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The decision to buy a home is a significant milestone in life, representing stability, security, and investment. The process of purchasing a home, however, can be complex and overwhelming, especially for first-time homebuyers. There are numerous steps involved, some more complex than others, and you generally need to follow the steps in a certain order to ensure everything goes smoothly.

To help you navigate the home-buying process successfully, we’ve created a simple step-by-step home-buying checklist. Each item you cross off the list will bring you one step closer to achieving your dream of home ownership.

10 Key Steps to Buying a House

1. Determine How Much House You Can Afford

The first step in the home-buying process is to evaluate your financial situation and determine a realistic budget. While a lender can tell you how much of a mortgage you can get approved for, you may want to do some calculations on your own to make sure your budget doesn’t get stretched too thin. A general rule of thumb is to spend no more than 28% of your gross monthly income on housing costs, including mortgage (interest and principal), property taxes, insurance, and any association fees.

Using a home affordability calculator can help you determine how much house you can afford to buy by taking into account your income, debts, location, and down payment amount.

2. Make a Plan for the Down Payment

Once you have a budget in mind, you’ll need to plan for the down payment. You may have heard that you need to make a 20% down payment on a home, but that’s really just the threshold many lenders use for requiring private mortgage insurance (PMI) on a conventional loan.

The minimum down payment you need to make for a house will depend on the type of mortgage you’re planning to apply for. Loans guaranteed by the U.S. Department of Veterans Affairs (VA) usually do not require a down payment, while FHA loans, which are backed by the Federal Housing Administration, may require as little as 3.5% down.

When choosing how much to put down, however, you’ll want to keep in mind that a higher down payment brings down the principal (and lifetime interest payments), which can lower the total cost of homeownership.

3. Get Preapproved for Your Mortgage

Working with a lender to get preapproved for a mortgage is an essential step that demonstrates your seriousness as a buyer and strengthens your position in negotiations. You may want to shop around and look at mortgage offerings and rates from different lenders before you choose a lender for preapproval. Keep in mind, though, that you do not have to use the same lender to finance your loan that you use for your preapproval.

In order to get preapproved, a lender will usually require a significant amount of information and documentation. This may include:

•  Income statements (such as W2s, 1099s, and tax returns)

•  Proof of assets (such as bank statements and retirement accounts)

•  Debts (including student loans, credit cards, and any other mortgages)

•  Records of bankruptcies and foreclosures

•  Current rent

Once you submit all your paperwork, the lender will assess your financial situation and preapprove you for a specific loan amount, which will be spelled out in a preapproval letter. This letter will give you a clear understanding of your buying power. It can also come in handy when submitting an offer, since it shows sellers and real estate agents that you’re a serious buyer who will be able to get financing.

A preapproval letter is typically valid for only 90 days (sometimes less), after which it will need to be updated.

💡 Quick Tip: Buying a home shouldn’t be aggravating. Online mortgage loan forms can make applying quick and simple.

4. Find the Right Real Estate Agent

The right real estate agent can make a significant difference in your home-buying experience. A knowledgeable and experienced agent will guide you through the process, provide valuable insights, and negotiate on your behalf. Ideally, you want to choose an agent who understands your needs, has expertise in the local market, and communicates effectively. You may want to ask for recommendations from friends, family, and colleagues, then interview at least three agents before choosing the one you want to work with.

Recommended: Preparing to Buy a House in 8 Simple Steps

5. Shop for Your Home

With the help of your real estate agent, you can begin the fun part of the home-buying process — searching for your dream home. Before you start, it can be a good idea to create a list of your must-haves and nice-to-haves, considering factors such as location, size, amenities, and proximity to schools, workplaces, and amenities. This will help guide your realtor in finding the right homes to show you.

6. Make an Offer

When you find a home that fits the bill, you’ll want to work with your agent to make a competitive offer that reflects your budget and market conditions. Your agent will then prepare a complete offer package, which will include your offer price, any special terms or contingencies, your preapproval letter, and (in some cases) proof of funds for a down payment. If the seller accepts your offer, congratulations — you only have a few more steps left in the home-buying process. At this point, you will likely need to write a check that will serve as a deposit on the home. This typically goes into an escrow account.

7. Get a Mortgage

Once your offer is accepted, you’ll need to get official approval for a mortgage. You’re not obligated to go with the same lender that issued your preapproval, so you may want to shop around and compare rates and terms from different banks, credit unions, and online lenders.

If you do decide to officially apply for your loan with the same lender that did your preapproval, they already have many of the documents you’ll need for your application. However, you will likely need to provide updated and perhaps additional financial statements. If you apply with a new lender, you’ll need to supply much of the same information as you did for preapproval.

The lender will evaluate your financial information, review your creditworthiness, and conduct an appraisal of the property. You’ll want to be sure to work closely with your lender and respond quickly to any requests to ensure a smooth and timely mortgage approval process.

8. Get a Home Inspection

A home inspection is a crucial step to uncover any potential issues or defects in the property. For this step, you’ll likely need to hire a professional home inspector to assess the condition of the home, including its structure, systems, and components. The inspector will provide a detailed report highlighting any areas of concern. Once you receive the inspector’s report, you’ll want to review it with your real estate agent and discuss potential repairs or negotiating points with the seller.

9. Negotiate any Repairs or Credits with the Seller

Based on the home inspection and lender’s appraisal results, you may need to negotiate repairs or credits with the seller. Your real estate agent will guide you through this process, helping you assess the necessary repairs/credits and determine fair solutions.

Your ability to negotiate with the seller will likely depend on the current real estate market. If it’s a hot seller’s market, for example, it may be challenging to get concessions, since the seller can move on to the next offer. However, if it’s an issue that will likely come with other buyers, you may have success. In a buyer’s market, there will typically be more room for negotiation at this stage of the process.

10. Close the Sale

The final step in the home-buying process is the closing. During the closing, you and the sellers will sign legal and financial documents and ownership of the property is transferred to you. It’s important to review all the closing documents carefully, including the settlement statement, loan documents, and homeowner’s insurance. You’ll also need to provide all the necessary funds, including the down payment and closing costs. Once the final paperwork is executed, you will receive the keys to your new home. Congratulations, you’re a homeowner!

The Takeaway

Buying a home is a multi-step process that starts with assessing your current income and expenses and determining how much you can afford to spend on a home. You then need to start saving up for a downpayment, get preapproved for financing, and find the right home. Once you have an offer accepted, it’s time to secure a mortgage, conduct an inspection, negotiate repairs, and close on the sale. It’s a lot. But taking a systematic approach — and following a home-buying checklist — can help ensure a smooth and stress-free home-buying experience.

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.

FAQ

What are the 3 most important things when buying a house?

Three of the most important things to consider when buying a house are:

•  Location The location of a property impacts your life in a number of key ways, including commute times, access to amenities, schools, safety, and future property value.

•  Affordability A home’s affordability includes not just the purchase price but also ongoing expenses, such as mortgage payments, property taxes, insurance, and maintenance costs. You’ll want to be sure you can comfortably afford the monthly payments without stretching your finances too thin.

•  Condition of the property It’s important to assess the condition of the property through an inspection before you buy. Consider factors such as age, maintenance requirements, repairs needed, and potential future costs.

What is the most difficult step in buying a house?

Securing financing and obtaining a mortgage is often the most challenging step in buying a house. To qualify for a mortgage, you generally need to meet certain criteria, understand various mortgage options, and navigate the loan approval process, which involves providing extensive financial documentation and meeting strict timelines.

What are the 5 phases of buying a home?

The process of buying a home can be broken down into five distinct phases:

•  Planning and preparation This involves evaluating your finances, establishing a budget, saving for a down payment, and obtaining preapproval for a mortgage.
Property search In this phase, you actively search for properties that align with your criteria and budget.

•  Offer and negotiation Once you find your ideal property, you submit an offer to the seller. This phase may involve negotiation, where you and the seller work to find mutually acceptable terms with the help of your real estate agent.

•  Closing process The closing process includes reviewing and signing various legal and financial documents, such as the purchase agreement, mortgage paperwork, and insurance policies.

•  Ownership and moving in At this stage, you complete the closing, make the necessary payments, and receive the keys to your new home. You may also need to coordinate with movers, set up utilities, and take care of other logistics related to the move.

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.

*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.

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The monthly cost of a $150K mortgage will vary depending on the type of loan, the interest rate, and the length of the loan. Mortgage loan terms are typically either 15 years or 30 years. The monthly payments for a 15-year loan are significantly higher than those for a 30-year loan, however the lifetime cost of a shorter loan term is usually lower because, overall, you will pay less interest.

There are also additional costs to consider, such as private mortgage insurance (PMI) charged on some loans, condo or HOA fees, and any hazard insurance that may be required because of the location of the home. Here’s a look at how much a $150,000 mortgage might cost per month for a 15-year and 30-year loan term.

Total Cost of a $150K Mortgage

A $150,000 30-year mortgage with a 6% interest rate costs around $900 a month. The same loan over 15 years costs around $1,266 a month. However, these are just estimates; the exact costs will depend on your loan’s term and other “hidden” costs.

The monthly payment includes the principal and interest, but additional possible line items are escrow, taxes, and insurance. There are also upfront costs, or closing costs, that are paid when the purchase is initially finalized.

Upfront Costs

Upfront costs are the costs you pay once your offer on a home has been accepted. They are typically called closing costs, and some of them might be covered by your down payment.

Earnest Money

Also known as a good faith deposit, this is the amount you put down to show the seller you are serious about buying their property. This will differ based on the price of the home.

Down Payment

Your down payment will likely be the biggest upfront cost you will have. The amount will vary depending on your lender, but typically it will be between 3% and 20% of the cost of the house. The more you can afford as a down payment, the lower your total loan will be, and the less you will have to pay each month in principal and interest. The following are the typical minimum down payments for the various types of home loans:

•   Conventional loan with mortgage insurance: 3%

•   Conventional loan without mortgage insurance: 20%

•   Federal Housing Administration loan: 3.5%

•   Veteran Affairs loan: 0%

•   U.S. Department of Agriculture loan: 0%

Closing Costs

The lender that makes your home mortgage loan will charge administration fees, including the origination fee, underwriting fees, and application fees. You can also expect to pay taxes associated with transferring the title on the property, and you may need to pay for the cost of the home’s appraisal at the closing as well.

Bear in mind that your mortgage lender may want to see that you have enough money in your bank account to pay for at least two months of mortgage payments after paying closing costs and the down payment. This amount is called “reserves.” It’s not something that you will have to pay, but it is an amount you may need to show will be available to you after you have paid other expenses.

Long-Term Costs

The biggest long-term cost of buying a home is usually the monthly mortgage payment, which includes a portion of the principal (the amount you borrowed) plus the interest. Here are some other costs you can expect:

Property Taxes

The seller or their real estate agent should be able to give you a sense of what the annual property taxes will be on your new home, although taxes may change annually.

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

HOA, Condo, or Co-op Fees

Some homes are part of a condominium association, a co-op, or a Homeowners Association (HOA). Homeowners pay a monthly fee and receive benefits, such as grounds maintenance, use of a community center, or snow removal. These fees can range anywhere from $100 to $1,000 a month, depending on the association and location.

Home Upkeep

Home repair costs are highly variable but as a general rule you can expect to pay out around 1% of the home’s value each year for routine maintenance.

Insurance

You will of course need to insure your new home and its contents. You might also need to purchase hazard insurance if your area is at high risk for floods, earthquakes, wildfires, severe storms, or other natural disasters. The cost of hazard insurance can be between 0.25% to 0.33% of the home’s value for a year-long policy.

If you paid a smaller down payment, your mortgage lender may also require you to pay monthly private mortgage insurance (PMI) because you are considered a higher risk.

Estimated Monthly Payments on a $150K Mortgage

The table below shows the estimated monthly payments for a $150,000 mortgage loan for both a 15-year and a 30-year loan with interest rates varying from 4% to 8%.

How Much Interest Is Accrued on a $150K Mortgage?

The amount of interest you pay on a $150,000 mortgage will depend on the length of the loan and the interest rate. For a 15-year loan with a 6% interest rate, the interest would amount to around $77,841 over the life of the loan. For a 30-year loan with a 6% interest rate, the interest would amount to $173,757, which is more than double.

$150K Mortgage Amortization Breakdown

An amortization schedule for a mortgage loan tells you when your last payment will be. It also shows you how much of your monthly payment goes toward paying off the principal and how much goes toward paying off the interest. Most of your payment will be used to pay off the interest early on in the loan term.

Below is the mortgage amortization breakdown for a $150,000 mortgage with a 6% interest rate for a 30-year loan.

SoFi offers a mortgage calculator that shows the amortization of a property of any value and for any down payment or interest rate.

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

What Is Required to Get a $150K Mortgage?

Getting any mortgage usually requires both an adequate income and a large enough down payment. This home affordability calculator shows you how much of a mortgage you can afford based on your gross annual income, your monthly spending, your down payment, and the interest rate.

The Takeaway

The payments on a $150,000 mortgage will depend on the term of the loan and the interest rate. As a general rule, the shorter the term of the loan, the less interest you will pay over its lifespan.

In addition to your $150,000 mortgage payment, you can also expect to pay upfront closing costs and additional costs over the years that you are a homeowner. SoFi’s home loan help center has information and calculators that can help you decide how much of a mortgage you can afford considering the upfront and hidden costs. There are special considerations — and special mortgage assistance programs — if you are a first-time buyer.

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.

FAQ

What will monthly payments be for a $150K mortgage?

Your monthly payment for a $150,000 mortgage will depend on the interest rate and the term of the loan. The payment for a $150,000 30-year mortgage with a 6% interest rate is approximately $900. The same loan over 15 years costs $1,266 each month.

How much do I need to earn to afford a $150K mortgage loan?

Assuming you go with a 30-year mortgage at an interest rate of 6%, you would need to earn about $50,000 a year in order to cover your mortgage plus insurance and property taxes. (As a general rule, lenders recommend these costs not exceed 28% of your gross earnings.)

How much down payment is required for a $150K mortgage loan?

The down payment you are expected to pay on a home depends on the lender. The more you pay upfront, the lower your loan amount and the lower your payments will be. Conventional wisdom says your down payment should be 20%. Some lenders will accept a down payment as low as 3%, but you may have to purchase private mortgage insurance.

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

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

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

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

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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.

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.

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

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility 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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With more than 150 million users in 191 countries worldwide, Airbnb has the power to draw guests from all over and boost income for owners. The average Airbnb host earns over $13,800 per year, or $163 per night. However, if the rental is in a high-demand area, it could be much more.

It’s an interesting way to make money, but how does Airbnb work for owners? Let’s take a look at Airbnbs, how they work, and what’s involved in running one. Stick around and you’ll be able to decide if being an Airbnb host suits your style.

What Is Airbnb?

Airbnb is a company that connects guests with hosts. Bookings, payments, and customer service issues can be handled through its platform.

Airbnb does not own any properties — it is simply a booking service. The real value of Airbnb is how ubiquitous it is. Guests looking for units with cooking facilities or unique stays will check Airbnb first. Potential hosts know Airbnb as an opportunity to make extra cash. Bringing these two groups of people together is the magic of Airbnb.

How Does Airbnb Work?

The concept behind Airbnb is pretty simple:

1.    A host lists a property on the platform.

2.    A guest finds the property and books through Airbnb.

3.    The host approves (or denies) the reservation.

4.    Payment is processed.

5.    The guest completes the stay.

6.    Hosts are paid about 24 hours after guests check-in.

How Airbnb works for owners is much like a hotel, where visitors change frequently. The average guest books a unit for four nights, though it is also common for hosts to see guests book longer stays. The short-term rental market is much different from the market a traditional landlord sees.

💡 Quick Tip: Traditionally, mortgage lenders like to see a 20% down payment. But some lenders, such as SoFi, allow home mortgage loans with as little as 3% down for qualifying first-time homebuyers.

Who Books on Airbnb?

The guests who book on Airbnb come from the company’s 150 million users. The site is widely known and easy to use.

One of the things to know when renting out an Airbnb is that hosts have a lot of control over who is able to book their Airbnb. Hosts can specify guest requirements in the booking settings. These requirements can include positive reviews from previous stays on the guest’s profile, agreement to house rules, and ID upon check-in.

How Does Airbnb Work for Hosts?

So, exactly how does Airbnb work for homeowners?

Hosts own and manage the properties on Airbnb. The hosts determine the conditions of the rental, such as:

•   Check-in and check-out times

•   The rental rate

•   Cleaning fees

•   How guests access the unit

•   What areas and amenities are available for guest use

•   House rules

•   Cancellation policy

Recommended: Is Investing in Single-Family Homes a Good Idea?

Hosts sign up for Airbnb so that their property is listed on the website. Guests can browse these listings and choose what property they think will work best for them.

When hosts sign up to receive guests, they provide details on the type of property, whether it’s shared or private, how many guests can stay, how many bedrooms there are, how many beds there are, if the bathrooms are shared or private, and so on.

Hosts will set the price. Airbnb has a suggested range for similar properties in your area, but you can set it to whatever you want. The next page asks if you want to offer any discounts. You can select from:

•   20% new listing discount off your first three bookings

•   10% weekly discount

•   20% monthly discount

Good photos of the property are essential. Hosts will also add a title and description of the property. They can open the reservation up to anyone or narrow it to an experienced Airbnb user who has good reviews.

They can also select what amenities are available. Basics include TV and Wi-Fi, a kitchen, air conditioning, and free or paid parking. But some properties advertise an indoor fireplace or outdoor grill, a fire pit, pool table, or lake or beach access. A piano or outdoor shower or the ability to ski in/out of the property might draw guests looking for these specific features.

As you finish, you’ll set up your calendar, select a cancellation policy, set house rules, choose how guests can book, and prepare for your first guest. You’ll also select the safety features in the home, such as a smoke alarm, carbon monoxide detector, fire extinguisher, and first-aid kit.

Recommended: First-Time Homebuyer Programs

How Much Can You Earn With Airbnb?

While the average host earns $13,800 per year, there are a lot of hosts who make much more, and some homeowners find income from Airbnb to be a viable way to make payments on their home mortgage loan. Several variables come into play when it comes to how you can earn with an Airbnb.

•   Location. Location matters when you’re hosting an Airbnb. If you’re near national parks or city centers, you may be able to charge more for your rental. If you’re in a suburban area that doesn’t receive many visitors, it may be a bit harder (but not impossible) to regularly rent out your unit.

•   Dates. If you’re renting out an Airbnb unit during peak season or a date near a concert or popular festival, you may be able to charge more than during a down season.

•   Number of beds and guests you can accommodate. Generally, the bigger your place, the more you can charge. Guests can justify spending more on a rental unit if they are able to split the cost with other guests.

•   Luxe digs. If your property is unique or incredibly luxurious, you may be able to rake in more money per night.

💡 Quick Tip: Apply for a cash-out refi for a home renovation, and you could rebuild the equity you’re taking out by improving your property. Plus, you may be able to deduct the additional interest payments on your taxes.

How Much Does It Cost to List on Airbnb?

It doesn’t cost you anything to list your property on Airbnb. The company only charges homeowners its fee once a property is booked by a guest.

How Much Does Airbnb Take From a Host?

Airbnb charges hosts 3% of the booking subtotal (the nightly charge plus the cleaning fee, which the host sets). But that’s not the only fee the company collects. When guests book, they pay a 14% service fee that goes directly to Airbnb.

Airbnb says these fees help the process run smoothly by covering customer support, marketing to guests, protection for hosts, and educational resources for hosts.

What Kind of Property Can You Advertise on Airbnb?

There are all kinds of Airbnbs that can make homeowners some extra money, from renting out extra rooms to hosting guests in a private villa. Guests can stay in a house, apartment, or in an individual bedroom within a home, which may or may not have a private entrance. If you’ve invested in a duplex, renting out one-half of the property on Airbnb could be an option.

Some hosts rent an RV parked on their property, or a houseboat, treehouse, tent, or yurt. (And if you happen to own a castle, cave, Moroccan riad, or windmill, you’re welcome to rent that out as well.)

The only requirement Airbnb has is that the space is used specifically for lodging, and that if it is a boat or mobile home, it will be semi-permanently attached to a set location and parked in a privately owned space. Bear in mind that your municipality, homeowners association, or condominium rules may also govern what you can do with your property.

Recommended: What is a Duplex?

How to Become an Airbnb Host

If you already have a property that can be converted to a short-term rental and a municipality that allows it, becoming an Airbnb host boils down to signing up for the service and adding pictures of your listing. You’ll start to earn money once bookings are complete.

If you don’t already have a property, you can work with a real estate agent to acquire one. You’ll want to look for a property in an area that is legal for short-term rental. You may want one that is in a high-demand area, commands a strong rental rate, has abundant support services (cleaning services, handyman services, etc.), and has the potential to rent out multiple rooms or beds.

The Takeaway

How does Airbnb work for homeowners? Property owners host guests who find their listing on the Airbnb platform. After check-in, hosts get paid, less a percentage of the nightly rental rate and cleaning fee. It’s a solid way to make extra cash if you’re willing to supervise bookings and cleaning. Some owners even purchase properties with Airbnb rentals in mind.

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.

FAQ

How much does it cost to list on Airbnb?

There is no charge to list your property on Airbnb. Airbnb takes its fee — typically 3% — from the total booking fee a guest pays (usually a nightly charge plus a cleaning fee). Guests also pay a fee, usually 14% of the booking subtotal.

How much do homeowners make on Airbnb?

The average Airbnb host makes $13,800 per year, though the amount you make will vary based on your location, number of guests you can accommodate, and condition of the property.

How do I Airbnb my own house?

Any owner can create a listing on Airbnb for free. You’ll want to make sure your local government or homeowners association allows short-term rentals and you’ll need to set up your house with amenities and arrange for cleaning before and after each stay. Don’t forget to explore Airbnb’s insurance policy to make sure you’re comfortable with the coverage.

Do homeowners stay with you in Airbnb?

Some homeowners rent rooms within their own living space and might be present during a guest’s stay. Other homeowners rent their personal space but clear out during the guest’s visit. And some host guests in properties they own specifically for use as short-term rentals.

Photo credit: iStock/CreativaStudio

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

SoFi 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.

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.

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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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.

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.

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.

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.

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.

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 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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