SoFi

Sports card investing typically involves buying and selling sports cards in the hope that the cards you collect will increase in value over time. If you collect sports cards as a hobby, you might be interested in exploring how your collection could fold into your overall investment strategy, if at all, and considering its potential to generate returns over time.

Are sports cards a good investment? They may be for investors who understand how the market for sports cards works and how to identify investment opportunities. Like any other investment, however, there are some risks to be aware of, especially when it comes to alternative investments like sports cards. Here’s a closer look at how investing in sports cards works.

History of Investing in Sports Cards

Sports cards have a lengthy history, dating back to the 19th century. The earliest known baseball card was issued in 1865 by the Brooklyn Atlantics, who were dominant in the New York City sports scene at the time, according to Library of Congress records. The team’s “carte de visit,” or visiting card, was handed out to fans as souvenirs.

More athletic organizations followed suit, issuing sets of trading cards featuring lithographic portraits and later, photographic prints of individual players. These early sports card sets were often included in packs of candy or tobacco and were used as a marketing tactic by companies to get consumers to buy their products.

Interest in sports card trading grew throughout the early 20th century, and collectors began to realize how valuable these cards could be. Baseball cards were joined by football cards, and later, basketball cards. By the 1980s, the market for sports cards investing and trading was beginning to take off. Investing in sports cards and other sports memorabilia has become a way to diversify and potentially generate returns, outside of traditional stocks and bonds.

As an alternative investment, sports cards offer the potential to combine your investment strategy with your passions if you’re a true sports enthusiast. But it’s important to know that alternative investments can be high risk, and whether or not sports card investing provides returns can depend on a number of factors. (SoFi offers funds with alternative investments, but it does not offer sports card investing.)

Recommended: Alt Investment Guide

The Sports Card Market

Sports card investments are seeing a resurgence in recent years, and as of 2023, the sports trading card market generated $14.8 billion in revenue. That number is expected to grow to more than $51 billion by 2033. Some of the most sought-after cards in the market trade for millions of dollars, including a T206 Honus Wagner baseball card which sold for $6.606 million at auction in 2021.

The sports card investment market extends to not only baseball or football cards, but a variety of other trading cards including:

•   Character cards

•   Image cards

•   Autograph cards

•   Pokémon cards

•   Magic: The Gathering cards

•   Yu-Gi-Oh! cards

•   Cardfight! Vanguard cards

Some of these specialty cards rival the performance of the most in-demand sports cards. One of the rarest and most valuable Pokémon cards, for instance, was valued at $5.275 million at auction.

How to Invest in Sports Cards

Investing in sports cards typically involves simply buying them. You can buy packs of cards, or even boxes, and then open those packs to see what’s in them – essentially, hoping that you’ll find a rare or valuable card. You can also go out on the market and try to track down specific cards that have value, or that you believe have value. Perhaps they’re selling for under market rate, or you believe they’ll be worth more in the future than you’d pay for them now? In that case, you can make an investment and hope it pays off.

In effect, though, buying cards is really the only way to invest in sports cards. You could also look into buying fractional shares of certain high-value cards on some investment platforms, too.

Key Factors That Influence Card Value

An obvious key to success when you invest in sports cards is knowing what’s valuable — and what’s not. There’s one simple rule of thumb to remember: Sports cards are worth what someone is willing to pay for them.

Sports card valuations are determined by a variety of factors, including their age and rarity. Developing a trained eye can help with your decision-making when trading investment sports cards.

Player Performance and Popularity

Player performance and popularity can make a difference in how much a sports card commands at an auction or in the trading market. A card featuring a high-profile player with an impressive list of career achievements is likely to have a higher valuation than the card of an average player.

Savvy collectors consider not just current but future popularity when deciding which cards to invest in. For example, they might buy up rookie cards for a number one draft pick if expectations are high that the player will have a stellar career.

Scarcity also factors in. Limited edition or autographed cards may hold more value and appeal for collectors if there are fewer of them in the trading market.

Card Condition and Grading

The card’s condition also factors in when determining what a sports card investment is worth. Cards that are in mint condition, for instance, generally have a higher value than a card that has some minor wear and tear.

It’s possible for sports card investors to have their cards professionally graded. Grading is the process of having a professional evaluate your cards to determine what they’re worth and rating them on a scale of 1 to 10. The higher the grade, the better the condition the card is in and the more it’s likely to be worth.

A perfect “10 card” would have:

•   Four perfectly-sharp corners

•   A correctly-centered image that is in sharp focus

•   No damage or wear to its original coating

•   No staining

•   No writing or stray in/pencil marks

Professional grading services know exactly what to look for, including how to spot fake cards which is one of the biggest risks associated with alt investments in sports cards.

Risks and Challenges in the Sports Card Market

Is collecting sports cards a good investment? Most investments carry some degree of risk and sports are no different.

If you’re interested in how to get into sports card investing it’s important to understand these risk factors:

•   Counterfeiting/fraud. Sports cards are a target for counterfeiting, which could put you at risk of making a bad investment if you can’t tell the difference between a fake and the real thing.

•   Inaccurate grading. You may rely on a pro grading service to tell you what your sports cards are worth, but it’s possible they could get it wrong. If the grader’s assessment is incorrect your cards could end up over or undervalued.

•   Volatility and unpredictability. The sports card trading market can be unpredictable and card valuations don’t always hold steady. If a player has a poor season, for instance, or gets traded to an underwhelming team, that could affect the value of your collectible cards and lead to a lower than expected rate of return.

Lastly, there’s the risk of simply getting it wrong. You might believe that a particular player’s card values are going to take off so you sink a chunk of money into buying them. Only, their career doesn’t go as planned or the market takes an unexpected turn and now you’re out the money that you’ve invested.

Recommended: Alternative Investment Definition

The Takeaway

You have different options for how to invest in sports cards, including buying cards at auction, trading through online marketplaces, or opting for digital versions with non-fungible tokens (NFTs). Regardless of your investing preferences, think about how much risk you’re comfortable taking on and what percentage of your portfolio you want to dedicate to sports card investments for the short and long term.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

How important is card grading in sports card investing?

One of the first things you’ll hear about when researching how to start investing in sports cards is grading. Grading is what sets the standard for how much a sports card or another type of trading card is worth. There are numerous companies that offer grading services and it’s important to research them carefully to find a reputable grader to work with.

What sports typically have the most valuable cards?

Some of the most valuable sports card investments have historically been baseball cards, which makes sense since those were the first kind of trading cards to hit the market. Basketball and football cards can also be highly valuable if they belong to in-demand players. And surprisingly, rare Pokémon and other gaming cards can also command impressive prices.

What is the difference between a vintage and modern sports card?

Sports card collectors don’t always agree about what constitutes a vintage vs. modern card. For many collectors, the cutoff is 1980; cards produced before that year are vintage while cards produced after are modern. If you have a mixed collection of cards from different years, a grader can help you figure out which ones are vintage and which ones are not.7

---

About the author

---

Photo credit: iStock/smodj

Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA(www.finra.org)/SIPC(www.sipc.org). For all full listing of the fees associated with Sofi Invest, please view our fee schedule.
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
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.

SOIN-Q424-002

Read more

An escrow analysis is a review of funds collected and disbursed in your escrow account throughout the year. Your escrow account is typically used to collect and then pay property taxes and/or insurance payments. The analysis is a simple addition and subtraction calculation conducted by the mortgage servicer to determine if your monthly escrow payments made in the previous year were sufficient to cover expenses.

Escrow Analysis, Explained

When a homeowner makes a home loan payment each month, it’s typical that a portion of the money goes toward the principal and a portion covers the interest on your home loan. Most owners also have a portion of the payment directed toward an escrow account that is used to pay property taxes, homeowners insurance, and, in some cases, private mortgage insurance.

After the escrow analysis is conducted, which happens once per escrow year, the servicer will provide the borrower with an annual escrow account statement reviewing the deposits and disbursements made. It is normal for taxes and insurance costs to change and your monthly mortgage payment with taxes and insurance will be adjusted each year. The escrow analysis conducted each year ensures you’re contributing the right amount.

Here’s more information on escrow analysis, including why you need escrow analysis, how escrow analysis works, and how to read the escrow account statement that comes after an escrow analysis.

Why Do I Need an Escrow Analysis?

An escrow account analysis is required under consumer protection laws for the length of escrow. Regulation X of the Real Estate Settlement Procedures Act (RESPA) has mortgage servicers conduct an escrow analysis at the end of each computational year and provide consumers with an escrow account statement. (The clock starts ticking on the “computational year” when you make your first mortgage payment.) The analysis shows the money coming in from your monthly mortgage payment as well as money going out to pay bills for your taxes and insurance.

The escrow account analysis is necessary to:

•   Find shortages or excess funds

•   Ensure the account maintains a balance high enough to pay escrow bills

•   Compute a new monthly payment each year from adjusted amounts to escrow bills

If the amount of money exceeded the disbursements, you may see a refund and a lower monthly mortgage payment over the next year. If the amount of money was less than the disbursements, you may have a negative escrow balance and need to make up the difference either in a lump sum or increased monthly payments over the next year.

This analysis also helps keep any excessive escrow monies in your pocket rather than retained with a mortgage servicer.

Recommended: How to Avoid Private Mortgage Insurance

How the Analysis Works

When you apply for a mortgage, your lender will conduct an initial escrow analysis before your mortgage servicer sets up your escrow account. This analysis will total up the costs of all the taxes and insurance premiums you will need to pay throughout the year. Then, that amount is divided by 12 to get the monthly amount that you pay into the escrow account each month.

Here’s a quick example with escrowed items:

Escrow account items	Amount
Homeowner’s insurance premium	$1,200
Property taxes	$1,800
Private mortgage insurance	$1,200
TOTAL	$4,200

After adding up all the yearly expenses paid through your escrow account, divide it by 12 to get your monthly escrow payment.

$4,200/12 = $350 monthly escrow payment

The amount of your escrow payment will be included with your monthly mortgage payment. Your mortgage servicer will handle the amount that needs to go to your escrow account. When the bill for your taxes or insurance comes, the mortgage lender or servicer will pay it from the escrow account for you.

Every year, mortgage servicers are required to conduct an escrow analysis on your account and send you an annual escrow account statement. This statement includes how much you contributed to the escrow account each month and how much was distributed to taxing entities and insurance companies.

If, throughout the year, your tax and insurance bills totaled more than your monthly escrow deposits, you will see a negative escrow balance. If your monthly escrow deposits were significantly more than your escrowed bills, you may see a refund.

Recommended: What Is an Escrow Holdback?

How to Read Your Escrow Analysis Statement

The primary objective of the escrow account disclosure statement is to document where your escrow account stands. It will detail specific contributions and distributions by month and let you know how your monthly escrow payment will change. It is similar to reading a mortgage statement, but there are several elements that are different.

New monthly payment

The annual escrow account disclosure will show you how your payment is going to change. You’ll see:

•   Current payment: This is how much your total monthly payment currently is. It includes both your mortgage principal and interest payment, as well your escrow payment.

•   New payment: Your statement will show your new escrow amount, which, when added to the principal and interest amount, will change your total monthly payment.

•   Shortage/surplus: If your account had a negative escrow balance in the past year due to an increased tax or insurance bill, you’ll see the amount you owe added to your monthly payment. If you have a surplus, you’ll see that here, too.

•   Difference: The statement will include a calculation of the difference between what you were paying in the past year and what you will need to pay in the upcoming year.

•   New payment effective date: You will need to change the amount you pay to your mortgage servicer by the date listed on the disclosure statement.

Escrowed items

Your escrow account disclosure statement will help explain why there was an increase or decrease in your escrow account. These include changes to insurance premiums and property taxes included in your mortgage payment. You may see a comparison summary of your escrowed items, including:

•   County tax

•   Homeowners insurance

•   Private mortgage insurance, or PMI

Your mortgage servicer will compare how much they expected to pay versus how much was actually paid for the escrowed item.

Repayment of Escrow Shortage or Surplus

If there’s a shortage in your escrow account, your mortgage servicer may provide you with the option to make up the shortage in a single payment. You may see an “escrow shortage coupon” at the bottom of the form that you can mail in with your payment.

It should include your:

•   Loan number

•   Name

•   Shortage amount

Because your mortgage servicer is allowed to collect the deficient amount throughout the year, you may not see a due date for a single payment. Keep in mind, however, that this is not the same for a new adjusted payment amount, which must be changed by the payment due date.

If there is a surplus, which is defined as $50 or more, you’ll likely receive a check in the mail.

Escrow Account Projections and Activity History

It’s common to see a table of payments and disbursements by month on an escrow analysis. You’ll see how much you paid each month and when escrowed items were paid. You’ll also see a running account balance, which is important in ensuring there’s enough money to pay for escrowed items throughout the year.

The Takeaway

Escrow analysis occurs at the end of each computational year to ensure there’s enough in your escrow account to cover the costs of insurance and taxes. Excess amounts can be refunded to you, while deficient amounts (or shortfalls) can be added to your monthly mortgage payment in the next year.

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.

See the difference a SoFi Home Mortgage Loan can make today.

FAQ

Should I pay my escrow shortage in a lump sum?

Whether or not to pay the escrow shortage in a lump sum will depend on how much you owe and if you have the extra cash at hand. If you don’t pay it all at once, your mortgage servicer will add a portion of what you owe to your future monthly payments. If you’d like to avoid this bump in your monthly bill and you have the money to cover the shortage, go ahead and pay it down.

Is a mortgage escrow account required?

An escrow account is not required for every mortgage, although some lenders do require one. Even if it isn’t required, however, it is a good way to ensure that money to pay your property taxes and homeowners insurance is on hand when those bills come due.

---

Photo credit: iStock/Morsa Images

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

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

*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.

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-Q125-042

Read more

When you apply for a mortgage, lenders typically require proof of income via pay stubs, W-2s, and tax returns. But with a bank statement mortgage, borrowers can use their bank statements instead of tax documents to verify income.

For self-employed workers, who currently number more than 9 million and sole proprietors (another 20-plus million), using bank statements can demonstrate their real income instead of the lower figure that might be reported on a tax return after deductions.

Read on to learn how you can leverage your bank statements to qualify for a mortgage.

What Is a Bank Statement Mortgage?

A homebuyer who is self-employed, by any name — sole proprietor, independent contractor, a member of a business partnership, freelancer, or gig worker — or anyone else may qualify for a bank statement mortgage loan, also known as a self-employed mortgage, by submitting personal or business bank statements.

A bank statement lists all transactions made in an account during a set period of time, usually a month. The sum of the transactions — deposits, charges, and withdrawals — is used to calculate the beginning and ending balances for that period. In place of tax returns, this account information is used to verify you have enough income and cash flow to cover a down payment and monthly loan payments.

Lenders offering bank statement mortgages may ask for 12 to 24 months of statements to determine the borrower’s net income — how much they earned after taxes and business write-offs. Typically, the bank statements cover the time period immediately preceding the loan application.

How Does a Bank Statement Mortgage Work?

So, what is a bank statement mortgage in practice? As with any mortgages, lenders can consider your credit score, work history, and proof of liquid assets as part of the loan application. But a bank statement mortgage differs in at least one way.

Whether you deposit income from your business directly into a personal bank account or into a separate business account affects how your income is calculated.

Lenders may apply an expense ratio to business bank statements with the understanding that part of the deposits go toward business expenses. This means that only a percentage — usually 50% to 85% — of qualifying deposits is used to calculate income. (However, it’s possible to obtain a lower expense factor with a statement from a certified public accountant or tax preparer.)

If you deposit income to your personal account from your business account, 100% of deposits can count toward calculating the bank statement mortgage you can afford. Without a separate business account, though, deposits to a personal account also receive an expense ratio.

Note that lenders can also factor in your ownership percentage in a business when calculating gross monthly income from business bank statements.

Here’s an example of how these two scenarios would work for the same self-employed person applying for a 12-month bank statement mortgage.

Business bank statement: ($84,000 in deposits / 12 months) x 50% expense ratio = $3,500 gross monthly income

Personal bank statement: $84,000 in deposits / 12 months = $7,000 gross monthly income

With this monthly gross income figure, the lender will assess monthly debt payments to calculate the debt-to-income ratio and determine the loan amount you qualify for.

Recommended: Understanding Mortgage Basics

Who Should Get a Bank Statement Mortgage?

Prospective homebuyers who don’t have consistent cash flow or who lack proof of income from an employer like W-2s and pay stubs could benefit from a bank statement mortgage.

Self-employed workers often claim tax deductions for business expenses to lower their tax liability, which makes their income appear lower on tax forms. Therefore, without using bank statements, many sole proprietors, contract workers, and freelancers will qualify for a smaller mortgage amount than they can actually afford.

Bank statement mortgage loans could also be advantageous for seasonal workers. Since gross monthly income is calculated as an average during the full time period covered by the bank statements, when the deposits occur within that time frame is less important. (Incidentally, if you’re seeking a personal loan there are similar considerations to getting a personal loan when self-employed.)

Recommended: Understanding the Different Types of Mortgage Loans

Pros and Cons of a Bank Statement Mortgage

Bank statement mortgages represent an alternative to conventional mortgage loans that lends itself to self-employed and seasonal workers. But it’s important to consider the pros and cons when shopping for a mortgage.

Pros of Bank Statement Mortgage	Cons of Bank Statement Mortgage
Can qualify without W-2s, pay stubs, or tax returns	May require a higher down payment than other types of home loans
Often eligible for second homes and investment properties	Generally carries higher interest rates
Private mortgage insurance is not required if buyer puts 20% down	Not all lenders offer this loan product
May offer higher loan limits	Can require being in business for years to qualify

How to Find a Bank Statement Mortgage

Bank statement mortgages are considered non-qualified mortgages (non-QM), which means they may lack certain features and protections, so not every lender uses them. Though less common than traditional mortgages, many lenders, including banks and credit unions, offer bank statement mortgage loans.

Since bank statement loans are non-QMs, it’s natural to have questions about mortgage terms and requirements.

For instance, it’s worth asking about mortgage points — fees paid to a lender for a lower interest rate — since the limits on points and fees for a qualified mortgage do not apply.

Recommended: Mortgage Calculator

Alternatives to a Bank Statement Mortgage

Prospective homebuyers have a range of financing options to choose from, even if they’re self-employed.

Getting prequalified and preapproved can give you an idea of how much home you can afford, and a specific amount, respectively.

A mortgage loan originator will convey the loan terms you might qualify for and available financing options.

•   Conventional home loan: Conventional loans tend to come with competitive interest rates and are originated, backed, and serviced by private mortgage lenders.

•   FHA loan: Insured by the Federal Housing Administration but administered by approved private lenders, an FHA loan allows for down payments as low as 3.5% and lower credit scores than conventional loans.

•   USDA loan: A USDA loan, backed by the U.S. Department of Agriculture, is designed to make homeownership affordable for low-income buyers in designated rural areas.

•   VA loan: Eligible service members, veterans, and eligible surviving spouses can obtain VA loans, guaranteed by the Department of Veterans Affairs, with competitive interest rates, no down payment, and minimal closing costs.

If you’ve been self-employed for two years, or one year self-employed plus two years in a similar role with comparable income, you may still qualify for one of the above loans.

Recommended: Help Center for Home Loans

The Takeaway

Being self-employed does not prevent borrowers from getting financing for a home purchase or refinance. A bank statement loan could be a solution if your tax returns don’t fully capture what you can afford. But you may also qualify for a conventional loan or other type of financing.

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

Are bank statement mortgages good?

Bank statement mortgages can be advantageous for self-employed homebuyers or refinancers, but they can have higher interest rates and down payment requirements. It’s worth checking to see if you’re eligible for conventional or government-backed loans first.

How much of a down payment is required for a bank statement mortgage?

Typically, bank statement loan lenders require a 20% down payment, or 10% if purchasing mortgage insurance.

Can I use a bank statement loan on a second home?

Yes, bank statement loans can be used for a second home, as well as vacation homes and investment properties.

Do bank statement mortgages work for refinancing?

Yes, homeowners can refinance with a bank statement mortgage, including applying for a cash-out refinance if they have enough home equity.

---

Photo credit: iStock/PeopleImages

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. ^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SOHL-Q125-035

Read more

Buying a house when you bad credit can be challenging, but it’s doable with planning and preparation. Subprime borrowers — homebuyers with low credit scores — may be eligible for both federally backed loans and conventional mortgages.

If your credit score is less than stellar but you’re ready to buy a home, it’s important to pause and take stock of your finances. This guide will review strategies and steps to securing a mortgage and buying a house when you have bad credit.

How to Buy a House When You Have Bad Credit

Lenders will consider a number of factors — not just your credit score — when determining if you’ll be approved for a mortgage. Your debt-to-income ratio and proof of income represent a couple of things you need to buy a house.

The best plan to buy a house when you have a so-called bad credit score can vary on a case-by-case basis. These eight tips will help you assess your financial situation and figure out how to buy a house despite your credit concerns.

Recommended: Understanding Mortgage Basics

1. Get Your Credit Reports

As the saying goes, knowledge is power. Assessing your credit is a valuable first step to understanding where you stand in qualifying for a mortgage.

A credit report can provide a detailed overview of your creditworthiness, including your total debt, payment history, and the ages of your credit accounts. You can request free credit reports from this site or once a year directly from each of the three major credit reporting companies: Equifax, Experian, and TransUnion.

Credit scoring is expected to change in late 2025 due to new Federal Housing Finance Agency (FHFA) regulations revising credit score requirements on mortgage loans. A new FICO® system and a model called VantageScore 4.0 are coming. You may want to stay apprised of your scores under these as well.

Upon receipt of your credit reports, it’s important to review any derogatory marks (e.g., late payments) and check for errors. Addressing mistakes could give a quick boost to your credit score.

Many lenders use the FICO® score model to calculate credit scores, from 300 to 850, and categorize them like this.

Exceptional	800-850
Very Good	740-799
Good	670-739
Fair	580-669
Poor	300-579

It’s not uncommon for your FICO score to differ slightly among the three credit reporting companies, so mortgage lenders take the average or use the middle score.

According to third-quarter 2024 data from the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, two-thirds of newly originated mortgages went to borrowers with credit scores higher than 760.

Only borrowers with credit scores at this level or higher generally receive the most competitive mortgage rates.

A 2024 Money.com analysis showed that VantageScore’s subprime-borrower category included more than 47 million Americans as of February 2024. VantageScore is a credit-scoring system collaboratively developed by credit bureaus Equifax, Experian, and TransUnion.

2. Plan to Pay a Higher Mortgage Interest Rate

Lenders may consider borrowers with poor credit more likely to default on a mortgage loan. To account for this risk, borrowers with lower credit scores usually face higher interest rates.

A modest increase in the mortgage interest rate can bump up your monthly payment and translate to much more interest paid over the life of the loan. For example, a borrower with a 30-year fixed-rate loan of $250,000 at 8.00% interest would pay $61,661 more over those three decades than a borrower with a 7.00% interest rate.

Paying a higher interest rate may be an unavoidable part of buying a house when your credit is not optimal. An option is to refinance your mortgage later to secure a lower rate and save on interest, especially if you make timely payments and improve your credit over time.

3. Pay Your Other Debts

How much debt you have and your ability to pay it is another factor lenders weigh when approving mortgage loans. This is captured through your debt-to-income ratio. Your DTI ratio is calculated by dividing your monthly debt obligations by your gross monthly income, and then multiplying by 100.

Higher DTI ratios tend to mean that borrowers have less ability to make monthly payments. If you want to get approved for a mortgage, a good DTI ratio is under 36%, but it’s still possible to qualify with a higher ratio. You just may pay more interest and need to fulfill other criteria. DTI limits vary by both lender and mortgage type.

Paying off other debts, like credit cards and student loans, can improve your DTI ratio and signal to lenders that you can afford mortgage payments. Reducing your debt can boost your credit score too, by lowering your credit utilization ratio, which is a measure of the amount of available revolving credit you use.

4. Draw Up a Budget

Buying a home is exciting, and it’s easy to lose sight of the true cost of homeownership when shopping for your dream home. But this puts you at risk of becoming “house poor,” meaning you have to spend a disproportionately high share of your monthly income on housing.

Although buying a home is a way to build wealth, having little left over from your paycheck makes it hard to save for retirement and realize other financial goals.

The dreaded B-word, budgeting, is a useful way to ensure that you can afford a home before you walk away with the keys.

An effective budget accounts for both the upfront costs of buying a home (down payment and closing costs) and the long-term expenditures. Besides the loan principal and interest, it’s important to consider property taxes, homeowners insurance, and maintenance. Other items you should also take into account include private mortgage insurance (PMI) if you plan to put less than 20% down on a conventional loan, or mortgage insurance premiums (MIP) for an FHA loan, no matter the down payment. They add up, but PMI and MIP allow many people to buy homes when they otherwise wouldn’t be able to.

You can get a sense of how much your monthly mortgage payment might be with SoFi’s home mortgage calculator tool.

Recommended: Homeownership Resources

5. Save Up for a Down Payment

If you’re a buyer with subpar credit, putting more money down on a home can be advantageous. A larger down payment means borrowing less money, making the loan less risky to lenders and improving the chances of qualifying with bad credit. A smaller loan amount also accrues less interest.

But of course, saving up for a down payment can be challenging. If you meet first-time homebuyer qualifications, you may be eligible to receive down payment assistance.

Recommended: First-Time Home Buying Guide

6. Opt for an FHA Loan

Buyers with lower credit scores or less money tucked away for a down payment could benefit from an FHA loan. FHA loans are issued by private lenders but are insured and regulated by the Federal Housing Administration.

Borrowers with credit scores of at least 580 may put just 3.5% down. If your credit score is 500 to 579, you might still qualify, but you’ll need to make a 10% down payment. Borrowers who have declared bankruptcy in the past may still qualify for an FHA loan.

Keep in mind that borrowers with higher credit scores who qualify for a conventional (nongovernment) mortgage may put just 3% down.

7. See if You Are Eligible for a VA or USDA Loan

The federal government backs other loan types that can help buyers with fair credit.

Active-duty service members, veterans, or certain surviving spouses may use a VA loan to purchase a primary residence. VA loans usually don’t require a down payment. The U.S. Department of Veterans Affairs does not set a minimum credit score for eligibility, but lenders have their own requirements so it’s important to compare options. VA loans typically come with a one-time funding fee that varies in amount.

The U.S. Department of Agriculture guarantees mortgages issued to low- and moderate-income homebuyers in eligible rural areas. No down payment is needed, but income limits apply. The USDA does not specify a credit score requirement. But lenders do — minimum credit scores generally start in the lower 600s — and will still evaluate a borrower’s credit history and ability to pay back the loan. You’ll pay a guarantee fee (which is like USDA mortgage insurance) of 1% of the loan amount at closing, then an annual guarantee fee of 0.35%.

8. Build Up Your Credit Scores

Raising your credit scores can increase your chances of qualifying and securing better loan terms, but it takes time. Negative marks usually stay on your credit reports for seven years.

Paying bills on time, every time, can gradually build up your credit scores. And if possible, it’s a good idea to stay below your credit limits and avoid applying for several credit cards within a short amount of time.

Soft credit inquiries do not affect credit scores, no matter how often they take place. Multiple hard inquiries if you’re rate shopping for an auto loan, mortgage, or private student loan within a short period of time are typically treated as a single inquiry.

But outside of rate shopping, many hard pulls for new credit can lower your credit scores and indicate distress in a lender’s eyes.

The Takeaway

Can you buy a house if you have bad credit? Yes, but you may have to put more money down or accept a higher interest rate to qualify. If taking steps to improve your credit aren’t enough, you might consider using a cosigner or exploring federal loan programs.

Knowing how to buy a house with bad credit is a good first step to making it happen. You can check out this home loan help center to continue your homebuyer education.

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

Is a 500 credit score enough to buy a house?

Yes, but the options are limited. Borrowers with a credit score of 500 might be able to qualify for an FHA loan.

How can I buy a house if I have bad credit and lower income?

Lenders look at your full financial picture, not just your credit scores and income, in a mortgage application. Certain loan types don’t have strict credit or income requirements either.

What is a good down payment for a house if I have bad credit?

A 20% down payment is ideal, but most borrowers aren’t able to put that much down. Any increase in your down payment could improve your loan terms.

How do I know if I’m eligible for an FHA loan?

FHA loan requirements include proof of employment and the necessary down payment based on the borrower’s credit score (those with scores of 580 or above qualify for the 3.5% down payment advantage). The home must be a primary residence, get appraised by an FHA-approved appraiser, and meet minimum property standards.

---

Photo credit: iStock/SDI Productions

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.

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.

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.

*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.

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

SOHL-Q125-010

Read more

Growth is generally slower with CDs and bonds, but investors still may find there’s a place for these tools in their portfolio.

Read more