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If you’re house-hunting, you are probably spending a lot of time scrolling through online listings. And you may well wonder what certain terms mean, such as “turn-key” and “as-is.”

To help you be more efficient and less confused by the real estate jargon you will find, read this list of definitions. This intel will help you understand the message a listing is trying to send you and streamline your search.

Real Estate Listing Terms Decoded

Real estate has a language all its own. To figure out which homes may be worth looking at and which might not, you may want to use this handy real estate translator next time you peruse the listings. Consider this lingo, in alphabetical order:

1. As-is

If you see the words “as-is” in a real estate listing, proceed with some caution: This typically indicates that there are repairs or renovations that need to be done that the current owner is not going to address and is passing the burden off to the buyer. The real estate contract will likely specify this, if you do move forward with buying the home.

2. Built-ins

Built-ins are features like bookshelves, benches, or cabinets that are permanently built into the home itself, and are fairly common in older construction. Built-ins can be charming and convenient, but they can also limit the flexibility you have in arranging and decorating the space as you see fit.

3. Cozy

While this descriptor may bring to mind a comfy armchair and a steaming mug of cocoa, in real estate, “cozy” tends to mean “small.” The home may have minimal square footage, meaning each room may have very limited space.

💡 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.

4. Charming

“Charming” is often another code word for a house with a small footprint, and may also indicate an older construction — which may, indeed, be charming, but might also end up needing costly repairs and renovations.

5. Cottage

This is yet another word that sounds like it’s invoking a feeling when it may really be describing a size — and that size may be on the smaller side. Cottages tend to be one- to two-bedroom houses and, again, might also be dated.

6. Custom

While “custom” sounds cool, it may or may not be. This term indicates that the property includes some built-to-order features or additions that appealed to the previous owners. These features, however, may or may not be to your taste. Perhaps there’s a wall of windows you’ll love or a tub in the primary bedroom that you’d rather be relocated.

7. Fixer

A listing agent may use this term as a shortening of “fixer-upper.” In other words, major renovations are likely going to be needed.

Recommended: The Cost of Buying a Fixer-Upper

8. Good bones

A home with “good bones” is typically one that needs some renovation and repair, but whose original construction is solid and whose layout is desirable. In other words, the skeleton of a great home is there, but you may need to pay for home repairs and do other work to make it livable.

9. Great potential

In a similar vein to “good bones” or “hidden gem,” a home with “great potential” is typically one that provides an opportunity for the right buyer — but which likely needs some work to get there.

10. Handyman special

This is another term that can indicate that a property needs a lot of work — thus making it a good opportunity for a handy homeowner. The house may be priced lower than other, more fixed-up homes in the area.

Recommended: Home Equity vs. HELOC Loans

11. Hidden gem

These words might indicate a nice home in an out-of-the-way location or a home in a popular and trendy locale that needs some work. Either way, it can indicate that the property offers a great opportunity for the right buyer, though you may have to put in some work or make some sacrifices.

12. Investor special

That sounds like a good thing, right? But a real estate agent might use this phrase to mean that a house is in pretty rough shape. It will likely take significant work to make livable, meaning you may only be able to buy it for cash or with a rehab loan, such as an FHA 203(k) home loan.

13. Lives large

This indicates that the home may appear small in terms of square footage, but, when you are actually in the property and walking around, it feels a lot more spacious.

14. Location, location, location

This is perhaps one of the most common real estate catchphrases. This language in a listing puts a heavy emphasis on a property’s location, which could potentially indicate that the house itself leaves something to be desired.

Recommended: First-Time Homebuyer Guide

15. Loft

“Loft” indicates that the home is large, open, and airy, with high ceilings and few interior walls. The bedroom, for instance, may be situated on an open second-floor landing that looks out directly onto the living room below. This may make for a picturesque living situation, but also one with relatively little privacy.

16. Modern

Here’s a tricky one. Although you might assume “modern” means that a place is newly constructed and contemporary in style, it can also refer to mid-century modern, an era of architecture and design dating to the 1950s and 1960s with a “Mad Men” vibe.

17. Motivated seller

“Motivated seller” means that the seller is motivated to make a deal go through and may be willing to hear lower offers or make concessions to get it to happen.

18. Move-in ready

“Move-in ready” typically means a home doesn’t need any major, mandatory repairs and is ready for you to start living in as soon as you’ve closed on the property. Of course, this term does indicate that the seller probably has a lot of leverage to demand the highest possible offer on the home.

19. Natural landscaping

“Natural landscaping” might indicate that there’s actually very little landscaping at all. Rather, the property might have lots of wild-growing flora that needs to be cleared to create an organized outdoor living space, depending on your taste.

20. Original details

As with “well-maintained,” “original details” suggests that the home has some older features that you may love, but may also require some maintenance/upgrading in the future.

21. Priced to sell

“Priced to sell” often indicates that the seller is pretty set on the price they’ve offered. It may indicate that you probably won’t be able to negotiate it down too far.

22. REALTOR (in all caps)

Although “real estate agent” and “realtor” are often used interchangeably, REALTOR is actually a term trademarked by the National Association of REALTORS (NAR) . Real estate agents can only use the title REALTOR in all caps if they are members of NAR and adhere to the organization’s strict code of ethics.

23. Room to roam

A home with “room to roam” is typically one with a larger-than-average lot with room to create outdoor living/play spaces or grow a garden. Or it may indicate that the house has a rambling layout.

24. Rustic

At its best, “rustic” might mean natural wood fixtures and a kind of casual, barn-inspired style. At its worst, “rustic” might mean old, unprofessionally constructed, or poorly maintained.

25. Serious buyers only

This term is usually meant to keep casual browsers or open-house visitors who are “just-looking” at bay. The seller likely doesn’t want to waste their time with people who aren’t seriously considering making an offer.

26. TLC

Short for “tender loving care,” TLC is yet another term in real estate listings that typically indicates the home in question needs some renovations and repairs before it’s comfortable — or even livable.

27. Turnkey

Basically a synonym for move-in ready; just turn the key, and you set up your home!

28. Unique

“Unique” is another word that can go either way. It could be used to describe a lovely, one-of-a-kind feature, like a rooftop patio. Or it could be used to describe something odd-ball, like a sunroom converted into a photographer’s darkroom.

29. Up-and-coming neighborhood

An up-and-coming location is one that might actively be evolving or drawing new residents. However, it can also indicate that the neighborhood may still contain a fair number of run-down homes and have a way to go before it’s considered a hot housing market.

30. Vintage

“Vintage” is generally code for “really outdated.” Those 1960s appliances might look cute in the pictures, but how much more life do they have in them before they need to be replaced?

31. Well-maintained

This term can act as a yellow light. “Well-maintained” often indicates that a property has some age on it. (After all, if it’s new, there’s nothing that has needed maintenance yet). An older home isn’t automatically a bad thing, but it does mean you may be faced with upgrades or appliance replacements sooner rather than later.

💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).

The Takeaway

If you feel like property listings are sometimes written in a foreign language, you’re not entirely off-base. Listing agents often use terms that may be well-known in real estate circles, yet are unfamiliar to the average first-time home-buyer.

Agents may also use vague-sounding terms and phrases to make a home’s less-appealing qualities sound more attractive. Knowing how to decode real estate listings can be a great first step toward finding the perfect home.

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.

Photo credit: iStock/irina88w

*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 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.

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.

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.

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.

SOHL0623068

For many, downsizing is more accurately described as “right-sizing.” The idea of a smaller home is that it helps people live more compactly and reduce the typical avalanche of stuff.

It’s not about giving up everything, but instead deciding what’s really important and then finding ways to better incorporate those things into one’s lifestyle.

Shrinking a home’s total square footage might not be the right fit for everyone, but it does offer economic, lifestyle, and emotional benefits for some.

Read on to learn why less is more for the Americans who choose to downsize.

The Rise of Downsizing

Living minimally has always been a lifestyle choice, but in recent years, more and more people have opted to live with less. The minimalist lifestyle went mainstream with Marie Kondo’s The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing, which urges readers to get rid of items that don’t bring joy.

Downsizing as a trend goes hand in hand with minimalism, the urge to have fewer objects and live in a smaller space. It’s part of the cultural shift of valuing doing something over having something. Three-quarters of Americans value experiences more than things, one study showed.

That shift and home building data suggest that it’s not just empty-nesters looking to purchase a home with less square footage. The National Association of Home Builders reported the slight shrinking of the average home size in recent years.

The choice to downsize a house is personal, but it’s one that many homeowners are taking on.

Signs It’s Time to Downsize

No matter a person’s life stage, there are a few signs that may signal it’s time to downsize.

•   Housing expenses are too high. The traditional notion is that no more than 30% of a person’s gross income should be spent on housing costs. (The number has been debated, but the 50/30/20 rule has wide support: 50% of post-tax income goes to essential needs, including housing, 30% to discretionary spending, and 20% to savings.)

If the cost of the mortgage, upkeep, and additional home-related expenses far exceed a 30% of a person’s budget, it might be time to think about downsizing. This could apply to a retired couple now living on a fixed income or a first-time homebuyer who has a hard time paying the mortgage without roommates.

•   No ties to the location. Remote work is still common, and that could mean employees are no longer tied to their neighborhood, city, or state. Similarly, the kids might be out of school and parents no longer feel the need to stay in the school district. When a homeowner no longer feels committed to their property’s location, it might be time to consider downsizing.

•   A lifestyle change. It could stem from limited mobility or simply fewer people living in the house, but if rooms or even floors aren’t being used weekly, it could be time to try a smaller space.

•   Home equity could be used. Depending on the amount of equity a person has in their home and the value of the market, they could be sitting on a potentially huge payday. The proceeds from the sale of their home could be a significant down payment on a smaller property.

Recommended: Cost of Living By State

The Upside of Downsizing

Downsizing can sound restricting, but there’s a lot to benefit from.

•   Less upkeep. A smaller home means less upkeep overall. A bigger home requires more maintenance, cleaning, and possibly yard work.

•   More affordable. A smaller home will probably come with a smaller mortgage payment or none at all. On top of that, the less space, the less things that can go wrong in the home. Additionally, a smaller space typically means lower heating and cooling bills.

•   A fresh locale. In general, smaller homes typically cost less, so that could create the opportunity to move into a small place in a more desirable or exciting neighborhood. It could cost more on average per square foot, but with less square footage overall, up and coming neighborhoods might be attainable.

•   Freed-up money. A smaller space with fewer expenses and less upkeep can translate to a bigger budget for travel and experiences.

The Downside of Downsizing

Downsizing has its perks, but there are a few potential drawbacks to the life choice as well.

•   Less space. A smaller footprint could mean sacrificing a guest room, having fewer bathrooms, or losing some garden space. Homeowners thinking about downsizing can be forced to make tough decisions about what truly matters to them in their day-to-day living space.

•   Cost of moving. Overall, downsizing is a more affordable lifestyle, but don’t discount the cost of selling a home and the costs of moving. Remember, when selling a home, real estate agent commissions and other fees can eat up to 10% of the sales price of the home. Selling should lead to a payday, but homeowners take on expenses when prepping their property for sale. Additionally, a full-service move can cost thousands, move.org notes.

•   Stress of sorting through stuff. In a recent survey, 45% of respondents said moving is the most stressful event in life, ranked a hair above divorce or a breakup. Downsizing can be particularly stressful because not everything can go with you. It could mean parting with keepsakes; paring down heaps of clothes, shoes, books, holiday decorations, and the list goes on; or deciding to go without some beloved items because they simply don’t suit a smaller home.

•   Staying minimalist-minded. Downsizing isn’t just a one-time choice; it’s the conscious decision to live with less. The initial work of downsizing is probably the biggest hurdle to overcome, but there’s the ongoing choice to live with less and resist buying and accumulating more stuff.

How to Downsize: Steps to Get Started

•   Explore alternative housing. Before diving headfirst into downsizing, it’s worth trying out a smaller way of life. That could mean renting a smaller home for a week or two in a new neighborhood. Downsizing can mean a lot of things, from a tiny house or a condo, or moving from a four-bedroom to a two-bedroom. Getting an idea of what downsizing will mean on a personal level begins with understanding how small you’ll go.

•   Start organizing. Sorting through all your worldly possessions and deciding what to get rid of can be exhausting. Getting the organizing process underway sooner rather than later can save downsizers time and energy. Starting to live with less can make the transition a little easier.

•   Research your property’s value. Knowing the value of your current property, as well as the equity you have, can help create a road map to more affordable living. With an idea of the market value and the proceeds, you’ll have a good idea what your down payment could be.

The Takeaway

If you’re asking yourself “Should I downsize my home?” know that downsizing comes with benefits including less stuff, a smaller mortgage payment, and minimized upkeep, freeing up time and money for other pursuits.

Downsizing is about making everything simpler, down to the mortgage process and loan. A SoFi home mortgage loan comes with competitive rates, an easy online application, and help from start to finish.

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

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

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

SOHL0623049

It’s no secret that a super-hot housing market and inflation have made it hard to afford daily life in many places across America. It’s also delaying the dream of homeownership for many people.

If, however, you are free to move, you might consider putting down roots where houses are more affordable and where homeownership is potentially easier to achieve. To help you consider your options, here is a list of 10 cities where the cost per square foot of housing is lowest.

The average price in the U.S. per square foot at the time of this survey was $169, and the median home price was $397,000. Take a look at these budget-friendly options, and see if you might want to make one of them your home base.

1. Memphis, Tennessee

Average Home Listing Price: $242,500

Average Price Per Square Foot: $92

Memphis ranked as the most affordable place to live based on the cost per square foot of homes in a recent study using data from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics, and Realtor.com. Known as the birthplace of the blues, rock ‘n’ roll, and soul (not to mention where Elvis Presley lived at Graceland), Memphis is a city that is great for low-cost housing as well as music.

2. Cleveland, Ohio

Average Home Price: $183,750

Average Price Per Square Foot: $103

With the average home in Cleveland costing less than half of the national average, this Ohio city is clearly a bargain for aspiring homeowners. In addition to its parks, river frontage, and setting next to a Great Lake, it has a burgeoning foodie scene and world-class art museums.

3. Pittsburgh, Pennsylvania

Average Home Price: $210,000

Average Price Per Square Foot: $134

In the past, Pittsburgh lost some of its younger residents to metro areas with a stronger job market, but today’s affordable housing market and job growth are attracting younger residents again. There are multiple universities in the area, such as the prestigious Carnegie Mellon University, that also attract a vibrant and youthful population.

Recommended: Cost of Living by State Comparison (2023)

4. Indianapolis, Indiana

Average Home Price: $276,250

Average Price Per Square Foot: $134

Indianapolis has a lively downtown area that is quite walkable and full of fun things to do, yet it also offers big-city amenities. Those looking for a more suburban feel can enjoy outer neighborhoods that still feature plenty of shopping and entertainment venues without all the hustle and bustle of being in downtown Indianapolis.

5. Buffalo, New York

Average Home Price: $217,450

Average Price Per Square Foot: $139

Buffalo is currently experiencing a sort of renaissance thanks to a rapidly developing waterfront and being home to one of the nation’s most advanced medical corridors.

Local government support has led to an increasing number of local businesses, which means there are likely some pretty good job opportunities to be found for career builders in Buffalo.

💡 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.

6. Birmingham, AL

Average Home Price: $272,450

Average Price Per Square Foot: $144

Birmingham has plenty to recommend it, from great sports teams to root for to its craft brewery scene. Affordability is a major factor. Housing costs are less than the national median in this area. What’s more, residents tend to spend less on food, healthcare, and other typical expenses than those who are located in other areas of the country.

7. Oklahoma City, Oklahoma

Average Home Price: $282,124

Average Price Per Square Foot: $149

Oklahoma City has affordable homes, healthcare, transportation, and other basic living expenses. In addition, it has a vibrant arts scene and plenty of parks with all kinds of activities available.

Recommended: Local Housing Market Trends

8. Detroit, Michigan

Average Home Price: $217,450

Average Price Per Square Foot: $152

Detroit is a city in the midst of a turn-around. On the one hand, there are many fixer-upper and abandoned houses waiting to be rehabbed, but, on the other, the cost of living has been rising. If you want to jump into the affordable housing market and make Detroit your home, you’ll be rewarded with music festivals and the gigantic Belle Isle Park.

9. St. Louis, Missouri

Average Home Price: $245,000

Average Price Per Square Foot: $152

This historic metro area houses almost 3 million people (known as St. Louisans) and is known for being a tight-knit community that is very family-friendly. Hometown loyalty is strong in St. Louis and many residents choose to come back after heading off to college or paying to move somewhere else for a while.

💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

10. Louisville, Kentucky

Average Home Price: $252,500

Average Price Per Square Foot: $152

Families will love spending their weekends in Louisville, thanks to having easy access to the Louisville Zoo, Kentucky Science Center, and the Louisville Slugger Museum. Day by day this city is becoming more diverse! Residents are moving in from around the world and the city is supportive of the LGBTQ community.

Financing a Home

Even the most affordable homes can cost a pretty penny, which is where applying for a mortgage comes in.

Consumers may compare mortgage loan rates and terms from commercial banks, mortgage companies, and certain financial institutions. Typically, certain requirements relating to credit scores and income level help determine if a consumer will receive a mortgage and what their rates and terms are.

When preparing to get a mortgage, it can be helpful to consider multiple lenders, comparing loan terms to get an idea of what might work for an applicant’s financial situation.

Asking lenders for a preapproval or prequalification letter can help mortgage applicants better understand what type of mortgage terms they may be offered.

The Takeaway

It’s possible to find an affordable place to live, where homes cost as little as possible per square foot, and your daily budget may therefore be easier to wrangle. If you are willing to relocate and perhaps move to an up-and-coming town, you may find that your dreams of homeownership can come true sooner rather than later.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

*SoFi 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 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.

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.

SOHL0623036

Homeownership has long been a part of the American dream, and it opens the door to benefits like the mortgage interest deduction for those who itemize deductions on their taxes.

Itemizing typically makes sense only if itemized deductions on a primary and second home total more than the standard deduction, which nearly doubled in 2018.

Here’s what you need to know about the mortgage interest deduction.

What Is the Mortgage Interest Deduction?

The mortgage interest deduction allows itemizers to count interest they pay on a loan related to building, purchasing, or improving a primary home against taxable income, lowering the amount of taxes owed.

The tax deduction also applies if you pay interest on a condominium, cooperative, mobile home, boat, or recreational vehicle used as a residence. The deduction can also be taken on loans for second homes, as long as it stays within the limits.

States with an income tax may also allow homeowners to claim the mortgage interest deduction on their state tax returns, whether or not they itemize on their federal returns.

What Are the Rules and Limits?

The passage of the Tax Cuts and Jobs Act of 2017 was a game-changer for the mortgage interest deduction. Starting in 2018 and set to last through 2025, the law greatly increased the standard deduction and eliminated or restricted many itemized deductions.

For the 2022 tax year, the standard deduction is $25,900 for married couples filing jointly and $12,950 for single people and married people filing separately. For 2023, the standard deduction is $27,700 for married couples filing jointly and $13,850 for single people and married people filing separately.

If you itemize deductions, you’re good to go and can deduct the interest. There’s further good news, as you may also be able to deduct interest on a home equity loan or line of credit, as long as it was used to buy, build, or substantially improve your home.

The loan must be secured by the taxpayer’s main home or second home and meet other requirements. For tax purposes, a second home not used for income is treated much like one’s primary home. It’s a home you live in some of the time.

The IRS considers a second home that’s rented some of the time one that you use for more than 14 days, or more than 10% of the number of days you rent it out (whichever number of days is larger). If you use the home you rent out for fewer than the required number of days, it is considered a rental property—one that you never live in, and not eligible for the mortgage interest deduction.

Generally, your interest-only mortgage is 100% deductible, as long as the total debt meets the limits.

According to the Internal Revenue Service, you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of debt. Higher limitations ($1 million, or $500,000 if married filing separately) apply if you are deducting mortgage interest from debt incurred before Dec. 16, 2017.

You can’t deduct home mortgage interest unless the following conditions are met:

•   You must file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form 1040).
•   The mortgage must be a secured debt on a qualified home in which you have an ownership interest.

Simply put, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you can’t pay the debt, your home can then serve as payment to the lender to satisfy the debt.

A qualified home is your main home or second home. The home could be a house, condo, co-op, mobile home, house trailer, or a houseboat. It must have sleeping, cooking, and toilet facilities.

Know that the interest you pay on a mortgage on a home other than your main or second home may be deductible if the loan proceeds were used for business, investment, or other deductible purposes. Otherwise, it is considered personal interest and is not deductible.


💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.

How Much Can I Deduct?

No doubt you want the answer to that question. In most cases, you can deduct all of your home mortgage interest. How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.

The IRS says that if all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category.)

1. Mortgages you took out on or before Oct. 13, 1987 (called grandfathered debt).

2. Mortgages you (or your spouse if married filing jointly) took out after Oct. 13, 1987, and prior to Dec. 16, 2017, to buy, build, or substantially improve your home, but only if throughout 2020 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).

(There is an exception. If you entered into a written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and you purchased the residence before April 1, 2018, you are considered to have incurred the home acquisition debt prior to Dec. 16, 2017.)

3. Mortgages you (or your spouse if married filing jointly) took out after Dec. 15, 2017, to buy, build, or substantially improve your home, but only if throughout 2020 these mortgages plus any grandfathered debt totaled $750,000 or less ($375,000 or less if married filing separately).

The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home.

What Are Special Circumstances?

Just like you need to understand your home loan options, you need to know the special situations where the IRS says you might or might not qualify for the mortgage interest deduction.

You can deduct these items as home mortgage interest:
•   A late payment charge if it wasn’t for a specific service performed in connection with your mortgage loan.
•   A mortgage prepayment penalty, provided the penalty wasn’t for a specific service performed or cost incurred in connection with your mortgage loan.

Recommended: Guide to Buying, Selling, and Updating Your Home

Is Everything Deductible?

The government is only so generous, and there are many costs associated with homeownership. Some of them are not tax deductible under the mortgage interest deduction, like homeowners insurance premiums.

One caveat: You might be able to write off a portion of insurance, as well as utilities, repairs, and maintenance, if you have a home office and deduct those expenses on Schedule C.

Also not on the list for inclusion in the mortgage interest deduction are title searches, moving expenses, and reverse mortgage interest. Because interest on a reverse mortgage is due when the property sells, it isn’t tax deductible.


💡 Quick Tip: Have you improved your credit score since you made your home purchase? Home loan refinancing with SoFi could get you a competitive interest rate with lower payments.

How to Claim the Mortgage Interest Deduction

An itemizer will file Schedule A, which is part of the standard IRS 1040 tax form. Your mortgage lender should send you an IRS 1098 tax form, which reports the amount of interest you paid during the tax year. Your loan servicer should also provide this tax form online.

Using your 1098 tax form, find the amount of interest paid and enter this on Line 8 of Schedule A on your tax return. It’s not a heavy lift but gets a tad more complicated if you earn income from your property. If you own a vacation home that you rent out much of the time, you’ll need to use Schedule E.

Furthermore, if you’re self-employed and write off business expenses, you’ll need to enter interest payments on Schedule C.

The Takeaway

You can take the mortgage interest deduction if you itemize deductions on your taxes. Keep in mind that it’s typically only worth taking if the write-offs exceed the standard deduction.

The mortgage interest deduction, though, can be a bonus of sorts, especially if you’re a homeowner with a second home.

As with all matters that affect your taxes, you’ll want to consult with your financial advisor about claiming the deduction.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages
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.

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

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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Buying a house can be a fraught process, but when the market is hot, the days between offer and closing can feel endless, especially if the mortgage underwriter asks you to write a letter of explanation.

But there’s no need to panic or assume that your mortgage application will fail. The lender is simply seeking clarification about any potential red flags in your financial documents or credit history.

What’s a Letter of Explanation?

A letter of explanation for a mortgage explains details of your financial situation that may need further clarification. Because a mortgage is a large loan, lenders need to know that the borrower is capable of shouldering the mortgage.

Lenders also know that life can’t be boiled down to a spreadsheet, and that it’s not unusual for a mortgage application to include things like a late credit payment or a period of job loss.

To do due diligence, the mortgage underwriter will ask you to explain the situation in a brief letter, which will be added to your mortgage application. Additional documentation and paperwork may be required.


💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

Why Do I Need to Provide a Letter of Explanation?

Common issues that could trigger a request for a letter of explanation include:

• Questions about your income if you don’t have W-2s or are self-employed

• Negative items on your credit report

• Employment gaps

• Your living situation if you don’t pay any rent or mortgage

• A property income or loss you claim

• Credit lines opened after you’ve put in your mortgage application

• Large deposits to, and sometimes withdrawals from, your bank account

Must I Explain a Large Deposit?

If there’s a big or unexplained deposit to your bank account, your lender may want to know where the money came from — and whether that money needs to be paid back.

A lender may also question any uneven income streams, or if deposits don’t line up with your W-2s or your tax returns.

If you received cash from, say, a parent to help with a down payment or closing costs, you may also need a gift letter signed by the giver and recipient stating that the money was a gift, not a loan. Your lender may have a template for a gift letter.

Keep in mind that your lender may be more likely to scrutinize any large deposits or withdrawals within the last 60 days.

Letter of Explanation Template

A letter of explanation is not an autobiography or an admission that you did anything wrong. It’s simply a statement of the reason for any discrepancy or issue, along with any documentation, to back up your current financial picture.

You can keep a letter of explanation brief. It should include:

• Your name and address

• Your lender’s name and address

• A subject line that includes your application number and name

• A brief paragraph explaining the situation

• A polite closing

• Your signed full name

It might look like this:

The tone of the letter should be polite and factual. Remember: Your goal is not to pull on the lender’s heartstrings; it’s to reassure them that your application is solid and you would responsibly pay back your mortgage on time.


💡 Quick Tip: Jumbo mortgage loans are the answer for borrowers who need to borrow more than the conforming loan limit values set by the Federal Housing Finance Agency ($766,550 in most places, or $1,149,825 in many high-cost areas). If you have your eye on a pricier property, a jumbo loan could be a good solution.

4 Tips for an Effective Letter of Explanation

Although being asked to write a letter of explanation may sound like being assigned homework, it’s actually a great opportunity: It means you might be able to qualify for the mortgage you want, even with an imperfect application. Here are some tips to help ensure you get an A+ on this particularly important homework assignment.

1. Keep It Simple

When you’re asked to explain yourself, it can be easy to jump into a broad-reaching narrative starting from childhood, but the best letters of recommendation tend to be short and simple: They clarify the situation being asked about and reassure the lender that the “red flag” situation won’t affect the borrower’s ability to repay the loan.

2. Provide Clear Details

Generally speaking, you’ll want to specifically name whatever item you’re being asked about (late payments on a credit card account ending in 0101; an employment gap between 2/20/2020 and 9/07/2020; etc.).

Then explain. For instance, if you’re being asked about an employment gap, you might let the lender know that you were let go as a result of corporate downsizing and that you freelanced while searching for a new job.

If you’re being asked about late credit card payments, you might let the lender know that you were in the hospital at that time and thus unable to make your credit card payments, or whatever the case may be.

The key is to take responsibility for the issue and provide clear, pertinent details without being too wordy.

3. Be Honest

This may go without saying, but you definitely don’t want to lie in your letter of explanation. For one thing, doing so is likely to keep you from being approved for the mortgage — and for another, it can be considered mortgage fraud, a serious crime that can come with prison time and fines.

4. Acknowledge Responsibility, but Don’t Get Emotional

When writing a letter of explanation, you may be justifying negative items in your credit history that resulted from poor decisions — or just poor circumstances. Nobody’s perfect, but a lender simply wants to make sure you won’t default on your loan.

It can be helpful to acknowledge the ways you’ve adjusted your financial habits in response to a negative item. This helps to reassure the lender that it won’t have an impact on your ability to pay your mortgage.

For example, if you’re writing a letter of explanation to address late rent payments after a layoff, you might add that you’ve since saved up an emergency fund of three months of living expenses in order to avoid being financially blindsided in the future.

However, writing an emotional sob story won’t help. Remember: It’s a good idea to keep it simple, clear, honest, and as short as possible while still covering all those bases.

Getting Your Mortgage Application in Shape

Knowing what documents you need and what a mortgage lender will look at can help get your application in strong shape before you file it. Your lender will scrutinize your credit history and any late payments, especially ones within the last 12 months. But there are ways to proactively tackle any issues on your credit reports.

• Check your credit reports. Knowing what your mortgage lender may see can help you assess where any weak points may be, and what information they may ask for.

• Call the creditor if you have a recent late payment. Creditors know that accidents happen and bills may be misplaced. If your account is otherwise in good standing, it’s possible that a creditor may erase the late payment.

• Focus on additional aspects of your credit. Making sure to pay bills on time and keeping your credit utilization below 30% can help build credit.

• Think twice about opening accounts. Before and after applying for a mortgage, it can be a good idea to be mindful of opening new lines of credit or charging an extensive amount on current cards. Suddenly taking on more debt on credit cards can raise a red flag to lenders, which may result in being asked to write a letter of explanation.

Understanding how a lender will see your mortgage application can give you confidence and may help you head off any potential problems.

Recommended: Preapproved vs. Prequalified: What’s the Difference?

The Takeaway

A letter of explanation is when a mortgage lender needs clarity about a red flag or discrepancy that arises on your application. Knowing what to expect, having documentation ready, and answering any questions the lender may have can all be helpful in getting your home loan approved.

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.

Photo credit: iStock/scyther5

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.

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

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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