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Legislation providing for a tax credit for first-time homebuyers was introduced in Congress in 2021 but is still making its way through Congress as of June, 2023. A revamp of the first-time homebuyer tax credit from 2008, the proposed First-Time Homebuyer Act of 2021, would modify the first-time homebuyer tax credit, increasing the allowable dollar amount of the credit from $8,000 to $15,000.

Unfortunately, this bill hasn’t passed, so there is currently no federal tax credit for first-time homebuyers. (A separate bill, the Downpayment Toward Equity Act of 2021, was introduced in the House of Representatives and the Senate in 2021, provides financial assistance specifically to first-generation homebuyers to help them purchase a home that they would occupy. This hasn’t passed either.)

Here’s everything you need to know about the history of the first-time homebuyer credit and what the future may hold.

What Is the First-Time Homebuyer Tax Credit?

The first-time homebuyer tax credit refers to a tax credit given in tax years 2008, 2009, and 2010 worth up to $8,000. It’s possible the term may also be used in the future as legislation for a new first-time homebuyer tax credit was introduced in the House of Representatives in April 2021.

The new proposed first-time homebuyer tax credit would typically be worth up to $15,000 for buyers whose adjusted gross income doesn’t exceed 160% of the median income for the area.

Recommended: The Cost of Living By State

First-Time Homebuyer Act of 2008

For first-time homebuyers who purchased a home between April 9, 2008, and May 1, 2010, a one-time tax credit of 10% of the purchase price, up to $7,500 in 2008 and increased to $8,000 in the next two years, was available. It was part of the Housing and Economic Recovery Act of 2008. The credit was for home purchases of up to $800,000 and phased out for individual taxpayers with higher incomes.

For home purchases made between April 9 and Dec. 31, 2008, the credit had to be repaid over 15 years, making it more of an interest-free loan than a true credit. Homebuyers taking advantage of the tax credit in the following years had repayment of the credit waived. Homebuyers who left the property before a three-year period were required to repay a portion of the credit back to the IRS.

Proposed First-Time Homebuyer Act of 2021

The First-Time Homebuyer Act of 2021 would allow qualified buyers a refundable tax credit of $7,500 for individuals and $15,000 for married couples filing jointly.

This bill amends the 2008 law to allow for higher purchase prices, revises the formulas for income, and revises rules pertaining to recapture of the credit and to members of the armed forces. It was introduced in the House by Rep. Earl Blumenauer of Oregon in April 2021 but is not yet law as of June 2023.

What Can Be Deducted After Buying a Home?

Amounts eligible for the proposed tax credit would include the purchase price of the home. The amount of the credit is 10% of the purchase price.

Given that the maximum is $7,500 per individual and $15,000 per married couple filing jointly, if you and your spouse purchased a home with a mortgage loan of $500,000, the 10% credit would amount to $50,000. You would receive a tax credit of $15,000 if you filed jointly.

If you purchased a home for $102,000 with a spouse, 10% of that would be $10,200. You would be able to claim $10,200 for the credit if you filed jointly.

Here are some possible deductions now for homeowners who itemize, though most taxpayers take the standard deduction instead:

•   Mortgage interest on up to $750,000 of mortgage debt (or up to $375,000 if married and filing separately), including discount points paid to reduce the interest rate on the mortgage.

•   Up to $10,000 of property taxes when combined with state and local taxes.

•   Home office if you’re self-employed or a business owner but not an employee of a company.

If you sell your main home and have a capital gain, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 if you file a joint return with your spouse.

Recommended: Mortgage Interest Deduction Explained

Who Is Eligible for the First-Time Homebuyer Act of 2021?

First-time homebuyers purchasing a principal residence would be eligible for the tax credit. Not your first time buying a house? You may still be able to qualify.

A first-time homebuyer is defined as someone who has not owned an interest in a property for the past three years. So even if you had owned a home in the past, you might be eligible to receive this credit if it hadn’t been in the last three years.

Other qualifications include:

•   A modified adjusted gross income that is under 160% of the area median income.

•   Purchase of a property that is not above 125% of the area median purchase price.

•   Must live in the home as a principal residence for the tax year.

•   Must be over 18 years of age.

To note: If you claimed a first-time homebuyer credit under the 2008 law, you would be able to claim it again. But you could claim the new credit only once, for a first purchase. Also be aware that a copy of the settlement statement must be attached to your taxes.

How Does the Tax Credit Work?

If the bill passed, the new homeowner would file for the first-time homebuyer tax credit on their taxes. The credit would first be used to offset any taxes owed by the homebuyer. Then, as a refundable tax credit, the homebuyer would get money back on top of the amount of the credit after their tax bill had been paid.

For example, if you owed $4,000 in taxes after accounting for withholdings, and you qualified for a $15,000 tax credit, you’d apply that toward the amount you owe in taxes. You would get the rest back ($11,000) from the IRS.

Taxpayers must stay in the home for the duration of the tax year in order to receive the credit. If the property is sold within four years, taxpayers may need to pay a portion of the tax credit back. The amount is subject to a schedule, which is as follows:

•   Dispose of property before the end of Year 1: Repay 100% of the credit

•   Dispose of property before the end of Year 2: Repay 75% of the credit

•   Dispose of property before the end of Year 3: Repay 50% of the credit

•   Dispose of property before the end of Year 4: Repay 25% of the credit

Homebuyer Tax Credit vs Homebuyer Grant

Another first-time homebuyer program has been introduced in Congress to help with the costs of obtaining a home. The Downpayment Toward Equity Act would award a grant of up to $25,000 to first-generation homebuyers who come from socially and economically disadvantaged groups.

The down payment would need to be for a principal residence and would not need to be repaid after 60 months of occupancy. More details on the two proposed programs can be found below:

Help for First-Time Homebuyers

Although new federal legislation hasn’t yet delivered support to first-time homebuyers, there are other first-time homebuyer programs that can help with costs.

A first-time homebuyers guide will walk you through the process of buying your first home and help answer questions.

Are you crunching numbers? Try this mortgage calculator tool. Keep in mind that some private lenders (like SoFi) allow a down payment for first-time buyers that may be even lower than FHA loans.

The Takeaway

A first-time homebuyer tax credit of up to $15,000 has been proposed for qualified buyers. That would take some of the pressure of taking the plunge into homeownership. But Congress has not passed legislation to put the credit in place.

If home buying remains mysterious, the SoFi loan help center can help clear the fog.

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

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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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For the average American, no single expense is as large as the cost of purchasing a home. Because the price is so high, a mortgage is usually necessary. And in most cases, a home purchase requires a down payment plus monthly mortgage payments.

What you’ll pay each month on a $300,000 mortgage will depend on several factors, such as the interest rate and mortgage term. These numbers will differ for everyone, so you must do some math to know your monthly cost, and it’s important to consider the total cost of a home purchase as well.

Total Cost of a $300K Mortgage

There is more than one element to the total cost of a $300,000 mortgage. It can be a lot to take in, especially for first-time homebuyers. However, we can generally break the total costs of buying a home into upfront and long-term costs.

Upfront Costs

Even in the beginning stages of your home purchase, there are some costs you will have to pay. Upfront costs of a home purchase include:

•   Earnest money: Earnest money is also known as a good faith deposit. This is a sum of money you put down to show a seller you are serious about buying their home.

•   Down payment: When you buy a home, you typically must pay a portion of the home price upfront, known as a down payment. While down payments can be up to 20% of the home price, they are often a much lower percentage. How much you put down upfront can impact your mortgage rate and thus your monthly costs.

•   Closing costs: Closing costs cover administrative activities involved in buying a home, such as the cost of an appraisal, lender’s fees, and a charge to record the property transfer.

Long-Term Costs

Most of the money you spend on your home will probably be long-term costs. Your monthly mortgage payment will likely be the biggest of these. The monthly payment you make against the loan you obtained to purchase the home will cover the principal plus interest. Some other long-term costs are:

•   Property taxes: In most cases, you must pay taxes on your home. These can be significant, often totaling thousands of dollars annually.

•   Home maintenance: Homes usually require ongoing maintenance, and these costs can be more variable than other ongoing costs.

•   HOA Fees: Some homes, such as townhouses and condos, may have an ongoing homeowners association fee to cover landscaping, pools, and general maintenance.

Estimated Monthly Payments on a $300K Mortgage

The monthly payment on a $300,000 mortgage depends on your down payment, annual percentage rate (APR), and term. You must factor each into the equation to estimate your monthly mortgage payment.

For example, suppose you secure a 30-year fixed $300K mortgage at 4.5% APR. In this case, the monthly payment would be $1,520. On the other hand, if you have a 15-year fixed $300K mortgage at 4% APR, the monthly payment would be $2,219. As you can see, APR and terms can have a big impact on your monthly mortgage payment.

Monthly Payment Breakdown by APR and Term

A monthly $300K mortgage payment amount can vary widely, even if you know you will have a $300,000 loan. Use a mortgage calculator to estimate your monthly payment. Here are a few examples of how these calculations may vary depending on the APR and term:

How Much Interest Is Accrued on a $300K Mortgage?

The amount of interest you accrue on a $300,000 home mortgage loan will, again, depend on several factors. However, the most important factors are the mortgage term and APR. When comparing two 30-year mortgages, the one with a lower APR usually accrues less interest. When comparing 15-year vs. 30-year terms with the same APR, the 15-year term will generally accrue less interest.

For instance, a 15-year mortgage with a 3.0% interest rate results in a total of $72,914 of interest over the life of the loan. Meanwhile, a 30-year mortgage with a 6.0% interest rate results in $347,515 of interest. There are also different types of mortgage loans, which can affect how much you ultimately pay.

$300K Mortgage Amortization Breakdown

As we have observed, APR and term significantly impact the interest you pay. However, the term can also affect how much you pay per month. The following table breaks down the amortization schedule of a 30-year $300,000 loan with a 5.0% APR:

What Is Required to Get a $300K Mortgage?

Getting a $300,000 mortgage generally requires a combination of a sufficient income and a large enough down payment. For example, if your gross annual income is $75,000 and you want to borrow $300,000 with a 30-year mortgage at 5.0%, you would probably need to make a deposit of at least $30,000 on a property.

Running the numbers in a housing affordability calculator can help you pinpoint the costs. The numbers above result in spending about 23% of your income on housing. This falls comfortably below the 30% threshold. Above that point, the Department of Housing and Urban Development (HUD) considers you “price burdened.”

Credit score can also matter when applying for a home. There’s no definite rule, as your income, down payment, and other factors will also be a part of the decision. However, you should generally have a credit score of at least 620 to apply for a conventional loan.

How Much House Can You Afford Quiz

The Takeaway

Buying a home is usually the largest expense for the average American. The monthly payment you will make on your home depends on several factors, but the most important are the APR and term. A shorter term and a lower APR will reduce how much you pay overall, though a shorter term will increase your monthly payment.

It’s important to align your purchase with factors like your annual income and down payment. Our Home Loan Help Center can be a good resource. Buying a house that you can afford will help you make your monthly payments comfortably — so you can relax and enjoy your new home.

FAQ

How much house can I afford on $70,000 a year?

How much house you can afford on a $70,000 salary depends on several factors, such as your APR, term, and down payment. With a $30,000 down payment, a mortgage rate of 5.0%, and $2,500 of monthly expenses (not including rent), you can afford a home up to $300K.

Can I afford a 300K house on a 50K salary?

You might be able to afford a $300K house on a $50K salary if you can secure a low APR and have a sizable down payment. However, you’ll want to review your monthly expenses to make sure you have room in your income to pay the mortgage.

How much is 20% down on a $300,000 house?

To put 20% down on a $300,000 house, you’ll need $60,000. People often believe you must put 20% down to qualify for a mortgage. While this might be true for some lenders, it isn’t always the case.

Photo credit: iStock/Morsa Images

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.

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Remodeling your home to make it more accessible for a disabled family member (or, simply better suited for “aging in place”) allows you to stay in your home longer and makes it easier for everyone to perform their everyday tasks. But where do you even begin?

Creating a wheelchair-friendly home generally involves removing barriers and making daily necessities more accessible. It might involve some DIY tweaks to a few rooms or could require hiring a contractor and making more extensive renovations.

While the Americans with Disabilities Act (ADA) doesn’t cover private, single-family homes, it offers helpful guidelines you may want to keep in mind as you work on making your home more accessible.

What follows is a simple (and ADA-compliant) guide to home modifications you may want to make for someone who is disabled, including costs involved and financing options.

How Much Do Handicap Home Modifications Cost?

How much you’ll spend on renovations to make your home accessible will depend on your accessibility needs, your home’s current state, and the size of your home.

According to Angi (formerly Angie’s List), the cost of making your home more accessible can range anywhere from $751 to $8,553, with $4,652 being the national average. If you opt to do significant home renovations, however, costs can run considerably more. Installing an elevator, for instance, can set you back $2,500 to $60,000.

It’s a good idea to figure out which renovations you want to do and then work with a contractor to price them out. You can then adjust the scope of the project based on your budget.

Here’s a breakdown of some of the renovation costs that may be involved in making your home more accessible.

Types of Accessible Home Renovations

What follows are some key accessibility modifications that can help give aging parents or family members who require help getting around via wheelchair, cane, or walker more independence within your living space.

1. Doorways

Widening doorways is crucial to accommodate wheelchair users. The ADA requires doorways to have a clear opening of 32” when the door is open 90 degrees for wheelchairs to pass easily.

Widening a doorway can run $700 to $2,500 if you require new doors or if you need to create larger openings. However, you may be able to provide accessibility for a lot less by installing offset or swing-clear hinges to allow the door to swing clear of the entryway,

2. Door Handles

Round door knobs can be difficult to open from a wheelchair. To make it easier for those with mobility impairments, consider installing lever door handles. These handles are easier to grip and operate, providing improved accessibility throughout your home.

3. Showers

Converting a traditional bathtub into a roll-in shower with a wide entry and grab bars can greatly enhance accessibility. The ADA recommends that your shower stall be at least 36” by 36” for wheelchair accessibility. Adding a fold-down shower seat and adjustable handheld showerhead (the ADA recommends a 60” hose) further improves safety and convenience.

The price of retrofitting an existing shower or installing a new one can run anywhere from $2,000 to $7,500

Recommended: Tips for the Perfect Small Bathroom Remodel

4. Baths

Instead of a shower, you might consider a handicap-accessible bathtub. The ADA requires clear floor space in front of the bath, a seat in the bath at the head of the tub, along with grab bars and a 60” hose.

Converting a bathtub into a walk-in tub can run anywhere from $350 to $1,000

5. Ramps

If your home currently has stairs you need to climb to get inside, you’ll need to build a ramp if you want it to be wheelchair accessible. Ramps should have a gradual incline, non-slip surfaces, and handrails for stability. Per the ADA, the width of the ramp has to be a minimum of 36”.

The cost of constructing a ramp will depend on the entrance layout of your particular home, but you could expect to pay between $1,000 and $4,000.

6. Flooring

Choosing smooth and slip-resistant flooring materials throughout the house is essential for individuals with mobility aids or wheelchairs. You’ll want to remove any carpets or rugs that could pose tripping hazards or make it hard for wheelchair users to get around. If you use carpet, it should be no more than half an inch. Plusher carpets make it difficult for wheelchairs to maneuver.

Installing non-slip flooring generally runs around $3 to $22 per square foot.

7. Accessible Kitchen Renovations

Modifying the kitchen can significantly improve accessibility. Lowering countertops, installing pull-out shelves, and adding accessible sinks and appliances can make meal preparation easier for individuals with disabilities.

Converting a kitchen to comply with the ADA guidelines can run $9,000–$40,000. To cut costs, you might consider creating a dedicated area for accessible cooking and meal prep, leaving the rest of the kitchen as-is.

Recommended: What Is the Average Cost to Remodel a Kitchen?

8. Toilets

Bathrooms should have enough room for a wheelchair to maneuver inside and room for a wheelchair user to move their chair next to the toilet to transfer themselves from the chair to the toilet easily. There should be grab bars mounted securely to the walls to facilitate the process and increase safety.

Depending on mobility needs, you might consider installing raised or comfort-height toilets and adding a bidet attachment. Installing a modified toilet can run $400 to $1,000.

Recommended: 10 Steps for the Perfect Bathroom Remodel

9. Sinks

Accessible sinks should have open space underneath to accommodate a wheelchair. Installing lever-style, push, or touch-operated faucets and ensuring adequate knee clearance further improves accessibility.

Installing a new sink and faucet can run $100 to $1,000

Financing Options for Home Modifications for the Disabled

The cost involved in making home accessibility renovations can add up quickly. And, you might not necessarily have the funds you need just in your savings account. Fortunately, there are a number of funding options, including grants and loans, available. You may also be able to deduct some of the costs on your taxes.

Here’s a look at some of your options.

Specially Adapted Housing (SAH) Grants

The U.S. Department of Veterans Affairs offers Specially Adapted Housing (SAH) grants for eligible veterans with disabilities. These grants provide financial assistance to modify or build homes to meet their specific accessibility needs.

IRS Deductions for Home Accessibility Renovations

Home renovations are not generally tax deductible. However, accessibility modifications to your home can be included as medical expenses if they are medically necessary and you itemize your deductions. Keep in mind that the deduction amounts must be reasonable, and if the amount spent increases the value of your home, they cannot be claimed as a medical expense.

The Internal Revenue Service (IRS) also allows disabled people and their friends and family to save money to pay for the disabled person’s expenses in ABLE accounts. You’ll want to consult a tax profession or refer to the IRS Publication 907 to learn more about the specific requirements and limitations.

Options to Finance Accessible Home Renovations

Various financing options are available for accessible home renovations. Here are some you may want to investigate.

Personal Loans

A personal loan is typically an unsecured loan (meaning you don’t have to put an asset to secure the loan) that can be used for a wide variety of purposes, including home renovation projects. The advantage of this type of loan is that you don’t need to have built up equity in your home to qualify for financing.

Some personal loans are actually specifically designed to cover the cost of home remodeling (they are often called home improvement loans). Either type of personal loan can provide the necessary funds for home accessibility renovations. It’s a good idea to compare interest rates, terms, and repayment options to find the best personal loan option for your project.

Recommended: How Do Home Improvement Loans Work?

Reverse Mortgages

If you’re aged 62 or older, you might want to consider a reverse mortgage. This type of mortgage allows seniors to borrow against the equity in their home. These funds can be used for home modifications, and repayment is typically deferred until the homeowner moves or passes away.

Just keep in mind that reverse mortgages often come with relatively high fees that are rolled into the loan. Also, your equity in your home will likely decrease, leaving you with less in your estate to leave to your heirs.

Fannie Mae and the Federal Housing Administration (FHA)

Fannie Mae’s HomeStyle Renovation Mortgage and the FHA’s 203(k) Rehabilitation Mortgage Insurance Program offer financing options for purchasing or refinancing a home that needs accessibility renovations.

Fannie Mae’s HomeStyle program is available for buyers who want to get money to buy and renovate a home in one loan or to those who want to refinance their home loans and get cash for renovations. The FHA’s 203(k) renovation loan is similar to Fannie’s but has more flexible qualification requirements.

Refinancing

Refinancing an existing mortgage can provide additional funds for home accessibility modifications. By taking advantage of lower interest rates or extending the term of your loan, homeowners can free up cash for renovations. Keep in mind, though, that extending the term of your loan can increase the total cost of your mortgage.

Nonprofit Assistance

Certain nonprofit organizations provide grants or low-interest loans for home accessibility renovations. These organizations focus on supporting individuals with disabilities and improving their living conditions.

One you may want to look into is Rebuilding Together . This is a national organization dedicated to helping homeowners build, rebuild, or modify their homes. They have a history of working with families to make their homes more accessible.

Other helpful resources include:

•   The National Resource Center on Supportive Housing and Home Modification

•   Local Independent Living Center Affiliates

•   Local Easter Seals chapters

Medical Waivers

Many states have Medicaid programs that cover home modifications for disabled or elderly people. These programs are often used for people who are currently in nursing homes but may want to return to a private home. The money could help them make home modifications to ensure their safety at home. Eligibility requirements and coverage vary by state, so it’s important to research available programs in your area

Home Equity Line of Credit (HELOC)

If you own your home, you might be able to use your existing equity to get a home equity line of credit (HELOC). A HELOC is a revolving line of credit (backed by your equity in your home) that works in a similar way to a credit card. You can borrow what you need for your home accessibility renovations as you make them (up to a set credit limit) and only pay interest on what you borrow.

The Takeaway

Creating an accessible home through thoughtful renovations provides independence and a higher quality of life for individuals with disabilities or mobility limitations. Making changes through your home, such as widening doorways or installing ramps, can significantly improve accessibility.

Financing options like grants and loans, along with possible tax deductions, can help make these renovations more affordable. It’s important to explore all available resources and consult with professionals to determine the best financing solution for your handicap home modifications.

If you think a personal loan could be helpful, SoFi’s home improvement loans range from $5K to $100K, and you may be able to get same-day funding. Plus, there are no fees required.

FAQ

Does Medicare or Medicaid cover accessible home renovations?

Medicare does not cover home modifications. However, Medicare Part B does cover durable medical equipment (such as hospital beds) if it’s medically necessary for use at home.

In some states, disabled individuals who are eligible for Medicaid may benefit from Home and Community-Based Services (HCBS) programs. You will need to check with your state if it offers HCBS benefits.

How do I make my home ADA compliant?

The Americans With Disabilities Act (ADA) seeks to ensure that persons with disabilities have equal access to — and convenience in — public spaces via a range of codes and recommendations. While the ADA doesn’t cover private, single-family homes, it offers helpful guidance for making your home accessible. Following the Guide to the ADA Accessibility Standards when making modifications could also be helpful for your home’s resale.

Are ADA renovations tax deductible?

ADA renovations may be tax deductible as medical expenses, provided they are medically necessary and you itemize your deductions.

Just keep in mind that the amounts must be reasonable and any expenses incurred for aesthetic or architectural reasons cannot be deducted. Also, any amount you spend for accessibility modifications that increase the value of your home cannot be claimed as a medical-related expense.

Are there home loans that cover handicap home modifications?

Yes. The USDA’s Single Family Housing Repair Loans & Grants programs provides loans to very-low-income homeowners to repair, improve or modernize their homes or grants to elderly very-low-income homeowners to remove health and safety hazards.

The U.S. Department of Housing and Urban Development’s 203(K) Rehab Mortgage Insurance program allows you to finance (or refinance) a mortgage and include the costs of home improvements in your balance.

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.

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.

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.

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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Closing costs average 3% to 6% of your mortgage loan principal. So even if you’ve saved for a down payment on a new place, you are likely going to have to dig somewhat deeper to afford to seal the deal. How deep, you ask? For buyers, closing costs can add up to a significant sum.

Whether you are a first-time homebuyer or a seasoned property purchaser, it’s wise to know what to expect, in terms of both money and process, when it’s time to gather at the closing table. Payments will be due from both the buyer and the seller.

Get ready to delve into this important home-buying topic and learn:

•   What are closing costs?

•   How much are closing costs on a house?

•   Who pays closing costs?

•   How much are closing costs for the buyer and the seller?

•   How can you lower closing costs?

What Are Closing Costs?

Closing costs are the fees needed to pay the professionals and businesses involved in securing a new home. These range from fees charged by appraisers, real estate agents, and title companies, to lender and home warranty fees.

Here are some key points to know:

•   When you apply for a mortgage loan, each lender must provide a loan estimate within three business days. This will give you information such as closing costs, interest rate, and monthly payment. Review those closing costs carefully.

•   Your closing costs will depend on the sale price of the home, the fees the chosen lender charges, the type of loan and property, and your credit score.

•   Closing costs are traditionally divided between the buyer and seller, so you won’t necessarily be on the hook for the whole bill. That said, the exact division between buyer and seller will depend on your individual circumstances and can even be a point of negotiation when you make an offer on a house.

How Much Are Closing Costs?

As noted above, average closing costs on a house typically range from 3% to 6% of the mortgage principal. Let’s say you take out a $300,000 mortgage loan to buy a house with an agreed-upon sale price of $350,000. Your closing costs could be between $9,000 and $18,000, or 3% and 6%.

Be aware that a “no closing cost mortgage” often means a higher rate and a lot more interest paid over the life of the loan. The lender will pay for many of the initial closing costs and fees but charge a higher interest rate.

Good news if you are buying a HUD home: HUD will pay some of the closing costs as well as the real estate commission fee usually paid by the seller.

Recommended: First-Time Homebuyer Guide

Calculate Closing Costs

The tool below is a home affordability calculator, and it’s a great way to also see what the potential closing costs and additional monthly costs would be based on how much home you can afford.

Who Pays Closing Costs?

Typically, closing costs are paid by both the buyer and the seller. Each has their own responsibilities to uphold.

Some fees are specific to the purchase and are payable by the buyer. These include title search, prepaid interest on the mortgage loan, and more.

Other costs are the seller’s responsibility: paying the real estate agent and so forth. Read on to learn more about who pays for what when closing on a home sale.

How Much Are Closing Costs for a Buyer?

Typically, the buyer pays the following closing costs:

•   Abstract and recording fees: These fees relate to summarizing the title search (more on that below) and then filing deeds and documentation with the local department of public records. You may find that abstract fees can cost anywhere from $200 to $1,000, and recording fees in the range of $125.

•   Application fee: Your lender may charge you to process your application for a home mortgage loan. This could cost up to $500.

•   Appraisal and survey fees: It is easy to be wooed by pristine wood floors and dining room walls covered in vintage wallpaper, but surface good looks will only get you so far. You and your lender want to make sure that your potential new home is actually worth the purchase price. This means paying professionals to delve more deeply and provide a current market value. These home appraisal and survey fees are typically due at closing. This is usually in the $300 to $400 range, but could be considerably higher, depending on the home, its location, and other factors.

•   Attorney costs: Working with a real estate attorney to review and vet documents may be an hourly rate (typically $150 to $400 per hour) or a project fee ($500 to $2,000). The specifics will vary depending on the individual professional you use, your location, and how complex your purchase is.

•   Credit reporting, underwriting, and origination fees: The lender may charge anywhere from $10 to $100 per applicant to check their credit score; underwriting fees (often in the $400 to $900 range) may also be added to closing costs. Origination fees can be about 1% of your loan’s value and cover the costs of the lender creating your loan documents.

•   Flood certification fee: The lender may require a flood certification, which states the flood zone status of the property. This could cost anywhere from $20 to $300, depending on your state.

•   Home inspection fee: This will likely cost between $300 and $500, but it could go higher. This is paid by the buyer, who is commissioning the work to learn about the home’s condition. In some cases, it may be paid at the time of service vs. at closing.

•   Homeowners insurance: Your lender may require you to take out homeowners insurance. The first payment may be due at closing. The exact amount will depend on your home value and other specifics of your policy.

•   Home warranty: A home warranty is optional and can be purchased to protect against major mechanical problems. A warranty plan may be offered by the seller as part of the deal, or a buyer can purchase one from a private company. Your lender, however, will not require a home warranty.

•   Mortgage points: Each mortgage point you choose to buy costs 1% of your mortgage amount and typically lowers your mortgage rate by 0.25% per point. That point money you are paying upfront is due at closing. All the mortgage fees will be spelled out in the mortgage note at the closing.

•   Prepaid interest: Some interest on your mortgage is probably going to accrue between your closing date and when the first payment is due on your loan. That will vary with your principal and interest rate, but will be due at closing.

•   Private mortgage insurance: Often lenders require PMI if you make a down payment that is less than 20% of the purchase price. Putting less money down can make a buyer look less reliable when it comes to repaying debt in the eyes of lenders. They require this premium to protect themselves. This is usually a fee that you pay monthly, but the first year’s premium can also be paid at the time of closing. Expect a full year to cost between .5% and 2% of the original loan amount.

•   Title search and title insurance fees: When a title search is done to see if there are any other claims on the property in question, the buyer typically pays the fee, which is usually in the $75 to $200 range. The lender often requires title insurance as a protection. This is likely a one-time fee that costs between 0.5% and 1% of the sale price. If your house costs $400,000, the title insurance could be between $2,000 and $4,000.

As you see, some of these fees will vary greatly depending on your specific situation, but they do add up. You’ll want to be sure to estimate how much closing costs are for a buyer and then budget for them before you head to your closing.

Recommended: How Long Does It Take to Close on a House

How Much Are Closing Costs for a Seller?

You may also wonder what closing costs are if you are selling your home. Here are some of the fees you are likely liable for at closing:

•   Real estate agent commission: Typically, the seller pays the agent a percentage of the sale price of the home at closing, often out of the proceeds from the sale. The commission is likely to be in the 5% to 6% range, and may be equally split between the buyer’s and seller’s agents.

•   Homeowners association fees: If the home being sold is in a location with a homeowners association (HOA), any unpaid fees must be taken care of by the seller at closing. The actual cost will depend upon the home being sold and the HOA’s charges.

•   Property taxes: The seller must keep these fees current at closing and not leave the buyer with any unpaid charges. These charges will vary depending on the property and location.

•   Title fees: The seller will probably pay for the costs associated with transferring the title for the property.

It’s important for sellers to anticipate these costs in order to know just how much they will walk away with after selling a home.

How to Reduce Closing Costs

Closing costs can certainly add up. Here are some ways to potentially lower your costs.

•   Shop around. Compare lenders not just on the basis of interest rates but also the fees they charge. Not every mortgage lender will charge, say, an application, rate lock, loan processing, and underwriting fee. See where you can get a competitive rate and avoid excess fees.

•   Schedule your closing for the end of the month. This can lower your prepaid interest charges.

•   Seek help from your seller. You might be able to get the seller to pay some of your closing costs if they are motivated to push the deal through. For instance, if the property had sat for a while, they might be open to covering some fees to nudge the deal along.

•   Transfer some costs into your mortgage payments. You may be able to roll some costs into the mortgage loan. But beware: You’ll be raising your principal and interest payments, and might even get stuck with a higher interest rate. Proceed with caution.

Other Costs of Buying a Home

In addition to your down payment and closing costs, you also need to make sure that you can afford the full monthly costs of your new home. That means figuring out not only your monthly mortgage payment but all the ancillary costs that go along with it.

Understanding and preparing for these costs can help ensure that you are in sound financial shape for your first few years of homeownership:

Principal and interest. Your principal and interest payment is the amount that you are paying on your home loan. This can be estimated by plugging your sales price, down payment, and interest rate into a mortgage calculator. This number is likely to be the biggest monthly expense of homeownership.

Insurance. Your homeowners insurance cost should be factored into your monthly ownership expenses. Your insurance agent can provide you with details on what this policy will cover.

Property taxes. Property tax rates vary throughout the country. The rates are typically set by the local taxing authorities and may include county and city taxes. It’s important to factor in these costs as you think about your ongoing home-related expenses.

Private mortgage insurance. As mentioned, PMI may be required with a down payment of less than 20%. PMI is usually required until you have at least 20% equity in your home based on your original loan terms.

Homeowners association fees. If you live in a condo or planned community, you may also be responsible for a monthly homeowners association fee for upkeep in the common areas in your community.

Of course, these are just some of the things to budget for after buying a home. Your needs will depend on whether you are moving a long distance, whether you have owned a home before, and other factors. It’s a lot to think about, but it’s an exciting time.

The Takeaway

Before buyers can close the door to their new home behind them and exhale, they must be able to afford their down payment, qualify for a mortgage loan, and pay the closing costs — usually 3% to 6% of the loan amount. A home loan hunter may want to compare estimated closing costs in addition to rates when choosing a lender. It can be a wise way to keep expenses down.

SoFi Mortgage Loans offer competitive rates and a simple online application process. What’s more, qualifying first-time homebuyers can put as little as 3% down.

FAQ

How can I estimate closing costs?

Typically, closing costs will cost between 3% and 6% of your home loan’s amount.

When do I pay closing costs?

Your closing costs are typically paid at your closing. That is when you take ownership of the property and when your home mortgage officially begins.

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

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

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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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If you’re scrolling through home listings and dreaming of a place to call your own, you probably know that mortgage lenders traditionally have wanted to see borrowers put down 20% of a home’s purchase price. But what are the benefits and challenges of a down payment that’s less than 20%? And can you purchase a home with a lot less money down (even nothing) in today’s economy?

Learn the answers to these questions and more here. This insight could help you qualify for a mortgage, and ultimately turn your dream house into a reality.

What is a Down Payment?

A down payment is an initial, upfront cash payment for some portion of the cost of the home you are purchasing. It is usually paid at the closing, with the remainder of the balance on the home paid in the form of a home mortgage loan. What portion of the home’s cost a buyer pays as a down payment can have a big impact on the mortgage loan amount, rate, and terms.

What is the Typical Down Payment on a House?

Conventional wisdom says you should buy a house with a 20% down payment. But the national average down payment on a house is actually less than 20% and it is even possible to buy a home with no money down or considerably less than 20%, as you’ll see below. First-time homebuyers are especially likely to put down less than 20%.

How Much Do I Need to Put Down on a House?

Mortgage programs that will finance your purchase with as little as 3% down can make homeownership possible even for those with smaller nest eggs. Mortgages like these can be either government-backed or offered by commercial lenders. You may also find offers that require 5% or 10% down.

When accessing these loans, it’s typically a requirement that you use the home as a primary residence. You may also encounter minimum credit score requirements to qualify; one in the 500s might qualify you for one program, while a score of 680 or higher could open other opportunities.

Of course, keep in mind that the more you pay upfront toward the cost of your home, the lower your monthly costs will likely be.

Consider Your Budget

The question of how much should you put down on a house is really a subset of a bigger home-buying question: how much house can you afford?

Many house hunters use a popular formula to determine how much to spend. They take their household gross annual income (before taxes) and multiply it by 2.5. They could also use a home affordability calculator to get a more precise estimation.

So, if your household income is $150,000, the maximum purchase price, using this formula, would be $375,000. Note that this isn’t a formula used by a lender; it’s a general rule of thumb.

A lender often wants your total housing expense — monthly principal, interest, property taxes, and insurance, plus any homeowners association fee or private mortgage insurance — to be, at most, 28% of your gross monthly income.

So, using the figure of $150,000, that would equal a maximum housing expense of $3,500 per month ($150,000/12 x 28%).

Your estimated housing payment will depend on how much of a down payment you make. Let’s say the house you want costs $329,000. If you wanted to put down 20%, you would need $65,800, plus closing costs, to swing the deal. So the first question is whether you have or can get those funds easily enough.

What if you don’t have that kind of cash for the down payment? If you could afford a smaller down payment plus closing costs and still meet the income requirements, your next step would be to see which lenders offer home loans for less than 20% down.

Understand How Your Down Payment Impacts Your Mortgage Payment

Making a down payment of less than 20% can affect your monthly mortgage costs. Private lenders that provide conventional loans to homebuyers who put down less than 20% almost always require the purchase of private mortgage insurance (PMI).

PMI, which insures the lender, adds a fee to the monthly mortgage payment.

Borrowers usually choose to pay PMI monthly, and it is included in the monthly mortgage payment. Expect to pay about $30 to $70 per month for every $100,000 borrowed, Freddie Mac says.

Once you have accumulated 20% equity in your home, you may be able to get rid of PMI as long as you have a good payment record, the property has held its value, and there are no liens on the property. This applies to borrower-paid mortgage insurance. You can’t cancel lender-paid mortgage insurance because it is built into the loan.

Estimate Your Monthly House Payment

The amount of your down payment also affects how much money you borrow to fund the total cost of a house. Plus, with a lower mortgage amount, you’ll pay back less interest over the life of the loan. Use the calculator below to test different down payment amounts and see how they would change the estimated mortgage payment.

Do I Have to Put 20% Down on a Home?

By now you’ve probably realized that you don’t have to have a 20% deposit on hand in order to buy a home. But what are the minimum down payment requirements? That depends on the type of loan you have. For those who need a boost to enter the ranks of homeownership or have an opportunity to get a dream house before they have saved 20%, lower down-payment options can be invaluable.

Conventional Loans

A conventional, fixed-rate home mortgage loan is accessible with a down payment as low as 3% – 5% for certain homebuyers. These loans typically have a term of 10, 15, 20, or 30 years.

Adjustable-Rate Mortgages (ARMs)

An adjustable-rate mortgage, combined with a down payment of 5% or more, can make homeownership possible for those with more limited savings and incomes, but it is important to plan for future cost increases. How it works: The ARM typically has a lower initial interest rate than a comparable fixed-rate mortgage. After anywhere from 3 to 10 years, the rate “resets” up (or down) based on current market rates, with caps dictating how much the rate can change in any adjustment.

Because borrowers may see their rate rise, they need to be sure they can afford the larger payments that come after the introductory years if they don’t plan to sell their house, pay off the loan, or refinance the loan.

Can You Buy a House With No Money Down?

The truth is, it is possible to become a homeowner with zero or very little money down. If you want to get a mortgage with no money down, a government-backed loan is likely your best bet.

These loans are insured by the federal government, so your lender doesn’t assume the risk of loaning money to someone who might default. They know Uncle Sam is standing behind the loan. These mortgages can be a win-win. They encourage citizens to become homeowners even if they don’t have a down payment, and they make banks more likely to lend under these no-down-payment conditions.

💡 Recommended: How to Buy a House With No Money Down

FHA Loans: 3.5% – 10% Down

Another home loan option is a Federal Housing Administration (FHA) loan. The FHA doesn’t directly make mortgage loans. Instead, certain lenders offer FHA loans that are backed by a government guarantee. Because of this guarantee, lenders will typically offer more flexible guidelines for mortgage approvals, including lower down payments.

In general, if you have a credit score of 500 to 579, the minimum down payment required for FHA loans is 10%. If your credit score is 580 or above, the minimum down payment is 3.5%.

FHA loans require an annual mortgage insurance premium (MIP) and an upfront MIP of 1.75% of the base loan amount. You can estimate the upfront and ongoing MIP with an FHA Mortgage Calculator.

VA Loans: 0% Down

If you’re a military veteran, active service member, or, in some cases, a surviving military spouse, you may qualify for a U.S Department of Veterans Affairs (VA) mortgage loan without any down payment required.

This program was created by the U.S. government in 1944 to help people returning from military service purchase homes.

Monthly mortgage insurance is not required, but some borrowers pay a one-time funding fee. For a first VA-backed purchase or construction loan, the fee is 2.3% of the total loan amount if you put less than 5% down. It’s 1.65% of the loan amount if you put 5% to 10% down.

What is the Minimum Down Payment on a House?

The average down payment falls below 20%, so if you can’t cough up 20%, you’re in good company. Use this handy reference to see which opportunity might be a good fit for your budget and lifestyle.

In general, it makes sense to put down as much as you can comfortably afford. The more you put down, the less you’ll be borrowing, which translates into more equity in the house and lower monthly payments.

On the other hand, it doesn’t always make sense to empty the bank in order to put down the largest down payment possible. That’s because you’ll likely have moving expenses, plus you’ll need to pay closing costs, which can vary by purchase price, state in which the property is located, interest rate chosen, lender processing fees, and more.

Furthermore, the home you’re moving into may need cosmetic repairs, or you may want to redecorate, add new landscaping, and so forth. Plus, you’ll probably want to keep an emergency fund to pay for unexpected costs.
If this doesn’t all seem doable, you may want to look for a more affordable house for now and save up for your dream house. Or, if you can wait a while before buying, then you can create a savings plan to build up a down payment.

Tips to Help You Save for a Down Payment

For 47% of recent buyers, their down payment came from savings (a fortunate 22% of first-time buyers used a gift or loan from a friend or relative toward the down payment), according to a 2022 National Association of Realtors® report.

Saving can be difficult, especially for first-time homebuyers. But if you are ready to be a homeowner, now is the time to get serious about saving for a down payment on your first home.

Here are steps to consider taking:

1.    Track your spending, including fixed expenses (rent, utilities, student loan and car payments, and so forth) and variable ones (like dining out, clothes shopping, and hobbies). Add expenses that you pay annually or semiannually, breaking those down into monthly amounts.

2.    Make a budget that helps you to trim unnecessary expenses. (As you do this, you might consider if it makes sense to refinance student loans or consolidate credit card debt into a personal loan.)

3.    Brainstorm ways to boost your income. Asking for a raise may be an option, or you might start a side hustle to bring in additional cash.

4.    Figure out what you can save each month, both for your down payment and to build up how much you should have in your emergency fund.

5.    Set a timetable for your plan.

💡 Recommended: First-Time Homebuyer’s Guide

The Takeaway

If you can manage a down payment but it’s south of 20%, know that you’re in good company. Finding a mortgage with less than 20% down is often doable, though fees usually come along for the ride.

Still, if you’d like to hear the jingle of house keys instead of apartment keys in your pocket, give SoFi Mortgage Loans a look.

SoFi offers a range of mortgage loans with as little as 3% to 5% down. And you can get prequalified with no obligation.

Ready to get started? It’s easy to check your rate.

FAQs

Is 10% down payment on a house enough?

For some buyers, especially first-time buyers, a 10% down payment is adequate to purchase a home. The amount a buyer pays upfront does affect their mortgage amount, rate, and fees.

Do I have to put 20% down on a house?

Many buyers purchase a home without putting down 20% of the cost upfront.

Does the down payment reduce the loan amount?

Yes, the more money you put toward a down payment, the less you need to borrow.

What is the optimal down payment for a house?

The optimal down payment for a house depends on your personal finances, the location where you are buying, and what mortgage programs you qualify for. A mortgage calculator can help you see how different down payment amounts affect a mortgage.

How would a 20% down payment affect a home loan?

Putting down 20% will help you avoid the added expense of private mortgage insurance, and, of course, the less you borrow to fund your purchase, the lower your monthly payments will be.

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.

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.

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