To ramp up your savings for your house, look for ways to economize. Could you drop a subscription or two to streaming channels, or perhaps eat out less often?

   Also see what you can do to avoid high-interest credit card debt, which can take a bite out of anyone’s budget. You might want to take advantage of a zero-interest balance transfer credit card offer, or investigate whether a lower-interest personal loan could help you pay off your debt and save money.

•   Use automatic transfers. Help yourself hit your savings goals by automating payday transfers from checking to savings. That way, you won’t see the cash in your account and be tempted to spend more.

•   Bring in more moolah. If the numbers aren’t adding up to bring your homebuying plans within reach fast enough, consider using windfalls (a tax refund, a bonus at work, a birthday gift of cash from a relative) to plump up your savings. Also think about ways to bring in more income, whether by asking for a raise or pursuing a side hustle.

The Takeaway

Budgeting for buying a house requires thinking about both short-term costs, such as a down payment, closing costs, and moving expenses, as well as long-term costs such as homeowner’s insurance and maintenance expenses. It’s wise to look at both before you pursue a mortgage preapproval or make an offer on 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.

FAQ

How much money should you save before buying a house?

If possible, you should save enough money for a down payment on a house in the price range you’re thinking about. But you don’t need to make a 20% down payment — many homebuyers put down less, and some government programs will allow you to buy with no down payment at all. You’ll also want to have closing costs on hand (3% to 6% of the home’s price). And it’s wise to always have an emergency fund in case of an unexpected setback.

How much do I need to earn to afford a house?

How much you need to earn to afford a house depends on the housing market you’re looking in and the area’s overall cost of living. The national average salary is $63,795 and at that salary you may be able to afford a home priced at $180,000. Use a home affordability calculator to explore the numbers for your specific situation.

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.

SOHL-Q324-053

If you own an Airbnb property or are contemplating offering one on the popular rental platform, you probably know that doing so can bring in a welcome stream of income. You also probably know that it can take time and energy to keep things running smoothly. Guests may cancel at the last-minute; your property’s dishwasher might break; and an array of other scenarios may arise, demanding your attention.

In this situation, you might want to find a cohost to assist you. A cohost can simplify the process by assisting with bookings, housekeeping, answering guests’ questions, and more responsibilities.

A cohost could be a friend or family member, a person you find and pay for their services, or a professional with whom Airbnb connects you.

Here, you’ll learn more about this option including:

•   What is Airbnb?

•   How does Airbnb work?

•   How does Airbnb work for hosts?

•   How to become an Airbnb cohost?

What Is Airbnb?

Airbnb is an online marketplace for private home stays (whether that means renting out a room, a floor of a house, or a whole property) as well as vacation experiences.

How does Airbnb work for hosts? Owners sign up to rent out a room, apartment, or house for a home stay. (Even treehouses turn up among the properties.) The hosts set their rates, and share their rental policies. Guests can then book via the Airbnb platform, which assists with communications and administrative tasks for a commission.

More than four million hosts now operate worldwide, with over 150 million users globally who have booked over one million stays. It’s a proven platform for coaxing an income stream out of any property, and it can be an enticing endeavor for first-time homebuyers.


💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Who Books on Airbnb?

All kinds of people book on Airbnb: Recent grads, families, retirees, wedding guests, digital nomads, and more. Both frugal travelers and posh jetsetters alike are looking for lodging. Many people prefer the authenticity of an Airbnb to a cookie-cutter hotel or motel room.

How does Airbnb work for guests? They search for and book a property based on location, price, available dates, and desired amenities, among other factors.

When potential guests submit inquiries, owners receive immediate notification of the reservation request. Airbnb has technology in place to block guests with a record of negative behavior (such as property damage) from reserving properties.

How Does Airbnb Work for Owners and Cohosts?

There are many things to know when renting out an Airbnb. Here’s how Airbnb works for owners: Those who list new properties on Airbnb receive step-by-step instructions for setting up their space. They can be matched with a successful Superhost (that’s Airbnb’s term for highly rated and reliable hosts) to assist them.

If you bring aboard a cohost, they will be verified by Airbnb (submitting ID may be required). Once approved, they will have full privileges to help you with managing and optimizing your listing(s). Tasks can include:

•   Managing booking and reservation-related tasks

•   Answering prospective and current renters’ questions

•   Stocking and otherwise maintaining the property

•   Updating the listing as needed

•   Enhancing guests’ experience.

Recommended: Is It Smart to Buy an Investment Property While Renting?

How Much Do Airbnb Owners Get Paid?

If you are offering a property for rent on Airbnb, you are probably interested in turning a profit. So how does Airbnb payment work? The price you charge for your property and the number of nights you book will determine how much you earn.

If you consider this in more detail, the income from an Airbnb depends on a variety of factors, including the size of the property for rent, amenities (does it have a spa-style bathroom? A swimming pool?), the tourism market, local housing market trends, and the number of other Airbnbs you’re competing with.

Looking at the Airbnb site and sizing up your competition can help you determine how much to charge and how rates vary over the year.

In terms of how much Airbnb owners get paid of the amount renters pay, consider that most hosts pay a service fee of 3% of the rental subtotal (the nightly cost plus any fees you charge guests, such as cleaning charges). Airbnb doesn’t charge its hosts a payment processing fee.

In addition, guests usually pay Airbnb a 14% service fee on top of the subtotal.


💡 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.

How to Become an Airbnb Owner with a Cohost

Want to launch your property on Airbnb with the help of a cohost? The platform makes it simple:

•   Go to the listing(s) where you’d like to add a cohost.

•   Click on “Cohosts” and then “Invite a Cohost.”

•   Add their location and their email or phone number, and click “Next.”

•   You’ll be prompted to select permissions for this person; then click “Next.”

•   You can add a note if you like, and then hit “Send.”

Airbnb will then handle inviting and verifying the cohost and adding them to your listing. You can have up to 10 cohosts per listing.

In terms of how to become an Airbnb cohost, the person you’ve invited will likely have to accept your invitation and then provide information and ID to Airbnb.

Airbnb Owner Requirements

Here are some of the owner requirements to offer a property as a rental on Airbnb:

•   Be of legal age. Perhaps it goes without saying, but minors shouldn’t be involved in renting out properties on the platform. While it may sound like a cool summer project for a teenage cousin to help manage a family lakehouse, that would be a no-go.

•   Make sure renting your property is legal. Depending on the home’s geographical area, a host may need to register the property or obtain a short-term rental license. Or you may not be allowed to rent out your property at all. A call to your city hall may be the best way to learn the details.

•   Know the tax implications. In some tax areas, Airbnb will handle the calculation, collection, and remittance of any local occupancy taxes on your behalf. In other locations, you may be responsible for this.

•   Cover yourself. Hosts should understand the liability insurance that Airbnb automatically applies to rentals. Hosts may want to also confirm that their homeowners’ insurance policy provides coverage for short-term rentals.

Recommended: What Is the Cost of Living by State?

Pros and Cons of Being an Airbnb Owner

As you consider becoming an Airbnb host with a cohost or without, you may want to review the benefits and disadvantages of renting in this way.

Pros of Being an Airbnb Owner

Are you thinking about how to become an Airbnb host for others? Among the upsides to consider are the following:

•   Hosting short-term rentals can bring in cash. This can help ensure you’ll have resources to make your home loan payments.

•   Income from rentals can fund renovations and other improvements, or it could help finance your long-term financial goals.

•   A successful rental history can increase the value of your property when you’re ready to sell.

•   Many people find hosting a rewarding activity, both as a business and a personal pursuit.

Cons of Being an Airbnb Owner

Here are some of the downsides of being an Airbnb owner:

•   It can be a big leap to give total strangers the key to your home. For instance, if the property is your primary residence, you will have to vacate for bookings. If your home contains treasured furniture or tableware, you may worry about damage.

•   Some cities, towns, and homeowners associations have passed legislation against short-term rentals.

•   Owners who rent their properties, even a few days a month, must pay taxes on the earnings.

•   While Airbnb provides insurance coverage automatically to hosts, you may want to make sure your homeowners insurance can cover short-term rentals as well.

•   It can be a time-consuming endeavor, and some people may find being a host to be frustrating in some ways.

Writing an Airbnb Host Listing

A successful Airbnb host listing is typically a combination of an enticing portrait of your property and all the vital, nitty-gritty details.

Usually, the listing will share:

•   A short introduction, which delivers an overview and highlights why it’s a terrific property

•   Room-by-room descriptions

•   Details about the property/outdoor features

•   Information about the location and things to do nearby.

Be sure to define terms that bookers may not know, such as what is a duplex or pergola.

Tips on Hosting on Airbnb as an Owner with a Cohost

Here are some ways to collaborate with a cohost:

•   Have your cohost manage the calendar, set holiday/peak rates, and answer questions.

•   Ask your cohost to share ideas for area attractions that draw guests. Mention these in your listing, including distances from your property.

•   Talk to your cohost about personal touches they think would please guests, like sharing a list of good local restaurants that don’t require reservations.

•   Ask your cohost to create house rules and determine how to share and enforce them with guests.

•   Have your cohost review the property and highlight anything that needs maintenance or that could be improved.

•   Give your cohost the job of restocking the property after each guest stay.

The Takeaway

If you’re considering offering a property on Airbnb or are already doing so, a cohost could make the management easier. A cohost could be a family member who helps out for free, or they could be a paid professional who manages a number of Airbnb rentals and has considerable experience. A cohost could help you boost the success of your hosting on this popular platform.

Are you just pondering becoming an Airbnb host and currently eyeing the perfect bungalow to rent out? Finding the best mortgage for your purchase is an important step.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What percentage does Airbnb take?

Airbnb typically collects a flat service fee of 3% of the rental fee subtotal. In addition, the guest pays Airbnb a 14% fee directly.

How much do owners have to pay Airbnb?

Airbnb will deduct a 3% fee from a rental subtotal (which includes the nightly fee, plus any other fees the host charges, such as a cleaning fee).

Do Airbnb hosts get all the money?

Here’s how Airbnb payment works: Airbnb hosts do not get all the money. They typically pay 3% of the subtotal (nightly plus other fees) to Airbnb and then get the rest. Airbnb doesn’t charge any payment processing fees.

Photo credit: iStock/AJ_Watt

*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.

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