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America’s national parks are legendary: You can probably conjure up images of Old Faithful at Yellowstone, El Capitan at Yosemite, and the Great Smoky Mountains without too much trouble. But what you may not realize is that our country’s network of over 400 national parks can also be a terrific, budget-friendly vacation destination.

Planning a road trip to a national park with the family or your BFFs can be an amazing way to see the natural beauty of the U.S. And it’s a popular idea: In 2022, the parks welcomed 312 million visitors, up 5% from the previous year.

By doing some prep work, you can be among those travelers who revel in the iconic landscapes of the parks while having an environmentally friendly, low-cost adventure. Here, you’ll learn the ropes, from advice on destinations to ideas for keeping expenses down.

Cheap National Parks to Visit

Unlike other standard vacation destinations (theme parks, etc.), most national parks don’t charge an entrance fee. Over two-thirds of these sites, including the Great Smoky Mountains National Park on the border of Tennessee and North Carolina, are free to enter. So the vast majority of these destinations are indeed cheap national parks to visit!

Even if you choose one that does charge, you’ll most likely pay by the carload, like the 7-day pass for your group at Rocky Mountain National Park in Colorado for $35. The ever-popular Yosemite and Acadia National Parks charge the same fee.

If you want to see which parks charge a fee, check out the National Park Service’s website .

Here’s an important warning, however: During peak times, you may need a reservation simply to drive into a park. You may gain admission if you have another kind of reservation (hotel room, say, or campsite), but double-check. Keep this top of mind if you are thinking you can just cruise on over and take selfies at, say, Half Dome for a day in August. Probably not going to happen without advance planning.

You can also take advantage of fee-free days. The National Park Service selects certain holidays and special occasions each year to offer admission-free entrance to everyone. So, you can visit over 400 sites at no cost in 2023, like on Great American Outdoors Day on August 4.

To find parks conveniently located near you, use the National Park Service’s “Find a Park ” tool online. Then you can compare options and see what type of landscape you’d most like to visit.

Setting a Budget for Visiting National Parks

If you have a vacation in mind, you might have already started budgeting for it. Saving money for a trip is an important step and allows you to explore the world guilt-free. But to make the most out of your visit to a national park, you need to know exactly what type of costs to expect. That way, you never have to worry about not having enough money on hand to enjoy yourself.

Here are some expenses you should account for in your national parks budget.

Food & Drink

Saving money on a road trip is often challenging since you don’t have all your basic necessities ready at your disposal. That includes food and drink, whether your style is more drive-through or sit-down dining or “I’m happy to cook for myself.” You’ll need to factor the cost of meals into your travel budget.

One budget-smart option is to rent a cabin with a kitchen. With that, you can pick up groceries once you arrive and cook your meals instead of ordering out. That’s a big savings right there!

You may not be the type to cook on vacation, though. If not, you can look for affordable options near you for meals. But keep in mind: You’ll need to budget for your three meals a day, plus you’ll probably want some water and a snack here and there, lots of liquids to fuel you on hikes, and perhaps to go out for a beer or two one evening. There will likely be taxes and possibly tips involved. See how it all adds up and what you can afford.

One very dollar-smart move to stay well-fed and not blow your budget: Use a backpack cooler. If you want to spend your days hiking and walking, you’re going to get thirsty and hungry pretty quickly. You can load a cooler up with protein bars, nuts, apples, and granola, preventing you from buying potentially pricey food throughout the day.

Gas & Travel

When it comes to the expense of traveling to national parks, the nice news is that a destination might be closer than you think. Many of us hear the phrase “national park” and think of large, sweeping spots in the West, like the Grand Canyon. But that’s just one iconic site. There are actually hundreds of places in the U.S. under the National Park Service’s care, from historic sites to scenic trails. So you may not have to plan out a cross-country trip to enjoy what this country has to offer.

However, if you have to travel a significant distance, why not whittle your transportation costs? For example, if you need to fly, it can pay to be flexible with your dates and look for the lowest possible fare. Sites like Expedia and Kayak can notify you when prices drop on flights you are interested in. Another smart move is to pack light so you won’t pay those ouch-inducing baggage fees.

Perhaps you’re driving to your destination, though. If you want to improve gas mileage and get the most out of your trip, try to choose a park that isn’t isolated. For example, there are multiple national parks near Las Vegas, such as Death Valley National Park and Zion National Park, which are about two and a quarter hours apart. Once you’re at Zion, you might decide to hop over to Bryce Canyon National Park, barely an hour and a half away, and see the incredible rock formations known as hoodoos.

You’ll be able to visit multiple parks without too much drive time, save money on gas, and see all the more spectacular sights. It may be the best way to travel around America on a budget.

Recommended: Guide to Renting a Car

Lodging

You know the law of supply and demand: When demand is high, supply gets scarce — and potentially pricey. With that in mind, note that the peak season for visiting national parks is summer. Kids are off from school, temperatures are warmer, and international travelers may visit our lovely landscapes. So that means bigger crowds, which impacts local lodging. It will be harder to find accommodations, and their prices will be higher, too.

Because of this, it’s best to book your lodging in advance so you don’t get shut out of affordable rooms. National Parks have a wide range of accommodations; during spring 2023 at Yosemite, for instance, rooms ranged from $101 to $500+ a night. A location farther out from the park will be cheaper as well. Those who accumulate points on a travel credit card or cash back rewards credit card may find lodging nearby at a discount.

Of course, that’s not your only option. You can also rent an RV or stay at a campground. If you choose to camp, check to see if you need a reservation. At national parks, the average price is around $20 per night, though prices can range from $5 to $30 or so. These sites usually offer electricity hookups, water, camp stores, and fire rings. Research what your campground offers to help plan out your packing needs. If you snag one of these spots at a free-admission park and already have tents and other gear on hand, congrats! You may have scored one of the cheapest national park visits to be found.

Activities and Entertainment

If you have never visited a national park before, you might not know what they offer. While part of their appeal is just being in the great outdoors and soaking in the views, you also have activities available to you. There may be anything from guided walks and museums to talks and films, and they all typically come at no extra cost. It can be a great way to learn about local wildlife, fossils, history, and more.

In addition to that, you might seek other activities. For instance, if you are visiting Florida’s Everglades National Park, perhaps you want to go on a kayak adventure with a guide. It can be a terrific way to see the mangroves and sawgrass marshes the area is famous for. That will be an additional cost to keep in mind.

There’s also every chance that you may pass all kinds of mini-golf, waterparks, multiplexes, and other attractions as you explore the area near a national park. If a vacation isn’t a vacation without indulging in these offerings, factor that into your budget, too.

Permits & Passes

Again, most parks are available to the public for free. But if you want to visit multiple national parks, consider opting for a National Park Annual Pass. It typically costs $80 ($20 for seniors) and gives you unlimited entrance to over 2,000 federal recreation areas, such as national parks.

Recommended: How Credit Card Travel Insurance Works

Saving for Your Travel

Saving up for your trip can be pretty straightforward. One way is to set up a dedicated travel fund. Separating your vacation money from your regular savings account will make your progress that much easier to track. You can also maximize your savings by setting up automatic contributions to your travel fund. That way, you never forget to put in a few dollars on payday.

If that sounds appealing, you need to pick the correct type of account. Some options, like a high yield bank account, promise higher interest rates than your standard version. However, your choice will depend on your timeline. For example, someone taking a trip in a year has more time to accrue interest than someone taking a trip within a few months.

Let’s say you don’t have much time, though. Even if you can’t build much in the way of interest, you can still find extra cash in your life. You might need to budget a bit differently. For example, if you have a streaming service membership, you can cancel that for a while. Or perhaps you can pick up a side hustle on the weekends, whether that means driving for a rideshare service or walking dogs.

The Takeaway

Vacations are a time to relax, enjoy yourself, and make memories with your loved ones. The last thing you need is for that time away to leave you deeply in debt and saddled with stress. That’s why a trip to a national park can be such a terrific destination: You’ll explore the great outdoors but can do so without breaking the bank, thanks to low fees, free activities, and the smart saving advice you learned here.

SoFi Travel has teamed up with Expedia to bring even more to your one-stop finance app, helping you book reservations — for flights, hotels, car rentals, and more — all in one place. SoFi Members also have exclusive access to premium savings, with 10% or more off on select hotels. Plus, earn unlimited 3%** cash back rewards when you book with your SoFi Unlimited 2% Credit Card through SoFi Travel.

SoFi, your one-stop shop for travel.

FAQ

Is it expensive to visit national parks?

In many cases, it’s a more affordable vacation than other options. Over two-thirds of national parks offer free admission year-round. Plus, there are many throughout the country, meaning you can pick one that’s close and may not have to spend much on travel costs. The main expenses will come from your lodging, food, and additional activities.

How many days should you spend at a national park?

The length of your stay should depend on the type of itinerary you want to build and the size of the park you are visiting. There are many itineraries for Yosemite online that involve staying three to five days, but you could certainly spend much longer or shorter periods of time. Worth noting: Some smaller parks and historic sites may not be open every day. Larger parks may close due to weather events. Always check in with a park (either online or by calling) beforehand.

How much does it cost on average to visit a national park?

Most national parks are free. The National Park Service allows you to see the entrance rates for each fee-charging national park. Use their listings to see if the park you want to visit charges an entrance fee. The per-vehicle prices are often between $20 to $35 for seven days.

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Eligibility: You must be a SoFi registered user.
You must agree to SoFi’s privacy consent agreement.
You must book the travel on SoFi’s Travel Portal reached directly through a link on the SoFi website or mobile application. Travel booked directly on Expedia's website or app, or any other site operated or powered by Expedia is not eligible.
You must pay using your SoFi Credit Card.

SoFi Member Rewards: All terms applicable to the use of SoFi Member Rewards apply. To learn more please see: https://www.sofi.com/rewards/ and Terms applicable to Member Rewards.

Additional Terms: Changes to your bookings will affect the Rewards balance for the purchase. Any canceled bookings or fraud will cause Rewards to be rescinded. Rewards can be delayed by up to 7 business days after a transaction posts on Members’ SoFi Credit Card ledger. SoFi reserves the right to withhold Rewards points for suspected fraud, misuse, or suspicious activities.
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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.

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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It didn’t take long after President Biden announced his student loan forgiveness program in August 2022 for the scammers to get up and running. The Better Business Bureau (BBB) and federal agencies have unearthed hundreds of ads, text messages, phone calls, and emails targeting student loan borrowers. Their purpose? To get consumers to divulge private financial information or to pay for unnecessary services. In response, the U.S. Department of Education issued warnings about the student loan forgiveness scams and advice on how to avoid them.

The ongoing student loan payment pause hasn’t slowed the scammers down. Keep reading to learn how student loan forgiveness program scams try to fool you, and how you can avoid getting duped.

Status of Biden’s Student Loan Forgiveness Plan

The student loan forgiveness plan would cancel up to $10,000 in federal student loan debt for single borrowers with an adjusted gross income of less than $125,000 a year, or less than $250,000 for married couples. Pell Grant recipients could have as much as $20,000 in student debt canceled. To refresh your memory, check out this story on the student debt relief plan.

The DOE officially began to accept applications for forgiveness on Oct. 17, 2022, but had to stop in November due to legal challenges to Biden’s program.

Meanwhile, the pause on federal student loan payments for all borrowers has been extended several times. Repayment could potentially resume as late as 60 days after June 30, 2023, when the U.S. Supreme Court is expected to release its decision on the challenges to President Biden’s student debt cancellation program.

While borrowers wait for updates, scammers are actively using phony government websites, false promises, and other criminal schemes to lure unsuspecting consumers. Here’s what you need to know to avoid student loan forgiveness scams.

Recommended: What Biden’s Student Loan Forgiveness Means for Your Taxes

Types of Student Loan Forgiveness Scams

Watchdogs have identified a variety of scams related to student loan forgiveness. Some are aimed at borrowers searching out information on the internet, and others directly target people who hold student loans. Fortunately, certain patterns are coming into focus. Here’s a rundown of what officials have seen so far.

Recommended: How Do Student Loans Work? Guide to Student Loans

False Deadline Warnings

These scams include texts, calls, and emails sent to borrowers conveying a false sense of urgency that they must take action before a certain date or miss out on forgiveness. In reality, the messages are designed to scare you into disclosing personal financial information, which criminals may then use for identity theft and other financial fraud. Be very wary of any “student loan forgiveness center” calls.

On Oct. 17, the DOE opened the official forgiveness application portal . The deadline for applications is the end of 2023, but you’ll want to apply a lot sooner if your payments will be resuming in January.

What’s more, for many borrowers who already have income information on file with the DOE, forgiveness will be automatic. No application — and no deadline — is necessary.

Fake Email Alerts

Especially while borrowers were waiting on an email from the DOE informing them that the forgiveness application was open, scammers are sending fraudulent emails that look as if they might be from the government in an effort to collect personal financial information. This and other fraudulent strategies are expected to continue.

To make sure you’re responding to a legitimate email, always check the address of the sender. The full address isn’t always obvious on a phone or other mobile device: That interface often shows only the name of the sender. Always click on the sender’s name to see the actual address.

The address is likely to be the real thing if it has a .gov ending, something not easy for fraudsters to imitate.

You can sign up for student loan forgiveness notifications and updates from this DOE webpage .

Help With the Student Loan Forgiveness Application

There are lots of offers on the internet and elsewhere to help borrowers claim their loan forgiveness — for a fee. While not all of the companies offering these services are illegitimate, the DOE has warned that it won’t be necessary to pay for help. They promise the application will be simple and quick to complete.

Predatory companies love to use webinars and videos explaining the details of the loan forgiveness program. The ending is always the same: a plea to sign up for their paid service, with the promise they’ll get you your debt relief. They may claim they can get you additional benefits, get your benefits faster, or get you to state tax breaks if you pay them upfront. In some cases, the outlaws charge hundreds of dollars for unnecessary service.

A real government agency will never ask for an advance processing fee. And legitimate student loan servicers will never charge a fee for providing information about your loans. You can check if a company works with the DOE at the Federal Student Aid site on avoiding scams .

Recommended: 9 Smart Ways to Pay Off Student Loans

What You Can Do to Avoid Scammers

To protect yourself from student loan forgiveness program scams, familiarize yourself with the following tips. They can help you avoid the threat of costly identity theft or financial fraud that can result from these schemes.

Never give out your FSA ID, student aid account information, or password. The DOE and the company that services your federal student loans will never call or email asking you for this information. Along the same lines, never give your personal or financial information — including your Social Security number and bank account information — over the phone or email. (That said, the beta version of the forgiveness application asks for your Social Security number but not your FSA ID.)

Avoid upfront fees. Think twice before paying anyone for help filling out the application. It is highly likely you won’t need help because the government is promising a free and easy-to-use application. Paying a fee before the application is even available is totally unnecessary.

Stay up-to-date. Having the most accurate and current student loan forgiveness information is the best defense against fraud. As mentioned above, sign up with the DOE for notifications and updates. And keep an eye on the Better Business Bureau and Federal Student Aid websites for the latest official information.

Update your contact information. To receive official notices related to student debt relief, make sure the government and your loan servicer have your most current contact information. If your income information is already on file at the DOE, qualifying borrowers will automatically receive loan forgiveness without having to apply. All borrowers, whether or not they have to apply, will be notified by the DOE when the application goes live.

To make sure you get these notices and other updates, sign up with StudentAid.gov to receive text alerts. If you don’t have a StudentAid.gov account, create one now .

You’ll also want to make sure your student loan servicer has your most recent contact information. You can find your federal student loan servicer’s contact information at Studentaid.gov/manage-loans/repayment/servicers

The Takeaway

Understanding how student loan forgiveness scammers work is an important step toward protecting yourself. Staying up to date on the latest official news and announcements can also help you bypass the onslaught of scams out there. Another important defense: Actively manage your student loan accounts and make sure all of your information is accurate and up to date.

SoFi can help. If you have more federal student debt than the new debt relief plan will forgive, or you don’t qualify for loan forgiveness, or you have private student loans, you may want to consider refinancing your debt before rates rise further.

If you do qualify for forgiveness and you refinance your federal student loans, you will no longer qualify for the new program. If you still wish to refinance, leave up to $10,000 unrefinanced ($20,000 for Pell Grant recipients) to receive your federal benefit. Remember: Good information is your best weapon when it comes to managing all aspects of student debt.

Save thousands of dollars thanks to flexible terms and low fixed or variable rates.

FAQ

What are common types of student loan forgiveness scams?

Look out for false email alerts claiming to be from the government and phony government websites. These schemes attempt to get you to divulge personal financial information, which can then be used for identity theft and other financial fraud. Other scammers are offering unnecessary forgiveness application help for a costly upfront fee.

How can I avoid falling victim to a student loan forgiveness scam?

Information is your best defense. Sign up for government alerts and notifications, and keep an eye on advice from official outlets. Also, make sure your contact information is current with both the government and your loan servicer.

Does everyone eligible to receive student loan forgiveness need to fill out an application?

No. If your income information is already on file with the Department of Education, you will not need to apply for student loan forgiveness. You’ll receive it automatically.

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Photo credit: iStock/Pekic

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

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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.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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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The Federal Home Loan Mortgage Corporation, or FHLMC, is known as Freddie Mac, the entity created by Congress for the purpose of buying mortgages from lenders to increase liquidity in the market. Freddie Mac was created in 1970 and expressly authorized to create mortgage-backed securities (MBS) to help manage interest-rate risk.

Because the FHLMC buys mortgages, lenders don’t have to keep loans they originate on their books. In turn, these lenders are able to originate more mortgages for new customers. The mortgage market is able to keep capital flowing and offer competitive financing terms to borrowers because of this system. In other words, the market runs more smoothly because of Freddie Mac and its sister company, Fannie Mae, the Federal National Mortgage Association (FNMA).

If you want to know more about how this government-sponsored enterprise works and how it affects your money, read on for details on:

•   What is the FHLMC and what are FHLMC loans?

•   What is the difference between Freddie Mac and Fannie Mae?

•   What are Freddie Mac mortgages?

•   How does the Federal Home Loan Mortgage Corporation work?

Freddie Mac and Fannie Mae

These organizations, with their friendly-sounding nicknames, serve a very important purpose. Freddie Mac and Fannie Mae were created for the purpose of stabilizing the mortgage market and improving housing affordability. These government-sponsored enterprises (GSEs) do this by increasing the liquidity (the free flow of money) in the market by buying mortgages from lenders. Mortgages are then pooled together into a mortgage-backed security (MBS) and sold to investors. The process created the secondary mortgage market, where lenders, homebuyers, and investors are connected in a single system.

In the past, Freddie Mac and Fannie Mae operated as private companies, though they were created by Congress. Fannie Mae came first in 1938, followed by Freddie Mac in 1970. Freddie Mac’s addition in 1970 resulted in the creation of the first mortgage-backed security.

The federal government took over operations at both companies following the financial crisis in 2008. According to the National Association of Realtors, without government support of Freddie Mac and Fannie Mae, there wouldn’t be very much money available to lend for mortgages.

The Federal Housing Finance Agency (FHFA) has oversight of Freddie Mac and Fannie Mae. On a yearly basis, they assess the financial soundness and risk management of Fannie Mae and Freddie Mac.

What Is the Purpose of the FHLMC?

As mentioned above, the FHLMC, or Freddie Mac, makes the housing market more affordable, stable, and liquid by buying mortgages on the secondary market. When they buy these loans, the retail lenders they buy them from are able to originate more mortgages to new customers and keep the mortgage market flowing smoothly.

There are many types of mortgage loans; the ones that Freddie Mac buys are known as conventional loans. The mortgage loan must meet certain standards (such as loan limits) for Freddie Mac to guarantee they will buy these loans.

In general, the process of successfully obtaining a mortgage usually looks something like this once the buyer has made an offer on a house that’s been accepted:

•   The consumer finds a lender, if they haven’t already done so, and will apply for a mortgage.

•   The lender collects documentation required by the loan type and submits it to underwriting.

•   The underwriter approves the loan.

•   The homebuyer closes on the loan, and mortgage servicing begins

•   The lender sells the loan on the secondary mortgage market to Freddie Mac (or Fannie Mae or Ginnie Mae, depending on what type of loan it is and from what type of lender it originated).

From a homebuyer standpoint, they will see the outward mortgage servicing, which is the entity to which they will send their monthly payment and who takes care of the escrow account. The mortgage servicer is the one who forwards the different parts of the mortgage payment to the appropriate parties.

Mortgage servicing can also be sold from servicer to servicer, but this is different from the sale of a mortgage to Fannie Mae or Freddie Mac.

Freddie Mac is also tasked with the responsibility of making housing affordable. There are specific mortgage programs guaranteed by Freddie Mac and offered by lenders.

•   HomeOne®. HomeOne is a mortgage program that offers low down payment options for first-time homebuyers. There are no income or geographic limits.

•   Home Possible®. Home Possible is a program for first-time homebuyers and low- to moderate-income homebuyers. It offers discounted fees and low down payment options.

•   Construction Conversion and Renovation Mortgage. This type of loan combines the costs of purchasing, building, and remodeling into one loan.

•   Manufactured Home Mortgage. For qualified buyers, Freddie Mac can guarantee mortgages when buying manufactured homes that meet their criteria.

•   Relief Refinance/Home Affordable Refinance Program (HARP). For borrowers with a good repayment history but little equity, loans are available to refinance into a more affordable rate.

Recommended: What Is the Average Down Payment on a House?

Understanding Mortgage-Backed Securities

After a mortgage is acquired from a lender, Freddie Mac can do one of two things: either keep the mortgage on its books or pool it with other, similar loans and create a mortgage-backed security (MBS). These MBS are then sold to investors on the secondary mortgage market.

What’s attractive about a mortgage-backed security to an investor is how secure it is. Fannie Mae and Freddie Mac guarantee payment of principal and interest. Both Fannie Mae and Freddie Mac issue mortgage backed securities now.

Does the FHLMC offer Mortgage Loans?

Freddie Mac does not sell mortgages directly to consumers. You won’t see a Freddie Mac mortgage or an FHLMC loan advertised to consumers. Instead, the FHLMC buys mortgages from approved lenders that meet their standards.

Recommended: What Are the Conforming Loan Limits?

The Takeaway

The housing market in the United States arguably benefits from the role of the Federal Home Loan Mortgage Corporation. Lenders can essentially originate mortgages to as many borrowers as can qualify. The free flow of capital created by the FHLMC also means mortgages are less expensive for homebuyers all around. In short, the smooth operation of the housing market owes much of its success to Freddie Mac and Fannie Mae.

If you’re shopping for a home and looking for a lending partner, consider what SoFi has to offer. With dedicated loan officers, competitive interest rates, flexible terms, and low down payment options, SoFi Mortgage Loans can offer something for nearly every borrower.

SoFi Mortgage Loans: Simple, smart, flexible.

FAQs

What does FHLMC stand for?

FHLMC is an abbreviation of Federal Home Loan Mortgage Corporation. It is commonly referred to as Freddie Mac.

What type of loan is FHLMC?

Freddie Mac guarantees conventional loans that adhere to funding criteria, but it does not offer Freddie Mac mortgages directly to consumers.

What is the difference between FNMA and FHLMC?

Fannie Mae and Freddie Mac originated in different decades and initially had different purposes, but for the most part, they serve the same purpose today of helping to improve mortgage liquidity and availability.

Photo credit: iStock/Andrii Yalanskyi

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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.

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.

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Buying an investment property before your first home can be an interesting and financially sound plan. There are clear advantages — generating cash flow or building equity in your asset could benefit you and your family for years to come. You may be able to qualify as a first-time home buyer and take advantage of programs that allow you to buy a multi-family property. You may also be able to produce a strong enough income for the unit to pay for itself.

Yet, there can be significant sacrifices you may need to contemplate in order to make this dream happen. Here, learn what needs to happen if you’re planning on buying an investment property before your first home, including:

•   Is buying an investment property before your first home a good idea?

•   What are the steps for buying a house to rent?

•   What are the benefits of buying a house as an investment while still renting?

Purchasing an Investment Property 101

Purchasing an investment or rental property is similar to a regular home purchase. When you’re looking at buying an investment property for which you qualify as a first-time home buyer, however, there are some special considerations. Here is a guide:

Step 1: Decide if you’re going to live in a part of the investment property.
One of the first things you should decide when purchasing a rental property is if you’re going to live in a part of the investment property. This decision will affect what types of properties you’re going to look at, how you’re able to finance the property, and how much down payment you’ll need to come up with.

For example, if you can buy a house to rent with two to four units and live in one yourself, you may be able to finance the purchase as an owner-occupied property. This may qualify you for lower interest rates, lower down payment options, and more favorable loan options. However, you do have to live on the property. You cannot finance a property with an owner-occupied loan without living on the property as this is considered a type of mortgage fraud.

Here’s a quick summary of the difference between owner-occupied and non-owner-occupied rental properties.

Owner-Occupied	Non-Owner-Occupied
Down payment options from 3.5%	Down payment typically around 15%
Lower interest rates by about half a basis point	Interest rates higher by about half a basis point

Step 2: Get preapproved for a loan.
Before you go shopping, make sure a lender is willing to give you a mortgage. Qualifying as a first-time homebuyer has some positives. On the one hand, you may have a better debt-to-income ratio since you don’t own a home yet. However, you may have a shorter credit history or a smaller down payment. Whatever the case, it’s helpful to get some numbers from your lender to assist with your investment.

Factors your lender will take into account when deciding what to lend to you include:

•   Amount of your down payment

•   Owner occupied status

•   Credit score

•   Debt-to-income ratio

•   Employment history.

Your lender will also take into account what programs you qualify for. Financing options for an investment property are wide. Some may include:

•   FHA

•   VA

•   USDA

•   Conventional

•   Private lending

•   Seller financing

Quick note: If you do decide to purchase a rental property and live in part of your investment property, your lender may be able to use the potential rent from that to qualify you for a mortgage.

Step 3: Find a property that meets your criteria
Now that you have your budget and parameters set, you’re ready to find a property. You may want to enlist the help of a real estate agent who can serve as your first-time homebuyer guide, especially since you want to buy an investment property right off the bat.

Your agent can help you write an offer while your lender may be able to help you apply for a mortgage online. You’re well on your way to buying a house to rent at this stage.

Step 4: Start your rental business.
Be sure to check local ordinances and business requirements for becoming a landlord. If you’ve got a plan and do your research, you may see success. Just don’t believe what you may see on TV, which makes owning a rental property look easy. Landlording is a tough job, and there’s a lot you need to know about the business before you start. Buying a house while renting is an endeavor that takes time and effort.

Buying a House While Still Renting

The benefit to buying an investment property before your first home is that your debt-to-income may be more favorable than for someone who has a mortgage. What this means is it’s possible you don’t have too much debt to qualify for a rental property.

The possible downsides are that you may not have the cash reserves to protect yourself from the risks of being a landlord. There’s always something that needs to be repaired or replaced.

What to Know As a New Landlord

Unlike what you may have heard or imagined, becoming a landlord can be anything but passive. You’ll also want to research all you can and put proper systems in place. Here’s a little of what you can expect to encounter as a new landlord.

•   Learn local housing laws. Housing laws can make or break you. Are short-term rentals allowed (if that’s what you’re planning)? What rights does your tenant have? If you need to evict a tenant, what does the process look like? Will you benefit by putting your property in an LLC?

There’s a lot to navigate, and you may want to consider hiring a property management company that specializes in this.

•   Determine how much to charge for rent. You’ll want to look at what other properties in the area are charging for rent and position yourself competitively. Also, consider what other landlords are allowing and charging when it comes to pets.

•   Prescreening is key. The reliability of your tenant is so important. It’s incredibly stressful when you’re not paid rent. Don’t rent to someone who “feels” like they would be a good tenant. Do your due diligence. Check credit and their background, and call references.

•   Create a plan for home maintenance, repairs, and other issues. If you’re hiring a property management company, plan for the expense. If you’re doing it yourself, make a list of contacts to call for the different issues that come up (electrical, plumbing, locks, handyman, etc.).

•   Have procedures in place for unit turnover. It’s an incredibly intense time when a tenant leaves and another needs to move in. How are you going to handle inspections? Cleaning? Deposits? You will need a system for logging such events and being prepared for turnover.

Recommended: Fixed-Rate vs. Adjustable-Rate Mortgages

The Takeaway

While landlording has a lot of responsibilities and risk, there can also be a lot of reward. If you’re really interested in buying a house while renting, you’ll find a way to make it work.

If you’re starting to shop for a new home and need a partner to help with your lending needs, see what SoFi has to offer. With a wide range of loans to choose from, low down payment options, and competitive interest rates, SoFi Mortgage Loans can be a great fit.

A SoFi Mortgage: Smart, simple, and flexible.

FAQ

How much profit should you make on a rental property?

There’s no easy answer for how much profit you should make on a rental property. Some investors buy property for the appreciation alone. There are also a number of methods for determining how much profit investors want to make on an investment property, such as cash flow, the 1% rule, gross rent multiplier, cash on cash return, cap rate, or internal rate of return. Those can help provide guidelines.

Should I buy an investment property and live in it?

If you’re able to live in your investment property, you can qualify for owner-occupied financing, which means lower down payments and better interest rates. But it also depends on your plans. If you want to renovate an investment property, living in it during renovations could be challenging.

Is rental property a good investment in 2023?

Rental demand is strong in 2023, but buying property is more dependent on your individual situation rather than market conditions.

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Photo credit: iStock/luismmolina

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

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

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