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If you’re thinking about buying a home in the not-too-distant future, you may be wondering what kind of property to purchase. Would a single-family house be better, or perhaps a condo unit?

Some important factors: Do you prefer being in a city, perhaps in an apartment or townhome, or are you all about a house with a picket fence? Do you like handling your own gardening and picking your own front-door paint colors, or would you like to delegate that? Do you like neighbors close by or prefer privacy? Does your household include furbabies?

These are some of the considerations that may impact whether a house or a condo is right for you. Each option has its pros and cons, and of course, finances will play a role too.

To decide which might suit you best, take this house vs. condo quiz, and then learn more about some key factors.

Next, you might want to take these pros and cons into consideration as well.

Pros and Cons of Buying a House

A top-of-mind question for many people is, “Isn’t a house more expensive than a condo?” Cost is a factor, especially when buying in a hot market, and there can typically be a significant difference between a house and a condo when you are home shopping.

The median sales price of existing single-family homes was $467,700 in the fourth quarter of 2022, according to St. Louis Fed data, compared with $365,300 for existing condos and co-ops as of April 2022.

Now that you know that price info, look at these pros and cons when buying a house vs. a condo.

Pros of Buying a House

Among the benefits of buying a house are the following:

•   More privacy and space, including storage

•   A yard

•   Ability to customize your home as you see fit

•   Room to garden and create an outdoor space, just as you want it to be

•   Control of your property

•   Pet ownership unlikely to be an issue

•   Sometimes no homeowners association (HOA) or dues

•   Generally considered a better investment

Cons of Buying a House

However, you may have to contend with these downsides:

•   Potentially higher initial and ongoing costs

•   More maintenance inside and out

•   Typically higher utility bills

•   Potentially higher property taxes and homeowners insurance

•   Possibly fewer amenities (such as common areas, a gym, etc.)

If, after taking the quiz and weighing the pros and cons, buying a house feels like the right choice, you can start brainstorming about size, style, location, and price; attending open houses; and looking online.

Learning how to win a bidding war might also come in handy, depending on the temperature of the market.

Pros and Cons of Buying a Condo

A quick look at how condos work before diving in: Condominium owners share an interest in common areas, like the grounds and parking structures, and hold title to their individual units. They are members of an HOA that enforces community rules. Being a member of a community in this way is a key difference between a condo and a house.

Pros of Buying a Condo

Here are some of the upsides of purchasing a condo:

•   More affordable

•   Amenities included (this might include common rooms, a fitness center, and other features)

•   Potentially less expensive homeowners insurance and property taxes

•   Repairs and upkeep of the property typically taken care of

•   Typically lower utility bills

•   Security, if the community is gated or patrolled

•   Access to urban perks

Cons of Buying a Condo

Next, consider the drawbacks of condo living:

•   Less privacy

•   Typically no private yard

•   Rules and restrictions (about noise levels, outside wall colors, pets, and more)

•   Typically less overall space

•   HOA fees

•   Limited parking

•   Slower appreciation in value

Plus, the mortgage interest rate and down payment are often higher on a condo vs. a house of the same value, though that isn’t always the case, especially for a first-time buyer of an owner-occupied condo.

Conventional home loan mortgage lenders sometimes charge more for loans on condo units; they take into consideration the strength of the condo association financials and vacancy rate when weighing risk.

Mortgages backed by the Federal Housing Administration (FHA) are available for condos, even if they are not part of an FHA-approved condominium project, with a process called the Single Unit Approval Program.

An FHA loan is easier to qualify for and requires as little as 3.5% down, but you’ll pay upfront and ongoing mortgage insurance premiums.

What Are the Costs of a House or Condo?

As mentioned above, houses tend to cost more than condos. But here are a few other ways to look at the financials when comparing a condo vs. a house:

•   Condos tend to have lower list prices than houses which may mean a smaller mortgage. However, you also need to factor in monthly maintenance fees and HOAs so you get the full picture.

•   Condos may have assessments from time to time. These are additional charges to fund projects for the unexpected expenses, such as a capital improvement to the entire dwelling.

•   Homeowner fees are growing along with inflation, so when you make your purchase, understand that these charges are not static.

•   Before buying into an HOA community, it’s imperative to vet the board’s finances, including its reserve fund, how often it has raised rates in recent years, whether it has collected any special assessments or plans, and whether it’s facing any lawsuits.

•   If you are buying a house, keep in mind that maintenance and upkeep are your responsibility. This can mean everything from replacing a hot-water heater that’s reaching the end of its lifespan to dealing with roof repairs.

•   Down payments will vary due to several factors. For a condo, a down payment is typically around 10% but can vary considerably from, say, 3% to 20%.

•   With a house, a down payment could be from 3.5% with an FHA loan to the conventional 20% needed to avoid private mortgage insurance, or PMI. Those who qualify for VA loans may be able to buy a house without a down payment.

•   If you are buying a house, make sure to scrutinize property taxes and factor those into your budget. Those are not fixed and can rise over time.

Another smart move: Check out this home affordability calculator to get a better feel for the bottom line.

When Is a Good Time to Buy?

You may know what you’d like to buy (condo vs. a house) and where (in what neighborhood), but do you feel as though now is the right time? If so, fantastic.

You might decide, though, that you want to rent for a while longer under certain circumstances, which can include:

•   Hoping to wait out an overheated market and looking at price-to-rent ratios

•   Wanting to save more money for the down payment and closing costs (the bigger your down payment, the lower your monthlies will likely be)

•   Needing to boost your credit score first

•   Wanting to pay down credit card debt or other debt, which improves your debt-to-income ratio or DTI

•   Needing more time to look at houses and condos before deciding which path to take

The Takeaway

The condo vs. house decision depends on a multitude of factors. Reviewing the pros and cons of buying a condo vs. a house can at least give you a direction to start your search. And so can such givens as knowing that you want to be in a certain location (downtown in a condo instead of in a house on a couple of acres), or that you have lots of dogs and therefore want your own yard, and so forth.

If you’re ready to get prequalified for a home loan, know that SoFi offers competitive mortgage loan rates for single-family homes and condos with as little as 3% down for first-time buyers.

Make mortgage shopping simple with SoFi.

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

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

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

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.

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When you apply for a mortgage, lenders typically require proof of income via pay stubs, W-2s, and tax returns. But with a bank statement mortgage, borrowers can use their bank statements instead of tax documents to verify income.

For self-employed workers, who now number nearly 17 million, using bank statements can demonstrate their real income instead of the lower figure that might be reported on a tax return after deductions.

Read on to learn how you can leverage your bank statements to qualify for a mortgage.

What Is a Bank Statement Mortgage?

A homebuyer who is self-employed, by any name — sole proprietor, independent contractor, a member of a business partnership, freelancer, or gig worker — or anyone else may qualify for a bank statement mortgage loan, also known as a self-employed mortgage, by submitting personal or business bank statements.

A bank statement lists all transactions made in an account during a set period of time, usually a month. The sum of the transactions — deposits, charges, and withdrawals — is used to calculate the beginning and ending balances for that period. In place of tax returns, this account information is used to verify you have enough income and cash flow to cover a down payment and monthly loan payments.

Lenders offering bank statement mortgages may ask for 12 to 24 months of statements to determine the borrower’s net income — how much they earned after taxes and business write-offs. Typically, the bank statements cover the time period immediately preceding the loan application.

Recommended: Understanding the Different Types of Mortgage Loans

How Does a Bank Statement Mortgage Work?

So, what is a bank statement mortgage in practice? As with conventional mortgages, lenders can consider your credit score, work history, and proof of liquid assets as part of the loan application. But a bank statement mortgage differs in at least one way.

Whether you deposit income from your business directly into a personal bank account or from a separate business account affects how your income is calculated.

Lenders may apply an expense ratio to business bank statements with the understanding that part of the deposits goes toward business expenses. This means that only a percentage — usually 50% to 85% — of qualifying deposits is used to calculate income. (However, it’s possible to obtain a lower expense factor with a statement from a certified public accountant or tax preparer.)

If you deposit income to your personal account from your business account, 100% of deposits can count toward calculating the bank statement mortgage you can afford. Without a separate business account, though, deposits to a personal account also receive an expense ratio.

Note that lenders can also factor in your ownership percentage in a business when calculating gross monthly income from business bank statements.

Here’s an example of how these two scenarios would work for the same self-employed person applying for a 12-month bank statement mortgage.

Business bank statement: ($84,000 in deposits / 12 months) x 50% expense ratio = $3,500 gross monthly income

Personal bank statement: $84,000 in deposits / 12 months = $7,000 gross monthly income

With this monthly gross income figure, the lender will assess monthly debt payments to calculate the debt-to-income ratio and determine the loan amount you qualify for.

Recommended: Understanding Mortgage Basics

Who Should Get a Bank Statement Mortgage?

Prospective homebuyers who don’t have consistent cash flow or who lack proof of income from an employer like W-2s and pay stubs could benefit from a bank statement mortgage.

Self-employed workers, who represent around 11% of the U.S. workforce, often claim tax deductions for business expenses to lower their tax liability, which makes their income appear lower on tax forms. Therefore, without using bank statements, many sole proprietors, contract workers, and freelancers will qualify for a smaller mortgage amount than they can actually afford.

Bank statement mortgage loans could also be advantageous for seasonal workers. Since gross monthly income is calculated as an average during the full time period covered by the bank statements, when the deposits occur within that time frame is less important.

Recommended: Getting a Personal Loan When Self-Employed

Pros and Cons of a Bank Statement Mortgage

Bank statement mortgages represent an alternative financing option that lends itself to self-employed and seasonal workers. But it’s important to consider the pros and cons when shopping for a mortgage.

Pros of Bank Statement Mortgage	Cons of Bank Statement Mortgage
Can qualify without W-2s, pay stubs, or tax returns	May require a higher down payment than other types of home loans
Often eligible for second homes and investment properties	Generally carries higher interest rates
Private mortgage insurance is not required with 20% down	Not all lenders offer this loan product
May offer higher loan limits	Can require being in business for years to qualify

How to Find a Bank Statement Mortgage

Bank statement mortgages are considered non-qualified mortgages (non-QM), which means they may lack certain features and protections, so not every lender uses them. Though less common than traditional mortgages, many lenders, including banks and credit unions, offer bank statement mortgage loans.

Since bank statement loans are non-QMs, it’s natural to have questions about mortgage terms and requirements.

For instance, it’s worth asking about mortgage points — fees paid to a lender for a lower interest rate — since the limits on points and fees for a qualified mortgage do not apply.

Recommended: Mortgage Calculator

Alternatives to a Bank Statement Mortgage

Prospective homebuyers have a range of financing options to choose from, even if they’re self-employed.

Getting prequalified and preapproved can give you an idea of how much home you can afford, and a specific amount, respectively.

A mortgage loan originator will convey the loan terms you might qualify for and available financing options.

•   Conventional loan: Accounting for more than 78% of home loans in Q1 2022, conventional loans tend to come with competitive interest rates and are originated, backed, and serviced by private mortgage lenders.

•   FHA loan: Insured by the Federal Housing Administration but administered by approved private lenders, an FHA loan allows for down payments as low as 3.5% and lower credit scores than conventional loans.

•   USDA loan: A USDA loan, backed by the U.S. Department of Agriculture, is designed to make homeownership affordable for low-income buyers in designated rural areas.

•   VA loan: Eligible service members, veterans, and eligible surviving spouses can obtain VA loans, guaranteed by the Department of Veterans Affairs, with competitive interest rates, no down payment, and minimal closing costs.

If you’ve been self-employed for two years, or one year self-employed plus two years in a similar role with comparable income, you may still qualify for one of the above loans.

Recommended: Help Center for Home Loans

The Takeaway

Being self-employed does not prevent borrowers from getting financing for a home purchase or refinance. A bank statement loan could be a solution if your tax returns don’t fully capture what you can afford.

As you weigh your mortgage options, add SoFi to your list. It’s easy to compare SoFi’s home mortgage loans, which offer a variety of terms, low down payments, and competitive rates.

Learn what rate you qualify for in just minutes.

FAQ

Are bank statement mortgages good?

Bank statement mortgages can be advantageous for self-employed homebuyers or refinancers, but they can have higher interest rates and down payment requirements. It’s worth checking to see if you’re eligible for conventional or government-backed loans first.

How much of a down payment is required for a bank statement mortgage?

Typically, bank statement loan lenders require a 20% down payment, or 10% if purchasing mortgage insurance.

Can I use a bank statement loan on a second home?

Yes, bank statement loans can be used for a second home, as well as vacation homes and investment properties.

Do bank statement mortgages work for refinancing?

Yes, homeowners can refinance with a bank statement mortgage, including applying for a cash-out refinance if they have enough home equity.

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Photo credit: iStock/PeopleImages
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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

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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Mobile, manufactured, modular. These types of homes sound similar, and they’re all prefabricated, but they differ in cost, customization, ease of financing, and more.

When it comes to old mobile homes and modular vs. manufactured homes, here’s what to know if you’re considering a purchase.

What Is a Mobile Home?

Unlike a stick-built, or traditional, home built from the ground up, a mobile home was built in a factory before mid-1976 and transported on wheels to its destination. The name is a bit of a misnomer: Most are never moved.

What Is a Manufactured Home?

A manufactured home is built in a factory, then transported to its destination in one or more sections. Sound familiar? That’s because manufactured homes are the 2.0 version of mobile homes.

In 1976, the U.S. Department of Housing and Urban Development (HUD) changed the “mobile home” classification to “manufactured” legally and began to regulate the construction and durability of the homes.

More change and innovation have come with time. That is covered below.

What Is a Modular Home?

Modular homes start their lives in a factory, where modules of the homes are built. The pieces, usually with wiring, plumbing, insulation, flooring, windows, and doors in place, are transported to their destination and assembled like a puzzle.

Modular homes are comparable to stick-built homes in most ways other than birthplace.

Recommended: Choose a Favorite From the Different Types of Homes

How Mobile, Manufactured, and Modular Homes Differ

These homes may all share a starting point, but there are key differences to know, whether you’re a first-time homebuyer or not. For the sake of simplicity, let’s compare manufactured homes and modular homes.

Construction

Manufactured homes are built from beginning to end in a factory on a steel chassis with its own wheels. Once a manufactured home is complete, it’s driven to its destination, where the wheels and axles are usually removed and skirting added to make it look like a site-built home, or it may be attached to a permanent foundation.

Construction and installation must comply with the HUD Code (formally the Manufactured Home Construction and Safety Standards) and local building codes.

Modular homes are built in pieces in a factory, then transported to the property. From there, a team assembles the home on a permanent foundation.

While a modular home may be built states away from its final home, it needs to comply with the state and local building codes where it ultimately resides.

	Manufactured Homes	Modular Homes
Fully factory-built?	Yes	No (but mostly)
Permanent foundation?	Not commonly	Yes
Construction regulated by	HUD Code	State and local codes

Design

There’s a fair share of design differences when it comes to modular vs. manufactured homes.

Manufactured homes come in three standard sizes:

•   Single-wide: roughly 500 to 1,100 square feet

•   Double-wide: about 1,200 to 2,000 square feet

•   Triple-wide: 2,000+ square feet

The most significant limiting design factor of manufactured homes is the layout. As they must be delivered fully assembled on a trailer, they only come in a rectangular shape. In the case of single- or double-wides, there’s not much space to separate rooms or interior hallways to connect them.

In terms of design, there’s much more freedom in modular homes. They can be just about any style, from log cabin to modern, and can have more than one floor.

The design options of a modular home are similar to a stick-built home. Floor plan and style are only limited by a buyer’s budget and space. A modular home may look just like a site-built home upon completion.

	Manufactured Homes	Modular Homes
Size limitations	Yes, single-, double-, or triple-wide	No
Shape limitations	Yes, rectangular only	No

Customization Options

Most makers of manufactured homes allow some customization, including:

•   Custom kitchen layout and cabinetry

•   Porches

•   Custom layouts (within the confines of prefab shapes)

•   Siding

•   Built-in lighting

•   Ceiling finish

•   Fireplace

•   Tiling

Similar to stick-built homes, modular homes have nearly endless customization options. From the style of the home to its size and layout, modular homes offer more flexibility for buyers.

Expense

The expense of a modular home vs. manufactured home can vary dramatically.

A modular home — also sometimes called a kit home — may cost less than a stick-built home, but it usually costs a lot more than a manufactured home.

Both modular and manufactured homes have a separate expense: land. In the case of manufactured homes, it may be possible to rent the land the home is delivered to, but owners of modular homes will need to buy the land they want to build on.

Another cost associated with modular homes is the foundation, which needs to be in place when the modules arrive. Manufactured homes affixed to a permanent foundation on land owned by the homeowner are considered real property, not personal property.

Here are some typical expenses associated with each home:

	Manufactured Home	Modular Home
Average cost	$85,800 for a single-wide $159,200 for a double-wide	$200,000 to $400,000 (2,000 square feet, including installation but not the land)
Foundation	$4,000 to $13,000	$4,000 to $13,000
Land	Is often rented; varies by location	$55,000 median; varies by location

Another expense to keep in mind is financing. An existing modular home will qualify for a conventional mortgage or government-backed loan if the borrower meets minimum credit score, income, and down payment requirements.

Homebuyers building a new modular home often will need to obtain a construction loan.

Manufactured and mobile home financing is trickier. The key is whether the home is classified as real or personal property.

Manufactured homes classified as real property, including those used as accessory dwelling units that are at least 400 square feet, might qualify for a conventional or government-backed loan.

Financing options for mobile and manufactured homes classified as personal property include a chattel mortgage and an FHA Title I loan.

A personal loan is another option.

Recommended: Explore the Mortgage Help Center

The Takeaway

Mobile, manufactured, and modular homes have key differences. A manufactured home on leased land is not considered real property, while a modular home, always on its own foundation and land, is, and compares in most ways to a traditional stick-built home.

SoFi does not finance manufactured homes but will, if you qualify, refinance a construction-only loan to a traditional home mortgage loan or provide a mortgage for an existing modular home.

SoFi mortgages have lots of advantages, including low down payments. Find your rate with no obligation.

FAQ

Is a modular home better than a manufactured home?

In terms of appreciation and resale value, a modular home has the edge over most manufactured homes. And if a manufactured home is on leased land, the owner may face lot fees that keep rising.

What’s the price difference between mobile, manufactured, and modular homes?

Generally, mobile and manufactured homes are much less expensive than modular homes. A mobile home, by its very definition, was built before mid-1976. The size of the price gaps depend on how customized the home is, where it is, and how large it is.

Between manufactured and modular homes, which is fastest to build?

Unless there are factory or supply chain delays, manufactured homes are typically faster to build than modular homes. (Of note: A modular home can often be built much faster than a stick-built home.)

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Photo credit: iStock/Marje

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

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

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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You may know someone who lost a home to foreclosure, but you might not know all the ins and outs of the process.

When the lender takes back a property when the mortgage has not been paid for a specified period of time, that’s a mortgage foreclosure. The process varies by state and by lender, but there are things you can do to avoid it.

Here’s what you need to know about foreclosure, as the numbers began rising, and moves you can make if you’re facing it.

What Does Foreclosure Mean?

When a buyer finances a home, the mortgage is secured with the property, meaning the property is used as collateral on the loan. If the homeowner fails to make the agreed-upon payments on the due dates, the lender can take the property back.

Each state has its own laws regarding foreclosure. Where you live will determine how properties are foreclosed. There are two main types of mortgage foreclosure.

Recommended: Help Center for Mortgages

Types of Mortgage Foreclosure

In some states, the lender is required to go through the court system to foreclose on a property. This is known as judicial foreclosure. In other states, the lender does not have to go through the court process.

Judicial

With a judicial foreclosure, a lender must get a court order to foreclose on a property. The lender must file a complaint with the court, which is also sent to the homeowner and any other lienholders. Generally, the mortgage note must also be filed with the court.

Some states require loss mitigation efforts before a suit can be filed. Most of these foreclosures are not contested, resulting in a default judgment against the homeowner.

After this, the property may be scheduled for sale (usually a foreclosure sale or sheriff’s auction). The homeowner may appeal the foreclosure judgment.

Nonjudicial

In a nonjudicial foreclosure, deeds of trust can be foreclosed without going through the court system. Lenders must give special notice to the property owner and wait a specified amount of time before auctioning the property off.

Some states allow both judicial and nonjudicial foreclosure, while others may only allow one or the other. Below is a summary of states and what process they follow for mortgage foreclosure.

State	Foreclosure process
Alabama	Primarily nonjudicial
Alaska	Primarily nonjudicial
Arizona	Primarily nonjudicial
Arkansas	Primarily nonjudicial
California	Primarily nonjudicial
Colorado	Primarily nonjudicial
Connecticut	Primarily judicial
Delaware	Primarily judicial
District of Columbia	Primarily nonjudicial
Florida	Primarily judicial
Georgia	Primarily nonjudicial
Hawaii	Primarily nonjudicial
Idaho	Primarily nonjudicial
Illinois	Primarily judicial
Indiana	Primarily judicial
Iowa	Primarily judicial
Maine	Primarily judicial
Kansas	Primarily judicial
Kentucky	Primarily judicial
Louisiana	Primarily judicial
Maine	Primarily judicial
Maryland	Primarily nonjudicial
Massachusetts	Primarily nonjudicial
Michigan	Primarily nonjudicial
Minnesota	Primarily nonjudicial
Mississippi	Primarily nonjudicial
Missouri	Primarily nonjudicial
Montana	Primarily nonjudicial
Nebraska	Primarily nonjudicial
Nevada	Primarily nonjudicial
New Hampshire	Primarily nonjudicial
New Jersey	Primarily judicial
New Mexico	Primarily nonjudicial
New York	Primarily judicial
North Carolina	Primarily nonjudicial
North Dakota	Primarily judicial
Ohio	Primarily judicial
Oklahoma	Primarily nonjudicial
Oregon	Primarily nonjudicial
Pennsylvania	Primarily judicial
Puerto Rico	Primarily judicial
Rhode Island	Primarily nonjudicial
South Carolina	Primarily judicial
South Dakota	Primarily nonjudicial
Tennessee	Primarily nonjudicial
Texas	Primarily nonjudicial
Utah	Primarily nonjudicial
Vermont	Primarily judicial
Virginia	Primarily nonjudicial
Washington	Primarily nonjudicial
West Virginia	Primarily nonjudicial
Wisconsin	Primarily judicial
Wyoming	Primarily nonjudicial

When Does Mortgage Foreclosure Begin?

Mortgage foreclosure begins with the first missed payment, though a lender’s actions will escalate the more payments a homeowner misses. With the first missed payment, the mortgage lender won’t take the property back, or even issue a notice of default, but will reach out to the borrower to help them get payments back on track.

The lender will also report a nonpayment or late payment to the credit bureaus and issue a late fee.

Typically, lenders won’t issue a notice of default until the borrower defaults on three missed payments, or 90 days past due (this is standard practice, but lenders can issue a notice of default sooner than 90 days). Default is the precursor to foreclosure.

Foreclosure Timeline: How Long Does Mortgage Foreclosure Take?

After the notice of default arrives after 90 days past due, the time it takes to complete the foreclosure will vary by state. In some states, it can be a matter of months. In others, much longer.

In jurisdictions where each step of the process requires court approval (judicial foreclosures), court backlogs can delay the foreclosure processes for years.

Why Do Foreclosures Happen?

Foreclosure occurs in a number of situations. Some of the most common:

•   Being underwater. When a homeowner has negative equity in the home, the property is more likely to be foreclosed on. Having an underwater mortgage is the most common reason for foreclosure.

•   Rising interest rates. When a borrower’s loan has an adjustable interest rate, a sudden rise in the amount owed each month can lead down the path to foreclosure. With the 5/1 ARM, the interest rate is fixed for the first five years and then adjusts once a year.

•   Mortgage types. Sometimes even the different kinds of mortgages can contribute to default. With an interest-only mortgage, for instance, after five or 10 years of interest payments, principal and interest kick in, resulting in higher payments.

•   Personal situations. When the payment on a mortgage loan becomes too much or when a life event (hospitalization, death, divorce, layoff) prevents homeowners from making monthly payments, they can slip into default and eventually foreclosure.

If the homeowner doesn’t work with the lender to make a plan for repayment of the missed payments, the mortgage servicer can seek foreclosure.

Can You Avoid Foreclosure?

Homeowners have options if they’re facing foreclosure, and the sooner they contact their mortgage lender or servicer, the more they will have. Some of these include:

•   Reinstatement. If you’re able to pay off the past due amounts and any penalty fees, the lender will stop the foreclosure process.

•   Repayment plan. A repayment plan allows you to tack on a portion of your past-due payments to your regular payment each month. This makes sense if you’ve only missed a small number of payments and will no longer have trouble making a monthly mortgage payment.

•   Forbearance. If you qualify for mortgage forbearance, your lender might pause or lower monthly mortgage payments for a short amount of time. When you start making payments again, you’ll add portions of your missed payments to your regular payment to catch up.

•   Loan modification. With a loan modification, the lender permanently alters the terms of the mortgage contract, so the payment is more manageable. This can include a reduced interest rate, adding missed payments to the loan balance, extending the term of the mortgage, or even canceling part of the mortgage debt.

•   Filing for bankruptcy. Filing for Chapter 13 bankruptcy may allow you to keep certain assets like a house or car. A court must approve your repayment plan. It stays on your credit report for seven years. You might want to consult with a bankruptcy attorney if you’re thinking about going this route.

•   Selling your home. If you have enough equity in your home to pay off the mortgage and pay for the cost of selling your home, you may be able to sell your home to avoid foreclosure.

•   Deed in lieu of foreclosure. A deed in lieu of foreclosure is essentially when you hand over the title of your home to the lender instead of going through a foreclosure. It is less damaging to your credit than a foreclosure.

•   Short sale. If the lender agrees to a short sale, it is agreeing to allow the home to be sold for less than what is owed. The deficit is taxable if the mortgage terms hold the borrower liable for the full amount of the loan.

Recommended: A Guide to Mortgage Relief Programs

Consequences of Foreclosure

Foreclosure has a huge impact on your credit. It will stay on your credit report for seven years after the first missed payment, and the multiple delinquent payments are a further knock against your credit scores, making it hard to go shopping for another mortgage and other loans.

After a foreclosure, it could take two to seven years to get a new conventional or government-backed mortgage.

But there are ways to deal with financial hardship.

The Takeaway

Facing mortgage foreclosure is one of the toughest things a homeowner can go through. As the financial landscape shifts, knowledge is power.

If you’re on solid financial footing, that’s a good spot to be in. Are you in that league and shopping for a mortgage? Take a look at SoFi’s menu of fixed-rate home mortgage loans.

Get started with mortgage pre-approval and find the home of your dreams sooner than you may have thought possible.

FAQ

Can I stop the foreclosure process?

Possibly. The sooner you contact your mortgage servicer, the more options you will have.

How will foreclosure hurt my credit score?

The lender reports each missed payment, and the further behind a borrower gets, the more delinquent they become. The credit score lowers with each report. A foreclosure stays on a credit report for seven years, which makes it harder to apply for other credit lines and loans.

Am I supposed to pay property taxes when my house is in foreclosure?

It’s true that a missed tax payment can also lead to foreclosure proceedings, but it depends on where you are in the process. If you’re working with your lender to get your missed payments back on track to avoid foreclosure, then your escrow account will be replenished and the mortgage servicer will pay your taxes. If you’re in foreclosure and not able to get your payments back on track, paying your taxes won’t help you get your house back. You’re better off working with your lender to put that money toward missed mortgage payments.

Do I have to move out of my house when it is in foreclosure?

The Federal Trade Commission advises staying in the house as long as possible if you’re facing foreclosure. You may not qualify for certain types of assistance if you move out.

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Photo credit: iStock/jhorrocks

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