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With more than 150 million users in 191 countries worldwide, Airbnb has the power to draw guests from all over and boost income for owners. The average Airbnb host earns over $13,800 per year, or $163 per night. However, if the rental is in a high-demand area, it could be much more.

It’s an interesting way to make money, but how does Airbnb work for owners? Let’s take a look at Airbnbs, how they work, and what’s involved in running one. Stick around and you’ll be able to decide if being an Airbnb host suits your style.

What Is Airbnb?

Airbnb is a company that connects guests with hosts. Bookings, payments, and customer service issues can be handled through its platform.

Airbnb does not own any properties — it is simply a booking service. The real value of Airbnb is how ubiquitous it is. Guests looking for units with cooking facilities or unique stays will check Airbnb first. Potential hosts know Airbnb as an opportunity to make extra cash. Bringing these two groups of people together is the magic of Airbnb.

How Does Airbnb Work?

The concept behind Airbnb is pretty simple:

1.    A host lists a property on the platform.

2.    A guest finds the property and books through Airbnb.

3.    The host approves (or denies) the reservation.

4.    Payment is processed.

5.    The guest completes the stay.

6.    Hosts are paid about 24 hours after guests check-in.

How Airbnb works for owners is much like a hotel, where visitors change frequently. The average guest books a unit for four nights, though it is also common for hosts to see guests book longer stays. The short-term rental market is much different from the market a traditional landlord sees.

💡 Quick Tip: Traditionally, mortgage lenders like to see a 20% down payment. But some lenders, such as SoFi, allow home mortgage loans with as little as 3% down for qualifying first-time homebuyers.

Who Books on Airbnb?

The guests who book on Airbnb come from the company’s 150 million users. The site is widely known and easy to use.

One of the things to know when renting out an Airbnb is that hosts have a lot of control over who is able to book their Airbnb. Hosts can specify guest requirements in the booking settings. These requirements can include positive reviews from previous stays on the guest’s profile, agreement to house rules, and ID upon check-in.

How Does Airbnb Work for Hosts?

So, exactly how does Airbnb work for homeowners?

Hosts own and manage the properties on Airbnb. The hosts determine the conditions of the rental, such as:

•   Check-in and check-out times

•   The rental rate

•   Cleaning fees

•   How guests access the unit

•   What areas and amenities are available for guest use

•   House rules

•   Cancellation policy

Recommended: Is Investing in Single-Family Homes a Good Idea?

Hosts sign up for Airbnb so that their property is listed on the website. Guests can browse these listings and choose what property they think will work best for them.

When hosts sign up to receive guests, they provide details on the type of property, whether it’s shared or private, how many guests can stay, how many bedrooms there are, how many beds there are, if the bathrooms are shared or private, and so on.

Hosts will set the price. Airbnb has a suggested range for similar properties in your area, but you can set it to whatever you want. The next page asks if you want to offer any discounts. You can select from:

•   20% new listing discount off your first three bookings

•   10% weekly discount

•   20% monthly discount

Good photos of the property are essential. Hosts will also add a title and description of the property. They can open the reservation up to anyone or narrow it to an experienced Airbnb user who has good reviews.

They can also select what amenities are available. Basics include TV and Wi-Fi, a kitchen, air conditioning, and free or paid parking. But some properties advertise an indoor fireplace or outdoor grill, a fire pit, pool table, or lake or beach access. A piano or outdoor shower or the ability to ski in/out of the property might draw guests looking for these specific features.

As you finish, you’ll set up your calendar, select a cancellation policy, set house rules, choose how guests can book, and prepare for your first guest. You’ll also select the safety features in the home, such as a smoke alarm, carbon monoxide detector, fire extinguisher, and first-aid kit.

Recommended: First-Time Homebuyer Programs

How Much Can You Earn With Airbnb?

While the average host earns $13,800 per year, there are a lot of hosts who make much more, and some homeowners find income from Airbnb to be a viable way to make payments on their home mortgage loan. Several variables come into play when it comes to how you can earn with an Airbnb.

•   Location. Location matters when you’re hosting an Airbnb. If you’re near national parks or city centers, you may be able to charge more for your rental. If you’re in a suburban area that doesn’t receive many visitors, it may be a bit harder (but not impossible) to regularly rent out your unit.

•   Dates. If you’re renting out an Airbnb unit during peak season or a date near a concert or popular festival, you may be able to charge more than during a down season.

•   Number of beds and guests you can accommodate. Generally, the bigger your place, the more you can charge. Guests can justify spending more on a rental unit if they are able to split the cost with other guests.

•   Luxe digs. If your property is unique or incredibly luxurious, you may be able to rake in more money per night.

💡 Quick Tip: Apply for a cash-out refi for a home renovation, and you could rebuild the equity you’re taking out by improving your property. Plus, you may be able to deduct the additional interest payments on your taxes.

How Much Does It Cost to List on Airbnb?

It doesn’t cost you anything to list your property on Airbnb. The company only charges homeowners its fee once a property is booked by a guest.

How Much Does Airbnb Take From a Host?

Airbnb charges hosts 3% of the booking subtotal (the nightly charge plus the cleaning fee, which the host sets). But that’s not the only fee the company collects. When guests book, they pay a 14% service fee that goes directly to Airbnb.

Airbnb says these fees help the process run smoothly by covering customer support, marketing to guests, protection for hosts, and educational resources for hosts.

What Kind of Property Can You Advertise on Airbnb?

There are all kinds of Airbnbs that can make homeowners some extra money, from renting out extra rooms to hosting guests in a private villa. Guests can stay in a house, apartment, or in an individual bedroom within a home, which may or may not have a private entrance. If you’ve invested in a duplex, renting out one-half of the property on Airbnb could be an option.

Some hosts rent an RV parked on their property, or a houseboat, treehouse, tent, or yurt. (And if you happen to own a castle, cave, Moroccan riad, or windmill, you’re welcome to rent that out as well.)

The only requirement Airbnb has is that the space is used specifically for lodging, and that if it is a boat or mobile home, it will be semi-permanently attached to a set location and parked in a privately owned space. Bear in mind that your municipality, homeowners association, or condominium rules may also govern what you can do with your property.

Recommended: What is a Duplex?

How to Become an Airbnb Host

If you already have a property that can be converted to a short-term rental and a municipality that allows it, becoming an Airbnb host boils down to signing up for the service and adding pictures of your listing. You’ll start to earn money once bookings are complete.

If you don’t already have a property, you can work with a real estate agent to acquire one. You’ll want to look for a property in an area that is legal for short-term rental. You may want one that is in a high-demand area, commands a strong rental rate, has abundant support services (cleaning services, handyman services, etc.), and has the potential to rent out multiple rooms or beds.

The Takeaway

How does Airbnb work for homeowners? Property owners host guests who find their listing on the Airbnb platform. After check-in, hosts get paid, less a percentage of the nightly rental rate and cleaning fee. It’s a solid way to make extra cash if you’re willing to supervise bookings and cleaning. Some owners even purchase properties with Airbnb rentals in mind.

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.

FAQ

How much does it cost to list on Airbnb?

There is no charge to list your property on Airbnb. Airbnb takes its fee — typically 3% — from the total booking fee a guest pays (usually a nightly charge plus a cleaning fee). Guests also pay a fee, usually 14% of the booking subtotal.

How much do homeowners make on Airbnb?

The average Airbnb host makes $13,800 per year, though the amount you make will vary based on your location, number of guests you can accommodate, and condition of the property.

How do I Airbnb my own house?

Any owner can create a listing on Airbnb for free. You’ll want to make sure your local government or homeowners association allows short-term rentals and you’ll need to set up your house with amenities and arrange for cleaning before and after each stay. Don’t forget to explore Airbnb’s insurance policy to make sure you’re comfortable with the coverage.

Do homeowners stay with you in Airbnb?

Some homeowners rent rooms within their own living space and might be present during a guest’s stay. Other homeowners rent their personal space but clear out during the guest’s visit. And some host guests in properties they own specifically for use as short-term rentals.

Photo credit: iStock/CreativaStudio

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

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

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

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.

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.

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Mortgages come with different loan terms, and a short 10-year mortgage could be beneficial for some borrowers vs. the common 30-year variety. It’s important to consider your personal finances and goals, since the mortgage length affects the interest rate and monthly payment.

This guide will compare the pros and cons of different mortgage lengths and explore how to get a 10-year mortgage term. Read on to learn if paying off a home loan in a decade is the right fit for you.

How Does a 10-Year Mortgage Work?

A homebuyer or refinancer chooses a mortgage term based largely on the monthly payment they can handle and how long they plan to keep the property. In general, the shorter the term, the higher the monthly payment.

The term length isn’t the only differentiating factor among mortgages. There’s also the choice of fixed-rate vs. adjustable-rate mortgages.

With a 10-year fixed-rate mortgage, the interest rate is set for the life of the loan. Through mortgage amortization, the monthly payment on a fixed-rate mortgage stays the same (excluding changes in property taxes or insurance charges if included in escrow payments). This makes it easy to budget years worth of housing costs.

The amortization schedule determines how the monthly payment is allocated between the principal and interest. Initially, payments primarily go toward interest. Near the end of the loan term, most of the payment will be on the loan principal, with minimal interest remaining.

Adjustable-rate mortgages (ARMs) work differently. A 10-year ARM has a fixed interest rate for 10 years, followed by a fluctuating interest rate until the loan is paid off. You might see a 10/1 ARM or 10/6 ARM. With a 10/1 ARM, the interest rate is fixed for 10 years and then readjusted every year for the remaining term (usually 20 more years). A 10/6 ARM operates similarly but readjusts every six months rather than annually.

Reasons to Choose a 10-Year Mortgage

No two homebuyers or refinancers have the same financial goals and situation, but there are some common reasons for choosing a 10-year mortgage.

Borrowers may prefer a 10-year mortgage to save on total interest paid. This could be a good option for buyers with higher incomes who can afford larger monthly payments with money still left over for savings and other expenses.

When interest rates are low, homeowners with an existing 20- or 30-year mortgage might choose to refinance to a 10-year mortgage to get out of debt sooner and pay less interest. This scenario could be more beneficial if you plan to remain in your home longer, allowing time to recoup the closing costs of refinancing.

A shorter mortgage term can be helpful for people who are approaching retirement, too. Paying off a mortgage while you’re still earning a salary (and in less time) allows soon-to-be retirees to save money on interest payments. After 10 years, retirees can enjoy their paid-off house or sell the property to further pad their savings and downsize.

Pros of a 10-Year Mortgage Term

Considering a 10-year mortgage term? Here are some of the potential upsides of going with a decadelong mortgage term.

•   Faster Payoff: You’ll own your home outright in just 10 years.

•   Competitive Rates: 10-year mortgage rates are often lower than rates for mortgages with longer terms.

•   Less Interest Paid: A shorter mortgage term means less interest is accrued, and thus paid, over the life of the loan.

•   Building of Equity: Putting more money toward your mortgage right away can grow home equity faster, which can be borrowed against later for home improvements or other expenses.

Cons of a 10-Year Mortgage Term

Taking out a 10-year mortgage isn’t without its drawbacks. Here are some downsides to be aware of when considering this type of home loan.

•   Higher Monthly Payments: A condensed mortgage term comes with higher monthly payments, putting borrowers at risk if they lose a job or incur emergency expenses.

•   Risk of Becoming “House Poor”: Putting more money toward your mortgage could prevent you from achieving other financial goals, such as saving for retirement or college tuition.

•   Less of a Tax Deduction: Borrowers who use the mortgage interest deduction on taxes will only be able to do so for 10 years.

•   Less Property Choice: Buyers may qualify for a smaller loan amount with a 10-year mortgage than a longer-term loan, reducing the number of homes they can afford.

Recommended: How a 5/1 ARM Works

10-Year Mortgage vs 30-Year Mortgage: How They Compare

It’s helpful to compare mortgage options during the homebuying process. This means looking at different lenders and mortgage term lengths.

The 30-year fixed-rate mortgage is the most popular way to finance a home purchase, with 90% of mortgages lasting 30 years. It’s also the route most borrowers using first-time homebuyer programs take.

Let’s take a closer look at how 10-year mortgages and 30-year mortgages compare.

Interest Rates

Fixed-rate mortgages keep the same interest rate over the life of the loan, helping to make payments predictable.

Lenders use a variety of factors to calculate interest rates, such as credit score, down payment, and economic conditions. Generally speaking, paying the loan back in less time is viewed as less risky for the lender. Thus, 10-year mortgages typically come with lower interest rates than 30-year mortgages.

Monthly Payment

With fixed-rate mortgages, equal installment payments are collected each month by a mortgage servicer.

While 10-year mortgages often have lower interest rates, the monthly payment is significantly higher thanks to the condensed payment schedule. Put another way, the monthly payment for a 10-year mortgage is usually double that of a 30-year mortgage.

For example, a $300,000 mortgage at a fixed rate of 5% with a 10-year term would have a monthly payment of $3,182. Meanwhile, borrowing $300,000 at a fixed rate of 5% with a 30-year term would amount to a $1,610 payment each month. This calculation excludes property taxes, homeowners insurance, and any private mortgage insurance.

You can use this online mortgage calculator tool to estimate your monthly payment.

Getting Qualified

Your debt-to-income (DTI) ratio, which is calculated by dividing your monthly debts by your gross monthly income, is an important indicator of your ability to repay the loan.

A DTI of 36% or less is recommended for homebuyers, though borrowers with a DTI of 43% may still qualify for a mortgage.

When applying for a 10-year mortgage, the larger monthly payment will increase your DTI, which could affect your ability to qualify, or at least how much you qualify for. Borrowers may qualify for a larger loan amount with a 30-year mortgage because the monthly payment is lower.

Should Inflation Affect Whether You Choose a 10-Year or Longer Mortgage?

Inflation has an impact on the cost of everything. Homebuyers and refinancers need to know that inflation affects mortgage rates.

Choosing a longer mortgage term with lower monthly payments can help safeguard a budget from the effects of inflation.

Most borrowers have the option of making extra principal payments, as their finances allow, to repay the loan faster and save on interest. The same ideas behind how to pay off a 30-year mortgage in 15 years apply to paying it off in 10.

Borrowers can also refinance to a 10-year mortgage later if rates are lower and they have the income to manage the higher monthly payment.

Recommended: Home Loan Help Center

The Takeaway

Opting for a 10-year mortgage can help you pay off your home quicker and save money on interest. On the flipside, you’ll have to dedicate more of your budget to payments, potentially at the cost of retirement savings and investments.

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.

FAQ

Is 10 years the shortest mortgage you can get?

Borrowers may access mortgages with terms of less than 10 years by working with their a bank or credit union with which they have a strong relationship to customize a loan.

Are there 50-year mortgages?

Though uncommon, 50-year fixed-rate mortgages exist. With such an extended term, borrowers will pay significantly more in interest over the life of the loan than shorter-term home loans.

Photo credit: iStock/fizkes

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

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

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

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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-Q424-149

As demand for home improvement work has kept up at a steady pace, so has the rate of home improvement fraud. Bringing a stranger into your home can be a leap of faith, especially if you haven’t done all your homework. Knowing the signs of home improvement fraud may keep you from becoming the next victim of a home repair scam.

What Is a Home Improvement Scam?

A home improvement scam occurs when a company or contractor — or a con artist posing as one — tries to swindle a homeowner out of money in exchange for a renovation or remodel that goes unfinished or is botched.

Many times home improvement scammers go door to door in search of their next victims. With the average cost of a home remodel in the upper tens of thousands of dollars, there is a lot of money at stake. A rule of thumb: If an offer sounds too good to be true, it probably is.


💡 Quick Tip: You never know when you might need funds for an unexpected repair or other big bill. So apply for a HELOC (a home equity line of credit) brokered by SoFi today: You’ll help ensure the money will be there when you need it, and at lower interest rates than with most credit cards.

Examples of Home Improvement Scams

There are many kinds of home improvement scams out there. Seniors have been the most targeted group, but people of all ages need to stay alert to these common frauds.

The ‘Free’ Inspection

“There’s no such thing as a free lunch” holds true when it comes to someone showing up on your doorstep and offering a free inspection. What’s their end game?

The Better Business Bureau reports that scammers and con artists will talk their way into a home to, say, inspect a roof, then cause damage like tearing off shingles to create a situation that actually then does require repairs.

Advertising by Flyer

Handymen often blanket communities with flyers in the hopes that a small percentage of people will call. It’s a good idea to treat such random distributions in your neighborhood as a sign to double-check credentials and legitimacy.

You may also find this a common occurrence after a storm if you live in a location prone to hurricanes or tornadoes. It would be smart to do your research before signing over your insurance check to someone who drops off a flyer.

Door-to-Door Contractors

If a contractor knocks on your door claiming to have leftover supplies from another project and offers you services for a steal, that’s a red flag. While the door-to-door salesman might be a real contractor, anyone going door to door to solicit business is likely not a professional who is in demand.

The Handshake Deal

No contract? No job. Homeowners should always have an ironclad contract in place before any money is exchanged. And if a contractor asks for cash, that’s a potential sign of a scammer (or at least someone looking to avoid the IRS).

Likewise, the contractor should not ask for more money than was decided on in the initial contract and scope of work. Claiming unexpected problems is a sign of a potential scam or an inexperienced contractor.

If there are potential variables in the project, you might want to spell out in the contract that extra work will require a change order, that is, both parties will agree to the additional work and an added fee.

If you’ve arranged for a home improvement loan or other financing, predictability comes in handy.

No-Credential Contractors

Many states don’t require a credential from a contractor if the amount of their annual work is below a certain dollar figure. While it’s unusual for a home improvement company or individual to not have credentials, it’s not unprecedented.

In general, it’s wise to treat non-credentialed contractors with a healthy awareness that they potentially aren’t serious businesspeople.


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

How to Avoid a Home Improvement Scam

While home repair scams are good to know about — especially if you’ve bought a fixer-upper — it’s also important to realize that not every contractor falls into that category, of course. If you take these tips into account, you’ll help yourself avoid a home improvement scam down the road.

Consider Only Contractors Who Are Licensed and Insured

It’s always smart to work with only licensed professionals who are insured, but in this case especially, a contractor who has their own license and insurance is likely not to be a scammer.

One way to get a background check on a contractor candidate is by calling the Better Business Bureau and requesting their rating, as well as asking if there are any complaints against them.

Get Recommendations From People You Trust

One way to avoid getting scammed is by working with contractors who come highly recommended by your friends, family, colleagues, or acquaintances. It’s always a gamble hiring a worker you find via online sources, so the more personal ties you have to contractors — like connections to those who have actually hired them in the past — the less likely it is that you’ll fall victim to a scam.

Get Multiple Estimates

For any construction or remodel project, you’ll want to solicit bids. Usually a minimum of three bids will give you an idea of the price range for your home improvement ideas.

By getting estimates from various professional contractors, you’re less likely to get scammed by someone trying to take advantage of you because, say, you live in a high-dollar neighborhood or drive a nice car. You can also use a home improvement cost calculator to help you estimate what the cost of your project should be.

Read the Contract Carefully

One of the easiest ways to be taken advantage of in any project is by not reading the contract in detail. If the contract is only one page long and doesn’t spell out the basics like budget, deposit, timing, or how to handle change orders, you’re setting yourself up for potential issues as money starts changing hands and construction begins.

And if there are areas of concern in the contract the contractor gives you, you might consider hiring a lawyer to review it and make any necessary revisions for you.

The Takeaway

Stay alert to home repair scams by getting referrals, asking contractors for references, reading all contracts meticulously, and only hiring professionals who provide you with proof that they are licensed and insured.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

What to do if you get scammed by a contractor?

If you do find yourself the victim of a home repair scam, there are many organizations you could call for help. You might want to start with your local branch of the FBI, then submit a scam tip to the National Consumers League fraud website. Additionally, you can lodge a complaint with the Better Business Bureau and consult Call for Action, a nonprofit that advocates for consumers by investigating fraudulent contractors.

What should you not say to a contractor?

Agreeing to a large deposit without a commitment to start work is a common mistake. It’s also important to let the contractor know that you’ll be expecting certain benchmarks to be met as the project continues.

Can I withhold payment from a contractor?

If a contractor does not uphold their side of the contract, you can often legally withhold payment until the full scope of work is completed as outlined in the signed agreement.

How much of a deposit should you give a contractor?

A deposit of 10% to 25% is common for a construction project. Certain states may have home improvement laws that, for example, prohibit a contractor from taking more than one-third of the job payment as a deposit upfront.

Photo credit: iStock/SeventyFour

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

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

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

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

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Buying a house for the first time is a major life moment, both emotionally and financially. For many people, it’s the biggest investment they will ever make. With the median price of a house hitting $436,800 in 2023 (ka-ching), it’s not a purchase to be made lightly.

If you’re buying your first home, you may expect it to be the same as those quick, fun-and-done experiences portrayed on reality TV shows. In truth, however, it’s a process with a steep learning curve and many moving parts, from figuring out your home-shopping budget to satisfying your final mortgage contingencies. There can be minor hiccups and major missteps along the way.

There are so many things to know as a first-time homebuyer, it’s better to educate yourself in advance rather than learn as you go. To that end, this guide will cover the 10 most common first-time homebuyer mistakes to avoid, including:

•   Not knowing how much house you can afford

•   Failing to include other factors, like insurance and repairs, in your budget

•   Waiving an inspection because you’ve found your dream house

10 Home-Buying Mistakes to Avoid

Home-buying mistakes are easy to make, especially when buying a house for the first time. Review these 10 common first-time homebuyer mistakes before searching for your dream home — so you can ensure you’ll avoid them.

1. Forgetting to Check Your Credit

When’s the last time you checked your credit? It’s absolutely crucial to know your credit score when buying a house.

Why? You may not qualify for a mortgage if your credit score is too low. For most types of mortgage loans, you’ll need a 620, though lenders also consider other factors, like your down payment and your debt-to-income (DTI) ratio. You’ll get better rates if you wait to apply for a mortgage until your score is 740 or above.

The lesson? Don’t let a low credit score rule out buying your first home, but if it’s on the lower side, maybe consider taking some time to build your credit score before shopping for a house.

Recommended: Tips for Buying a House with Bad Credit

2. Not Being Realistic About What You Can Afford

Before you start looking at listings online or working with a real estate agent — and certainly before you try to get preapproved for a mortgage — calculate how much house you can afford.

Once you know the number, avoid looking at houses above your limit. In an April 2024 SoFi survey of 500 potential homebuyers, 54% of those whose home budget was $500,000 or more had a household income of less than $100,000 — hinting that at least some buyers have unrealistic expectations of what they can afford.

So how do you calculate how much house you can afford? There are a few easy methods:

•   DTI: Think about your debt-to-income ratio (your debts divided by your gross income). When adding a monthly mortgage payment into your current DTI calculation, the percentage shouldn’t pass 43%. That’s typically the highest ratio mortgage lenders will accept.

•   28/36 rule: With this method, your max mortgage payment should be 28% of your gross income, and your total debts — mortgage and otherwise — should be no more than 36% of your gross income.

•   35/45 rule: Spend no more than 35% of your gross income on debt and no more than 45% of your after-tax income on debt.

•   25% after-tax rule: After adjusting for taxes, your mortgage should not account for more than 25% of your income.

💡 Quick Tip: You deserve a more zen mortgage. SoFi Mortgage Loan Officers are dedicated to closing your loan on time — backed by a $5,000 guarantee offer.‡

3. Putting Too Much or Too Little Down

In their eagerness to become homeowners, many first-time buyers make the mistake of going overboard and directing every bit of money they have to the purchase. (A notable 14% of potential homebuyers in SoFi’s survey said not having saved enough for a down payment was the biggest challenge they are facing.)

If you have to drain your emergency savings to manage the down payment on a home, you might want to dial down the amount or wait and save up a bit more. Consider what could happen if the home needs a costly repair or, worse, if you or someone in your family suddenly has an expensive medical bill. That’s a good example of when to use an emergency fund.

Conventional wisdom says to put 20% down (and it does help you to avoid paying private mortgage insurance (PMI). But with housing costs so high, that’s all but impossible for most homebuyers. Instead, focus on the minimum down payments required for the type of loan you’re considering:

•   Conventional loan: As low as 3%

•   FHA loan: As low as 3.5%

•   VA loan: As low as 0%

Remember, though, that if you put down very little, you’ll need to borrow more. Your monthly payments will be higher, and you could pay more interest over the life of the loan.

4. Forgetting About Homeowners Insurance and Property Taxes

Your monthly mortgage loan payment is more than just the cost of your home. You’ll also need to cover the cost of homeowners insurance and property taxes, which are often paid into an escrow account. Depending on the type of mortgage and how much you’ve paid, you may also have to pay for PMI. Together, these all increase your monthly payment — sometimes substantially. (Indeed, in SoFi’s survey of potential homeowners, 46% of respondents were concerned about property tax costs.)

When you look at a home, the real estate agent should be able to show you property tax history so you can get an idea of what you’d pay each year. You can also work with an insurance agent to simulate insurance quotes for various homes you’re considering.

Property taxes will change from year to year, and you can always change your homeowners insurance to lower the cost, even if you pay for it through the escrow account. It may be a good idea to bundle home and auto policies together to take advantage of a discount.

Recommended: How Much Homeowners Insurance Do You Need?

5. Failing to Budget for Home Repairs and Maintenance

Forgetting to budget for homeowners insurance and property taxes is one of the most common first-time homebuyer mistakes — but those expenses aren’t the only ones people forget to budget for when buying a house for the first time.

If you’ve been accustomed to calling a landlord whenever something breaks in a rental, reset your expectations. Now, you’ll have to take care of basic home maintenance — like replacing air filters, cleaning the gutter, resealing wood decks, and cleaning the chimney — and repairs. When the air conditioner is blowing hot air, the oven stops working, or your roof starts leaking, you’re on the hook for the repairs.

Some issues may be covered by homeowners insurance (but there’s still a deductible!), but other issues caused by general wear and tear are solely your responsibility. And then there are other possible costs, like higher utility bills and homeowners association fees, that can eat into your budget.

6. Not Hiring a Qualified Home Inspector

It may be tempting to waive the home inspection when you’re trying to buy the home of your dreams — especially if you have some stiff competition to be the winning bidder for an in-demand property.

Sorry to say, this is a risky strategy. A home inspection might reveal critical information about the condition of a home and its systems, from electrical problems to hidden mold; from a failing septic system to a leaky roof. What you learn in an inspection could reveal that your dream home is actually a money pit.

What’s more, your inspection report might serve as a useful negotiating tool: You could use it to ask for repairs or to work out a better price from the seller. And if you really aren’t happy with the inspection results, you may be able to use it to cancel the offer to buy.

And in the grand scheme of things, an inspection isn’t too expensive. The average home inspection costs $300 to $500.

Recommended: The Ultimate Home Inspection Checklist

7. Overlooking the Neighborhood and Surrounding Area

You may have fallen in love with a specific home, but when you buy a house, you’re also buying the neighborhood that comes with it, so to speak.

How are the surrounding properties maintained? Do the people seem friendly? If you have kids or are planning on having them, do you see other families with young children? How are the schools in the area? What’s the traffic like? How’s the noise level? What restaurants and stores are nearby?

Think about your ideal community — and then try to find a dream home in that type of community.

8. Letting Your Emotions Get the Best of You

Buying your first home or any home thereafter can be a roller coaster, so it’s important to prepare yourself psychologically as well as financially. If you’ve ever talked to someone buying a house, you know there are potential pitfalls all through the purchasing process.

You might fall in love with the perfect house and find it’s way over your budget. You might get annoyed with the sellers or their real estate agent, especially during the negotiation process. You might disagree with your partner about priorities.

All of these scenarios can cause a person to behave emotionally. It might make you want to walk away from a great deal. It might lead you to barrel ahead with a purchase, even when warning lights are flashing.

Our advice to a first-time homebuyer? Recognizing that this will be a challenging and, at times, stressful process (especially because you are new to it), take a deep breath, and proceed calmly. Find tools that help you move ahead with patience and a sense of calm, best as you can. With your eye on the prize — namely, your first home — you’ll get there.

Recommended: Improving Your Relationship With Money

9. Not Considering Future Resale Value

Houses are more than a place to live — they’re an investment. While you certainly want to prioritize buying a home you’ll be happy in, it’s also a good idea to think about how much the property might be worth in five, 10, 15 years and beyond.

It’s impossible to predict the market, but you can feel more confident about strong future resale value by choosing a house with multiple bedrooms and bathrooms, a well-appointed kitchen, and a yard. Other features, like a finished basement or a garage, may also make it easier to sell the home in the future.

10. Not Having an Emergency Fund

One of the basic tenets of personal finance is building an emergency fund. And here’s some blunt advice for first-time homebuyers: You’re going to need an emergency fund.

House emergencies can happen at any time: A tree falls on your roof, a toilet starts to leak, your dog destroys the carpet, you name it. Having money socked away to cover these expenses is crucial when buying a home.

Dream Home Quiz

6 Smart Moves for First-Time Homebuyers

We’ve covered some of the most common first-time homebuyer mistakes, so let’s shift gear to smart moves you can make when buying your first home.

1. Get Paperwork Moving ASAP

What do first-time homebuyers need when getting a mortgage? Here are some of the most common docs to start putting together:

•   Proof of income: Lenders will often want to see two months’ worth of pay stubs or bank statements that confirm your income. They’ll also want your tax returns from the previous two years.

•   Proof of funds: To take you seriously, lenders want to know you have enough money to cover a down payment and closing costs.

•   Proof of identification: This could include a government ID, a passport, or your driver’s license.

Early in the process, you can furnish this basic information to get prequalified at various lenders. They’ll also run a credit check during the prequalification process.

Being prequalified simply allows lenders to give you an idea of what types of mortgages (fixed rate vs. variable rate, 15-year vs. 30-year, etc.) you might get approved for. It’s not a promise of approval, but it does help set expectations as you start to browse listings.


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

2. Check Out First-Time Homebuyer Programs

It’s wise to shop around for a few different mortgage quotes, but it would be a rookie mistake to overlook some great, government-sponsored programs that make buying a house more affordable. These include:

•   FHA loans: These mortgages are designed for those with low to moderate incomes. They typically offer low down-payment requirements, low interest rates, and the ability to get approval even if you have a fair credit score.

•   USDA loans: These provide affordable mortgages to those with a lower income who are planning on buying a home in a qualifying rural area.

•   VA loans: These mortgages help those on active military duty, veterans, and eligible surviving spouses become homeowners. If you can check one of those boxes, you may be eligible for a home loan with no down payment requirement and no PMI.

3. Consider Additional Costs Beyond the Mortgage

As we’ve discussed above, the actual monthly house payment is not your only cost. Your full mortgage payment includes property taxes, homeowners insurance, and, potentially, PMI.

But before you even get to the point of making monthly payments, consider these upfront costs of buying a house:

•   Closing costs, which are traditionally paid for by the buyer.

•   Home inspections, which we highly recommend.

•   Moving costs, whether just renting a truck or hiring movers.

4. Get Preapproved

Mortgage prequalification isn’t a commitment for the lender or buyer — it’s just a first step. If you appear to meet a lender’s standards, you could move on to the preapproval stage.

Getting preapproved for a home loan involves submitting additional income and asset documentation for a more in-depth review of your finances.

Once the lender approves these aspects of your loan application, you’ll receive a conditional commitment for a designated loan amount — called a preapproval letter — and have a better idea of what your loan terms will be.

Mortgage preapproval can help demonstrate to sellers that you’ve completed the first step in getting a mortgage because your credit, income, and assets have already been reviewed by an underwriter. This can smooth the bidding process and could give you an edge over others in a competitive situation with multiple offers.

Recommended: How Long is a Mortgage Preapproval Good For?

5. Choose the Right Type of Mortgage

You may qualify for various types of mortgage loans. Spend some time researching the different types so you have a better understanding of how they’ll impact your payments for the next several decades.

For instance, you’ll want to know the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). You’ll also want to understand how a 15-year term affects your monthly payments when compared to a 30-year term — but also how a longer term increases the amount you’ll pay in interest.

Other mortgage types to understand include:

•   Conventional loans vs. government-issued loans

•   Conforming vs. nonconforming loans

•   Reverse mortgages, jumbo mortgages, and interest-only mortgages

6. Shop Around for the Best Mortgage Rates

Finally, remember that you don’t have to go with the first mortgage offer you get. It’s worth your while to get multiple offers so you can compare interest rates, down payment requirements, terms, and more.

The Takeaway

Buying a house for the first time can be a stressful experience, but remember: At the end of it all, you’ll have a place you can call yours. You’ll build equity over time, and the house may increase in value. Just make sure you research the most common first-time homebuyer mistakes so you know how to avoid them.

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.

FAQ

What are some common mistakes first-time homebuyers make?

Some common home-buying mistakes for first-time homebuyers include forgetting to check (and improve) their credit, not calculating how much home they can actually afford, and forgetting to consider additional expenses, like inspections, homeowners insurance, property taxes, closing costs, and increased utilities. First-timers may also forget to consider the neighborhood as a whole or the future resale of the home.

What are the two largest obstacles for first-time homebuyers?

Two large obstacles for first-time homebuyers include rising housing prices and credit score requirements. Those who don’t already have equity in a current home may have more trouble coming up with a down payment on a new home. First-time homebuyers may also lack the credit score needed to get the best possible rate on a new mortgage.

What are three common mortgage mistakes?

Three common mortgage mistakes are 1) buying up to the limit you’re approved for rather than calculating how much you’re comfortable paying; 2) skipping the home inspection to expedite the process or make your offer more appealing to buyers; and 3) not considering related expenses you’ll have to budget for, including homeowners insurance, property taxes, and repairs and maintenance.

What are the most common mistakes that homebuyers make?

Homebuyers make a number of common mistakes, such as making an unnecessarily large down payment, forgetting to budget for related costs, buying more house than they can afford, and not shopping around for the best mortgage loans.

*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 On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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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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