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A home that’s for sale by owner opens the door for you to buy the property without a middleman — though you may choose to use your own real estate agent to facilitate the transaction. A for-sale-by-owner deal can differ from a typical real estate transaction in a few important ways, so study this guide before you start perusing listings.

Buying a House for Sale by Owner

When homeowners choose the FSBO (“fizz-bo”) route, they take on all of the responsibilities real estate agents would typically shoulder in the homebuying process, from listing the house and showing it to negotiating and closing the deal.

The main motivation for doing so is often cash. Sellers who go it alone can save money on the real estate commission fee. If neither side uses an agent, the deal sidesteps the typical 5% to 6% the seller would typically pay in commissions.

On the buyer’s side there can be a number of benefits of buying a house for sale by owner. First of all, the lack of a listing agent means you have more direct contact with the seller, which might give you more negotiating power. The seller will also likely have detailed knowledge of the house and neighborhood, which can be a bonus as you decide whether or not you want the property.

However, you may run into some pitfalls with FSBO properties. A seller may love her home and overprice it, potentially complicating matters when you get an appraisal.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

Using a Buyer’s Real Estate Agent

The home’s seller may not want to use a listing agent, but you can still engage the services of a buyer’s agent. You may already be working with an agent who can contact a FSBO seller for you. Or you may need to look for an agent who is willing to take on the job.

In some cases, buyer’s agents may be hesitant to work on a FSBO property. They may be wary of taking on extra liability, or extra work for which they will not necessarily be compensated.

That said, a buyer’s agent can negotiate the sale on your behalf and walk you through the complicated paperwork. If the seller is putting the contract together, your agent can also check the work to make sure you don’t run into any problems.

Sellers typically pay the agent commission. Just be sure the seller agrees to pay the buyer’s agent commission in the purchase agreement or be prepared to factor it into your own expenses.

Here’s what to expect in the FSBO buying process.

Shopping for a Mortgage

Before making an offer on a home, it’s a good idea to shop for a mortgage to get an idea of the terms different lenders offer and how much you are likely to pay each month.

A mortgage calculator can help you understand how down payments of various sizes will affect the numbers. And you may consider getting preapproved for a mortgage to see exactly how much you can afford to spend.

In an FSBO situation, homeowners may have no experience with the home financing process, and getting prequalified or preapproved for a home loan may remove some roadblocks on your path to making a purchase.

Viewing the Home

Your agent can contact the seller and set up an appointment to view the home. When you visit, be on the lookout for sagging floors or cracks in walls that might indicate structural issues. Test windows. Look for water damage on ceilings or walls that may be a sign of a leaky roof.

Since the seller will most likely be showing the house, take this opportunity to get as much detail about the home’s history as possible. What repairs have been made recently, and which ones haven’t been made in a while? It’s smart to ask about any warranties, and to be sure they will remain after a sale.

Recommended: What to Look for When Buying a House

Getting an Inspection

When buying a home for sale by owner, it’s not in your best interests to skip an inspection. Home inspectors go over the house with a fine-toothed comb, looking at structure, plumbing, electricity, and appliances to see whether they need repair now or in the near future. (This home inspection checklist shows you what should be covered.)

If the inspector finds any problems, you can ask the seller to fix them, credit you the cost of repairs, or reduce the sales price. If you’ve already signed a purchase agreement, severe problems found during an inspection can be a reason to pull out of the contract.

Negotiating a Sale Yourself

If you decide not to use a buyer’s agent, you and the seller will have to negotiate the sale and write up the purchase contract yourself. You may also choose to hire a transactional agent or attorney who can help you write the contract and ensure it is done legally and in a way that protects your rights. If you do decide to go it alone, below are a few things to keep in mind.

Recommended: How to Buy a House Without a Realtor

Making an Offer

Before making an offer on a house, check comparable properties in the neighborhood and see if the listing price is reasonable. Doing so can help you pin down what a reasonable offer is.

Consider offering less than the listing price. The seller may ask you to come up in the asking price, but if you start too high, it’s difficult to negotiate down again. You can use the neighborhood comps you’ve researched as a negotiating tool.

Including Contingencies

Contingencies are certain conditions that must be met in order to close the deal. Some common contingencies are a satisfactory home inspection and property valuation, also known as an appraisal. If a home is appraised at less than the agreed-upon price, a lender may be unwilling to loan the buyer the money. In that case, the appraisal contingency can be an opportunity to negotiate the sales price.

A clear title is another common contingency. The title is a document that shows who has owned and now owns the home. The title company will make sure there are no liens or disputes associated with the property. If there are unresolvable issues, the clear-title contingency gives the buyer a way out of the contract.

Negotiating Fees

It can’t hurt to ask for seller concessions, closing costs that the seller agrees to pay. A seller may agree to help pay for property taxes, attorney fees, appraisal inspections, and the like. Even in a seller’s market, if the property has been sitting, possibly because the price was too high, a seller may offer a financial incentive to move the home.

Putting Earnest Money in Escrow

Your earnest money deposit is the money you submit with your offer to demonstrate your serious intent to buy.

The listing agent would usually put this money into escrow. But if you’re going it alone, it’s a good idea to engage a title company or escrow company to hold the money for you until the sale goes through.

If you give the money directly to the seller, they may refuse to give it back to you if a contingency causes the deal to fall through, which could mean suing to retrieve your cash.

Determining When You’ll Get Possession

Be sure your purchase agreement specifies when you will take possession of the new house and receive the keys. Possession may take place immediately after closing, or the contract may give the seller time to move.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

The Takeaway

Buying a house for sale by owner can come with challenges and opportunities. It may make sense to engage a professional real estate attorney to help you negotiate and deal with the documents. Another option is to engage a buyer’s real estate agent who can help safeguard your interests.

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

SoFi Mortgages: simple, smart, and so affordable.

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SoFi 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.

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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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If your monthly mortgage payment no longer fits your lifestyle or financial goals, you may be able to change it with mortgage refinancing or recasting. Recasting and refinancing are two ways a borrower can save on mortgage costs — sometimes a jaw-dropping amount. To understand which might be best for you, it helps to understand the difference between them and the pros and cons of each.

Recasting vs Refinancing

Recasting is the reamortizing of an existing mortgage, meaning the lender will recalculate your monthly payments. Refinancing involves taking out a completely new mortgage with a new rate, and possibly a new term, and paying off your old mortgage in the process.

Note: SoFi does not offer mortgage recasting at this time.

Recasting

If your lender offers mortgage recasting and your loan is eligible, here’s how it works: You make a large lump-sum payment — $10,000 might be required — toward the principal balance of your mortgage loan. The lender recalculates the monthly payments based on the new, lower balance, which shrinks the payments. The lender may charge a few hundred dollars to reamortize the loan.

Mortgage recasting does not change your loan length or interest rate. But because your principal amount is lower, you’ll have lower monthly payments and will pay less interest over the life of the loan.

If you were to put a chunk of money toward your mortgage principal and not recast the loan, your payments would not change, though the extra principal payment would reduce your interest expense over the life of the loan.

Who might opt for mortgage recasting? Someone who has received a windfall and wants to put it toward the mortgage might like this option. Sometimes it’s someone who has bought a new home but hasn’t sold the previous one. Once the old home is sold, the homeowner can use some of the proceeds to recast the new mortgage.

Another fan of recasting might be someone who wants to use the lump sum to pay their loan down to 80% of the home’s value so they can stop paying for private mortgage insurance (PMI).

FHA, VA, and USDA loans are not eligible for mortgage recasting. Some jumbo loans are also excluded. If you want to change the monthly payments on those types of mortgages, you’ll need to refinance your loan.

Refinancing

When you seek refinancing, you’re applying for a brand-new loan with a new rate and terms and possibly from a new lender. Most people’s goal is a lower interest rate, a shorter loan term, or both.

While finding a competitive offer might take some legwork, refinancing could help you save money. A lower interest rate for a home loan of the same length will reduce monthly payments and the total amount of interest paid over the life of the loan.

A homeowner who refinances to a shorter term, say from 30 years to 15, will pay much less total loan interest. Fifteen-year mortgages also often come with a lower interest rate than 30-year home loans.

Equity-rich homeowners who’d like to get their hands on cash may find cash-out refinancing appealing.

Pros and Cons of Recasting

Mortgage recasting lowers your monthly mortgage payments and lets you save on total loan interest while keeping the same interest rate. Since you recast your mortgage with your existing lender, the process is pretty straightforward, and the cost could be as low as $150.

There are some potential drawbacks to mortgage recasting, however. Making a large lump-sum payment means you could be trading liquidity for equity, and creating financial instability if unexpected expenses arise or if the housing market takes a downward turn.

If you have other debts with higher interest rates, you may want to avoid mortgage recasting. It could make more sense to use the money you would put toward the principal to pay down your higher-interest debt first.

“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.

Recommended: Cash-Out Refinance vs HELOC

Pros and Cons of Refinancing

If you are eligible to refinance, you won’t need a large cash source in order to lower your mortgage payments. Instead, your main goal is to qualify for a lower interest rate. If you succeed, you will save a lot of money in interest over time.

With a cash-out refi, you can use that money for whatever you need: pay down higher-interest debt, add to the college fund, or remodel your kitchen.

Refinancing involves what looks like a bummer: closing costs, which could range from 2% to 6% of the remaining principal. You’re taking out a new mortgage, after all. Some lenders will let you roll closing costs into your loan.

A lower rate could make it all worthwhile, though. It’s a good idea to calculate the break-even point, when interest savings will exceed closing costs. Everything beyond that break-even point will be savings.

Reducing your loan term with a refi could result in a higher mortgage payment but tremendous interest savings over the life of the new loan.

Refinancing may make sense for homeowners who are planning to stay put for years; those who want to switch their adjustable-rate mortgage to a fixed-rate one; and borrowers with FHA loans who want to shed mortgage insurance premiums (MIP), on a loan they’ve paid down or a home that has appreciated. Most FHA loans carry mortgage insurance for the life of the loan.

No matter the home financing topic, find a lender willing to provide transparent answers to your mortgage questions.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

The Takeaway

A mortgage recast vs. refinance: different animals with similar aims. A recast requires a lump sum but will shrink payments and total loan interest. A mortgage refinance may greatly reduce borrower costs and sometimes free up cash. Which one is right for you will depend on your current loan terms and your available cash, among other factors.

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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.

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.

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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Paying off your mortgage ahead of time might sound like an incredibly savvy thing to do — and in some cases, it is. But it’s not the right money move for everyone. And paying off a mortgage in just five years? It’s an aggressive strategy that may or may not be the smartest choice.

Benefits and Risks of Paying Off a Mortgage Early

Achieving homeownership is, well, an achievement. And since you’re here reading an article about paying a mortgage off early, you’re clearly an overachiever.

Paying off any kind of debt early usually seems advisable. But for most of us, our home is the single largest purchase we’ll ever make — and paying off a six-figure loan in only a few years could wreak havoc on the rest of your finances.

In addition, some mortgages come with a prepayment penalty, which means you could be on the line for additional fees that might eclipse whatever you’d stand to save in interest payments over time. (Mortgages tend to have lower interest rates than many other common types of debt anyway.)

That said, if you have the cash, paying off your home early can lead to substantial savings, not to mention helping you build home equity as quickly as possible.

Let’s take a closer look at the risks and benefits of paying off a mortgage early.

Benefits of Paying Off a Mortgage Early

The main benefit of paying off a mortgage early is getting out of debt. Even minimal interest is an expense it can be nice to avoid.

Additionally, paying off your home early means you’ll have 100% equity in your home, meaning you own its whole value, which can be a major boon to your net worth.


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

Risks of Paying Off a Mortgage Early

Paying off a mortgage early may come with risks, and not just prepayment penalties (which we’ll touch on again in a moment). In many instances, it can be a plain old bad financial move.

Depending on what your cash flow situation looks like, and what the interest rate on your mortgage is, you might stand to out-earn early payoff savings if you funnel the extra cash to your investment or retirement accounts instead. (You can use this mortgage calculator to see how much interest you stand to pay over the lifetime of your home loan — and then compare that to how much you might earn if you invested that money instead.)

Additionally, if you have other forms of high-interest debt, like revolving credit card balances, it’s almost always a better idea to focus your financial efforts on those pay-down projects instead.

“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.

And if you have historically taken the home mortgage interest deduction on your taxes, it’s also worth talking with your tax advisor about what impact paying off your mortgage early will have on your deductions. (For 2023, the standard deduction is $27,700 for married couples filing jointly and $13,850 for single people and married people filing separately. For 2024, the standard deduction for married couples filing jointly rises to $29,200. For single taxpayers and married people filing separately, the standard deduction rises to $14,600.)

To recap:

Benefits of Paying Off a Mortgage Early	Risks of Paying Off a Mortgage Early
Saving money on interest over time	Possible repayment penalty; possible loss of tax deduction
Building home equity quickly	Lost opportunity for investment growth, which could outweigh interest savings
No longer having to make a mortgage payment every month	Less money for other important goals, such as paying down credit card debt

Watching Out for Prepayment Fees

One of the biggest risks of paying off a mortgage before its full term is up is the potential to run into prepayment penalties. Some mortgage lenders charge large fees to make up for the interest they’ll be missing out on.

Fortunately, avoiding prepayment penalties on home loans written after 2014 is easier: Legislation was passed to restrict lenders’ ability to charge those fees. But if your mortgage was written in 2013 or earlier — and even if not — it’s a good idea to read the fine print before you hit “submit” on your lump-sum payment, and ideally before you accept the contract at all.

Steps to Paying Off a Mortgage Early

You’ve assessed the risks and benefits and decided that paying off the mortgage early is the right move for you. Nice!

Now let’s take a look at how to get it done.

Pregame: Considering Repayment Goals When House Shopping

This option won’t work if you’ve already found and moved into a home, but if you’re still in the home-shopping portion of the journey, looking at inexpensive homes can be a great first step toward paying off your mortgage fast.

After all, if the home has a lower price tag, it’ll be easier to reach that goal in a shorter amount of time. Ideally, you want its value to appreciate, so you’ll still want to shop around before just choosing the lowest-priced house on the block.

Maybe you signed your home contract years ago and are just now considering getting serious about early mortgage repayment. Take heart! There are some easy steps to follow to make your mortgage disappear in five years or so.

1. Setting a Target Date

The first step: figuring out exactly when you want the mortgage paid off. Choosing your target date will make it easier to figure out how much additional money you need to send to your lender each month.

Five years is a pretty tight timeline for this kind of debt repayment process, but it could be doable depending on your earnings and commitment.

2. Making a Higher Down Payment

The higher your down payment, the less loan balance you’ll have to pay down, so if you can manage it, offer as much as you can right at the start. There are many assistance programs for down payments that might boost your offer and put you on track for paying down your mortgage early.

Also, realize that first-time homebuyers — who can be anyone who has not owned a principal residence in the past three years, and some others — often have access to down payment assistance.

3. Choosing a Shorter Home Loan Term

Obviously, if you want to pay your mortgage off in a shorter amount of time, you can consider choosing a shorter home loan term; most conventional mortgages are paid off over 30 years, though it’s possible to find loans with 15- or even 10-year terms.

However, your interest rate might be higher on those loans in order to make the deal worthwhile to the lender, so for many borrowers, choosing a longer home loan term and making aggressive additional payments is a better option.

4. Making Larger or More Frequent Payments

One of the most achievable ways for most borrowers to pay off a home loan early is to pay more than the monthly minimum, either by adding extra toward the principal in the monthly payment or by paying more than once per month.

Unless you’re due for a six-figure windfall, chipping away at the debt this way might be the smartest option. But how does one come up with the additional money to funnel toward that goal?

5. Spending Less on Other Things

As with most debt repayment strategies, chances are you’ll need to find other ways to cut back on spending in order to set aside more money to put toward the mortgage. This could be as small as ditching the daily latte or as serious as choosing to give up a car.

6. Increasing Income

Another option, if there’s just nothing left to cut? Finding ways to increase your income, perhaps by starting a side hustle or asking for that long-overdue raise.


💡 Quick Tip: A Home Equity Line of Credit (HELOC) brokered by SoFi lets you access up to $500,000 of your home’s equity (up to 90%) to pay for, well, just about anything. It could be a smart way to consolidate debts or find the funds for a big home project.

How Much House Can You Afford Quiz

The Takeaway

Pay off a mortgage in five years? While paying off your home loan early could help you save money on interest, sometimes the money is better spent on other financial goals and projects. So it pays to take a close look at the numbers, just as you did when you got your mortgage in the first place.

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

SoFi Mortgages: simple, smart, and so affordable.

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Photo credit: iStock/fizkes

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.

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

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.

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Both co-ops and condos give a resident the right to use certain common areas, such as pools, gyms, roof decks, and courtyards. But there are big differences when it comes to what you actually own when you purchase a condo vs a co-op.

It’s easy to get confused about the difference between the two properties. If you pulled up pictures of co-ops and condos during a home search, they might seem exactly the same. But if you’re in the market for a home — especially in a large city where both housing types are popular — you’ll learn quickly that the terms are not interchangeable.

You might have wondered if you’d prefer a house or a condo. But if you’re moving in the direction of co-op vs. condo, it’s important to understand their many distinct features. You’ve done the work of budgeting for a home. Now, before you spend that budget, let’s get a handle on the difference between a condo and a co-op.


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

What Is a Condo?

With a condominium, you own your home, but you don’t solely own anything outside your unit — not even the exterior walls. Common areas of the complex are owned and shared by all the condo owners collectively.

Buying a condo is not all that different from securing any other type of real estate. Typically, the complex will be managed by an association that is responsible for maintaining the property and enforcing any covenants, conditions, and restrictions that govern property usage. The association sets the regular fees owners pay to cover repairs, landscaping, other services, and insurance for the shared parts of the property. Special assessments also might be levied to pay for unexpected repairs and needed improvements that aren’t in the normal operating budget.

What Is a Co-op?

In the co-op vs. condo debate, it’s key to know that with a housing cooperative, residents don’t own their units. Instead, they hold shares in a nonprofit corporation that has the title to the property and grants proprietary leases to residents. The lease grants you the right to live in your specific unit and use the common elements of the co-op according to its bylaws and regulations. A co-op manager usually collects monthly maintenance fees; enforces covenants, conditions and restrictions; and makes sure the property is well kept.

As a shareholder, you become a voting manager of the building, and as such have a say in how the co-op is run and maintained. Residents generally vote on any decision that affects the building. Should a resident wish to sell their shares, members of the board of directors will have to approve the new buyer. They will be much more involved than would be the case with a condo. That can make it a lengthy process.

Co-ops and condos are both common-interest communities, but their governing documents have different legal mechanisms that determine how they operate and can affect residents’ costs, control over their units, and even the feeling of community. (If you’re curious about another option, there’s always a townhouse, so read up on the difference between a condo and a townhouse as well.)


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Some Pros & Cons of Co-Ops vs Condos

Financing

It’s important to drill down on the details of buying an apartment. Because you aren’t actually buying any real estate with a co-op, the price per square foot is usually lower than it would be for a condo. Eligibility for financing may depend on credit score, down payment, minimum square footage of a unit, and more.

However, it might be somewhat harder to get a mortgage for a co-op than a condo, even if the bottom-line price is less. It might not have all that much to do with you. Some lenders are reluctant to underwrite a loan for shares in a corporation vs. real property. Most condo associations don’t restrict lending or financing in the building. If you can get a mortgage loan, the condo association will usually let you buy a place.

Fees

Because a co-op’s monthly fee can include payments for the building’s underlying mortgage and property taxes as well as amenities, maintenance, security, and utilities, it’s usually higher than the monthly fee for a condo. Either way, though, generally the more perks that come with your unit, the more there is to maintain and in turn, the more you’re likely to pay.

If you’re concerned about an increase in fees, you might want to ask the association or board about any improvements that may lead to an increase in the future — and what the rules are for those who do not pay their assessed dues. All of these factors are important to weigh when you’re making a home-buying checklist, which includes figuring out how much money you’ll need and the best financing strategy.

Taxes

If you itemize on your income tax return, you may be able to deduct the portion of a co-op’s monthly fee that goes to property taxes and mortgage interest. However, none of a condo’s monthly maintenance fee is tax deductible. You might want to consult a tax professional about these nuances before moving forward with a co-op or condo purchase.

Privacy vs Community

If you’ve ever lived in one of those neighborhoods where the only time you saw your fellow residents was just before they pulled their cars into their garages, it could take you a while to adjust to cooperative or association living. Because you share ownership with your neighbors, you may be more likely to see them at meetings and other events. And you can trust that they’ll know who you are.

Co-op boards often require prospective buyers — who are potential shareholders — to provide substantial personal information before a purchase is approved, including personal tax returns, personal and business references. Many require in-person interviews. You may find that you like the sense of community and that everyone knows and looks out for each other. Or you may not. Again, you might want to ask some questions about socialization and privacy while checking out a particular co-op or an active condo community.

Restrictions

In a co-op, you might run into more rules regarding how you can renovate or even decorate your unit. And don’t forget: You’ll also have to deal with that rigorous application approval process if you ever decide to sell.

Both condos and co-ops frequently have restrictions on renting out extra rooms (or renting the entire unit), as well as on how many people can stay overnight or park in the parking lot, the type of pets you can have and their size, and more. Before you look at a unit, you may want to ask your agent about covenants, conditions, and restrictions that could be difficult to handle.

The Takeaway

Whether you end up buying a co-op or a condo, ownership offers many benefits you won’t find in a rental. When you’re ready to start a serious search, take the time to look for a lender that will work with you on whatever type of loan you might require. In the co-op vs. condo terrain, there are specialists for both sides.

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

SoFi Mortgages: simple, smart, and so affordable.

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SoFi 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.

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.

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For first-time buyers — or anyone facing financial hurdles — getting an FHA loan can help make homeownership a reality. With insurance from the Federal Housing Administration, lenders can afford to offer loans with a lower down payment, lower closing costs, and less restrictive qualifying credit requirements.

But can you refinance an FHA loan? Yes, FHA loans are available for those looking to refinance an existing mortgage rather than take out a new one — whether or not that existing mortgage is itself an FHA loan. However, there are a variety of different ways to go about refinancing an FHA loan, and which is right for you will depend on your circumstances. Here’s what you need to know.

Understanding FHA Refinancing

Like any FHA loan, FHA refinancing loans are insured by the FHA — and therefore available with easier qualifying requirements and lower costs than other types of conventional loans may be. Refinancing your mortgage with an FHA refinance loan could help you save money on interest over time by scoring a lower rate, lowering your monthly payments, or even accessing cash by leveraging your home’s equity. And yes, you can refinance an FHA loan, or another type of existing home loan with an FHA refinancing loan. However, the specific FHA refinance requirements vary depending on your circumstances.

Types of FHA Loan Refinancing

There are four main options when it comes to FHA loan refinancing: Simple refinancing, Streamline refinancing, cash-out refinancing, and 203(k) refinancing. Which is right for you will depend on what kind of loan you have — and why you’re refinancing in the first place.

FHA Simple Refinance

FHA Simple refinancing is for those whose original home loan is an FHA loan. With an FHA Simple refinance, you’ll simply — as the name implies — refinance your home, using a new FHA loan to pay off the existing one, ideally with a lower monthly payment or interest rate to make it worth your while. You may also be able to switch between fixed and adjustable interest rates.

Unlike some other types of FHA refinancing, you won’t be able to access any cash using this type of refinance, so it’s not a viable option for homeowners attempting to leverage home equity to pay for other expenses. In addition, it has slightly stricter qualification requirements than FHA Streamline refinancing, which requires less credit documentation and underwriting. Although credit score requirements vary by lender, most FHA Simple refinance programs require a minimum credit score of 580.

FHA Streamline Refinance

The FHA Streamline refinancing option also follows the logic of its name: The underwriting and qualification process is less intense than other types of FHA refinancing. In addition, unlike the FHA Simple refinance option, a home appraisal is not required. You can also take out up to $500 in cash against your home equity with an FHA Streamline refinance loan.

To qualify for FHA Streamline refinancing, your original home loan will also need to be FHA insured, and payments must not be delinquent. The FHA also requires that the new loan result in a financial benefit for the borrower. Of course, you wouldn’t be going through the process and expense of refinancing if you had nothing to gain in the bargain.

FHA Cash-Out Refinance

FHA cash-out refinancing allows borrowers to leverage their home equity to take out cash that can be used for any purpose. To make this work, a new, larger loan is taken out, which is used to refinance the existing home loan — which need not be FHA insured — as well as to provide cash value.

Using an FHA cash-out refinance loan, homeowners may be able to lower their payments or interest rates while also accessing lump-sum cash that can be used for just about any purpose under the sun. Again, however, the underwriting and qualification process for FHA cash-out refinance loans may be more intense than Streamline loans — though a cash-out refi is still accessible to most borrowers with a credit score of 580 or higher and a debt-to-income ratio (DTI) of 43% or less.

FHA 203(k) Refinance

Finally, the FHA 203(k) loan, also known as rehabilitation loan, allows homeowners to take out money for the purpose of restoring, rehabilitating, or repairing their home along with purchasing it. FHA 203(k) loans can be used for an original purchase or a refinance, and homeowners with a non-FHA loan can apply for 203(k) refinancing, and may find FHA-insured rates are lower than those of other home improvement loans.


💡 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).

Comparing FHA Refinance vs. Conventional Loan Refinance

Why choose to refinance with an FHA loan rather than a conventional one? Or vice versa? There are pros and cons to consider either way you go. For instance, although FHA refinance loans tend to come with more accessible qualification requirements, some types are only available for those with existing FHA loans — and all of them require a mortgage insurance premium (MIP). The important thing is to consider all your options so you can make an informed decision. Let’s take a closer look.

Pros and Cons of Refinancing with an FHA Loan

While there are many benefits to refinancing with an FHA loan, there are some drawbacks to consider, too.

Pros of refinancing with an FHA loan:

•   Lower interest rates and down payments than some conventional refinancing options

•   Easier qualification process

•   Different options available, including cash-out options

Cons of refinancing with an FHA loan:

•   MIP (mortgage insurance premium) required on all FHA loans; conventional refinance loans will not require mortgage insurance if you’ve paid off at least 20% of your home’s value.

•   Some types of FHA refinance loans are only available to those with existing FHA home loans.

Differences in Requirements and Benefits

In addition to the pros and cons of FHA loan refinancing, there are also differences in the requirements and benefits for FHA versus conventional home refinancing loans. For instance, in most cases, FHA loans require a minimum credit score of just 580, whereas conventional loans might have a minimum credit score starting at 620 or higher.

And while FHA loans often come with lower interest rates, they always come with a mortgage insurance requirement — whereas conventional loans may not require private mortgage insurance (PMI), if you already own at least 20% of your home’s equity.

Finally, FHA refinancing loan options may be somewhat limited, depending on your existing home loan and your motivations for refinancing. Some types of FHA refinancing loans are only available to homeowners who already have an FHA-insured mortgage, which may make them inaccessible to other borrowers.

Eligibility and FHA Refinance Requirements

So, what does it take to secure an FHA home loan? While requirements vary by lender, here are some basic rules of thumb:

Qualifying Factors for Refinancing an FHA Loan

As mentioned above, certain types of FHA refinance loans are only available to those who already have an FHA-insured mortgage loan. In addition, only FHA loans that are not delinquent — i.e., you’re up to date on your payments — may qualify for refinancing.

Credit Score Guidelines

While FHA-insured loans tend to have lower minimum credit scores than conventional refinance loans, lenders do still have a minimum. In most cases, it’s 580—though specifics may vary by lender.

Loan-to-Value Ratio (LTV)

A home’s loan-to-value (LTV) ratio refers to what percentage of the home’s current market value you’re taking out a loan for. Ideally, those who are refinancing their homes have a lower loan-to-value ratio — meaning they owe less of their home’s total value than they did when it was first purchased. Still, the LTV is one factor lenders look at when qualifying borrowers for an FHA refinance loan; the lower your LTV, the better.

Employment and Income Verification

Lenders have a vested interest in making sure you’ll be able to repay your loan, so a lender will verify your employment situation and income before qualifying you for a new loan, whether you’re taking out an original mortgage or refinancing.

Debt-to-Income Ratio (DTI)

Your debt-to-income, or DTI, ratio refers to the proportion of your available income each month that goes toward existing debts. While FHA loans have a higher maximum DTI than other types — borrowers with DTIs as high as 57% may still qualify — some lenders may choose not to qualify borrowers with a DTI of 43% or more.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Specific Requirements for Streamline Refinance

For the FHA’s Streamline refinance program, certain specific requirements apply, including:

•   The existing mortgage must also be FHA-insured.

•   The refinance must result in a “net tangible benefit” to the borrower.

•   Only up to $500 may be taken out of the loan in cash.

•   In most cases, investment properties are ineligible.

Criteria for Cash-Out Refinance

In order to qualify for an FHA cash-out refinance, you’ll need:

•   To have lived in your home for at least 12 months

•   To own at least 20% of your home’s equity

•   A minimum credit score of 580

•   A debt-to-income (DTI) ratio of 43% or lower

Benefits of Refinancing an FHA Loan

What are the specific benefits of refinancing with an FHA loan? Here are just a few of the reasons people choose to take this route when refinancing a mortgage.

Lower Interest Rate and Monthly Payment

For most homeowners, the primary motivator for refinancing is to save money — either over the long term, by scoring a lower interest rate, or on a monthly basis by choosing a loan with a lower minimum monthly payment. In some instances, you may be able to achieve both goals with the same refinancing loan, particularly if your credit history has appreciably improved since you originally took out your mortgage.

New Loan Terms

Some borrowers refinance to give themselves more time to pay off their home loan with a longer term — or to accelerate their repayment process with a shorter term.

Equity Access with a Cash-Out Refinance

For most consumers, a home is the single most valuable asset they’ll ever purchase. Being able to access the value of that equity with a cash-out refinance option is another important motivator for those seeking to refinance, and FHA refinance loans can make that goal a reality whether or not your original loan is FHA-insured.

Avoid Private Mortgage Insurance (PMI)

For borrowers looking to avoid private mortgage insurance (PMI), take heed: Although FHA loans don’t require PMI, they do require mortgage insurance. The FHA-loan version is called MIP (mortgage insurance premium), and is required on all FHA loans.

Improve Financial Stability

For some borrowers, refinancing can improve overall financial stability by achieving any of the goals listed above — for example, freeing up more discretionary income each month with a lower monthly payment.

Steps to Refinance an FHA Loan

Seriously considering an FHA refinance loan? Here are the steps it takes to turn your ideation into reality.

1. Review Your Current FHA Loan

The first step in shopping for a new loan should always be to review your existing mortgage. After all, that’s the best way to understand what factors would make a new mortgage more favorable for your finances. If your original loan is not FHA-insured, note that you may not qualify for certain types of FHA refinancing loans.

2. Shop for Lenders and Offers

Next up: The actual shopping part. In order to ensure you get the best deal available, it’s worth asking several lenders for refinancing quotes, including a full amortization schedule. That way, you’ll understand exactly how much money you stand to save — or not — by choosing a specific lender.

3. Submit an Application and Required Documentation

Once you’ve settled on a lender, you’ll submit your application, including any required documentation (such as ID and income verification, including bank statements and tax forms). In most cases, this process can be done entirely online.

4. Go Through the Appraisal and Underwriting Process

As part of most refinancing processes, you’ll need to have your home appraised so the lender understands its current market value — and can use that value to calculate important aspects of your application, like the LTV. An underwriter will assess your holistic financial profile to determine whether or not you qualify for the refinance loan.

5. Close the Refinance

Finally, if the terms are favorable and you are approved, you’ll close the refinance loan. The new lender will repay your existing loan, and your new payments will be directed toward this new lender, using the new terms you’ve agreed to.

Tips and Considerations for FHA Loan Refinancing

Want to get the very best out of your FHA loan refinancing process? Here are some tips to help you get the most bang for your buck.

Evaluate Your Financial Situation

Refinancing isn’t right for everyone. In fact, in most cases, the FHA won’t even allow you to refinance with one of its loans unless it results in a net financial benefit for you, the borrower. You can take a few first steps to determine whether or not it will help before you ever get a lender involved.

Using a mortgage calculator, you can determine how much a lower interest rate would save you over time or how much a longer loan term would reduce your monthly payment. Keep in mind that refinancing isn’t free, so unless the savings are substantial enough to eclipse your closing costs, it may make more financial sense to keep your original loan.

Understand Closing Costs and Fees

Loans come with a variety of closing costs and fees, such as application fees, the cost of the appraisal, attorney fees, and more. These costs can add up to about 6% of your overall loan value, and though some of them may be able to be financed as part of your loan, they still have the potential to eat into any savings your refinancing loan might offer.

Time Your Refinance Strategically

When it comes to refinancing your mortgage, timing matters. For example, if interest rates are higher than when you took out your original loan, the timing might not be right. The same could be said if you’re planning on moving out of your home in the near future, in which case, you may not have enough time in the home left to break even on your closing costs.

Common Mistakes in FHA Loan Refinancing

Here are some common errors borrowers make when undergoing the FHA loan refinancing process.

Misunderstanding the Eligibility Criteria

Although FHA loans come with more accessible eligibility criteria than many conventional loans, they do still have standards. If your credit score is less than 580 or your payments are delinquent, you’re unlikely to qualify for an FHA refinancing loan.

Ignoring Closing Costs and Fees

As mentioned, closing costs and fees can really add up — so if you don’t take them into account when you’re considering a refinance, you may wind up with an unpleasant case of sticker shock.

Not Considering Long-Term Financial Goals

Refinancing your home, when done best, is all about saving money over time, which means having enough time for those savings to accrue. If you’re planning on selling your house and moving in three to five years, refinancing may actually end up being more expensive than staying with a higher-rate original loan. Additionally, if you’re refinancing primarily to lower your monthly payment and make ends easier to meet, don’t forget to keep your long-term finances in mind. It may not be worth the extra monthly money to pay thousands more in interest overall.

The Takeaway

FHA refinance loans are available for homeowners whose original loans are FHA-insured—as well as for those who have a conventional original mortgage. FHA loan requirements vary depending on which type of loan you’re considering, and may not be right for everyone. But if you can meet the qualifications and derive a solid financial benefit from an FHA refinance, it may be worthwhile to embark on the process.

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

Can you refinance an FHA loan without an appraisal?

Yes — but only if you qualify for an FHA Streamline loan, which requires your original loan also be an FHA-insured loan.

What happens if your home’s value has decreased?

Even if your home’s value has decreased, you may still be eligible for a refinance loan through the FHA Streamline program. It all depends on how much you owe on your home and your other qualifying factors. (Keep in mind, too, that this program requires that your original home loan also be an FHA one.)

Can you refinance an FHA loan if you’re behind on payments?

No. All FHA loan refinance programs require borrowers to be up-to-date on their loan payments, with most including provisions that there must not have been any payments more than 30 days late within the last six months.

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Photo credit: iStock/gremlin

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.

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.

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

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

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