Federal reserve building

What Is the Federal Reserve?

The Federal Reserve is the U.S. central bank system. The Fed implements monetary policy in order to stabilize the economy, monitor interest rates, and keep unemployment low. It is the most powerful economic institution in the country, and one of the most important in the world.

You’ve probably heard a lot about the Fed thanks to higher-than-normal inflation in 2022 and 2023. Notably, the Fed raised interest rates rapidly in these two years, using a series of small increases designed to tamp down inflation.

The Federal Reserve System does far more than manage inflationary pressures, however. That’s just a start.

Why Was the Federal Reserve Created?

Throughout the 19th century, there was no central bank in the U.S., and the banking system was fraught with bank failures and “bank runs,” where depositors would rush to banks to withdraw all of their money. To create a safer and more stable bank system, President Woodrow Wilson signed the 1913 Federal Reserve Act.

The Fed is actually an intricate system that consists of several different parts. These are the three bodies of the Fed:

The Federal Reserve Board of Governors

There are seven Federal Reserve board members that oversee the Federal Reserve System. This includes the chairman and vice chairman. Jerome Powell has been chair of the Fed since 2018. Before him, the chairman of the Federal Reserve was Janet Yellen.

The Board of Governors, which is made up of seven governors, is based in D.C. and reports to Congress. Board members are appointed by the U.S. president and serve staggered 14-year terms (so the entire board isn’t replaced in a single year). The chairman and vice chairman serve four-year terms and may be reappointed at the end of their term.

Federal Reserve Branches

There are 12 Federal Reserve districts in major cities throughout the country that act as the operating arms of the Federal Reserve.

You wouldn’t walk into a Federal Reserve bank and open up a checking account, though. Rather, Federal Reserve banks work with other institutions, such as banks and credit unions, and the U.S. Treasury. They provide services like holding deposits for banks, processing payments, and issuing and redeeming government securities.

The Federal Open Market Committee (FOMC)

The committee comprises all members of the Board of Governors and five rotating Reserve Bank presidents. Although not all Reserve Bank presidents vote, all participate in policy discussions.

The FOMC meets eight times a year to review economic trends and vote on new monetary policy measures. During these meetings, the committee will set a federal funds rate. The FOMC may also take steps to control the money supply.

What Does the Federal Reserve Do?

The Federal Reserve has several primary functions:

Setting Monetary Policy

One of the primary roles of the FOMC is to set monetary policy. With monetary policy, there are typically two primary goals: Maximum employment and stable inflation.

Often, we hear about monetary policy in terms of the setting of the federal funds rate. This is the rate at which banks charge each other on an overnight basis.

A bank might need to borrow money from another bank in order to meet the Fed’s minimum reserve requirement, or how much cash the bank has available in its reserves.

Recommended: What Is Fractional Reserve Banking?

The federal funds rate as set by the FOMC may influence other interest rates. In this way, the federal funds rate can be used as a tool to encourage or restrict borrowing. For example, the Fed may attempt to fight inflation by raising the federal funds rate. Conversely, the Fed may lower that same rate in an attempt to ward off a recession.

But this isn’t the only monetary policy that the FOMC is engaged in. According to the Federal Reserve, its main tool for controlling the money supply is “open market operations,” which is the buying and selling of government securities, like treasury bills. They may do this in conjunction with a rate change or other strategies.

Regulating Banks

To ensure the safety and solvency of the nation’s banking and financial system, the Fed regulates banks and other financial services institutions. This is done not only for the protection of the consumer but to promote stability within the banking system.

The Board of Governors typically sets guidelines for member banks through policy regulation and supervision. The Reserve Banks then examine member banks to ensure that they comply with existing laws and regulations. Often, new guidelines are created because of legislation that has been passed through Congress.

Overseeing Payment Systems

The Fed provides financial services to the U.S. government, major financial institutions, and foreign official institutions. The Fed acts as the depository institution for the U.S. Treasury — essentially, the Treasury’s checking account.

The Fed also plays a major role in operating and overseeing the nation’s payment systems. In addition to making sure there is enough currency in circulation, the Fed clears millions of checks and processes electronic payments. Social Security checks and the payrolls of government institutions are processed by the Fed.

Limiting Risk

At the end of the day, the Federal Reserve wants to control risks to the economy and financial markets (such as the stock market) as best they can. They utilize a number of measures, including those discussed above, in order to best achieve this stability.

How Does the Federal Reserve Affect You?

Although you might not always feel it, the Federal Reserve enacts policies and makes decisions that affect the lives of everyday Americans.

Although the Fed does not set rates like mortgage rates and credit card interest rates, those rates can shift as the Fed Funds rate does.

An increase or decrease in interest rates can affect consumers in plenty of ways. If overall rates increase, then it becomes more expensive to be a borrower. Variable interest rates may rise, and any new debt will be issued at higher rates.

The rates at which money is flowing freely throughout an economy may also have rippling impacts. For example, when rates are low and access to money is cheap, businesses may borrow money in order to invest in development or expand operations. If there is too much money in circulation, inflation may increase. This could cause the prices of everyday goods, like groceries, to increase as well.

The Takeaway

One of the Fed’s goals is an economy with full employment. If they are not able to succeed using the tools at their disposal, people may lose jobs, and unemployment may increase. This could also have effects throughout the greater economy, such as decreased consumer spending and overall slowed economic growth.

Keeping an eye on what the Fed does and why they’re doing it can provide valuable information for investors. Issues like unemployment and inflation can affect the markets, which in turn can have an impact on your financial plans.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Zombie Foreclosures: Understanding Abandoned Properties

We’ve all seen them: houses that look forlorn, decrepit, unlived in. Maybe the weeds are tall and the paint is peeling. These are signs of a zombie foreclosure: a homeowner essentially abandons the property, often after receiving a notice of impending foreclosure.

What Is a Zombie Foreclosure?

A zombie foreclosure typically occurs when a homeowner defaults on their mortgage and believes they must vacate the premises immediately. In other cases, the homeowner may leave for any number of other reasons.

Even if someone defaults on a mortgage, they are not absolved from all responsibilities until the lender completes the foreclosure process. Until then, the homeowner is usually still responsible for the mortgage, maintenance, homeowners association (HOA) fees, and other costs.

At last count, more than 8,000 zombie homes existed nationwide, with overall numbers increasing 5.4% from late 2022 to early 2023. The greatest number of zombie foreclosures is in New York, Florida, and Ohio. Although the number of zombie homes remains small, it will likely continue to increase as foreclosure rates increase.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


Recommended: Cost of Living By State

How Does a Home Become a Zombie Foreclosure?

A zombie foreclosure can sound scary, but it’s best to be aware of how they happen to avoid the worst consequences. A home often becomes a zombie foreclosure after the homeowner defaults on the mortgage. When this happens, the homeowner typically receives a foreclosure notice from the mortgage lender. They might believe they must leave immediately, abandoning their home as a result.

But while they turn their back on a home they believe has “died,” the home lives on and still has a laundry list of responsibilities. This means mortgage payments, maintenance, HOA fees, property taxes, and more. The current homeowner still holds the title and is still responsible for all these items until the foreclosure process is complete.

Complicating the picture, lenders sometimes decide not to complete the foreclosure process. There can be many reasons for this, but the most common is that the lender determines that foreclosing on the home isn’t worth it. Foreclosed homes often need significant repairs, and there might be a large amount of back taxes to pay.

While zombie foreclosures only make up a small percentage of all foreclosures, they do happen. Just because someone receives a foreclosure notice doesn’t mean the home is no longer their responsibility. That’s why it’s wise to follow up with the mortgage lender and await official communication before leaving for good.

Consequences of a Zombie Foreclosure

A zombie foreclosure is not a good thing for anyone involved. There can be a range of issues for the owner and the home’s neighbors.

Impact on Homeowners

As mentioned earlier, you are still responsible for your home if you receive a foreclosure notice. If you abandon the property before the foreclosure process is complete, you might face some serious consequences:

•   Penalties and fees: If the foreclosure process drags on, it could result in the accrual of interest, penalties, and fees. These can increase the financial burden you were already experiencing.

•   Damage to your credit: A zombie foreclosure can seriously damage your credit because it may result in a home mortgage loan default. This can make it very difficult to obtain loans in the future, including new mortgages, auto loans, and personal loans.

•   Legal consequences: Not making your payments could result in a variety of lawsuits. For instance, the city might sue you over unpaid property taxes. Or the homeowners association might sue you to collect its fees.

As you can see, the consequences of a zombie foreclosure can be significant. Therefore, seeking legal advice to understand your rights and responsibilities in these situations is best. In addition, you should ensure all paperwork is complete before you leave the property for the last time.

Impact on Neighbors

The homeowner who abandons a property may not be the only one who suffers. There may also be consequences for neighbors:

•   Increase in crime: Squatting, vandalism, and theft are just a few of the types of crimes that might occur after a zombie foreclosure.

•   Public health issues: Foreclosed homes are often neglected, leading to overgrown yards. This can attract mosquitoes and other pests that can spread diseases.

•   Costs for the local government: Someone must take care of a neglected home, and that job often falls to the local government. This can then lead to higher taxes for people in the area.

Impact on the Housing Market

The broader housing market can also be impaired due to zombie foreclosures. However, some opportunistic investors may also take advantage of the situation. Here are some of the potential impacts on the local housing market:

•   Decrease in property values: A zombie foreclosure can cause a home to become an eyesore and a hazard to the local community. This can make the neighborhood less desirable as a whole, leading to a decrease in property values across the board.

•   Decrease in new construction: New builders may be hesitant to pursue projects where there are zombie foreclosures. They might believe they can’t compete with the low prices of foreclosed homes.

•   Opportunities for investors: While zombie foreclosures’ impacts are mostly negative, they can also lead to opportunity. Investors can purchase these homes at bargain-bin prices, renovate them, and either sell or rent them.

While they can create opportunities for investors, most zombie foreclosures’ impacts on the housing market are negative. As a whole, local communities generally suffer the consequences as a result. One way for owners to reduce the risk of a zombie foreclosure is to ensure a home is affordable for them from the outset.

Considerations If Purchasing a Zombie Foreclosure

While zombie foreclosures may have a discounted price tag, there is much to consider before moving forward. First, there can be legal complexities that complicate the process. For instance, the home may be in pre-foreclosure, the foreclosure may not have been properly completed, or there may be liens on the property. You must understand these complexities when purchasing a zombie foreclosure. Working with a real estate attorney with experience in this area is best.

You should also consider the condition of the property. Those that have been abandoned can have a range of issues, such as structural damage, mold, or vandalism. Some of these issues are more costly to fix than others. Thus, the home will need a thorough inspection to understand what repairs it may need.

Another important consideration is financing. Some lenders might be hesitant to finance homes in poor condition. You might need to explore alternative financing options, such as a renovation loan. Or you might even have to pay cash. Either way, more flexibility may be necessary when dealing with zombie foreclosures.

The Takeaway

Zombie foreclosures typically occur when a homeowner vacates the premises after receiving a foreclosure notice but before the foreclosure process is complete. Zombie foreclosures can hurt both homeowners and the local community. Therefore, homeowners may want to avoid this situation by remaining in their homes until they receive a notice to vacate and trying to stay current on mortgage payments, property taxes, and HOA fees.

Mortgages can be complicated, but SoFi Home Loans tries to make things simple.

Find out how to finance your home with SoFi’s competitive rates.

FAQ

What are zombie mortgages?

Zombie mortgages are outstanding home loans that borrowers have stopped making payments on, often because they thought the debt was forgiven or settled long ago. In some cases, these can be second mortgages that a borrower may not even be aware of. It is not always legal for lenders to try to collect on these debts.

What is the foreclosure rate in the United States?

The foreclosure rate is 1.3% in the United States, according to the second-quarter 2023 Vacant Property and Zombie Foreclosure Report from ATTOM Data Solutions. While an increasing number of homeowners have faced foreclosure since the nationwide foreclosure moratorium was lifted, foreclosure rates are historically low.

What city has the most foreclosures?

Among cities with a population of at least 200,000, the top three foreclosure rates for the first quarter of 2023 are in Fayetteville, North Carolina (one in every 526 housing units), Cleveland, Ohio (one in 582), and Atlantic City, New Jersey (one in 661), according to ATTOM Data Solutions.


Photo credit: iStock/Derek Broussard

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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.

This article is not intended to be legal advice. Please consult an attorney for advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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How Much Will a 600K Mortgage Cost per Month?

If you’re thinking of applying for a $600K mortgage, here’s the bottom line: The monthly payment on this mortgage at a 7% annual percentage rate (APR) for 30 years works out to be $3,991.81.

If you would rather finance with a 15-year mortgage, the monthly payment would be $5,392.97.

A higher monthly payment on a 15-year mortgage term does cost more every month, but the savings over the life of the loan are huge. Interest costs for a 30-year loan exceed $830,000, while the interest costs on a 15-year loan are closer to $370,000. That’s quite a difference.

And, of course, interest rates are not static. The rates you are offered when you apply for a loan will vary over time. Just a short while ago, many borrowers would have access to an interest rate approximately half the current 7% figure. A 3.5% APR with the same 600K mortgage over 30 years would result in a monthly payment of $2,694.27. That’s the power interest rates have on your mortgage and monthly payment.

Keep reading to learn about all the costs involved on a $600,000 mortgage and how they affect your monthly payment.

Key Points

•   A $600,000 mortgage will have a monthly cost that includes principal, interest, property taxes, and homeowners insurance.

•   The exact monthly cost will depend on factors such as interest rate, loan term, and location.

•   Using a mortgage calculator can help estimate the monthly cost of a $600,000 mortgage.

•   It’s important to consider other expenses, such as maintenance and utilities, when budgeting for homeownership.

•   Working with a lender and getting pre-approved can provide a clearer picture of the monthly cost of a $600,000 mortgage.

Total Cost of a 600K Mortgage

The cost of a 600K mortgage goes beyond the monthly payment. You’ll have upfront costs, like the down payment and closing costs, as well as the long-term interest costs.

Upfront Costs

When you acquire a mortgage, your upfront costs include your down payment and closing costs.

•   Closing costs: Closing costs, or settlement costs, are what you pay to obtain the mortgage and property title. It varies, but you’ll usually pay for an appraisal, origination fee, prepaids, tax service provider fees, government taxes, and title insurance. The average closing cost on a new home is somewhere between 3% and 6%. For a $600,000 mortgage, that’s between $18,000 and $36,000.

•   Down payment: According to the National Association of Realtors, the average down payment on a home is 13%. For a $600,000 home, that’s a $78,000 down payment. Other common down payments include:

•   3%: $18,000

•   3.5%: $21,000

•   5%: $30,000

•   20%: $120,000.

Recommended: Home Loan Help Center

Long-Term Costs

The long-term costs of a 600K mortgage are also important to consider. They’re considerable. If you pay on your 600K mortgage for all 30 years at that 7% APR, you’ll pay over $800,000 in interest costs alone, as mentioned above. For 15 years, that amount comes down to $370,000.

You can play around with our mortgage payment calculator if you’re interested in seeing the difference that APR and loan term make on a monthly payment.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


Estimated Monthly Payments of a 600K Mortgage

The monthly payments on a 600K mortgage can vary widely. How much house can you afford depends not only on the down payment but also the monthly payment you’re able to make. Your interest rate and loan term are important factors to consider.

Monthly Payment Breakdown by APR and Term

It’s helpful to see what your monthly payment would be based on different interest rates and loan terms for a 600K mortgage loan.

This chart can help you understand how mortgage APR works and impacts your costs.

APR

Monthly Payment on a 15-Year Loan

Monthly Payment on a 30-Year Loan

3.5% $4,289.30 $2,694.27
4% $4,438.13 $2,864.49
4.5% $4,589.96 $3,040.11
5% $4,744.76 $3,220.93
5.5% $4,902.50 $3,406.73
6% $5,063.14 $3,597.30
6.5% $5,226.64 $3,792.41
7% $5,392.97 $3,991.81
7.5% $5,562.07 $4,195.29
8% $5,733.91 $4,402.59
8.5% $5,908.44 $4,613.48
9% $6,085.60 $4,827.74
9.5% $6,265.35 $5,045.13
10% $6,447.63 $5,265.43

How Much Interest Is Accrued on a 600K Mortgage?

There’s another factor to consider when choosing a mortgage term for a 600K mortgage: the interest that will accrue.

If you pay the exact amount of your monthly payment on a 600K mortgage for an entire 30-year term with a 7% APR, you will pay $837,053 in interest. Adding in your 600K mortgage brings the total amount you will pay to $1,437,053.

A 15 vs. 30 year mortgage tells a different story when it comes to how much interest you pay. A 15-year loan on a 600K mortgage with a 7% interest rate has a larger monthly payment at $5,392.97, but the interest cost is $370,734.53. Compare that with the $837,053 interest costs of a 30-year loan, or $3,991.81 per month. In terms of total costs, the 15-year loan will add up to $970,734.53, while the 30-year mortgage equals $1,437,053 for principal plus interest.

600K Mortgage Amortization Breakdown

We’ve already discussed how the total cost of a 600K mortgage is over 1.4 million dollars. When you look at how much of your monthly payment is applied to the principal loan amount (this is also called amortization), it’s easy to see how you end up paying so much in interest costs.

Amortization schedules are set so that more of your monthly payment goes toward interest than principal in the beginning. Toward the end of your loan, more of your monthly payment goes toward the principal amount of the loan.

Looking at the amortization schedule can help you see the full picture of what you’re paying on your 600K mortgage payment and perhaps choose which type of mortgage loan is best for you.

The amortization schedule below assumes a 7% interest rate over 30 years. The amount does not include insurance or taxes; it’s principal and interest for informational purposes only.

Year

Mortgage Monthly Payment

Beginning Balance

Total Amount Paid for the Year

Interest Paid During the Year

Principal Paid During the Year

Ending Balance

1 $3,991.81 $600,000.00 $47,901.72 $41,806.92 $6,094.80 $593,905.14
2 $3,991.81 $593,905.14 $47,901.72 $41,366.31 $6,535.41 $587,369.68
3 $3,991.81 $587,369.68 $47,901.72 $40,893.87 $7,007.85 $580,361.78
4 $3,991.81 $580,361.78 $47,901.72 $40,387.28 $7,514.44 $572,847.27
5 $3,991.81 $572,847.27 $47,901.72 $39,844.05 $8,057.67 $564,789.54
6 $3,991.81 $564,789.54 $47,901.72 $39,261.55 $8,640.17 $556,149.31
7 $3,991.81 $556,149.31 $47,901.72 $38,636.95 $9,264.77 $546,884.48
8 $3,991.81 $546,884.48 $47,901.72 $37,967.20 $9,934.52 $536,949.90
9 $3,991.81 $536,949.90 $47,901.72 $37,249.02 $10,652.70 $526,297.14
10 $3,991.81 $526,297.14 $47,901.72 $36,478.93 $11,422.79 $514,874.30
11 $3,991.81 $514,874.30 $47,901.72 $35,653.19 $12,248.53 $502,625.70
12 $3,991.81 $502,625.70 $47,901.72 $34,767.72 $13,134.00 $489,491.64
13 $3,991.81 $489,491.64 $47,901.72 $33,818.26 $14,083.46 $475,408.13
14 $3,991.81 $475,408.13 $47,901.72 $32,800.16 $15,101.56 $460,306.51
15 $3,991.81 $460,306.51 $47,901.72 $31,708.46 $16,193.26 $444,113.20
16 $3,991.81 $444,113.20 $47,901.72 $30,537.86 $17,363.86 $426,749.27
17 $3,991.81 $426,749.27 $47,901.72 $29,282.62 $18,619.10 $408,130.10
18 $3,991.81 $408,130.10 $47,901.72 $27,936.62 $19,965.10 $388,164.95
19 $3,991.81 $388,164.95 $47,901.72 $26,493.36 $21,408.36 $366,756.52
20 $3,991.81 $366,756.52 $47,901.72 $24,945.74 $22,955.98 $343,800.47
21 $3,991.81 $343,800.47 $47,901.72 $23,286.23 $24,615.49 $319,184.93
22 $3,991.81 $319,184.93 $47,901.72 $21,506.78 $26,394.94 $292,789.92
23 $3,991.81 $292,789.92 $47,901.72 $19,598.68 $28,303.04 $264,486.82
24 $3,991.81 $264,486.82 $47,901.72 $17,552.64 $30,349.08 $234,137.69
25 $3,991.81 $234,137.69 $47,901.72 $15,358.69 $32,543.03 $201,594.61
26 $3,991.81 $201,594.61 $47,901.72 $13,006.17 $34,895.55 $166,699.00
27 $3,991.81 $166,699.00 $47,901.72 $10,483.54 $37,418.18 $129,280.77
28 $3,991.81 $129,280.77 $47,901.72 $7,778.60 $40,123.12 $89,157.58
29 $3,991.81 $89,157.58 $47,901.72 $4,878.09 $43,023.63 $46,133.89
30 $3,991.81 $46,133.89 $47,901.72 $1,767.90 $46,133.82 $0

What Is Required to Get a 600K Mortgage?

You need to have an income sufficient to afford the monthly payments on a 600K mortgage.

Lenders generally look for your monthly payment to be no more than 28% of your gross income. For a 600K mortgage with a $3,991.81 payment, you would need to make $14,256 per month, or $171,077 per year (without any debt) to comfortably afford the mortgage payment.

Other factors, such as your credit score, will likely come into play as well in getting approved for a 600K mortgage.

How Much House Can You Afford Quiz

Recommended: First-Time Homebuyer Guide

The Takeaway

A 600k mortgage payment at 7% for 30 years would be $3992 per month. When you’re budgeting for a mortgage, it’s smart to consider all the costs, including the monthly payment and what a smaller monthly payment means for your long-term costs. Deciding whether to pay more each month and less over the life of the loan or vice versa can have a significant impact on your financial outlook and how you grow your personal wealth.

When you’re ready to take the next step toward a mortgage, consider what SoFi has to offer. With competitive interest rates, flexible loan terms, and a simple application process, your 600K mortgage could become a reality.

Check your home loan interest rate with SoFi today.

FAQ

How much would a $600,000 mortgage cost per month?

A monthly payment on a 600K mortgage at 7% APR would be $3,991.81. This is the amount of principal and interest and does not include the escrowed amounts.

What is the average monthly payment on a 500k mortgage?

A monthly payment on a 500K mortgage would be $3,326.51 on a 30-year term with a 7% APR.

How much do you need to make a year to afford a $500,000 home?

A 30-year $500,000 loan with a 7% APR boils down to a $3,326.51 monthly payment. For $3,326.51 to meet the 28% income guideline for lenders, you would need to make $11,880 a month, or about $142,560 per year. And this amount is only possible if you have no other debts.


Photo credit: iStock/FabioBalbi

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.


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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What Is an Interest-Only Loan Mortgage?

An interest-only mortgage lets you pay just interest for a set period of time, typically between seven and 10 years, as opposed to paying interest plus principal from the beginning of the loan term.

While interest-only mortgages can mean lower payments for a while, they also mean you aren’t building up equity (ownership) in your home. Plus, you will likely have a big jump in payments when the interest-only period ends and you are repaying both interest and principal.

Read on to learn how interest-only mortgages work, their pros and cons, and who might consider getting one.

Note: SoFi does not offer interest only mortgages at this time. However, SoFi does offer conventional mortgage loan options.

How Do Interest-Only Mortgages Work?

With an interest-only mortgage, you solely make interest payments for the first several years of the loan. During this time, your payments won’t reduce the principal and you won’t build equity in your home.

When the interest-only period ends, you generally have a few options: You can continue to pay off the loan, making higher payments that include interest and principal; look to refinance the loan (which can provide for new terms and potentially lower interest payments with the principal); or choose to sell the home (or use saved up cash) to fully pay off the loan.

Usually, interest-only loans are structured as a type of adjustable-rate mortgage (ARM). The interest rate is fixed at first then, after a specified number of years, the interest rate increases or decreases periodically based on market rates. ARMs usually have lower starting interest rates than fixed-rate loans, but their rates can be higher during the adjustable period. Fixed-rate interest-only mortgages are uncommon.

An interest-only mortgage typically starts out with a lower initial payment than other types of mortgages, and you can stick with those payments as long as 10 years before making any payments toward the principal. However, you typically end up paying more in overall interest than you would with a traditional mortgage.

💡 Quick Tip: When house hunting, don’t forget to lock in your mortgage loan rate so there are no surprises if your offer is accepted.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


Interest-Only Loan Pros and Cons

Before you choose to take out an interest-only mortgage, it’s a good idea to carefully weigh both the benefits and drawbacks.

Pros

•  Lower initial payments The initial monthly payments on interest-only loans tend to be significantly lower than payments on regular mortgages, since they don’t include any principal.

•  Lower interest rate Because interest-only mortgages are usually structured as ARMs, initial rates are often lower than those for 30-year fixed-rate mortgages.

•  Frees up cash flow With a lower monthly payment, you may be able to set aside some extra money for other goals and investments.

•  Delays higher payments An interest-only mortgage allows you to defer large payments into future years when your income may be higher.

•  Tax benefits Since you can deduct mortgage interest on your tax return, an interest-only mortgage could result in significant tax savings during the interest-only payment phase.

Cons

•  Cost more overall Though your initial payments will be smaller, the total amount of interest you will pay over the life of the loan will likely be higher than with a principal-and-interest mortgage.

•  Interest-only payments don’t build equity You won’t build equity in your home unless you make extra payments toward the principal during the interest-only period. That means you won’t be able to borrow against the equity in your home with a home equity loan or home equity line of credit.

•  Payments will increase down the road When payments start to include principal, they will get significantly higher. Depending on market rates, the interest rate may also go up after the initial fixed-rate period.

•  You can’t count on refinance If your home loses value, it could deplete the equity you had from your down payment, making refinancing a challenge.

•  Strict qualification requirements Lenders often have higher down payment requirements and stricter qualification criteria for interest-only mortgages.

Recommended: What Is Considered a Good Mortgage Rate?

Who Might Want an Interest-Only Loan?

You may want to consider an interest-only mortgage loan if:

•  You want short-term cash flow A very low payment during the interest-only period could help free up cash. If you can use that cash for another investment opportunity, it might more than cover the added expense of this type of mortgage.

•  You plan to own the home for a short time If you’re planning to sell before the interest-only period is up, an interest-only mortgage might make sense, especially if home values are appreciating in your area.

•  You’re buying a retirement home If you’re nearing retirement, you might use an interest-only loan to buy a vacation home that will become your primary home after you stop working. When you sell off your first home, you can use the money to pay off the interest-only loan.

•  You expect an income increase or windfall If you expect to have a significant bump up in income or access to a large lump sum by the time the interest period ends, you might be able to buy more house with an interest-only loan.

Recommended: Tips for Shopping for Mortgage Rates

Qualifying for an Interest-Only Loan

Interest-only loans aren’t qualified mortgages, which means they don’t meet the backing criteria for Fannie Mae, Freddie Mac, or the other government entities that insure mortgages. As a result, these loans pose more risk to a lender and, therefore, can be more difficult to qualify for.

In general, you may need the following to get approved for an interest-only loan:

•  A minimum credit score of 700 or higher

•  A debt-to-income (DTI) ratio of 43% or lower

•  A down payment of at least 20% to 30% percent

•  Sufficient income and assets to repay the loan

The Takeaway

An interest-only mortgage generally isn’t ideal for most home-buyers, including first-time home-buyers. However, this type of mortgage can be a useful tool for some borrowers with strong credit who fully understand the risks involved and are looking at short-term ownership or have a plan for how they will cover the step-up in payment amounts that will come down the road.

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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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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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.

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

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

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12 Best Small Cities to Live in the USA

More Americans are choosing to leave the hubbub of big cities in order to move to smaller towns, according to multiple studies. Reasons include a desire for a less stressful environment, more affordable housing and lower cost of living, and a shorter commute.

Thousands of smaller U.S. cities offer all of the above and more. But which one to choose? Below you’ll find 12 prime candidates, drawn from public data and our own personal favorites.

Key Points

•   The best small cities to live in the USA offer a high quality of life, affordability, and job opportunities.

•   Cities like Boise, Idaho; Durham, North Carolina; and Provo, Utah rank highly for their livability.

•   Factors such as cost of living, safety, education, and access to amenities contribute to the rankings.

•   These cities often have a strong sense of community and offer a balance between urban conveniences and natural beauty.

•   When considering a small city to live in, it’s important to research and visit to determine if it aligns with your lifestyle and preferences.

What Is Considered a Small City?

According to the U.S. Census Bureau, “urban” areas have at least 5,000 people. A midsize city has a population of 100,000 to 250,000, and a large city counts more than 250,000 inhabitants.

Our list includes small cities with a population of 5,000 to 100,000 residents.

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Why People Choose to Live in a Small City

People find life in a small city appealing for a variety of reasons. If you’re coming from a bigger city, a less populated one often means reduced traffic, noise, crowds, and pollution. You may see lower housing costs, or find you get more space and amenities for your buck. The overall cost of living also tends to be more affordable, given lower prices for groceries, gas, utilities, and dining out. Lower sales and property taxes can also be a factor.

Smaller cities can be much easier to navigate. For families, the public school system may rank higher and be less competitive (no more stressing out trying to get your kid into pre-K). Smaller populations may also result in tight communities, where residents feel safe and welcome.

Living in a smaller city can be more manageable for older adults especially, providing a peaceful and reassuring place to retire. Some retirees for whom taxes are a prime concern gravitate to small towns in states with lower taxes on retirement savings.

Recommended: Price-to-Rent Ratio in 52 Cities

Pros and Cons of Living in a Small City vs a Big City

If you’re not sure whether a small city is better for you, here are some pros and cons of each. Note that some factors — such as large populations of young singles or a slower pace — may be pros or cons, depending on your demographic.

Pros of a Small City

Cons of a Small City

Lower cost of living Fewer employment opportunities
Slower pace Limited entertainment and culture
Less crowded Too sparsely populated
More indoor and outdoor space Less access to medical care and major airports
Reduced crime Less diversity
Larger populations of families and retirees More college students, recent grads, and young singles
Quieter and cleaner, with less pollution Little to no public transportation

Traditionally, many people migrate to big cities to establish themselves professionally, since small cities tend to provide fewer employment opportunities. That may be changing due to the rise of remote work.

Pros of a Big City

Cons of a Big City

Personal autos may be optional Public transportation can be unreliable or unpleasant
Access to arts, culture, entertainment, and sporting events Higher local taxes and cost of living
Larger job market More competitive employment standards
More diverse population Potentially overcrowded
More social opportunities for singles, younger people, and couples without children Higher crime rate
Access to medical care and major airports Streets can be dirty, with greater noise and pollution

5 Tips for Living in a Small City

Whether you’re moving from a rural area, the suburbs, or a large U.S. city, a small city can take some getting used to. Here are five suggestions on how to find your way as the new kid in town:

•   Get to know the locals. They know the best places to go, from basic services to restaurants and cultural venues. Plus, they can tell you how to get there, including shortcuts, streets to stroll, and areas to avoid. And of course, meeting people helps you feel a part of the community.

•   Allow time for adjustment. A small city may not have all the amenities you had in your previous hometown. But given time, you’ll find that for every perk you give up, you’ll discover at least one new advantage.

•   Seek out like-minded people. Even in cities where the bulk of the populace doesn’t share your political or social perspectives, you can still find people who do. It might just take a little effort. Volunteering, taking a class, or hanging out in a particular neighborhood can foster new friendships.

•   Rejigger your budget. If you’re paying less than you used to for housing and essentials, don’t fritter away that extra cash. Download a good spending app and channel that disposable income toward emergency savings, retirement, or other financial goals.

•   Seek out hidden treasures. Smaller cities tend to have more mom-and-pops and independent businesses, which can be a nice change from national chains. And small cities are often rich in green spaces, hiking and biking trails, and local festivals. Make time to wander and discover all that your new home has to offer.

12 Best Small Cities to Live in the USA

To compile our list, we reviewed numerous roundups of the best small cities to live in the U.S., along with government statistics and personal anecdotes. Read on for our recommendations.

1. Tupelo, Mississippi

•   Population: 37,748

•   Median household income: $58,887

•   Median home value: $158,800

•   Median monthly rent: $825

•   Mean travel time to work: 19 minutes

•   Cost of living: 19% lower than the national average

•   Crime statistics: 1 in 649 chance of being a victim of a violent crime, 1 in 96 chance of being a victim of a property crime

Located in the northeastern part of Mississippi, 90 miles from Memphis, Tupelo offers big-city perks in a small town setting. This racially diverse area is often cited as one of the best places for young professionals, families, and retirees to live. That’s due in part to a highly rated public school system, lower crime rate, low cost of living, and pleasant year-round weather.

Each year, Tupelo attracts thousands of visitors to its museums and festivals, including the Gumtree Museum of Art and the Elvis Presley Birthplace & Museum. Tupelo celebrates its native son with an annual Elvis festival in June, and there’s a Chili fest in October.

Tupelo offers a varied culinary scene (lots of authentic BBQ and southern comfort food), plus a vibrant downtown that’s been designated a “Great American Main Street” by MainStreet.org.

2. Greenville, South Carolina

•   Population: 72,310

•   Median household income: $60,388

•   Median home value: $349,300

•   Median monthly rent: $1,078

•   Mean travel time to work: 20 minutes

•   Cost of living: 5.4% lower than the national average

•   Crime rate: 1 in 141 chance of becoming a victim of a violent crime, 1 in 27 chance of becoming a victim of a property crime

If you’re looking for a picturesque setting worthy of a postcard, Greenville may be the place for you. Situated in the northwest part of the state about halfway between Charlotte, North Carolina, and Atlanta, Greenville is a stone’s throw from the Blue Ridge Mountains, lakes, rivers, and more than 50 waterfalls.

Greenville’s population is diverse, and the city is well-suited to families, retirees, and singles. Parents will find it appealing because of a highly rated public school system and myriad family friendly activities including Falls Park on the Reedy River, Greenville Zoo, and the Children’s Museum of the Upstate.

For older adults, Greenville is often recommended as an ideal place to settle. The pace of living is slower, the weather is mild, and South Carolina is one of the best states to retire in when it comes to taxes.

Like many smaller towns and cities, Greenville has a dedicated Main Street and lively downtown area catering to pedestrians, with wide sidewalks, outdoor plazas, and al fresco dining. “Mice on Main” is a series of nine life-size bronze sculptures scattered up and down the main drag, providing a fun scavenger hunt for all ages.

Foodies can enjoy an array of international and regional specialties, including a bustling weekend farmer’s market and several food trucks. More than 20 local breweries also serve as music venues and community centers.

The city has a rich African-American heritage, with 13 cultural sites across the greater Greenville area. Residents and tourists can catch the city’s minor league baseball team, the Greenville Drive, the Swamp Rabbits hockey team, plus professional men’s and women’s soccer teams.

Expect mild, comfortable temperatures during the fall, winter, and spring months in Greenville, but the summers can be hot and muggy.

3. Ames, Iowa

•   Population: 66,950

•   Median household income: $54,339

•   Median home value: $222,900

•   Median monthly rent: $972

•   Mean travel time to work: 17 minutes

•   Cost of living: 5% lower than the national average

•   Crime rate: 1 in 488 chance of becoming a victim of a violent crime, 1 in 65 chance of becoming a victim of a property crime

Home to Iowa University, Ames is a bustling college town in the center state, north of Des Moines. This energetic city is frequently listed as one of the best places to live in the country and one of the best college towns in the U.S.

Schools here win national recognition, and the cost of living is reasonable. If you’re looking for racial and ethnic diversity, Ames comes up short, with 80% of the population white. The city also skews young, with many college kids. While the city might not suit all retirees, families will find many parks, with opportunities for biking, golf, and an indoor ice arena.

Ames has an old town historic district and a downtown full of shopping, dining, art galleries, and live music. The Iowa summers can be warm, humid, and often rainy, while the winter brings cold temperatures and often snow. But if you enjoy the heartland, Ames is a charming place to consider.

4. Fredericksburg, Texas

•   Population: 11,257

•   Median household income: $54,771

•   Median home value: $317,600

•   Median monthly rent: $1,064

•   Mean travel time to work: 17 minutes

•   Cost of living: close to the national average

•   Crime rate: 1 in 738 chance of being a victim of a violent crime; 1 in 92 chance of being a victim of a property crime

Fredericksburg is located in the middle of the state, in Texas Hill Country. It’s often voted one of the best places to retire, with retirees making up about 31% of the population. Older adults are drawn to the warm weather, low property taxes, and affordable housing, and low crime.

Fredericksburg was founded by German immigrants back in 1846, and the city retains a strong German connection. About 21% of the population is Hispanic or Latino, 6% Native American, and 5.4% encompassing Black, Asian, and mixed race.

Tourism makes up a good part of the local economy, along with the medical and agricultural industries. A staggering 400 festivals take place each a year, including a three-day Oktoberfest. Visitors will find a raucous live music scene, numerous breweries and distilleries, and more than 50 wineries. In fact, Fredericksburg is the most popular wine-tasting destination in the state of Texas.

The Fredericksburg public school system is highly rated, and the many kid-friendly activities make it a great place to raise a family. Things to do include hiking trails and parks, and a Main Street featuring art galleries, restaurants, ice cream parlors, and toy stores. Younger adults and couples can take advantage of the many dance venues and bars.

5. Bloomington, Indiana

•   Population: 79,107

•   Median household income: $41,995

•   Median Home value: $231,500

•   Median monthly rent: $988

•   Mean travel time to work: 17 minutes

•   Cost of living: close to the national average

•   Crime rate: 1 in 167 chance of becoming a victim of a violent crime, 1 in 43 chance of becoming a victim of a property crime

Bloomington is the home of Indiana University and their legendary Hoosiers basketball and football teams. Often called B-Town, Bloomington (pop. 80,000) is frequently cited as one of the best places to live in Indiana and in the U.S for its lively, bohemian vibe.

B-Town offers a walkable downtown area where you’ll find restaurants, bars, shops, museums, art galleries, and venues for live music and comedy. Bloomington also features many parks, forests, lakes, and other spots to commune with nature.

Much of life in Bloomington revolves around the university and its large student body, so retirees may not find it ideal. The city is often voted a great place to raise a family and gets high marks for its public schools. The cost of living is low, and the city is considered relatively safe.

Indiana winters can be very cold and snowy, and summers are warm, wet, and humid. It’s cloudy a good part of the year too. Bloomington is flush with youthful energy and rife with perks, making it a great Midwestern city to hang your hat.

6. Cedar City, Utah

•   Population: 38,692

•   Median household income: $55,022

•   Median Home value: $245,700

•   Median monthly rent: $861

•   Mean travel time to work: 14 minutes

•   Cost of living: 1.5% higher than the national average

•   Crime rate: 1 in 716 chance of becoming a victim of a violent crime, 1 in 86 chance of becoming a victim of a property crime

Cedar City is located in the southwestern part of Utah, situated 5,800 feet above sea level. To the east you’ll find 10,000 foot mountains, and to the west, a large desert. If you’re an outdoors enthusiast, look no further than Cedar City for fishing, rock climbing, skiing, kayaking, and star gazing. Often called the gateway to Utah’s parks, Cedar City offers easy access to the spectacular Zion and Bryce Canyon National Parks.

Besides the amazing natural landscapes of red hills and alpine mountains, Cedar City plays host to a number of arts festivals, earning it the nickname of Festival City USA. Some of these events include the popular annual Utah Shakespeare Festival, the Neil Simon Festival, the Groovefest American Music Festival, and the International Red Rock Film Festival.

Cedar City provides a dense suburban atmosphere that primarily attracts young professionals and families, due to its lower cost of living and above average public schools. The city is home to the small Southern Utah University, and the city’s economy benefits from the school, along with tourism, agriculture, some mining, and industrial complexes.

7. Ithaca, New York

•   Population: 32,870

•   Median household income: $40,973

•   Median Home value: $282,000

•   Median monthly rent: $1,248

•   Mean travel time to work: 18 minutes

•   Cost of living: 2.7 % higher than national average

•   Crime rate: Chances of becoming a victim of a violent crime is 1 in 327; 1 in 25 of being the victim of a property crime

Ithaca is often identified with its two colleges, Ithaca College and Cornell University. The busy college city is situated on Cayuga Lake, the second largest of the Finger Lakes. The region is also known for its gorges and numerous picturesque waterfalls.

Cornell is Ithaca’s largest employer, attracting educators and students from all over. While diverse, more than half the population is in the 18-24 age group. Retirees may prefer the summer months in Ithaca, when the universities are on break and the weather is mild. Winters in Ithaca can be extremely cold and snowy.

There’s no shortage of things to do in Ithaca for children, teens, and adults. Kid-friendly attractions include many area state parks, the “Sciencenter,” Ithaca Children’s Garden, and the Museum of the Earth. Everyone can enjoy strolling on Ithaca Commons, a pedestrian walkway offering a vast array of restaurants, shops, and events. Autumn brings the Downtown Ithaca Apple Harvest Festival, followed by the Downtown Ithaca Chili Cook-Off in winter.

Downtown Ithaca offers an immersive street-art experience, with murals, sculptures, and a distinctly hippie vibe similar to Woodstock. Entertainment covers the gamut, with theater, film, and music. The State Theatre of Ithaca is a 1,600 seat venue featuring year-round concerts, comedy shows, readings, dance performances, and more.

Ithaca is considered safe, offering a lower cost of living, highly rated public schools, an inclusive sensibility, and lots of outdoor recreational options against beautiful scenery.

8. Bozeman, Montana

•   Population: 56,123

•   Median household income: $67,354

•   Median home value: $466,400

•   Median monthly rent: $1,229

•   Mean travel time to work: 15 minutes

•   Cost of living: 2% higher than the national average

•   Crime rate: 1 in 303 chance of becoming a victim of a violent crime; 1 in 76 chance of becoming a victim of a property crime

Surrounded by the Rocky Mountains, the southwestern Montana city of Bozeman has become an increasingly desirable place to live. In fact, The Wall Street Journal dubbed Bozeman as “Boz Angeles” and reports real estate is booming with out-of-town professionals flocking to the city. Montana State University and Gallatin College are both located here.

One big draw for families is Bozeman’s excellent education system, especially when it comes to pre-K choices, which have grown significantly over the last decade. Kid-friendly activities include the Museum of the Rockies, the JumpTime trampoline park, and Gallatin Regional Park, or “Dinosaur Park,”where kids can swim, climb boulders and sled in the winter.

Bozeman is an outdoor lover’s paradise. You can enjoy skiing, fly fishing, rafting, biking, hiking, and indulging in Bozeman’s natural, rejuvenating, hot springs. You can make a day trip to Yellowstone National Park, 80 miles south of Bozeman.

Like many other small cities, Bozeman has a downtown and a Main Street, where you’ll find casual and fine dining spots, art galleries, and retail shops. Bozeman offers a range of arts and entertainment, such as a multiplex movie theater, the Montana Ballet Company, Bozeman Symphony, and the Ellen Theater, a performing arts venue.

The cost of living in Bozeman is a bit higher than the national average, especially housing. Summers are warm and the winters cold, with substantial snowfall, which may not make it ideal for retirees. Bozeman also doesn’t offer much in the way of racial and ethnic diversity, with whites making up 91% of the population.

Overall, for people looking for a safe family-friendly city with lots of vitality and a beautiful natural setting, Bozeman delivers.

9. Santa Fe, NM

•   Population: 89,008

•   Median household income: $33,297

•   Median home value: $312,300

•   Median monthly rent: $1,199

•   Mean travel time to work: 20 minutes

•   Cost of living: 3.6% higher than national average

•   Crime rate: 1 in 286 chance of being a victim of a violent crime, 1 in 29 chance of being a victim of property crime

The capital city of New Mexico, Santa Fe is a popular place to visit, attracting about 2 million tourists a year. It’s also frequently touted as one of the best cities to live, especially for those approaching retirement. In fact, 24% of the city’s population is 65 and older.

Sante Fe promotes a laid-back lifestyle. Because of its slower pace, the city skews suburban and doesn’t feature a lot of nightlife. It does provide a diverse, culturally rich scene with a strong artistic and intellectual community. Visitors include authors, scholars, and global thought leaders giving lectures on a variety of topics. Entertainment offerings include productions by the Santa Fe Opera, Sante Fe Symphony, the local Santa Fe Playhouse theater company, and live music at multiple venues.

People looking to move to Sante Fe to bring up children can count on an above average public school system. Some people find Santa Fe a relatively expensive place to live, especially when it comes to housing. But the city has a relatively low crime rate and dry climate. Summers are warm to hot, with temps typically staying under 90 degrees, while winters are cold and snowy.

One thing to keep in mind, Santa Fe sits at 7,000 feet above sea level, so it can take a couple of days to adjust. For a small city, Sante Fe is rich with culture, history, the arts, and great Southwestern cuisine. If you crave peace and quiet set against mountain scenery, Sante Fe might be the perfect place for you.

10. Bellingham, Washington

•   Population: 93,896

•   Median household income: $59,163

•   Median home value: $440,300

•   Median monthly rent: $1,222

•   Mean travel time to work: 18 minutes

•   Cost of living: 11% higher than national average

•   Crime: 1 in 234 chance of being a victim of a violent crime; 1 in 19 chance of being a victim of a property crime

Looking for a home in the Pacific Northwest that’s not Seattle or Portland? Consider Bellingham. This coastal city in northwestern Washington serves up an expansive view of the Puget Sound. The area is known for its clean air, eco-friendly attitudes, and chill ambiance. Bellingham is positioned halfway between Vancouver, Canada, and Seattle, with easy access to the San Juan Islands and the Mount Baker and North Cascade mountain ranges.

Outdoor enthusiasts enjoy hiking, biking trails, fishing, boating, kayaking, and whale watching. Numerous beaches offer visitors a variety of landscapes, from hidden white sands to rocky shorelines and wetlands.

Families with children can rest assured the Bellingham public school system is highly rated. There are lots of kid-centric things to do, including Boulevard Park, where kids can frolic in a pirate-themed playground, and the Family Interactive Gallery at the Whatcom Museum.

Bellingham’s active Downtown area offers shopping, dining, art, and entertainment. You’ll find public art exhibitions, a classic bowling alley, theaters, performing arts venues, museums, and the Pickford Film Center, where you can catch independent and classic movies.

Bellingham has a strong and growing retiree population, along with college students from Western Washington University, and many young professionals. At nearly 82% white, Bellingham isn’t particularly diverse.

The area enjoys comfortable summers with temperatures rarely exceeding 82 degrees. However, winters bring overcast skies, cold, and rain. It’s a relatively safe city though it can be more expensive than others of its size. But if you want a small, seaside city with plenty of amenities, Bellingham lives up to its hype.

11. Portland, Maine

•   Population: 68,424

•   Median household income: $66,109

•   Median Home value: $341,700

•   Median monthly rent: $1,278

•   Mean travel time to work: 20 minutes

•   Cost of living: 19.8% higher than the national average

•   Crime: 1 in 449 chance of becoming a victim of a violent crime; 1 in 57 chance of becoming a victim of a property crime

It’s understandable why Portland is frequently recommended as one of the best small cities in the U.S. Located on the Casco Bay shoreline, this small New England city is known for its connection to the sea, with its many lighthouses, rocky beaches, and sublime seafood.

People of all ages enjoy visiting and living in Maine’s largest city. Portland is home to the University of Southern Maine, and many former students make the city their home. Portland is considered one of the healthiest places for older adults, due to access to the outdoors and many recreational activities. Portland’s public school system is highly rated. The area is also more racially diverse than many other small cities, and crime is low.

There’s an abundance of room to stretch out in Portland, with more than 7,000 acres of public parks and open space. Fishing, sailing, and kayaking are popular ways to enjoy the area’s natural resources.

The quaint historic district of Old Port and the downtown area offer shopping, art galleries, restaurants, entertainment, and excellent people-watching. You can find plenty of cultural sites downtown too, including theater, movies, and live music. Many Portland locales cater to children, such as the beachfront amusement park Palace Playland and the Children’s Museum and Theater of Maine.

You’ll enjoy comfortable summers in Portland, but expect very cold, windy, and snowy winters. Portland can be the ideal spot if you love the Northeast, spending time outdoors, and living in a coastal town.

12. Burlington, Vermont

•   Population: 44,595

•   Median household income: $59,331

•   Median Home value: $338,100

•   Median monthly rent: $1,381

•   Mean travel time to work: 19 minutes

•   Cost of living: 28% higher than the national average

•   Crime: 1 in 291 chance of becoming a victim of a violent crime, 1 in 27 chance of becoming a victim of a property crime,

Burlington is known for its warm and welcoming inhabitants, growing racial diversity (one in four people moving here is a person of color), and excellence in public school education. It’s also home to two institutes of higher education, the University of Vermont and Champlain College.

Ski resorts are a major draw, especially Stowe Mountain Resort and Cochran’s Ski Area. Burlington gets six feet of snow each year, making it a true winter wonderland. The summers are warm, and the change of seasons is visually dramatic.

Burlington has a flourishing arts and culture scene, with the city playing host to the annual Vermont International Film Festival, theatrical and musical productions at the Flynn Theater, and comedy shows at the Vermont Comedy Club.

Kids here are encouraged to stay active, with many opportunities for biking, hiking, sailing, and winter sports. Younger kids flock to Vermont Teddy Bear Factory, where they can shop for a handcrafted lovee.

The cost of living in Burlington can be challenging, and affordable housing hard to come by. But Vermont is one of the safest states to live in the U.S., making it a good option for well-off retirees who aren’t afraid of the snow.

The Takeaway

With thousands of small cities in the USA to choose from, naming even the top 100 would be quite a challenge. Our list of the 12 best small cities in the U.S. is based on safety, quality of education, arts and culture offerings, overall cost of living, and climate, among other factors. Whether you’re looking for a great place to raise kids or retire, we hope that one of our suggested small cities will pique your interest.

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See exactly how your money comes and goes at a glance.

FAQ

What is the best small city to live in the United States?

No two small cities are alike, and the best small city for you depends on what you’re looking for. Generally, you want to find a safe, affordable city offering a vibrant cultural scene and opportunities for indoor and outdoor activities. We like Tupelo, MS; Cedar City, UT; and Greenville, SC, among others. But the best small city boils down to personal choice.

Where are some of the best small towns to live in?

Some of the best small towns — with populations under 5,000 — include Sedona, AZ; Carmel-by-the-Sea, CA; Mystic, CT; Gatlinburg, TN; and Telluride, CO.

What is the friendliest little town?

According to TravelAwait’s 2023 survey, Concordia, Kansas, is the friendliest small town in the U.S.


Photo credit: iStock/kate_sept2004

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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