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Mortgage interest is, simply put, the money you pay the bank for the service of lending you the amount you need to buy your home. Interest is expressed as a percent of the loan amount. It is usually rolled right into your monthly mortgage payment of the principal and interest.

This means interest can be something of a hidden cost to homebuyers, especially those on the market for the first time. But it’s still an expense that can really add up. That’s why it’s important for buyers to set themselves up for the best (i.e., lowest) mortgage rate possible.

Here’s what you need to know, including:

•   What is mortgage interest?

•   How does mortgage interest work?

•   How are mortgage rates set?

•   How does an adjustable vs. fixed mortgage differ?

•   How can you get the lowest mortgage rate?

What Is Mortgage Interest?

When a bank offers a borrower a significant sum of cash to purchase a house, they’re offering a valuable service, one they expect to be paid for. While an origination or processing fee may apply, the main way a bank makes money on offering a mortgage (or any kind of loan, for that matter) is by charging interest.

Interest is generally expressed as an interest rate, or a percentage of the amount of money you borrow. A lower rate means a lower overall loan cost, since you’ll pay less interest over time.

First-time homebuyers often overlook the impact of interest on the total cost of their home purchase, but it can be significant.

•   An example: At a mortgage interest rate of 6%, a buyer could expect to pay $382,599 on a 30-year mortgage loan of $330,000 This equals a total cost of $712,599, most of which would be interest.

As you can see, it pays to find the lowest rate possible! Fortunately, there are some things you can do as a borrower to set yourself up for the lowest rate possible. It is, however, worth noting that many factors affecting interest rates are out of the borrowers’ control.


💡 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.

How Are Mortgage Rates Set?

Mortgage rates are calculated using a complex set of factors including both the borrower’s financial status and the health of the economy.

While there’s a lot to say about the economy’s impact on mortgage rates, the simplest rule of thumb is this:

•   When the market is doing well, interest rates tend to be higher.

•   When the market is not doing so great, interest rates tend to be lower.

Mortgage rates also tend to increase with increasing inflation.

Many think that mortgage rates are set by the Federal Reserve (otherwise known as the Fed), but this is a misunderstanding. The Fed sets short-term interest rates that banks use between themselves, but this figure does influence the interest rates of consumer loans including mortgages. So if the Fed’s interest rate is high, chances are mortgage interest rates will be pretty high, too.

Personal financial factors that affect mortgage rates include your credit score, the size of your down payment, and whether the house will be your primary residence or a secondary home or investment property. Generally, rates are higher when the loan is a riskier investment for the bank, which can make sense. The greater the danger of default, the more the servicer wants to be sure they get paid.

Types of Mortgage Rates

There are a variety of mortgage offerings available. You may see offers with varying rates for:

•   Loans designed for lower-income earners, such as FHA, USDA, and VA loans

•   Loans of different lengths, such as a 15-year vs. 30-year home loan

•   Jumbo loans, for those borrowing a larger sum of money to finance a home.

However, one of the biggest decisions is which of the two main types of mortgages, fixed-rate and adjustable-rate, you choose.

Fixed Rate vs Adjustable Rate Mortgages

Fixed-rate mortgages, as their name implies, have one fixed interest rate over the entire lifetime of the loan. If you sign a contract for a fixed-rate mortgage at 5.75%, you can expect to pay that same 5.75% interest rate throughout its term.

Adjustable-rate mortgages, on the other hand, adjust the interest rate depending on market factors. They may start with a fixed rate for a certain amount of time, such as five, seven, or even 10 years. Thereafter, your interest rate (and therefore your monthly mortgage payment) will change over time.

These mortgages can be attractive since they often offer lower rates upfront, and they may come with rate caps to protect borrowers from excessive interest rates. It’s worth noting, though, that they can also be harder to predict and budget for in the long run.


💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).

Why You Have to Pay Interest on Mortgage Loans

As mentioned briefly above, paying interest compensates a lender for extending you a chunk of cash to buy a home and pay it back over time.

Interest can be one of the key ways that banks make money. For instance:

•   A financial institution might pay customers 3% interest on the money they keep on deposit.

•   The bank might then use some of that money to fund home loans on which borrowers might pay 6.75% in interest.

•   The difference between the 6.75% that the bank is earning on loans vs. the 3% it is paying depositors is part of the way a bank profits and stays in business.

How Lenders Calculate Your Mortgage Payments

As you learned above, interest is rolled right into your home mortgage loan payment. But exactly how much of that money is interest? And how much is going toward the mortgage principal (i.e., the borrowed cost of the home itself)?

The answer depends on where in the loan’s term you are: Earlier on in the mortgage, most of your payment will go to interest. Again, this makes sense: The bank wants to make sure they get paid for their services, even if you decide to repay the mortgage early or stop paying the loan entirely.

Even in the beginning, some of your monthly payment will go to principal — along with any taxes or insurance you may also be paying as part of the mortgage.

Eventually, though, the principal will represent the majority of your payment. The moment when this happens is known as the “tipping point” of a loan — and it’s yet another reason to look for the lowest rate possible. The lower your interest rate, the more quickly your tipping point will arrive, which means you’ll grow your home equity more quickly.

How Interest Works for Different Types of Mortgages

You’ve already read about the two main types of interest: fixed-rate vs. adjustable-rate home loans. But how else does interest on a mortgage work?

Here’s one other option to know about: There is also such a thing as an interest-only mortgage, which allows the borrower to pay — you guessed it — only interest for the first three to 10 years of the loan. Interest-only mortgages can be either fixed-rate or adjustable-rate loans, as described above, but all of them carry some risks since monthly payments can rise so sharply after the initial interest-only period.

How to Get a Lower Mortgage Interest Rate

By this point, you’re probably on board with the idea of finding a good mortgage interest rate.

Given the cost of living in states across the United States — and especially in expensive states like California — keeping housing costs as low as possible is a priority.

While it’s not all under a borrower’s control, there are some ways to ensure your interest rate is as low as it can be. Here are some tips to help.

Get Your Finances in Ship Shape

Although there are lots of things you can’t control about your mortgage interest rate, it’s worth it to take advantage of the things you can. That means getting your financial profile into the best possible shape before applying for a mortgage: reviewing and building your credit score, paying down debt ahead of time, amassing a larger down payment, and, if possible, increasing your income. These steps may take some effort up front, but they can really pay off over time.

Shop Around For Lower Interest Rates

While interest rates are relatively consistent across the market, banks do compete with each other to offer the lowest rates possible — and attract more borrowers. That benefits you because it means shopping around, even just a little bit, can be worthwhile. Reducing your rate by even half a percentage point can save you tens of thousands of dollars over a 30-year loan.

Look into Paying Points

While this may not be the right option for everyone, if you can put additional funds down on some home loans, you could get a better rate. A point equals 1% of your mortgage amount, and if you can pay a point, you can usually lower the rate on your mortgage by 0.25% over the life of the loan.

Recommended: Cost of Living in California

How Mortgage Interest Deduction Works

Although it’s not a way to lower the cost of interest, the mortgage interest deduction allows you to deduct the amount of money you pay on mortgage interest from your taxable income — which lowers what you owe to Uncle Sam come April. In general, how the mortgage interest deduction works is for up to $750,000 in home loan debt.

Tips on Mortgage Interest

Here are a couple of additional ways to get the best deal possible on your mortgage rate:

•   Try the online mortgage calculators that are available. Not only can you get a feel for monthly payments in different scenarios, you can also compare different products, such as a 30-year vs. a 15-year home loan.

•   Consider whether a qualified mortgage broker could help you find offers to suit your needs. These professionals can work as an intermediary between prospective homebuyers and lenders to facilitate the process and research a variety of options.

The Takeaway

Mortgage interest is the money a bank charges for the service of providing a home loan, expressed as a percentage of the loan amount. Getting a lower mortgage interest rate is an important way to keep your home — and your life — affordable over the long run.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How is interest calculated on a mortgage?

How does interest work on a mortgage? Prevailing Interest rates are calculated as a percentage that is based on a variety of economic factors. In terms of borrowers doing the math for a specific interest rate on a certain loan, there are online tools to help with that. And while borrowers can’t control the market, they can work ahead of time to ensure their financial profile is in good shape to get the lowest interest rate possible.

How much interest is paid on a 30-year mortgage?

That depends on the rate, among other factors. For example, a 30-year mortgage for $400,000 at a rate of 6.82% and on a house purchased for $425,000 would cost $540,717 in interest. The total payment of principal and interest would be $940,717. However, if that rate were 5.50%, the borrower would spend only $417,703 in interest.

Do you pay mortgage interest monthly?

Yes, you typically pay mortgage interest monthly. Most home loans roll interest right into their monthly payment, though the amount you pay in interest versus principal will change over time.

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Photo credit: iStock/Chainarong Prasertthai

*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.

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

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When babies start crawling, they can get into all sorts of trouble. Aside from creating messes, they can hurt themselves. That’s why it’s important to babyproof a home before a child begins to explore.

The process of babyproofing can take time, effort, as well as a financial investment. But the payoff is huge — you’ll be able to relax, knowing that your little one will be able to crawl — and eventually walk — around your home without getting hurt.

If tackling your entire home all at once seems daunting, don’t stress. What follows is a simple, step-by-step babyproofing checklist that will help you turn your home into a safe haven for your little one.

Put Up Gates

If you don’t have doors throughout your home, you’ll want to install baby gates.

Baby gates that can be screwed into a banister, wall, or door frame are the most secure. But pressure-mounted gates can be a good alternative if you live in a rental and don’t want to put holes in any walls.

Some gates allow parents to step through, while others swing open. When looking for baby gates, it’s a good idea to seek out the ones that are the top-rated for safety and the most convenient for your home. For instance, you might get frustrated if you have to constantly step over a gate, so a swinging gate could be a better fit.


💡 Quick Tip: Home improvement loans typically offer lower interest rates than credit cards. Consider a loan to fund your next renovation.

Buy a Hexagon Play Yard

When you can’t constantly watch your baby, you can put your little one in a hexagon “play yard” with toys and comfort items.

The panels can also be used to block off certain rooms or areas of a room.

However, keep in mind that as your child grows and develops, they may be able to move the play yard or climb over the panels.

Cover the Outlets

Another part of a babyproofing checklist is covering all the outlets in your home.

The easiest option is to push heavy furniture in front of outlets so your baby can’t get to them. But if that’s not possible, you can buy plug-in plastic covers, outlet shields, or sliding plate covers.

Remember to also get power strip covers and electrical cord covers so your baby can’t play with those either.

Babyproof the Doors

Babyproofing doors is important so that babies can’t get into certain rooms or get their fingers jammed in doors.

To babyproof doors, you can install door knob covers, which are rounded, plastic covers that are too hard for babies to squeeze in order to turn the knobs.

You can also use a door strap, which will keep babies out of a room but allow small pets in.

Recommended: Common Financial Mistakes First-Time Parents Make

Put Away Heavy Objects

If young children pick up a heavy object, they could drop it and break it or, worse, hurt themselves.

A major part of a babyproof checklist is putting away heavy objects that could injure your child. These objects could go in a closet or another room. It doesn’t matter where they go, as long as they are out of baby’s reach.

Install Latches on Drawers

One key part of babyproofing a home is to make sure that children can’t get into drawers and cabinets where dangerous objects like knives are stored.

Parents have a few options for babyproofing cabinets and drawers. You can use slide locks for double door cabinets, which tie adjacent knobs together. Or, you might opt for magnetic locks, which go in drawers and cabinets and require a key to unlock them.

Other options include: adhesive strap locks (which use heavy-duty, removable adhesive) and spring-action locks (which unlock when parents open a drawer and hold down on the lock at the same time).

Recommended: 20 Small-Kitchen Remodel Ideas & Designs

Remove Choking Hazards

If you have more than one child, there could be little toys around the house or other objects that are choking hazards for your baby.

You can store these objects in a safe spot and instruct your older kids to do the same. For instance, an older child could have a special trunk where they put all their toys when the baby is around.

Keep Chemicals Locked Up

Before having a baby, you may have kept household cleaners and bug spray underneath the sink.

Now, when babyproofing, you’ll need to put a lock on the cabinet where these chemicals are stored and/or install a gate to keep your baby far away from them.

A number of household substances must, by law, have child-resistant packaging. Still, one look around the average home shows potential dangers, including perhaps colorful single-load laundry detergent pods and dishwashing liquid.

Recommended: How Much Does it Cost to Raise a Child to 18?

Use Corner Guards

Installing corner guards is an essential babyproofing step. Corner guards, which may prevent a bad bruise or eye injury, can be used on sharp corners of wooden desks, glass tables, and metal fireplace hearths.

Some corner guards are made of high-density foam; others from silicone rubber. They come in different colors and may include double-stick tape for easy installation.

Babyproof Window Blinds

Cords attached to window coverings are a strangling hazard for babies. Ideally, you’ll want to switch any corded window treatments for cordless options. If that’s not possible, your next best option is to shorten the cords, attach plastic covers to the ends, and secure them to the wall with a tie-down device, or cleat. Cord cleats should be installed at least 5 feet above a floor, where a baby can’t reach.

Recommended: The Top Home Improvements to Increase Your Home’s Value

Secure Furniture to the Wall

Babies start to become very curious when they roam around the house. They may push furniture and try to move it. Every year children are injured in tip-overs of TVs, tables, dressers, and bookcases, some fatally. This is why all furniture they have access to should be secured to walls.

It’s important to secure furniture not only in the living and dining room but also in the nursery. Pay special attention to the baby’s bookshelf and dresser.

Secure Rugs

Once babies start to crawl and even walk, they could slip and fall on rugs. A good way to avoid mishaps is to make rugs immovable by placing nonskid rug pads underneath them.

Double-sided carpet tape can also be used to keep down any slight upturns on the edges and corners of the rugs.

Block or Babyproof Stairs

Babies tend to love stairs, but of course stairs can be dangerous. You can block stairs off with a baby gate and/or add carpeting, nonskid step pads, or a carpet runner to make stairs less slippery.

Paying for Babyproofing

Any way you slice it, raising kids is expensive, and that includes babyproofing your home.

The total cost of baby-proofing a home will depend on its size and specific baby-proofing needs. On average, babyproofing a home can cost between $500 and $2500, with most parents paying around $1,500 to make their homes safe and secure for their child.

Costs typically include essential items for each room like baby gates, outlet plugs, furniture anchors, electrical protection covers and materials, and locks for drawers and doors. Your outlay can run much higher than the average babyproofing cost if you install all new child-safe window treatments or make some structural changes to your home to make it safer for your little one.

If you aren’t able to pay for babyproofing out of pocket, you might consider using a low- or no-interest credit card or taking out a personal loan for home improvement.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

The Takeaway

A babyproof checklist is a must before babies start crawling, cruising, or otherwise getting around. Some key babyproofing steps include: using gates on stairs, locking or latching cupboards and drawers, containing dangerous items, placing outlet covers on all electrical outlets, and securing and mounting large unstable furniture to the walls.

Unfortunately, babyproofing typically isn’t a one-and-done home project. It’s a good idea to frequently reassess safety as your child ages and develops new skills (such as pulling up and walking) or you make any changes to your home.

Some babyproofing steps are free, while others can be costly. If you don’t have the cash on hand to cover safety-related home improvements, you might consider using a credit card with a 0% introductory interest rate or getting a low-interest personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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

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.

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The total number of homes for sale hit a record low in August 2023. That means home sellers may get several offers when they put their house on the market.

To help stand out from the pack, some buyers choose to write an offer letter. They may believe an offer letter could help personalize the negotiation and possibly make a connection with the seller. But writing an offer letter comes with potential risks buyers should be aware of.

Thinking about writing an offer letter? Read on to learn how to write an offer letter for a house, what to say in the letter, what to avoid, how long the letter should be, and the risks that may be involved.

What Is a House Offer Letter?

A house offer letter is a personal letter written in hopes of helping to convince the seller to choose the buyer’s offer, especially when there are multiple offers on a house.

Offer letters have become more popular in recent years due to the high number of real estate bidding wars.

In an offer letter, a buyer, whether they’re a millennial homebuyer or any homebuyer, is trying to show the seller why they’re the ideal candidate for the house.

When writing a real estate offer letter, buyers often include certain details to help make a connection with the seller, such as:

•   Introductions. The potential buyer will want to say who they are, of course.

•   Contract details that might help. Buyers may want to briefly note that they’ve been pre-approved for a mortgage, are flexible with the closing date, or can otherwise meet the seller’s needs.

•   Compliments about the house. If there’s a well-tended garden or custom wall finishes, a buyer may want to note how much they like those things.

•   Points of connection. If a buyer noticed something in the house that could help them relate to the seller, like fishing gear in the garage or a piano in the living room, they might mention that they share those hobbies.

•   Explanation about their offer. A buyer could include the reason why they offered what they did for the house, but anyone who does this should be careful. Review it with your agent first to make sure you’re not saying something that might jeopardize the deal.

•   Thank them. Express gratitude to the seller for considering the offer.

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

How Does a House Offer Letter Work?

Since an offer letter is an informal gesture, writing such a letter is optional. Plus offer letters do have drawbacks (more on that below).

If a buyer does write an offer letter, it would typically be sent, along with the formal offer on the house, to the seller’s agent.

Recommended: How to Write a Letter of Explanation for a Mortgage

Is It Worth It to Write a Letter With a House Offer?

A personal letter could help you stand out from others who are bidding on a house, but there’s no guarantee of that. Plus, an offer letter could cause problems. The National Association of Realtors is wary of offer letters because they might run the risk of violating the Fair Housing Act, even unintentionally. The Fair Housing Act seeks to create a level playing field for all people renting or buying a home, getting a mortgage, or seeking housing assistance.

For that reason, your real estate agent may advise against writing an offer letter. Instead, they may suggest that you choose another strategy for making your offer on a house more attractive.

How Long Should a House Offer Letter Be?

If you do decide to write an offer letter, the letter should be short and succinct. One page is plenty. And if your bid isn’t competitive enough to be on the seller’s radar in the first place, the offer letter probably won’t even be read.

What Should Not Be Included in a House Offer Letter

Perhaps even more important than what you write in your offer letter is what you should not include. Stay away from:

•   Overly saccharine statements. Sellers may get overwhelmed by buyers who are too profuse about their love for the property. Be complimentary, but don’t overdo it.

•   Letters that are too long. The seller doesn’t need to know everything you love about the house. Offer letters are more effective when they’re a page or less.

•   Too much personal detail. If you mention your partner or children, be aware that familial status is protected against discrimination under the Fair Housing Act. It’s wise not to share too much.

•   A picture of yourself or your family. This is another red flag. Race and gender, among other things, are protected against discrimination under the Fair Housing Act.

💡 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.

How Do You Write a Strong Offer Letter?

First, make sure your home contracts offer is strong. You want to submit a strong offer before you work on a letter.

Then, when you sit down to write the letter, consider this: If you were having a conversation with your seller about the house, what would you want to tell them? Explain briefly why you love the home, and thank them for considering your offer. Keep the focus of the letter on the house, and avoid giving too many personal details. Use a friendly tone, and be genuine and sincere.

Keep the letter to one page or less.

Recommended: Guide on How to Save Money for a House

Tips for Buying a Home

Rather than an offer letter, you may want to consider one of the following strategies instead:

•   Submit a higher offer. Winning a bidding war often comes down to one factor: price. Offering a higher price for the house is an option to think about. You might also want to add an escalation clause, which can automatically increase your offer above other offers.

•   Offer all cash. That is, if you have the resources to do this. Data from Redfin suggests buyers who offer all-cash are two to four times more likely to be chosen.

•   Waive the financing contingency. Waiving this contingency could potentially increase your odds of winning the contract over other buyers, according to Redfin. Keep in mind, however, that waiving the financing contingency means you forfeit your earnest money if you can’t get financing before the contract deadlines.

And, finally, if you’re a first-time home buyer, you may want to look into first-time homebuyer programs that could be helpful to you in your quest to buy this particular home — or any home.

The Takeaway

Offer letters have become popular in recent years as the real estate market has heated up, but these letters do have drawbacks. They could even run the risk of violating the Fair Housing Act. Discuss it with your real estate agent and weigh the pros and cons carefully before writing an offer letter.

Also, consider other options that might help improve your chances of becoming a homeowner. For instance, you may decide that offering a higher price on the house, getting preapproved for a mortgage, or being flexible about the closing date is a better way to go.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How do you write a strong offer on a house?

In addition to making a strong offer on a house, you can write an offer letter. To write a strong offer letter, focus on the property. Tell the seller why you love the home, and thank them for considering your offer. Use a friendly tone, be genuine and sincere, and keep the letter to one page or less.

How to write an offer letter for a house for sale by owner?

In a house that’s for sale by owner, you’re likely dealing directly with the seller. In that case, you can address the seller by name in the letter and tell them why you like the house. Also, if you know there’s something they’re looking for, like a quick transaction, you could indicate that you’re flexible with the closing date. And if you’re preapproved for a mortgage, you could mention that as well.

How do you write a good offer letter?

Be succinct, genuine, and sincere in your offer letter. Focus on the house and why you like it, and avoid giving personal details. Thank the owner for considering your offer.

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Photo credit: iStock/Gorica Poturak

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.

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

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

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Rent prices are on the rise. According to the latest data from Rent.com, in August 2023, the national median rent ticked up to $2,052 per month. That has many people wondering, what is rent control, and can it help curb prices?

Rent control is a term used to describe price controls implemented by local governments on apartment units. Rent control limits the amount a property owner can increase rent prices during a certain period of time. It’s also usually accompanied by tenant protections allowing for lease renewals and protecting against unwarranted evictions. Rent control is more common in larger, expensive population centers like New York and San Francisco.

How does rent control work? Read on to find out.

What Is Rent Control?

Rent control is a government regulation that puts a ceiling on the amount of rent that can be charged to a tenant. This means landlords can’t charge the market rate for a rental in rent-controlled jurisdictions. Rent increases may be allowed, but they are limited and regulated by law.

How does rent control work in NYC? In New York, rent control can also refer to the Emergency Tenant Protection Act. This act was first enacted in the demilitarization period following World War II when housing shortages resulted from the large number of soldiers returning home from the war.


💡 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.

How Does Rent Control Work?

Your local government has the final say when it comes to rent control — unless they’re prohibited by law to enact price controls on housing units, as is the case in 33 states.

There’s often a rent board appointed, which is a mix of property owners, tenants, and other community members. The board has a say about rent adjustment amounts and other housing-related issues.

Rent control is usually applied to a specific area or building. For example, in New York, rent stabilization applies to buildings that were built between February 1, 1947 and December 31, 1973. (Pre-war, rent-controlled buildings revert to the newer rent stabilization program once a tenant moves out.)

The maximum price a landlord can charge can be set by the regulating agency. In New York City, rents are subject to the Maximum Base Rent Program, which is a formula for rents based on real estate taxes, utilities, operating and maintenance expenses, and vacancy allowances.

The economics of rent control can create a large demand. Because the supply of rent-controlled apartments is low, most tenants who want an apartment with rent control will wait on a list or enter a lottery system for many months or years.

History of Rent Control

New York City first enacted rent control when housing units were scarce following the end of World War II. It was called the War Emergency Tenant Protection Act and was later replaced by a different rent control method called rent stabilization. Rent stabilization has been in place since 1974 in New York City, and 1979 in San Francisco.

Rent Control vs Rent Stabilization

Discussions of rent control vs. rent stabilization are usually in reference to regulation in New York City.

In New York City, rent control generally applies to buildings constructed before 1947 with tenants in place prior to July 1, 1971. That date is important as it refers to a change in regulation laws where rent control gave way to rent stabilization.

Rent stabilization generally refers to price controls on buildings with six or more units constructed between 1947 and 1974. It can also include buildings removed from rent control that were constructed prior to 1947, as well as some other buildings that enjoy special tax advantages. Rent stabilization does not apply to co-ops or condos vs apartments. Tenants in rent-stabilized apartments have the right to renew their lease.

Today, the terms “rent control” and “rent stabilization” typically refer to the same thing: rent regulation.


💡 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.

Pros and Cons of Rent Control

While rent control can protect tenants from large rent increases, it also means property owners have little incentive to maintain the property or create more housing units for the rent-controlled area. Here are some of the pros and cons of rent control.

Pros:

•   Tenants have some stability in the cost of their housing unit over time

•   Tenants usually also have some eviction protections

Cons

•   Landlords don’t have incentive to re-invest in other apartments or upgrade their current rentals

•   Unit size is not always a match for a family’s size

•   May contribute to housing shortages

Example of Rent Control

Rent control is determined by the local rent board or commission. That includes price increases. For example, if you started renting an apartment for $2,000 last year, and the maximum allowable amount for a yearly rent increase is 7.5%, the most your yearly rent would increase would be $150. That would bring your new rent to $2,150.

How to Find a Rent-Controlled Apartment

If you’re looking for a rent-controlled or rent-stabilized apartment, your city’s rent regulation authority is usually one of the best places to find them.

New York City’s government website has a list of rent-stabilized buildings, as well as guidelines on how to know if an apartment is rent-controlled. It’s even possible to submit the building’s address in an online form to find out if rent is stabilized.

Recommended: 25 Things to Know When Renting Out an Airbnb

States With Rent Control

Only seven states have rent control laws in place. They are:

•   Oregon

•   California

•   New York

•   Maine

•   Maryland

•   Minnesota

•   New Jersey

•   District of Columbia

Thirty-three states have laws that preempt (or prevent) local governments from implementing some form of rent control.

One of the reasons states may outlaw rent control regulation has to do with housing supply. Economists note that while rent control affords price control and some protection for tenants, it also negatively affects the housing supply. That’s because limiting how much a property owner can make discourages housing investment, such as investing in duplexes, as well as housing development in areas where rent control exists.

If a property owner is limited on the money they can make on their unit, they will invest in other areas that do not have these restrictions and where they may even be able to rent out extra rooms. This, in turn, exacerbates housing affordability because there are fewer units with more people to compete for them.

The Takeaway

Rent control has benefits, especially in high-density areas where expansion is limited and long-term tenants need some affordability. However, it does come with downsides, including possibly limiting the housing supply.

In addition, rent-controlled properties can be difficult to come by because there aren’t a lot of them. In this case, or if you’re simply ready to move on from apartment life into something you own, you may want to look into buying a house, including checking out first time homebuyer programs.

Or, if you’re an investor, perhaps you’re thinking of investing in single family rental homes. Either way, whether you want to buy a house to live in, or buy it to rent it out, you can explore your mortgage options. There are many different types of mortgages available, so you’ll have plenty to choose from.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Who benefits most from rent control?

Tenants already in place may benefit from living in an apartment where price increases are limited or controlled. Rent-controlled apartments are typically reserved for individuals and families that need affordable housing.

What is an example of rent control?

One example of rent control is this: If you signed a lease on a rent-controlled apartment for $1,700 per month and the maximum allowable rent increase is 3.5%, then the most your landlord could increase your rent would be by $59.50. That would bring your new monthly rent to $1,759.50.

What are the negative effects of rent control?

Economists say rent control creates housing shortages and doesn’t incentivize landlords to maintain or repair their rental units.

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Photo credit: iStock/gorodenkoff

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.

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

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

*SoFi 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.

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A VA (Veterans Affairs) home mortgage loan offers qualified people with a military background the opportunity to get financing to buy a home.

Who qualifies for a VA loan? There are several requirements individuals generally need to meet to qualify for a VA loan. These include a history of military service, passing a credit check, and receiving a Certificate of Eligibility. They must also plan on using the home as their primary residence.

What Is the VA Home Loan Program?

If you’re wondering, what is a VA loan?, here’s what you need to know: The VA Home Loan Program aims to increase access to home mortgages to people who have served in the military. The U.S. Department of Veterans Affairs created the program for qualified veterans, active-duty service members, and some surviving spouses.

The VA pays a percentage of the loans, lowering risk for lenders so they can offer better rates and terms.

This program not only assists veterans in achieving their dream of homeownership, but also promotes stability and financial security for those who have served their country. Whether purchasing a first home or doing a mortgage refinance, eligible veterans and their families can take advantage of this opportunity to enjoy affordable and accessible financing.


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

Pros and Cons of a VA Home Mortgage Loan

As is the case with many different types of mortgage loans, VA home mortgage loans have benefits and disadvantages borrowers should be aware of before applying. These include:

Pros

•   No down payment: One of the main advantages of VA loans is that they don’t require a down payment.

•   Lower interest rates: VA loans often have lower interest rates than other types of mortgage loans.

•   No private mortgage insurance (PMI): With conventional loans, if you make a down payment that’s less than 20% of the purchase price of the home, you may have to buy PMI. With a VA loan, there’s no PMI requirement which can help buyers, especially first-time homebuyers, save money.

•   Flexible credit standards: VA loans typically have less stringent credit requirements than other types of loans. Borrowers can even qualify after a foreclosure or bankruptcy under certain conditions.

•   Streamlined refinancing: The VA has a refinancing program called the Interest Rate Reduction Refinance Loan (IRRRL).

•   Lifetime benefit: Veterans can use the program at any time.

Cons

•   Funding fee: VA loans come with a one-time financing charge that helps taxpayers cover the costs of the loan program. The amount of the fee depends on the size of the down payment, the type of military service performed, and other factors. Certain veterans, including those who are disabled, do not have to pay the fee.

•   Limited to primary residences: VA loans can only be used to buy a first home or primary residence, they can’t be used to buy a second home or investment property.

•   Potential seller limitations: Not all sellers or agents understand the VA loan program or want to work with VA loan borrowers. This may make negotiations harder and limit which houses can be purchased.

•   Additional property requirements: There are special criteria that properties must meet to ensure they are physically sound, clean, and secure.

•   VA loan limits: There are lending limits that determine the maximum loan amount the VA will guarantee. These may differ depending on the state and county.

Recommended: Cost of Living By State

What Are the Eligibility Requirements for VA Home Loan Programs?

Who qualifies for a VA home loan? The Department of Veterans Affairs sets the eligibility requirements for VA home loan applicants. Generally, to qualify for a mortgage in this case, borrowers must meet prerequisites such as proving their military service history, receiving a Certificate of Eligibility, and passing a credit check. Eligibility requirements are different depending on the type of service performed.


💡 Quick Tip: A VA loan can make home-buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

Minimum Active-Duty Service Requirements

The VA loan eligibility requirements differ depending on the type of military service performed, as follows.

Service Members

Active-duty service members are eligible for the VA loan program, but may have different requirements than veterans. Service members must have served for at least 90 days continuously in order to meet the minimum active-duty service requirement.

Veterans

Veterans will meet the minimum active-duty service requirement if they served for one of the following:

•   At least 24 continuous months

•   The full period (at least 90 days) of active duty

•   At least 90 days if discharged for a hardship, or a reduction in force

•   Less than 90 days if discharged for a service-connected disability

National Guard Members

National Guard members must have served on active duty for a minimum of 90 days straight

Reserve Members

Generally, reserve members are required to have served on active duty for a minimum of 90 days straight during wartime. Or they may qualify if they have served for more than six years.

How to Request a Certificate of Eligibility (COE)

There are several steps you’ll need to take to get a Certificate of Eligibility. Here’s how to do it.

1.    First, check your eligibility with the VA. Your military service record will need to show that you served for a certain amount of time as indicated above.

2.   Next, provide other documents and information, including your Social Security number, proof of service such as dates of service and discharge papers, and a marriage and death certificate for surviving spouses.

3.   Apply for a certificate on the VA’s eBenefits online portal. You can also request a COE through a VA-approved lender.

Recommended: Home Loan Help Center

What If You Don’t Meet the Minimum Service Requirements?

There are alternative mortgage loan programs you can apply for if you don’t meet the minimum service requirements for a VA loan. These options include:

•   Federal Housing Administration (FHA) loans. These may have more lenient credit score criteria than VA loans and could be a good choice for first time homebuyers.

•   Conventional loans provided by private lenders, such as banks, credit unions, and online lenders. You may need a higher credit score to qualify for these loans.

•   State and city homebuyer aid programs and grants that provide support for down payments, closing costs, and other types of support.

You may also want to consider strengthening your credit score and saving up money for a downpayment in order to qualify for a loan in the future.

The Takeaway

The VA loan program is designed to help eligible veterans, active-duty service members, and surviving spouses qualify for a home loan. Key benefits of the program include no down payment required, low interest rates, and flexible credit requirements.

If you’re looking to take out a mortgage to buy a home or to refinance your current mortgage, there are other loan options you can consider as well.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Who are eligible borrowers on a VA loan?

Eligible borrowers on a VA loan include veterans, active-duty service members, and some surviving spouses. Eligibility depends on length of service performed and the type of home being purchased, among other factors.

What is the major criteria for a VA mortgage?

The major criteria for a VA loan is the individual’s type and duration of military service and their creditworthiness. Also, the applicant needs to show that they have enough income to meet the monthly mortgage payments.

How long do you have to serve in the military to get VA benefits?

Service duration requirements for VA benefits depend on the type of service, but generally one must have served for at least 90 days in a row. For certain situations such as service during wartime, the 90-day requirement may be reduced to as little as 30 days of consecutive military service to be eligible for VA benefits.

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Photo credit: iStock/CatLane

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

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

SoFi 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.

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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