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Whether you’re thinking about paying off a debt or mulling over how to increase your credit score — or both — it’s reasonable to ask if paying off debt helps your credit rating. The answer, though, is more complex than a simple yes or no.

Let’s unpack how paying off a debt can either raise or reduce your credit score, depending on the circumstance; how credit scores are calculated; and how managing your credit utilization can give you some control over your credit score.

How Paying Off a Debt Is Connected to Your Credit Score

What affects your credit score is on a lot of people’s mind. Your credit score is determined by five factors, some of which are weighted more than others. Paying off a debt can affect each of these factors in different ways, causing your score to rise or dip. Sometimes changes in two factors can even cancel each other out, leaving your score unchanged. This is why it’s hard to predict how paying off a debt will affect your credit.

A good first step is to find out your credit score. You may be able to get it for free through your bank, credit card issuer, or lender; through Experian; or by signing up for a free money tracker app.

Credit Score Calculation Factors

According to FICO®, a credit rating company, these are the five factors commonly used to calculate your FICO Score:

•   Payment history (timely payments): 35%

•   Amounts owed (credit utilization): 30%

•   Length of credit history: 15%

•   New credit requests: 10%

•   Credit mix (installment versus revolving): 10%

Once FICO’s algorithm calculates your score, a credit score rating scale assigns it a category ranging from Poor to Exceptional. A higher number indicates to lenders that a person is a lower risk for default:

•   Exceptional: 800 to 850

•   Very Good: 740 to 799

•   Good: 670 to 739

•   Fair: 580 to 669

•   Poor: 300 to 579

As you can see, a Fair credit score falls between 580 and 669. A Poor or bad credit score falls between 300 and 579. The minimum credit score required to qualify for a loan is around 610 to 640, depending on the lender — meaning not everyone with a Fair score would qualify.

Recommended: Do Personal Loans Build Credit?

Why a Credit Score Can Go Down After Paying Off a Debt

Paying off debt feels good and improves your financial situation. But it could also cause your credit score to drop. This negative impact can be due to changes in one or more factors, including:

•   credit utilization

•   credit mix

•   overall credit age

When you pay off a credit card and then close the account, you reduce your available credit and increase your credit utilization. Similarly, if you pay off your only car loan and close that account, you have one fewer type of account in your credit mix. Finally, paying off and closing an older account may reduce the average age of your overall credit history. (We’ll explore these scenarios in more detail below.)

While none of these things is “bad” in financial terms, it could temporarily count against you in the world of credit scores.

What Is Credit Utilization?

Now for a little more background on credit utilization. Credit utilization is a factor with revolving forms of credit, such as credit cards and lines of credit, where you can reuse the account up to your limit.

Your credit utilization rate, or ratio, is determined by dividing the sum of your credit limits by the sum of your current balances. So if someone has a $5,000 limit and is using $2,500, that’s a 50% credit utilization rate. Your rate should be kept below 30% to avoid a negative affect on your credit score.

What Is a Credit Mix?

Lenders like to see that an applicant can successfully handle different kinds of credit. This includes installment loans like mortgages, car loans, and personal loans, as well as revolving credit such as credit cards and lines of credit. If a person can manage both types of credit well, a lender will likely consider them less of a risk.

Recommended: Should I Sell My House Now or Wait?

How Credit Age Factors In

The length of your credit history demonstrates your experience in using credit. To lenders, the longer the better. When payments to an older account are on time, this combo reassures lenders that you will likely continue to make timely payments going forward.

New credit accounts can also lower your credit age. More important, opening or even applying for many new accounts in a short period of time may be a red flag to lenders that you could be in financial trouble. The application process also involves a hard credit inquiry, which can lower your credit score.

Sample Scenarios

Here are two examples of someone paying off a credit card. In one case, the credit score goes up. In another, it goes down.

Credit Utilization Goes Down / Credit Score Goes Up

Let’s say that someone has a credit utilization rate of 40%, which is negatively impacting their credit score. (Remember, below 30% is best.) When they make enough payments to bring their utilization rate down to 25%, this can boost their credit score.

Credit Mix and Age Go Down / Credit Score Goes Down

Now, let’s imagine that someone pays off the balance of their first and only credit card. This should help their utilization score! But wait: Then they close the account, and their average credit age drops. And since this is their only form of revolving credit, their credit mix has lost out, too.

Counterintuitively, paying off the card may make their credit score go down — at least in the short term.

Recommended: What Credit Score is Needed to Buy a Car?

Paying Off a Loan Early vs Paying It on Schedule

People often wonder if it’s better to pay off a loan early, if you can. In the case of a personal loan, early payoff can lower the average age of someone’s credit history, possibly lowering their credit score.

But in reality, the impact will depend upon their overall credit situation. Paying the loan off according to the schedule will keep it open longer, which can help with their credit age. On the other hand, they’ll pay more in interest because the loan is still open.

If you’re in this situation, weigh the pros and cons before making the decision that’s best for you.

How Long Can It Take To See Your Credit Score Change?

According to the credit report agency TransUnion, credit reports are updated when lenders send them new information. In general, this happens every 30-45 days, though some lenders update more frequently.

If you’re concerned about your numbers, consider signing up for a credit score monitoring service. What qualifies as credit monitoring varies from company to company. Look for a one that sends alerts whenever your score changes for better or worse.

Recommended: What Is a Tri-Merge Credit Report?

The Takeaway

How paying off a debt affects someone’s credit score depends on the person’s overall credit profile. Paying off a credit card typically helps your credit score because the account remains open, lowering your credit utilization. Paying off a loan can hurt your score because the loan is then closed, potentially reducing your credit mix and age. Generally, though, borrowers shouldn’t let credit score concerns prevent them from taking actions that are in their financial interest.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How fast does your credit score increase after paying off a debt?

In fact, your credit score may dip for a short period after a debt is paid off. Lenders report new information to credit reporting agencies every 30-45 days, though some lenders update more frequently. Generally, you shouldn’t let concerns about your credit score prevent you from taking action that is in your best financial interest.

Is it best to pay off all debt before buying a house?

According to credit report agency Experian, it generally makes sense to pay off credit card debt before buying a home. Just know that in some circumstances, paying off a debt may temporarily reduce your credit score, which can affect the loan terms you qualify for. If you do pay off a credit card, consider keeping the account open until after you qualify for a loan.

How do you get an 800 credit score?

Pay bills on time, maintain a credit utilization rate under 30%, and effectively manage your credit history length, new credit requests, and credit mix. Although this won’t guarantee a score of 800, it can help you maximize yours.

Photo credit: iStock/Patcharapong Sriwichai

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

SORL-Q324-036

Employers can approach background checks in different ways. In some cases, credit reports are included. A job background check may include a credit check in certain industries, such as banking and security. The size of the company can be a factor, too: Large corporations are more likely to conduct a credit check than a small family business.

We’ll walk through the specifics of when an employment background check may include a credit check, why potential employers want this information, and what financial data they have access to.

What Are Credit Checks?

A credit check is a request to see your financial data as collected by one of the three major credit reporting bureaus: Equifax, Experian, and TransUnion. Credit reports contain information about past and existing credit accounts, payment patterns, and how much debt you’re carrying.

According to the Fair Credit Reporting Act (FCRA), only certain individuals and organizations have the right to check credit histories, such as lenders, insurance agents, and landlords. Potential employers can also conduct a credit check for employment purposes, with your permission.

Sometimes credit checks are conducted to confirm a consumer’s identity — and head off identity fraud — rather than to investigate your financial history. For instance, banks may run a limited credit check on customers looking to open a checking account.

Credit Check vs Background Check

A background check contains identification verification information along with data from criminal records, educational and employment backgrounds, civil records, driving history, and more. In some instances, a background check may also contain a credit check.

The Importance of Good Credit

A good credit history primarily makes it easier to get approved for a loan and to qualify for better interest rates and loan terms. The higher the score, the less someone will pay in interest over their lifetime, potentially saving them money in the long run.

Good credit can also help renters qualify for an apartment. In some cities, renters routinely provide a credit reference with their rental application. While there’s no minimum credit score needed to rent an apartment, a strong credit history shows landlords that you’re someone who pays their bills on time.

Employers may also check your credit if you’ve applied for a job. Having good credit without any red flags can make the hiring process go more smoothly. However, some cities and many states have banned this protocol or put limits on it.

Recommended: Should I Sell My House Now or Wait?

Why Employers Look at Your Credit Score

An employer may run a credit check on a job applicant whom they’re seriously considering hiring. Employer credit checks are more common in industries where employees handle money or have access to customers’ financial data.

By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, or customers.

Responsibility

A credit report shows how responsibly an applicant has handled their own money. If there are any red flags, the employer may not want to hire that person to handle company funds or take on other important responsibilities.

Security

A credit report can be used to verify your identity along with other pieces of background information. If there are discrepancies that can’t be easily cleared up, that’s a red flag.

What a Credit Report May Tell an Employer

The information in a credit report can include employment history as well as red flags such as late payments, debts sent to collections, foreclosures, liens, lawsuits, and judgments.

Employment History

Your complete employment history is not included in a credit report. Past and current employers may appear on your credit report, but only if you listed them on a loan or credit card application. Typically, if a lender wants your employment history, they will ask you for it directly.

Late Payments

Credit reports contain information about current and historical credit accounts, including installment loans (mortgages, car loans, personal loans) and revolving credit (credit cards and lines of credit). The reports typically contain information from the past seven to ten years, including a person’s payment history and whether credit accounts are paid up to date or are past due.

Debt Collection

Once someone is behind on payments — at least 120 days — the lender may send the account to a collections agency. These agencies attempt to collect on the bill. This can have a significant impact on your credit score, since making payments on time is the biggest factor in the algorithm that determines your credit score.

Debt Charge-Off

If a company you owe money decides they can’t collect the funds, they can “charge off” the amount as uncollectible. This may stay on your credit report for seven years, starting with the delinquency date that ultimately led to the charge-off. A debt charge-off typically lowers the person’s credit score even more than going to collections.

Foreclosures

When a homeowner misses multiple mortgage payments, the lender may take possession of the home, or “foreclose” upon it. This remains on a credit report for seven years, starting with the first missed payment that ultimately led to the foreclosure. This can significantly reduce someone’s credit score — although the impact may diminish over time — and can be a red flag for employers.

Recommended: Does Net Worth Include Home Equity?

Liens

A tax lien is a claim that you owe money for taxes, usually federal, state, or property tax. Tax liens no longer appear on credit reports by the three major credit bureaus, and they can’t affect your credit. They are, however, available on public records. If an employer conducts a full background check, they can still receive this information.

Lawsuits and Judgments

Just like tax liens, judgments from lawsuits are not included in credit reports or factored into a credit score. An employer that conducts a background check, though, will likely receive this information because it’s part of public records.

How to Prepare for an Employer Credit Check

Every consumer should be aware of what information is available on their credit report. You can request your credit report and find out your credit score for free at AnnualCreditReport.com.

Review your report for errors. Even small typos — like misspelling your name — could present problems down the line. Report inaccuracies to the relevant credit bureaus via their online dispute process to have them corrected or removed.

You may also consider signing up for a credit monitoring service. What qualifies as credit monitoring varies from company to company. Look for a service or a money tracker app that sends customers alerts whenever their credit score changes, accounts are opened or closed, and red flags appear on their credit history.

If you’ve had financial problems in the past but have turned things around, be prepared to explain to your potential employer how you’ve accomplished that.

Recommended: What Is a Tri-Merge Credit Report?

Credit Check Limitations

Credit reports contain a lot of private financial information. However, you can feel secure knowing that there are strict limits to what can be included. The following information cannot appear on your credit report:

•   Account balances for checking, savings, and investments

•   Records of purchases made

•   Income information

•   Judgments and tax liens

•   Medical information (physical and mental), although money owed to a doctor or hospital can appear

•   Marital status

•   Disabilities

•   Race and ethnicity

•   Religious affiliations

•   Political affiliations

Does an Employer Credit Check Hurt Your Credit Score?

No. Employers conduct what is known as a “soft credit inquiry” or soft pull. Because the credit check isn’t the result of applying for a new loan or credit card, the request probably won’t appear on your credit report and it won’t affect your score.

What Are Your Legal Rights as a Job Applicant?

According to federal law, job applicants have the right to:

•   know what is in their file

•   ask for a credit score

•   dispute incorrect or incomplete information

•   be told if information in the file is used against them

An employer or potential employer must get written consent before they can request credit report information (the trucking industry is an exception). Some cities and many states have banned or put limits on an employer’s ability to check your credit report.

The Takeaway

Employers may run credit checks on applicants as part of the hiring process. By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, and customers. Credit checks are more common at large corporations and in industries where employees handle money or have access to customers’ financial data. You can prepare for an employer credit check by requesting your report and correcting any errors. You may also want to use a credit score monitoring service to keep tabs on any changes.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why do background checks include credit reports?

Information found in a credit report can give the employer a sense of the job applicant’s financial stability. This may be especially important if the job involves handling money, financial data, or pharmaceuticals. Some industries that routinely pull credit checks on applicants include banking, retail, insurance, public safety, and security.

Does a background check include a hard credit check?

No. A background check with a credit check involves a soft inquiry, so it won’t affect your credit score.

What causes a red flag on a background check?

Criminal records, suspicious credit histories, inconsistencies in information provided, and gaps in employment history can be considered red flags in a background check.

Photo credit: iStock/serggn

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

SORL-Q324-035

Many homeowners are flush with equity, and tapping it can be tempting. Some lenders will let you borrow as much as 100% of your home equity — the home’s current value minus the mortgage balance — for any purpose. Your house, though, will be on the line.

Here are things to know before applying for a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance.

What’s the Most You Can Borrow With a Home Equity Loan?

To determine how much you can borrow with a home equity loan, lenders will calculate the combined loan-to-value ratio: your mortgage balance plus the amount you’d like to borrow compared with the appraised value of your home.

Most lenders will require your combined loan-to-value ratio (CLTV) to be 90% or less for a home equity loan or HELOC (although some will allow you to borrow 100% of your home’s value).

combined loan balance ÷ appraised home value = CLTV

Let’s say you have a mortgage balance of $150,000 and you want to borrow $50,000 of home equity. Your combined loan balance would be $200,000. Your home appraises for $300,000. (An appraiser from the lending institution determines your property value.) The math would look like this:

$200,000 ÷ $300,000 = 0.666

Your CLTV is 67%.

If a lender allowed you to borrow 90% of CLTV in this scenario, you would have a loan of $120,000:

($150,000 + $120,000) ÷ $300,000 = 0.900

But just because you might qualify for a loan or line of credit of this amount doesn’t mean it’s a good idea for your personal situation. Consider what the payments, which include interest, would look like and whether your financial situation is secure enough for you to afford them if you suffer a setback.

Three Ways to Tap Home Equity

You paid off a chunk of your mortgage or all of it, or your home value soared along with the market, but now a wedding, college, remodel, or something else has you wanting to put that home equity to use. Here are three ways to do that.

Remember that converting home equity to cash means you’ll be using your home as collateral.

Home Equity Loan

Home equity loans come in a lump sum. They are often useful for big one-time expenses like a new car or swimming pool and for borrowers who know how much they need and who want fixed payments.

Some lenders waive or reduce closing costs of 2% to 5%, but if you pay off and close the loan within a certain period of time — often three years — you may have to repay some of those costs.

HELOC

A HELOC may be helpful for long-term needs such as home renovations, college tuition, or medical bills.

Borrowers who want flexibility when dealing with, say, a home addition may favor a revolving line of credit over a lump-sum loan.

Again, some lenders waive the closing costs for a HELOC if you keep it open for a predetermined period.

Recommended: How Do Home Equity Lines of Credit Work?

Cash-Out Refinance

A cash-out refinance might be a good choice if you want to borrow more than you’d qualify for with a home equity loan or HELOC. A cash-out refi replaces your existing mortgage with a new mortgage for more than the previous balance. You receive the difference in cash.

Homeowners will often need to have 20% equity left in the home after refinancing. Some lenders will let them dip below that minimum but pay for private mortgage insurance on the new loan.

Some HELOC borrowers refinance before the draw period ends. In that case, the cash can be used to pay off the HELOC.

You can change the mortgage term and aim for a reduced interest rate with a cash-out refi. Closing costs will be required; it’s a new loan.

Recommended: Cash-Out Refinance vs HELOC

What’s the Difference Between a Home Equity Loan and a HELOC?

A home equity loan, also known as a second mortgage, comes in a lump sum with a repayment term of 10 to 30 years. It typically has a fixed interest rate.

A HELOC is a revolving line of credit that lets a homeowner borrow money as needed, up to the approved credit limit. The credit line has two periods:

•   The draw period, when you can use the line of credit. It’s often 10 years. Minimum monthly payments usually will be interest only on the amount withdrawn.

•   The repayment period, often 20 years, when principal and interest payments are due.

Most HELOCs have a variable interest rate but cap how much the rate can rise at one time and over the loan term. (Some lenders, though, offer fixed-rate HELOCs or allow the borrower to fix the rate on a balance partway through the loan.)

Some HELOCs require you to draw a minimum amount upfront. Some have a balloon payment at the end of the draw period, when the loan principal and interest are due. Ensure that you understand your HELOC’s terms, and when the draw period ends and the credit line is closed.

How Is a HELOC Calculated?

Qualified borrowers are often able to access as much as 90% of their equity with a HELOC.

Some HELOC lenders require that the homeowner retain at least 20% equity in the home, but a few are more generous.

Is Taking Out Home Equity Right for You?

If you’re aware of the risk, you’ve read all the fine print, and you forecast no job or income loss, tapping home equity can be extremely useful.

HELOCs usually have lower interest rates than home equity loans, but some people prefer the fixed rate and payments of the latter. HELOC rates tend to be a tad higher than mortgage rates, but you only have to pay interest on what you borrow during the draw period.

Most cash-out refinances result in a new 30-year fixed-rate mortgage.

Approval for a home equity product and the rate you’re offered will depend on your credit score, debt-to-income ratio, home equity, and home value.

Shopping around can yield the best offer.

Recommended: Home Improvement Cost Calculator

The Takeaway

How much equity can you borrow from your home? Homeowners who meet credit and income requirements are often able to tap up to 90% of equity and sometimes more with a home equity loan or HELOC. A cash-out refi is another way to make use of home equity.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

FAQ

How can I increase my home equity?

Paying off your mortgage faster, refinancing to a shorter loan term, and making home improvements are some of the ways to boost home equity. In a competitive market, your home value may just naturally rise.

How quickly can I get cash from my home equity?

It depends on the product, but closing can take place in as little as two to four weeks.

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

SOHL-Q324-045

Working with a professional real estate agent can make buying or selling a home easier. After all, they are likely to be well versed in the ins and outs of your area, how to best negotiate in the current market, and how to access any other resources (say, a home inspector) that you may need.

Working with a professional real estate agent can make buying or selling a home easier. After all, they are likely to be well versed in the ins and outs of your area, how to best negotiate in the current market, and how to access any other resources (say, a home inspector) that you may need.

While there may be some agents you hit it off with personally, this isn’t a friendship you’re pursuing but an important business relationship. It’s a collaboration that could impact both your finances and your stress level.

No matter which side of a real estate transaction you’re on (buying or selling), it can be wise to have the right professional in your corner. Eighty-nine percent of homes sold in the U.S. involve an agent or a Realtor®, according to a 2023 report. (Realtors are agents who belong to the National Association of Realtors, or NAR.)

If you’re on the hunt for an agent, it’s important to know what to ask to identify the right match. Read on to learn questions to ask, whether you’re buying or selling a property — or doing both at once. (This is a lengthy list of interview questions for real estate, so pick and choose the questions that resonate the most.)

How to Interview a Realtor

First, a bit about terminology: Not all real estate agents are Realtors, but for the purposes of this article, we’ll sometimes use the two terms interchangeably.

There are different options for interviewing Realtors. You could schedule an interview:

•   Over the phone

•   In person

•   Virtually via Zoom or Skype.

You might aim to interview at least three agents for comparison’s sake, though you may choose to interview more or fewer.

Create a list of interview questions beforehand to help you stay on track, and begin researching a home loan so you will have a sense of your budget. By the time the interview process is over, you should understand:

•   What the agent’s personality and character are like: Is this person supportive and positive? Do they sound rushed and distracted?

•   What kind of services they offer and what experience they bring to the table.

•   How much you’ll pay for their help.

You’ll learn about how to do this in more depth as you read on.

Recommended: Tips When Shopping for a Mortgage

What to Ask About a Realtor’s Background

Any real estate agent you choose to work with should have the professional qualifications you’re looking for. But it’s also important to get a sense of who they are as an individual to avoid personality clashes. Here are some questions to ask as you evaluate an agent who might help you buy or sell a home.

1. How Long Have You Been a Realtor?

It helps to understand how long an agent you’re considering working with has been buying or selling homes. The median real estate experience of all Realtors is eight years, according to NAR.

Working with an agent who’s newer to the profession isn’t necessarily a bad thing. But one who’s more experienced may be more adept at handling any challenges that arise when buying or selling a home.

2. How Well Do You Know the Local Market?

A Realtor who knows a particular area and its local housing market trends can offer an advantage when buying or selling. Ideally, you should work with an agent who understands the local market and what trends drive it.

The more informed they are, the better equipped they are to do things like comparative market analysis, which can give you a sense of how home prices in the area are trending. They will also likely know details like, say, which parts of town are more prone to flooding than others.

Recommended: Local Housing Market Trends: Popular neighborhoods, home prices, and demographics

3. How Many Clients Do You Work With at One Time?

The answer can give you an idea of how much time an agent will be able to dedicate to working with you. Especially if you ask the follow-up question, “And how many clients do you currently have?”

4. Do You Work Alone or as Part of a Team?

Keep in mind that you may not be working with your Realtor alone to finalize the purchase or sale of a home. Agents may have a team of individuals they work with, including office managers, personal assistants, or marketing directors, who may reach out to you during the process.

Asking who else you may be connected with can help you avoid surprises if you decide to enter into a working relationship with a particular agent.

5. How Will We Communicate and How Often?

Being able to communicate with an agent is important to keep the process moving. Plenty of Realtors email and text to keep in touch with clients. If you’re the kind of person who prefers phone calls or in-person meetings, it’s good to identify communication styles up front and make sure they are in sync.

6. Do You Specialize in Buying or Selling?

Some real estate agents may choose to work exclusively with buyers, while others work only with sellers. And some can act as dual agents, representing both the buyer and seller in the same transaction. Dual agency is rare, and it’s illegal in several states. A dual agent can’t take sides or give advice.

The answer to this question will help you get a better idea of whether the agent is attuned to your side of a real estate transaction. Ideally, you want someone who is passionate about your deal, whether that’s finding the perfect house with a picket fence or selling the condo you’ve outgrown.

7. How Many Transactions Did You Close Last Year?

Asking this question can give you an idea of an agent’s overall success rate and the volume of transactions they handle.

The median number of residential transactions Realtors took part in per year in 2023 is 10. If you’re interviewing agents with closings well below that number, it could be a sign that they aren’t always successful in closing deals. If their number is much higher, it could mean they are super busy and you might not get as much attention as with another agent.

8. How Long Does It Normally Take You to Close a Deal?

Once the seller and the buyer of a property have signed their purchase agreement, closing on a home can take anywhere from a week (for an all-cash offer) to a couple of months (for those involving a mortgage) to close. As of mid-2024, the average closing time on a house was 43 days after an offer was accepted, reports ICE Mortgage Technology, Inc.

Asking a Realtor what their average closing time is can give you an idea of how efficiently and diligently they work to satisfy their clients.

If their average closing time is closer to four or six months, for example, that could be a red flag, though some deals do wind up being more complicated than others.

9. What Are the Terms of Your Contract?

Working with a Realtor means entering into a contract, and it’s important to know what that contract says. These documents may be more common when you work with a broker to sell a home, but there are also buyer’s agreements.

These ensure that if they invest the time scanning the market for you, scheduling walk-throughs, and negotiating on your behalf, you won’t then complete the deal with, say, a relative of yours who just got their real-estate license.

When you are selling a house, you’ll sign a document agreeing that the agent will handle the sale. Once you sign a contract you’re typically locked in to working with them unless they agree to release you.

The listing agreement will last for a set period, such as three or six months. From your perspective, shorter may be better so that you’re not trapped if you don’t like the agent’s services.

10. What Fees Do You Charge?

Closely connected to contracts is the topic of money. How does it change hands? What are you liable for? Historically, real estate agents worked on commission, and the fee was paid by the seller. Now, real estate commission fees are changing, and while sellers will still likely pay agents a commission, there is no guarantee that the seller will pay the buyer’s agent. If you’re buying, you’ll need to discuss a fee structure with an agent before you begin working together. It might be an hourly fee, or perhaps a flat rate. Some agents may request a percentage of the home price.

Recommended: Do You Still Need to Put a 20% Down Payment on a House?

Questions to Ask a Realtor When You Are Selling

If you’re selling your home, here are some questions to ask to help ensure that you partner with the right agent.

11. What’s Your Typical Marketing Strategy?

A real estate agent should have a clear plan for listing and marketing your home in a way that produces the greatest odds of success in selling it quickly and at your desired price point. Let the agent you are interviewing tell you about their strategy and the results it yields.

For instance, does the Realtor believe in listing at a low price in the hopes of starting a bidding war? If so, what kinds of prices has this achieved? Where will your listing be posted? Will videos be created? Will there be an open house?

These kinds of questions can help you see if you are impressed by and aligned with how a Realtor likes to market homes.

12. Will You Handle Staging and Prep Work?

If you’re selling a home, staging it could help influence buyers’ perceptions of the property and potentially net you a higher sale price.

Staging is something you can do yourself, but your Realtor may have a staging company they work with to get the job done.

Asking about staging or small cosmetic updates, such as painting, can help you figure out what you’ll be responsible for to get your home ready for the market. There’s a price tag attached to all improvements, so you’ll want to know the numbers to be better prepared.

13. How Do You Handle Viewings?

The use of digital tools such as virtual tours have made properties more accessible to more buyers. One survey by Zillow found that almost 40% of Millenials would be comfortable buying a home online vs. in person.

See if your agent plans to create a virtual tour, but you also want to be prepared for the majority of buyers who want to visit in person. Ask Realtors how many viewings they typically schedule in a day or a week, how often open houses will be scheduled, and how they’ll be marketed.

Questions to Ask a Realtor When You Are Buying

Now you’ve learned the questions to ask a Realtor when selling. How about the other side of the deal? Whether you’re shopping for a starter home or trading up, here are a couple of important questions to ask a potential real estate agent when preparing to buy a house.

14. What Happens When I’m Ready to Make an Offer?

If you’re a buyer, agents should be able to walk you through how this process works, what to do if the seller makes a counteroffer, and what you’ll need to do next if your offer is accepted. You also want to check if they have experience with successfully navigating bidding wars, which can happen in hot markets and with well-priced properties.

Also check that they can advise you on how much earnest money you might need to pay and how to find a good, affordable home inspector, as these are important aspects of the homebuying process.

15. Will You Help Me With Getting a Mortgage?

This question will shed more light on a prospective agent’s network and experience. Agents may be able to offer recommendations for mortgage lenders. They may also be willing to communicate with your lender if there are questions about the property or the offer during underwriting.

You’re not obligated to use your Realtor’s recommended lender. In fact, it’s helpful to compare mortgage loan terms and interest rates from multiple lenders to find the option that best fits your needs.

The Takeaway

Due diligence in the search for the right real estate agent may mean interviewing a few of them and not automatically going with a friend of a friend. It’s important to know how to interview a Realtor and which questions to ask, so you can pair up with the best possible professional as you navigate this major transaction.

If you’re a buyer, once you’ve found an agent, you can turn your attention to next steps: finding a home (and a home loan) that suits your needs.

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

FAQ

What are the benefits of using a real estate agent to buy a house?

Having an agent to survey the available properties and recommend the ones that suit your needs could certainly save you time, and agents often have local market expertise and the inside scoop on properties that might be headed to market. An agent should also be well versed in the negotiation process (especially useful in a seller’s market) and able to help coordinate the many moving parts that lead to a closing.

What should a homebuyer do before talking to a real estate agent?

It’s wise to have an idea of your budget before consulting a real estate agent. You can prequalify for a mortgage with a few lenders to get a sense of what you might be able to borrow. Also do research online about your desired town or neighborhood to get a sense of where you would like to live. And know your non-negotiables — minimum number of bedrooms, whether you prefer an old home or new construction, for example.

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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Most people you know who have bought a home have probably done so with the help of a Realtor® or real estate agent. In fact, a 2023 report shows that 89% of home purchases involve a Realtor or broker. (Realtors, by the way, are real estate agents who belong to the National Association of Realtors, requiring them to adhere to a certain code of ethics; we’ll use the terms interchangeably here.)

But agents may charge a fee, so you might be asking yourself, “Do I need a Realtor or real estate agent to buy a house?” The answer is no — you aren’t required to go through a professional to complete the transaction.

That said, doing without an agent is not a decision to make lightly. Buying a house is likely the biggest investment you’ll ever make. So if you make a mistake in the home-buying process, there’s a lot of money and possibly other risks on the line. Let’s take a look at the pros and cons of going solo as a home shopper.

What Does a Real Estate Agent Do?

Before you decide whether or not to forgo a real estate agent, it can be a good idea to brush up on what they actually do.

Real estate agents are licensed to help clients buy and sell real estate. Realtors, as mentioned, have to follow an ethics code, which includes putting their clients’ interests first.

Among the work that real estate agents do for buyers is:

•   Look for property listings that fit their clients’ goals

•   Check out listings in person

•   Write offers and counteroffers

•   Be present for inspections

•   Help negotiate with the seller

•   Troubleshoot any roadblocks that come up

They can also often help with a variety of referrals, whether to a mortgage broker, a home stager, a real estate lawyer, or a contractor.

How to Buy a House Without a Real Estate Agent

If you want to join the few buyers who forge ahead and buy a house without a Realtor, it’s important to prepare yourself to take on the tasks agents normally do.

Especially if you’re green, it’s essential to learn how you can prepare to buy a home. Here’s a rundown of some of the key responsibilities you will likely need to manage.

Step 1. Consider Your Mortgage Options

Unless you are an all-cash buyer, you’ll need to explore the different types of mortgage loans. You could get prequalified for a mortgage with several lenders so you have a sense of what size mortgage loan you might qualify for.

Step 2. Research Neighborhoods

As you zero in on neighborhoods that meet your criteria, then it’s a good idea to do your research and learn the price of recent sales. This will help you understand if the homes you tour are priced correctly — and if they fit within your budget.

Step 3. Get Preapproved For a Home Loan

As your house search starts to heat up, you’ll probably want to get preapproved for a mortgage. Once your application is processed, you’ll have a preapproval letter to share with sellers to reassure them that you’re serious about buying. The lender will consider your income, your debt-to-income ratio, credit scores, and ability to make a down payment and meet closing costs.

Step 4. Hire a Home Inspector

When you find a home you’re interested in, it’s recommended that you hire a home inspector. This professional will issue a report that lets you know the ins and outs of a home’s condition and may lead to further negotiation.

Step 5. Request a Seller’s Disclosure

Ask for a seller’s disclosure, a document that can contain information about repairs and upgrades the seller did on the home as well as problems they’re aware of. You can ask them about any structural problems; condition of the HVAC, plumbing, and electrical systems; mold and mildew; termite damage; the presence of lead paint, radon, and asbestos, and so forth.

Step 6. Make An Offer

The offer will include the amount you’re offering, what you’d like to stay in the home (such as appliances), and closing dates. Including an appraisal contingency in the offer means you can cancel the contract if something goes wrong without losing your deposit.

Recommended: How to Make An Offer On a House

Step 7. Hire a Real Estate Lawyer

It’s usually a good idea to hire a real estate lawyer to prepare documents and look over your contract before you sign it.

Step 8. Negotiate

Sellers, meanwhile, will likely include a loan contingency. During this part of the process, there may be counteroffers and negotiations between you and the seller about the price of the home or repairs you might want the seller to make. The appraiser will also file a report on the home, so that you and your lender can feel confident the home’s value matches its price. Keep copies of all communications as negotiations progress.

Step 9. Finalize Documentation and Close On Your Property

At the closing of the loan, you’ll need to sign documents and handle other aspects that a Realtor might typically help you with.

It is typically recommended that the buyer obtain owner’s title insurance, which protects the buyer against title defects such as mechanic’s liens and other after-closing problems. It usually costs about $1,000, but will vary with the price of your home and from state to state.

Recommended: How Long Does It Take to Close On a House?

Benefits of Buying a House Without a Realtor

Buying a home without a real estate professional can have some upsides. Here’s a closer look at the benefits you might reap.

1. Saving Money

Historically, there wasn’t much incentive for a homebuyer to work without a real estate agent because the agent’s commission fees were paid by the seller. But starting in mid-2024, the landscape changed. Now real estate commission fees are changing, and there is no guarantee that the seller will pay the buyer’s agent. Instead, the buyer and agent need to discuss a fee structure before they begin working together. You might find that an agent is paid an hourly fee, or perhaps charges a flat rate. Some agents may request a percentage of the home price.

While working without an agent may save you money, how much is up in the air. The only thing you can be certain of is that if you don’t use an agent, you will work harder to find a home and close the deal.

2. Info Galore

If you’re planning on buying a house without a Realtor, you likely have access to some of the same information that the pros do. Historically, agents had lots of insider tidbits about listings.

Now, you can instantly find out about new properties and neighborhood demographics with the click of a button online. That means taking the buying process into one’s own hands is considered by some as increasingly feasible. Plus, there are an array of great tools to help you with calculations, like a home affordability calculator.

And since no one knows what you are looking for as well as you do, the search process can sometimes be more efficient.

3. A Familiar Real Estate Deal

One situation where it might make sense to eschew an agent is if a friend or family member is selling you the property.

Although risks may still be involved, the transaction may be more straightforward if you are buying a house from a relative or someone you know well. You still want to make sure you and the seller are clear on the price, closing date, what furniture or fixtures will be included, contingencies, and more.

It is typically recommended that a buyer review and approve home inspections and obtain full loan approval in writing before lifting certain contingencies.

If it is known that a contingency date cannot be met or another material change takes place after the contract is written, such as a seller credit for closing costs, a contract addendum executed by all parties outlining the change is usually obtained.

Drawbacks of Buying Without a Realtor

Not hiring a real estate agent or Realtor to assist you with your home search comes with disadvantages and risks.

1. All the Work

You have to be constantly on the ball, keeping a lookout for properties and arranging a time with sellers to visit them.

The process can be exhausting and time consuming, and if you aren’t attentive, you could let great homes slip by or make the hunt longer than it might have been with a real estate agent.

You’ll also have to navigate the world of mortgages (from the mortgage basics to possibly buying points to bring down your rate) without an agent to serve as a sounding board or offer a second opinion.

2. All the Risk

You’ll be on the hook for all the details of the transaction. Without an agent, you’ll need to determine the correct bid price and terms, watch the contract contingency dates, and know the ins and outs of the purchase contract.

Agents are experienced in helping to point to hidden flaws in the property or transaction.

If you don’t have a real estate agent in your corner to help research the proper bid price, you may risk paying more than you need to on the home — which may work out to more money spent.

3. Your Pool of Knowledge May Not Be That Deep

Agents have access to information that’s not necessarily online, thanks to their connections with other real estate agents, inspectors, etc.

Then there’s the experience factor. Most agents operate under a seasoned broker who oversees and consults on various transactions.

It could take a lot of effort to figure out what a Realtor has learned through years on the job and ongoing education. That learning curve may not be worth your time.

Factors to Consider When You Buy Without an Agent

So now that you have read about how to buy a home without a Realtor, as well as the pros and cons, perhaps you are still thinking that flying solo is right for you. If so, do one more check-in and consider these factors:

Market Knowledge

You will not have in-depth, ongoing insight into housing prices in the area where you are searching. A Realtor can help you understand pricing history, potential upcoming property-tax hikes, local drainage or flood potential, and more. They are often skilled at pointing out distinctive features as well as potential problem areas with homes.

Negotiation Strategy

Real estate agents typically have years of experience knowing when a home seller is negotiable and by how much. They can guide you through offers and counteroffers, as well as bidding wars. They also know next steps if a home inspection points out significant problem areas or if there are hitches as you work through your mortgage contingencies. This can save you time and stress, as well as keep your deal in play.

Red Tape and Paperwork

Bidding on and purchasing a home involves all kinds of paperwork, including mortgage applications, offers, contracts, title searches, and more. For someone who is not familiar with the process (you, quite possibly), this can be a steep, time-consuming, and possibly frustrating learning curve. A Realtor can help alleviate a chunk of this burden.

Professional Connections

As noted above, it can take a village of professionals to finalize a home sale. Some of the people who may be involved include mortgage brokers, home inspectors, roof inspectors, real estate lawyers, contractors, and more. Most real estate agents have an extensive network to quickly get you the connections you need to qualified professionals.

The Takeaway

Do you need a real estate agent to buy a house? No, you don’t. It’s entirely possible to learn how to buy a home without a Realtor and perhaps avoid paying for the agent’s time and expertise. Just realize all of the work and risk involved in finding a home, making an offer, handling contingencies, and closing the deal.

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

FAQ

Can you make an offer on a house without a real estate agent?

A buyer is not required to be represented by a real estate agent in order to make an offer on a house, but unless the house is for sale by owner, you’ll need to work with the seller’s agent to communicate your offer to the owner.

Does buying a house without a real estate agent reduce the price?

Not necessarily. Even if you, as the buyer, are not represented by a real estate agent, the seller may use an agent to list and show the home and process offers.

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

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

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

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