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If you’re like many Americans, you dream of having a beach house, a desert escape, or a mountain hideaway. Perhaps you’re tired of staying at hotels and want the comforts of home at your fingertips. It might be time to consider investing in a vacation home. But where to begin? Let us be your guide.

How to Buy a Vacation Home

You’re ready to make this dream a reality. Before you do, consider these steps.

1. Choose a Home That Fits Your Needs

As you begin your search for a vacation home, carefully consider your goals and needs. Start with the location. Do you prefer an urban or rural area? Lots of property or a townhouse with just a small yard to care for?

Consider what amenities are important to be close to. Where is the nearest grocery store? Is a hospital accessible?

Think about your goals for the property. Is this a place that only you and your family will use? Do you plan to rent it out from time to time? Or maybe you plan to be there only a couple of weeks out of the year, using it as a rental property the rest of the time.

The answers to these questions will have a cascade effect on the other factors you’ll need to consider, from financing to taxes and other costs.

2. Figure Out Financing

Next, consider what kind of mortgage loan works best for you, if you’re not paying cash. Some borrowers engage a mortgage broker or direct lender to help with this process.

If you have a primary residence, you may be in the market for a second mortgage. The key question: Are you purchasing a second home or an investment property?

Second home. A second home is one that you, family members, or friends plan to live in for a certain period of time every year and not rent it out. Second-home loans have the same rates as primary residences. The down payment could be as low as 10%, though 20% is typical.

Investment property. If you plan on using your vacation home as investment property to generate rental income, expect a down payment of 25% or 30% and a higher interest rate for a non-owner-occupied property. If you need the rental income in order to qualify for the additional home purchase, you may need to identify a renter and have a lease. A lender still may only consider a percentage of the rental income toward your qualifying income.

Some people may choose to tap equity in their primary home to buy the vacation home. One popular option is a cash-out refinance, in which you borrow more than you owe on your primary home and take the extra money as cash.

To get a handle on how much house you may be able to afford, check out our home affordability calculator.

3. Consider Costs

While you determine the goals you’re hoping to accomplish by acquiring a vacation home, try to avoid home-buying mistakes.

A mortgage lender can delineate the down payment, monthly mortgage payment, and closing costs. But remember that there are other costs to consider, including maintenance of the home and landscape, utilities, furnishings, homeowners insurance, property taxes, and travel to and from the home.

If you’re planning on renting out the house, determine frequency and expected rental income. Be prepared to take a financial hit if you are unable to rent the property out as much as you planned.

4. Learn About Taxes

Taxes will be an ongoing consideration if you buy a vacation home.

A second home qualifies for mortgage interest deduction and property tax deductions as long as the home is for personal use. And if you rent out the home for 14 or fewer days during the year, you can pocket the rental income tax-free.

If you rent out the home for more than 14 days, you must report all rental income to the IRS. You also can deduct rental expenses.

The mortgage interest deduction is available on total mortgages up to $750,000. If you already have a mortgage equal to that amount on your primary residence, your second home will not qualify. Changes may be made in the tax code in 2025, so keep an eye on the news for updates.

The bottom line: Tax rules vary greatly, depending on personal or rental use. Consult a tax advisor for help understanding your specific circumstances.

5. Research Alternatives

There are a number of options to owning a vacation home. For example, you may consider buying a home with friends or family members, or purchasing a timeshare. But before you pursue an option, carefully weigh the pros and cons.

If you’re considering purchasing a home with other people, beware the potential challenges. Owning a home together requires a lot of compromise and cooperation. One thing you will want to understand if you are sharing a home is tenancy in common vs. joint tenancy. How you structure your rights to the property has long-term implications for ownership.

You also must decide what will happen if one party is having trouble paying the mortgage. Are the others willing to cover it?

In addition to second home and investment properties, you may be tempted by timeshares, vacation clubs, fractional ownership, and condo hotels. Be aware that it may be hard to resell these, and the property may not retain its value over time.

6. Make It Easy to Rent

If you do decide to invest in a rental home, you have to take other people’s concerns and desires into account. Be sure to consider the factors that will make it easy to rent. A home near tourist hot spots, amenities, and a beach or lake may be more desirable.

Consider, too, factors that will make the house less desirable. Is there planned construction nearby that will make it unpleasant to stay at the house?

How far the house is from your main residence takes on increased significance when you’re a rental property owner. Will you have to engage a property manager to maintain the house and address renters’ concerns? Doing so will increase your costs.

7. Pay Attention to Local Rules

Local laws or homeowners association rules may limit who you can rent to and when.

For example, a homeowners association might limit how often you can rent your vacation home, whether renters can have pets, where they can park, and how much noise they can make. And the local government may have restrictions on whether owners can list their home on home-sharing websites.

Be aware that these rules can be put in place after you’ve purchased your vacation home.

8. Tap Local Expertise

It’s a good idea to enlist the help of local real estate agents.

Vacation homes tend to exist in specialized markets, and these experts can help you navigate local taxes, transaction fees, zoning, and rental ordinances. They can also help you determine the best time to buy a house in the area you’re interested in.

Because they are familiar with the local market and comparable properties, they are also likely to be more comfortable with appraisals, especially in low-population areas where there may be fewer houses to compare.

The Takeaway

Buying a vacation home can be a ticket to relaxation or a rough trip. It’s imperative to know the rules governing a second home vs. a rental property, tax considerations, and more. One thing to sort out early on in the process is how you will finance your vacation house. With that to-do marked off your list, you’re one step closer to relaxing at the pool, in the forest, or by the lake.

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

FAQ

Is financing a vacation home hard?

Getting together the financing for a vacation home may be somewhat more challenging for buyers who need a mortgage because lenders typically require a larger down payment on a vacation property than they do on a primary residence. Eligible borrowers might put down 3.5% for a down payment on a primary home. The minimum required for a second home is typically 10% and sometimes as much as 20%.

Is it a good idea to buy a vacation home?

Whether buying a vacation property is a good idea for you will ultimately depend on how much you use the home and how you benefit from it (psychologically and financially) vs. how much stress it adds to your life. One way to get a sense of how your life may be impacted is to rent for a while in your chosen location.

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SOHL-Q225-057

Ready for some good news? If you want to check your credit score, you can do so without worrying about lowering it.

So why is it so common to think that will happen?

It’s easy to see where the confusion stems from, so let’s look at what a credit score is, why checking a credit score isn’t a bad thing, and where credit damage can actually come from.

Credit Scores: A Refresher

First things first: A credit score is a number based on a credit report that helps creditors determine how risky it would be to lend money to a borrower.

The risk level influences if an applicant is given credit, and if so, the terms and interest rate. Having a high credit score can make it much easier to take out a loan and get more favorable interest rates, or be approved to rent an apartment.

The information in a credit report determines a credit score. The following factors influence a credit score:

•   Payment history

•   Outstanding balances

•   Length of credit history

•   Applications for new credit accounts

•   Types of credit accounts (such as mortgages or credit cards)

Consumers don’t actually have just one credit score; they have multiple credit scores. Scores are calculated by credit reporting agencies that maintain credit reports. Lenders can use their own internal credit scoring systems as well.

Recommended: What Is Considered a Bad Credit Score?

Does Checking Your Credit Score Lower It?

Nope. There are many misconceptions surrounding credit scores, and one of the biggest ones is that checking one’s credit score will lower it. This is simply, and happily, not true.

Checking your credit score once, or even multiple times, will not damage it. Requesting a copy of a credit report will also not damage a credit score.

In fact, it’s good to keep a close eye on your credit report and score. It can be especially helpful to review a credit report on occasion to make sure there are no errors that may cause the score to drop.

Online tools like a spending tracker app can allow you to track your credit score regularly and get important insights into your spending habits.

Recommended: What Is the Difference Between Transunion and Equifax?

What Can Lower a Credit Score?

Certain credit inquiries made by outside parties like lenders and credit card issuers affect a credit score.

You’ve probably heard of soft and hard “pulls,” or, formally, soft and hard inquiries. Only hard inquiries — a full check of credit history — affect a credit score.

Examples of Soft Inquiries

•   You check your own credit report.

•   An insurer pulls credit for a quote.

•   A company views a credit report during a background check.

•   You seek to be prequalified for a personal loan or mortgage.

•   A credit card or insurance issuer sends a prescreened offer — sometimes called a “preapproved” offer.

Examples of Hard Inquiries

You apply for a:

•   Mortgage

•   Auto loan

•   Credit card

•   Student loan

•   Personal loan

•   Rental

Hard inquiries may stay on a credit report for two years, although they usually only affect credit scores for one year.

Multiple hard inquiries in a short time frame could make a customer look higher risk because it could suggest an intention to rack up debt. Then again, if you’re shopping for an auto loan or mortgage, multiple inquiries are generally counted as one for a period of time, typically 14 to 45 days. The exception generally does not apply to credit card inquiries.

Consumers can see these inquiries on their credit report.

When to Check a Credit Report

Consumers should consider checking their credit report at least once a year to make sure there are no errors that are hurting their credit score and that their report is fully up to date. Regular checks can also alert consumers to fraud and identity theft.

It can also be smart to check a credit report before making a big purchase that requires a loan.

Doing so can even be helpful when job searching, as some employers review credit histories when hiring.

Are Free Credit Reports Safe?

Consumers are entitled to a free (and completely safe!) credit report once a week from the three major credit reporting bureaus:

•   Equifax

•   Experian

•   TransUnion

There are a few ways to gain access to these free reports.

•   Online at AnnualCreditReport.com.

•   By phone at (877) 322-8228.

•   By mail. After downloading and completing the Annual Credit Report request form, consumers can mail the completed form to:

Annual Credit Report Request Service

P.O. Box 105281

Atlanta, GA 30348-5281

Note: These free credit reports do not include credit scores. They are meant to allow an individual to ensure accuracy and check for identity theft.

To monitor credit throughout the year, it can be a good idea to space out the requests for these free reports, but requesting them all at once is totally fine.

Additional free reports are available to those who experienced an “adverse action” because of their credit report, are unemployed, and certain other situations.

The Takeaway

Does checking your credit score lower it? Not at all, and in fact, it’s a good idea to keep an eye on your credit landscape. Your own inquiries are different from outside hard pulls, which can happen when you apply for a mortgage, credit card, student loan, auto loan, or something that requires a full check of credit history. A hard inquiry could stay on a credit report for two years, though it typically only affects a credit score for a year.

Checking your credit report at least once a year is a good way to ensure there are no errors that could damage your score. It’s also a good idea to keep tabs on your finances year-round.

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.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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-Q225-010

Your income is one of your biggest assets, and losing it can quickly take a toll on your financial wellbeing. Disability insurance can offer an important safety net because it pays you a percentage of your salary if an illness or injury ever prevents you from working.

There are two main types of disability insurance: short-term disability insurance, often offered through employers, and long-term disability insurance, which may be purchased separately. As their names imply, short-term disability insurance lasts for a shorter period of time than long-term disability insurance.

But there are other key differences between short-term and long-term disability, including how quickly coverage kicks in and cost.

Here, we’ll take a close look at both types of disability insurance.

What Is Short Term Disability Insurance?

Short-term disability insurance (also called short-term disability income insurance, or STDI) is a type of insurance that will provide supplemental income in the event of an injury or illness that keeps you from working. The length of time you can receive benefits (or supplemental income), is known as the benefit period.

Short term disability policies typically have a benefit period of three to six months, though some may last up to a year. The shorter the benefit period, the less you or your employer will pay in premiums for coverage.

Benefits vary by plan, but these policies typically pay anywhere between 50% to 70% of your pre-disability salary during that time.

Disability policies also have specific start dates when your payments begin. The waiting period is typically referred to as the elimination period.

Short-term disability policies often have an elimination period of 14 days, though it can range from 7 to 30 days. That means payments would start 14 days after your disability occurs, or from the last day you were able to work.

Some employers have policies that require employees to take all of their sick days or, if the injury happened on the job, workers’ compensation benefits, before short-term disability is paid. Employers may also require you to show proof from a doctor that you have undergone an illness or injury that prohibits you from working.

They also may require you to see an approved healthcare provider for regular updates on your condition while you are out of work. Many of the rules for short-term disability coverage are determined by your state.

Recommended: Own Occupation vs Any Occupation Disability Insurance, Explained

How Do I Purchase Short Term Disability Insurance?

Most commonly, people get disability insurance through their employer. Companies often offer this benefit for no or very low cost.

In some states it’s mandatory for employers to offer this. Employees may pay a small fee from payroll deductions. Your employer is generally the easiest and most cost-efficient way to get short-term disability insurance.

If you are self-employed, or your employer doesn’t offer this benefit, you may be able to purchase short-term disability insurance from a private insurer. The hitch is that few carriers offer private short-term insurance and, if they do, it tends to be costly.

You could pay anywhere from 1% to 3% of your annual salary for a benefit that may only last a few weeks or months. You may find it makes more sense to invest in long-term disability insurance.

What Is Long Term Disability Insurance?

Long-term disability insurance — also known as long-term disability income insurance or LTDI — is an insurance policy that protects employees from loss of income in the event that they are unable to work due to an illness, injury, or accident for a long period of time.

The benefit period, or the amount of time you’ll receive benefits, for long-term disability insurance is often a choice of 5, 10, or 20 years, or even until you reach retirement age, depending on the plan. In general, the longer the benefit period, the more you’ll pay in premiums.

Long-term disability insurance typically pays about 50% to 70% of your pre-disability salary, depending on the policy. In most cases, the higher that number, the higher the premium. Some policies will also make up the gap in your income if you must return to work at a lower-wage job because of an illness or injury. That coverage may also come with a higher premium.

The elimination period (the amount of time you must wait until benefits begin) for long-term disability insurance usually includes several options, including 30, 60, 90, 180 days, or a full year. In general, the longer the elimination period, the less you will pay in premiums. The most common elimination period is 90 days. But if you can’t afford a policy with that elimination period, you may be able to reduce your premium costs by electing a longer period of time until benefits start.

You may want to keep in mind, however, that a longer elimination period means that you would have to go without income for a longer period of time, and might need to have savings or other resources to cover living expenses.

Each long-term disability insurance policy has different conditions for payout, diseases or pre-existing conditions that may be excluded, and various other conditions that make the policy more or less useful to an employee. Some policies, for example, will pay disability benefits if the employee is unable to work in his or her current profession. Others expect that the employee will take any job that the employee is capable of doing — that’s a big difference and could be consequential to the employee.

Recommended: Everything You Need To Know About Getting a Loan While on Disability

How Do I Purchase Long Term Disability Insurance?

Some employers offer subsidized long-term disability insurance policies to employees at discounted group rates. If your employer doesn’t offer this, you may be able to purchase long-term disability insurance from a private insurer. Unlike short term disability insurance, these policies are widely available. Also, unlike short-term disability insurance, private insurers typically offer individuals a range of long-term disability policies to choose from.

Long-term disability insurance is also sometimes available for purchase through professional associations, potentially at discounted group rates. The cost of long-term disability insurance can vary depending on the benefit period, the elimination period, your age, health, occupation, along with other factors. In general, these policies tend to run between 1% and 3% of your annual salary. This is about the same as if you purchased a short-term disability policy outside of your employer.

If you were to use the insurance, however, you would benefit for years, not months, making long-term disability insurance more cost-efficient than short-term disability insurance.

Do I Need Short Term Disability if I Have Long Term Disability?

When possible, it can be beneficial to pair short term and long term disability insurance together.

Short-term disability is intended to cover you immediately following a serious illness or injury, and long-term disability insurance is intended to maintain supplemental income if your condition keeps you out of work past the end of your short-term disability benefit period, even to retirement, depending on your plan.

If you have both short-term and long-term disability policies in place, short-term disability can pay you benefits during the elimination or waiting period before your long-term disability coverage begins, at which point you would transition from one policy to the next to receive benefits.

The combination can help you achieve the smallest possible income gap should you need to use disability insurance.

The best combination for you will depend on what options your employer offers, how much money you have saved in an emergency fund, and what you may be able to afford to purchase on your own.

The Takeaway

Disability income insurance offers an important way to protect your livelihood should you find you can no longer work at the same capacity you were expecting. The primary distinction between short- and long-term disability insurance is the coverage period.

Short term policies generally cover just the first few months you’re unable to work. Long-term policies, on the other hand, can last for years — decades even — after you’re unable to work and may see you through retirement. Because long term disability insurance benefits don’t start right away, it can be beneficial to pair long term disability benefits with short term disability insurance.

When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.

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.

SOPRO-Q225-031

For many people, a monthly mortgage payment is their biggest recurring bill. It may be the main expense that guides the development and management of their monthly budget, because that is an important bill to pay on time.

Prevailing wisdom says that your mortgage payment shouldn’t be more than 28% of your gross (pre-tax) monthly pay. But whatever that sum actually is, you may be wondering how to shave down the amount. Think about it: A lower mortgage payment could reduce your financial stress. And it can also open up room in your budget to allocate more money toward shrinking other debt, pumping up your emergency fund, and saving for retirement or other goals.

Below, you’ll learn more about your mortgage payment and possible ways to lower it.

Pros and Cons of Lowering Your Mortgage Payments

There are upsides and downsides to lowering your mortgage payments.

On the plus side, learning how to lower your monthly mortgage payment means you could have more money to apply elsewhere. You might apply the freed-up funds to:

•   Pay down other debt

•   Build up your emergency fund

•   Put more money toward retirement savings

•   Use the cash for discretionary spending.

On the other hand, there are downsides to consider too:

•   You might wind up paying a lower amount over a longer period of time, meaning your debt lasts longer

•   You could pay more in interest over the life of the loan

•   If a lower monthly payment means you are not paying your full share of interest due, you could wind up in a negative amortization situation, in which the amount you owe is going up instead of down.

How to Lower Your Mortgage Payments

Now that you know a bit about how mortgage payments work and the pros and cons of lowering your mortgage payments, consider these ways you could minimize your monthly amount due.

Recommended: How to Pay Off a 30-Year Mortgage in 15 Years

1. Refinance Your Mortgage

One of the best ways to reduce monthly mortgage payments is to refinance your mortgage. A refinance (not to be confused with a reverse mortgage) means replacing your current mortgage with a new one, with terms that better suit your current needs.

There are a number of signs that a mortgage refinance makes sense, such as lower interest rates being offered or the desire to secure a fixed rate when you have an adjustable-rate mortgage. If your credit score has improved markedly since you purchased your home, you may qualify for a better rate than you were able to obtain initially.

Refinancing can result in a more favorable interest rate, a change in loan length, a reduced monthly payment, and a substantial reduction in the amount you owe over the life of your mortgage. Do note, however, that there are often fees for refinancing your mortgage.

A cash-out refinance can refinance your loan and provide you with a lump sum to use for home improvement projects. It’s often less costly than taking out a separate home improvement loan. (You can use a Home Improvement Cost Calculator to get an idea of what your project will cost.)

2. Recast Your Mortgage

If refinancing isn’t for you, study up on how to lower mortgage payments without refinancing — specifically, by doing a recast. If you get a bonus or other windfall, consider throwing some of that money at your mortgage. If you are in a position to make a major lump-sum payment toward the loan principal on your home loan, you may benefit from mortgage recasting.

With recasting, your lender will re-amortize the mortgage but retain the interest rate and term. The new, smaller balance equates to lower monthly payments. Worth noting: Many lenders charge a servicing fee and have equity requirements to recast a mortgage, but fees are significantly lower than they would be for a refinance, and you don’t have to worry about what current mortgage rates might be.

If you don’t have a large sum on hand to use for a recast, you can also make extra payments on a schedule or whenever you can. Just make sure you tell your lender to apply the extra funds to the principal and not the interest. Paying extra toward the principal provides two benefits: It will slowly reduce your monthly payment, and it will pare the total interest paid over the life of the loan.

3. Extend the Term of Your Mortgage

If your goal is to reduce your monthly payment — though not necessarily the overall cost of your mortgage — you may consider extending your mortgage term. For example, if you refinanced a 15-year mortgage into a 30-year mortgage, you would amortize your payments over a longer term, thereby reducing your monthly payment.

This technique could lower your monthly payment but will likely cost you more in interest in the long run.

(That said, just because you have a new 30-year mortgage doesn’t mean you have to take 30 years to pay it off. You’re often allowed to pay off your mortgage early without a prepayment penalty by paying more toward the principal.)

4. Get Rid of Mortgage Insurance

Mortgage insurance, which is needed for some loans, can add a significant amount to your monthly payments. Luckily, there are ways to eliminate these payments, depending on which type of mortgage loan you have.

Getting rid of the FHA mortgage insurance premium (MIP). Consider your loan origination date that impacts when you can get rid of the extra expense of mortgage insurance:

•   July 1991 to December 2000: If your loan originated between these dates, you can’t cancel your MIP.

•   January 2001 to June 3, 2013: Your MIP can be canceled once you have 22% equity in your home.

•   June 3, 2013, and later: If you made a down payment of at least 10% percent, MIP will be canceled after 11 years. Otherwise, MIP will last for the life of the loan.

Another way to shed MIP is to refinance to a conventional loan with a private lender. Many FHA homeowners may have enough equity to refinance.

Getting rid of private mortgage insurance (PMI). If you took out a conventional mortgage with less than 20% down, you’re likely paying PMI. Ditching your PMI is an excellent way to reduce your monthly bill.

To request that your PMI be eliminated, you’ll want to have 20% equity in your home, whether through your own payments or through home appreciation. Your lender must automatically terminate PMI on the date when your principal balance reaches 78% of the original value of your home. Check with your lender or loan program to see when and if you can get rid of your PMI.

5. Appeal Your Property Taxes

Here’s another of the seven ways to lower your mortgage payment: Take a closer look at your property taxes. Your property taxes are based on an assessment of your house and land conducted by your county’s tax assessor. The higher they value your property, the more taxes you’ll pay.

If you think you’re paying too much in taxes, you can appeal the assessment. If you do, be prepared with examples of comparable properties in your area valued at less than your home. Or you may also show a professional appraisal.

To challenge an assessment, you can call your local tax assessor and ask about the appeals process.

Recommended: First-Time Homebuyer Programs

6. Modify Your Loan

Getting a loan modification from your lender is different from a refinance and is often a solution for homeowners who wouldn’t qualify for a new loan because they are experiencing financial difficulties. A modification changes the terms of a loan to make monthly payments more affordable. It’s a tactic that is usually used to provide relief to homeowners who are struggling to make their loan payments. If this is your situation, you can ask your lender for a new repayment timetable, a lower interest rate, or a switch from an adjustable rate to a fixed rate. Lenders aren’t obligated to agree, but if you can show proof of financial hardship, such as bank statements and tax returns, this may be an option.

7. Shop for a Lower Homeowners Insurance Rate

Many homeowners take a “set it and forget it” approach to homeowners insurance and pay for their insurance through their monthly mortgage payment. It’s smart to assess your coverage annually to make sure it is adequate. Take this opportunity to shop around for a lower rate. Three ways to potentially lower your insurance costs: Increase your deductible; buy your home and auto policies from the same insurer; and explore whether making your home more secure or storm-resistant might qualify you for a lower rate. Just remember: If you are getting a new policy, make sure it is fully in place before you cancel your old one.

The Takeaway

How to lower your mortgage payment? There are several possible ways. And who wouldn’t love to shrink their house payment? You might look at strategies to build equity and ditch mortgage insurance, extend the term of your loan, or refinance to reduce your monthly payment.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

What is the average mortgage payment?

According to the C2ER’s 2024 Annual Cost of Living index, the median monthly mortgage payment in the U.S. (excluding property taxes and homeowners insurance) is $2,132.

Can you pause or temporarily reduce mortgage payments?

If you can demonstrate that you are experiencing sudden financial hardship, a lender may allow you to pause or temporarily reduce your mortgage payments for six months or so through a process called mortgage forbearance. You’ll continue to accrue interest on your loan during this time, but requesting and being granted forbearance can help prevent foreclosure and damage to your credit.

Does refinancing always lower monthly mortgage payments?

Refinance doesn’t always lower your mortgage payment amount. Borrowers who do a cash-out refinance (borrowing against their home equity to get a lump sum they can use for education expenses, for example) might emerge from the refi with higher monthly payments. Another possible scenario: If you obtain a lower interest rate with a refi but choose a shorter loan term (10 or 15 years, for example), your monthly payment amount might increase.

Can rental income help with monthly mortgage payments?

Taking on a roommate or building an accessory dwelling unit (ADU) on your property that you rent out can certainly help defray monthly mortgage expenses. It won’t lower what you owe on your mortgage, but it will reduce your actual out-of-pocket cost.

What credit score do you need to refinance for a lower mortgage payment?

If you’re refinancing a conventional mortgage, you’ll typically need a minimum FICO® credit score of 620, although a score of 740 or more qualifies borrowers for the best interest rates. If you have a government-backed FHA loan, you’ll need a score of 580 or more. Whether refinancing will result in a lower mortgage payment will depend on the interest rate on your original mortgage, current interest rates, and the type of refi you choose as well as your credit score.

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 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.

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Whether it’s protecting personal belongings from fire or theft or serving as a source of liability insurance if a guest gets hurt inside the home, renters insurance can provide plenty of benefits for the tenant.

But can a landlord require renters insurance? The short answer is yes. Let’s take a closer look at the nuances of this coverage and why a landlord might want to make it mandatory.

Can a Landlord Require Renters Insurance in All States?

In most states, the answer is yes, they can require renters insurance. (Oklahoma may currently be an exception.) What’s more, landlords can usually determine a minimum policy amount that their renters must carry. When that happens, the landlord will likely be more concerned about the amount of the liability coverage a tenant has, because that can have a financial impact on the landlord if, say, damage from a fire or an overflowing bathtub occurs. They may be less concerned about the amount of personal property coverage that a tenant has in their renters insurance policy.

It’s important to note that while landlords are generally allowed to require tenants to have renters insurance, there are no states that require renters insurance. However, this could change, so check your state’s laws.

To get a good understanding of what a landlord requires for the apartment you want to lease, be sure to read the lease language carefully. It may contain a clause, for example, that requires a new tenant to provide proof of renters insurance within a certain period of time. If more clarity is needed, ask the landlord for an explanation before signing the lease.

Recommended: Cheapest Renters Insurance Companies: Find Affordable Coverage

Reasons Why Landlords Require Renters Insurance

Mandating renters insurance can be part of a landlord’s tenant screening process, just like checking a renter’s credit scores may be. Buying and maintaining a policy could be a sign that they’ll be able to consistently pay the rent and are willing to take responsibility for the rented space and their belongings.

Requiring this type of coverage could also lower a landlord’s overall liability. Let’s say a tenant doesn’t have an insurance policy, and some of their belongings are stolen. That tenant may decide to sue the landlord to get the money to replace those items.

Similarly, if a tenant or their guest is injured on the property, they may choose to bring the landlord to court to help cover medical bills. It’s also possible that, if someone gets injured in a rented space and doesn’t have renters insurance, the hospital caring for the injured party might sue the landlord. Even if the landlord’s policy covers the hospital bill, this could result in higher insurance premiums for the landlord.

Here’s a related possibility: Suppose there’s a fire in an apartment complex and, because of smoke damage, tenants need to temporarily find other places to live. Tenants without renters insurance may not be able to pay for temporary lodgings and may attempt to get those funds from the landlord. In some states, the landlord may in fact need to provide relocation benefits for tenants who don’t have their own coverage. So, requiring a policy can shift part of the financial burden from the landlord to the affected tenants.

Continuing with the fire scenario, let’s say it’s one that was accidentally set by a tenant, and it damaged several parts of the building. Let’s also say that the landlord’s insurance policy will cover the costs, minus the deductible on the landlord’s policy. That can help to cover cleanup and remodeling expenses but the deductible can be significant — and the tenant’s renters insurance may cover the dollar amount of that deductible. This reduces the landlord’s out-of-pocket expenses, which can be a real plus for that landlord.

Recommended: What Does Renters Insurance Cover?

Proof of Insurance

If a landlord requires renters insurance, they may ask for proof of existence. Perhaps they’ll want to see a statement from an insurance company or a copy of the policy itself, though they may also simply take a tenant’s word for it.

Sometimes, a landlord will want to be listed on the policy as an “additional interest.” When that happens, the landlord will be notified if the policy coverage lapses because of non-payment or because the tenant cancels the policy.

Note that naming someone as an “additional interest” is different from naming them as an “additional insured.” The second term refers to people who are also covered by a tenant’s policy, perhaps a roommate or partner.

Securing a Policy

When deciding what policy to buy, it’s important to factor in the value of personal belongings that need to be covered and what is affordable. Different insurance companies offer different coverages at differing price ranges. After determining the value of personal belongings and budgetary constraints, it may be time to compare policies and see which ones fit in your budget.

The National Association of Insurance Commissioners (NAIC) says the average renters insurance policy costs between $15 to $30 per month. Compare that to the cost of replacing personal belongings, which would typically be much higher. And that’s not even factoring in the benefits of having liability coverage and additional living cost coverage, such as temporary lodging if you need to leave the rented space.

Recommended: Most Affordable Renters Insurance for Apartments

Actual Cash Value Versus Replacement Costs

Some policies pay out the actual cash value of lost or damaged belongings, while others cover the full costs of replacing what was lost or damaged.

Let’s say that a three-year-old laptop was stolen from a tenant’s apartment. If that person’s policy uses cash value when reimbursing the tenant, the amount would be what the laptop originally cost minus any depreciation that took place over that three-year period. If the policy is a replacement cost one, then the tenant would be reimbursed what it would cost to get a similar laptop today.

Review the policy’s deductible. This is the amount that the policyholder is responsible for before insurance coverage applies. Typical deductibles fall around $500 or $2,000, although they may be higher. Some policies may offer deductibles that are a percentage of the policy’s coverage amount.

The Takeaway

Renters insurance can provide peace of mind to tenants in the event their property is stolen or damaged. It can also help lower a landlord’s overall liability and financial burden. Though there’s no federal law mandating renters insurance, landlords in most states are able to require tenants to have it. Before signing on the dotted line, double-check the lease agreement to confirm whether you need to purchase a policy. A typical renters insurance policy costs around $15 to $30 per month, but coverage and cost may vary.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

Photo credit: iStock/staticnak1983

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