SoFi

If you’re shopping for a new home and traditional single-family houses are out of your price range or the mere idea of lawn mowing and tree trimming makes you sweat, a townhouse could be the answer. Many — but not all — buyers will find that townhouses rise to the occasion.

What Is a Townhouse?

Among the different home types, from condos to modular homes, are townhouses. But what is a townhouse, specifically? It’s a multi floor home with its own entrance that shares at least one wall (not floors or ceilings) with an adjacent townhouse. Townhomes may be part of a community of units with a uniform appearance, but that isn’t always the case.

Why Buy a Townhouse?

There are pros and cons of buying a townhouse, with benefits including the following:

•   Ownership

•   Affordability

•   Low maintenance

Here’s more about each benefit.

Ownership

It’s a bit tricky because some townhouses are sold as condos. If you buy a townhome as a condo, you will own just the inside of your unit. If you buy it as a townhouse, you’ll own the interior and exterior of the structure and the land under and sometimes around your property.

This means fewer restrictions on how you’d use your yard compared with a condo owner. Townhouse owners could, as just one example, have the right to grill in their private outdoor space.

Ownership of the structure and land also means that financing a townhouse is much less complicated than financing a condo. It’s basically the same as getting a mortgage for a detached single-family house.

Affordability

Townhouses are typically less expensive than detached single-family homes, which can be especially important in expensive cities and for first-time homebuyers. Townhouses can serve as space-efficient choices, too, in places where land is scarce.

Note that townhouses may be more expensive than a condo in the same community.

Low Maintenance

Yards are likely smaller and, if the townhouse is part of a homeowners association (HOA), you may benefit from its security protocols and maintenance of shared areas. In some cases, you can enjoy amenities like pools because of HOA membership.

Some home downsizers may appreciate the lack of interior and exterior sprawl to maintain.

Recommended: First-Time Homebuyer Guide

Disadvantages of Buying a Townhouse

Buying a townhome can also come with disadvantages, including:

•   HOA fees and restrictions

•   Lack of privacy

•   Stairs

Here’s more about each potential disadvantage.

HOA

If the townhouse is part of an HOA, there will be fees to cover shared services and spaces. Plus, HOA rules may limit how you can decorate your townhouse. Who is responsible for exterior repair costs can sometimes cause confusion. So be sure to find out the specifics of a townhome you’re interested in buying.

Lack of Privacy

Shared walls automatically mean less privacy than with a detached home, which can be especially problematic for families with young children. This can also be a consideration for young couples who may want to start a family or for other people for whom privacy is a plus.

Stairs

Because townhouses are multistory dwellings, residents will need to climb stairs, which can be challenging for those with temporary or permanent mobility issues. Plus, if someone is used to a larger yard, having a small lot with neighbors nearby can feel constraining.

How to Buy a Townhouse

When buying a townhome, there are several steps to take.

Find a Real Estate Agent

Very few buyers go it alone, so finding a real estate agent who is experienced in your geographical location can help you to make savvy choices. This agent can guide you through the process of finding the right townhouse and help negotiate the best deal for you.

Know the Market

An experienced real estate agent can look into comps, or recently sold townhomes in the area that are similar in size, condition, and features, and you can also use a real estate website to find asking prices of similar townhouses and other real estate in the area.

If more than one buyer is interested in the same townhouse, you’ll need to be clear in your mind about how much you’re willing to pay for the property and strategically make an offer without busting your budget.

Investigate the HOA Fees

If the townhouse is part of an HOA, you’ll want to know what the monthly fees will be and what they’ll cover.

You might ask when the HOA last raised the fee, by how much, and when any new increase might happen. Looking at the HOA’s budget and reserve study could also be a good idea. If the reserves are low, the community is at risk of needing a special assessment.

Shop for a Mortgage and Get Preapproved

If you’re shopping for a mortgage, you’ll benefit from looking at more than advertised interest rates. You can apply with more than one lender and then compare loan estimates.

You may want to compare the APR of different loans: The annual percentage rate reflects the interest rate, lender fees, discount points, and the loan term. If comparing, realize that escrow fees and mortgage insurance can skew the APR.

The loan estimate will also tell you what your monthly payment would be on your home mortgage. To get a sense of what a payment might be with different down payments, you can also use an online mortgage calculator.

By getting mortgage preapproval, you’ll know exactly how much of a townhouse you can afford to buy, which can give you the ability to bid on a property with confidence and compete with other buyers for a property of choice.

Order a Home Inspection

It’s a good idea to get the townhouse inspected inside and out. Also pay attention to how well neighbors are maintaining their properties.

The Takeaway

Buying a townhouse could be a good choice for first-time homebuyers, lawn-mower phobics, downsizers, and people priced out of the larger market. If you decide that buying a townhome is the right choice for you, you’ll probably need to apply for a mortgage.

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

Is it worth buying a townhouse?

Townhouses, in general, don’t appreciate in value as quickly as detached single-family homes. But the purchase price is often lower.

Is a townhome a good first home?

A townhouse can be a good first home because of the low maintenance, and amenities may be included. Plus, the price is right for many first-time homebuyers.

Why shouldn’t you buy a townhouse?

Disadvantages can include a lack of privacy and usually a small yard. If an HOA is in place, ongoing fees and rules are involved. Plus, the stairs that come with townhomes may be challenging for some people to navigate.

How do I choose a good townhouse?

When buying a townhome, make sure that it has the features you want and need in a neighborhood where you’d like to live at a price within your budget. If it’s part of an HOA, ensure that the fees are palatable and cover what you expect them to.

Photo credit: iStock/cmart7327

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.

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.

SOHL-Q224-1903460-V1

Wondering whether to pay off a mortgage or put the funds toward investments is a happy dilemma for some homeowners. The answer will depend on your financial situation, but let’s look at pros and cons of each along with a strategy that can allow you to combine the best of both worlds.

Paying Off a Mortgage vs Investing in the Market

Maybe you’ve socked away a nice savings. Or perhaps you inherited some money. If you’re trying to decide whether to put the money toward paying down your home mortgage loan or into the market, it helps to understand the mortgage payment process.

How Does a Mortgage Loan Work?

There are different mortgage types you likely considered when shopping for a mortgage, but in general, someone borrows money from a lender to buy a house at a certain interest rate and term length. As payments are regularly made (usually monthly), part of each payment goes toward the principal, lowering the balance. Early on in the life of your loan, the bulk of the payment will cover your interest charges. As the balance goes down, more of each payment typically goes toward the principal.

Recommended: Answers to Common Mortgage Questions

Components of a Mortgage Payment

You may hear the components of a mortgage payment summarized in an acronym: PITI. This stands for principal, interest, taxes, and insurance.

Principal

Initially, your principal is the amount of money you borrow. As you pay down your loan, the principal is the remaining (current) balance. When it comes to the mortgage loan payments themselves, the principal is the portion of the payment that goes toward the balance, reducing the amount. As noted above, as the balance goes down, more of your payment goes toward the principal and less to interest.

Interest

The interest is based on the interest rate charged on the loan’s principal, and these dollars go to the lender, serving as a key part of the cost of borrowing. As your loan balance goes down, less of your payment typically goes toward interest. Most mortgage loans have a fixed interest rate; others are variable, based on a certain financial index.

Move your cursor on the amortization chart of this mortgage calculator tool to see how principal and interest change over time.

Taxes and Insurance

A mortgage payment typically contains a month’s worth of property tax, which is based on the assessed value of the home and the tax rate where you live. A payment also may include a month’s worth of homeowners insurance and, if applicable, mortgage insurance that protects the lender in case of default.

Investment Gains vs Loan Interest Saved

At a high level, to determine which strategy can have the biggest positive financial impact, you can compare what investment gains you’ve had (or estimate future gains) and compare that to how much interest you would save when paying down your mortgage more quickly.

Pros and Cons of Paying Off Your Mortgage Early

Pros include the following:

•   You won’t have a mortgage payment anymore, which frees up money for other purposes: investing, paying for a child’s college expenses or wedding, and so forth.

•   You no longer have to worry about having the funds to make your payment. This can be especially helpful if unexpected expenses arise.

•   Typically, paying off your mortgage early will lower the amount of money that you pay in total interest — which means that you’ll pay less for your home overall.

•   Paying off a mortgage early gives you a guaranteed financial return, while there is always risk involved in putting money into the market.

•   If you need to borrow against the home in the future, none of the proceeds will be needed to pay off a current mortgage.

Cons include the following:

•   If the current stock market return rate is pretty good and your mortgage rate is low, paying off your mortgage early could have a lower rate of return than being in the market.

•   Your credit score could drop a bit because you’ll no longer have a mortgage in your mix of open types of credit.

•   Focusing on rapidly paying off a mortgage may cause someone to drain their emergency savings fund, something that’s not typically recommended.

•   Although uncommon now, some lenders charge a prepayment penalty for early mortgage payoffs. When this clause exists, it’s for the first three years of a mortgage. Check your mortgage note for specifics, or ask your lender or loan servicer.

•   When you no longer have a mortgage, you no longer qualify for the mortgage interest tax deduction.

Pros and Cons of Investing

Pros include the following:

•   Many times, when you buy shares of stock, you can get a good return on your investment in the long term. To get a sense of current returns, you can check the 10-year annualized return for the S&P 500.

•   If you’re in a workplace retirement plan, like a 401(k), your employer may match your contributions up to a certain amount.

•   Stocks are liquid assets, which means that you can buy and sell a portion of your portfolio at any time. You can’t really do that with a house. Plus, some stocks will provide you with dividends that you can reinvest or spend.

Cons include the following:

•   You could lose your entire investment in the stock market, including the initial investment. If you’re a common stockholder, you get paid last if a company defaults.

•   If you’re managing your own portfolio, you’ll need to invest time into investigating stocks, deciding what to buy and sell, and otherwise monitoring the stock market.

•   If you sell stocks at a profit, you’ll usually need to pay capital gains tax (although this can be offset if you also have some losses).

•   While investing, you’ll still need to make your mortgage payment (until the home is paid off).

•   Depending on your personality type, watching a stock that you own decline in value can be an emotional experience, and for some people, keeping tabs on their portfolio can be stressful. check that portfolio.

Evaluating Your Financial Situation

You may feel the urge to pay down your mortgage or make investments, but whether you should actually do so requires calculating two key figures: your net worth and your debt-to-income ratio (DTI). To determine your net worth, add up all of your assets (what you own) and subtract your liabilities (what you owe). Assets include your home’s value, vehicles, bank accounts, investments, and cash. Do not include your income. Liabilities are your mortgage, car, personal and student loans, credit card balances, and so forth. If you owe more than you own, the time may not be right to make a big investment — in either your home equity or the stock market — even if you are paying all your bills on time.

For the second metric — your DTI — add up your gross (pre-tax) monthly income as well as your monthly debt obligations, such as your mortgage, car payment, and other loan payments. Divide your total monthly debt by your total gross monthly income, and the resulting ratio (say, 0.30 or 30%) is your DTI. A lower DTI (say, under 30% or even 20%) indicates more cash flow to either put toward your mortgage or to invest.

Factors You Should Consider

Timing The earlier you can begin to apply extra payments to pay down your mortgage principal, the more you’ll benefit, because a lower principal will reduce interest over the life of the loan. That said, the earlier you can begin to invest, the longer you’ll have for your investments to build in value. Plus, because of compound interest, each dollar that you invest today will be worth more than a dollar that you would invest years from now.

Taxes Starting in 2018 and set to last through 2025, the federal government nearly doubled the amount of the standard deduction that taxpayers can claim. This means that far fewer people itemize their deductions, which in turn means that the mortgage interest deduction isn’t used by those taxpayers when they file their income taxes.

Home values If real estate values are dropping in your area, paying down your mortgage can help you from going underwater (owing more on the home than what it’s currently worth). Being underwater can make it more difficult to sell or refinance the home. Struggling homeowners can look for mortgage relief programs.

Recommended: Home Loan Help Center

Other Considerations

To this point, the post has largely focused on this question: Is it better to pay off a mortgage or invest? Let’s take a step back and look at issues to consider before doing either. First, do you have an emergency savings fund that could cover your monthly expenses for three to six months? If not, that’s a priority often recommended by experts.

Plus, if you have high-interest debt, such as credit card balances that you don’t pay off each month, it’s usually better to pay that off before either paying extra on your mortgage or investing.

Another strategy: You could consider refinancing your mortgage to a lower rate to lower your mortgage payment. Then, when you put extra money toward the balance, even more would go to the principal than when the interest rate was higher.

Deciding What’s Best for You

Pay off your house or invest? Perhaps the information provided has already allowed you to make a decision. However, there’s one more strategy to consider: doing both.

Best of Both Worlds: Funding Both at Once

Instead of simply considering two options, pay off mortgage or invest, another possibility meets in the middle: making additional contributions to your investments while also paying extra on your mortgage principal. This is most effective early on, but adds value through the life of the mortgage.

If the stock market becomes especially volatile or is significantly heading downward, you could focus on the mortgage paydown during that time period.

The Takeaway

Whether you choose to pay off a mortgage or invest depends on your financial situation and priorities. Each choice has pros and cons, but a best-of-both-worlds strategy is to do both.

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

Is there any disadvantage to paying off your mortgage early?

If a mortgage note includes a prepayment penalty, this can cost you money. Other disadvantages are loss of the mortgage interest tax deduction and a potential drop in credit scores. Plus, it may be more advantageous to invest those dollars instead.

Should I pay off my mortgage or save money?

It depends, but you definitely want to make sure you save up three to six months of expenses in an emergency fund before you pay down your mortgage.

Is it better to pay off my mortgage or invest for retirement?

Ideally, you can do both. If that’s not financially possible right now, weigh the interest rate on your loan and whether or not you benefit from the mortgage interest deduction on your tax return vs. what you think you might be able to earn on investments in the market. This will help you make your decision.

Should I invest when I have a mortgage and other debts?

If “other debts” include high-interest debt, such as credit cards that aren’t paid off in full each month, it typically makes sense to prioritize the payoff of that debt over investing. If your employer offers a retirement plan with a company match, you might want to prioritize that investment in order to capture the match. And if you are paying your current debts comfortably, investing more widely could be the right move.

Photo credit: iStock/burcu saritas

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.

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.

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-Q224-1903244-V1

Though putting together enough money to purchase a home has always been tough for younger buyers, rising prices and higher interest rates have made it especially difficult for Gen Z (those born from the mid-to-late 1990s and the early 2010s) to get a foot in the door of the housing market.

As they wait on the sidelines for the chance to buy their first place, many are feeling “real estate FOMO” — the fear that they’re missing out on a major life milestone and opportunity to build wealth that others have managed to achieve. Let’s take a look at some of the obstacles Gen Z is facing and learn the steps that could help as you save for, and search for, a home.

What Does FOMO Mean?

FOMO, or the fear of missing out, is a term used to describe the feeling that others are doing better than you are. Maybe they’re achieving goals that you haven’t yet reached, or experiencing things that you currently don’t have the wherewithal to accomplish (financially or otherwise). FOMO is often used in the context of missing out on a social event — a concert, for example, or a party you weren’t invited to. But it also can pertain to wanting to purchase things others in your social circle have — a better car, clothes, trips, or jewelry, for example.

FOMO spending is when the fear of missing out pushes you to spend money — maybe more than you should — to keep up with your peers. (Older generations often refer to this as “keeping up with the Joneses.”) Real estate FOMO can have that effect. It might lead someone to buy a house before they’re ready, or to get a mortgage loan on a house they can’t comfortably afford. But it also can make homebuyers reluctant to pull the trigger on a purchase, if they think they’ll find a better home at a better price if they just wait a while. And for members of Gen Z, social media can exacerbate those feelings.

How to Deal with FOMO in Real Estate

There are a few different things you may want to consider doing if you think FOMO is getting in the way of making smart homebuying decisions.

If You Feel You Need a Reality Check…

It never hurts to revisit your budget to see how much house you can truly afford. Using a home affordability calculator can help you set some limits. It also may be useful to talk to a financial advisor about how buying a home — or a home at a particular price — could affect your other goals. If you see a property you’re interested in purchasing, run the numbers in a mortgage calculator to get a sense of what your monthly payments would be.

If You Find Yourself Trying to “Time the Market”…

It can be tough to predict when home prices or interest rates will go down. Instead, you might want to talk to a real estate agent about the best time of year to look for housing bargains in your area. Or you could shift your search from a pricey “hot” area to a place where the cost of living is more affordable. Also, if you find a home you think you’ll stay in long-term, you may want to keep mortgage refinancing in mind as an option for lowering costs down the road.

If You’re Feeling Triggered by What Others Have…

Looking at too many listings (or home improvement shows, or friends’ house-proud social media posts) has a way of leading you away from your personal “must-haves.” When that happens, it helps to take a moment (perhaps with a social-media hiatus?) to reprioritize and get back on track.

What Are the Barriers for Gen Z Home Buyers?

Some of the obstacles Gen Z homebuyers face are the same as those would-be homeowners have encountered off and on for generations. Home prices are high. Mortgage interest rates, though nowhere near the double digits they were throughout much of the 1980s, still feel nerve-rackingly elevated. Housing inventory is low. And though inflation is cooling, gas, groceries, and other costs are still taking a toll on household budgets.

But Gen Z has some issues to contend with that other generations may not, including:

Down Payment Costs

Higher-priced houses can require larger down payments, and that can make getting into the housing market increasingly difficult. First-time homebuyers typically put down less than repeat buyers — about 8% compared to 19%, according to the National Association of Realtors® 2023 Profile of Home Buyers and Sellers. That still could be a hefty chunk of change to come up with, however, considering the median home price in the U.S. is currently around $420,000.

Student Loan Debt

A college education may help Gen Z graduates earn a higher salary, but many report that student debt is slowing their progress toward certain milestones, including buying a home. Those college loans can make it even more difficult for younger buyers to save for a down payment or make higher monthly mortgage payments. You can afford a mortgage if you have student loans, but student debt can factor into your debt-to-income ratio (DTI), which may affect whether or not you qualify for a mortgage or what interest rate you’re offered.

Higher Rent Payments

Rising rental costs are another factor that may be affecting Gen Z’s ability to save for a home. According to Zillow’s monthly Observed Rent Index, the typical U.S. rent in March 2024 was $1,983, a 3.6% year-over-year increase.

Adulting = Insecurity

When you’re in a new (or new-ish) career, out on your own with bills to pay, and you’re not sure where life might take you next (a new job, a new town, a new partner, a new baby?), navigating life after college can be daunting enough without the homebuying headaches. While some in Gen Z have found a way to get into the housing market despite the barriers, others are waiting until their personal life feels more stable.

How Does Gen Z Approach Home Buying?

For some in Gen Z, buying a home may not be as significantly linked to achieving success as it was for older generations. (According to a 2023 GoDaddy survey, only 40% of Gen Z respondents chose “yes” when asked if homeownership indicated a person had achieved the American Dream, compared to 44% of millennials, 49% of Gen Xers, and 50% of boomers.) Still, it remains a goal for many, who are finding ways to make it happen — by taking on roommates, moving to a state with a lower cost of living, working a side gig to earn more money, or living with their parents after college to save money.

Where Is Gen Z Buying Homes?

As you might expect, Gen Z-ers who live in or can easily move to more affordable locations are more likely to buy homes than those in large cities where home prices are higher. According to a Redfin report, the typical home price for Gen Z buyers in 2022 was $255,000 or less — much lower than the overall median price in the U.S. that year.

Realtor.com recently listed Jacksonville, NC; Elkhart, IN; Lima, OH; Waterloo, IA; Cumberland, MD; Watertown, NY; St. Joseph, MO; Hinesville, GA; Dubuque, IA; and St. Cloud, MN, as the 10 metropolitan areas with the largest percentage of Gen Z buyers in 2022.

Recommended: Best Affordable Places to Live in the U.S.

Is It Harder for Gen Z to Buy a House?

Gen Zers aren’t facing the double-digit mortgage rates their parents and grandparents paid in the early 1980s. And they aren’t trying to buy a home during a depression or recession. Still, thanks to inflation and other factors — including an uptick in the number of affordable homes being snapped up by investment companies — this is a challenging time to become a homeowner.

According to Redfin, 30% of 25-year-olds owned their own home in 2022 — so it is doable. That homeownership rate is lower than what the baby boomers had (32%) when they were 25. But it’s actually a bit higher than the rate for millennials (28%) and Gen Xers (27%) when they were that same age.

Steps for Gen Z Home Buyers to Consider

For Gen Z, patience, flexibility, and creativity may be the keys to success in today’s tough housing market. Here are some steps to consider as you pursue homeownership:

Know Before You Go

The more you know about the homebuying process, the more confident you can feel about the decisions you make. Get to know the things you can do on the front end (like improving your credit score, lowering your DTI ratio, and researching first-time homebuyer programs and loans). And as you start your home search, consider listing your wants vs your needs, learning about the different types of mortgage loans, and going through the mortgage preapproval process.

Keep Expectations in Check

Here’s where FOMO can really get in your way: The house you can afford may not be anything close to the designer houses you see on social media and TV. But an affordable starter home can be a stepping stone to the home of your dreams. If you aren’t sure what you can manage, talk to a professional, such as your financial advisor, a real estate agent, or a mortgage professional.

Cast a Wide Net

If you can’t afford the trendiest neighborhood or a house directly on the beach, you may want to try searching in areas that are similar or nearby. If you can relocate, you could take your search even broader, looking at states that have what you want but at a lower price.

Recommended: Home Loan Help Center

The Takeaway

If high housing costs and other factors are getting in the way of your plans to buy a home, and you feel a strong sense of FOMO creeping up on you, try not to get sucked into overspending — or turned off to homeownership altogether. Staying true to your budget and your goals, and getting some assistance in finding the right home and home loan, can help you avoid feeling pressured into bad decision-making.

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 does FOMO mean in real estate?

The fear of missing out (FOMO) in real estate is the worry that you aren’t where you should be when it comes to homeownership — perhaps because you haven’t yet purchased a home, or you don’t have the same level of home you see others in your peer group moving into.

What housing markets are dropping the fastest?

According to CoreLogic’s U.S. Home Price Insights report for 2024, several locations on both coasts of Florida are likely to experience price drops this year, as well as the Atlanta-Sandy Springs-Roswell area in Georgia, and the Youngstown-Warren-Boardman area in Ohio and Pennsylvania.

What is the slowest month for the housing market?

Winter is typically the slowest time of year for the housing market, while spring and summer are the busiest seasons.

Photo credit: iStock/gradyreese

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.

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-Q224-1841351-V1

Historically speaking, mortgage rates have remained relatively low since the Great Recession, with some fluctuation at times due to market conditions. As a result, a generation of homebuyers has become accustomed to a low 30-year fixed-rate mortgage.

But with mortgage rates on the rise, it can put a sour taste in the mouths of people trying to join the ranks of homeowners in the country. They may be thinking that they missed an opportunity to buy a home. However, it’s important to look at the history of mortgages and mortgage rates to put the current conditions into context.

The History of Mortgage Rates

The modern history of mortgage lending in the U.S. began in the 1930s with the creation of the Federal Housing Administration. From the 1930s through the 1960s, a combination of government policy and demographic changes made owning a home a normal part of American life. During this time, the 30-year fixed-rate mortgage became the standard for home mortgage loans.

When discussing the fluctuation of mortgage rate trends, analysts usually refer to the average 30-year fixed-rate mortgage. Here’s a look at the trend of these mortgage rates since the 1970s.

The 1970s

Throughout the 1970s, mortgage rates rose steadily, moving from the 7% range into the 13% range. This uptick in rates was due, in part, to the Arab oil embargo, which significantly reduced the oil supply and sent the U.S. into a recession with high inflation — known as stagflation.

As a result, Federal Reserve Chairman Paul Volcker made a bold change in monetary policy by the end of the decade, raising the federal funds rate to combat inflation. Though the Federal Reserve doesn’t directly set mortgage rates, its monetary policy decisions can still impact many financial products, including mortgages.

The 1980s

The average 30-year fixed-rate mortgage hit an all-time high in October 1981 when the rates reached 18.63%. The Federal Reserve’s tight monetary policy affected this high borrowing cost and put the economy into a recession. However, inflation was under control by the end of the 1980s, and the economy recovered; mortgage rates moved down to around 10%.

The 1990s and 2000s

Mortgage rates continued a downward trend throughout the 1990s, ending the decade at around 8%. At the same time, the homeownership rate in the U.S. increased, rising from 63.9% in 1994 to 67.1% in early 2000.

Several factors led to a housing crash in the latter part of the 2000s, including a rise in subprime mortgages and risky mortgage-backed securities.

The housing crash led to the Great Recession. To boost the economy, the Federal Reserve cut interest rates to make borrowing money cheaper. Mortgage rates dropped from just below 7% in 2007 to below 5% in 2009.

Recommended: ​​US Recession History: Reviewing Past Market Contractions

The 2010s

Mortgage rates steadily decreased throughout most of the 2010s, staying below 5% for the most part. The Federal Reserve enacted a zero-interest-rate policy and a quantitative easing program to prop up the economy during this time following the Great Recession. This helped keep mortgage rates historically low.

The 2020s

The Federal Reserve reduced the federal funds rate to near-zero levels in March 2020, causing a drop in rates of various financial products. The effects of the fallout from the Covid-19 pandemic pushed mortgage rates below previous historic lows. The average 30-year fixed-rate mortgage hit 2.77% in August 2021.

However, with inflation reaching levels not experienced since the early 1980s, the Federal Reserve reversed course. The central bank started to tighten monetary policy in late 2021 and early 2022, which led to a rapid increase in mortgage rates. In May 2022, the average mortgage rate was above 5%. While this was below historical trends, it was the highest rate since 2018. From there, the 30-year fixed rate mortgage crept upward, reaching a high of 7.79% in October 2023 before declining to 7.1% in April 2024.

Recommended: How Inflation Affects Mortgage Interest Rates

Why Do Mortgage Rates Change?

As we can see from looking at interest rate fluctuations, major economic events can significantly impact mortgage rates both in the short and long term. As noted above, this has to do primarily with the Federal Reserve.

Federal Reserve actions influence nearly all interest rates, including mortgages through the prime rate, long-term treasury yields, and mortgage-backed securities. The Federal Reserve sets the federal funds benchmark rate, the overnight rate at which banks lend money to each other.

This rate impacts the prime rate, which is the rate banks use to lend money to borrowers with good credit. Most adjustable short-term rate loans and mortgages use the prime rate to set the base interest rates they can offer to borrowers. So, after the Federal Reserve raises or lowers rates, adjustable short-term mortgage loan rates are likely to follow suit.

Longer-term mortgage rates have also risen and fallen alongside economic and political events with movement in long-term treasury bond yields. In the short term, a Federal Reserve interest rate change can affect mortgage markets as money moves between stocks and bonds, affecting mortgage rates. Longer-term mortgage rates are influenced by Fed rate changes but don’t have as direct an effect as short-term rates.

Recommended: Federal Reserve Interest Rates, Explained

Can Changing Rates Affect Your Existing Mortgage?

If you have a mortgage with a variable interest rate, known as an adjustable-rate mortgage, changing rates can affect your loan payments. With this type of home loan, you may have started with an interest rate lower than many fixed-rate mortgages. That introductory rate is often locked in for an initial period of several months or years.

After that, your interest rate is subject to change — how high and how often depends on the terms of your loan and interest rate fluctuations. These changes are generally tied to the movement of interest rates, but more specifically, which index your adjustable-rate mortgage is linked to, which can be affected by the Fed’s actions.

However, most adjustable-rate mortgages have annual and lifetime rate caps limiting how high your interest rate and payments can change.

If you took out a fixed-rate mortgage, your initial interest rate is locked in for the entire time you have the home loan, even if it takes you 30 years to pay it off.

Recommended: What Is a Good Mortgage Rate?

The Takeaway

If you are in the market to buy a home, it might be tempting to rush and buy when mortgage rates drop a bit, or to put off buying until rates hopefully decrease in the future. However, choosing the perfect time to buy a home based on the ideal rate can be difficult. You’re probably better off letting your need for a home and your personal financial situation drive your decision making. (Do you have a down payment saved up? Is your debt under control?) When it’s time to buy, do your research and choose the best mortgage available for your personal situation.

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 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.

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-Q224-1842813-V1

It’s no secret that the price tags of single-family homes — the ideal dwelling in terms of space, independence, and resale value — have spiked, and many current homeowners have been reluctant to let go, but a buyer whose heart is set on a single-family home may be able to follow a playbook to find their prize.

Buying a single-family home isn’t dramatically different from purchasing another type of property, but the process has a few variations. Here are some guidelines.

What Is a Single-Family Home?

The definition would seem easy enough, but it does vary according to real estate experts and government sources. The U.S. Census Bureau says single-family homes include fully detached and semi-detached homes, row houses, duplexes, quadruplexes, and townhouses. Each unit has a separate heating system and meter for public utilities, and has no units above or below.

According to other definitions of a single-family home, the building has no shared walls; it stands alone on its own parcel of land. In some places, the number of kitchens the home has informs the definition.

Unlike a multi-family property, a single-family home is meant for one person or household. Among the types of houses out there, including condos, co-ops, townhouses, and manufactured homes, the single-family home remains the holy grail for many Americans.

💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Benefits of Purchasing a Single-Family Home

While condos and townhouses may come with shared amenities and lower maintenance, traditional detached single-family homes come with different perks. When people buy a single-family home, they’re looking for benefits specific to this property type.

Spacious, Quiet, and Intimate

A single-family home is typically larger than a condo or townhome. Moreover, since the property is often on its own lot without shared walls, a single-family home offers more space and more privacy inside and outside the home.

Possibly No HOA

A co-op association or a condo or townhouse homeowners association sets and enforces rules and collects fees to pay for shared amenities. Anyone who buys into an HOA community must live by the CC&Rs: the covenants, conditions, and restrictions. They can be lengthy, and the ongoing fees can constantly rise.

You may be able to buy a detached single-family home with no HOA and paint your mailbox, or house, pink or purple — unless you live in a city like Palm Coast, Florida, that allows only earth tones and light or pastel hues but no colors that are deemed “loud, clashing, or garish.”

Then again, HOAs are becoming more common for detached single-family homes in planned communities. In fact, about 65% of single-family homes built in 2020 were in an HOA, Census Bureau data shows.

Single-Family Home Appreciation

Generally, single-family homes are in higher demand than multi-family or other properties. Because of both the building and demand, when a person buys a single-family home, the value may increase faster.

Possibilities for Renovation and Expansion

When people buy single-family homes, they’re buying into the potential to expand or renovate extensively. If the lot is big enough, single-family homeowners could put an addition on the property.

Single-family homes can be an attractive buy simply because of the option to expand in the future, unlike properties with shared lots or walls.


💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

How to Buy a Single-Family Home

Ready to buy a single-family home? Anyone from a first-time buyer to a seasoned investor may find appeal in a single-family home.

Recommended: First-Time Homebuyers Guide

1. Draw Up Your Financial Priorities

First, it’s important to look at finances. Your credit scores can have a significant impact on getting approved for a mortgage. To get a clear read on credit, but not scores, buyers can request free credit reports from the three major credit bureaus.

Additionally, it can be helpful for a qualified first-time homebuyer — who can be anyone who has not owned a principal residence in three years, some single parents, and others — to look into specialty mortgages to see if they qualify for them.

A loan from the Federal Housing Administration (FHA) may allow a down payment as low as 3.5%. A USDA loan (from the United States Department of Agriculture) requires nothing down, and a VA loan (from the Department of Veterans Affairs) also usually requires nothing down. Some conventional lenders allow qualifying first-time buyers to put just 3% down.

It’s important to know, though, that all FHA loans require an upfront and annual mortgage insurance premium, regardless of the down payment size. VA loans require a one-time “funding fee.” And borrowers with conventional conforming loans who put down less than 20% will pay private mortgage insurance until their loan-to-value ratio drops to 80% and they request removal, or to 78%, when it falls off.

2. Decide on Your Preferred Type of Housing

No two houses are alike, just as no two homebuyers are. Everyone has different tastes and priorities about where they want to call home.

Before hitting every open house in town, consider deciding on must-haves for a single-family detached home, including privacy, proximity to businesses, size, and style. This could help determine if a single-family home is the right fit.

3. Arrive at Your Price Point

Armed with an understanding of the type of house, it’s time to think about the price point. In addition to thinking about the down payment, buyers will want to calculate a monthly mortgage payment and total loan costs.

Figuring out a price point before looking at homes can take the emotion out of the process. That way, buyers have a budget in mind and a “do not exceed” amount before they fall for a home.

4. Search for a Good Real Estate Agent

Buying a single-family home can be fun, stressful, and fast-paced. Working with a trusted real estate agent can make the process a little easier.

To find a real estate agent, you might consider:

•   Reaching out to friends for referrals

•   Checking out local real estate association websites

•   Using an agent selling homes in the area you want to buy in

You might want to interview more than one agent, asking about their experience, availability, and philosophy. The choice of agent will likely come down to a combination of personality match and experience.

5. Find Your Neighborhood

Armed with an agent and budget, it’s time to dive deeper into neighborhoods. Once again, the choice of where to search will come down to the buyer; there’s no one “right” place to buy a single-family home.

As buyers explore neighborhoods, they might prioritize the following:

•   School district

•   Walkability

•   Proximity to workplace

•   Community resources

•   Budget

An experienced agent can help buyers distill their priorities and even point them in the right direction. Typically, buyers will have to balance the above elements, as it might not be possible to check all the boxes in a single neighborhood.

6. Tour Homes With Your Agent

Once buyers decide what neighborhoods they want to buy a single-family home in, it’s time to start touring properties.

When touring a single-family home with an agent, try to allot between half an hour to an hour. In the case of open houses, prospective buyers can walk in at any time, but private home tours require a buyer’s agent to gain access to the property.

When buying a single-family home, everyone will have their own checklist of what they want, which might include:

•   Listing price

•   Number of bedrooms and bathrooms

•   Storage space

•   Floorplan

•   Plot of land

•   Deck and porch

•   Garage and driveway

It could help to take photos or notes while touring a home to refer to them long after you’ve left the property.

7. Choose a House and Bid

Found a place and ready to make an offer? Time to get a home loan in order. Luckily, buyers will have a good idea of what they can offer on a property based on their finances with the upfront legwork.

Your agent can help with negotiating a house price.

How to make an offer? It pays to understand comps and the temperature of the market, and then:

•   Figure out the offer price

•   Determine fees

•   Budget for an earnest money deposit

•   Craft contingencies

With an offer drawn up, it’s time to submit it to the seller and wait for the next steps.

8. Review the Process and Get Ready to Move

Buying a single-family home isn’t a done deal once an offer is submitted. Typically there will be a back and forth, perhaps over offer price or contingencies.

Once everything is agreed on, and the inspection is resolved, it’s time to tally moving expenses and pack up.

9. Head to Closing and Move Into Your New Property

The final part of buying a single-family home is closing day. During closing, the buyer and seller meet with their agents to go over paperwork, and settle any outstanding costs, and formally turn over property ownership.

Next, it’s just moving everything in and settling in. Even after closing, homeownership may feel overwhelming, but there are plenty of resources to make it easier.

Ready to Buy a Home Quiz

The Takeaway

Ready to buy a single-family home? The process before you may seem daunting, especially if it’s your first home purchase. But if you break it down to small steps and keep your budget and dream-house priorities top of mind, home sweet home may be closer than you think.

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

FAQ

How much does it cost to buy a single-family home?

Zillow put the typical value of a single-family home at $354,000 in April 2024. New construction costs more. The median sales price of new houses sold in February 2024 was $400,500, according to the U.S. Census Bureau.

Can you buy a single-family home with no money down?

If a buyer qualifies for a mortgage backed by the Department of Veterans Affairs or Department of Agriculture, or one issued directly by those agencies, they may be able to purchase a home with no down payment.

What are the most important things to consider when buying a house?

Location (including property tax rate, quality of schools, walkability, crime rate, access to green space, and the general vibe), your ability to cover all the costs, duration of your stay, and square footage may be important.

How much should you have in savings to buy a single-family house?

You’ll need to have enough to cover a down payment, closing costs, and moving fees while ideally preserving an emergency fund.

Photo credit: iStock/jhorrocks

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.

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.

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.

^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.

SOHL-Q224-1842723-V1