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If someone asked you to describe your “dream home,” what picture would pop into your mind? A single-family home with a big backyard, or a high-rise condo with a view? Maybe you’ve always longed to live on a houseboat.

Only you can decide which of the many house types out there is best for you or your family. But this guide to the different types of homes available to buyers could help narrow your search.

Common Types of Homes

As you think about where you’d like to live or what you need to buy a house, you can probably rule out a few of these home types on Day One. But from there it may help to look at the pros and cons of some home types side by side to help you narrow your search.

1. Apartments

The definition of an apartment can get a bit complicated because it can change depending on where you live. When someone talks about how to buy an apartment in New York City, for example, they might be referring to a condo or co-op.

Generally, though, an apartment is one of several residential units in a building owned by one person or company, and the owner rents each unit to individual tenants.

There are some pluses to that arrangement, especially if you take advantage of amenities like a gym or swimming pool. And monthly costs for utilities and insurance may be low. But because it’s a rental, you can’t build any equity. Also, if you want to stay or go, or make some changes to the apartment, you’re typically tied to the terms of your lease.

Pros and Cons of Renting an Apartment

Pros	Cons
Don’t have to come up with a big down payment	May have to come up with a large security deposit
Repairs usually aren’t the tenants’ responsibility	Tenants don’t build equity (so there’s no return on investment)
Lower monthly bills (especially if rent includes utilities)	Tenants can lose their deposit if they break their lease
May have shares amenities	Can’t make changes without permission

2. Condos

If you like some of the upsides of apartment living but you want a chance to build equity with each payment, you may enjoy owning a condo. Condo living isn’t for everyone — a house vs. condo quiz could help you decide between those types of homes — but a condo is a good choice for some.

You’ll share walls with other residents but will own your unit. That means you’ll be in charge of the repairs and upkeep on the interior, but you won’t have to worry about lawn maintenance, cleaning and fixing the pool, or exterior repairs. (You’ll likely pay a monthly or quarterly fee to cover those costs, though).

When you purchase a condo, you’ll have a chance to build equity over time as you make your home loan payments, but if the homeowners association (HOA) is poorly managed, your condo may not increase in value the way a home you care for yourself might.

Pros and Cons of Buying a Condo

Pros	Cons
Owners often can build equity	Owners pay for interior maintenance
Mortgage may be less expensive than that of a single-family home	Less privacy than a single-family home
Less maintenance than a single-family home	Condo fees add to monthly payment
Shared amenities	Single-family homes may increase in value faster

3. Co-ops

When it comes to condos vs. co-ops, it’s important to understand the differences if you’re shopping for a home or plan to.

The main difference is the ownership arrangement: When you buy into a co-op, you aren’t purchasing your unit; you’re buying shares of the company that owns the property. The market value of your unit determines the number of shares you own. Your shares determine the weight of your vote in what happens in common areas, and you’ll also split maintenance costs and other fees with your fellow residents based on how many shares you own.

Because co-op residents don’t actually own the units they live in, it can be challenging to find financing. Instead of a mortgage, you may have to get a different type of loan, called a co-op loan or share loan. And because of co-op restrictions, it may be difficult to rent out your unit.

Still, buying into a co-op may be less expensive than a condo, and you may have more control over how the property is managed.

Pros and Cons of Buying into a Co-Op

Pros	Cons
Often less expensive than a similarly sized condo	May be difficult to find financing
Shareholders have a voice in how the property is managed	May require a larger down payment than a condo purchase
Partners may have a say in who can purchase shares	Co-op restrictions can make it tougher to buy in, and to rent your unit

4. Single-Family Homes

When someone says “house,” this is the type of structure most people probably think of — with a backyard, a garage, maybe a patio or front porch. Even if the yard is small, the house sits by itself. That can mean more privacy and more control over your environment.

Of course, that autonomy can come with extra costs, including higher homeowner’s insurance, taxes, maintenance and repairs, and maybe HOA fees.

The down payment and monthly payments also can be challenging, but buyers usually can expect the value of their home to increase over time.

And if you need money down the road — for a child’s education or some other planned or unexpected expense — you may be able to tap into home equity. Or you might plan to pay off the mortgage in 20 or 30 years and live rent-free in retirement.

Pros and Cons of Buying a Single-Family Home

Pros	Cons
Privacy and control	Single-family homes tend to cost more than condos
Build equity if housing prices increase	Maintenance and repairs can get expensive
Change or update your house in any way you choose (following HOA rules, if they apply)	Property taxes (and HOA fees if applicable) can add to homeownership costs
Rent out your house if you choose, or renovate and sell for a profit
May have shared amenities as part of an HOA	Putting in and maintaining a pool or gym may be up to the homeowner

5. Tiny Houses

Tiny homes, which usually have 400 square feet of living space or less, have a huge fan base. Some tiny houses are built to be easily moved, giving the owner physical freedom. Some are completely solar-powered and built to be eco-friendly. Many can be constructed from kits.

One downside is finding a place to legally park the tiny home. In most parts of the country, they are classified as recreational vehicles, not meant to be lived in full time, and usually only allowed in RV parks or campgrounds.

Another challenge is tiny house financing. A traditional mortgage is a nice thought, but just that, for a true tiny house. Options include a personal loan, builder financing, a chattel mortgage (a loan for a movable piece of personal property), and an RV loan if the tiny house meets the Recreational Vehicle Industry Association’s definition of an RV: “a vehicular-type unit primarily designed as temporary living quarters for recreational, camping, or seasonal use.”

A not-tiny consideration is making use of such a small space. Many people may not last long in a tiny home.

Pros and Cons of Buying a Tiny House

Pros	Cons
Low costs all around	Limited legal parking locations
Environmentally efficient	Financing can be a challenge
Easy to relocate if on wheels	It’s tiny!

6. Townhomes

A townhome or townhouse can look and feel a lot like a detached house, in that it has its own entrance and may have its own driveway, basement, patio or deck, and even a small backyard. But these row houses, which are often found in cities like New York, San Francisco, and Washington, D.C., and usually have multiple stories, share at least one common wall with a neighboring home.

Those shared walls can make buying a townhouse more affordable than a comparable detached home. And owners who belong to an HOA with neighboring homes generally don’t have to worry about exterior upkeep, although owners of townhouses classified as fee simple are responsible for exterior maintenance of their structure and sometimes the surrounding yard.

The HOA also may offer some amenities. But that monthly or quarterly HOA fee will add to overall costs, and may rise over time.

And you may not have as much privacy as you’d like.

Pros and Cons of Buying a Townhome

Pros	Cons
May cost less than a similar single-family home	HOA fees may be high
Little or no outdoor maintenance	HOA restrictions
Shared amenities	Multiple levels may be a problem for some
Several mortgage options	Less privacy, more noise from neighbors

7. Modular Homes

It might be hard for the average person to answer “what is a modular home?” off the top of their head.

A modular home is made up of sections that are built in a factory, transported to a homesite, and assembled on a foundation there. This makes them different from traditional stick-built homes, which are constructed completely on-site. But both types of houses are held to the same local, state, and regional building codes.

Because the assembly-line part of the process is cost-effective, a modular home may be less expensive. Also, because weather isn’t a factor for part of the work, you can probably expect fewer delays.

Most modular homes are sold separately from the land. So if you already own a piece of property or like the idea of building outside a traditional neighborhood, a modular home might be a good choice.

Many people who choose a modular home use a construction loan for the build or a construction to permanent loan. A personal loan or use of home equity from an existing home are other options.

Pros and Cons of Buying a Modular Home

Pros	Cons
Can be less expensive than a similar stick-built home	Land, site prep, and other costs are separate on new modular homes
May experience fewer construction delays	Future buyers may prefer stick-built homes
Quality is as high or higher than a site-built home	Financing can be tricky

8. Manufactured Homes

Manufactured homes, formerly known as mobile homes, are built completely off-site and then transported to the homesite and placed on a temporary or permanent foundation.

Manufactured homes are not held to the same local, state, and regional standards as stick-built or modular homes. Instead, they must conform to construction and installation standards set by the U.S. Department of Housing and Urban Development, and local land use and zoning regulations restrict where they can be placed.

Of course, there are plenty of communities that are designed just for manufactured homes, although the land in many of these “parks” is rented, not owned.

A growing number of lenders are providing conventional and government-insured mobile home financing. The loans, backed by the Federal Housing Administration (FHA) or U.S Department of Veterans Affairs (VA), are offered by approved lenders. agencies.)

The most common method of financing is an installment contract through the retailer. Depending on your situation, a personal loan or chattel loan could provide a shorter-term path to financing a manufactured home, generally less expensive than other types of detached homes.

Pros and Cons of Buying a Manufactured Home

Pros	Cons
The entire home is built off-site, so no weather delays	Financing may be more challenging
More affordable than other detached homes	Lot fees may be high and rising
May be able to move the home from one site to another	You own the home but not the land under it

9. Cabins

Most people tend to think of a cabin as a cozy second home that’s made of logs or covered in cedar shakes. But there’s no reason a cabin can’t be your primary residence.

Just as with any other type of property, the price of a cabin can vary based on size, age, location, and amenities. If there’s an HOA, those fees can add to the cost.

If you’re considering a cabin because you’re buying a vacation home — aka a second home — know that loans for second homes have the same rates as primary homes. A 20% down payment is typical.

Pros and Cons of Buying a Cabin

Pros	Cons
You’re buying your very own getaway	A second home could mean two loan payments and two sets of bills
You’re buying a rental property	You might have to do repairs at inconvenient times
Could become your primary home in the future, or a legacy for future generations	Maintenance can get expensive

10. Multi-Family Homes

Investors know the difference between single-family vs. multi-family homes.

For owners, the big advantage of a multi-family home is that it offers flexibility. Homeowners can buy a home with multiple units and rent out the spaces for extra income. Or an adult child or parent might decide to move into that secondary space.

These properties can be a good investment.

Do accessory dwelling units make a property a multi-family? It depends. Fannie Mae says a property may be classified as a two-unit property or single family with ADU based on the characteristics of the property.

Pros and Cons of Buying a Multi-family Home

Pros	Cons
Can share costs with others (renters or family members)	May be more expensive than a single-family home
Keeps multigenerational family members close but gives them their own space	Managing renters could be stressful
Can be a good investment	Lack of privacy

11. Houseboat or Floating Home

Living in a home that’s actually on the water — not just near it — can be a dream come true … or a challenge.

Some “floating homes” are as big as a small house — and are built to be lived in in the same way — only on a floating foundation. Houseboats or liveaboards are typically much smaller than floating homes and more mobile, and they may not have the amenities a larger home can offer.

There are also substantial differences in what it can cost to buy and maintain these water residences. A floating home may cost much more upfront than a houseboat, but the insurance, taxes, and day-to-day costs of keeping a houseboat operating can run higher. And there may be more loan options available, including traditional mortgages, for those buying a floating home.

Comparing House Types

Whether you’re thinking about buying a single-family home, condo, tiny home, houseboat, or townhome, it’s important to keep your priorities in mind. Here are a few things to consider:

Finding Your Fit

If privacy is a priority, you might consider a …	•   Single-family detached home •   Tiny home (on a large lot) •   Modular or manufactured home •   Cabin
If space is a priority, you might consider a …	•   Single-family detached home with an open floor plan •   Larger condo, townhome, or co-op •   Larger floating home
If affordability is a priority, you might consider a …	•   Smaller single-family home •   Condo, co-op, or townhome •   Tiny house •   Modular or manufactured home •   Cabin •   Houseboat
If a sense of community is a priority, you might consider a …	•   Single-family home with community amenities •   Condo, co-op, or townhome •   Floating home or houseboat •   Multi-family home
If uniqueness is a priority, you might consider a …	•   Tiny home •   Cabin •   Floating home or houseboat
If schools are a priority, you might consider …	•   Any home in a neighborhood that’s conducive to families with young children
If public transportation is a priority, you might consider a …	•   Condo, co-op, townhome, multi-family home, or single-family home in a larger town or city

The Takeaway

Understanding the different types of homes before you begin your search for a place to live can help you find your dream home more quickly, and free you up to take on other homebuying tasks. Besides choosing the type of home you want, you’ll also have to decide how to finance this important purchase if you’re not paying cash. A good way to start is to shop and compare rates.

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

What type of house is cheapest?

Condos, co-ops, townhomes, and manufactured homes all tend to be less expensive than single-family homes. Among new single-family homes, modular homes tend to be the least expensive because they are made in a factory and assembled on-site.

Is it a good idea to buy a condo?

If you don’t mind sharing walls with your fellow condo complex residents, and you don’t want to have to deal with exterior upkeep, a condo might be a good fit for you. Condos are also often less expensive than freestanding, single-family homes.

Photo credit: iStock/CatLane

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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.

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

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.

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.

SOHL-Q234-050

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Before applying for refinancing, listing your house on the market, or buying a house, you’ll need to get a home appraisal. This is an important independent assessment of a property’s value, which matters to all parties involved: you, your buyer (if you’re selling), and a lender.

Here, learn the ins and outs of home appraisals so you understand the process and can manage it successfully. You’ll find out:

•   What is a home appraisal?

•   How long does a home appraisal take?

•   How can you prepare for a home appraisal?

•   What can you do if a home appraisal comes in low?

What Is a Home Appraisal?

A home appraisal is an objective and professional analysis of a home’s value. An appraisal aggregates an array of information including details on the home itself (the floor plan, amenities, and how big it is), a visual inspection, real estate trends in your area, and how much nearby homes in your area sold for.

Generally, an appraisal will be completed when someone is buying, selling, or refinancing a home. It will tell a homeowner whether or not the price they’re putting on the home is fair based on the condition of the home, its amenities, and its location.

Home appraisals will let those buying a home know if a home is a good price. (This can be especially reassuring for first-time homebuyers, who are new to the whole process.)

If you think it’s time to refinance and are getting an appraisal done, it shows the home mortgage lender that you, the borrower, aren’t receiving more money from them than the home is actually worth. The lender wants to know that they are loaning funds to a property that is holding the stated value.

According to a National Association of Realtors® study from June 2024, appraisal issues led to real estate contract delays in 7% of transactions, so it’s important to get the appraisal right the first time around. That’s an important step in selling your home fast.

How Much Does a Home Appraisal Cost?

The home appraisal cost is typically several hundred dollars, and the borrower will most likely be responsible for paying it. Most people can expect to pay between $300 to $610 for a home appraisal, but it could be higher depending on the specific property. Some examples:

•   If the property contains a pond or lake, you can expect the home appraisal cost to be more.

•   If the appraiser is inspecting a larger home and/or a bigger overall property, then the home appraisal cost will go up. The same applies to jumbo loans, which are usually given to borrowers purchasing homes priced in the upper six-figure and $1 million-plus range.

It’s worth noting that there are a few cases in which the seller will cover the cost. These include the following situations:

•   If a homeowner wants to get an appraisal and see what modifications they can then make to increase their home value when they’re ready to sell it, they would pay for it.

•   If a homeowner is going to sell their home to a family member or friend, an appraisal can help ensure that the parties involved are getting a fair price.

The cost of a home appraisal covers things like the appraiser’s training, licensing, insurance, and expertise. It also covers the time it’ll take for the appraiser to assess nearby sales and market trends as well as conduct a visual inspection.

You’re paying for the appraisal report (more on that in a minute), which will show how the appraiser came to their conclusion on the price and information about your home.

At the end of the appraisal, if it comes up lower than the amount for which you want to refinance or sell it, then you may need to work out a new deal with your lender or purchasing party. That topic is explored in more detail below.

What Is the Home Appraisal Process?

The appraisal process may seem complicated, and you may wonder about how long a home appraisal will take and how deeply a home will be scrutinized. Fortunately, trained appraisers will be able to explain and guide you through every step. But it’s worthwhile to keep reading so you can be ready and prepare a bit. Some points to know:

•   Generally, if a home is being sold, the appraisal happens after an offer on a house is accepted and within a week after an inspector has toured the home. Sellers have the option, should they wish to pay for it, to do a pre-listing appraisal so they have more information and are better prepared for negotiations.

•   In most cases, the mortgage lender will seek out a third-party appraisal management company to come up with an objective analysis of the home and the appraisal estimate. The lender will determine the cost of the home appraisal, with the borrower usually being responsible for covering the expense.

Next, how long does a home appraisal take? The actual on-premises inspection appraisal can take between one and three hours, depending on how big and complex the home is. Here’s how it typically goes:

•   The appraiser will usually bring a form to collect information about the home including things like measurements, nearby housing trends, the demographics of the neighborhood, the condition of your home, and how it compares to other properties in your area. (Some of this is research the appraiser will do back at their desk.)

•   The appraiser will also review things like the home’s location, quality of construction, parking situation, exterior condition, its age, its structure, the quality of the siding and gutters, and the square footage.

•   They will also research the appliances and mechanical systems, health and safety factors, the number of bedrooms and bathrooms, and the code compliance throughout.

•   The appraiser will usually take photos of the home as well as make notes. If you are the homeowner, try to avoid getting in the way when the appraiser is taking photos or interrupting them while they’re working.

•   The appraiser may ask questions about what has been done with the home to get a more accurate report. If the homeowner doesn’t want to be there for the appraisal, the real estate agent you’re working with can fill in to answer questions that may come up during the appraisal.

After the appraiser finishes, they’ll put together a report. This involves research into pricing and home values in your area, as well as prevailing market trends. The appraiser may need to check that you had permits to make upgrades, which could delay the process. Typically, however, the finished product is delivered within a week to 10 days.

The report is usually about 10 pages long, but it could be longer if a property is large or complex. It will show details about the home as well as local properties that are similar to it. Here’s how its content could impact your sale:

•   If the appraised value is around the same price as listed, then the sale could close shortly after that.

•   If it’s lower than expected, you have what’s known as an appraisal gap, and it may be necessary to get in touch with the lender to see if a mortgage will be approved. Keep reading for more details on this scenario.

Recommended: Refinance Your Mortgage and Save

What If an Appraisal Comes in Low?

If the appraisal comes in low versus what you think your home’s value is, you likely want to dispute that in some way. One option could be to print out a list of similar homes in the community and show that they were valued at a higher price than your home. You may have the option to appeal the appraisal, but note you’ll likely need to support your argument and the appraiser may not change their appraisal. If you are working with a Realtor, they may be able to provide examples of comparable homes being of higher value.

Each lender may have different criteria for formally disputing an appraisal, so should there be an issue, contact the lender to review their policies. In most cases, only the lender can request a second appraisal.

What if the appraisal is low but you don’t want to dispute it? In this case, if you might negotiate with the buyer, seller, or lender. They may be flexible on the price; all you have to do is ask.

Recommended: Track the value of your home

Home Appraisal Checklist

Before getting a home appraised, there are a few things you can do to help the process go smoothly.

1.    Declutter. While messiness shouldn’t impact the value of your home, if you get rid of clutter (perhaps donate to a local thrift shop), the appraiser can do their job more easily and quickly.

2.    Clean. Thoroughly clean the inside and outside of the home, including the yard. Break out the cleaning supplies or hire a professional cleaning team. It can improve the overall impression of a home’s condition.

3.    Make minor repairs. It’s also a good idea to repair any cracks in the wall, paint over paint that is peeling, and make any other visual repairs that may need attention. Making some common home repairs may cost a little money, but it’s preferable to having a long list of things flagged in the appraiser’s report.

4.    Check fixtures and appliances. Test the lights, faucets, ceiling fans, and security system, as well as confirming that the windows and doors open and close easily. Run appliances like the oven and dishwasher as well to guarantee there are no problems.

5.    Think curb appeal. The exterior of your home is among the factors that affect property value. Consider trimming hedges, getting rid of cobwebs, cleaning the gutters, pulling weeds, and mowing the lawn. Adding plants or flowers could help, too.

   Worth noting: Since the appraiser will be walking outside, avoid watering the grass on the day of the appraisal. This can help avoid mud or dirt being tracked through the house.

6.    Plan for pets. If you have pets, consider putting them in a designated room or taking them to a family member or friend’s home during the appraisal.

7.    Wrangle upgrade info. If possible, make a list of all the upgrades that have been completed on the home and attach permits and receipts detailing how much it all cost.

The Takeaway

Whether you’re buying, selling, or refinancing a home, a home appraisal is a key part of the process. Knowing what to expect can help ensure the process goes as smoothly as possible. It’s also a good idea to understand the factors that go into an appraisal so you can be prepared if the results are not in the range expected.

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

What will fail a home appraisal?

Deferred maintenance is one major factor that can cause a home appraisal to fail to come in at the desired value. The longer the list of outdated or broken systems or appliances, the more likely the appraiser is to consider the house of lesser value. Or it could be due to the local market: If home sales are declining in value in your area, that could cause your number to go down as well.

How should I prepare for a home appraisal?

If you’re hoping to buy the house, you simply sit back and let the appraiser do their job. If you are the seller, you can prepare for a home appraisal by cleaning up your property and making whatever repairs are required. These moves can both make the process go more smoothly and possibly enhance the home’s value.

Does messiness affect a home appraisal?

A messy or cluttered house should not impact a home appraisal. Licensed appraisers are trained to look past such issues and focus on the house, not its contents. That said, if your property is untended and in rough condition, with peeling paint or overgrown landscaping, for example, that can take the home’s value down a notch.

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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.

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.

SOHL-Q324-047

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Putting an offer on a home involves more than naming a price. Assuming that you’ve been preapproved for a mortgage and that you’ve found a home in your price range, there’s a customary method to follow in submitting an offer that stands out but also protects you.

In a hot market — where you might encounter a bidding war, compete against cash buyers, or be asked to waive a contingency — it can be vital to know the process. But even in a less heated market, it’s important to know what making an offer on a house involves, the steps for making an offer in real estate, and what to do if you change your mind when making offers in real estate (it happens!). Read on for tips that will get you from homebuyer to homeowner.

Making an Offer on a House

So let’s say you’ve found that mid-century marvel or stately townhome of your dreams. You’re ready to go for it. Here’s how the process of making an offer in real estate typically goes.

1. Determine Your Offer Price

A home’s listing price is often set by comparing it to similar homes in the area that are for sale, then adjusting up or down based on additional amenities or detrimental issues. But as the old saying goes, “A home is generally worth what someone is willing to pay for it.”

You might find a property that’s fairly well-priced and consider coming in close to asking, or you may want to adjust your offer if you feel that it’s priced too high or needs a lot of work.

There are lots of things to consider when trying to find the right offer price.

•   A common way to break down a listing amount is by price per square foot, but that often includes only the heated, livable spaces. A home can (and should) be priced higher than average for the area if it includes extra rooms like a garage or attic, outbuildings, or extra land, which add to its value. Superior workmanship or permitting in place for potential changes can also play a role in increasing a price.

•   Check the home’s history on the multiple listing service. It records every transaction related to the house, including previous buy and sell dates, price fluctuations, and how long the home has been on the market. It can give you a good idea of where the sellers are coming from in terms of what they paid for the property.

•   Take a look at other properties in the area that have recently sold. Is the price per square foot more or less than the home you have your eye on? One key to an accurate read on the local market is to ensure that you’re comparing apples to apples when it comes to the number of bedrooms, bathrooms, square footage, garage space, and other amenities. Your broker can likely provide what are known as “comparables” for the area to help with this process.

Recommended: Mortgage Preapproval Need to Knows

2. Incorporate All the Fees

It can also be important to look at factors not directly related to the price of the property that could affect your overall cash flow. One big consideration is closing costs, which typically average 2% to 6% of the total cost of the home. So let’s say you are considering a $400,000 mortgage loan; the closing costs (origination fees, title search, any points, and more) would be between $8,000 and $24,000.

It’s also important to estimate the amount of money you’ll spend making repairs or changes to the property once you move in. As long as the repairs are not related to health or safety issues, which could affect financing, one tactic could be to lower your offer price in order to free up cash for future upgrades.

Or you might plan on getting a home improvement loan after buying the house, provided you have enough equity to access those funds.

3. Determine Your Earnest Money Deposit

The next step in making an offer in real estate is to figure out your earnest money. What’s earnest money? It’s a good-faith deposit that buyers place with the offer up front, usually amounting to around 1% to 3% of the offer price, to show that they are serious, especially when there are multiple offers on a property.

It’s held in escrow by the title company. Showing purchase intent in this way can help a buyer get to the top of the seller’s list.

Customs and laws pertaining to an earnest money deposit can vary from state to state, and even from county to county, so it’s important to understand the rules that determine when the money is (and isn’t) refundable.

4. Protect Yourself With Contingencies

The time between a signed offer and closing day is called the due diligence period, and it’s when the buyer will normally set up a home inspection and possibly a land survey or other inspections for specialty items, such as a septic system or a pool, and the lender will order an appraisal.

Because the contract is signed before inspections and the appraisal take place, contingencies give you an out if you discover a deal-breaker.

Here are the most common contingencies when making offers in real estate:

•   Financing This lays out the specifics of the financing that will be used by the buyer, which must be fully approved by the lender within the contingency period. This protects the buyer in case financing falls through.

•   Appraisal If the appraisal comes back lower than the agreed-upon price, the seller and buyer may find themselves renegotiating.

•   Inspection The buyer usually has 10 days after signing the contract to order an inspection, and the contingency remains in place until it comes back without uncovering any major issues with the property that were previously unknown. Based on the findings, the buyer can cancel the contract or negotiate repairs or the purchase price. (If the seller agrees to pay, these are called seller concessions.)

•   Title search A preliminary title report shows the home’s past and present owners and any liens or judgments against the property. If any title disputes are unable to be resolved before closing, you have the option to exit the sale.

In some situations, the list of contingencies can be long. But once they’re all satisfied and lifted during the given timeframes, the option to buy turns into a binding commitment to purchase the home.

5. Submit a Written Offer

In real estate, the best way to make an offer official is to put it in writing. If you’re working with a real estate agent, the agent will have a form that you can fill out together that lists the offer price and contingencies and covers all the state rules and regulations.

If you’re flying solo, working with a real estate lawyer or title company can help to ensure that your offer covers all the necessary legal language and is legally valid.

This concept goes both ways. As the buyer, it’s a smart idea to make sure all correspondence, counteroffers, and property disclosures are put in writing by the seller as well.

Recommended: How to Win a Bidding War

6. Move Ahead, Move On, or Move Things Around

Once you submit your written offer, one of three things is likely to happen: The sellers sign the document and enter into a binding contract, they reject the offer outright, or they submit a counteroffer.

In this last case, the sellers might counter back with changes that are better suited to them. (If your offer includes a price reduction to accommodate repair costs, for example, the seller might ask for the full asking price and offer a credit back at closing instead.)

A counteroffer puts the ball back in the buyer’s court for approval, rejection, or another counteroffer, and it can keep going back and forth until both parties agree to the terms and sign the document or one party calls it a day.

What If You Change Your Mind About Buying a House?

Contingencies give you a way out in the event of some unforeseen issue, but what if you just decide you don’t want the house? Cold feet can be a real thing!

Although the laws vary by state on this topic as well, in most instances a buyer is allowed to withdraw an offer until the moment the offer is accepted. However, once the offer document is signed by both parties, it’s considered a binding agreement.

At that point, the sellers may be well within their rights to walk away with your earnest money if you don’t decide to move forward.

The Takeaway

How to make an offer on a house? It pays to understand comps, contingencies, the temperature of the market, earnest money, and counteroffers. You’ll consider your price, keeping track of all fees that will be involved, and make your bid in writing, typically with what’s known as an earnest money deposit. Then sit back and await the seller’s response.

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

Should I use a real estate agent to buy a house?

An agent familiar with the local market can help you determine the right offer amount and hold your hand during the negotiation process, which is especially helpful in a hot (seller’s) market. An agent can also help coordinate everything leading up to the closing and ensure that you (and your financing) meet critical deadlines.

Is a deposit required when making an offer on a house?

Yes, your offer will come with what is called earnest money, a good-faith deposit of 1% to 3% of the proposed purchase price, which will be held in escrow during negotiations about the house.

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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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With the median U.S. home sale price sitting at $412,300 in mid-2024, most people will need a mortgage to fund their purchase, and the majority of them will choose a fixed-rate loan, in which the interest rate does not fluctuate over the life of the loan.

But if you’re preparing to take the homeownership plunge, how do you know which kind of loan is right for you and what are the pros and cons of fixed-rate mortgages? Let us be your guide.

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage is, as its name suggests, a mortgage loan whose interest rate is fixed across the lifetime of the loan. The rate is stated at the time the documents are signed and does not change at any point throughout the loan term (provided that all payments are made in full and on time). Fixed-rate mortgage terms can be 10, 15, 20, or 30 years. A mortgage calculator can help you work through the different monthly payments for each and see what best suits your situation.

Fixed-Rate Mortgages vs Adjustable-Rate Mortgages

If you’re deciding between a fixed-rate vs. adjustable-rate mortgage (or ARM), the difference is that with an ARM, the interest rate can move up or down according to the market. The rate is calculated according to the index and margin — the index is a benchmark interest rate based on market conditions at large, and the margin is a number set by the lender when the loan is applied for.

You may see options like a 5/1 ARM, which means the rate is set for the first five years of the loan and then adjusts annually after that.

Long story short: A fixed-rate mortgage offers you a predictable interest rate and monthly payment, whereas an adjustable-rate mortgage can shift over the course of the loan term according to external factors, like inflation affecting the APR.

It is, however, important to understand that your total monthly housing bill can still change, even with a fixed-rate mortgage, if, for example, your property taxes or homeowners insurance rates change or if you miss several payments.

Recommended: Home Loan Help Center

Types of Fixed-Rate Mortgages

There are a few variables to fixed-rate mortgages.

•   Conventional Loans: Conventional fixed-rate mortgages are offered by banks, credit unions, and other lending institutions. They typically have stringent requirements about credit score and debt-to-income ratio (or DTI) that an applicant must meet.

•   Government-Insured Loans: FHA, USDA, and VA mortgages tend to have less tough requirements and target certain kinds of homebuyers, like those with lower income, in the military (past or present), and living in rural areas. They may offer no or low down payment and other perks, too.

•   Conforming and Non-Conforming Loans: Mortgages can also be considered “conforming” or “nonconforming,” depending on whether or not they meet the guidelines established by the Federal Housing Finance Agency (commonly known as Fannie Mae and Freddie Mac). For 2025, the conforming loan limit for one-unit properties is $806,500, or $1,209,750 in areas deemed “high cost.”

Of course, homes costlier than these limits exist, and it is possible to take out a mortgage to buy one. Those loans are considered “nonconforming” and are also sometimes called “jumbo loans.”

Because the loans are so large, eligibility requirements tend to be more stringent, with borrowers usually needing a down payment well above 3%, cash in the bank, and a solid credit score.

Example of a Fixed-Rate Mortgage

Here’s an example of how a fixed-rate mortgage might work if you buy a house for $428,700 with 20% down and take out a 30-year fixed-rate home loan. Your mortgage principal will be $342,960, and at a rate of 6.72% with a solid credit score of 740+, your monthly payment (not including any taxes or insurance) will be $2,217.

As you make your loan payments, at first most of the money goes towards interest. This is because the interest is “front-loaded,” to use the industry lingo. Perhaps 90% of your payment will be paying interest and 10% will be applied to the principal. As you get to the end of your loan payment, these figures may well be reversed. That is, 10% of the $2,217 goes towards interest and 90% toward the principal.

Pros and Cons of Fixed-Rate Mortgages

Fixed-rate mortgages are more common among homebuyers because of the predictability they offer. Still, there are both drawbacks and benefits to pursuing this kind of home loan.

Benefits of Fixed-Rate Mortgages

Because homebuyers who take out fixed-rate mortgages will know their rates at the time they sign on the dotted line, these loans provide long-term predictability and stability — which can help people who need to fit their housing expenses into a tight budget.

Fixed-interest mortgages, and other types of fixed-rate loans, shield borrowers from potentially high interest rates if the market fluctuates in such a way that the index significantly rises.

Drawbacks of Fixed-Rate Mortgages

Although fixed-rate mortgages are more predictable over time, they tend to have higher interest rates than ARMs — at least at first. Sometimes an ARM might have a lower interest rate but only for a relatively brief introductory period, after which the rate will be adjusted.

If the index rate falls in the future, homebuyers might end up paying more in interest than they would have with an ARM.

Because lenders risk losing money on fixed-interest mortgages if index interest rates go up, these loans can be harder to qualify for than their adjustable-rate counterparts.

How to Calculate Fixed-Rate Mortgage Payments

Now that you know what a fixed-rate mortgage is and how it functions, you might wonder how much it could cost you. If you are curious about what fixed-rate mortgage payments would look like at different home price points, for varying terms, you use an online mortgage calculator or, for an even more detailed look at what you’ll pay each month, check out a mortgage calculator with taxes and insurance.

When Is a Fixed-Rate Mortgage the Right Choice?

Fixed-rate mortgages offer long-term predictability, which can be a must for those who need budget stability. Furthermore, fixed interest rates can be beneficial for those who plan to stay in their home for a longer period of time — say, at least seven to 10 years.

Here’s why: Homebuyers with 30-year fixed-rate loans may need that long to build home equity (remember: during the initial years of the loan most of your payments go toward interest, not equity).

Finally, if homebuyers suspect that interest rates are about to rise, a fixed-interest loan can be a good way to protect themselves from those increasing rates over time.

That said, there are some instances in which an ARM may be a better choice. If a homebuyer is planning to sell in a short amount of time, for example, the low introductory interest rate on an adjustable-interest loan could save them money (as long as they can sell the property) before the rate can tick upward.

Recommended: First-Time Homebuyer Guide

The Takeaway

Fixed-rate loans, in which the interest rate holds steady for a loan term of 10, 15, 20, or 30 years, are popular in part because their costs are predictable. But when you’re in the market for a home, shopping for the right loan is almost as important as shopping for the house itself, so an adjustable-rate mortgage might be worth a look too, especially if you need a lower monthly payment and don’t plan to stay in the home for very long.

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 a fixed-rate mortgage?

Yes, you can refinance a fixed-rate home loan. Because refinancing means taking out an entirely new loan and involves some upfront costs, it’s important to make sure that these costs don’t outweigh the savings you will enjoy due to, say, a lower interest rate or a shorter loan term (two of the chief reasons people opt to refinance).

How does a fixed-rate mortgage work?

With a fixed-rate mortgage, your interest rate — and thus your monthly loan payment amount — holds steady for the duration of the loan, which might be 10, 15, 20, or 30 years. Many borrowers like having one of their largest household expenses be predictable.

What are the disadvantages of a fixed-rate mortgage?

The biggest drawback of a fixed-rate mortgage is that the interest rate will likely be higher than that of an adjustable-rate loan. And if you sign on to a fixed-rate mortgage and interest rates drop significantly, you may find yourself looking at a refinance sooner than you would like.

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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.

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.

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.

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.

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

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A donor-advised fund, or DAF, is a tax-advantaged vehicle for charitable giving. Individuals, families, and organizations can establish donor-advised funds to further philanthropic efforts while supporting their favorite charities.

Here’s a closer look at what a donor-advised fund is used for, the pros and cons, and how to create one.

What Is a Donor-Advised Fund?

A donor-advised fund is a separately identified fund or account that exists for the purpose of making charitable donations to eligible organizations. In effect, they’re a sort of charitable investment account. They’re important funding sources for nonprofits that rely on public support via donations or charitable giving.

Donor-advised funds may be established by:

•   Individuals and families

•   Trusts

•   Corporations

•   Estates

•   Foundations

Multiple donors may contribute to a donor-advised fund, and a third party, (or, the sponsor) administers and oversees it – hence the “donor-advised” moniker. This third party is responsible for making grants to eligible charities from donated funds.

Definition and Purpose

A donor-advised fund, most simply, is a private investment account that’s used exclusively to make charitable donations.

Donor-advised funds may be established to support a variety of 501(c)3 organizations. A 501(c)3 is a tax-exempt organization, as defined by the Internal Revenue Service. Examples of organizations that are supported by donor-advised funds could include:

•   Colleges and universities

•   Hospitals and healthcare organizations

•   Religious organizations

•   Animal welfare agencies

•   Humanitarian organizations

•   Environmental charities

•   Disaster relief organizations

Under the Internal Revenue Code (IRC), tax-exempt purposes include “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”

Key Players Involved

The key players in a donor-advised fund are the sponsors, donors, and charities that receive donations. More specifically:

•   Sponsors are the organizations that administer the fund.

•   Donors are the individuals or entities who make contributions to the fund.

•   Receiving charities are eligible nonprofits, as defined by the IRS, per the information above.

When you make contributions to a donor-advised fund, the sponsor manages them on your behalf. You can request which charitable causes to fund with your donation — though this may ultimately be decided by the sponsor — and when donations should be distributed.

Benefits of Using a Donor-Advised Fund

You might wonder why someone would establish or contribute to a donor-advised fund when they could make direct charitable contributions to an organization instead. Answering that question is easier when you consider the benefits offered by donor-advised funds, which can include tax advantages, flexible giving, and more.

Tax Advantages

A donor-advised fund offers an immediate tax deduction for contributions. The deduction applies whether you donate cash or another type of asset, including publicly-traded securities, like stocks.

You’ll need to itemize deductions on the Schedule A tax form to write off donations to donor-advisor funds. That’s one of the main things to know about charitable donations and taxes.

For 2024, the charitable deduction limit is as follows:

•   Up to 60% of adjusted gross income (AGI) for cash donations

•   Up to 30% of adjusted gross income (AGI) for noncash donations

Deductions reduce your taxable income for the year. Claiming deductions for donor-advised fund contributions could help push you into a lower tax bracket when it’s time to file your return.

Flexibility in Charitable Giving

Donor-advised funds allow for flexibility in deciding where your donations may go. While the sponsor has legal control over assets in the fund, donors can make recommendations on how the funds should be used.

You can make contributions at your own pace, and you can choose the recipient charities at a later time. Donor-advised funds may accept a variety of financial gifts, including cash, stock, real estate, and even noncash or alternative assets, such as cryptocurrency.

Investment Growth Potential

Donor-advised funds give donors a different avenue through which to make investments, and to provide some guidance about how money in the fund should be invested. Investment growth within a DAF is tax-free, so every additional penny your money earns can go directly to the charity or charities you prefer. Note that some DAFs may require regular distributions of funds, which can influence how long assets have to grow.

Potential Disadvantages of Donor-Advised Funds

Donor-advised funds can have drawbacks, both for donors and for the charities that receive donations through them. The main drawbacks for charities are a lack of transparency surrounding donations and potential delays, should donors choose to allow contributions to grow before funds are released. Further, donor-advised funds have been criticized as a tool that can be used by the wealthy to secure tax advantages – the IRS, in recent years, has released new regulations to mitigate that sort of potential abuse.

For donors, the disadvantages can include:

•   Lack of control: While donors may make recommendations about investments or which charities should receive funds, the sponsor has the final say.

•   Fees and minimums: Donor-advised funds can charge annual fees and other fees, which donors are responsible for paying. Some funds may require a minimum contribution of $1 million or more.

•   No reversals: Once you contribute to a donor-advised fund the money must remain in the fund until it’s disbursed to charity. You can’t make a contribution and take it back later.

Setting Up and Contributing to a DAF

Setting up a DAF is simple enough. You need to find a sponsor, open your account, and make a contribution. Here’s more on how the process works.

Choosing a Sponsoring Organization

Several types of organizations can sponsor donor-advised funds, such as public foundations and 501(c)3 organizations associated with a brokerage.

Your goals related to charitable giving may determine which option you choose. If you’re primarily interested in funding local charities, for instance, you might select a community organization that administers a donor-advised fund. On the other hand, if you’d like to have access to a wider range of charities you might consider a DAF offered in association with a brokerage.

Opening an Account

You’ll need to complete the necessary paperwork to open your account once you’ve selected a sponsoring organization. Along with your personal information, you may need to specify, among other things:

•   Which charities you’d like to support

•   How you’d like contributions to be invested

•   The identity of the sponsor

Once the paperwork is complete you can move on to the final step, and begin funding your account.

Contribution Types and Limits

You can decide what form your contributions to a donor-advised fund should take. The options can include, but are not limited to:

•   Cash

•   Stocks, bonds, and mutual funds

•   Traditional IRA or 401(k) assets

•   Cryptocurrency

•   Real estate

•   Private business interests

The fund sponsor should be able to tell you what the minimum contribution is (often around $5,000), if any, and whether there’s any upper limit on how much you can contribute annually. Keep in mind that with any contributions you make, you can only deduct them up to the limit allowed by the IRS.

Donor-Advised Fund vs. Private Foundation

A private foundation can be another vehicle for making charitable donations. Private foundations are 501(c)(3) organizations, and can be established by corporations, but they’re often used by families and wealthy individuals to fund philanthropic activity.

There are several differences to note between the two.

Donor-Advised Fund	Private Foundation
Donors make recommendations about how contributions to the fund should be invested and distributed to charities.	Donors have more control of investment decisions and how contributions are distributed.
Cash donations are deductible up to 60% of AGI; noncash donations are deductible up to 30% of AGI.	Cash donations are deductible up to 30% of AGI; noncash donations are deductible up to 20% of AGI.
No annual payout is required.	Minimum annual payout of 5% of net asset value is required.

Generally speaking, a donor-advised fund usually requires less paperwork and is less costly to establish. It’s also easier to maintain privacy, since you can keep your name as a donor confidential if you prefer. Private foundations, on the other hand, are more time- and cost-intensive to create. Privacy is limited as foundations are required to file public tax returns.

In terms of the difference between nonprofits vs. foundations, they can both be established as tax-exempt, 501(c)3 organizations. However, nonprofits and foundations may have different underlying goals, tax implications, and more.

The Takeaway

Donor-advised funds can offer an avenue for giving if you’re looking for charities to support. You’ll need to have sufficient capital to make an initial contribution but the tax advantages can be substantial. And you can still make contributions directly to qualify for a tax break if you don’t meet the minimum requirements for a DAF.

FAQ

Are donations to a donor-advised fund tax-deductible?

Donating to a donor-advised fund allows you to qualify for an immediate tax deduction. You can deduct cash donations up to 60% of your AGI, or noncash donations up to 30% of your AGI.

Can you name a successor for your donor-advised fund?

Yes, you can name a successor for your donor-advised fund. You may be prompted to do so at the time that you open your account and complete the initial paperwork. A successor essentially inherits the fund from you when you pass away.

What are the typical fees associated with a donor-advised fund?

Donor-advised funds can charge annual or administrative fees. These fees are typically assessed as a percentage of your account balance. The higher your balance, the lower the fee might be.

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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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