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The healthier you are, the less you will pay for life insurance, but age, lifestyle choices and how much insurance you need are also important factors.

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Owning your own home is typically a foundation of the American Dream, and many people are saving for a down payment right this minute. But when you are already paying rent, it can be a challenge to save for a down payment on a house, especially if you live in an area with a high cost of living or are dealing with the impact of inflation.

But that doesn’t mean it can’t be done. You can save up for your home purchase by following some wise financial advice and simplifying the process of socking away your cash.

If buying a home is a priority for you, read on. You’ll learn how to grow your down payment savings while still paying rent.

5 Tips to Save for a Home While You’re Still Renting

Rent can take a big bite out of your take-home pay, but it doesn’t rule out saving for a down payment on a house. Here’s some smart budgeting advice to help you set aside money for your future homeownership.

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

1. Pay Down Your Debt First

In order to save for a house, it’s wise to figure out a plan to pay down your existing debt. This will free up more money for you to save for that down payment. Also, when you do apply for a mortgage, you will likely have a lower debt-to-income ratio, or DTI ratio. Reducing you DTI ratio can help your application get approved.

Student loan debt is a common kind of debt to have; the average American right now has $37,338 in loans. If you’re a full-time employee, reach out to your company’s HR department to learn more about student debt repayment assistance. A recent survey by the Employee Benefit Research Institute found that 17% of companies in the U.S. currently have this type of assistance, so it’s worth a try.

As a more drastic measure, you could always think about going into a profession that offers partial or total student loan forgiveness (such as teaching in certain public schools) or moving to a state that will help pay off your student loan debt just for moving there (currently Kansas, Maine, Maryland, and Michigan).

For an easier fix, you could consider student loan refinancing options, which might lower your rate. By dropping your interest rates, you could significantly reduce both your payments and the length of time you’ll be making them.

However, a couple of points to note. If you extend your term to lower the payment, you will pay more interest over the life of the loan. Also, do be aware that, when refinancing federal loans to private ones, you may then no longer be eligible for federal benefits and protections. However, by getting a lower interest rate, you may accelerate your path to saving for your down payment and getting keys to your very own home.

Credit card debt can also play a role in preventing you from saving for a down payment. This is typically high-interest debt, with rates currently hovering just below 25%.

There are a variety of ways to pay down this debt, such as the debt avalanche method, which has you focus on your highest-interest debt first; the debt snowball; and the debt fireball methods.

If none of these techniques seems right for you, you might look into getting a balance transfer credit card, which will give you a period of zero interest in which you may pay down debt. Or you might take out a personal loan to pay off the credit card debt and then potentially have a lower interest loan to manage.

2. Create a Budget That Will Help You Spend Less and Save More

Another way to free up funds for that down payment is to budget well. Creating and sticking to a realistic budget can help you spend less while saving for a house. While budgeting can sound like a no-fun, punitive exercise, that really doesn’t have to be the case. A budget is actually a helpful tool that allows you to manage your income, spending, and saving optimally.

To get there, you can pick from the different budgeting methods. Most involve these simple steps.

Gather your data: Figure out how much you’re earning each month (after taxes), along with how much you’re currently spending. Add it all up including cell phone bills, insurance, grocery bills, rent, utilities, your coffee habit, the dog walker, gym membership, etc. Don’t miss a dime.

List your current savings: Are you currently putting money into an IRA, 401(k), or other savings plan? List it, so you can see what you’ve already got in the bank.

Really dig into and optimize your spending: Can you cut back anywhere? You might trim some spending by bundling your renters and car insurance with one provider. Perhaps you can save on streaming services by dropping a platform or two. And how’s your takeout habit? If you really want to save for a house, you may need to learn to cook. You might even consider taking in a roommate or moving to a less expensive place to turbocharge your savings for your down payment while renting.

Making cuts, admittedly, can be the toughest step in the budgeting process, but it’s crucial to be honest with yourself about your spending. Remember: However much you cut back can help you get a new home that much sooner.

Finally, check in on your budget every so often and adjust as needed. For example, if you land a new job, get a promotion, or are given an annual raise, perhaps you can add that money to your savings account or put it toward paying off your loans. Whichever one feels more important to you is OK, so long as that extra cash isn’t vanishing on impulse buys.

3. Investigate How Big a Down Payment You Actually Need

Many prospective homebuyers think they must have 20% down to buy a house, but that is not always the case. That is how much you need to avoid paying for private mortgage insurance (PMI) with a conventional conforming loan. Private mortgage insurance typically ranges from 0.5% to 2% of the loan amount, and it’s automatically canceled when your equity reaches 78% of the home’s original value.

Here are some valuable facts: You may be able to take out a conforming loan with as little as 3% down, plus PMI. Certainly, that’s a sum that can be easier to wrangle than 20%, though your mortgage principal will be higher. According to National Association of Realtors data, the average first-time homebuyer puts down about 6%.

In addition, you might qualify for government loans that don’t require any down payment at all, such as VA and USDA loans.

You might also look into regional first-time homebuyer programs that can provide favorable terms and help you own a property sooner.

💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as little as 3.5%.

4. Grow Your Savings

If you’ve paid off your debt, set realistic budgeting goals, and are raking in some dough to add to a savings account, you’re already on the right track. A good next move is to put your money to work for you. Among your options:

•   Open a high-interest savings account. These can pay multiples of the average interest rate earned by a standard savings account. You will frequently find these accounts at online vs. traditional banks. Since they don’t have brick-and-mortar branches, online financial institutions can save on operating costs and can pass that along to consumers. Just be sure to look into such points as any account fees, as well as opening balance and monthly balance requirements. (Features such as round-up savings can also help you save more quickly.)

You can also look into certificates of deposit (CDs) and see what interest rates you might get there. These products typically require you to keep your funds on deposit for a set period of time with the interest rate known in advance.

•   If you have a fairly long timeline, you might consider opening an investment account to grow your savings. The market has a historical 10% rate of return, though past performance isn’t a guarantee of future returns. You could try using a robo advisor, or you could work with a financial advisor who will walk you through investment strategies for beginners and beyond and help you invest. Just be aware that investments are insured against insolvency of the broker-dealer but not against loss.

Recommended: First-time Homebuyer Guide

5. Automate as Much of Your Finances as Possible

This is a lot of information to process, but once you get through all the work upfront, you can start automating as much as possible. For example, have a portion of your paycheck automatically go into your savings account each month to plump up that down payment fund.

You might set up the direct deposit of your paycheck to send most of your pay to your checking account and a portion to a savings account earmarked for your down payment. You can check with your HR or Benefits department to see if this is possible.

Another way to automate your savings is to have your bank set up a recurring transfer from your checking account, as close to payday as possible. That can route some funds to your down payment savings without any effort on your part. Nor will you see the cash sitting in your checking account, tempting you to spend it.

The Takeaway

While saving for a down payment isn’t exactly a piece of cake, it doesn’t have to feel overwhelming. By trying five effective strategies, which can include budgeting, paying down debt, and automating your savings, you can accumulate enough money to start on your path to homeownership.

Once you have the down payment taken care of, you’ll be ready to shop for a home mortgage that suits you.

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

SoFi Mortgages: simple, smart, and so affordable.

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

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

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

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

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

^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.
SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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When you purchased your home, you probably had a thousand things on your mind. It’s easy to get caught up in the details of finding the home you want, where you want it, for the price you want to pay. It’s possible that you overlooked other important components of the home-buying process that are now affecting your monthly mortgage payments, including your mortgage terms, insurance costs, and taxes.

You may be able to negotiate that perfect home’s price down to an unbelievable bargain, but if you don’t hone in on those other factors, you still could end up paying more than you hoped for your mortgage. The good news is it’s never too late to make changes and save money on your mortgage. Here are five strategies to consider:

1. Refinancing Your Current Home Loan

If your income has improved or you have strengthened your credit score since you got your original mortgage — or if you just didn’t secure great loan terms the first time—a mortgage refinance could be your chance for a do-over. This is especially worth considering if you obtained your mortgage prior to 2000, although even more recent mortgages could be candidates for a refi.

Securing a lower interest rate can make your monthly payments go down. (Even a small difference in rate can result in significant interest savings over the life of the loan.) Getting a shorter loan term will likely make your payments go up, but if your income can accommodate the expense, you’ll pay off the loan much sooner. A lower rate and a shorter term would deliver even better benefits.

If that sounds like a goal worth aiming for, here are some steps you could take:

•  Know what you owe. Before you start looking at refinancing loans, examine the balance of your current loan, the monthly payment, and the interest rate.

•  Check your credit report. Lenders may offer favorable rates or loan terms to borrowers with higher credit scores. You can get a free credit report every year from each of the three big credit bureaus, so you can review the information for accuracy and fix any errors. (But keep in mind that the annual free credit report provides an overview of your credit history, rather than your specific FICO_Ⓡ scores.) If your report isn’t as strong as you hoped, you could always press pause and come back to your plan after you’ve had a chance to rehabilitate your credit status.

•  Shop for the best lender, rates, and terms. Remember, even a half-percent difference in the interest rate can make a big difference. (And keep fees and other costs in mind as you’re doing your research may help.)

•  Clearly understand the consequences. Getting a lower mortgage payment isn’t always a money-saver. For example, stretching out the loan term can lighten your monthly financial burden, but you could end up paying substantially more in interest over the life of the loan. And though borrowers often choose to roll closing costs into their loan — either because they can’t afford them or don’t want to pay them upfront — doing so means you’ll pay interest on that added amount, diminishing your overall savings.

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

2. Pulling the Plug on PMI

If you couldn’t put 20% down when you purchased your home (and many first-time homebuyers can’t), you probably were required to buy private mortgage insurance.

(This is not the same thing as your homeowner’s policy, which is for your protection in case of loss or damage in your home. PMI protects the lender in case you default on your loan.)

How expensive is it? PMI typically costs .5% to 1% of your loan amount, so on a $200,000 home loan, that could be $2,000 a year, or $166 a month. If your loan closed on or before July 29, 1999, PMI is automatically canceled:

•  On the date the principal balance of the mortgage loan is first scheduled to reach 78% of the original value of the property. (And just FYI, the original value is defined as the purchase price or original appraised value, whichever is less.)

•  Or, halfway through the mortgage loan amortization period — that’s if the scheduled loan-to-value ratio doesn’t reach 78% before you make it halfway through the mortgage

However, you can petition your lender to cancel your PMI after 2 years when you think you have built up sufficient equity. Your loan payments must also be current.

Refinancing also can provide an opportunity to dump this cost. If your home’s value has appreciated, and the amount of your new loan is less than 80% of the home’s value as evidenced by a new appraisal, you’ll no longer be obligated to pay PMI.

3. Filing for a Homestead Exemption

Most states offer a homestead exemption to provide tax and creditor relief on a primary residence. (New Jersey, Pennsylvania, and Rhode Island are among the states that do not.) Depending on your state, a claim form may be mailed to you automatically once your house purchase goes through. But you can also get a Homeowner Exemption Claim Form from the County Assessor’s office or website. And P.S., counties often have deadlines for when the forms need to be filed.

4. Requesting a New Tax Assessment

The county’s tax records could contain inaccurate, incomplete, or dated information that is causing the tax assessor to put a higher value on your home. You can get a copy of the record at the tax assessor’s office — and property tax records are public and available on county tax assessors’ website. Among the things you can check:

•  Is the age, purchase price, square footage, and lot size listed correctly?

•  Does the record have the right number of bedrooms and bathrooms?

•  Has your homestead exemption been applied?

•  Are there any defects that would detract from value listed? Or are there improvements listed that you haven’t made?

If you paid more for your home than what it’s now worth, and the assessment was never adjusted, you could potentially request a lower taxable value. There are a few ways to determine your home’s value:

•  Looking in the tax assessor’s records for similar homes in the same neighborhood and comparing them to your own.

•  Checking online real estate sites for estimates. (Just remember, you’ll need to know the actual sale price to make a solid argument.)

•  Hiring an appraiser to give you a home appraisal or requesting a value estimate from the real estate agent who helped you purchase the home.

•  If you are refinancing your mortgage and the lender ordered a professional appraisal, you can (and will) get a copy.

Once you have a good idea of where you stand, you can contact your county for a new assessment. This process varies by county, but if your property tax is successfully lowered, the assessment will likely be reviewed every year for changes.

💡 Quick Tip: There are two basic types of mortgage refinancing: cash-out and rate-and-term. A cash-out refinance loan means getting a larger loan than what you currently owe, while a rate-and-term refinance replaces your existing mortgage with a new one with different terms.

5. Downsizing to a Less Expensive Home

Homeowners often think of downsizing as a move they’ll make in retirement — at that stage, it’s as much about making life easier as it is about saving money.

But if you realize you simply can’t afford the house you have — or that a fourth bedroom and third bathroom aren’t as essential to life as you thought — going smaller is a great way to cut costs. Not only can you save on your house payments, but your heating, cooling and other bills will likely go down.

You also may see your costs drop if you move to a less expensive part of town or a state with low property taxes, or lower sales or gas taxes. (Check out a guide to the cost of living by state for inspiration.)

Of course, you’ll want to walk away from your current home with enough money for the move to make sense. You may want to check out what a new home will cost before you put your place on the market.

Among other things, checking figures such as how your property taxes may change can be helpful. You can also consider looking into homeowners insurance; are you moving from a no-flood zone into a flood zone? How will that change your home insurance premiums? Checking your current mortgage interest rate against the new rate you’d potentially qualify for on a new home is a pragmatic thing to do, too. Have rates gone up since your last home purchase? If so, would the higher rate be offset by a lower purchase price and loan amount?

The Takeaway

If you love your home but hate the payments, remember that there are ways to reduce what you’re paying every month. Whether you choose refinancing to get to a more manageable number or you explore downsizing, working with a mortgage loan representative can help you find the savings you need.

Most people expect owning their own home to be their biggest financial undertaking. But that doesn’t mean you should pay more than is absolutely necessary to get it.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

A new mortgage refinance could be a game changer for your finances.

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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.
SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
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 on credit.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
FICOⓇ is a registered trademark of Fair Isaac Corporation.
*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.

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Buying a home can at times feel like quite an uphill climb, what with socking away cash for a down payment and getting approved for a mortgage. One option that may promise to ease the path for some people is what is known as a rent-to-own arrangement.

If you enter into this agreement, you may be able to rent and then decide to purchase the property at the end of the lease. That can give you some time to build your savings and your credit. What’s more, while renting, part of your monthly payment may be earmarked for your down payment.

However, in addition to these positives, there are potential downsides, such as losing a nonrefundable upfront fee if you decide not to buy. If you’re curious about rent-to-own homes, read the following guide. You’ll gain important insights that can help you decide if this form of homebuying is right for you.

What Is Rent-to-Own?

Renting vs. buying a home is a big decision, but in some cases, you may be able to do both. With a rent-to-own home, you lease a property and have the option to buy it at the end of that period. Your monthly rent (which may be higher than the going market rate) can include a portion that is earmarked as down payment money should you decide to buy.

A key benefit of rent-to-own agreements is that they can help make homeownership possible for people who might not otherwise be able to purchase a property. Someone who doesn’t have a hefty chunk of change saved for a down payment may be able to buy a home. Or it might give a prospective homebuyer a chance to build their credit history en route to applying for a mortgage a little later on.

In these ways, rent-to-own could put you on the path to buying a property while still renting.

💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

How Do Rent-to-Own Agreements Generally Work?

Now that you know what a rent-to-own home is, here’s a closer look at how they work. With these agreements (also sometimes called “lease with option to buy”), the renter typically commits to renting the property for a specific period of time, with the option (or obligation) to buy.

•   In many cases, the renter pays an upfront nonrefundable option fee. This is what can secure the option to buy, and it typically ranges from 1% to 5% of the purchase price.

•   Another feature of a rent-to-own agreement can be that a portion of the monthly rent goes toward the down payment at the end of the lease, should you decide to buy. So if the going rental rate is $1,700 in your area, you might pay $2,000 a month, with that $300 additional going toward the down payment. (You may have to hunt if you want a rent-to-own home with low monthly payments.)

•   It’s important to note that there are two different kinds of rent-to-own arrangements. There’s lease-option, which means you will have the choice of whether to buy the property, and there’s lease-purchase, in which you are committing to buy the property in the future. The latter can be a legal obligation, so proceed with caution.

•   With these rent-to-own or “lease with option to buy” deals, you can either decide on the purchase price upfront or agree that the sale will be contingent upon an appraisal at the time of purchase. It is generally recommended to get a home appraisal and inspection upfront before entering into a contract.

•   The appraisal, if done up at the start, can set the market value of the home and can also give a rent schedule showing rents paid in the area for the same type of home. The rent schedule confirms the base rent charged is reasonable before any option to buy surcharge is added on top.

Benefits of Rent-to-Own Homes

Here are some of the potential advantages of a rent-to-own agreement.

•   A rent-to-own property may offer a way to get into your dream house before you’re totally ready to buy. Perhaps you don’t have enough money saved for a down payment and don’t see a path to accruing enough to buy a home in today’s market. Rent-to-own could open a door to home ownership.

•   Another benefit of renting to own is that it buys you time to build your credit. Maybe you’re still cleaning up a past credit problem that’s keeping you from qualifying for a mortgage. Renting first could give you time to accomplish this.

•   You can potentially save money on repairs. With a rent-to-own arrangement, a landlord and tenant often split the cost of repairs. In some situations, the landlord agrees to cover larger expenditures. This can be helpful to those trying to save money to buy a home.

•   There’s flexibility. You get to try on homeownership of a property by living there as a renter first. At the end of the rental period, you can choose to buy or move. That is, unless you’ve entered into a lease-purchase arrangement, in which case you can be legally obligated to buy.

💡 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.2

Some Problems with Rent-to-Own Agreements

There are usually pros and cons of buying a starter home, but doing so via a rent-to-own arrangement can have its own set of considerations. Now that you know the potential upsides of renting to own, consider these potential disadvantages before you sign on the dotted line.

•   Selection may be limited. If you have your heart set on a certain neighborhood or home style, you might be out of luck. Unless you can find a seller in your target neighborhood who’s willing to do a rent-to-own or lease arrangement, you’ll likely have to stick with the conventional choice of renting or buying.

•   You could lose money if you decide not to buy. That option fee discussed above is often nonrefundable, and any surcharge you pay on the monthly rent (to go toward a down payment) may not come back to you either. The bottom line: If you walk away at the end of the lease, your finances could take a hit, which could be a significant homebuying mistake.

•   What’s more, if you’ve signed a lease-purchase document, it can be legally binding in terms of having to buy at the end of the rental. If you can’t or don’t want to purchase when the time comes, you could be in a very difficult spot.

•   If you agree to a purchase price at the beginning of your rental term, there is the chance that the home’s value could drop with market fluctuations. Then, when it’s time to exercise your option to buy, you might be faced with an overpriced property.

•   Just because you have entered into a rent-to-own agreement doesn’t mean you will qualify for a mortgage at the end of the rental term. Yes, you may have more money set aside for a down payment or you might have built your credit, but again: There are no guarantees that a lender will approve you to move ahead with the purchase.

•   If the owner stops making payments and the property goes into foreclosure, you may be out of luck. And you may not have much say if the property isn’t maintained to your standards.

Recommended: Is Now a Good Time for Buy a House?

Do These Contracts Compare to Qualifying for A Mortgage?

A rent-to-own home may seem helpful if you are not quite ready to buy a home outright; say, you might need more time to accumulate a down payment or build your credit history. Or perhaps you think you want to buy a property, but you’d like to live in it before committing 100%.

Keep in mind, however, that signing a rent-to-own agreement doesn’t mean you’ll necessarily qualify for a home loan. At the end of your rental term, if you decide to buy, you will still have to apply and be approved for a mortgage. Your financial credentials will be reviewed in depth to determine your creditworthiness.

If you’re serious about becoming a homeowner, a traditional home purchase along with a mortgage may offer a wider array of options. With a traditional mortgage, you take out a loan to cover the purchase price of your new home minus your down payment. A mortgage loan allows you to immediately purchase your home, as opposed to renting first.

In addition, there may be some tax benefits to owning right away vs. renting first; you might talk with a tax advisor to get more details.

If you don’t feel ready to put down as much money as you’d like, you might consider conventional loans that let you put down as little as 3% to 5% down or government-backed loans that may even allow you to buy with no money down. You could also look for down payment assistance programs you might be eligible for in your area. These can help make a purchase more affordable.

Recommended: Quiz: Should You Buy or Rent a Home?

The Takeaway

Rent-to-own homes can offer a way to buy a home after leasing it. This can provide time to the prospective homebuyer to save up funds for a down payment or to build their credit. However, an option fee (usually nonrefundable) and a higher rent can be part of the arrangement, so it’s wise to consider this carefully. Having a lawyer review the agreement up front can be a good idea so you fully understand the potential risks and rewards.

If you think you’re ready for homeownership (whether after renting or right away), you may want to check out your mortgage options: what kinds of home loans are available at what interest rates from which lenders. That can help you understand your home-buying budget.

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 does it mean when someone says rent-to-own?

Rent-to-own arrangements allow a person to rent a property and then have the option (or obligation) to buy at the end of the lease. There is usually a nonrefundable option fee to be paid up front, and the rent may be higher than the norm in the area. That’s because a portion may be earmarked to go toward a down payment at the end of the rental.

Is it smarter to rent or own a home?

Deciding whether to rent or buy a home is a very personal decision. It can depend upon your financial situation, your need for flexibility vs. your desire to put down roots, and other factors.

What is the main reason to avoid renting to own?

Renting to own can have a few drawbacks. However, here’s a key one: There are often nonrefundable fees and rent surcharges, which could cause financial loss if you decide not to move ahead and buy.

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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.

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.

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