I Make $200,000 a Year, How Much House Can I Afford?

An income of $200,000 a year puts you in a good position to afford a home priced at $600,000. But whether you should aim higher or lower than this in your house hunt will depend on your debt, how much you’ve saved for a down payment, and current interest rates, among other factors. Read on for a breakdown of the variables that could affect how much of a mortgage you can manage.

What Kind of House Can I Afford with $200,000 a Year?

Not so very long ago, if you’d asked someone: “If I make $200,000 a year, how much house can I afford?” they probably would have said, “A mansion!” Of course, that isn’t necessarily true anymore. But that income still can get you a pretty sweet home in most places.

You can get an idea of how much house you can afford on a $200,000 income by using an online mortgage calculator or by prequalifying with one or more lenders for a home mortgage loan. Or you can run the numbers yourself using a calculation like the 28/36 rule, which says your mortgage payment shouldn’t be more than 28% of your monthly gross income, and your total monthly debt — including your mortgage payment — shouldn’t be more than 36% of your income. Let’s take a closer look at what could affect how much you can borrow and what your payments might be.


💡 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.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


Understanding Debt-to-Income Ratio

You can expect lenders to look carefully at your debt-to-income ratio (DTI) — the second number in the 28/36 rule — when they’re deciding how much mortgage you can afford. It tells them how you’re handling the debt you already have and if you can manage more.

Your DTI ratio is calculated by dividing your total monthly debt payments by your monthly gross income. Mortgage lenders generally look for a DTI ratio of 36% or less; but depending on the lender and the type of home loan you’re hoping to get, you may be able to qualify with a DTI up to 43% or even 50%.

Typically, the lower your risk, the better your borrowing options. So if you want the best loan amount, rate, and terms, you’ll want to keep an eye on this number.

Your Down Payment Also Can Affect Costs

You may not need a hefty down payment to qualify for some home loans. But the more you can comfortably put down on a house, the less you’ll have to borrow, which can help lower your monthly payments. And if you put down at least 20%, you can avoid paying private mortgage insurance (PMI), which will further reduce your payments.

Other Factors that Can Affect Home Affordability

Your income, debt, and down payment are all primary factors in determining how much house you can afford. But there are other things that also can affect your ability to qualify for a mortgage that’s manageable, including:

Interest Rates

A lower mortgage interest rate can significantly lower your monthly payment — and the amount you’ll pay for your home over time. While interest rates are relatively consistent across the market, lenders do compete for customers, so you may benefit from shopping around. You also can help your chances of qualifying for a better rate by making sure your finances are in good shape and you have a solid credit score.

Loan Term

The most common mortgage term is 30 years, but different loan lengths are available depending on the type of mortgage you choose — and each has pros and cons. If you’re deciding between a 15-year vs. a 30-year mortgage, for example, the shorter term may offer a less expensive interest rate, which could save you money over the life of your loan. But the 30-year term will likely have lower monthly payments, which may be a better fit for your budget.

Homeowners Insurance

Understanding how to buy homeowners insurance and comparing the policies available may help you minimize this expense. Lenders require borrowers to have an adequate amount of homeowners insurance, and if you live in a state that’s considered “high risk,” the cost of coverage could be significant.

HOA Fees

If you’re buying in a community with lots of amenities, homeowners association (HOA) dues could add a substantial amount to your monthly home costs. (The monthly average is about $250, but fees can go as high as $2,500 or more.)

Property Taxes

Property taxes, which are generally based on the assessed value of a home, are often included in a borrower’s monthly mortgage payment, so it’s important to include this amount when you calculate home affordability. (Check your county’s website for the correct number.)

Location

If you’re a fan of real estate shows like House Hunters, you already know the city or even the particular neighborhood you want to live in can be a big factor in determining how much house you can afford. The overall cost of living can vary by state, and costs are also typically higher in cities vs. rural areas. If you aren’t willing to compromise on location, you may have to increase your housing budget to buy in the area you want.

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

How to Afford More House with Down Payment Assistance

If you have the means to manage a higher monthly payment but you need some help with your down payment, there are state and federal down payment assistance programs that can help.

Many programs set limits on how much an eligible home can cost, or on the homebuyer’s income. But it’s worth checking out what’s available to you — especially if you live in a state with higher home values. In California, for example, where homes can be expensive, a first-time homebuyer with a $200,000 income still can qualify for assistance in some counties.

Home Affordability Examples

With a home affordability calculator, you can get a basic idea of how much house you can afford by plugging in some basic information about your income, savings, debt, and the home you hope to buy. Here are some hypothetical examples:

Example #1: Saver with a Little Debt

Annual income: $200,000

Amount available for down payment: $80,000

Monthly debt: $650

Mortgage rate: 6.5%

Property tax rate: 1.125%

House budget: $700,000



Example #2: Less Debt, But Also Less Savings

Gross annual income: $200,000

Amount available for down payment: $20,000

Monthly debt: $200

Mortgage rate: 6.5

Property tax rate: 1.125%

House budget: $605,000

How You Can Calculate How Much House You Can Afford

Along with using an online calculator to figure out how much house you might be able to afford on a $200,000 income, you also can run the numbers on your own. Some different calculations include:

The 28/36 Rule

We already covered the 28/36 rule, which combines two factors that lenders typically look at to determine home affordability: income and debt. The first number sets a limit of 28% of gross income as a homebuyer’s maximum total mortgage payment, including principal, interest, taxes, and insurance. The second number limits the mortgage payment plus any other debts to no more than 36% of gross income.

Here’s an example: If your gross annual income is $200,000, that’s $16,666 per month. So with the 28/36 rule, you could aim for a monthly mortgage payment of about $4,666—as long as your total debt (including car payments, credit cards, etc.) isn’t more than $6,000.

The 35/45 Model

Another DIY calculation is the 35/45 method, which recommends spending no more than 35% of your gross income on your mortgage and debt, and no more than 45% of your after-tax income on your mortgage and debt.

Here’s an example: Let’s say your gross monthly income is $16,666 and your after-tax income is about $13,000. In this scenario, you might spend between $5,833 and $5,850 per month on your debt payments and mortgage combined. This calculation gives you a bit more breathing room with your mortgage payment, as long as you aren’t carrying too much debt.

The 25% After-Tax Rule

If you’re worried about overspending, or you have other goals you’re working toward, this method will give you a more conservative result. With this calculation, your target is to spend no more than 25% of your after-tax income on your mortgage. Let’s say you make $13,000 a month after taxes. With this method, you would plan to spend $3,250 on your mortgage payments.

Keep in mind that these equations can only give you a rough idea of how much you can spend. When you want to be more certain about the overall price tag and monthly payments you can afford, it helps to go through the mortgage preapproval process.

Recommended: 2024 Home Loan Help Center

How Your Monthly Payment Affects Affordability

Some eager homebuyers can tend to put most of their focus on a home’s listing price or the interest rate. But it’s how those factors and others combine to raise or lower the monthly payment that can ultimately determine whether a buyer can afford the home or not.

Before signing on the dotted line, it’s a good idea to run the numbers on an online mortgage calculator to be confident you can stay on track.

If you do find yourself struggling a bit — perhaps because your income changes or an unexpected life event occurs — refinancing to a new loan with a lower payment may be an option. (Especially if interest rates drop.) But how soon you can refinance may depend on the type of loan you have.

Types of Home Loans Available to $200,000 Households

A $200,000 income can go a long way toward helping a buyer qualify for certain mortgage options, such as a conventional or jumbo loan. But a higher salary also could make you ineligible for a government-backed loan that has income limits. There also may be limits on the purchase price and type of property, depending on the mortgage you get.

Here are a few of the options that may be available to $200,000-income households:

Conventional Loans This loan is issued by a private lender, such as a bank, credit union, or other financial institution.

FHA loans Insured by the Federal Housing Administration, FHA loans are a good resource for borrowers with a lower credit score or little money available for a down payment. There are no limits on how much you can earn and get an FHA loan, but there may be a limit on how much you can borrow depending on where you plan to reside.

VA loans A loan guaranteed by the U.S. Department of Veterans Affairs is an excellent option for eligible members of the U.S. military and surviving spouses. There are no income limits on VA loans, and there are no longer standard loan limits on VA direct or VA-backed home loans.

USDA loans These loans are guaranteed by the U.S. Department of Agriculture and are meant to help moderate- to low-income borrowers buy homes in eligible (typically rural) areas. Loan limits and income limits are based on the home’s location.


💡 Quick Tip: Keep in mind that FHA home loans are available for your primary residence only. Investment properties and vacation homes are not eligible.

The Takeaway

There are several variables that factor into how much home you can afford. Besides your income, lenders will look at your credit, your debt, and your down payment to determine how much you can borrow. To find a loan and monthly payment that’s a good fit for you, it’s a good idea to research and compare different loan types and amounts. And, if you have questions, you can seek advice from a qualified mortgage professional.

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 $200,000 a good salary for a single person?

According to the Census Bureau, only 11.5% of U.S. households earned $200,000 or more in 2022. So, if you’re earning $200,000 all on your own, you could say you’re doing pretty well.

What is a comfortable income for a single person?

“Comfortable” is a subjective term and can vary from one person to the next. For some people comfortable means being able to buy what they want. For others it means crafting and following a careful budget so that they know where their money is going each month.

What is a livable wage in 2024?

The Massachusetts Institute of Technology’s Living Wage Calculator lists living costs across the U.S., and its “livable wage” varies widely based on family size and location. For a single person with no children in Napa County, California, for instance, the living wage is $21.62 per hour. In Boone County, Nebraska, it’s $14.93 per hour.

What salary is considered rich for a single person?

The top 5% of earners made, on average, $335,891 in 2021, the most recent year for which data is available, according to the Economic Policy Institute. (If you feel as though you have to be in the top 1% to be “rich,” you’d have to earn $819,324 or more.)


Photo credit: iStock/YvanDube

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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.

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.

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Benefits, Drawbacks, and Options of a Self-Directed 401(k) Plan

Benefits, Drawbacks, and Options of a Self-Directed 401(k) Plan

Self-directed 401(k) accounts aren’t as common as managed or target-date 401(k) plans, but they can be of real value for DIY-minded investors.

What is a self-directed 401(k)? These 401(k) plans — which may be employer-sponsored or available as a solo 401(k) for self-employed individuals — expand account holders’ investment choices, giving them more control over their own retirement plans. Instead of being limited to a packaged fund, an investor can choose specific stocks, bonds, mutual funds, and sometimes even alternative investments, in which to invest their retirement money.

What Is a Self-Directed 401(k) Account?

The key promise of self-directed 401(k) plans is control. They allow retirement plan savers to basically act as a trustee for their own retirement funds.

A self-directed 401(k) plan offers expanded investment choices, from stocks, bonds, funds, and cash, to alternative investments like Real Estate Investment Trusts (REITs) and commodities.

For a plan holder who believes they have the investment know-how to leverage better returns than a managed fund or target-date fund, a self-directed 401(k) can be an appealing choice.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1


1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Who Is Eligible for a Self-Directed 401(k)?

As long as your employer offers a self-directed 401(k), and you have earned taxable income for the current calendar year, you can enroll.

Alternatively, if you are self-employed and own and run a small business alone, with no employees (aside from a spouse), and your business earns an income, you are also eligible. You can search for a financial institution that offers self-directed plans, which might include a solo 401(k).

This is one of the self-employed retirement options you may want to consider.

How to Set Up a Self-Directed 401(k)

Setting up a self-managed 401(k) plan can be fairly straightforward. Once a 401(k) account is established, employees can fund it in the following ways:

•   Plan transfer. An employee can shift funds from previous or existing 401(k) plans and individual retirement accounts (IRAs). However, Roth IRAs can’t be transferred.

•   Profit sharing. An employee receiving funds from a company through profit sharing can use that money to open a self-directed 401(k) plan — up to 25% of the profit share amount.

•   Direct plan contributions. Any income related to employment can be contributed to a self-directed 401(k) plan.

Recommended: How to Manage Your 401(k)

Pros and Cons of Self-Directed 401(k)s

Like most investment vehicles, self-managed 401(k) plans have their upsides and downsides.

Pros of Self-Directed 401(k) Plans

These attributes are at the top of the self-directed 401(k) plan “advantages” list:

•   More options. Self-directed 401(k) plans allow retirement savers to gain more control, flexibility, and expanded investment choices compared to traditional 40k plans, putting their money exactly where they want — without relying on established funds.

•   Tax deferral. Like regular 401(k) plans, all self-directed 401(k) plan contributions and asset gains are tax-deferred.

•   Employee matching. Self-directed 401(k) plans make room for employer matching plan contributions, thus potentially paving the way for more robust retirement plan growth.

•   Plan diversity. Account holders can invest in assets not typically offered to 401(k) plan investors. Alternative investments like real estate, gold, silver and other commodities, and private companies are allowed, thus lending additional potential for diversity to self-directed 401(k) plans.

Cons of Self-Directed 401(k) Plans

These caveats and concerns are most often associated with self-directed 401(k) plans:

•   Higher-risk investments. Historically, alternative investments like precious metals and real estate come with more volatility — and hence more risk — than stocks and bonds.

•   Diversification is on you. You’ll need to choose among stocks, bonds and funds to augment your self-directed 401(k) plan asset allocation.

•   Higher fees. Typically, self-directed employer retirement plans cost employees more to manage, especially if an investor makes frequent trades.

•   Larger time investment. Since self-directed 401(k) plans offer access to more investment platforms, savers will likely need to spend more time doing their due diligence to research, select, and manage (especially in the area of risk assessment) their plan options.

How Much Money Can be Put in a Self-Directed IRA?

The amount an investor can contribute to a self-directed IRA is the same as the amount that can be contributed to a traditional IRA savings account. The annual contribution limit is $7,000 for tax years 2024 and 2025. Those 50 and older can contribute an additional $1,000, for a total of $8,000 per year.

For a self-directed 401(k), the amount that can be contributed is the same as the contribution limits for a traditional 401(k). For 2024, the limit is $23,000. For those age 50 and older, there is the option of making an additional catch-up contribution of up to $7,500. That means an individual 50 or older could contribute as much as $30,500 to a self-directed 401(k) in 2024.

For 2025, the limit is $23,500. Those 50 and older can make an additional catch-up contribution of up to $7,500, for a total of up to $31,000. In 2025, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500), for a total of $34,750.

Recommended: IRA vs 401(k)

Common Self-Directed 401(k) Investments

The ability to choose from an expanded list of investment categories is an intriguing benefit for a 401(k) plan holder who believes they have the investment know-how to leverage better returns from investments like self-directed 401(k) real estate, precious metals, or shares of private companies, among other eligible alternative investments.

For any retirement saver looking to leverage those options, the key is understanding what potential opportunities and what risks those extra self-directed investment vehicles bring to the table. Here’s a closer look at two of the more common alternative investments linked to self-directed 401(k) plans.

Real Estate Investment Trusts (REITs)

Investing in real estate simply means investing in residential or commercial properties, or real estate funds, with the goal of income generation. A self-directed 401(k) plan allows for real estate investing outside of the plan holder’s personal residence.

Examples of residential properties include:

•   Single-family homes

•   Condos

•   Townhouses

Examples of commercial real estate include:

•   Multi family homes

•   Office or retail buildings

•   Storage facilities and warehouses

To invest in real estate with a self-directed 401(k) plan, an investor would use their 401(k) funds to purchase the property, as well as to pay for maintenance, taxes, and other property-related expenses.

Real estate can be cyclical in nature, and can require large amounts of cash when investing in direct real estate properties. Thus, risk of investment loss is real and must be treated prudently by self-directed 401(k) real estate investors.

Precious metals

Investing in “hard commodities” like gold, silver, titanium, copper, zinc, and bronze, among other metals, are allowable with self-directed 401(k) plans. Self-directed 401(k) plan participants can either invest in precious metals directly, like buying gold bullion or coins, or invest in precious metals via stocks or precious metal funds.

Precious metal investing can be high risk, as gold, silver, and other metals can be highly volatile in value. As with real estate, investors have to be able to ride out chaotic market periods for commodities — but for some, the potential payoff may be worth it.

Investments That Aren’t Allowed Under Self-Directed 401(k) Plan Rules

While the list of investment vehicles that are included in a self-directed 401(k) plan are substantial, regulatory rules do prohibit specific investment activities tied to several of those asset classes. The following investment strategies and associated transactions, for example, would not pass muster in self-directed 401(k) plans.

Real Estate with Family Ties

While investing in real estate is allowed in a self-directed 401(k) plan, using that real estate for extended personal gain is not allowed. For example, that could include buying an apartment and allowing a family member to live there, or purchasing a slice of a family business and holding it as a 401(k) plan asset. Neither of these scenarios is allowed under 401(k) plan regulatory rules.

Loans

Self-directed 401(k) plan consumers may not loan any plan money to family members or sign any loan guarantees on funds used in a self-directed 401(k) plan.

No Investment Benefit Beyond Asset Returns

Self-directed 401(k) plan holders cannot earn “extra” funds through transactions linked to plan assets. For example, a plan holder can buy a real estate property under 401(k) plan rules but he or she cannot charge any management fees nor receive any commissions from the sale of that property.

Basically, a self-directed 401(k) plan participant cannot invest in any asset category that leads to that plan participant garnering a financial benefit that goes beyond the investment appreciation of that asset. That means not using 401(k) funds to purchase a personal residence or investing in assets like investments of collectibles (i.e. vehicles, paintings or jewelry or real estate properties that the plan participant personally uses.

Manage Your Retirement Savings With SoFi

While self-directed 401(k) plans can add value to a retirement fund, self-directed retirement planning is not for everyone.

This type of account requires more hands-on involvement from the plan holder than a typical target-date or managed fund might. Additionally, investing in alternative investments like precious metals, real estate, and other risk-laden investment vehicles, require a realistic outlook on downside risk and a healthy knowledge of how investments work beyond stocks, bonds, and funds.

In the meantime, you might want to consider rolling over any old 401(k) accounts to an IRA rollover to better manage your retirement savings overall.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

What is the difference between an individual 401(k) and a self-directed 401(k)?

A self-directed 401(k) gives account holders more investment choices, as well as more control over their own retirement plans. Instead of being limited to a packaged fund as they would be with an individual 401(k), an investor can choose specific stocks, bonds, mutual funds, and even alternative investments, in which to invest their retirement money.

Can I roll my traditional 401(k) into a self-directed 401(k)?

Yes. You can shift funds from a previous or existing 401(k) plan or individual retirement account (IRA) into a self-directed 401(k). The exception is a Roth IRA, which can’t be transferred.

How is a self-directed 401(k) taxed?

Like regular 401(k) plans, all self-directed 401(k) plan contributions and asset gains are tax-deferred until withdrawn. With self-directed 401(k)’s, there is a 10% tax penalty for early withdrawals (before age 59 ½), the same as with traditional 401(k)s.


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

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

SoFi Invest®

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

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How to Save for Retirement at 30

How to Save for Retirement at 30

One of the most important things you can do in your 30s is to start prioritizing retirement savings if you haven’t done so already.

Building retirement savings at 30 is not always an easy task, even if you’re earning a higher salary. Financial responsibilities often increase at this time, but it’s important to keep retirement in mind even as you hit other milestones such as buying a house or starting a family.

To save for retirement in your 30s, you’ll need to balance your daily spending with your long-term goals. The sooner you can begin saving for retirement the better.

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1


1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

How to Start Saving for Retirement at 30

You can set yourself on a path to healthy retirement savings by using the following strategies. First up, putting money into a designated retirement plan.

1. Contribute to a 401(k)

Saving in tax-advantaged retirement accounts available through work, such as a 401(k), is one of the best things you can do to start saving for retirement. Your 401(k) allows you to contribute up to $23,500 a year in 2025, up from $23,000 a year in 2024. Contributions come directly from your paycheck with pre-tax dollars, which lowers your taxable income in the year you make them.

Regular, automatic contributions, coupled with the benefits of compounding returns, can help your savings grow even faster. Starting a 401(k) at 30 gives you several decades for your funds to grow over time.

Also, 401(k)s allow employers to contribute to your retirement, and many will offer matching funds as part of your compensation package. Aim to save at least as much as is required to receive your employer’s match. Work toward maxing out your 401(k) contributions, especially as your salary grows over time.

You can access the funds penalty-free once you reach age 59 ½, but you will owe taxes on the money at that time.


💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

2. Open an IRA

An IRA is a retirement account, which anyone with earned income can open. If you don’t have a 401(k) at work, opening an IRA can give you access to a tax-advantaged account to save for retirement. Even if you already have a 401(k), opening an IRA can be a good way to save even more, though you won’t get to write off your contributions.

The contribution limit for an IRA in both 2024 and 2025 is $7,000 per year.

IRAs come in two different types: traditional and Roth IRAs. If you don’t have a 401(k), you can make contributions to traditional IRAs with pre-tax dollars. Like a 401(k), money in these accounts grows tax-deferred, and you’ll pay the taxes on it when you make withdrawals in retirement.

If you meet certain income restrictions, you may be able to contribute to a Roth IRA instead. In that case, you’ll make the contributions with after-tax dollars, but your money will grow tax-free inside the account and you do not have to pay taxes when you make withdrawals.

Recommended: Traditional vs. Roth IRA: How to Choose the Right Plan

3. Plan Your Asset Allocation

Diversification is the act of spreading your money across different asset classes. To minimize risk from a decline from one type of asset, it typically makes sense to create a diversified portfolio, including a mix of asset classes, such as stocks, bonds and other assets.

Your asset allocation refers to the proportion of each asset class that you hold. Your asset allocations will reflect your goals, risk tolerance, and time horizon. Given the relatively long period until your retirement, you might consider a relatively aggressive portfolio consisting mostly of stocks in your retirement account.

Stocks typically provide the most potential for growth, but they also fluctuate more than some other asset classes. Since you have three decades or more before you retire, you have time to ride out the natural ups and downs of the market.

Bonds, which tend to be less volatile than stocks but also offer lower returns, may balance out the riskier equity allocation. As you approach retirement, you may consider rebalancing your asset allocation to include more conservative investments to help protect the income you will need to draw upon soon.

Target-date funds are a type of mutual fund that automatically readjusts your portfolio as you near your target date, often the year in which you wish to retire.

4. Diversify within Asset Classes

Just as a portfolio with different types of assets offers some downside protection, so too, does diversification within those asset classes. If you invest the entire stock portion of your portfolio shares in just one company and share prices in that company drop, the value of your entire portfolio drops as well.

Now imagine that you own shares in 500 different companies. When one stock fares poorly, it will have a relatively small effect on the rest of your portfolio. Diversification helps limit the negative effects that any asset class, sector, or company could have on your portfolio.

You can further diversify your portfolio by including companies from different sectors and of all sizes from different parts of the globe. This same idea is true for other asset classes. For example, you could hold a mix of government and corporate bonds, and the corporate bonds could represent companies from various sectors and locations.

One way to add diversification to your portfolio is by investing in mutual funds, exchange-traded funds (ETFs), and index funds that invest in a diversified basket of stocks. For example, if you buy shares in an ETF that tracks the S&P 500 index, you’ll be investing in the 500 stocks included in that index.

5. Don’t Cash Out your 401(k) if You Get a New Job

If you’re only in your 30s, it’s likely that you’ll change jobs a couple of times or more, over the course of your career. When you change jobs, you’ll have a number of options for what to do with the 401(k) you hold with your previous employer.

One of these options is to cash out your 401(k). But this is typically not a great idea from a personal finance perspective. If you take a lump sum payment and you’re younger than 59 ½, you may not only owe income taxes on the withdrawal, but also a 10% early withdrawal penalty. What’s more, your money will no longer be working for you in a tax-advantaged account, potentially setting you back in your retirement savings goals.

A better option is to roll over your 401(k) into another tax-advantaged retirement account, such as your new employer’s plan, if they offer one, without paying income taxes. Or you can roll your 401(k) into an IRA without paying taxes. IRA accounts offer the added benefit of additional investment options, and they may have lower fees than your 401(k).

Recommended: How to Transfer Your 401(k) When Changing to a New Job

6. Protect Your Earnings with Disability Insurance

An injury or an illness that keeps you from going to work can hamper your retirement savings plan. However, disability insurance can help cover a portion of your lost income — usually between 50% and 70% — for a period of time.

Most employers offer some sort of short-term disability insurance, with a benefit period of three to six months. Some employers may offer long-term policies that cover periods of five, 10, or 20 years, or even through retirement age.

Check with your employer to see if you are covered by a disability policy and whether it provides enough coverage for your needs. If your employer’s plan falls short, or you don’t have access to one, you might consider purchasing a policy on your own.

The Takeaway

The earlier you can start saving for retirement the better. A long time horizon gives you the opportunity to take advantage of compounding growth for a longer period of time, which can help you increase the amount you’re able to save. Pay attention to the fees you’re paying on investments, which can eat away at returns over time.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.


Photo credit: iStock/AJ_Watt

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

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

SoFi Invest®

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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A Guide to Townhouses: Key Characteristics, Pros and Cons

What is a Townhouse House: Pros and Cons

Looking for a relatively affordable property? Let’s hit the town. For many buyers, a townhouse is the sweet spot in real estate. But what is a townhouse? It’s not a detached single-family home, but it isn’t a condo, either. Let’s see how townhomes stack up.

What is a Townhouse?

A townhouse, or townhome, is distinct among the different types of homes. It is defined as a single-family unit that has:

•   Two or more floors

•   A shared wall with at least one other home

•   Ownership that differs from a condo: You own the inside and outside of your unit and the land it sits on, whereas a condo owner owns the interior of the condo

The meaning of the word townhouse can be traced back to 19th century England. The rich and royalty would have a large manor in the country but also a home “in town.” The definition has evolved over the years. A townhome doesn’t need to be a second home, and it doesn’t even need to be in the city. In some parts of the U.S., townhouses with a similar design and facade are also called row houses.


💡 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.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


Pros and Cons of a Townhouse

Townhouses come with a fair share of benefits, but like any home, it’s not one size fits all. Consider these pros and cons of buying a townhouse.

Pros

•   Makes the most of space. As townhomes share a wall or two with neighbors, and are often in densely populated areas, they use space efficiently.

•   Affordability. Because of their shared walls and space-saving layout, townhomes are often more affordable than single-family homes in the area.

•   Independence, with less maintenance. Townhouses usually have less upkeep than single-family homes. There might be a small yard, and your own roof, to maintain.

•   Lower property taxes. A townhome owner may pay less in property taxes than the owner of a standalone home.

•   HOA perks. Some townhomes are part of homeowners associations. If amenities like a pool, gym, and maintenance of common areas and possibly your own little yard are a priority, a townhome with an HOA could be a good fit.

•   Looser rules. The HOA rules may not be as strict as those for a condo.

Cons

•   Limited landscape options. Townhouse lots are small. If you want space for landscaping, it’s unlikely you’ll find much with a townhouse.

•   Uncreative exteriors. If the townhome is part of an HOA, the ability to decorate the exterior of the unit could be limited. Townhomes typically look very similar to their neighboring units as well, so standing out could be a no-no.

•   Stairs, stairs, and more stairs. Townhomes have an efficient build for spaces where land is at a premium. That means building up, not out. A townhome may have three (or more) floors, meaning climbing stairs repeatedly.

•   Less privacy. Townhouses have at least one “party wall,” or wall shared with another property. That could be a problem for buyers who prioritize peace and quiet if the neighbors are loud.

•   Less appreciation. As a rule of thumb, townhomes don’t gain as much value as single-family homes do.

•   HOA fees. If the community has an HOA, it will charge a monthly or quarterly fee to cover communal perks. The fees usually rise over time, and can be high at a complex full of amenities.

Finding a Townhouse

Finding a townhouse will depend on where a buyer is looking. Most commonly, they’re encountered in densely populated areas where land might be pricey and scarce. The search may be more restricted if a buyer wants to purchase a townhome in an HOA community. One place buyers typically won’t find townhomes is in rural or secluded areas. Land may be more affordable and plentiful, which means properties don’t need to be condensed.


💡 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.

Who Should Get a Townhouse?

A townhome might be the right option if the buyer:

•   Isn’t interested in much maintenance. Maintaining your unit and your parcel of land will almost always be less intensive than maintaining a detached single-family home and yard. If there are HOA fees, they might include landscaping services.

•   Is a first-time buyer. The lower cost and maintenance of a townhouse might be the right fit as a first-time homebuyer learns the ropes of homeownership and looks into homeowner resources.

•   Is an investor or buyer of a second home: Both may see the benefits of a townhouse.

•   Is on a budget. Generally, a townhouse will cost less than a single-family home in the same area. Buyers could live in a desirable area without paying top dollar. (A calculator for mortgage payments helps buyers see the effect of different down payments.)

•   Wants to live in an urban or suburban area. Because townhomes are built in areas where space is at a premium and the cost of living is high, a townhouse could be the right fit.

The Takeaway

With less maintenance (and potentially a lower price tag) than a detached single-family home, a townhome can be a great opportunity for buyers. Townhomes qualify for the same kind of mortgages that detached single-family homes do, and they require less exterior maintenance than a detached home. So there’s a lot to love about living in a townhouse.

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

How is a townhouse different from a house?

The biggest difference between a townhouse and a detached single-family house is the shared walls. A townhome may have one or more “party walls” with the properties adjacent to it.

Do townhouses have backyards?

Some townhomes may have a small backyard or patio, but that’s not a requirement for a home to be considered a townhouse.

Can you get a loan to buy a townhouse?

Yes. Similar to purchasing a traditional single-family home, townhouse buyers can use a home loan to purchase the property.


Photo credit: iStock/JARAMA

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.

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Historical 30-Year Fixed-Rate Mortgage Trends

Historical 30-Year Fixed-Rate Mortgage Trends

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.

Key Points

•   Historical mortgage rates have been relatively low since the Great Recession, encouraging a generation of homebuyers.

•   The Federal Housing Administration initiated modern mortgage lending in the U.S. during the 1930s.

•   Mortgage rates peaked at 18.63% in October 1981 due to tight monetary policies.

•   Post-2007, rates dropped significantly, influenced by the Federal Reserve’s efforts to stimulate the economy.

•   Recent trends show a rise in mortgage rates, reaching 7.79% in October 2023 before slightly decreasing.

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

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


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 Mortgages: simple, smart, and so affordable.


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.

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