As demand for home improvement work has kept up at a steady pace, so has the rate of home improvement fraud. Bringing a stranger into your home can be a leap of faith, especially if you haven’t done all your homework. Knowing the signs of home improvement fraud may keep you from becoming the next victim of a home repair scam.
What Is a Home Improvement Scam?
A home improvement scam occurs when a company or contractor — or a con artist posing as one — tries to swindle a homeowner out of money in exchange for a renovation or remodel that goes unfinished or is botched.
Many times home improvement scammers go door to door in search of their next victims. With the average cost of a home remodel in the upper tens of thousands of dollars, there is a lot of money at stake. A rule of thumb: If an offer sounds too good to be true, it probably is.
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First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Examples of Home Improvement Scams
There are many kinds of home improvement scams out there. Seniors have been the most targeted group, but people of all ages need to stay alert to these common frauds.
The ‘Free’ Inspection
“There’s no such thing as a free lunch” holds true when it comes to someone showing up on your doorstep and offering a free inspection. What’s their end game?
The Better Business Bureau reports that scammers and con artists will talk their way into a home to, say, inspect a roof, then cause damage like tearing off shingles to create a situation that actually then does require repairs.
Advertising by Flyer
Handymen often blanket communities with flyers in the hopes that a small percentage of people will call. It’s a good idea to treat such random distributions in your neighborhood as a sign to double-check credentials and legitimacy.
You may also find this a common occurrence after a storm if you live in a location prone to hurricanes or tornadoes. It would be smart to do your research before signing over your insurance check to someone who drops off a flyer.
Door-to-Door Contractors
If a contractor knocks on your door claiming to have leftover supplies from another project and offers you services for a steal, that’s a red flag. While the door-to-door salesman might be a real contractor, anyone going door to door to solicit business is likely not a professional who is in demand.
The Handshake Deal
No contract? No job. Homeowners should always have an ironclad contract in place before any money is exchanged. And if a contractor asks for cash, that’s a potential sign of a scammer (or at least someone looking to avoid the IRS).
Likewise, the contractor should not ask for more money than was decided on in the initial contract and scope of work. Claiming unexpected problems is a sign of a potential scam or an inexperienced contractor.
If there are potential variables in the project, you might want to spell out in the contract that extra work will require a change order, that is, both parties will agree to the additional work and an added fee.
If you’ve arranged for a home improvement loan or other financing, predictability comes in handy.
No-Credential Contractors
Many states don’t require a credential from a contractor if the amount of their annual work is below a certain dollar figure. While it’s unusual for a home improvement company or individual to not have credentials, it’s not unprecedented.
In general, it’s wise to treat non-credentialed contractors with a healthy awareness that they potentially aren’t serious businesspeople.
💡 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).
How to Avoid a Home Improvement Scam
While home repair scams are good to know about — especially if you’ve bought a fixer-upper — it’s also important to realize that not every contractor falls into that category, of course. If you take these tips into account, you’ll help yourself avoid a home improvement scam down the road.
Consider Only Contractors Who Are Licensed and Insured
It’s always smart to work with only licensed professionals who are insured, but in this case especially, a contractor who has their own license and insurance is likely not to be a scammer.
One way to get a background check on a contractor candidate is by calling the Better Business Bureau and requesting their rating, as well as asking if there are any complaints against them.
Get Recommendations From People You Trust
One way to avoid getting scammed is by working with contractors who come highly recommended by your friends, family, colleagues, or acquaintances. It’s always a gamble hiring a worker you find via online sources, so the more personal ties you have to contractors — like connections to those who have actually hired them in the past — the less likely it is that you’ll fall victim to a scam.
Get Multiple Estimates
For any construction or remodel project, you’ll want to solicit bids. Usually a minimum of three bids will give you an idea of the price range for your home improvement ideas.
By getting estimates from various professional contractors, you’re less likely to get scammed by someone trying to take advantage of you because, say, you live in a high-dollar neighborhood or drive a nice car. You can also use a home improvement cost calculator to help you estimate what the cost of your project should be.
Read the Contract Carefully
One of the easiest ways to be taken advantage of in any project is by not reading the contract in detail. If the contract is only one page long and doesn’t spell out the basics like budget, deposit, timing, or how to handle change orders, you’re setting yourself up for potential issues as money starts changing hands and construction begins.
And if there are areas of concern in the contract the contractor gives you, you might consider hiring a lawyer to review it and make any necessary revisions for you.
The Takeaway
Stay alert to home repair scams by getting referrals, asking contractors for references, reading all contracts meticulously, and only hiring professionals who provide you with proof that they are licensed and insured.
SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.
Unlock your home’s value with a home equity line of credit brokered by SoFi.
FAQ
What to do if you get scammed by a contractor?
If you do find yourself the victim of a home repair scam, there are many organizations you could call for help. You might want to start with your local branch of the FBI, then submit a scam tip to the National Consumers League fraud website. Additionally, you can lodge a complaint with the Better Business Bureau and consult Call for Action, a nonprofit that advocates for consumers by investigating fraudulent contractors.
What should you not say to a contractor?
Agreeing to a large deposit without a commitment to start work is a common mistake. It’s also important to let the contractor know that you’ll be expecting certain benchmarks to be met as the project continues.
Can I withhold payment from a contractor?
If a contractor does not uphold their side of the contract, you can often legally withhold payment until the full scope of work is completed as outlined in the signed agreement.
How much of a deposit should you give a contractor?
A deposit of 10% to 25% is common for a construction project. Certain states may have home improvement laws that, for example, prohibit a contractor from taking more than one-third of the job payment as a deposit upfront.
Photo credit: iStock/SeventyFour
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-criteria 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.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945. All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state. You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24. In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Buying a house for the first time is a major life moment, both emotionally and financially. For many people, it’s the biggest investment they will ever make. With the median price of a house hitting $436,800 in 2023 (ka-ching), it’s not a purchase to be made lightly.
If you’re buying your first home, you may expect it to be the same as those quick, fun-and-done experiences portrayed on reality TV shows. In truth, however, it’s a process with a steep learning curve and many moving parts, from figuring out your home-shopping budget to satisfying your final mortgage contingencies. There can be minor hiccups and major missteps along the way.
There are so many things to know as a first-time homebuyer, it’s better to educate yourself in advance rather than learn as you go. To that end, this guide will cover the 10 most common first-time homebuyer mistakes to avoid, including:
• Not knowing how much house you can afford
• Failing to include other factors, like insurance and repairs, in your budget
• Waiving an inspection because you’ve found your dream house
10 Home-Buying Mistakes to Avoid
Home-buying mistakes are easy to make, especially when buying a house for the first time. Review these 10 common first-time homebuyer mistakes before searching for your dream home — so you can ensure you’ll avoid them.
Why? You may not qualify for a mortgage if your credit score is too low. For most types of mortgage loans, you’ll need a 620, though lenders also consider other factors, like your down payment and your debt-to-income (DTI) ratio. You’ll get better rates if you wait to apply for a mortgage until your score is 740 or above.
The lesson? Don’t let a low credit score rule out buying your first home, but if it’s on the lower side, maybe consider taking some time to build your credit score before shopping for a house.
Before you start looking at listings online or working with a real estate agent — and certainly before you try to get preapproved for a mortgage — calculate how much house you can afford.
Once you know the number, avoid looking at houses above your limit. In an April 2024 SoFi survey of 500 potential homebuyers, 54% of those whose home budget was $500,000 or more had a household income of less than $100,000 — hinting that at least some buyers have unrealistic expectations of what they can afford.
So how do you calculate how much house you can afford? There are a few easy methods:
• DTI: Think about your debt-to-income ratio (your debts divided by your gross income). When adding a monthly mortgage payment into your current DTI calculation, the percentage shouldn’t pass 43%. That’s typically the highest ratio mortgage lenders will accept.
• 28/36 rule: With this method, your max mortgage payment should be 28% of your gross income, and your total debts — mortgage and otherwise — should be no more than 36% of your gross income.
• 35/45 rule: Spend no more than 35% of your gross income on debt and no more than 45% of your after-tax income on debt.
• 25% after-tax rule: After adjusting for taxes, your mortgage should not account for more than 25% of your income.
💡 Quick Tip: You deserve a more zen mortgage. SoFi Mortgage Loan Officers are dedicated to closing your loan on time — backed by a $5,000 guarantee offer.‡
3. Putting Too Much or Too Little Down
In their eagerness to become homeowners, many first-time buyers make the mistake of going overboard and directing every bit of money they have to the purchase. (A notable 14% of potential homebuyers in SoFi’s survey said not having saved enough for a down payment was the biggest challenge they are facing.)
If you have to drain your emergency savings to manage the down payment on a home, you might want to dial down the amount or wait and save up a bit more. Consider what could happen if the home needs a costly repair or, worse, if you or someone in your family suddenly has an expensive medical bill. That’s a good example of when to use an emergency fund.
Conventional wisdom says to put 20% down (and it does help you to avoid paying private mortgage insurance (PMI). But with housing costs so high, that’s all but impossible for most homebuyers. Instead, focus on the minimum down payments required for the type of loan you’re considering:
• Conventional loan: As low as 3%
• FHA loan: As low as 3.5%
• VA loan: As low as 0%
Remember, though, that if you put down very little, you’ll need to borrow more. Your monthly payments will be higher, and you could pay more interest over the life of the loan.
4. Forgetting About Homeowners Insurance and Property Taxes
Your monthly mortgage loan payment is more than just the cost of your home. You’ll also need to cover the cost of homeowners insurance and property taxes, which are often paid into an escrow account. Depending on the type of mortgage and how much you’ve paid, you may also have to pay for PMI. Together, these all increase your monthly payment — sometimes substantially. (Indeed, in SoFi’s survey of potential homeowners, 46% of respondents were concerned about property tax costs.)
When you look at a home, the real estate agent should be able to show you property tax history so you can get an idea of what you’d pay each year. You can also work with an insurance agent to simulate insurance quotes for various homes you’re considering.
Property taxes will change from year to year, and you can always change your homeowners insurance to lower the cost, even if you pay for it through the escrow account. It may be a good idea to bundle home and auto policies together to take advantage of a discount.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
5. Failing to Budget for Home Repairs and Maintenance
Forgetting to budget for homeowners insurance and property taxes is one of the most common first-time homebuyer mistakes — but those expenses aren’t the only ones people forget to budget for when buying a house for the first time.
If you’ve been accustomed to calling a landlord whenever something breaks in a rental, reset your expectations. Now, you’ll have to take care of basic home maintenance — like replacing air filters, cleaning the gutter, resealing wood decks, and cleaning the chimney — and repairs. When the air conditioner is blowing hot air, the oven stops working, or your roof starts leaking, you’re on the hook for the repairs.
Some issues may be covered by homeowners insurance (but there’s still a deductible!), but other issues caused by general wear and tear are solely your responsibility. And then there are other possible costs, like higher utility bills and homeowners association fees, that can eat into your budget.
6. Not Hiring a Qualified Home Inspector
It may be tempting to waive the home inspection when you’re trying to buy the home of your dreams — especially if you have some stiff competition to be the winning bidder for an in-demand property.
Sorry to say, this is a risky strategy. A home inspection might reveal critical information about the condition of a home and its systems, from electrical problems to hidden mold; from a failing septic system to a leaky roof. What you learn in an inspection could reveal that your dream home is actually a money pit.
What’s more, your inspection report might serve as a useful negotiating tool: You could use it to ask for repairs or to work out a better price from the seller. And if you really aren’t happy with the inspection results, you may be able to use it to cancel the offer to buy.
And in the grand scheme of things, an inspection isn’t too expensive. The average home inspection costs $300 to $500.
7. Overlooking the Neighborhood and Surrounding Area
You may have fallen in love with a specific home, but when you buy a house, you’re also buying the neighborhood that comes with it, so to speak.
How are the surrounding properties maintained? Do the people seem friendly? If you have kids or are planning on having them, do you see other families with young children? How are the schools in the area? What’s the traffic like? How’s the noise level? What restaurants and stores are nearby?
Think about your ideal community — and then try to find a dream home in that type of community.
8. Letting Your Emotions Get the Best of You
Buying your first home or any home thereafter can be a roller coaster, so it’s important to prepare yourself psychologically as well as financially. If you’ve ever talked to someone buying a house, you know there are potential pitfalls all through the purchasing process.
You might fall in love with the perfect house and find it’s way over your budget. You might get annoyed with the sellers or their real estate agent, especially during the negotiation process. You might disagree with your partner about priorities.
All of these scenarios can cause a person to behave emotionally. It might make you want to walk away from a great deal. It might lead you to barrel ahead with a purchase, even when warning lights are flashing.
Our advice to a first-time homebuyer? Recognizing that this will be a challenging and, at times, stressful process (especially because you are new to it), take a deep breath, and proceed calmly. Find tools that help you move ahead with patience and a sense of calm, best as you can. With your eye on the prize — namely, your first home — you’ll get there.
Houses are more than a place to live — they’re an investment. While you certainly want to prioritize buying a home you’ll be happy in, it’s also a good idea to think about how much the property might be worth in five, 10, 15 years and beyond.
It’s impossible to predict the market, but you can feel more confident about strong future resale value by choosing a house with multiple bedrooms and bathrooms, a well-appointed kitchen, and a yard. Other features, like a finished basement or a garage, may also make it easier to sell the home in the future.
10. Not Having an Emergency Fund
One of the basic tenets of personal finance is building an emergency fund. And here’s some blunt advice for first-time homebuyers: You’re going to need an emergency fund.
House emergencies can happen at any time: A tree falls on your roof, a toilet starts to leak, your dog destroys the carpet, you name it. Having money socked away to cover these expenses is crucial when buying a home.
Dream Home Quiz
6 Smart Moves for First-Time Homebuyers
We’ve covered some of the most common first-time homebuyer mistakes, so let’s shift gear to smart moves you can make when buying your first home.
1. Get Paperwork Moving ASAP
What do first-time homebuyers need when getting a mortgage? Here are some of the most common docs to start putting together:
• Proof of income: Lenders will often want to see two months’ worth of pay stubs or bank statements that confirm your income. They’ll also want your tax returns from the previous two years.
• Proof of funds: To take you seriously, lenders want to know you have enough money to cover a down payment andclosing costs.
• Proof of identification: This could include a government ID, a passport, or your driver’s license.
Early in the process, you can furnish this basic information to get prequalified at various lenders. They’ll also run a credit check during the prequalification process.
Being prequalified simply allows lenders to give you an idea of what types of mortgages (fixed rate vs. variable rate, 15-year vs. 30-year, etc.) you might get approved for. It’s not a promise of approval, but it does help set expectations as you start to browse listings.
💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
2. Check Out First-Time Homebuyer Programs
It’s wise to shop around for a few different mortgage quotes, but it would be a rookie mistake to overlook some great, government-sponsored programs that make buying a house more affordable. These include:
• FHA loans: These mortgages are designed for those with low to moderate incomes. They typically offer low down-payment requirements, low interest rates, and the ability to get approval even if you have a fair credit score.
• USDA loans: These provide affordable mortgages to those with a lower income who are planning on buying a home in a qualifying rural area.
• VA loans: These mortgages help those on active military duty, veterans, and eligible surviving spouses become homeowners. If you can check one of those boxes, you may be eligible for a home loan with no down payment requirement and no PMI.
3. Consider Additional Costs Beyond the Mortgage
As we’ve discussed above, the actual monthly house payment is not your only cost. Your full mortgage payment includes property taxes, homeowners insurance, and, potentially, PMI.
But before you even get to the point of making monthly payments, consider these upfront costs of buying a house:
• Closing costs, which are traditionally paid for by the buyer.
• Home inspections, which we highly recommend.
• Moving costs, whether just renting a truck or hiring movers.
4. Get Preapproved
Mortgage prequalification isn’t a commitment for the lender or buyer — it’s just a first step. If you appear to meet a lender’s standards, you could move on to the preapproval stage.
Getting preapproved for a home loan involves submitting additional income and asset documentation for a more in-depth review of your finances.
Once the lender approves these aspects of your loan application, you’ll receive a conditional commitment for a designated loan amount — called a preapproval letter — and have a better idea of what your loan terms will be.
Mortgage preapproval can help demonstrate to sellers that you’ve completed the first step in getting a mortgage because your credit, income, and assets have already been reviewed by an underwriter. This can smooth the bidding process and could give you an edge over others in a competitive situation with multiple offers.
You may qualify for various types of mortgage loans. Spend some time researching the different types so you have a better understanding of how they’ll impact your payments for the next several decades.
For instance, you’ll want to know the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). You’ll also want to understand how a 15-year term affects your monthly payments when compared to a 30-year term — but also how a longer term increases the amount you’ll pay in interest.
Finally, remember that you don’t have to go with the first mortgage offer you get. It’s worth your while to get multiple offers so you can compare interest rates, down payment requirements, terms, and more.
The Takeaway
Buying a house for the first time can be a stressful experience, but remember: At the end of it all, you’ll have a place you can call yours. You’ll build equity over time, and the house may increase in value. Just make sure you research the most common first-time homebuyer mistakes so you know how to avoid them.
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: simple, smart, and so affordable.
FAQ
What are some common mistakes first-time homebuyers make?
Some common home-buying mistakes for first-time homebuyers include forgetting to check (and improve) their credit, not calculating how much home they can actually afford, and forgetting to consider additional expenses, like inspections, homeowners insurance, property taxes, closing costs, and increased utilities. First-timers may also forget to consider the neighborhood as a whole or the future resale of the home.
What are the two largest obstacles for first-time homebuyers?
Two large obstacles for first-time homebuyers include rising housing prices and credit score requirements. Those who don’t already have equity in a current home may have more trouble coming up with a down payment on a new home. First-time homebuyers may also lack the credit score needed to get the best possible rate on a new mortgage.
What are three common mortgage mistakes?
Three common mortgage mistakes are 1) buying up to the limit you’re approved for rather than calculating how much you’re comfortable paying; 2) skipping the home inspection to expedite the process or make your offer more appealing to buyers; and 3) not considering related expenses you’ll have to budget for, including homeowners insurance, property taxes, and repairs and maintenance.
What are the most common mistakes that homebuyers make?
Homebuyers make a number of common mistakes, such as making an unnecessarily large down payment, forgetting to budget for related costs, buying more house than they can afford, and not shopping around for the best mortgage loans.
*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 On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer. Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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-criteria for more information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Despite decades of anti-discrimination legislation and other efforts to fight redlining, create fair lending, and ban racial and other bias, housing discrimination can still exist in many markets throughout the country, especially for first-time homebuyers.
It can be subtle or overt. Either way, housing discrimination holds people of color, immigrants, families with children, and LGBTQ people back by denying them access to safe neighborhoods, good schools, and the generational wealth that comes with homeownership.
This guide offers more information on housing discrimination and what to do if it happens to you.
What Is Housing Discrimination?
Federal law defines housing discrimination as discrimination concerned with renting or buying a property based on race, color, religion, national origin, sex (including gender identity and sexual orientation), familial status, or disability. In other words, if anyone in the house-hunting or mortgage loan process treats a person buying, renting, or selling housing differently because of any of these reasons, they are breaking the law.
Whether first-time homebuyers are buying a starter home or upsizing, they may want to fine-tune their anti-bias antennas and know the laws.
💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Housing Discrimination Examples
Housing discrimination comes in many forms. It could be a landlord who charges higher fees to renters with children, a real estate agent who refuses to show immigrants homes in certain neighborhoods, or a buyer offering less because of the seller’s race.
What’s more, housing discrimination can be subtle, according to the U.S. Department of Housing and Urban Development (HUD), making it difficult to prove and punish. Here are examples of subtle housing discrimination described on HUD’s website:
An African American man speaks on the phone to a landlord who seems eager to rent to him. But when the man meets with the landlord to fill out the application, the landlord’s attitude is different. A few days later, the potential renter receives a letter saying his application was denied because of a bad reference from his current landlord. But his current landlord says he was never contacted.
An Asian man meets with a real estate broker because he is interested in purchasing a house for his family in a specific neighborhood. When he mentions the neighborhood, the broker tells the Asian man that she has wonderful listings in a neighborhood where there are more people like him. When he looks at houses in the neighborhood she recommends, he notices that the majority of residents are Asian. The man files a complaint. Steering buyers to certain neighborhoods because of race is illegal.
Sexual harassment, failure to comply with accessibility requirements, and rules against renting or selling to families with children are also discriminatory.
Equal Opportunity Housing Laws to Know
Housing discrimination by sellers, lenders, and landlords based on race, color, religion, or nationality has been illegal since Congress passed the Fair Housing Act in 1968. The act was expanded in 1974 to include gender and in 1988 to include families with children and people with disabilities. Additional laws concerning discrimination in mortgage lending are included in the Equal Credit Opportunity Act, passed in 1974.
Some situations are exempt from the Fair Housing Act. These include some types of senior housing and housing operated by religious organizations and private clubs. Single-family rental homes are also exempt as long as the landlord does not own more than three homes and does not advertise or broker the rentals. Owner-occupied properties with four or fewer rental units are not governed by the Fair Housing Act.
States and local jurisdictions may have additional laws regarding housing discrimination. For instance, many states and cities ban discrimination based on age, criminal history, immigration status, marital status, or sexual orientation.
In 2020 the Trump administration made several changes to HUD regulations, making it more complicated for people to prove they are victims of housing discrimination. Specifically, victims had to go to great lengths to show that the discrimination was intentional. In early 2021, President Joe Biden signed executive orders aimed at reversing those changes. Housing discrimination continues, however, and in 2023, HUD announced that it was making $30 million in additional funding available to state and local fair housing enforcement agencies across the country to help fight discriminatory practices.
What to Do About Potential Discrimination
First, become familiar with the federal, state, and local laws that may apply. Knowing the laws and how they work is vital to filing an effective complaint and getting a successful outcome.
If you think you are a victim of housing or mortgage lending discrimination, you can file a federal complaint with the HUD Office of Fair Housing Equal Opportunity (FHEO). This office investigates claims concerning any of the protected classes specified in the Fair Housing Act. You can file a complaint online or mail the complaint form to your regional HUD office or call the Housing Discrimination Hotline at 800-669-9777. The complaint form is available in nine languages, including English and Spanish, and any retaliation for filing a complaint is illegal.
The FHEO is supposed to investigate complaints within 100 days. Sometimes complaints prompt the U.S. Department of Justice to file lawsuits against people or companies that may have violated the law.
You may also want to file a complaint with your state attorney general’s civil rights bureau or your city’s civil rights or fair housing commission. This may be more effective than filing solely with the FHEO, especially in areas with extensive housing discrimination regulations. To find out where to file a complaint in your area, start with the National Fair Housing Alliance website for a list of local agencies.
In addition to the FHEO, mortgage lending discrimination complaints can be filed with the Consumer Financial Protection Bureau.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
How to Make Your Case Proving Housing Discrimination
Extensive documentation can help prove housing discrimination. When you are talking to real estate agents, sellers, landlords, or lenders, it’s a good idea to listen carefully and take notes during each conversation. HUD officials suggest looking for what they call red-flag language. This may occur when a real estate agent is trying to steer you away from or into a particular neighborhood. Phrases such as “This wouldn’t be a good fit for you” or “You’d be happier in this other neighborhood” can be red flags.
If you feel you are being “steered,” you can do an online search to learn if a broker failed to show all of the houses in the local housing market in your price range.
If you suspect lending discrimination, such as being quoted a higher rate than you expected, you can check the posted rates online at that mortgage lender and others to see how they compare. You can take screenshots or print this information.
Keep an eye out for and document surprising obstacles that come up in the home buying or renting process. Perhaps a landlord, seller, or agent has said a property is not available but then you find that it is still on the market weeks later. Or maybe your application to purchase a co-op is denied, but you aren’t given a specific reason why. These may be signs of discrimination. You’ll want to document the situation with dated notes from your conversations and screenshots or copies of the ads showing the property still available after you were turned down.
Local housing advocacy and human rights groups also offer help. Organizations such as the Fair Housing Justice Center may help you conduct tests using volunteers of different races to test for disparate treatment in specific locations. These tests can also provide compelling evidence for your case.
Longstanding laws and regulations are not enough to eradicate housing discrimination, but informed buyers and renters can fight back. Make sure you advocate for yourself at every stage of the process.
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: simple, smart, and so affordable.
Photo credit: iStock/zoranm
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-criteria 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 On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer. 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.
Modular homes are increasingly capturing interest as a fast and affordable housing option. The global market for modular homes is forecast to grow from $82 billion in 2022 to $139 billion in 2029. These houses are built from factory-made components and are then constructed on a permanent foundation on a building site. They must meet the Department of Housing and Urban Development standards, as well as local guidelines.
Not to be confused with manufactured homes (previously called mobile homes), which can be moved from location to location, a modular home can be a good option to what are known as stick-built or traditionally constructed homes.
Could one be right for you? Here are the pros and cons of these structures, to help you decide if this might be your next home sweet home.
Modular homes are constructed in a way that differs from a traditionally built home. Many of the components are made in a factory and then shipped to the property, where they are assembled on a permanent foundation.
The process is typically less expensive and faster than a stick-built home (meaning ones that are assembled piece by piece at the site).
As briefly noted above, modular homes are permanent structures and are subject to local and federal standards.
Key Points
• Modular homes have limitations in terms of customization and design flexibility compared to traditional homes.
• Financing options for modular homes may be more limited and interest rates may be higher.
• Resale value of modular homes may be lower compared to traditional homes.
• Zoning and building code restrictions may limit where modular homes can be placed.
• Some people may perceive modular homes as having lower quality or being less durable than traditional homes.
One of the biggest differences from a traditional home is the way modular homes are constructed. The house’s components are assembled in a factory and delivered to the homesite in one or more trips. The modules may be akin to three-dimensional boxes that are connected to one another and the foundation at the job site.
The benefit of constructing modular home components in a factory is the controlled environment. Because the parts are assembled under ideal conditions (perfect temperature, humidity, etc.), buyers can usually expect a consistent, high-quality build.
In addition, the actual build can move more quickly. Estimates of the time to build a modular home range from 16 to 32 weeks, depending on how customized the plans are and other variables.
💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.
The Pros and Cons of Modular Homes
As with most things in life, there are pluses and minuses to modular homes. Consider these points to decide if one could be right for you. First, the upsides:
• Modular homes are typically 10% to 20% less expensive than traditionally built homes.
• They can be built up to 30% to 60% faster than stick-built homes.
• Depending on the builder, they may be customized to suit your needs, both in terms of layout/square footage and finishes. You can get a very basic home or a truly luxe, mansion-like one.
• They can be more energy-efficient than traditionally built houses, and the materials and building process may be more environmentally friendly as well.
• They are considered better able to withstand environmental threats (flooding, hurricanes) than traditionally built homes.
That said, there are some disadvantages to modular homes to consider:
• You need to add in some costs to your home-buying budget: the cost of the land, the foundation, and other related expenses. Yes, you are paying for those things when you buy a stick-built house, but it’s already rolled into the price.
• You will need to investigate how to finance your home. If it’s an already built home, then a home loan will work. But if you are building from the ground up? Rather than getting a mortgage (since you aren’t buying an existing home from a seller), you may want to look into construction loans. Some modular home companies offer their own financing and lending programs.
• Depending on the modular home company, you may not be able to get every last detail you want. Shopping around can help you find the top features you want in your home.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Modular Home Risks
There are a couple of considerations prospective modular homeowners should be aware of:
• Finding land can be difficult in some areas. If you love modular homes but want to live in a suburb that has a hot housing market, you may be hard pressed to find a lot that works for you.
(You also may need a land loan to purchase your property if you do find a lot you love.)
• It may be difficult to make changes once construction has started because so much of the home is pre-built.
• Bias exists. Some people confuse modular homes with manufactured or mobile homes, which don’t have a foundation, and may therefore avoid them. This could mean a real estate agent might not show buyers a modular home that’s for sale, for example, due to this misperception.
How to Find Modular Homes for Sale
You can shop for pre-existing modular homes on major real estate websites like Realtor.com and also on specialized sites that list this type of home.
To construct a modular home, you can look at such sites as modularhome.org and modularhomeowners.com. Also, with the growing popularity of modular homes, you may well be able to get a word-of-mouth referral from someone in your circle.
How to Choose a Modular Home
When considering a modular home builder, much will depend on the following factors:
• Do you like the style of the houses they build? The floorplans?
• Are their prices lining up with your budget? Do they offer financing, if you need it?
• Where are they located? If their factory is somewhat close to you, which can help reduce transportation expenses?
• Are you impressed with the quality of their work? Their customer service?
• Which brands do they partner with? Many manufacturers work with certain vendors for windows, doors, appliances, etc.
💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.2
How to Finance a Modular Home
Financing a modular home will take different paths depending on whether the house is already constructed or you’re building it.
• For already built homes, you may look into conventional mortgage loans, FHA, USDA, and VA loans, just as you would for any other property you are interested in.
• If you are building your own modular home, then you will probably need to apply for a construction loan to have the funds to get your house over the finish line.
• Some modular home companies offer financing options.
• You might also see if a personal loan could help you afford a modular home. Some lenders will allow you to buy a property with the funds; check with your lender, and understand the interest rate you will be charged.
Are Modular Homes Worth It?
Whether a modular home is worth it is a very personal decision.
For some people, there may be no greater satisfaction than working with a modular builder to specify their dream home and seeing their home come together, usually more quickly and less expensively than other building methods. They can collaborate with their builder and find a house plan that checks off all (or most) of the items on their home wish list.
Many people are thrilled with the eco-friendly aspects of these homes as well.
However, there are also people who find a vintage home more appealing or who would rather walk through an already built home and know exactly what they are buying.
If you’re set on buying a modular home, here are things to consider:
• Style of home. Modular homes come in various styles, from contemporary to log cabins. It can be wise for buyers to shop around and work with a modular home manufacturer that suits their taste.
• Manufacturer location. The cost of transporting a modular home can be high. It may be essential for the budget-conscious modular homebuyer to work with a manufacturer close to the home’s final destination.
• Custom builds. Some modular home manufacturers may offer more customizable options, from floor plans and finishes. Do your research, and find a builder who can check off most of the priorities on your wish list.
• Timeline. Some modular homes go up relatively quickly, while other manufacturers could be dealing with back orders. If time is of the essence, choose your builder carefully.
The Takeaway
Modular homes are growing in popularity. Components (modules) are factory-built and then assembled on a foundation; this process can be faster and more affordable than buying a traditionally built home. They also often have environmental benefits.
However, they aren’t for everyone: Building your own home is very different than hitting the open houses, and financing a modular home likely takes you on a path that involves a construction loan. If, however, you fall in love with an already built modular home, then you can usually apply for a mortgage from a number of lenders.
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: simple, smart, and so affordable.
FAQ
Is a modular home a good investment?
A modular home can be a good investment. They often offer energy efficiency which is a selling point. However, a modular home’s value will be dependent on the housing market in your area, just as it would be with any other kind of home.
Are modular homes dangerous?
The dangers of modular homes are minimal. As long as the assembly of the modular home complies with local building codes, modular homes are as safe as a traditionally built home.
Is the value of modular homes decreasing?
Modular homes appreciate and depreciate in a way that’s similar to traditional builds.
Where can you get financing for modular homes?
Among the possibilities from various lenders are a construction loan, financing from your builder, or a personal loan.
How long will a modular home last?
With proper maintenance and high-quality materials, a modular home should last as long as, or longer than, any traditionally built home. Some of the first modular homes, built in the early 1900s, are still standing today.
Photo credit: iStock/turk_stock_photographer
*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.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945. All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state. You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24. In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
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-criteria 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.
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.
If you’re fortunate enough to have a family member or close friend who is giving you funds to put towards a down payment, congratulations. But in this scenario, a gift letter can be an important part of validating money given to you for the down payment or closing costs on a home.
Approximately 22% of first-time homebuyers received gift funds to help with the purchase of a home, according to a 2022 National Association of Realtors® (NAR) survey.
Properly documented gift funds will help the mortgage loan to pass underwriting so your loan may be approved. In this guide, you’ll learn the story on gift letters, how they differ for various types of mortgages, plus other important details.
What Is a Gift Letter?
A mortgage gift letter is a legal document whose primary purpose is to state that down payment funds given to the borrower are not expected to be repaid. The lender wants to ensure that the borrower is not taking on more debt to help finance the mortgage, even if it is money from family or friends. The letter is required to pass underwriting.
It’s essential that a gift letter include all the necessary elements to be considered in your loan application.
💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
What Should Be Included in Gift Letters?
Lenders usually provide a standard gift letter for you and the donor to complete, but it’s helpful to know what needs to be stated. Gift letters should include the following details:
• Dollar amount of the gift
• Name of the donor, address, phone number, and details of the account from which the money will be or was drawn
• Relationship to the borrower
• Name of the borrower, address, and phone number
• Address of the home associated with the down payment
• The donor’s signed statement saying the funds will not need to be repaid by the borrower
• Language saying the funds were not made available to the donor by any party interested in the sale of the property
• The dated signatures of borrower and donor.
Note: Along with a gift letter, the lender may want to see proof of funds in the donor’s account and evidence the money was deposited into the borrower’s account.
Does Timing and Amount of a Gift Matter?
When it comes to gift letters, when and how much you received may need to be documented.
Amount
There typically is no limit on the amount of gift money, but when a deposit is more than half of your monthly household income, lenders usually will want an explanation.
Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.
For USDA loans and FHA loans, you’ll need to explain any amount over 1% of the purchase price or appraised value of your home that was deposited in your account recently. There are exceptions, including tax refunds and bonuses, that do not need to be “seasoned” or explained.
Timing
A lender will look at bank statements for the past 60 to 90 days. Amounts that existed in your account before this time are considered seasoned, and you may not need to provide a gift letter for that money. The amount of a deposit inside that time frame may need a letter of explanation.
If you have money in other places, you’ll want to deposit it into your bank account for proper seasoning.
Who Can Give Down Payment Gifts?
Down payment gift regulations vary by loan type, but generally, gift funds are allowable on many mortgage types from close family members or friends. There are some key differences between regulation for down payment gifts for conventional and government home loans (USDA, VA, and FHA mortgages).
FHA Loans
Under Federal Housing Administration guidelines, gift funds for the down payment are allowable from the following donors:
• Relatives of the borrower
• The borrower’s employer or labor union
• A close friend with a clearly defined and documented interest in the borrower
• A charitable organization
• A government agency or public entity that provides homeownership assistance to low- and moderate-income families or first-time homebuyers.
The gift must not come from an entity that has an interest in the sale of the property, such as the seller, the builder, the real estate agent, or the broker.
Under conventional loan guidelines (meaning non-government), gift funds are allowable from these sources:
• A relative, which Fannie Mae defines as someone related by blood, marriage, adoption, or legal guardianship
• A domestic partner or fiance.
The donor may not be anyone with an interest in the transaction, such as the builder, developer, or real estate agent.
USDA or VA Loans
With loans backed by the Department of Agriculture or Veterans Affairs, the only people who cannot provide gift funds are those who would benefit from the sale, such as the seller, lender, real estate agent, or developer. The gift funds must be properly sourced, which means the lender wants to see a paper trail from the bank account of the donor to that of the borrower.
💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.1
Are There Limits on Gifts?
No, but some loans may require borrowers to come up with a portion of the down payment. This is what’s known as a minimum borrower contribution, and it applies to conventional loan financing. It is different based on what type of real estate is being purchased, be it a primary residence, second home, or investment property.
Primary Residences
For primary residences, there is no minimum borrower contribution. All of the money needed to complete the transaction can be a gift. This is true whether the loan-to-value ratio is above or below 80% for conventional financing.
Second Homes
For second homes, if the loan-to-value is above 80% (meaning the down payment was less than 20%), borrowers must make a minimum contribution of 5% from their own funds. This is also true on principal units with two to four units.
Investment Properties
Gift funds are not allowed on conventional mortgages for investment properties. Fannie Mae also states that gift funds are not to be used for investment properties.
Taxes may affect the donor of the funds, unless the home purchaser makes special arrangements to pay taxes on the gift funds.
The money gifted may be excluded from tax as per the annual exclusion amount. The IRS says the annual exclusion for gifts is $17,000 for 2023. This is per person, so if buying real estate with a partner, the amount doubles to $34,000.
If the gift is from a set of parents, each parent can gift that amount to each of the borrowing partners. This allows for $68,000 to be gifted before triggering the gift tax. In other words:
• Parent 1: $17,000 for borrowing partner 1, $17,000 for borrowing partner 2 = $34,000
• Parent 2: $17,000 for borrowing partner 1, $17,000 for borrowing partner 2 = $34,000
Adding the amount for both parents contributing for both borrowers equals $68,000.
If that amount is exceeded, each donor can also claim it as part of the lifetime exclusion on estate taxes, which has a limit of $13.61 million for 2024.
Gift Equity Letters vs Gift Letters for Mortgages
A gift of equity is when the seller gives a portion of the home’s equity to the buyer. It is transferred to the buyer as a credit in the transaction and may be used to fund all or part of the down payment on principal or second homes.
If there is a gift of equity, a gift of equity letter is required. A signed gift letter and settlement statement with the equity gift will be retained in the loan file.
While there are similarities, there are also some differences.
Gift of Equity
Gifts for Mortgages
Must be applied as a reduction in purchase price or credit
Gifts can be an unlimited amount but are not accepted for investment properties
Borrower may not receive cash back at closing for gift equity
Borrower can receive funds back at closing
Required to notify appraiser of equity gift
Appraiser doesn’t need to know about it
Is from the seller, who can be a relative. For FHA loans, only equity gifts from family are acceptable
Is from a donor related to the borrower
Can be used to fund the down payment and closing costs
Can be used to fund the down payment and closing costs
Permitted for principal and second homes
Permitted for principal and second homes
Whether you’re fortunate enough to receive a gift or you’re making your own way toward homeownership, this mortgage calculator may come in handy.
A gift letter ensures that the money, or equity, you receive when buying a home is validated when your mortgage loan goes through underwriting. It’s a necessary step on your way to loan approval that a good mortgage lender may be able to help you with.
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: simple, smart, and so affordable.
Photo credit: iStock/Pictac
*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 On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer. 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.
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-criteria for more information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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.
