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A reverse mortgage may help older Americans who find they need more money in retirement. It’s common for inflation and rising medical costs to be issues. A reverse mortgage allows them to convert some of their home’s equity into cash, which can benefit their financial situation.

Protections established over the past few years by the U.S. Department of Housing and Urban Development (HUD) focus on lowering the risk previously associated with reverse mortgages. What’s more, the federal and state governments have taken aim at deceptive marketing practices that can minimize the complex aspects of reverse mortgage agreements.

That said, it’s wise to proceed with caution. There are still considerable cons to reverse mortgages, and borrowers may be unaware of the finer points. One important fact: It is possible to lose one’s home if you don’t comply with all the loan terms. Take a closer look at this topic here.

Why Do People Choose a Reverse Mortgage?

A reverse mortgage allows qualifying homeowners age 62 and older to convert part of the equity they’ve built up in their primary residence into money they can use to pay off their existing mortgage or for any other expenses that come up in retirement (from health-care costs to home repairs).

The big selling point for reverse mortgages is that the loan usually doesn’t have to be paid back until the last borrower, co-borrower, or eligible non-borrowing spouse dies, moves away, or sells the home. And when it is time to repay the loan, neither the borrower nor any of the borrower’s heirs will be expected to pay back more than the home is worth.

Main Types of Reverse Mortgages

There are three basic types of reverse mortgages. The most common is a home equity conversion mortgage (HECM), which is the only reverse mortgage insured by the U.S. government and is available only through an FHA-approved lender. An HECM can be used for anything, but there are limits on how much a homeowner can borrow.

Note: SoFi does not offer home equity conversion mortgages (HECM) at this time.

There are also proprietary reverse mortgages, which are private loans that may have fewer restrictions than HECMs — including how much a homeowner can borrow.

And there are single-purpose reverse mortgages, which are typically offered by nonprofit organizations or state or local government agencies that may limit how the funds can be used. Most of the time, when someone refers to a reverse mortgage, though, they’re talking about an HECM.

Reverse Mortgage Terms to Know

There are safeguards in the reverse mortgage process that protect borrowers, but there are also loan terms borrowers are required to uphold or risk defaulting and potentially triggering a mortgage foreclosure. They include:

Staying Current With Ongoing Costs

Borrowers must stay up to date on property taxes, homeowners insurance, homeowners association fees, and other costs, or they could risk defaulting on the loan. An assessment of a borrower’s ability to pay for those ongoing expenses is part of the reverse mortgage application process, and if it looks as though money might be tight, a lender may require a borrower to set up a reserve fund, called a “set-aside,” for those costs. (In this way, it’s akin to an emergency fund, which is there to cover expenses if needed.)

Maintaining Full-Time Residency

Borrowers (and eligible non-borrowers) must use the home as their primary residence — the home they occupy for most of the year. If they move out of the house or leave the home for more than six months, or receive care at a nursing home or assisted living facility for more than 12 consecutive months, it could result in the lender calling the loan due and payable.

The lender also may choose to accelerate the loan if the borrower sells the home or transfers the title to someone else, or if the borrower dies and the property isn’t the principal residence of a surviving borrower.

Keeping the Home in Good Repair

Because the home is collateral and may have to be sold to repay the loan, lenders may require borrowers to do basic maintenance that will help the property keep its value (e.g., repairing a leaky roof or fixing a problem with the electrical system). If an inspector feels the home is not being properly maintained, the lender could take action.

What Happens If a Reverse Mortgage Borrower Defaults?

If the homeowners default, the first thing that could happen is that future loan payments may be stopped. And if the problem isn’t corrected within the lender’s stated timeline, the loan may become due and payable, which means the money the lender has distributed to the borrower, plus any interest and fees that have accrued, must be repaid. In that case, the borrower typically has four options:

•   They can pay the balance in full and keep their home.

•   They can sell the home for the lesser of the balance or 95% of the appraised value and use the proceeds to pay off the loan.

•   They can sign the property back to the lender.

•   They can allow the lender to begin foreclosure.

No matter what the homeowners decide to do, the process could take months to complete. HECM lenders may offer borrowers additional time to fix the problem that put them into default, or the borrowers may qualify for extensions or a repayment plan.

But in the meantime, there could be other implications — if the homeowners are no longer getting money they need to pay their bills or if the lender reports the default to credit monitoring agencies — that could affect the homeowners’ credit scores.

A Few Alternatives to Consider

The advertisements some lenders use to sell their reverse mortgages can be convincing, and some seniors may see these loans as a convenient way to get some extra cash or as a much-needed lifeline.

But, as with any financial decision, there are advantages and disadvantages — and alternatives — to be considered. There are other ways homeowners may be able to get help that could be less complicated and less limiting than a reverse mortgage.

Here are a few options:

•   Borrowers may wish to tap into their home’s equity with a traditional home equity loan or home equity line of credit. They’ll have to make monthly payments, and their income and credit history will be considered when they apply, but the terms may be more flexible and the overall cost may be lower than a reverse mortgage. Because the home is used as collateral, there’s still a risk of foreclosure.

•   Low interest-rate personal loans might be another option for homeowners who qualify for a competitive interest rate based on their income and credit. Borrowers who don’t have much equity in their home may choose to look into this type of loan, which is unsecured and is paid out in a lump sum. While foreclosure is not a worry with a personal loan, there still may be consequences to the borrower’s credit rating if they don’t uphold the loan terms.

•   Borrowers who are struggling to keep up with their bills in retirement may find that refinancing a mortgage with a new, lower-cost mortgage might be an option to help them lower their monthly payments and stay on track with their budget.

Or, if they need extra cash right away and can get a low enough interest rate, they may want to look into a “cash-out refinance,” which would involve taking out a new loan for a larger amount based on the equity they’ve built up during the years they’ve lived in the home.

Unfortunately, no matter which type of loan homeowners might choose, there could be risks.

The government requires a counseling session for reverse mortgage borrowers for a reason: They’re complex, and it can be helpful to have someone cover all the rules and costs involved.

Homeowners also may want to pay a financial advisor and tap their expertise about what type of loan, if any, fits with their needs, goals, and where they are in their retirement.

Though reverse mortgages are available to homeowners starting at age 62, borrowers who expect to have a long retirement may choose to wait until they’re older to tap into their home equity, so they don’t risk running out of money in their later years.

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.

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.

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

SOHL0623053

Finding the perfect home to buy is no small feat: so many online searches, drive-bys, and open houses. Then comes the time-sucking process of finding the right mortgage. A matchmaker called a mortgage broker can help.

The broker goes fishing for multiple loan offers from different types of lenders in pursuit of the best deal.

How exactly does a mortgage broker work? Keep reading to discover more about mortgage brokers, how to find one, and the pros and cons of working with one.

First, Mortgage Basics

Whether a consumer chooses to work with a mortgage broker or not, it’s best to know what it means to take out a mortgage.

These are some of the basics.

Loan term: This refers to how long borrowers have in order to repay their loan. A typical term is 15 or 30 years.
There are advantages and disadvantages to choosing a shorter or longer loan term. For shorter terms, the monthly payments are higher but the interest rates are usually lower, and the total cost of the loan is lower.

For longer-term loans, the total cost is higher and generally the interest rates are higher, too, but monthly payments are lower.

Fixed rate vs. adjustable rate: The chosen interest rate dictates whether the interest rate will change over time or stay consistent, if the monthly principal and interest payment will change, and how much interest will be paid over the life of the loan.

Typically, fixed-rate mortgages have no surprises but carry a higher rate than the initial rate of an adjustable-rate mortgage, or ARM. Fixed interest rates don’t change over time, and the monthly principal and interest payment remain the same.

With an ARM, after an initial period, the interest rate can fluctuate based on the market, which can lead to the monthly principal and interest payments increasing or decreasing over the life of the loan.

Recommended: First-Time Homebuyer Guide

What Is a Mortgage Broker?

In short, a mortgage broker is a middleman between the homebuyer and mortgage lenders. While requirements vary by state, typically brokers are trained professionals who must obtain certain licenses.

When you plan to buy a home, it can be smart to research multiple lenders. Doing so allows you to see which lender is offering the best rate and fees for your particular financial situation and down payment.

This can be a time-consuming process that requires submitting multiple documents and applications. A mortgage broker can do all of the work associated with applying for the consumer.

Because mortgage brokers generally have partnerships with multiple lenders, they can help find the best financial fit for their clients while saving them the time it would take to do the work themselves.

Recommended: How to Qualify for a Mortgage: 9 Requirements for a Mortgage Loan

Pros of Using a Mortgage Broker

Why use a mortgage broker? It’s not for everyone, but there are some benefits worth considering.

Provides more access. Because of their professional relationships, mortgage brokers usually have more access to different lenders than the average person does—some that many consumers don’t even know exist because they offer home loans only through mortgage brokers.

May find better rates and terms. Mortgage brokers may be able to find lower rates and fees than the average homebuyer could find on their own.

Keeps it simple. As mortgage brokers are experts in their field, they can make the entire process simpler to understand. They’ll break down the differences between lenders and help their clients understand mortgage jargon. It’s worth noting that consumers should still educate themselves so that they have a good understanding of the process.

Saves time. Buying a home is time-consuming and can be stressful. A broker will research rates, fees, and minimum credit score requirements so that clients don’t have to.

Cons of Using a Mortgage Broker

There are also some downsides worth considering before pursuing this path.

Cost can vary. Before agreeing to work with a broker, ask how they make their money. In some cases, the lender pays the mortgage broker, and in others, the client pays the broker. If payment is the client’s responsibility, ask if they charge a flat fee or earn a commission.

Lenders usually pay a higher commission than borrowers do. Lenders typically pay between 0.5% and 2.75% of the loan amount. When a client pays a commission, a broker usually charges an origination fee of less than 3% of the loan amount.

The housing market in a particular area can influence what a broker charges.

Conflicts of interest may arise. While at first glance it may seem more beneficial to work with a mortgage broker who is paid by the lender, give this some thought. Is the broker biased toward lenders that pay the commission? Researching brokers before working with them and asking for referrals can help. Do some digging to see if past clients found them to be trustworthy.

Some lenders don’t work with mortgage brokers. Some lenders only work with brokers, and some never work with them. People who hire a mortgage broker may miss out on certain opportunities.

How to Shop for a Mortgage Broker

The search for the right mortgage broker should not be taken lightly. Doing research and considering options are important steps toward making the experience a positive one.

One of the first steps to take toward finding a good mortgage broker is to ask for references from trusted friends, family members, or colleagues who have recently bought homes with the help of a mortgage broker.

To widen the search, there are also websites that host customer reviews of local mortgage brokers. While any broker may have a few negative reviews, look for patterns in the reviews to make sure that negative experiences are the exception, not the norm.

Treat shopping for a mortgage broker like an interview. Ask about their certification and experience, commissions, and what the homebuying process would look like in tandem with them.

You may be able to find out if a broker is licensed through the National Mortgage Licensing System & Registry.

Finding a Mortgage Without a Mortgage Broker

People who aren’t interested in working with a mortgage broker can shop for a mortgage on their own from a commercial bank, credit union, or private lender.

Prequalifying, based on self-reported data, will give you an idea of how big a loan you may qualify for—a ballpark figure. (Prequalifying involves a soft credit inquiry, which does not affect a credit score.)

If you’re serious, preapproval is the next step, when lenders verify your employment status, income, credit history, and debt to determine how much you can reasonably afford to borrow. If approved, you’ll receive a conditional commitment in writing for an exact loan amount. (Applying with too many lenders may result in score-lowering hard inquiries, but having many offers in hand provides negotiating leverage with individual lenders.)

Working with an online lender may be a good option for soon-to-be homeowners. SoFi aims to make applying for home mortgage as painless as possible, while offering competitive rates and exclusive member discounts.

Applicants don’t have to worry about pesky hidden fees or prepayment penalties.

The Takeaway

What is a mortgage broker? A go-between between the loan seeker and lenders. There are many pros and cons to consider. A mortgage broker can be just the ticket for some home buyers but not all.

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.

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.

SOHL0623051

A home inspection can give homebuyers important information about the condition of a home they’re purchasing, and may help alert them to any major repairs and expenses down the road.

When the housing market is competitive, some buyers skip all contingencies, including the home inspection, which can be risky. Others are opting to have an inspection done before making an offer.

In a seller’s market, many properties are sold “as is,” which means sellers won’t negotiate for repairs even after an inspection.

But even so, a home inspection, and a home inspection checklist, could help you avoid buying a home at the top of your budget that will soon need big fixes.

What’s on a House Inspection Checklist?

According to the American Society of Home Inspectors, here are the common items evaluated in a general professional inspection.

The average cost of a home inspector ranges from $300 to $500. However, the inspector might suggest a separate inspection by a specialist if they spot a potential problem but thinks an expert should evaluate it further.

It’s a good idea to make sure you can accommodate these types of costs in your home-buying budget.

Heating and Air System

Depending on your geographical location and the weather there, a finely tuned heating, ventilation, and air conditioning (HVAC) system might be a top priority on your home inspections list.

Does the house you’re considering have an HVAC system? An older property might not, in which case you might want to research and price the purchase and installation of a system.

If the property does have HVAC, does it work and how old is it? If it doesn’t work, or work well, you’ll want to find out what it will cost to repair or replace it.

If the system is practically vintage, the Department of Energy says it might be worthwhile to replace it, as newer models are more efficient and likely to lower your energy costs.

Recommended: What Are the Most Common Home Repair Costs?

Plumbing System

It’s easy to forget about pipes when you’re walking through a home. You can’t see them, but they heavily affect daily life and are not always simple to repair.

Ask your home inspector to check all plumbing work for possible leakage. A leaky pipe can lead to water damage and additional repair work. Once you know if there’s a problem and how significant it is, you can determine the cost of fixing a leaky pipe.

An inspector could also check drainage throughout the home, the condition of the garbage disposal and water heater, and overall water pressure. If the home is older and has a septic tank, that could be inspected, too.

Electrical System

A professional home inspection will likely include an evaluation of a property’s entire electric system, ensuring that it is up to safety standards outlined by the National Electrical Code.

The functioning of the electrical box, outlets, switches, and lighting will be checked, as well as the state of the wiring throughout the home. If major work needs to be done you can get a quote for the cost of rewiring.

If the house has solar panels, you might want to make sure they’re in working order and ask for the maintenance history.

Roof

No matter the type of roof, the home inspector will check its condition and age.

A roof in good shape helps ensure against leaks and provides some level of insulation. It’s also important to know if you’re buying a home with a roof at the end of its lifespan, so you can set aside money to replace it when needed.

Replacing a roof can run from about $5,764 to $12,514, HomeAdvisor notes.

Floors, Walls, Ceilings

Put the bones of the house on your house inspection checklist.

Structural components like these will likely be looked at in your home inspection. You’ll want to be sure the floors are level. And consider the floors cosmetically. Is the carpeting new? Are there wooden floors that need refinishing?

Look for cracks in the drywall or plaster that make up the walls and ceiling as well. Sometimes cracks are a natural change as walls expand and contract with weather changes. But it’s good to know if all you’ll need is spackle and paint or if repairs will require a lot more time and money. A home improvement calculator could help you figure out the potential cost.

Foundation, Attic, Basement

A home inspector will crawl through a foundation space, checking for stability and that it is up to national safety codes. This is just one of the reasons why failing to get a home inspection is a homebuyer’s mistake to avoid.

A basement will be checked for dampness and good ventilation for moisture control.

And if the home has an attic, your inspector will check to see that the beams and rafters (which support the roof) look secure and distress-free.

Insulation

Homes generally lose heat through the windows, walls, roof, and attic. Proper sealing and insulation can be a good way to prevent this, lowering energy costs.

If your prospective home is quite old, it’s possible it has no insulation, and you might want to consider the cost of adding it. If the home has been insulated, the home inspector will check its condition and look for gaps.

Exterior

Exterior walls will be evaluated, with an eye toward any damaged bricks, shingles, or siding or bubbling paint. Other important exterior components are chimneys, gutters and downspouts, doors, and windows. You might also want to check for moisture.

If water collects and stands anywhere on the property—because of poorly hung gutters or a leaking sprinkler, for example—you may want to nip it in the bud to avoid mold growth and/or water damage. Check for pests like termites or cockroaches as well.

Appliances

If a refrigerator, stove, and washer and dryer are part of the deal, have your inspector make sure they are in good working order.

If the home comes with few to no appliances, determine how much adding them will cost.

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

Choosing a Home Inspector

If you’re using a real estate agent, chances are your agent can recommend a few home inspectors they’ve worked with previously.

Then again, a home inspector your agent referred may feel obligated to go easy on the inspection.

Whether you’re using a buyer’s agent or not, some consumer advocates say it’s a good idea to find your own inspector.

Other things to put on your house-hunting checklist: Know your credit score, and get prequalified and preapproved for a home loan.

The Takeaway

A home inspection checklist can unearth problems that can be a dealbreaker, possibly a negotiating tool, or something a buyer is willing to accept and deal with. The curb appeal may be great, the staging superb, but house inspection lists offer a probing look at what lies beneath.

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 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.

SOHL0623067

A townhouse is a multi-story home that’s owned by individuals and is attached to at least one other similar unit. This type of hybrid dwelling combines features of a single-family home with a condominium — having some of the benefits and challenges of each. It’s also sometimes called a townhome or a row home or house.

Differences Between Townhomes and Condos

Differences between a detached home and a townhouse may be clearer than differences between a townhouse and a condo. After all, a home is a freestanding structure while a townhouse, like a condo, is part of a complex.

So, how is a townhouse different from a condo? Well, for one thing, although townhouses would share walls with units that are right next to theirs, there wouldn’t be a dwelling above them or below, as could be the case with a condo.

Typically, people who own a condo are responsible for the interior of their units, while funds that they pay into their homeowners’ association (HOA) are used to maintain shared areas and the outside of the building.

Townhouse owners, though, are usually responsible for maintaining the inside and outside alike, which is more like owning a home.

Because townhouse owners are usually responsible for more maintenance than condo owners, their HOA fees are often smaller and they typically have more freedom on how to renovate their dwellings. Neither of these is universally true, though, so it’s important to check the specifics of the property of interest.

Potential townhouse owners may be asking themselves, “Is buying a townhouse a good investment? What are the pros and cons?”

Let’s take a look at the pros and cons of buying a townhouse, along with insights into getting a mortgage loan.

Pros of Buying a Townhouse

Having control over the inside and outside of a townhouse might make it more appealing than the purchase of a condominium. Townhome owners might appreciate how they have more ability to make decisions about their property.
Additional benefits of buying a townhouse include:

More Affordable

A townhouse can be an affordable option in communities with higher home prices, providing a space-savvy housing choice in places where available land can be scarce. Although townhouses may be more expensive than a condominium in a community of choice, they tend to be less expensive than a detached home.

Less Maintenance

Townhouses may be appealing to those that are busy; there’s no big yard that needs time and attention and, if owners travel for work and/or pleasure, security services that may be covered by HOA fees can help to protect the dwelling without any extra steps needed — and the complex may even be gated for added security.

Amenities

There may be great shared spaces and amenities for families to enjoy. These can include gyms and pools, and people who own units each have an ownership interest in these common-area benefits — which means they have a legal right to use them.

You Own the Land

Buyers of a townhouse will actually own the land where the property exists. In contrast, the condo owner would only own their unit, not any of the land. This means that someone owning a townhouse is typically less restricted on how the land could be used, perhaps being allowed to grill dinner outdoors, as just one example.

Pay Less in Property Taxes

Owners of a townhouse usually pay less in property taxes when compared to a stand-alone home. This is typically true because of the smaller lot size.

Townhomes could be ideal for first-time homebuyers who are looking for a more affordable option in densely populated areas. It can also be a good choice for people who aren’t interested in doing much home maintenance.

Cons of Buying a Townhouse

Townhomes may not be ideal for everyone. If you don’t want to share walls with another family, for example, a townhouse may be eliminated.

Other potential downsides of buying a townhouse include:

Limited Lot Size

The limited lot sizes that make it easy to minimize maintenance also means that townhouse owners don’t have the benefits that come with a larger yard, whether that means hosting larger picnics, setting up a swing set for the kids, or creatively landscaping the space.

Less Privacy

Townhouses are less private than single-family homes. While there are no units above or below, as there would be with a condominium, walls are shared and backyards are fairly small. This may be problematic if young children living in the townhouse want to run around and play.

Potentially Many Stairs

Townhouses are built upward to maximize limited land, meaning a townhouse could be three or four stories with only a couple of rooms on each floor. This means stairs. Perhaps lots of stairs. And, if someone in the home has physical challenges or has just had surgery, as just two examples, this can make navigation of the townhouse challenging.

Less Appreciation

In general, the value of a townhouse does not appreciate as quickly as single-family homes. Because of this, it may not make sense to buy a townhouse if the idea is to invest in real estate, rather than simply having a desired place to live.

Recommended: Track the Value of Your Home and Real Estate

After reviewing the pros and cons, is buying a townhouse a good idea? Here’s one more consideration: financing the unit.

Financing a Townhouse

Seeking a mortgage loan for a townhouse is similar to one for a single-family home. That’s because, unlike a condo purchase, the buyer of a townhouse also owns the land beneath the dwelling.

When buying a townhouse, lenders will typically want to see a buyer’s monthly income and outstanding debt to determine their debt-to-income ratio and see how much of a mortgage they can afford.

If the townhouse has HOA fees, those would be included in the mortgage calculations. Just as with a single-family home, it can make sense to get preapproved for a dollar amount before townhouse shopping, save money for a down payment and closing costs, and so forth.

Home Loans at SoFi

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

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

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

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

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

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

SOHL0623047

If you’re like many Americans, you dream of having a beach house, a desert escape, or a mountain hideaway. Perhaps you’re tired of staying at hotels and want the comforts of home at your fingertips.

You’re ready to make this dream a reality. Before you do, consider these steps.

How to Buy a Vacation Home

1. Choose a Home That Fits Your Needs

As you begin your search for a vacation home, carefully consider your goals and needs. Start with the location. Do you prefer an urban or rural area? Lots of property or a townhouse with just a small yard to care for?

Consider what amenities are important to be close to. Where is the nearest grocery store? Is a hospital accessible?

Think about your goals for the property. Is this a place that only you and your family will use? Do you plan to rent it out from time to time? Or maybe you plan to be there only a couple of weeks out of the year, using it as a rental property the rest of the time.

The answers to these questions will have a cascade effect on the other factors you’ll need to consider, from financing to taxes and other costs.

2. Figure Out Financing

Next, consider what kind of mortgage works best for you, if you’re not paying cash. You may want to engage a mortgage broker or direct lender to help with this process.

If you have a primary residence, you may be in the market for a second mortgage. The key question: Are you purchasing a second home or an investment property?

Second home. A second home is one that you, family members, or friends plan to live in for a certain period of time every year and not rent it out. Second-home loans have the same rates as primary residences. The down payment could be as low as 10%, though 20% is typical.

Investment property. If you plan on using your vacation home as investment property to generate rental income, expect a down payment of 25% or 30% and a higher rate for a non-owner-occupied loan. If you need the rental income in order to qualify for the additional home purchase, you may need to identify a renter and have a lease. A lender still may only consider a percentage of the rental income toward your qualifying income.

Some people may choose to tap equity in their primary home to buy the vacation home. One popular option is a cash-out refinance, in which you borrow more than you owe on your primary home and take the extra money as cash.

3. Consider Costs

While you determine the goals you’re hoping to accomplish by acquiring a vacation home, try to avoid home buying mistakes.

A mortgage lender can delineate the down payment, monthly mortgage payment, and closing costs. But remember that there are other costs to consider, including maintenance of the home and landscape, utilities, furnishings, homeowners insurance, property taxes, and travel to and from the home.

If you’re planning on renting out the house, determine frequency and expected rental income. Be prepared to take a financial hit if you are unable to rent the property out as much as you planned. For a full picture of cost, check out our home affordability calculator.

4. Learn About Taxes

Taxes will be an ongoing consideration if you buy a vacation home.

A second home qualifies for mortgage interest deduction and property tax deductions as long as the home is for personal use. And if you rent out the home for 14 or fewer days during the year, you can pocket the rental income tax-free.

If you rent out the home for more than 14 days, you must report all rental income to the IRS. You also can deduct rental expenses.

The mortgage interest deduction is available on total mortgages up to $750,000. If you already have a mortgage equal to that amount on your primary residence, your second home will not qualify.

The bottom line: Tax rules vary greatly, depending on personal or rental use.

5. Research Alternatives

There are a number of options to owning a vacation home. For example, you may consider buying a home with friends or family members, or purchasing a timeshare. But before you pursue an option, carefully weigh the pros and cons.

If you’re considering purchasing a home with other people, beware the potential challenges. Owning a home together requires a lot of compromise and cooperation.

You also must decide what will happen if one party is having trouble paying the mortgage. Are the others willing to cover it?

In addition to second home and investment properties, you may be tempted by timeshares, vacation clubs, fractional ownership, and condo hotels. Be aware that it may be hard to resell these, and the property may not retain its value over time.

6. Make It Easy to Rent

If you do decide to use your vacation home as a rental property, you have to take other people’s concerns and desires into account. Be sure to consider the factors that will make it easy to rent. A home near tourist hot spots, amenities, and a beach or lake may be more desirable.

Consider, too, factors that will make the house less desirable. Is there planned construction nearby that will make it unpleasant to stay at the house?

How far the house is from your main residence takes on increased significance when you’re a rental property owner. Will you have to engage a property manager to maintain the house and address renters’ concerns? Doing so will increase your costs.

7. Pay Attention to Local Rules

Local laws or homeowners association rules may limit who you can rent to and when.

For example, a homeowners association might limit how often you can rent your vacation home, whether renters can have pets, where they can park, and how much noise they can make.

Be aware that these rules can be put in place after you’ve purchased your vacation home.

8. Tap Local Expertise

It’s a good idea to enlist the help of local real estate agents and lenders.

Vacation homes tend to exist in specialized markets, and these experts can help you navigate local taxes, transaction fees, zoning, and rental ordinances. They can also help you determine the best time to buy a house in the area you’re interested in.

Because they are familiar with the local market and comparable properties, they are also likely to be more comfortable with appraisals, especially in low-population areas where there may be fewer houses to compare.

The Takeaway

Buying a vacation home can be a ticket to relaxation or a rough trip. It’s imperative to know the rules governing a second home vs. a rental property, how to finance a vacation house, tax considerations, and more.

Ready to buy? SoFi offers mortgage loans for second homes and investment properties. SoFi also offers a cash-out refinance, all at competitive rates.

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