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A mortgage lien may sound scary, but any homeowner with a mortgage has one. It’s simply the legal claim that your mortgage issuer has on your home until you have paid off your mortgage.

Then there are involuntary liens, which can be frightful. Think tax liens, mechanic’s liens, creditor liens, and child support liens.

What Is a Mortgage Lien?

Mortgage liens are part of the agreement people make when they obtain a mortgage loan. Not all homebuyers can purchase a property in cash, so lenders give buyers cash upfront and let them pay off the loan in installments, with the mortgage secured by the property, or collateral.

If a buyer stops paying the mortgage, the lender can take the property. If making monthly mortgage payments becomes a challenge, homeowners would be smart to contact their loan servicer or lender immediately and look into mortgage forbearance.

Mortgage liens complicate a short sale.

They will show up on a title report and bar the way to a clear title.

Recommended: Tips When Shopping for a Mortgage

Types of Liens

Generally, there are two lien types: voluntary and involuntary.

Voluntary

Homebuyers agree to a voluntary, or consensual, lien when they sign a mortgage. If a homeowner defaults on the mortgage, the lender has the right to seize the property.

Voluntary liens include other loans:

•  Car loans

•  Home equity loans

•  Reverse mortgages

Voluntary liens aren’t considered a negative mark on a person’s finances. It’s only when a borrower stops making payments that the lien could be an issue.

Involuntary

On the other side of the coin is the involuntary, or nonconsensual, lien. This lien is placed on the property without the homeowner’s consent.

An involuntary lien could occur if homeowners are behind on taxes or homeowners association payments. They can lose their property if they don’t pay back the debt.

Property Liens to Avoid

Homeowners will want to avoid an involuntary lien, which may come from a state or local agency, the federal government, or even a contractor.

Any of the following liens can prohibit a homeowner from selling or refinancing property.

Judgment Liens

A judgment lien is an involuntary lien on both real and personal property and future assets that results from a court ruling involving child support, an auto accident, or a creditor.

If you’re in this unfortunate position, you’ll need to pay up, negotiate a partial payoff, or get the lien removed before you can sell the property.

Filing for bankruptcy could be a last resort.

Tax Liens

A tax lien is an involuntary lien filed for failure to pay property taxes or federal income taxes. Liens for unpaid real estate taxes usually attach only to the property on which the taxes were owed.

An IRS lien, though, attaches to all of your assets (real property, securities, and vehicles) and to assets acquired during the duration of the lien. If the taxpayer doesn’t pay off or resolve the lien, the government may seize the property and sell it to settle the balance.

HOA Liens

If a property owner in a homeowners association community is delinquent on dues or fees, the HOA can impose an HOA lien on the property. The lien may cover debts owed and late fees or interest.

In many cases, the HOA will report the lien to the county. With a lien attached to the property title, selling the home may not be possible. In some cases, the HOA can foreclose on a property if the lien has not been resolved, sell the home, and use the proceeds to satisfy the debt.

Mechanic’s Liens

If a homeowner refuses to pay a contractor for work or materials, the contractor can enforce a lien. Mechanic’s liens apply to everything from mechanics and builders to suppliers and subcontractors.

When a mechanic or other specialist files a lien on a property, it shows up on the title, making it hard to sell the property without resolving it.

Lien Priority

Lien priority refers to the order in which liens are addressed in the case of multiple lien types. Generally, lien priority follows chronological order, meaning the first lienholder has priority.

Lien priority primarily comes into play when a property is foreclosed or sold for cash. The priority dictates which parties get paid first from the home’s sale.

Say a homeowner has a mortgage lien on a property, and then a tax lien is filed. If the owner defaults on their home loan and the property goes into foreclosure, the mortgagee has priority as it was first to file.

Lien priority also explains why lenders may deny homeowners a refinance or home equity line of credit if they have multiple liens to their name. If the homeowner were to default on everything, a lender might be further down the repayment food chain, making the loan riskier.

How to Find Liens

Homeowners or interested homebuyers can find out if a property has a lien on it by using an online search. Liens are a public record, so interested parties can research any address.

For a DIY approach:

•  Search by address on the local county’s assessor or clerk’s site.

•  Use an online tool like PropertyShark.

Title companies can also search for a lien on a property for a fee.

If sellers have a lien on a property they’re selling, they’ll need to bring cash to the closing to cover the difference. If the seller doesn’t have enough money, the homebuyer is asked to cover the cost, or they can walk away from the deal.

How Can Liens Affect Your Mortgage?

An involuntary lien can affect homeowners’ ability to buy a new home, sell theirs, or refinance a mortgage. Lenders may deem the homeowner too big a risk for a refinance if they have multiple liens already.

Or, when homeowners go to sell their home, they’ll need to be able to satisfy the voluntary mortgage lien or liens at closing with the proceeds from the sale. If they sell the house for less than they purchased it for or have other liens that take priority, it may be hard to find a buyer willing to pay the difference.

Liens can also lead to foreclosure, which can impede a person’s chances of getting a mortgage for at least three to seven years.

How to Remove a Lien on a Property

There are several ways to remove a lien from a property, including:

•  Pay off the debt. The most straightforward approach is to pay an involuntary lien, or pay off your mortgage, which removes the voluntary lien.

•  Ask for the lien to be removed. In some cases, borrowers pay off their debt and still have a lien on their property. In that case, they should reach out to the creditor to formally be released from the lien and ask for a release-of-lien form for documentation.

•  Run out the statute of limitations. This approach varies by state, but in some cases, homeowners can wait up to a decade and the statute of limitations on the lien will expire. However, this doesn’t excuse the homeowner from their debt. It simply removes the lien from the home, making it easier to sell and settle the debt.

•  Negotiate the terms of the lien. If borrowers are willing to negotiate with their creditors, they may be able to lift the lien without paying the debt in full.

•  Go to court. If a homeowner thinks a lien was incorrectly placed on their property, they can file a court motion to have it removed.

Before taking any approach, you might consider reaching out to a legal professional or financial advisor to plan the next steps.

Recommended: Home Loan Help Center

The Takeaway

Liens can be voluntary and involuntary. Many homeowners don’t realize that the terms of their mortgage include a voluntary lien, and as long as you make your mortgage payments this is nothing to be concerned about. It’s involuntary liens that homeowners would be smart to avoid.

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 type of lien is a mortgage?

A mortgage lien is a voluntary lien because a homeowner agrees to its terms before signing the loan.

Will having a lien prevent me from getting a new loan?

Some liens can keep people from getting new loans. Lenders are unlikely to loan applicants money if they have multiple liens.

Is it bad to have a lien on my property?

A mortgage lien is voluntary and not considered bad for a borrower. But an involuntary lien prohibits owners from having full rights to their property, which can affect their ability to sell the home.

How can I avoid involuntary liens?

Homeowners can avoid involuntary liens by staying up to date on payments, including property taxes, federal income taxes, HOA fees, and contractor bills.

Can an involuntary lien be removed?

Yes, an involuntary lien can be removed in several ways, including paying off the debt, filing bankruptcy, negotiating the debt owed, and challenging the lien in court.

Photo credit: iStock/adaask
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.

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

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

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

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.

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

SOHL-Q324-041

Guaranteed by the Federal Housing Administration, FHA 203(b) and FHA 203(k) loans are both types of mortgages with more flexible credit and income requirements than conventional mortgages. While the FHA 203(b) loan is the flagship loan program for homebuyers, 203(k) loans can help you buy a fixer-upper in need of significant repair. A 203(k) loan can roll repair costs into the mortgage amount. Learn more about FHA 203(b) vs 203(k) and their key similarities and differences.

Note: SoFi does not offer FHA 203(b) or FHA 203(k) loans at this time.

FHA 203(b) Loans

Often simply referred to as FHA loans, FHA 203(b) loans are mortgages for homebuyers. Current homeowners can also use FHA 203(b) loans to refinance their home loan.

What Is an FHA 203(b) Loan?

FHA 203(b) loans are insured by the Federal Housing Administration and may be more accessible to borrowers with less-than-stellar credit or a high debt-to-income ratio than conventional mortgages.

There’s lots to learn about the basics of FHA loans, but here are some highlights: You can use one to purchase a single-family home or a property with up to four units. (FHA borrowers must make the property their primary residence for at least one year.) Whatever type of property you choose, it must pass the FHA’s appraisal and inspection standards. Basically, the home must be in good condition and not require major repairs or renovations.

FHA loans come with both upfront and annual mortgage insurance premiums. The upfront cost is 1.75% of your loan amount and is collected at closing. The annual costs vary depending on your loan-to-value ratio and other factors. You’ll pay MIP (mortgage insurance) for 11 years if your down payment is 10% or higher. If your down payment falls below 10%, you’ll pay MIP for the life of the loan.

Eligibility Requirements

While FHA 203(b) loans are insured by the Federal Housing Administration, you’ll have to apply for one through a participating lender, such as a bank or credit union. Here are the eligibility requirements borrowers must meet:

•   Credit score of 500 or higher: You can qualify with a credit score as low as 500 if your down payment is at least 10%. If your down payment is lower, you generally need a credit score of 580 or higher.

•   Down payment of at least 3.5%: You must provide a minimum down payment for an FHA loan of 3.5%, but a down payment of 10% or higher can mean a lower credit score requirement and fewer years of MIP payments.

•   Debt-to-income (DTI) ratio no higher than 43%: Your DTI compares your monthly debt obligations with your income.

•   Loan size that falls within FHA limits: The limits vary by property size but currently fall between $498,257 and $1,149,825 for one-unit properties.

Property Requirements

You won’t need an inspection to obtain an FHA loan, but before a lender can issue you an FHA 203(b) loan, an official appraiser needs to check that the property meets FHA standards for safety, security, and soundness. The appraiser will check out the interior and exterior of the home and look for features such as:

•   Functional home systems and appliances

•   A well-ventilated basement or crawl space

•   Working plumbing with hot and cold water

•   A roof with at least two years of life left

•   A durable foundation with sufficient drainage

The home must meet the FHA’s minimum property standards in order to be eligible for FHA loan financing. It should also adhere to FHA flipping rules, designed to prevent borrowers and lenders from falling prey to fraud.

Found a home that needs significant work? Then you might be better off with an FHA 203(k) loan.

FHA 203(k) Loans

The FHA 203(k) loan program is geared toward fixer-uppers that need major repairs. Here are the details of FHA 203(k) loans, including how they work and their eligibility requirements.

What Is an FHA 203(k) Loan?

FHA 203(k) loans help homebuyers finance the purchase of a home and the costs of its repairs in a single mortgage. There are two types: the limited 203(k) loan and the standard 203(k) loan.

The limited 203(k) loan lets you finance up to $35,000 in your mortgage for repairs and upgrades. The standard 203(k) loan doesn’t specify a maximum limit, but it’s designed for major repairs that will cost at least $5,000.

The total property value and cost of repairs, however, must still fall within the FHA’s maximum mortgage limits. Some projects that a 203(k) loan could cover include:

•   Fix water damage

•   Perform electrical repairs

•   Repair or replace major appliances

•   Repair termite or pest damage

•   Complete unfinished renovation projects

Eligibility Requirements

The eligibility requirements for an FHA 203(k) loan are similar to those of an FHA 203(b) loan. You’ll need a credit score of at least 500 or 580, depending on your down payment size, and a DTI ratio no higher than 43%. The minimum down payment requirement is 3.5% and the loan comes with upfront and annual MIP costs.

Property Requirements

If you apply for a 203(k) loan, an official appraiser will check out the property and gather details on its interior and exterior structure. The home must be in need of at least $5,000 in repairs to qualify for the standard 203(k) loan. You generally need to complete the work within six months.

Recommended: Home Loan Help Center

Comparing FHA 203(b) and FHA 203(k) Loans

In a survey of FHA 203(b) vs. 203(k) loans you’ll see lots of similarities. Both are insured by the FHA and have less strict credit and DTI requirements than conventional mortgages. Plus, they require only a 3.5% down payment, making them accessible to homebuyers with limited funds upfront.

However, 203(b) loans are meant to help you buy a turnkey house that is more or less move-in ready. The home must meet the FHA’s minimum property standards and not have any major structural issues or damage.

A 203(k) loan, on the other hand, can be used to finance a fixer-upper that needs work. This type of loan lets you roll the repair costs into the mortgage so you don’t have to pay for them out of pocket. However, you’ll need to finish the work within a certain time frame.

Deciding Between FHA 203(b) and FHA 203(k)

A 203(b) loan is the more common choice among FHA loans. It could be a good fit if you want to buy a home or invest in a property that’s in relatively good condition. An FHA 203(k) loan, meanwhile, could make sense if you’re looking to buy a home in need of repair. Keep in mind, though, that you’ll end up paying interest on any repair costs that you roll into the mortgage. Plus, FHA 203(k) loans can have slightly higher interest rates than their 203(b) counterparts.

Recommended: Tips to Qualify for a Mortgage

Applying for FHA 203(b) and FHA 203(k) Loans

If you’ve studied an FHA loan guide and think this type of loan is for you, you can apply for an FHA 203(b) or 203(k) loan with a lender that issues these types of loans. It’s a good idea to explore your options for both FHA loans and conventional mortgages to determine which type of financing would be most affordable for you.

Lender Requirements

The lender has to abide by Federal Housing Administration criteria, but they might set even higher requirements. Some companies, for example, will only consider potential FHA borrowers with a credit score of at least 580. It could be worth shopping around to find a lender with requirements that you can meet for credit score, DTI ratio, and other financial factors.

Required Documentation

As with any type of mortgage, you’ll need to provide a bunch of documentation to get an FHA loan. This may include:

•   Income tax returns

•   W-2s or 1099s

•   Pay stubs

•   Bank account statements

•   Investment account statements

•   Identification

The lender will also run a credit check to review your credit.

Application Process

You’ll need to fill out an application for your FHA loan with your personal and financial details, as well as information on the property and your down payment amount. After submitting the application, you’ll likely encounter the following steps:

•   Schedule an appraisal: An FHA-approved appraiser will evaluate the property and determine its market value.

•   Wait for loan underwriting: The lender will verify your information and process your loan. You may be asked to submit additional information or documentation during this time.

•   Close on your loan: Once everything goes through, you can close on your loan, provide your down payment, and move forward with purchasing your new home.

If you’re applying for an FHA 203k loan, you may need to work with a consultant, who will estimate repair costs for the home. Working with a licensed contractor who understands the 403k loan requirements may also be part of the process. Once the work is finished, the consultant will evaluate the project to ensure it meets FHA standards.

The Takeaway

FHA loans can be a useful financing option for homebuyers who may not be able to meet the credit and DTI ratio requirements for a conventional mortgage, though they do come with mortgage insurance premiums that can increase the cost of borrowing. A 203(b) loan can help you purchase a move-in ready home, while a 203(k) loan can be used to finance renovations and repairs.

FAQ

Can I use an FHA 203(k) loan for a new construction home?

FHA 203(k) loans can only be used for properties that are at least one year old.

Are there limits on the renovation costs for an FHA 203(k) loan?

With a limited FHA 203(k) loan, homebuyers can finance up to $35,000 in their home loan to repair their home. A standard 203(k) loan, on the other hand, can finance major rehabilitation and repairs as long as the costs are at least $5,000. The total cost of the loan and renovation cannot exceed the FHA Maximum Loan Limit which in 2024 is $498,257 for a single-family home in most places.

Are interest rates different for 203(b) and 203(k) loans?

FHA 203(k) loans typically have interest rates that are about 0.75% to 1.00% higher than standard FHA loans, according to The Mortgage Reports.

Photo credit: iStock/andresr

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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.

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.

SOHL-Q324-020

Homebuyers who want modern touches and few maintenance worries may opt to purchase new construction or have a home built to order.

In mid-2024, the median price of a new home was $429,800, according to the U.S. Census Bureau. As homebuyers have found a shortage of existing homes on the market in recent years, new-home construction has worked to fill the gap and consumers may find builders offering incentives to choose new construction. You’ll want to understand the market and learn some of the lingo.

Understanding New Construction Homes

On the upside, newly constructed homes can come with warranty-backed electronics, energy efficiency, and high-end features.

But new construction isn’t without potential snags, such as construction delays and the mounting price of upgrades.

The type of new construction you choose will determine cost and ability to customize and may also affect your home loan options.

•   Tract homes. These go up in a builder’s new development. The buyer chooses the lot and design features.

•   Spec homes. These are move-in-ready homes, but the buyer still might be able to choose some of the finishings. It’s a good idea to understand the difference between standard property features and upgrades.

•   Custom homes. A builder tailors a house to the buyers’ specifications on their land.

How Do I Buy a New Construction Home?

A first step is to get preapproved for a mortgage and hire a real estate agent. You’ll choose a builder, go over your desired home features, and sign the builder contract, which will include the anticipated timeline, the cost, and all other details.

Mortgage options for a tract or spec home are the same as buying an existing home: conventional or government-backed home loans.

Those who are building a custom home might use a construction loan for the build and then obtain a mortgage once the home is complete. There are, however, FHA, VA, USDA, and conventional construction-to-permanent loans, also called single-close loans.

Figuring Out the Costs of New Construction

How much does it cost to build a new house? For 2,500 square feet, it could cost $345,000, but of course, there are lots of variables, including location, the price of labor and materials, and your tastes.

For a spec home, it might be a good idea to look at comparables in your area. For a new build, HomeAdvisor suggests budgeting the amount each project of the home requires as well as the necessary time to build.

In normal times, expect to spend about 50% of your budget on materials, HomeAdvisor says.

Buying a staged model house? The upgrades are considered marketing costs, and the home may have been walked through many times. You might have lots of room to negotiate.

Pros and Cons of Building or Buying a New Construction Home

Buying new has its pros and potential cons.

Pros

Everything’s New. Novelty can be a lure all its own. From a practical standpoint, new items signal less maintenance for years.

Additionally, with a from-scratch property, homebuyers may also be able to build their house on the precise plot of land that they want. Buying an existing home could mean having more neighbors nearby or less choice about the size or borders of the property.

Warranties. Appliances, roofing, and the HVAC system may be covered by manufacturer and construction warranties. Replacement or repair may be guaranteed for years, which can be a big relief when buying new construction as opposed to buying an existing home. Ask most homeowners about typical home repair costs. They are the opposite of fun.

Energy Efficiency. Homebuilding has been moving toward energy efficiency, or green architecture. Features like solar panels, treated windows, efficient lighting, and energy-saving appliances curb home energy expenses over the life of owning a home.

Reduced Homebuyer Competition. If a buyer opts to build a new home on an undeveloped tract of land, chances are low that a competing homeowner wants to build in that exact location at the same time.

Benefitting From Buying Discounts. A local contractor has ties to building supply companies and hardware stores. These business-to-business connections may translate into lower costs.

Cons

Land-Starved Locations and Zoning. The denser a community — think a big city or large suburb — the harder it may be to find land to build on. Moreover, local zoning regulations often regulate the size and type of new homes that can be built on residential lots.

Potential Building Delays. It takes 7 to 12 months on average for a contractor to build a house, and 12.1 months for an owner to, according to census data. That’s a significant wait, but building delays are fairly common and add to the bottom line. If a homebuyer needs to rent, for instance, while the house is being constructed, any delays could mean extra housing expenses.

New-home buyers can prepare for changes by touring similar finished homes in the community, researching the builder’s reputation, and speaking to residents. It’s also a good idea to talk with the builder about common construction delays and how unexpected costs are handled.

Negotiating Price May Be Harder. When working with a homebuilding company, negotiating may not be possible. Many builders attach a minimum price to the construction of a new home.

Upgrades Add Up. If wood floors, glass-front cabinets, and premium tile are must-haves, be prepared to pay for them. There is usually a “starting-from” price attached to newly constructed homes. Upgrades can add substantial costs to a new home.

Buying Tips for Newly Built Homes

Prepare to breathe in that new-house smell, but first lay the foundation.

Line Up Financing

When it comes to buying any type of house, getting prequalified is good. Getting preapproved is more serious, because you will have let lenders vet your finances and give you a specific amount you qualify for.

Lenders can also recommend the best kind of financing for a new build.

Hire a Real Estate Agent

Homebuyers wanting to make a new dream home a reality may want to find a good real estate agent. Here’s one reason why that’s important: The sales contact from the home construction company is hired to represent the seller (i.e., the builder or developer). A buyer’s agent can champion buyers’ interests, negotiate the contract, and answer questions.

Ask for Builder Concessions, Sign the Contract

Homebuyers aren’t likely to get a builder to slash a new home’s sales price, but they might be able to gain some concessions. Some builders may offer upgrades at a reduced price to incentivize a homebuyer to buy.

Upgrades may come in the form of a higher grade of carpet, granite countertops, a more advanced HVAC unit, or higher-end kitchen appliances. It doesn’t hurt to ask.

Once you’re pleased with your decisions, you’ll sign the builder contract to buy a spec home or start construction on a home.

The Takeaway

Newly constructed homes have obvious appeal, but they can come with potential delays and other drawbacks. Buyers who have their heart set on a brand-new home will find that financing often works the same way as it does for an existing-home purchase.

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

Can you negotiate the price of a new construction home?

Negotiating the price of a new construction home can be challenging as many builders set a minimum price. However, it might be possible to negotiate upgrades or concessions instead of a price reduction. Homebuyers can work with a real estate agent to help them negotiate with the builder.

What is a realistic budget for building a house?

A realistic budget for building a house will vary depending on the location, size, and desired features. In general, a 2,500 square foot home requires a budget of around $345,000, not including the cost of land. But cost can increase or decrease depending on the specific materials and finishes chosen.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
*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.

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.

SOHL-Q324-056

If someone asked you to describe your “dream home,” what picture would pop into your mind? A single-family home with a big backyard, or a high-rise condo with a view? Maybe you’ve always longed to live on a houseboat.

Only you can decide which of the many house types out there is best for you or your family. But this guide to the different types of homes available to buyers could help narrow your search.

Common Types of Homes

As you think about where you’d like to live or what you need to buy a house, you can probably rule out a few of these home types on Day One. But from there it may help to look at the pros and cons of some home types side by side to help you narrow your search.

1. Apartments

The definition of an apartment can get a bit complicated because it can change depending on where you live. When someone talks about how to buy an apartment in New York City, for example, they might be referring to a condo or co-op.

Generally, though, an apartment is one of several residential units in a building owned by one person or company, and the owner rents each unit to individual tenants.

There are some pluses to that arrangement, especially if you take advantage of amenities like a gym or swimming pool. And monthly costs for utilities and insurance may be low. But because it’s a rental, you can’t build any equity. Also, if you want to stay or go, or make some changes to the apartment, you’re typically tied to the terms of your lease.

Pros and Cons of Renting an Apartment

2. Condos

If you like some of the upsides of apartment living but you want a chance to build equity with each payment, you may enjoy owning a condo. Condo living isn’t for everyone — a house vs. condo quiz could help you decide between those types of homes — but a condo is a good choice for some.

You’ll share walls with other residents but will own your unit. That means you’ll be in charge of the repairs and upkeep on the interior, but you won’t have to worry about lawn maintenance, cleaning and fixing the pool, or exterior repairs. (You’ll likely pay a monthly or quarterly fee to cover those costs, though).

When you purchase a condo, you’ll have a chance to build equity over time as you make your home loan payments, but if the homeowners association (HOA) is poorly managed, your condo may not increase in value the way a home you care for yourself might.

Pros and Cons of Buying a Condo

3. Co-ops

When it comes to condos vs. co-ops, it’s important to understand the differences if you’re shopping for a home or plan to.

The main difference is the ownership arrangement: When you buy into a co-op, you aren’t purchasing your unit; you’re buying shares of the company that owns the property. The market value of your unit determines the number of shares you own. Your shares determine the weight of your vote in what happens in common areas, and you’ll also split maintenance costs and other fees with your fellow residents based on how many shares you own.

Because co-op residents don’t actually own the units they live in, it can be challenging to find financing. Instead of a mortgage, you may have to get a different type of loan, called a co-op loan or share loan. And because of co-op restrictions, it may be difficult to rent out your unit.

Still, buying into a co-op may be less expensive than a condo, and you may have more control over how the property is managed.

Pros and Cons of Buying into a Co-Op

4. Single-Family Homes

When someone says “house,” this is the type of structure most people probably think of — with a backyard, a garage, maybe a patio or front porch. Even if the yard is small, the house sits by itself. That can mean more privacy and more control over your environment.

Of course, that autonomy can come with extra costs, including higher homeowner’s insurance, taxes, maintenance and repairs, and maybe HOA fees.

The down payment and monthly payments also can be challenging, but buyers usually can expect the value of their home to increase over time.

And if you need money down the road — for a child’s education or some other planned or unexpected expense — you may be able to tap into home equity. Or you might plan to pay off the mortgage in 20 or 30 years and live rent-free in retirement.

Pros and Cons of Buying a Single-Family Home

5. Tiny Houses

Tiny homes, which usually have 400 square feet of living space or less, have a huge fan base. Some tiny houses are built to be easily moved, giving the owner physical freedom. Some are completely solar-powered and built to be eco-friendly. Many can be constructed from kits.

One downside is finding a place to legally park the tiny home. In most parts of the country, they are classified as recreational vehicles, not meant to be lived in full time, and usually only allowed in RV parks or campgrounds.

Another challenge is tiny house financing. A traditional mortgage is a nice thought, but just that, for a true tiny house. Options include a personal loan, builder financing, a chattel mortgage (a loan for a movable piece of personal property), and an RV loan if the tiny house meets the Recreational Vehicle Industry Association’s definition of an RV: “a vehicular-type unit primarily designed as temporary living quarters for recreational, camping, or seasonal use.”

A not-tiny consideration is making use of such a small space. Many people may not last long in a tiny home.

Pros and Cons of Buying a Tiny House

6. Townhomes

A townhome or townhouse can look and feel a lot like a detached house, in that it has its own entrance and may have its own driveway, basement, patio or deck, and even a small backyard. But these row houses, which are often found in cities like New York, San Francisco, and Washington, D.C., and usually have multiple stories, share at least one common wall with a neighboring home.

Those shared walls can make buying a townhouse more affordable than a comparable detached home. And owners who belong to an HOA with neighboring homes generally don’t have to worry about exterior upkeep, although owners of townhouses classified as fee simple are responsible for exterior maintenance of their structure and sometimes the surrounding yard.

The HOA also may offer some amenities. But that monthly or quarterly HOA fee will add to overall costs, and may rise over time.

And you may not have as much privacy as you’d like.

Pros and Cons of Buying a Townhome

7. Modular Homes

It might be hard for the average person to answer “what is a modular home?” off the top of their head.

A modular home is made up of sections that are built in a factory, transported to a homesite, and assembled on a foundation there. This makes them different from traditional stick-built homes, which are constructed completely on-site. But both types of houses are held to the same local, state, and regional building codes.

Because the assembly-line part of the process is cost-effective, a modular home may be less expensive. Also, because weather isn’t a factor for part of the work, you can probably expect fewer delays.

Most modular homes are sold separately from the land. So if you already own a piece of property or like the idea of building outside a traditional neighborhood, a modular home might be a good choice.

Many people who choose a modular home use a construction loan for the build or a construction to permanent loan. A personal loan or use of home equity from an existing home are other options.

Pros and Cons of Buying a Modular Home

8. Manufactured Homes

Manufactured homes, formerly known as mobile homes, are built completely off-site and then transported to the homesite and placed on a temporary or permanent foundation.

Manufactured homes are not held to the same local, state, and regional standards as stick-built or modular homes. Instead, they must conform to construction and installation standards set by the U.S. Department of Housing and Urban Development, and local land use and zoning regulations restrict where they can be placed.

Of course, there are plenty of communities that are designed just for manufactured homes, although the land in many of these “parks” is rented, not owned.

A growing number of lenders are providing conventional and government-insured mobile home financing. The loans, backed by the Federal Housing Administration (FHA) or U.S Department of Veterans Affairs (VA), are offered by approved lenders. agencies.)

The most common method of financing is an installment contract through the retailer. Depending on your situation, a personal loan or chattel loan could provide a shorter-term path to financing a manufactured home, generally less expensive than other types of detached homes.

Pros and Cons of Buying a Manufactured Home

9. Cabins

Most people tend to think of a cabin as a cozy second home that’s made of logs or covered in cedar shakes. But there’s no reason a cabin can’t be your primary residence.

Just as with any other type of property, the price of a cabin can vary based on size, age, location, and amenities. If there’s an HOA, those fees can add to the cost.

If you’re considering a cabin because you’re buying a vacation home — aka a second home — know that loans for second homes have the same rates as primary homes. A 20% down payment is typical.

Pros and Cons of Buying a Cabin

10. Multi-Family Homes

Investors know the difference between single-family vs. multi-family homes.

For owners, the big advantage of a multi-family home is that it offers flexibility. Homeowners can buy a home with multiple units and rent out the spaces for extra income. Or an adult child or parent might decide to move into that secondary space.

These properties can be a good investment.

Do accessory dwelling units make a property a multi-family? It depends. Fannie Mae says a property may be classified as a two-unit property or single family with ADU based on the characteristics of the property.

Pros and Cons of Buying a Multi-family Home

11. Houseboat or Floating Home

Living in a home that’s actually on the water — not just near it — can be a dream come true … or a challenge.

Some “floating homes” are as big as a small house — and are built to be lived in in the same way — only on a floating foundation. Houseboats or liveaboards are typically much smaller than floating homes and more mobile, and they may not have the amenities a larger home can offer.

There are also substantial differences in what it can cost to buy and maintain these water residences. A floating home may cost much more upfront than a houseboat, but the insurance, taxes, and day-to-day costs of keeping a houseboat operating can run higher. And there may be more loan options available, including traditional mortgages, for those buying a floating home.

Comparing House Types

Whether you’re thinking about buying a single-family home, condo, tiny home, houseboat, or townhome, it’s important to keep your priorities in mind. Here are a few things to consider:

Finding Your Fit

The Takeaway

Understanding the different types of homes before you begin your search for a place to live can help you find your dream home more quickly, and free you up to take on other homebuying tasks. Besides choosing the type of home you want, you’ll also have to decide how to finance this important purchase if you’re not paying cash. A good way to start is to shop and compare rates.

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 type of house is cheapest?

Condos, co-ops, townhomes, and manufactured homes all tend to be less expensive than single-family homes. Among new single-family homes, modular homes tend to be the least expensive because they are made in a factory and assembled on-site.

Is it a good idea to buy a condo?

If you don’t mind sharing walls with your fellow condo complex residents, and you don’t want to have to deal with exterior upkeep, a condo might be a good fit for you. Condos are also often less expensive than freestanding, single-family homes.

Photo credit: iStock/CatLane

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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.

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.

SOHL-Q234-050

Before applying for refinancing, listing your house on the market, or buying a house, you’ll need to get a home appraisal. This is an important independent assessment of a property’s value, which matters to all parties involved: you, your buyer (if you’re selling), and a lender.

Here, learn the ins and outs of home appraisals so you understand the process and can manage it successfully. You’ll find out:

•   What is a home appraisal?

•   How long does a home appraisal take?

•   How can you prepare for a home appraisal?

•   What can you do if a home appraisal comes in low?

What Is a Home Appraisal?

A home appraisal is an objective and professional analysis of a home’s value. An appraisal aggregates an array of information including details on the home itself (the floor plan, amenities, and how big it is), a visual inspection, real estate trends in your area, and how much nearby homes in your area sold for.

Generally, an appraisal will be completed when someone is buying, selling, or refinancing a home. It will tell a homeowner whether or not the price they’re putting on the home is fair based on the condition of the home, its amenities, and its location.

Home appraisals will let those buying a home know if a home is a good price. (This can be especially reassuring for first-time homebuyers, who are new to the whole process.)

If you think it’s time to refinance and are getting an appraisal done, it shows the home mortgage lender that you, the borrower, aren’t receiving more money from them than the home is actually worth. The lender wants to know that they are loaning funds to a property that is holding the stated value.

According to a National Association of Realtors® study from June 2024, appraisal issues led to real estate contract delays in 7% of transactions, so it’s important to get the appraisal right the first time around. That’s an important step in selling your home fast.

How Much Does a Home Appraisal Cost?

The home appraisal cost is typically several hundred dollars, and the borrower will most likely be responsible for paying it. Most people can expect to pay between $300 to $610 for a home appraisal, but it could be higher depending on the specific property. Some examples:

•   If the property contains a pond or lake, you can expect the home appraisal cost to be more.

•   If the appraiser is inspecting a larger home and/or a bigger overall property, then the home appraisal cost will go up. The same applies to jumbo loans, which are usually given to borrowers purchasing homes priced in the upper six-figure and $1 million-plus range.

It’s worth noting that there are a few cases in which the seller will cover the cost. These include the following situations:

•   If a homeowner wants to get an appraisal and see what modifications they can then make to increase their home value when they’re ready to sell it, they would pay for it.

•   If a homeowner is going to sell their home to a family member or friend, an appraisal can help ensure that the parties involved are getting a fair price.

The cost of a home appraisal covers things like the appraiser’s training, licensing, insurance, and expertise. It also covers the time it’ll take for the appraiser to assess nearby sales and market trends as well as conduct a visual inspection.

You’re paying for the appraisal report (more on that in a minute), which will show how the appraiser came to their conclusion on the price and information about your home.

At the end of the appraisal, if it comes up lower than the amount for which you want to refinance or sell it, then you may need to work out a new deal with your lender or purchasing party. That topic is explored in more detail below.

What Is the Home Appraisal Process?

The appraisal process may seem complicated, and you may wonder about how long a home appraisal will take and how deeply a home will be scrutinized. Fortunately, trained appraisers will be able to explain and guide you through every step. But it’s worthwhile to keep reading so you can be ready and prepare a bit. Some points to know:

•   Generally, if a home is being sold, the appraisal happens after an offer on a house is accepted and within a week after an inspector has toured the home. Sellers have the option, should they wish to pay for it, to do a pre-listing appraisal so they have more information and are better prepared for negotiations.

•   In most cases, the mortgage lender will seek out a third-party appraisal management company to come up with an objective analysis of the home and the appraisal estimate. The lender will determine the cost of the home appraisal, with the borrower usually being responsible for covering the expense.

Next, how long does a home appraisal take? The actual on-premises inspection appraisal can take between one and three hours, depending on how big and complex the home is. Here’s how it typically goes:

•   The appraiser will usually bring a form to collect information about the home including things like measurements, nearby housing trends, the demographics of the neighborhood, the condition of your home, and how it compares to other properties in your area. (Some of this is research the appraiser will do back at their desk.)

•   The appraiser will also review things like the home’s location, quality of construction, parking situation, exterior condition, its age, its structure, the quality of the siding and gutters, and the square footage.

•   They will also research the appliances and mechanical systems, health and safety factors, the number of bedrooms and bathrooms, and the code compliance throughout.

•   The appraiser will usually take photos of the home as well as make notes. If you are the homeowner, try to avoid getting in the way when the appraiser is taking photos or interrupting them while they’re working.

•   The appraiser may ask questions about what has been done with the home to get a more accurate report. If the homeowner doesn’t want to be there for the appraisal, the real estate agent you’re working with can fill in to answer questions that may come up during the appraisal.

After the appraiser finishes, they’ll put together a report. This involves research into pricing and home values in your area, as well as prevailing market trends. The appraiser may need to check that you had permits to make upgrades, which could delay the process. Typically, however, the finished product is delivered within a week to 10 days.

The report is usually about 10 pages long, but it could be longer if a property is large or complex. It will show details about the home as well as local properties that are similar to it. Here’s how its content could impact your sale:

•   If the appraised value is around the same price as listed, then the sale could close shortly after that.

•   If it’s lower than expected, you have what’s known as an appraisal gap, and it may be necessary to get in touch with the lender to see if a mortgage will be approved. Keep reading for more details on this scenario.

Recommended: Refinance Your Mortgage and Save

What If an Appraisal Comes in Low?

If the appraisal comes in low versus what you think your home’s value is, you likely want to dispute that in some way. One option could be to print out a list of similar homes in the community and show that they were valued at a higher price than your home. You may have the option to appeal the appraisal, but note you’ll likely need to support your argument and the appraiser may not change their appraisal. If you are working with a Realtor, they may be able to provide examples of comparable homes being of higher value.

Each lender may have different criteria for formally disputing an appraisal, so should there be an issue, contact the lender to review their policies. In most cases, only the lender can request a second appraisal.

What if the appraisal is low but you don’t want to dispute it? In this case, if you might negotiate with the buyer, seller, or lender. They may be flexible on the price; all you have to do is ask.

Recommended: Track the value of your home

Home Appraisal Checklist

Before getting a home appraised, there are a few things you can do to help the process go smoothly.

1.    Declutter. While messiness shouldn’t impact the value of your home, if you get rid of clutter (perhaps donate to a local thrift shop), the appraiser can do their job more easily and quickly.

2.    Clean. Thoroughly clean the inside and outside of the home, including the yard. Break out the cleaning supplies or hire a professional cleaning team. It can improve the overall impression of a home’s condition.

3.    Make minor repairs. It’s also a good idea to repair any cracks in the wall, paint over paint that is peeling, and make any other visual repairs that may need attention. Making some common home repairs may cost a little money, but it’s preferable to having a long list of things flagged in the appraiser’s report.

4.    Check fixtures and appliances. Test the lights, faucets, ceiling fans, and security system, as well as confirming that the windows and doors open and close easily. Run appliances like the oven and dishwasher as well to guarantee there are no problems.

5.    Think curb appeal. The exterior of your home is among the factors that affect property value. Consider trimming hedges, getting rid of cobwebs, cleaning the gutters, pulling weeds, and mowing the lawn. Adding plants or flowers could help, too.

   Worth noting: Since the appraiser will be walking outside, avoid watering the grass on the day of the appraisal. This can help avoid mud or dirt being tracked through the house.

6.    Plan for pets. If you have pets, consider putting them in a designated room or taking them to a family member or friend’s home during the appraisal.

7.    Wrangle upgrade info. If possible, make a list of all the upgrades that have been completed on the home and attach permits and receipts detailing how much it all cost.

The Takeaway

Whether you’re buying, selling, or refinancing a home, a home appraisal is a key part of the process. Knowing what to expect can help ensure the process goes as smoothly as possible. It’s also a good idea to understand the factors that go into an appraisal so you can be prepared if the results are not in the range expected.

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 fail a home appraisal?

Deferred maintenance is one major factor that can cause a home appraisal to fail to come in at the desired value. The longer the list of outdated or broken systems or appliances, the more likely the appraiser is to consider the house of lesser value. Or it could be due to the local market: If home sales are declining in value in your area, that could cause your number to go down as well.

How should I prepare for a home appraisal?

If you’re hoping to buy the house, you simply sit back and let the appraiser do their job. If you are the seller, you can prepare for a home appraisal by cleaning up your property and making whatever repairs are required. These moves can both make the process go more smoothly and possibly enhance the home’s value.

Does messiness affect a home appraisal?

A messy or cluttered house should not impact a home appraisal. Licensed appraisers are trained to look past such issues and focus on the house, not its contents. That said, if your property is untended and in rough condition, with peeling paint or overgrown landscaping, for example, that can take the home’s value down a notch.

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.

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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