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The U.S. mortgage market is massive, so it’s no surprise that it’s actually composed of a primary and a secondary market.

The primary market serves the homebuying public. The secondary serves investors, but plays a big role in a borrower’s ability to get a mortgage and how much that home loan costs.

Primary vs. Secondary Mortgage Market

The primary mortgage market links borrowers to home mortgage lenders. The secondary mortgage market allows investors to invest in existing mortgage loans in hopes of earning a return.

What Is the Primary Mortgage Market?

Any time a homebuyer takes out a mortgage loan from a reputable lender, that is the primary mortgage market in action. Homebuyers and mortgage refinancers can work with a mortgage broker or direct lender to find the right home loan.

Direct lenders include banks, credit unions, and online mortgage companies. They originate loans with their own money or borrowed funding. Many of them originate mortgages only to sell them to investors, though the lenders may retain the servicing rights.

What Is the Secondary Mortgage Market?

With the secondary mortgage market, investors such as pension funds, banks, and insurance companies buy mortgage-backed securities and try to earn a profit on them.

Why would lenders sell some of their home loans? Because they’re able to replenish their supply of mortgage funding and remove the risk they took on by making the loans.

The mortgages that Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.), the country’s biggest residential mortgage buyers, purchase are conforming loans. That means they conform to certain lending guidelines and loan limits. In 2024 the conforming loan limit for a single-family home was $766,550 in most housing markets. In 2025 it is $806,500.

Then there’s Ginnie Mae (the Government National Mortgage Association), which buys government-backed FHA, VA, and USDA loans and bundles them into securities to be sold on the bond market.

Recommended: Try This Mortgage Calculator

Example of Both Markets in Action

Betty Borrower decides she wants to buy a home and needs help financing the purchase. She shops for a mortgage with an attractive interest rate and low costs. She finds a good fit, applies for the loan, and is approved.

She moves in; her loan moves on. Betty gets a letter from her lender saying that her mortgage has been sold to another financial entity.

The mortgage buyer, which may be an investor or mortgage loan aggregator like Fannie Mae or Freddie Mac, can repackage home loans as mortgage-backed securities or hold them and collect the interest from borrowers.

Any investor who engages with the secondary mortgage market is buying Betty’s mortgage debt and many others’ and counts on the borrowers to pay the debt, with the investor pocketing a percentage of the profit.

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

Why Are There Two Mortgage Markets?

They work hand in hand. Congress created the secondary mortgage market in the 1930s to give lenders a larger, steadier stream of mortgage funding to stabilize the country’s residential mortgage markets and expand opportunities for homeownership.

Pros and Cons of the Primary Mortgage Market

The primary mortgage market has its upsides and downsides.

Advantages of the Primary Mortgage Market

Mortgage loans are plentiful: Homebuyers can choose from an array of different types of mortgage loans from banks, credit unions, savings and loans, mortgage brokers, and online financial institutions.

Borrowers have options: The most popular choice is a fixed-term loan of 30 years, but some borrowers may opt for an adjustable-rate mortgage (ARM), in which the introductory rate is fixed for a specified period of time. The 5/1 ARM has a five-year fixed rate.

Rates are reasonable: The demand for conforming loans helps rein in interest rates for borrowers who meet the lending criteria, which include down payment and credit requirements in addition to conforming loan limits. (Nonconforming loans — loans that Fannie Mae and Freddie Mac cannot buy — include government-backed loans and jumbo loans. The rates may be even lower than conforming loan rates.)

Down Payment Can Be Low: For first-time homebuyers, a 3% down payment for a conventional loan may suffice.

Disadvantages of the Primary Mortgage Loan Market

Borrowers have to be vetted credit-wise: Mortgage lenders will review a potential borrower’s credit score in order to determine their eligibility for a loan. Applicants with a bad credit score may find it challenging to secure a mortgage other than an FHA loan.

Missed mortgage payments can have negative effects: Borrowers who miss payments may face a plummeting credit score or even foreclosure (but mortgage forbearance is an option).

Pros and Cons of the Secondary Mortgage Market

Here are two ways to view the secondary loan market.

Advantages of the Secondary Mortgage Market

Replenishes lender funding: The secondary market keeps money flowing through the mortgage system in good economic times and bad.

Fuels lower mortgage costs: The secondary market can lead to lower costs for borrowers.

May be good for investors: Most mortgage-backed securities are issued or guaranteed by a government agency such as Ginnie Mae or by government-sponsored enterprises like Fannie Mae and Freddie Mac. The securities carry the guarantee of the issuing organization to pay interest and principal payments on their mortgage-backed securities.

Disadvantages of the Secondary Mortgage Loan Market

Not for the average investor: Common buyers of mortgage-backed securities include deep-pocketed financial organizations like insurance companies, banks, and pension funds. Because of the complexity of mortgage-backed securities and the difficulty that can accompany assessing the creditworthiness of an issuer, individual investors should use caution.

Investors won’t see the properties attached to the mortgages: Secondary mortgage loan buyers usually won’t physically see and assess the properties attached to the mortgages they’re buying.

The Takeaway

The primary mortgage market and secondary mortgage market have a symbiotic relationship. Most mortgage seekers will only be interested in the primary market: getting a home loan that suits their needs.

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 is the secondary market for mortgages?

When homebuyers take out a mortgage, lenders can bundle similar types of loans and sell shares in this bundle to investors, including banks, pension funds, and mutual funds. Investors are willing to buy these shares because as long as the mortgages are paid off, the investors receive a steady stream of income over the life of the mortgages in the bundle.

What is a second mortgage?

A second mortgage is a loan that uses your home as collateral that you take out while you are still paying off the primary mortgage on your home. Home equity loans are often second mortgages.

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

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

SOHL-Q424-130

Whether a $40,000 salary is considered good can depend on a variety of factors. For a recent grad in a small town where the cost of living is low, that might be an annual income that pays the bills. In addition, the $40,000 figure represents earning more than the federal minimum wage ($7.25/hour) in 34 states and districts.

But a $40,000 salary is not typically enough for a household to live comfortably in most parts of the United States. According to the U.S. Census, the median salary was $80,610 in 2023. What’s more, in 2024, a $40,000 salary would be below the United States Census Bureau’s poverty threshold for families of up to six people. Here’s a closer look at the $40K salary figure.

How Does a $40,000 Salary Compare to the American Median Income?

Here’s a look at how earning a $40,000 annual income compares to that of your fellow Americans.

•   According to the U.S. Census Bureau, the median household income in 2023 was $80,610.

A $40,000 salary could successfully contribute to the Census Bureau’s picture of the median household income, when combined with a second income from a domestic partner.

Could this salary be considered good? Consider the following:

•   As an individual, you may find that $40,000 is a good entry-level salary.

•   Couples living the DINK lifestyle (which stands for dual income, no kids) and who each make $40,000 would be well above the median household income. Plus, they would have the additional costs of raising children as part of their budget.

$40,000 Salary Breakdown

It can be helpful to know what a $40,000 salary translates to as a monthly budget, weekly paycheck, or even hourly rate. This may help you decide if $40K is a good salary.

Here’s how it breaks down:

•   Monthly income: $3,333.33

•   Biweekly paycheck: $1,538.46

•   Weekly income: $769.23

•   Daily income: $153.85^*

•   Hourly income: $19.23^**

^*Based on 260 working days a year
^**Based on 2,080 working hours a year

And remember: That’s before taxes; that’s not likely to be the amount that’s deposited in your checking account when you are paid. If you are single and make $40,000 a year, your federal tax bracket is at 12%, but you may also owe state, city, and even school district taxes as well. It’s important to keep that in mind as you plan and assess how to pay bills and save with this salary.

Recommended: What to Do When You Get a Pay Raise: 12 Tips

Can You Live Individually on a $40,000 Income?

It is possible to live individually on a $40,000 income. In fact, you may be able to afford the average monthly expenses for a single person and work on your saving and investing goals.

Your location will have the largest impact on how far your dollars will stretch. Areas with a lower cost of living will likely be easier to afford for an individual on a $40,000 income.

As an individual, you can help your salary go further by looking for ways to save money, like:

•   Having a roommate or renting out a room in your house if you own one

•   Cooking at home instead of eating out

•   Buying a used car or, depending on where you live, relying on public transportation

•   Finding a higher-yield savings account

Best Places to Live on a $40,000 Salary

If you can afford moving expenses and aren’t tied to a specific location for work, you can make your dollars go further more easily in certain locations in the United States. These are places with a lower cost of living. Here are the five cheapest cities to live in the U.S. this year, according to U.S. News:

•   Fort Wayne, Indiana

•   Huntsville, Alabama

•   Wichita, Kansas

•   Springfield, Missouri

•   Davenport, Iowa

However, there’s more to moving than just the expenses and the job. Before packing up a rental truck, consider whether you are comfortable leaving behind friends, family, and familiar places.

Recommended: Emergency Fund Calculator: How Much Should You Save?

Worst Places to Live on a $40,000 Salary

A $40,000 salary might not go far enough in a city with a high cost of living. U.S. News research indicates these are the most expensive cities to live in:

•   Los Angeles, California

•   Miami, Florida

•   San Diego, California

•   Salinas, California

•   Santa Barbara, California

And if you were expecting to see Honolulu, Boston, and Santa Barbara (which often have reputations for being pricey), you’d find them a bit farther down the list but in the top 10.

Tips for Living on a $40,000 Budget

So how can you (and possibly your family) live on a $40,000 budget? It’s important to cut costs, look for deals, pay down your debt, and build up savings for an emergency.

But living on a small salary doesn’t mean you have to completely give up entertainment. Remember that it’s OK to treat yourself to the nice things in life from time to time, as long as they are within reason. Everyone needs some fun in their life.

Here are some important tips for living on a $40,000 budget:

Carefully Tracking Your Expenses

First things first, get an understanding of your current spending habits. Your bank may offer tools that make this easy to analyze or you can download apps or check websites that make this easier.

Consider what bills you have every month, whether they are set up on auto pay, and, if so, when do they process? (This will help you schedule your bills and avoid getting hit with late fees.) Make a list of all your recurring expenses (mortgage or rent, student loans, car payment, phone, insurance, and utilities), and then analyze how much on average you’re spending on more variable expenses like groceries, gas, clothing, and entertainment.

What can you cut? What bills can you negotiate down? Where can you reallocate money toward savings?

Recommended: 20 Commonly Forgotten Monthly Expenses

Getting on a Budget

Now that you have an idea of what you’re currently spending, it’s time to design a budget around what you should be spending.

Start by plugging in necessary monthly expenses; these are things you must pay for each month, like your home, insurance, and food. Only once you can see that these basic needs are met should you begin to budget for things like dining out or new clothes, also known as wants vs. needs.

Not sure where to start? Do some online research on how to make a budget. There are different techniques including a line item budget and the 50/30/20 budget rule.

Use the 50/30/20 budget calculator below to get an idea of how your budget could be broken down.

You might also check out what tracking and budgeting tools your financial institution offers. Many (especially online banks) offer a suite of tools.

Getting Out of Debt

As you consider how to manage daily life on a $40,000 salary, it’s wise to pay attention to the role that debt plays in your personal finances. Mortgage and student loan debt are structured to be paid off over decades, and can be considered by some to be good debt, as the interest rates are often relatively low and timely payments build your credit history. The rates on credit card debt, however, can be high and therefore more detrimental to your finances (and mental health). If you have serious credit card debt, it is wise to cut back expenses as much as you can so you can focus on paying off your debt.

You can tackle your debt using the snowball method or the avalanche method. You may also consider a balance-transfer credit card or a debt consolidation program, depending on your situation. A debt counselor who works for a nonprofit, like the National Foundation for Credit Counseling (NFCC ), can be helpful as well.

Saving Your Money

If you are debt-free (house, car, and student loan payments aside) and still have wiggle room in your budget after accounting for necessary expenses and a little bit of fun money, you can allocate some of your $40,000 salary toward your saving goals. These might include vacations, a house down payment, renovations, or a wedding. An emergency savings fund is often a good place to start.

Recommended: Emergency Fund Calculator

Investing Your Money

After you have gotten a handle on your expenses, designed a budget, and opened a savings account, you might consider if there is enough leftover from your $40,000 salary for investing. This may not be possible if you live in a city or state with a high cost of living.

How can you start investing? If your employer offers a 401(k) match, consider taking advantage of that. It’s basically free money, so contribute enough to snag it.

You can also look for automated investing opportunities so you don’t have to worry about building a portfolio from scratch.

The Takeaway

Whether $40,000 a year is a good salary depends on a variety of factors. For a single person just out of school, living in a relatively inexpensive town, it might be adequate. For a family of four in a major city, it is likely a challenging sum to subsist on.

With a $40,000 salary, it’s important to follow smart financial strategies, like budgeting and cutting expenses, as well as finding the right banking partner.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can you live comfortably on $40,000 a year?

Individuals may be able to live comfortably on $40,000 a year. Families, however, may struggle with this salary, especially in areas with a higher cost of living.

What can I afford making $40K a year?

If you are an individual living on $40,000 a year in an area with a low to moderate cost of living, you can afford typical monthly expenses like food, housing, and utilities and still have enough for some fun expenditures, like entertainment. If you are frugal and build a budget, you may also be able to pay down debt, build your savings, and even invest a little.

Is $40,000 a year considered middle class?

According to Pew Research’s most recent figures, a middle-class household’s median income was $106,100. An individual making $40,000 a year could qualify as middle class, especially if there were another wage earner in the household.

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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.

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

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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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