Long-term personal loans can be an attractive option if you’re facing large expenses like medical bills or home repairs. By spreading out repayment over a longer period of time, long-term loans may allow for lower monthly payment amounts that can make major costs more affordable.
However, long-term loans can have drawbacks, too. They may have higher cumulative interest than short-term loans and can be difficult to qualify for since they’re often unsecured.
Here’s what you need to know if you’re deciding whether or not a long-term, unsecured personal loan is right for you:
What Is a Long-Term Loan?
As its name suggests, a long-term loan is one whose repayment period, or term, is fairly lengthy. Generally, long-term personal loans carry terms between 60 and 84 months, or five to seven years.
Mortgages and private student loans are also examples of long-term loans. Mortgages, for instance, are frequently repaid over as many as 30 years.
For the purposes of this article, we’re talking about long-term, unsecured personal loans, which borrowers can use for a variety of things. These loans can allow consumers to make big purchases or pay expensive bills by paying the total off over several years’ time.
💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.
Benefits of Long-Term Personal Loans
There are plenty of reasons why a long-term loan might be a worthy consideration for large expenses.
Large Loan Amounts
While short-term loans and credit cards may cap out at a few thousand dollars, long-term, unsecured personal loans are available at much higher amounts — up to as much as $100,000.
So depending on what you need the money for, a long-term personal loan might give you more leverage than other types of funding.
Affordable Monthly Payments
Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan.
However, that doesn’t mean a long-term loan is less expensive in the long run.
Flexibility
Unlike secured loans, which are tied to a physical piece of collateral or the need to be used for a specified purpose, unsecured personal loans can be taken out for a wide range of intended purposes. Common reasons borrowers take out personal loans include:
Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan.
However, that doesn’t mean a long-term loan is less expensive in the long run.
Drawbacks of Long-Term Personal Loans
There are also some drawbacks worth considering before you apply for an unsecured personal loan.
Potentially Higher Interest Rates
Although long-term, unsecured personal loans may have smaller monthly payments, they may carry higher interest rates than shorter-term, unsecured personal loans. And even at the same interest rate, they cost more over time.
For example, imagine you take out a $10,000 loan at an interest rate of 10%. To repay the loan in a single year, you’d have to pay a whopping $879 per month, but you’d only pay a total of $550 in interest over the lifetime of the loan.
To repay the loan in seven years, you’d pay only $166 per month, but you’d also pay $3,945 in interest along the way.
So while long-term, unsecured personal loans can make large purchases feasible, factoring in the total cost over the lifetime of the loan before you sign those papers is also important.
Long-Term Debt
Along with higher interest rates, long-term loans do, obviously, mean going into debt for a longer period of time — unless you plan to pay off your loan early. A thorough review of the loan agreement will disclose prepayment penalties or other fees that can be costly in their own right.
Furthermore, the future is unpredictable. Five to seven years down the line, that promotion you were counting on might fall through or another life circumstance might supersede your repayment plans.
Although unsecured personal loans can be helpful when life throws big expenses your way, they’re still a form of consumer debt, and, ideally, minimizing debt is a smart thing to do.
Qualification Difficulties
Long-term, unsecured personal loans may have more stringent qualification requirements than other types of credit. That’s because, from the lender’s perspective, they’re riskier than loans for smaller amounts or those that come attached to physical collateral.
Along with your credit score and history, a potential lender might also require proof of income and employment or a certain debt-to-income ratio. Depending on the stability of your financial situation, you may or may not qualify for the best interest rates and terms or be considered eligible to take out the loan at all, at least without a cosigner or co-borrower.
💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.
Alternatives to Long-Term Loans
Ideally, the best way to pay for a large purchase is to save up the cash and pay for it without going into debt at all. Of course, this may not always be possible or realistic.
If you’re not sure about taking out a long-term, unsecured personal loan, there are other alternatives to consider. However, each of these comes with its own risk-to-reward ratio as well.
You might consider borrowing money from friends and family, but those important relationships can suffer if your repayment doesn’t go as planned. A written repayment agreement can go a long way toward making the transaction as transparent as possible, with expectations of both parties clearly outlined.
Another option might be saving part of the money you need and applying for a short-term, unsecured personal loan for the remainder. This means delaying a purchase until savings can accumulate, and might not work if the money is needed sooner rather than later.
The Takeaway
Long-term loans are those whose repayment periods generally span between five and seven years, which can help borrowers fund expensive purchases while making affordable monthly payments.
However, the longer-term can also mean more interest charges over time, making these unsecured personal loans more expensive relative to shorter-term lending options. And like any form of consumer debt, they carry risk.
That said, when used responsibly, long-term, unsecured personal loans can be a smart financial choice, particularly if you shop around for a lender who offers affordable, fixed interest rates, low fees, and great customer service to ensure you’ll always be in the know and in control.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
Photo credit: iStock/Melpomenem
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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.
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.
Writing checks may not be an everyday occurrence for you, but they are still a reliable form of payment that have a place in most people’s finances. So if you think a check you wrote got lost or was stolen, it’s important to report it to your bank ASAP and request to stop payment on it.
If you suspect there’s criminal activity afoot, you may also want to notify your local police. In addition, it becomes important to monitor your accounts and credit reports for any signs of identity theft.
By acting quickly, you could avoid major stress as well as financial loss.
Here, some key moves that can help if a check gets lost or stolen, including:
• What if a check you sent was never cashed or deposited?
• How do you report a lost or stolen check?
• How to monitor your bank accounts?
• How do you stop payment on a check?
• How do you protect yourself from fraud or identity theft?
What if a Check You Sent Never Got Cashed or Deposited?
If you’re concerned because a check you sent hasn’t cleared your online bank account, you may want to start by contacting the recipient (whether it’s a person or business) to make sure they aren’t just sitting on it.
These days, electronic payments are processed so rapidly, we’ve become accustomed to seeing payments show up immediately on online bank statements.
If your paper check is slow to show, it could be that it’s still sitting on someone’s desk or in their wallet.
But what if the check never made it to its destination? It’s possible for checks to get lost in the mail or stolen, so there are steps you should take.
How to Report a Lost or Stolen Check
So if it does seem that a check has gone missing, here’s what to do.
Gather Details about the Check
Before you contact your bank or credit union, you may want to take a few minutes to gather as much information as you can about the check (or checks) that are MIA. This includes:
• Your account number
• The check number
• The routing number
• The name or names on the bank account
• The exact name of the payee as you wrote it on the check
• The check amount.
Contact Your Bank
With that information in hand, you can call your bank or visit your local branch to report the missing check and request a stop payment. Some financial institutions may allow you to do this online. See below for more details on stop payments.
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Monitoring Your Bank Accounts
If the bank didn’t receive the stop payment order in time or if the information you provided was incorrect, it still might process (or pay) the check.
So if you don’t already monitor your checking account online, you may want to start. For many people, monitoring your bank account a few times a week works well; daily if you think there’s reason for concern.
If you believe the bank cashed a check in error and you want to dispute it, it can help if you move as quickly as possible in order to avoid liability.
Some banks don’t impose time limits for customers to report fraudulent check cashing. But because stolen paper checks aren’t regulated by federal laws the way stolen debit and credit cards are, policies can vary from one bank to the next.
💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.
Sending a New Payment
The person or business that didn’t receive your check is still going to be looking for that payment (or expecting that gift), so you’ll likely want to send a replacement as soon as possible.
However, you may want to consider using a more secure method for sending the second check. Keep in mind:
• If the payee is a person or vendor who insists on personal checks, you might want to deliver the payment in person.
• If you must mail a check, consider using certified mail. The cost is higher than regular mail, but you’ll get a receipt from the U.S. Postal Service when you send it, plus a notification when it’s delivered.
If you do indeed wind up issuing a stop payment on a check that is lost in the mail or otherwise missing, here are points to keep in mind:
• Fees for stopping a check vary from one bank to another but can run around $15 to $35. Some banks will waive the fee for customers with premium accounts, and some don’t charge fees if the missing checks are blank.
• With a stop payment order, the bank flags the missing check number, and as long as the check hasn’t already been processed, it won’t allow the check to clear.
• A stop payment typically lasts for six months. According to state law, however, a stop-payment request made by phone (and not in writing) can lapse after 14 days, so you may want to ask your bank if any forms need to be filled out to get the full six-month hold.
• If the stop payment order ends and you suspect criminal activity, you can renew the order for an additional six months, but you may have to pay another fee.
There are a few different ways in which checks can be stolen. Someone could possibly remove it from the outgoing mail in your mailbox or the payee’s mailbox. There have also been some cases in which mail has been stolen from a blue U.S. Postal Service mailbox. Or the check might have been stolen from the recipient after they received it.
What can someone do with a stolen check?
• Once they’ve intercepted your check, thieves might find a way to cash it for the amount written or change it to a larger amount. In some cases, they may use chemicals to alter the name of the payee, or the amount.
• It may also be possible for a thief to use the information on the check to steal your identity and use that information to open new accounts in your name.
If you believe your check was stolen and you’ve already reported it to your bank, there are a few more steps you may want to take to protect yourself.
By going to your local police department, you can create a paper trail to show the bank and others you’ve been doing all you can to get to the bottom of your loss and stop any further theft.
Reporting Stolen Mail
If you think you’ve been the victim of mail theft or tampering, you can report it to the U.S. Postal Inspection Service online or call 1-877-876-2455.
Reporting Identity Theft
The Federal Trade Commission (FTC) offers step-by-step advice on what to do if you think your personal information has been compromised, including placing a fraud alert on your credit reports.
Watching Bank Accounts Closely
Keeping an eye on other accounts — including savings and credit card accounts — could help you spot identity theft faster.
If anything looks out of the ordinary, you can check into it immediately and take any necessary actions to report the theft and protect your account.
What If a Check Written to You Is Lost or Stolen?
If a check that was sent to you never arrives and you’re wondering what to do if the check is lost in the mail, follow these steps:
• Notify the person or business who sent it as soon as possible so they can stop payment before someone else can cash or deposit it.
• If you believe the check was stolen from your mailbox and could be cashed, it’s also a good idea to report it to the police.
• If someone cashed and/or altered the check, and you’re worried about identity theft, you may want to report the theft to the FTC.
• You may also want to ask the issuer to send the replacement funds in a more secure way.
What If Your Checkbook or Multiple Checks Are Missing?
If several checks or your entire checkbook go missing and you suspect they were stolen, it’s wise to spring into action to protect yourself.
• Quickly report the loss to your bank and also file a report with the police. If you don’t, you could be held responsible for any unauthorized activity.
• If you know the numbers of the missing checks, you may choose to put a stop payment on each one.
• Consider putting a freeze on the account or closing it. If you have other transactions that haven’t finished processing, a bank representative can help you decide which are safe to clear.
How Can You Help Prevent Check Theft?
Implementing a few safeguards could help save you from the stress of dealing with a lost or stolen check. These might include:
Guarding Your Checkbook
It’s wise to treat your checkbook as if it were a big stack of cash. If you don’t think you’ll need it, why not leave it in a safe place at home? Or you could tuck one check in your wallet, just in case.
Mailing Checks with Extreme Care
Putting the flag up on your mailbox can be a signal to thieves looking for an opportunity to steal checks.
Rather than leave envelopes with checks in your mailbox or in an outgoing mail basket at work, consider taking them to the post office yourself. If you want to be extra-safe, consider sending them by certified mail.
Using Your Check Registry
If you aren’t writing checks very often, it may seem silly to maintain the check register. But the information you keep there can help you keep track of when and where you sent a check. And if a check is stolen, you’ll have the details you need to report it.
Checking Your Transactions Daily
It doesn’t take long to log into your account and check your transactions frequently, even daily. If you have an app, you can often do this quickly with your phone.
If something looks fishy or a check you sent a while ago hasn’t cleared, it’s a good idea to follow up with the payee and/or your bank.
Being Cautious When Writing Checks
It’s a good idea to be careful when filling in the front of your checks. This includes making sure your signature is clear and consistent, not putting your Social Security number on a check, and only writing your phone number or driver’s license number on a check if a merchant known to you requests it.
The less information you provide, the harder it will be for someone to impersonate you and attempt to cash your check.
Paying with Checks Only When Necessary
Many transactions can be completed online these days, so you may want to consider that route whenever it’s a choice.
You can also set up automatic payments so you don’t have to write checks for recurring expenses.
And if you have to send money to friends or family, you may want to try switching to P2P transfers. You may want to keep in mind that, depending on the money transfer service or app you use, both parties may need to have access to the app or set up an account to exchange money. Also be aware of any fees assessed as you move funds around this way.
The Takeaway
When you write a check and it gets lost or stolen, it’s a good idea to act quickly to protect your finances. This may involve putting a stop payment on the check and possibly contacting authorities if you believe a crime was committed or that identity theft may be the goal. There is typically a fee charged for a stop payment, but it can be worthwhile to protect yourself. After a check is stolen, you run the risk of identity theft, so it’s wise to monitor your accounts and your credit reports closely.
To make money transfers and all your other everyday financial transactions fast, simple and safe, consider opening an online bank account with SoFi. You’ll be able to send money to any person with a U.S. bank account at no charge. For those times when you do need to write a check, SoFi Checking and Savings offers paper checks at no cost, not to mention we never charge you account fees.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.30% APY on SoFi Checking and Savings.
FAQ
Can I cancel a check after it’s been cashed?
Once a check has been cashed, you cannot stop payment or cancel it. If you believe there’s fraudulent activity related to the check, contact your financial institution as quickly as possible and possibly other authorities.
How long before a check is considered lost?
Checks are typically good for six months, meaning that someone could hold onto one for that long and still cash it. However, if you were expecting a check to arrive via mail in, say, a week and you have waited twice as long, you might wonder what to do if a check is lost in the mail. Consider issuing a stop payment and then having payment made again, possibly by another method.
Can someone steal your bank info from a check?
If someone gets one of your checks, they have access to both your bank account number and bank routing number. With those two sets of digits, they can potentially commit fraud, such as printing fake checks that are drawn against your account or setting up ACH (automated clearing house) withdrawals from your account.
How do thieves cash stolen checks?
One common method that thieves use is working with household chemicals to erase the ink on a check they have stolen. They can then write in a new payee’s name and amount and cash the check. Typically, they might do this at an ATM or a currency exchange.
SoFi members with direct deposit activity can earn 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
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What’s a duplex? It’s a two-for-one special in the real estate world: two units in one building on one plot of land.
Duplexes are the perfect blend of income production and personal space for some. For others, they may be too small and involve too much maintenance.
Read on to learn what a duplex is and who should consider owning one.
Characteristics of a Duplex
Duplexes, which fall into the multifamily property category, have these common characteristics:
• Single lot. While there are two units, they’re on the same lot.
• Shared yard. Duplex units will typically share a yard and will have a common wall or ceiling/floor.
• Similar size and layout. The two units in a duplex may not be exact replicas, but they often have the same square footage and a similar layout.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Types of Duplexes
Duplexes take one of these forms:
Stacked
When the two units are atop each other, that’s a stacked duplex. Occupants have a common ceiling or floor.
Side-by-Side
In a side-by-side duplex, units are next to each other. Occupants have a shared wall.
In general, the units in a multifamily property have separate entrances, kitchens, bathrooms, and utility meters.
Here’s what a duplex is not: a “twin home.” With a twin home, two homes share a wall, but each is an individually deeded home on an individual lot.
Pros and Cons of Owning a Duplex
Duplex living isn’t for all homeowners but could be the perfect fit for some. Let’s start with some upsides.
Pros of Buying a Duplex
• House hacking. An owner can live in one unit and rent out the other, earning income to help cover a mortgage.
• Affordability. Owner-occupants can use a government-backed home loan and enjoy the same low or no down payment requirement that they would with a primary home. Also, duplexes are often located in more affordable neighborhoods, and buying a two-unit property will typically cost less than buying two stand-alone single-family homes.
• Tax advantages. Owner-occupants can write off mortgage interest and property tax on the half of the property they live in. If the other half is a rental, they can write off repairs to that unit, any utility bills paid for it, and any management fees. The owner can depreciate the rented half of the property.
• Easy tenant management. For first-time landlords, living in a unit and renting the other one can be a lower-stress alternative to investment property. A resident owner can address issues immediately and keep an eye on ongoing maintenance.
• Buying property together. Whether it’s friends owning real estate together or a multigenerational household looking for some private space, a duplex might be a perfect fit, as the property is already naturally divided into two. There’s proximity but also space.
• A boost in getting a mortgage. With conventional or government-backed financing, you can usually use projected rental income to qualify for the loan. The lender will add a portion of the rental income to your gross income to determine your debt-to-income ratio.
Cons of Buying a Duplex
Some drawbacks also exist. They include:
• Lack of privacy. In a duplex, occupants are on top of each other or right next door. Sharing a wall or ceiling/floor might be hard for some homeowners. If privacy is a priority, a duplex might not be the right fit. That’s also true of co-op and condo living.
• Possibly a large down payment. If both units will be leased, you won’t qualify for a government-backed loan. You’ll need to put down at least 20% for a conventional loan and will pay a higher interest rate. If you do plan to live in one of the units and use a conventional loan, you may qualify to put 15% down.
• Tricky taxes. Tax season gets more complicated for duplex owners than owners of traditional single-family homes.
• Sharing space. Duplex owners may have to share a laundry room or backyard with the other occupants.
• Landlord duties. Unless a duplex owner purchases the property with another party or has the property managed, they’ll have to serve as landlord for some or all of the home. That means regular maintenance and searching for tenants, which could be stressful for some homeowners.
Duplexes are enticing to people looking for a starter home, other owner-occupants, and real estate investors, which can make the search much more competitive.
As duplexes are often more expensive than single-family homes, figuring out your budget before the search will help (give this mortgage calculator a whirl), as will having your anticipated down payment at the ready and credit in good shape.
Having financing lined up can make the process more seamless. If the duplex will be owner-occupied, that may help determine which kind of loan to choose among the different mortgage types.
They should be able to answer your mortgage questions. And it pays to shop around for home loan offers.
Should You Own a Duplex?
Owning a duplex isn’t for everyone, but it could be the place to call home for buyers who want to dip their toes into the investment property market. Although duplexes come with quirks, some benefits (especially rental income) may outweigh the drawbacks.
If you do plan to live at the property, you might eventually outgrow it and move on. In that case, your home equity can help purchase the next home.
What is a duplex? Two living units in one property. Duplexes pack a two-for-one punch when it comes to real estate ownership. They aren’t the right fit for all house hunters, but so many buyers are interested in duplexes that they’re a hot ticket.
Ready to start searching for a duplex? Begin the journey with SoFi Mortgages.
SoFi offers mortgages for owner-occupied primary residences, second homes, and investment properties.
Check out all the advantages of SoFi home loans.
FAQ
How can I profit from my duplex?
Duplexes can be either entirely rental properties or owners can choose to occupy one of the units. As an owner-occupant, you can use rent from the other unit to supplement or perhaps pay your monthly mortgage entirely.
As an investment property, you can collect rent on both units, with the profit potential based on the monthly mortgage payment.
How do I rent out a duplex?
There’s a high likelihood you’ll rent out one of the units year-round. However, some duplex owners use the other unit as a guest space, short-term rental, or even an artist studio, depending on their needs.
Should I sell my duplex?
Deciding whether or not to sell your property is a personal choice based on circumstances and the local market. A duplex, though, can be a good property to keep as an investment, as the two units provide a lot of flexibility for renters, Airbnb guests, and an owner’s place to live.
Photo credit: iStock/RichLegg
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.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility 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.
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.
Buying a house with bad credit can be challenging, but it’s doable with planning and preparation. Subprime borrowers — homebuyers with lower 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 secure a mortgage and buy a house with bad credit.
How to Buy a House With 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.
Figuring out how to buy a house with 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 plan accordingly to buy a house with bad credit.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
As the saying goes, knowledge is power. Assessing your credit is a valuable first step to understand 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 age 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.
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 the June 2021 Origination Insight Report by Ellie Mae, the average FICO score ranged from 743 to 753 for mortgages that closed in the first half of 2021. Borrowers with credit scores in this range or higher generally receive the most competitive mortgage rates.
Meanwhile, borrowers with credit scores below 650 represented only 6.2% of mortgages in June 2021.
An estimated 30% of U.S. consumers had credit scores in the subprime range, or less than 670, in Q1 of 2021, Experian found. (There is no universal definition of “subprime.” And Experian sometimes uses the term “nonprime,” for the category of borrowers with scores between 601 and 660.)
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 5% interest would pay $53,468 more in interest than a borrower with a 4% interest rate.
Paying a higher interest rate may be an unavoidable part of buying a house with bad credit. 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 your monthly debt obligations divided by your gross monthly income and multiplied by 100.
Higher DTI ratios suggest that borrowers have less ability to make monthly payments. A 43% DTI ratio is usually the highest a borrower can have to obtain a qualified mortgage.
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, as well as 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 who otherwise wouldn’t be able to.
You can get a sense of how much your monthly mortgage payment might be with SoFi’s mortgage calculator tool.
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.
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 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, and the U.S. Department of Veterans Affairs does not set a minimum credit score for eligibility. Lenders have their own requirements, though, so it’s important to compare options.
The U.S. Department of Agriculture guarantees mortgages issued to low- and moderate-income homebuyers in eligible rural areas. No down payment is needed, and the USDA does not specify a credit score requirement. But lenders will still evaluate a borrower’s credit history and ability to pay back the loan.
VA loans typically come with a one-time funding fee that varies; USDA loans, an upfront and annual guarantee fee.
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 with 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.
If your financial foundation is feeling pretty firm, consider a home loan with SoFi. Qualifying first-time buyers can put as little as 3% down.
View your rate with just a few clicks.
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 with bad credit and income?
Lenders look at your full financial picture, not just credit 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 with 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.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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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