SoFi

When you purchased your home, you probably had a thousand things on your mind. It’s easy to get caught up in the details of finding the home you want, where you want it, for the price you want to pay. It’s possible that you overlooked other important components of the home-buying process that are now affecting your monthly mortgage payments, including your mortgage terms, insurance costs, and taxes.

You may be able to negotiate that perfect home’s price down to an unbelievable bargain, but if you don’t hone in on those other factors, you still could end up paying more than you hoped for your mortgage. The good news is it’s never too late to make changes and save money on your mortgage. Here are five strategies to consider:

1. Refinancing Your Current Home Loan

If your income has improved or you have strengthened your credit score since you got your original mortgage — or if you just didn’t secure great loan terms the first time—a mortgage refinance could be your chance for a do-over. This is especially worth considering if you obtained your mortgage prior to 2000, although even more recent mortgages could be candidates for a refi.

Securing a lower interest rate can make your monthly payments go down. (Even a small difference in rate can result in significant interest savings over the life of the loan.) Getting a shorter loan term will likely make your payments go up, but if your income can accommodate the expense, you’ll pay off the loan much sooner. A lower rate and a shorter term would deliver even better benefits.

If that sounds like a goal worth aiming for, here are some steps you could take:

•  Know what you owe. Before you start looking at refinancing loans, examine the balance of your current loan, the monthly payment, and the interest rate.

•  Check your credit report. Lenders may offer favorable rates or loan terms to borrowers with higher credit scores. You can get a free credit report every year from each of the three big credit bureaus, so you can review the information for accuracy and fix any errors. (But keep in mind that the annual free credit report provides an overview of your credit history, rather than your specific FICO_Ⓡ scores.) If your report isn’t as strong as you hoped, you could always press pause and come back to your plan after you’ve had a chance to rehabilitate your credit status.

•  Shop for the best lender, rates, and terms. Remember, even a half-percent difference in the interest rate can make a big difference. (And keep fees and other costs in mind as you’re doing your research may help.)

•  Clearly understand the consequences. Getting a lower mortgage payment isn’t always a money-saver. For example, stretching out the loan term can lighten your monthly financial burden, but you could end up paying substantially more in interest over the life of the loan. And though borrowers often choose to roll closing costs into their loan — either because they can’t afford them or don’t want to pay them upfront — doing so means you’ll pay interest on that added amount, diminishing your overall savings.

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

2. Pulling the Plug on PMI

If you couldn’t put 20% down when you purchased your home (and many first-time homebuyers can’t), you probably were required to buy private mortgage insurance.

(This is not the same thing as your homeowner’s policy, which is for your protection in case of loss or damage in your home. PMI protects the lender in case you default on your loan.)

How expensive is it? PMI typically costs .5% to 1% of your loan amount, so on a $200,000 home loan, that could be $2,000 a year, or $166 a month. If your loan closed on or before July 29, 1999, PMI is automatically canceled:

•  On the date the principal balance of the mortgage loan is first scheduled to reach 78% of the original value of the property. (And just FYI, the original value is defined as the purchase price or original appraised value, whichever is less.)

•  Or, halfway through the mortgage loan amortization period — that’s if the scheduled loan-to-value ratio doesn’t reach 78% before you make it halfway through the mortgage

However, you can petition your lender to cancel your PMI after 2 years when you think you have built up sufficient equity. Your loan payments must also be current.

Refinancing also can provide an opportunity to dump this cost. If your home’s value has appreciated, and the amount of your new loan is less than 80% of the home’s value as evidenced by a new appraisal, you’ll no longer be obligated to pay PMI.

3. Filing for a Homestead Exemption

Most states offer a homestead exemption to provide tax and creditor relief on a primary residence. (New Jersey, Pennsylvania, and Rhode Island are among the states that do not.) Depending on your state, a claim form may be mailed to you automatically once your house purchase goes through. But you can also get a Homeowner Exemption Claim Form from the County Assessor’s office or website. And P.S., counties often have deadlines for when the forms need to be filed.

4. Requesting a New Tax Assessment

The county’s tax records could contain inaccurate, incomplete, or dated information that is causing the tax assessor to put a higher value on your home. You can get a copy of the record at the tax assessor’s office — and property tax records are public and available on county tax assessors’ website. Among the things you can check:

•  Is the age, purchase price, square footage, and lot size listed correctly?

•  Does the record have the right number of bedrooms and bathrooms?

•  Has your homestead exemption been applied?

•  Are there any defects that would detract from value listed? Or are there improvements listed that you haven’t made?

If you paid more for your home than what it’s now worth, and the assessment was never adjusted, you could potentially request a lower taxable value. There are a few ways to determine your home’s value:

•  Looking in the tax assessor’s records for similar homes in the same neighborhood and comparing them to your own.

•  Checking online real estate sites for estimates. (Just remember, you’ll need to know the actual sale price to make a solid argument.)

•  Hiring an appraiser to give you a home appraisal or requesting a value estimate from the real estate agent who helped you purchase the home.

•  If you are refinancing your mortgage and the lender ordered a professional appraisal, you can (and will) get a copy.

Once you have a good idea of where you stand, you can contact your county for a new assessment. This process varies by county, but if your property tax is successfully lowered, the assessment will likely be reviewed every year for changes.

💡 Quick Tip: There are two basic types of mortgage refinancing: cash-out and rate-and-term. A cash-out refinance loan means getting a larger loan than what you currently owe, while a rate-and-term refinance replaces your existing mortgage with a new one with different terms.

5. Downsizing to a Less Expensive Home

Homeowners often think of downsizing as a move they’ll make in retirement — at that stage, it’s as much about making life easier as it is about saving money.

But if you realize you simply can’t afford the house you have — or that a fourth bedroom and third bathroom aren’t as essential to life as you thought — going smaller is a great way to cut costs. Not only can you save on your house payments, but your heating, cooling and other bills will likely go down.

You also may see your costs drop if you move to a less expensive part of town or a state with low property taxes, or lower sales or gas taxes. (Check out a guide to the cost of living by state for inspiration.)

Of course, you’ll want to walk away from your current home with enough money for the move to make sense. You may want to check out what a new home will cost before you put your place on the market.

Among other things, checking figures such as how your property taxes may change can be helpful. You can also consider looking into homeowners insurance; are you moving from a no-flood zone into a flood zone? How will that change your home insurance premiums? Checking your current mortgage interest rate against the new rate you’d potentially qualify for on a new home is a pragmatic thing to do, too. Have rates gone up since your last home purchase? If so, would the higher rate be offset by a lower purchase price and loan amount?

The Takeaway

If you love your home but hate the payments, remember that there are ways to reduce what you’re paying every month. Whether you choose refinancing to get to a more manageable number or you explore downsizing, working with a mortgage loan representative can help you find the savings you need.

Most people expect owning their own home to be their biggest financial undertaking. But that doesn’t mean you should pay more than is absolutely necessary to get it.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

A new mortgage refinance could be a game changer for your finances.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
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 on credit.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
FICOⓇ is a registered trademark of Fair Isaac Corporation.
*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.

SOHL1023237

Buying a home can at times feel like quite an uphill climb, what with socking away cash for a down payment and getting approved for a mortgage. One option that may promise to ease the path for some people is what is known as a rent-to-own arrangement.

If you enter into this agreement, you may be able to rent and then decide to purchase the property at the end of the lease. That can give you some time to build your savings and your credit. What’s more, while renting, part of your monthly payment may be earmarked for your down payment.

However, in addition to these positives, there are potential downsides, such as losing a nonrefundable upfront fee if you decide not to buy. If you’re curious about rent-to-own homes, read the following guide. You’ll gain important insights that can help you decide if this form of homebuying is right for you.

What Is Rent-to-Own?

Renting vs. buying a home is a big decision, but in some cases, you may be able to do both. With a rent-to-own home, you lease a property and have the option to buy it at the end of that period. Your monthly rent (which may be higher than the going market rate) can include a portion that is earmarked as down payment money should you decide to buy.

A key benefit of rent-to-own agreements is that they can help make homeownership possible for people who might not otherwise be able to purchase a property. Someone who doesn’t have a hefty chunk of change saved for a down payment may be able to buy a home. Or it might give a prospective homebuyer a chance to build their credit history en route to applying for a mortgage a little later on.

In these ways, rent-to-own could put you on the path to buying a property while still renting.

💡 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.

How Do Rent-to-Own Agreements Generally Work?

Now that you know what a rent-to-own home is, here’s a closer look at how they work. With these agreements (also sometimes called “lease with option to buy”), the renter typically commits to renting the property for a specific period of time, with the option (or obligation) to buy.

•   In many cases, the renter pays an upfront nonrefundable option fee. This is what can secure the option to buy, and it typically ranges from 1% to 5% of the purchase price.

•   Another feature of a rent-to-own agreement can be that a portion of the monthly rent goes toward the down payment at the end of the lease, should you decide to buy. So if the going rental rate is $1,700 in your area, you might pay $2,000 a month, with that $300 additional going toward the down payment. (You may have to hunt if you want a rent-to-own home with low monthly payments.)

•   It’s important to note that there are two different kinds of rent-to-own arrangements. There’s lease-option, which means you will have the choice of whether to buy the property, and there’s lease-purchase, in which you are committing to buy the property in the future. The latter can be a legal obligation, so proceed with caution.

•   With these rent-to-own or “lease with option to buy” deals, you can either decide on the purchase price upfront or agree that the sale will be contingent upon an appraisal at the time of purchase. It is generally recommended to get a home appraisal and inspection upfront before entering into a contract.

•   The appraisal, if done up at the start, can set the market value of the home and can also give a rent schedule showing rents paid in the area for the same type of home. The rent schedule confirms the base rent charged is reasonable before any option to buy surcharge is added on top.

Benefits of Rent-to-Own Homes

Here are some of the potential advantages of a rent-to-own agreement.

•   A rent-to-own property may offer a way to get into your dream house before you’re totally ready to buy. Perhaps you don’t have enough money saved for a down payment and don’t see a path to accruing enough to buy a home in today’s market. Rent-to-own could open a door to home ownership.

•   Another benefit of renting to own is that it buys you time to build your credit. Maybe you’re still cleaning up a past credit problem that’s keeping you from qualifying for a mortgage. Renting first could give you time to accomplish this.

•   You can potentially save money on repairs. With a rent-to-own arrangement, a landlord and tenant often split the cost of repairs. In some situations, the landlord agrees to cover larger expenditures. This can be helpful to those trying to save money to buy a home.

•   There’s flexibility. You get to try on homeownership of a property by living there as a renter first. At the end of the rental period, you can choose to buy or move. That is, unless you’ve entered into a lease-purchase arrangement, in which case you can be legally obligated to buy.

💡 Quick Tip: You never know when you might need funds for an unexpected repair or other big bill. So apply for a HELOC (a home equity line of credit) brokered by SoFi today: You’ll help ensure the money will be there when you need it, and at lower interest rates than with most credit cards.2

Some Problems with Rent-to-Own Agreements

There are usually pros and cons of buying a starter home, but doing so via a rent-to-own arrangement can have its own set of considerations. Now that you know the potential upsides of renting to own, consider these potential disadvantages before you sign on the dotted line.

•   Selection may be limited. If you have your heart set on a certain neighborhood or home style, you might be out of luck. Unless you can find a seller in your target neighborhood who’s willing to do a rent-to-own or lease arrangement, you’ll likely have to stick with the conventional choice of renting or buying.

•   You could lose money if you decide not to buy. That option fee discussed above is often nonrefundable, and any surcharge you pay on the monthly rent (to go toward a down payment) may not come back to you either. The bottom line: If you walk away at the end of the lease, your finances could take a hit, which could be a significant homebuying mistake.

•   What’s more, if you’ve signed a lease-purchase document, it can be legally binding in terms of having to buy at the end of the rental. If you can’t or don’t want to purchase when the time comes, you could be in a very difficult spot.

•   If you agree to a purchase price at the beginning of your rental term, there is the chance that the home’s value could drop with market fluctuations. Then, when it’s time to exercise your option to buy, you might be faced with an overpriced property.

•   Just because you have entered into a rent-to-own agreement doesn’t mean you will qualify for a mortgage at the end of the rental term. Yes, you may have more money set aside for a down payment or you might have built your credit, but again: There are no guarantees that a lender will approve you to move ahead with the purchase.

•   If the owner stops making payments and the property goes into foreclosure, you may be out of luck. And you may not have much say if the property isn’t maintained to your standards.

Recommended: Is Now a Good Time for Buy a House?

Do These Contracts Compare to Qualifying for A Mortgage?

A rent-to-own home may seem helpful if you are not quite ready to buy a home outright; say, you might need more time to accumulate a down payment or build your credit history. Or perhaps you think you want to buy a property, but you’d like to live in it before committing 100%.

Keep in mind, however, that signing a rent-to-own agreement doesn’t mean you’ll necessarily qualify for a home loan. At the end of your rental term, if you decide to buy, you will still have to apply and be approved for a mortgage. Your financial credentials will be reviewed in depth to determine your creditworthiness.

If you’re serious about becoming a homeowner, a traditional home purchase along with a mortgage may offer a wider array of options. With a traditional mortgage, you take out a loan to cover the purchase price of your new home minus your down payment. A mortgage loan allows you to immediately purchase your home, as opposed to renting first.

In addition, there may be some tax benefits to owning right away vs. renting first; you might talk with a tax advisor to get more details.

If you don’t feel ready to put down as much money as you’d like, you might consider conventional loans that let you put down as little as 3% to 5% down or government-backed loans that may even allow you to buy with no money down. You could also look for down payment assistance programs you might be eligible for in your area. These can help make a purchase more affordable.

Recommended: Quiz: Should You Buy or Rent a Home?

The Takeaway

Rent-to-own homes can offer a way to buy a home after leasing it. This can provide time to the prospective homebuyer to save up funds for a down payment or to build their credit. However, an option fee (usually nonrefundable) and a higher rent can be part of the arrangement, so it’s wise to consider this carefully. Having a lawyer review the agreement up front can be a good idea so you fully understand the potential risks and rewards.

If you think you’re ready for homeownership (whether after renting or right away), you may want to check out your mortgage options: what kinds of home loans are available at what interest rates from which lenders. That can help you understand your home-buying budget.

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 does it mean when someone says rent-to-own?

Rent-to-own arrangements allow a person to rent a property and then have the option (or obligation) to buy at the end of the lease. There is usually a nonrefundable option fee to be paid up front, and the rent may be higher than the norm in the area. That’s because a portion may be earmarked to go toward a down payment at the end of the rental.

Is it smarter to rent or own a home?

Deciding whether to rent or buy a home is a very personal decision. It can depend upon your financial situation, your need for flexibility vs. your desire to put down roots, and other factors.

What is the main reason to avoid renting to own?

Renting to own can have a few drawbacks. However, here’s a key one: There are often nonrefundable fees and rent surcharges, which could cause financial loss if you decide not to move ahead and buy.

*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.

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.

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

SOHL1023242

Home prices are on the rise again, especially in large metro areas, after a lull leading into 2023. Seven cities, including Atlanta, Charlotte, Detroit, and Miami are at all-time highs as measured by the Case-Shiller U.S. National Home Price NSA Index. So saving for a down payment for your first house can be tough. This is especially true if you’re trying to buy that first home while you also have student loans to pay off. And if you’d like to purchase that home super fast before prices soar higher, it can feel impossible.

But here’s the good news: It’s definitely doable, even within just 12 months, if you accelerate your savings and prepare wisely. Follow our strategy below to take that big step into home ownership fast.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Months 1–3: Save Like You’ve Never Saved Before

Do the Math

The median home price in the U.S. in late 2023 was $431,000. Saving 10% for a down payment on a home at that price is far more manageable than following the old 20%-down school of thought, especially when you have student loans to pay off. To succeed at saving $43,100 in a year’s time, you’ll need to save $3,592 a month, which seems slightly more plausible if you take a breath and break it down into 52 weeks, at $829 a week. Of course, you’ll want to crunch the numbers for the type of home you’re looking to purchase. If you can find a well-priced property and put even less than 10% down, you may need significantly less cash on hand.

But don’t put your calculator away yet.

In addition to saving for the down payment, you’ll need to factor in closing costs, which typically amount to about 3% of the home price. So for a home that costs $431,000, you would need to add $249 to your weekly savings goal.

Yeah, that’s a big chunk of change. But don’t panic; the first step is always the hardest. Just imagine yourself landing your first job or hosting your first big party. You managed that and you’ll manage this too. And remember to consider student loan refinancing, which can help lower your interest rate, monthly payments, and ultimately save you money.

Revise Your Budget

Hunker down and take a hard look at your budget. If you’ve decided to refinance your student loans, don’t forget to adjust your monthly fixed expenses to account for your lower payments. Compare your income and expenses to get a clear view of your spending habits, and then make the necessary changes to meet your weekly savings goals.

Look closely at your expenses to see what you can give up to increase your savings, and what costs you can cut back on. Can you join a rideshare group to save on gas? Part with a streaming subscription or two? Also, consider setting limits on eating out and buying clothing or gadgets you don’t really need.

Recommended: Home Affordability Calculator

Flex your Negotiation Muscles

Put your savvy bargaining skills to use to get lower interest rates on existing credit cards and auto loans, or discounted rates on subscription services.

Start a Home Fund

Open a savings account just for your down payment, and avoid dipping into it. This will help you keep careful tabs on your progress.

Reach out to Your Family and Friends

Within your 12 months of saving, you’ll have a birthday and celebrate gift-giving holidays. Let your friends and family in on your major goal of buying a house, and ask that they contribute money toward a down payment in lieu of material presents.

Just remember that if you receive unusually large sums or a large number of deposits in the months leading to your home purchase, you may need gift letters from the generous people in your life, indicating that there is no expectation of repayment. Depending on the mortgage loan, rules vary when it comes to how much of your down payment can come from gifts.

Months 3–6: Keep Saving. And Focus on Earning More

Ramp up Your Income

Think of creative ways to use your expertise and skills to boost your income. You did invest a substantial amount of time and money in your education, after all, so maximize the ROI to rake in some extra cash to put toward your home fund.

Perhaps you can roll out an e-course or teach a professional seminar at your local community college. Or look for a way to make extra money from home. And, if the time is right, ask for a raise.

Months 7–9: Build Your Credit (and Keep Saving)

Review Your Credit Report

Check your credit report to make sure it is error-free and that your credit score is as high as it can be. And mind the cardinal rule of credit scores: Pay your credit cards, student loans, and bills on time.

Check your credit utilization ratio (the amount of your credit card balances against their limits), too; you want that number to be low.

Now is also the time to be wary of applying for new lines of credit, as that will result in lenders doing a “hard pull” on your credit. Too many of these within a 6-month time frame could ding your credit score.

Recommended: First-Time Homebuyer Guide

Keep an Eye on Your DTI

Make sure your debt-to-income ratio (DTI) is as low as possible. Your DTI is a key part of securing a home mortgage loan, and while the lower the better, it should fall below 36% — although for certain types of mortgage the DTI can be as high as 43%.


💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.

Months 10–12: Learn About the Mortgage Process (While You Keep Saving)

Do Your Mortgage Application Prep

Your mortgage company will require quite a bit of paperwork to get your loan approved. Familiarize yourself with the mortgage loan application process. Also check your credit score once more to make sure it’s still solid.

Explore Homebuyer Assistance Programs

There are many different programs designed to help first-time homebuyers gain access to home ownership. A loan from the Federal Housing Administration, for example, may help you purchase a home even if you haven’t saved a heap of cash for a down payment or if your credit score isn’t at the highest level.

If a fixer-upper is your goal, a HUD loan may be worth exploring. And depending on where you’re looking to buy, you might find city- or state-specific homebuyers assistance programs.

The Takeaway

Saving for a down payment and the associated costs of buying a home is a big endeavor, but with persistence and discipline, both in terms of your spending and your home-search process, you can find a home and have the down payment necessary to purchase it. The same careful planning that got you to college and helped you secure a student loan will help you achieve your dream of becoming a homeowner.

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

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

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

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

SOHL1023250

If you’re looking for a new home, you may be wondering when is the best time to buy. There are a number of factors that go into deciding when to purchase a house, from buying when interest rates are low to the times of the year you’re most likely to get a deal. Ultimately, when you decide to buy will depend on your financial situation and local market factors.

Here’s how to determine the best time to buy a house.

Do a Financial Checkup

Before going down the rabbit hole of timing the real estate market or watching the Federal Reserve like a hawk, it’s a good idea to explore if buying a home is right for your current personal and financial situation. There are a number of signs that can help you know if the time is right to buy a house.

First, is your budget big enough to cover any required down payment, closing costs, a mortgage payment, and other costs associated with homeownership?

Second, do you plan on staying put for a while, which may give the home you buy time to appreciate in value (subject to market fluctuations)? Also, consider whether you will benefit from itemizing and potentially deducting your home interest.

If you answered yes to those questions, it’s a good idea to check on your credit. A better overall financial profile and credit history may help you secure better financing terms when you purchase a home. And finally, take a look at whether rent in your chosen area is relatively high compared to the cost of homeownership. Should you buy or rent? If you can rent a home in your city for much less than what you would pay in mortgage payments, it may not make sense to make a purchase right now.

If your budget for buying a house and your credit are strong, you’re prepared to stay in the new house for the long haul, and importantly, that renting is relatively costly compared to buying, you may be ready to buy a home. Now you can begin looking at other factors to decide when to start house hunting.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Watch Interest Rates

One major factor to consider when deciding whether to buy is interest rates. Banks charge interest to cover the costs of loaning you money when they offer you a mortgage. The mortgage interest rate banks charge is influenced in part by the Federal Reserve, but mortgage backed securities are considered the main driver.

If interest rates are low, borrowing money is cheaper for you. Borrowing gets more expensive as interest rates increase. So if you think interest rates are going to rise soon, buying a home now with a fixed-rate mortgage loan may allow you to lock in better terms than you might otherwise get in the future. Conversely, if you think interest rates are high, it may be worth waiting to see if they’ll drop.

Time the Real Estate Market

The idea behind timing any market is that you buy when prices are low and sell when prices are high. Ideally, you would buy your home when there are more sellers than there are buyers, a situation known as a buyer’s market.

In a buyer’s market, the overabundance of housing options drives down the price of homes. Additionally, it may give you leverage to ask for more concessions from sellers desperate to close a deal, such as giving credit toward the buyer’s closing costs or covering the cost of repairs or new appliances.

In a seller’s market, the opposite is true. More people want to buy than there are houses available for sale and housing prices are driven up.

To identify what times may be beneficial to be a buyer, there are a number of factors you can watch. First, take a look at pricing trends in your area. Use real estate websites like Zillow, Redfin or Trulia to see what houses have sold for in your chosen area.

If prices are low or seem in line with historic trends, it could be a good time to buy. If prices are much higher than they have been historically, it may not be the ideal time to buy, and/or the area may be experiencing a real estate bubble. Bubbles tend not to be sustainable, but many factors play into real estate market conditions.

You can also take a look at how long houses in your desired area are sitting on the market. If houses in good condition are taking a long time to sell, it could mean demand is low and the market is in your favor.

Additionally, examine larger economic factors such as new construction and months of supply. When fewer houses are being built, demand and prices are higher.

The government keeps track of new residential construction. Visit the U.S. Census Bureau to take a look at current trends.

Months of supply is a measure of how many months it would take to sell the current number of houses on the market in your area at the current rate of sale. To do this, divide the total number of homes for sale by the number of homes sold in one month. For example, if there are 40 houses on the market and they are selling at the rate of 10 a month, there are four months of supply. When this measure creeps above six months of supply, it generally indicates that it’s a buyer’s market.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

Understand Your Local Market

Real estate is generally considered a location driven market, so prices can vary widely from area to area, and general rules of thumb regarding pricing may not be applicable in every case. The same can be true of particularly desirable neighborhoods within a city.

Local economics can also play a part in housing demand. Say a large company leaves a city sending its manufacturing overseas. That city may experience an economic downturn that puts downward pressure on house prices.

This local variation means that it’s important to pay close attention to economic and housing trends in your chosen area. That way you’ll be more likely to find the best time to get your dream home.

The Takeaway

Figuring out the best time to buy a house first involves taking stock of your financial and personal situation. Make sure you have enough money saved up to cover the costs of buying plus your mortgage payment, and review your credit history to make sure it’s strong.

Then, look at rental prices compared to home prices in your area to see whether buying makes financial sense for you. Assess the interest rates to see if home buying is affordable, and look at the trends in the real estate market to determine how favorable they are as you start house hunting.

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.

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.

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 .

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

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

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

*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.

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 .

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.

SOHL1023252

Many people consider homeownership a rite of passage, a part of the American Dream, and a key way to build wealth. But recently, as home prices and mortgage interest rates have risen, some may wonder, “Is buying a home a good investment, no matter what?”

It can be challenging to gather enough funds for a down payment, qualify for a mortgage, and then afford all of the costs that go along with homeownership, such as property taxes, maintenance expenditures, and utilities. But to live in a place you love while building equity can be a win-win.

So if you’re wondering “Is buying a house a good investment?” vs. say, investing your money, you’ll have to take a closer look at how homeownership relates to your personal financial situation. Read on to learn how to evaluate what will be the right decision for you, starting with important questions to contemplate.

Is It a Good Investment to Buy a House?

In order to determine if buying a home is a good investment for you, you’ll need to estimate the amount of time you plan to own the house and the real estate marketplace dynamics.

•   If you don’t plan to own the house for at least five years, you may not break even when you sell the home. When you buy a home, you pay for more than just the house and those costs can add up. You’re often paying for appraisals, mortgage application fees, inspections, movers, real estate agent fees, and that can add up to thousands of dollars.

In order to recoup all those fees, conventional wisdom says you need to wait at least five years for your home to appreciate before selling it. If you plan to live somewhere for less than five years, it could make the most financial sense just to rent property.

•   You may also want to consider other aspects of whether it’s a good time to buy a house. For example, is it a hot or cool market? Are you likely to wind up in a bidding war (and possibly overpay) because there isn’t enough supply to meet demand? Are interest rates likely to fall over the next year? These dynamics can impact whether now is the right time to jump into the housing market.

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

Do You Have Sufficient Savings to Buy a House?

In order to buy a home, you’ll generally have to take out a mortgage to finance your home purchase. Before that’s not the only expense. These costs must also be covered:

•   Before you even get to the mortgage stage, you’ll have to save for a down payment (which is often anywhere between 3% and 20% of the property’s purchase price) and closing costs, which are typically 3% to 6% of the loan amount. This can mean a significant chunk of change.

•   There are continuing costs you’ll have to account for, such as home insurance, property taxes, general maintenance, and emergency home repairs.

When you are renting, if the kitchen sink springs a leak, your landlord will take care of it. But when you own a home, those repairs will be entirely your responsibility. Having an emergency fund saved up will help you deal with unexpected costs associated with homeownership.

Also, if you are purchasing a house as an investment vs. using it as a primary residence, can you afford to buy a house while still renting? That is a situation in which you will want to map out your cash flow and make sure you are prepared if you can’t flip or rent the property as quickly as anticipated. An emergency fund could also be invaluable in that scenario.

Are You Confident in the Housing Market?

The housing market rises and falls; take a close look to evaluate current trends. Home prices skyrocketed during the Covid pandemic and have continued to rise recently. This can make it difficult for first-time homebuyers to find a suitable home that is in their price range. It’s important to be prepared as you start to look at homes. Understand your budget and make sure you have saved enough money to make a down payment on the property.

Also be sure that you understand how mortgage rates can impact the affordability of housing and what your home shopping budget looks like.

💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

Are You Ready for the Responsibility?

When you own your own home, you have a lot of freedom to make the space completely your own. With all of this flexibility comes a lot of responsibility. If the house has a yard, you’ll be responsible for regular maintenance and upkeep.

Will you need to pay for a new roof soon? Buy a lawn mower? If you live in an area with harsh winters, will you need to get a snow blower or hire someone to clear the driveway after each snow storm? These costs can add up.

So make sure you are ready for the financial responsibility that comes with owning a home before you make the purchase. You’ll have to account for repairs, improvements, general upkeep, insurance, and taxes. Not only does all of this cost money, it will take your time and attention as well, which isn’t necessarily the case when you rent. If you’re not ready to always be “on call” for your property’s needs, it could be a homebuying mistake to purchase.

Recommended: Should I Sell My House?

Are You Willing to Live with a Long-Term Loan?

Buying a home can mean you’re taking on a loan for perhaps 15 or 30 years. That’s a major undertaking. Part of the process of learning how to buy a house is educating yourself on how mortgages work and the different types available. Generally, there are two types: fixed rate and adjustable-rate mortgages.

•   A fixed-rate mortgage keeps your payment level over time, typically 15 or 30 years, because the interest rate remains stable.

•   The interest rate on an adjustable-rate mortgage loan fluctuates over time. They usually start out lower than a fixed-rate loan but often rise in later years.

To see what a mortgage could mean for your finances, take a look at an online mortgage calculator to compare different types of loans and see what your costs might look like. If a loan could be part of your life for three decades, you want to make sure you’re comfortable with it.

Remember that while it may seem daunting to take on a 30-year obligation, a mortgage helps you build equity in an asset that generally increases in value as time passes. Is a house a good investment? Historically, yes, if you take the long view.

Over the years, homeowners build up equity in the house as they methodically pay off more and more principal with less monthly payments on each loan payment. Many smart borrowers pay extra each month toward the principal to pay off the mortgage sooner.

Recommended: Quiz: Should You Buy or Rent a Home?

Pros and Cons of Buying a Home as an Investment

Before a major financial move, it’s important to consider the benefits and downsides. You’ll want to know what are the pros and cons of buying a starter home or a subsequent property. Consider these points.

Pros of Buying a House

Here are some of the upsides of buying and owning a home:

•   You will build equity in your home over time, which can help you grow your wealth. Your home value may appreciate as well.

•   There may be tax advantages to homeownership, such as deducting mortgage interest.

•   Paying your mortgage payments on time can help build your credit.

•   You can renovate the property as you see fit, unlike the case with rental units.

•   You likely have a good idea of your monthly housing costs for the long term. If you are renting, you could face significant fluctuations.

•   There’s a feeling of security for many people when they know they own their home.

Cons of Buying a House

Next, it’s wise to consider the disadvantages of buying a home:

•   You typically need to pay for the down payment and closing costs, which can be a significant financial hurdle.

•   You are likely locking into long-term debt, and it can take a while to build equity.

•   There is no guarantee that your home’s value will grow over time.

•   The costs related to owning a home can be significant. This includes expenses like property taxes and insurance, as well as home repairs.

•   You will have less flexibility if you need to move for a job, say, or want to relocate to be closer to friends and family. Selling a house can involve time, energy, and money.

Ready to Buy? Consider a SoFi Mortgage

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

Is it wise to buy a house as an investment?

Whether it’s wise to buy a house as an investment will depend on many factors, such as your personal finances and current economic and real estate trends, as well as whether the property is a place that’s a good home for you to live in for at least several years.

Is buying a house worth it in 2023?

Buying a house in 2023 can be challenging because home prices and mortgage rates have been rising. However, if you can afford the monthly mortgage payments, plus the down payment and ongoing costs of homeownership, it may still be the right move for you.

Is owning a home an asset?

In general, a home is considered an asset. Yes, you typically have a mortgage, which is a liability, but on the plus side, you are building equity while having a place you enjoy living.

*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.

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.

SOHL1023243