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While opening up your home and your heart to a new child may seem like the natural next step for you and your family, the process can actually be pretty complicated — and costly. Currently, costs are estimated at between $10,000 and $50,000 to adopt a child.

There are a few different adoption methods and each comes with its own unique costs and fees. Read on for a breakdown of some expenses you might run into in the adoption process.

Cost of Adoption from Foster Care

Adopting a child from foster care tends to be less expensive than other options. The process is often funded by the state and, typically, there are few or no fees passed on to the parents. However, some parents may opt to hire a private agency to help them through the process, which can come with out-of-pocket expenses. Parents may be able to recoup some or all of these costs through federal or state programs once the adoption is completed.

Home Study

One of the most important costs to account for in any adoption is the home study, which is when the prospective parents’ home is screened so that the adoption agency or a social worker can get a sense of their day-to-day life. While the cost of a home study might be included in the overall adoption fee from a private agency, the fees can range from a few hundred dollars to a few thousand dollars.

Foster care adoptions will also generally have a home study where a social worker observes the interaction between the potential adoptive parents and the child. In some cases, there may be state or federal programs to offset the cost of a home visit.

Tax Credits for Foster Care (and Other) Adoptions

The tax code currently offers an adoption tax credit that can help offset some of the costs involved in adoption, whether you adopt via public foster care, domestic private adoption, or international adoption. The total amount of adoption credits will depend on the tax year, so it’s a good idea to talk to an accountant for more specifics.

Families adopting children from foster care might also qualify for other types of federal assistance depending on the child’s eligibility. This assistance might include:

•   A one-time, non-recurring reimbursement for adoption transaction costs

•   Recurring monthly maintenance payments for the child’s care (Not to exceed what the state would have paid to keep the child in foster care).

Children adopted through foster care may also be eligible for health insurance coverage under Medicaid, and other medical assistance to cover some or all of the child’s needs like special education or therapy.

Planning for Private Agency Adoption

Private adoption costs in the U.S. can vary from state to state. According to the Children’s Bureau, the cost of a private, agency-assisted adoption can range anywhere from $10,000 to $50,000.

Court Documentation Fees

Legal representation for the adoptive parents can currently run from $2,500 to $12,000. Depending on the state, these fees may or may not be covered as part of an agency’s overall pricing.

Independent Adoption Costs

Some families choose to adopt a child without the assistance of an adoption agency and instead work directly through an attorney. It might seem like a cost-saving measure at first, but pricing can still vary. Expenses might be low if you match with a birth parent through word of mouth, or if the birth mother’s expenses are minimal.

However, these adoption costs can still range from around $15,000 to $45,000. This typically includes most of the same costs of any other domestic adoption, including the home study, the birth mom’s medical expenses, and legal and court fees for the adoptive parents and birth parents.

Recommended: Common Financial Mistakes First-Time Parents Make

Expenses for Intercountry Adoption

Adoption fees will differ depending on which country you plan to adopt a child from. Intercountry adoption costs tend to be higher than a U.S.-based adoption because there is usually foreign travel and immigration processing to factor into the equation, in addition to other higher court costs, mandatory adoption education, and other documentation. The average cost can range from $32,000 to $66,000 for a foreign adoption.

Costs can depend on the organization managing the adoption as well — whether it’s the government, private agency, orphanage, non-profit organization, private attorney, or some combination of the above. Some intercountry adoptions are finalized in the child’s home country, while others must be finalized in the United States. Finalizing an adoption in U.S. court can come with extra costs, but also provides additional legal protections and documentation.

Other costs to adopt a child from another country can include:

• Escort fees for when/if parents can’t travel to accompany the child to the U.S.
• Medical care and treatment for the child
• Translation fees
• Foreign attorney or foreign agency fees
• Passport and visa processing
• Counseling and support after placement

Recommended: New Parent’s Guide to Setting Up a Will

Financing the Cost of Adoption

So, with costs ranging from at least a few thousand dollars to up to $60,000 or more, funding an adoption may require some planning. Financially preparing for a child typically means looking into all associated costs, including raising your new child and tackling your own debt.

Some employers may offer financial and other support to help with the adoption process. These policies include financial reimbursement and paid leave for adoption, among other benefits.

Additionally, companies with 50 or more employees are required by federal law to grant parental leave to employees who have adopted a child. Mothers and fathers are eligible for up to 12 weeks of unpaid leave after the birth or adoption of a new child.

Grants and loans also exist to help with the cost of adoption and can help with any type of legal adoption, whether a foster care adoption, private agency, or overseas adoption. Most grants and loans have their own eligibility criteria based on things like marital status, income level, and other specifics.

You can also consider taking out a personal loan to help cover the cost of adoption. Some lenders actually offer “adoption loans,” which are typically personal loans designed to cover costs associated with adopting a child.

A personal loan is typically an unsecured loan in which the borrower receives a lump sum of cash (from a couple of thousand to $100,000). They then repay it with interest in installments, usually over a term of one to seven years.

Recommended: 5 Tips for Saving for a Baby

The Takeaway

The cost of adopting a child can vary widely, from a few thousand dollars to $60,000 or more. Foster care adoptions tend to be less expensive than private agency or intercountry adoptions. There are state or federal tax credits and programs that can help offset the cost of adoption. Other resources to pay for adoption include grants and personal loans.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What is the least expensive way to adopt?

The least expensive way to adopt is via foster care. This can, in some cases, be free or cost a few thousand dollars, which is much less than private adoption.

How much does it cost to adopt a child in the U.S.?

Private adoption typically costs between $10,000 and $60,000+ depending on whether it’s domestic or international. Adoption via foster care can be more affordable, with costs ranging from no charges incurred to a few thousand dollars.

Is it cheaper to adopt or have a baby?

Adoption can be very expensive (up to $60,000 or more), so it is usually considered cheaper to have a baby.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

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.

SOPL-Q225-073

The average cost of finishing a basement in 2025 is $32,000, but there is a huge variation in pricing depending on your specific project. Of course, the square footage makes a difference, as does the particular configuration of your basement, as well as whether you are simply finishing the space for storage purposes or adding an extra bedroom and bathroom as living space.

Whatever your goal, you will most likely increase the resale value of your home while adding to your usable space. The following guide will help you understand the considerations, the cost, and how to get the work done.

The Costs of Finishing a Basement

The cost of finishing a basement has a lot of variables, as most home upgrades do. Weighing what you can afford versus what you want is critical here. While it might be nice to have all the bells and whistles of a sky-is-the-limit home renovation, there are many things that will affect the bottom line during a reconstruction event like finishing a basement.

The national average cost of finishing a basement is $32,000, according to the home improvement site Angi, but there’s a wide range (as there is with the cost of home remodeling projects of all kinds). In this case, it can swing from $15,000 to $75,000. Your number could rise based on where you live and whether you plan to add features such as running water, custom cabinets, or countertops.

Ultimately, the final cost to finish a basement depends on how extensive the work is, as well as the square footage in the planned remodel. Typically, a small basement is considered to be a 300- to 700-square-foot space. Do you have more than 2,000 square feet to finish? Then that’s an oversized amount of space.

According to the home improvement site Angi, a simple process of finishing a basement will cost between $7 and $23 per square foot. However, if you are doing a full remodel, you can expect to spend $30 to $100 per square foot.

You can also use online tools to help you estimate the cost of your remodeling project.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

How to Plan Your Basement Project

The first thing you need to think about when finishing a basement is how you primarily plan to use the space. If it’s mostly for storage, you’ll want to include closets, cabinetry, and a shelving system in your plans.

Or do you intend to use it as a bonus room or lounge? If your basement’s primary function is as a gathering space, you’ll want to wire it so that you have internet, cable, and plenty of lighting and outlets.

Due to their subterranean nature, basements also require waterproofing. The below-grade format of a basement demands special attention be paid to exterior drainage, interior surface materials, and air ventilation, in addition to ensuring a safe way to exit the space during an emergency, like an egress window.

With proper planning, it’s possible to mitigate some of the major expenses associated with building below ground, so do your homework before the rainy season comes. Local government code departments often have building standards to guide the process.

As part of your efforts to keep the finished basement dry, you’ll probably want to install a sump pump for extreme weather events. Built into the floor with an automatic pump, sump pumps give peace of mind for when you’re out of town or have an excess of rainfall.

If you’re finishing a basement to use as an apartment or in-law suite, you’ll need added features like a bathroom and kitchenette. Installing both a bathroom and kitchenette can quickly cause the price to mount with the added costs of cabinets, countertops, appliances, and fixtures, so weigh the decision to add those features carefully against how much use you think they will truly get. Or consider going the budget route, forgoing top-of-the-line furnishings and appliances, if cost is a concern but you need those spaces to complete your basement.

Recommended: 10-Step Guide to Building Your Own Home

Budget

How much it costs to finish your basement will ultimately come down to the features you add and how the work is done. Consider these factors when making a budget:

•   Labor. This may cost $25 to $100 per hour, and you might also need a plumber or electrician to do some specialized work, which could increase the price (as anyone who’s rewired or needed to pay to fix a plumbing leak knows). Typically, labor costs will be 25% of the total project cost.

•   Permits. According to Angi, getting the proper permits for your project can run between $1,200 and $2,000.

•   Materials. The cost of materials, such as flooring, insulation, and drywall, will make up the bulk of your project budget. Expect to pay around 70% of your budget on materials, depending on the specifics of your remodeling.

Other areas where your basement costs may add up include if you opt for high-end materials, if you hire a professional for interior design assistance with the layout or furnishing plans or if you add furniture to the space.


💡 Quick Tip: With home renovations, surprises are inevitable. Look for a home improvement loan with no fees required — and no surprises.

How to Save Money on Basement Remodeling

There are many ways to save money on basement remodeling, the first being doing the labor yourself. If you’re simply going for a basic basement remodel for storage, this is a project you likely can DIY even without a lot of prior home renovation experience.

You might, for example, want to add corner shelves, install a pegboard system for mounting your tools, or build a wire rack system to store your bulky items — all basement finishing tasks you can tackle yourself without hiring outside labor.

If finishing your basement requires extensive electrical work and/or plumbing, however, you’ll likely want to call in a licensed professional to do that work.

If you’re on a tight budget, you might rethink installing a kitchenette or a bathroom, which is where your basement refinishing costs often add up quickly. A budget-friendly option for cabinetry could be purchasing from a resale shop or using old cabinets from another part of your house that you can refresh with an inexpensive coat of paint.

Recommended: The Top Home Improvements to Increase Your Home’s Value

The Takeaway

A basement remodel could serve multiple purposes — adding living space or storage to your home — while simultaneously improving your quality of life and the resale value of your home. With the average basement finishing project costing almost $32,000, you may also need to consider financing options, such as a personal loan to use for home improvement.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How much to finish a basement?

According to the home improvement site Angi, the average cost to finish a basement in 2025 is $32,000.

Can you finish a basement for $10,000?

While the average cost to finish a basement is currently $32,000, it may be possible to do the job for $10,000 if it’s a small and simple job and if you find a lower-cost but qualified contractor.

What is the most expensive part of finishing a basement?

The most expensive part of finishing a basement is often the materials themselves, which can account for a majority of the cost.

Photo credit: iStock/PC Photography

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.

SOPL-Q225-063

There are many reasons why you might want to sock away some cash and perhaps earn interest while you’re at it. Perhaps you’re saving up for a down payment on a house or gathering funds for an epic cross-country road trip. Or maybe you’re just looking for a safe place with good rewards to store your paycheck and manage everyday spending.

Whatever the scenario, a deposit account can be the answer.

There are several different types of deposit products, including savings accounts, checking accounts, certificates of deposit (CDs), and money market accounts. While they all accept and protect deposits, they differ in terms of how often you can access your funds and the amount of interest you’ll earn on your balance. Here’s a closer look at the different types of deposit accounts, their pros and cons, and how they compare.

Basic Checking and Savings Accounts

There are several different kinds of basic checking and savings accounts. You may find standard accounts, premium accounts, and other variations offered by financial institutions. Here are the pros and cons of these deposit accounts.

Basic Checking and Savings Accounts

Basic checking and savings accounts are deposit accounts offered by banks and credit unions. Checking accounts are transactional accounts designed for everyday money management, while savings accounts are ideal for holding money for future use. Here’s a look at the pros and cons at each type of account.

Checking Account Pros and Cons

First, the pros:

•   A checking account typically allows access in multiple ways. You can write checks and get an ATM card or debit card. You typically also have access to online and mobile banking so that you can mobile deposit checks and easily pay your bills.

•   These accounts provide a hub for your financial life: You have a home for your paycheck to be direct-deposited, records of your transactions, and ways to track your money.

•   You’ll usually enjoy FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) insurance of $250,000 per account holder, per account ownership category, per insured institution. Some institutions offer enhanced coverage, too.

•   You may find an interest-bearing checking account, though the rate is usually not as much as a savings account.

Next, the cons:

•   Many checking accounts pay no interest or very low interest, so you’re not helping your money grow.

•   There can be minimum balance requirements on checking accounts, especially ones with enhanced levels of service.

•   You may be charged accounts fees as well, which can cut into your cash.

Savings Account Pros and Cons

First, the upsides:

•   Savings accounts are interest-bearing, meaning your money can grow, especially through compound interest. However, not all savings accounts are created equal: Some standard accounts pay a very low interest rate. Look to online banks for higher rates (more on this below).

•   Savings accounts allow quick access to your funds. You can also link your savings account to your checking account, which makes it easy to automate savings deposits and move money into checking when you’re ready to spend your savings.

•   These accounts are also typically insured by FDIC or NCUA.

As for the downsides:

•   Interest rates for basic savings accounts tend to be low and may not keep pace with the rate of inflation.

•   You probably can’t access your account via checks or a debit card. You may also be limited to a certain number of transfers and debit card transactions per month. While the Federal Reserve has lifted the six-transaction limitation on savings accounts that originated during the pandemic, many banks still impose some transfer and withdrawal limitations on savings accounts.

•   You may encounter minimum balance requirements and fees if you go below that amount.

5 Other Deposit Account Options

Here’s a look at some other deposit account types you might consider beyond basic checking and savings.

1. High-Interest Savings Accounts

Some banks offer special, high-yield savings accounts that can offer signficantly higher rates than traditional savings accounts. Some institutions don’t charge monthly fees for these accounts while others do but will waive them if you meet a balance minimum.

As with all savings accounts, you may be limited in terms of the number of withdrawals or transfers you can make each month.

One good place to look for this type of account is at an online bank. Because these institutions typically have lower operating expenses than brick-and-mortar banks, they can often offer rates that can be considerably higher than traditional banks, and may also be less likely to charge monthly fees.

2. Money Market Accounts

A money market account is a type of savings account that earns interest and offers some of the conveniences of a checking account, such as check-writing and debit card access. MMAs typically offer a higher interest rate than a basic savings account, but generally require higher initial deposits. These accounts may also require a relatively high average monthly balance to earn the advertised rate and avoid account fees.

You may want to keep in mind the difference between a money market account vs. a money market fund. A money market account is a federally insured banking instrument, whereas a money market fund is an investment account. Typically, money market funds invest in cash and cash-equivalent securities. It is considered low risk but doesn’t have a guaranteed return.

3. Certificates of Deposits (CDs)

A certificate of deposit (CD) is a type of deposit account offered by banks and credit unions that provides a premium interest rate in exchange for leaving a lump-sum deposit untouched for a certain period of time.

The bank determines the terms of a CD, including the duration (or term) of the CD, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties will be applied for early withdrawal.

CDs offer different term lengths that usually range from a few months to several years. Interest rates tend to be higher for longer terms, though that isn’t always the case. CDs often require a minimum deposit of $500 to $1,000 to open the account.

A CD can be a good option if you know you won’t be touching that money for the entire term length. If you suddenly need the money, then you will likely have to pay a penalty to withdraw money early from your CD. While you can get no-penalty CDs, they typically come with lower rates than regular CDs, and may require you to withdraw the entire amount all at once and close the CD.

If ease of access is a concern, it might make sense to invest in CDs that feature fewer restrictions around withdrawals. Or, you could set up a CD ladder strategy where you buy CDs that have different maturity dates, ensuring access to funds as your CDs mature at staggered intervals.

4. High-Yield Checking Accounts

Though interest is normally associated with savings, and not checking, accounts, many financial institutions offer high-yield checking accounts. These interest-bearing accounts, sometimes called “rewards checking,” work like regular checking accounts and come with checks and an ATM or debit card.

In return for getting a higher interest rate, high-yield checking accounts often come with rules and restrictions. You may, for example, only earn the higher rate on money up to a certain limit. Any money over that amount would then earn a significantly lower rate. You may also be required to make a certain number of debit card purchases per month and sign up for direct deposit in order to earn the higher (or rewards) rate and to avoid a monthly fee.

The benefit of an interest-bearing checking account is that you’ll always have access to your money and you may have fewer limitations on how you can use your account than you might with a savings account, all while still earning a bit of interest.

5. Cash Management Accounts

A cash management account is a cash account offered by a financial institution other than a bank or credit union, such as a brokerage firm. These accounts are designed for managing cash, making payments, and earning interest all in one place.

Cash management accounts often allow you to get checks, an ATM card, and online or mobile banking access in order to pay your bills. They also typically pay interest that is higher than standard savings accounts. In addition, cash management accounts generally don’t have as many fees or restrictions as traditional savings accounts, but it’s important to read the fine print.

Before opening a cash management account, you may want to ask about monthly account fees and minimum balance requirements. Some brokerage firms require a sizable opening deposit and/or charge monthly fees if your account falls below a certain minimum. Others will have no monthly fees and no minimums.

Time vs Demand Deposit Accounts

When you consider different kinds of deposit accounts, you may hear the terms time vs. demand accounts.
A time deposit, such as a CD, requires you to keep your money with a financial institution for a particular period of time. If you withdraw funds before the end of the term, you may face penalties.

With a demand deposit account, such as a checking account, you may access your cash whenever you like. While you won’t pay a penalty for withdrawing money, you may earn a lower interest rate than with a time deposit account.

Here’s a look at how these two types of deposit accounts compare:

The Takeaway

There are several types of deposit accounts, each designed for different financial purposes.
Checking accounts are ideal for everyday spending, paying bills, and accessing funds easily and, in some cases, you may be able to earn some interest on your balance.

Savings accounts are designed for setting money aside for a future goal and earning interest. While basic savings accounts generally pay a low rate, you can earn more by opening a high-yield account at an online bank.

Money market accounts are a hybrid option, offering some of the perks of both savings and checking accounts, and generally pay higher rates than basic savings accounts. CDs also pay higher rates, but require you to lock up your funds for a set period of time.

The best deposit account for you will depend on your needs and goals. You can likely benefit from opening more than one.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the different types of deposit accounts?

There are four main types of deposit accounts: savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs). A savings account is ideal for storing money and earning modest interest. A checking account is used for daily transactions like paying bills or making purchases. Money market accounts combine features of savings and checking but usually require a higher balance. CDs offer higher interest rates in exchange for locking in funds for a set period.

What is the most common type of deposit account?

One of the most common types of deposit accounts is the checking account. It’s widely used for everyday financial activities like receiving paychecks, paying bills, making purchases, and transferring funds. Unlike many savings accounts, checking accounts allow unlimited transactions, including debit card use and writing checks. While they typically offer little to no interest, their flexibility makes them essential for managing daily finances. Many people open a checking account as their primary banking tool.

Is a CD considered a deposit account?

Yes, a certificate of deposit (CD) is considered a deposit account. It’s a savings vehicle offered by banks and credit unions where you deposit money for a set period (or term) and agree to leave it untouched until the maturity date. In exchange for this, the bank pays you a fixed interest rate. A CD is considered a time deposit account (vs. a demand deposit account) because the money is locked in for a set period of time, and early withdrawals usually incur a penalty.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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SOBNK-Q225-087

For many people, purchasing a home is the very definition of living their best life and achieving the American dream. But it’s not the right choice for everyone, and it might not be the right move to make at a given moment.

Owning a home may be the biggest financial commitment you’ll ever make, so it makes sense to carefully consider the upsides and downsides of buying vs. renting. Sometimes, the flexibility and affordability possible with renting can be a good fit.

Read on for advice that will help you answer, “Should I rent or buy a house?”

•   Learn the pros and cons of buying vs. renting a home

•   Take a quiz to help you decide if you should buy or rent a home

•   Find out the steps to take when you’re ready to start hitting the open houses

Rent or Buy a Home: Pros and Cons

Deciding whether to rent vs. buy is a very individual decision. There’s no rule about which is better; much will depend on your personal goals and your financial situation.

Let’s, take a closer look at whether it is better to buy or rent a house.

Advantages of Renting

Here, the upside of being a renter:

•   Low-maintenance lifestyle. Your landlord is typically responsible for repairs and maintenance, so your time and money can be spent elsewhere.

•   Potentially lower monthly expenses. Your landlord may also pay some of your monthly utilities, and you aren’t responsible for paying property taxes.

•   Flexibility. When your lease is up, you can renegotiate or move…across the street or across the country. If you aren’t ready to lock into a location for at least a few years, renting can be a smart step.

•   Low investment. You don’t need to make a big investment (like the down payment and closing costs associated with home buying) when you move into a rental. You might have to put down a security deposit, but that will typically be much less costly.

Disadvantages of Renting

Now, consider the downside of being a renter vs. a homeowner.

•   Rules to follow. Your landlord may have restrictions that you don’t like, such as no pets or no remodeling.

•   Not building wealth. The rent you pay each month doesn’t give you any equity in a property. It just goes to the owner, unless you set up a rent-to-own agreement.

•   Lack of control over your monthly charges. Your rent could spike due to inflation, the housing market heating up in your area, and other factors.

•   Uncertainty. If the owners decide to sell the building you live in, you may need to move unexpectedly and quickly, which can also get expensive.

Advantages of Buying

If you decide to buy vs. rent, here are some of the benefits you may enjoy.

•   Building wealth. As you make payments on your home loan, you are usually building home equity.

•   Tax advantages. Homeowners may be able to deduct both mortgage interest and their property tax payments (plus possibly other related expenses) from their federal income taxes if they choose to itemize their deductions.

•   Freedom. You have far fewer restrictions involving remodeling, pet ownership, and so forth. Want to paint a bathroom purple, rip out a wall, or adopt five rescue dogs? Go for it.

•   Stability. You can put down roots in a community and school district. When you decide to move, it’s your decision.

•   Affordability. Sometimes a mortgage payment can be cheaper than rent, especially if you get a good mortgage rate.

Looking at the price-to-rent ratio of a city helps gauge whether it makes more sense to buy or pay a landlord. The housing market dynamics of your location may determine this aspect of whether to buy or rent a house.

Disadvantages of Buying

Now that you know the potential upsides of owning your own home, take a look at the potential drawbacks.

•   High costs. The price of homeownership may be painful in a hot market. Accumulating the cash to make a down payment can be challenging and take years of saving. Plus, the closing costs when securing a home can be considerable.

•   Credit score. You typically need to qualify for a mortgage, and your credit score will be a factor. Those with excellent credit scores will get better rates; those with lesser scores may want to wait to build their rating before buying.

•   Maintenance. You’re generally responsible for all repairs, maintenance, and utilities, plus homeowners insurance, property taxes, and any homeowner association (HOA) dues. These can not only impact your finances but also your lifestyle. Taking care of a home and property can require an investment of time and energy.

•   Locked in place. You probably can’t pick up and move on a whim. If you decide to move, until your home is sold, you’re still responsible for mortgage payments and the expenses attached to your new place.

Take the Rent or Buy Quiz

Are You Really Ready to Buy?

When you’re supposed to be deciding between renting vs. buying a house, the answer may already be clear to you. If you’ve decided to buy, it might make sense to take the following steps.

•   Make sure you’re ready for a long-term commitment. If you’ve saved enough for a down payment and know how much house you can afford, those are good signs. Otherwise, create a home-buying budget and saving plan to get started.

•   Consider if your line of work allows for job continuity with steady income. Have you had this type of income for the past two years or more? That kind of stability can be important to lenders.

•   If your debt-to-income ratio (DTI) appears too high for a loan program you would like to apply for, you may need to consider paying down some debt. To calculate your DTI ratio, divide your monthly debt payments by your monthly gross (pretax) income. The federal Consumer Financial Protection Bureau advises renters to consider keeping a DTI ratio of 15% to 20% or less (rent is not included in this ratio). However, mortgage lenders usually like to see a DTI ratio of no more than 36%, though that is not necessarily the maximum.

•   Save money for a down payment, closing costs, and other fees, plus some funds for moving expenses and any remodeling/repairs.

•   Check if your credit score is good enough to buy a house, and, if it falls short, work on building it.

•   Do a gut check to see if you’re really ready to be your own landlord, meaning being responsible for your own home maintenance, inside and out.

•   Get prequalified or preapproved for a mortgage by providing a few financial details to one or more lenders. They will usually do a soft credit check and estimate how much you may be able to borrow and the terms. A prequalification or even a preapproval can also help give you a leg up when you start home shopping.

The Takeaway

Should you buy or rent a home? That will be a personal decision, reflecting your finances, the housing market’s dynamics, your willingness to take on the responsibilities of homeownership, and your inclination to put down roots in a certain location. Both owning and renting have pros and cons, and making the right decision will likely require careful consideration and thorough planning.

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FAQ

Is it better to rent or buy a home?

There isn’t a simple yes/no answer to whether it is better to rent or buy a home. Each has its advantages and disadvantages and may or may not suit your needs at a given moment. For instance, owning a home can allow you to build equity and personal wealth, but the maintenance responsibilities and expenses may offset that for you. Renting may be cheaper, but you may not be able to personalize your space the way you’d like or perhaps own pets. Examine the tradeoffs to figure out what’s best for you.

Is renting cheaper than owning a home?

Renting can be cheaper than owning a home, though that can depend upon housing market conditions in a given area and the particulars of the home in question. In general, people who rent don’t have to pay property taxes and they may not be responsible for the cost of improvements and repairs, which can make renting more affordable.

Is homeownership a good investment?

Buying a home can be a good investment. It allows you to build equity and may offer tax deduction opportunities. However, if property taxes rise steeply or major home repairs loom (like a new roof), homeownership could prove financially challenging.

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SOHL-Q225-180

Crowdfunding helps businesses and entrepreneurs raise capital for new ventures by pooling together small amounts of money from many investors. Crowdfunding is usually accomplished via an online platform that provides access to a wider network, but typically charges fees and may impose other terms.

While crowdfunding has a reputation for being business-focused, today many people use crowdfunding to help them accomplish a range of goals, from creating arts projects to paying medical bills.

Unlike angel or venture capital investors, crowdfunders can include private investors, institutional investors, friends, family, and even strangers.

Crowdfunding is an alternate take on traditional methods of financing a business through equity or debt. Crowdfunding offers some advantages to business owners who may not qualify for traditional loans or would prefer to avoid them. Crowdfunding does come with some downsides, and crowdfunding websites can be tricky.

What Is Crowdfunding?

Crowdfunding is more or less exactly what it sounds like: funding that comes from a crowd of people. Note, though, that regulators like the Securities and Exchange Commission (SEC) have their own definition of crowdfunding — but for our purposes, a broad definition will do.

Generally, crowdfunding for business is subject to federal securities laws. That means any efforts to raise capital through the crowd require SEC registration.


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History of Crowdfunding

The concept of raising capital as a collective effort is not a new one.

For example, Ireland launched several loan funds in the 1700s and 1800s to help less-advantaged people gain access to credit. A group of wealthier citizens pooled their money together to provide the funding for those loans.

More recently, online crowdfunding began at the start of this century. In 2003, ArtistShare became the first crowdfunding website, allowing people to collectively fund the efforts of artists. At the time, the platform used the term “fan-funding” rather than crowdfunding to describe its mission.

In 2006, entrepreneur Michael Sullivan coined the term “crowdfunding,” using it to describe an ultimately failed video-blog project for which he was seeking backers.

Crowdfunding began to move into the mainstream in 2008, with the launch of Indiegogo, quickly followed by Kickstarter and GoFundMe. Many other crowdfunding platforms have since emerged, and these websites allow supporters to help people build projects or businesses, but they do not receive equity in return.

In 2012, President Barack Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, which included a provision allowing equity crowdfunding. This permitted early-stage businesses to sell securities to raise funds via online platforms. The SEC followed up with the adoption of Regulation Crowdfunding to oversee the crowdfunding provisions included in the JOBS Act.

It’s important to bear in mind that crowdfunding was never meant solely for entrepreneurs. Historically speaking, across cultures, various types of group funding mechanisms have long existed. Even today, digital crowdfunding campaigns aim to help individuals with a range of financial needs, including charitable causes, personal emergencies, arts projects, as well as social or political organizations.

How Does Crowdfunding Work?

In general, crowdfunding works by allowing multiple people to contribute money to a common cause. To launch a campaign, an entrepreneur, artist, or other individual or entity will set up an account on an online crowdfunding platform.

Instead of presenting their product or service and their business plan to professional investors like venture capital firms, they’ll share it with the public and appeal for funds from them. The entrepreneurs will typically select a time period during which the investors can put money into the campaign to help it achieve its crowdfunding goal.

Crowdfunding is not a loan, in the traditional sense. The entrepreneur does not get the money they need to launch or scale their business from a lender. Instead, they tap into capital markets sourced from a group of people, which can include people they know as well as strangers.

With crowdfunding, anyone can invest, but there are limits on the amount that can be invested in Regulation Crowdfunding during a 12-month period. These limits reflect their net worth and income.

Here’s a brief look at how crowdfunding works:

•   If either your annual income or net worth is less than $107,000 you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth during any 12-month period.

•   If both your annual income and net worth are equal to or more than $107,000 you can invest up to 10% of your income or net worth, whichever is less but not more than $107,000 during any 12-month period.

If you’re an accredited investor, there are no limits on how much you can invest. An accredited investor has earned income of at least $200,000 ($300,000 for married couples) in each of the two prior years and a net worth of over $1 million. Individuals who hold certain financial professional certifications can also get accredited investor status.

Crowdfunding vs IPO

It’s important to note that crowdfunding is not the same as launching an Initial Public Offering (IPO). IPOs involve taking a company public and offering shares to investors through a new stock issuance. This is another way businesses can raise capital.

The IPO process begins with getting an accurate business valuation. Once a company goes public, an IPO lock-up period prevents insiders who already own shares from selling them for a certain time period. This period may last anywhere from 90 to 180 days. When it’s over, investors can buy and sell shares of the company on public exchanges.

For businesses, an IPO could be an effective way to raise capital if there’s sufficient demand among investors who are interested in buying stock at IPO price. Meanwhile, IPO investing may be attractive to investors who are interested in getting on the ground floor of start-ups and early-stage companies.

How Many Types of Crowdfunding Are There?

There are different types of crowdfunding you can use to raise capital for your business. Each one works differently, though entrepreneurs may choose to use one or all of them for business fundraising. Here’s a closer look at how the various types of crowdfunding work.

Rewards-Based Crowdfunding

Rewards-based crowdfunding allows you to raise capital from the crowd in exchange for some type of reward. For example, say you’re launching a start-up that produces eco-friendly water bottles. In exchange for funding your campaign, you may choose to offer your backers samples of your product.

This type of crowdfunding can be helpful for testing the waters, so to speak, to gauge interest in your product. If your campaign succeeds, that could be a sign that there’s sufficient consumer interest in your offerings. But if your efforts to raise capital fizzle, it could mean your idea needs some tweaking.

Donation-Based Crowdfunding

Donation-based crowdfunding allows you to raise funds on a donation basis, with no rewards offered.

With this type of crowdfunding, you’re asking people to give money to your cause, e.g., rebuilding your home after a natural disaster or paying down medical bills. Succeeding with this type of crowdfunding campaign may depend less on the product or service you’re trying to launch than on the story behind your business.

Equity Crowdfunding

Equity crowdfunding allows you to raise capital for your business by offering unlisted shares or equity in your business to investors. This is the type of crowdfunding that falls under the Regulation Crowdfunding heading.

Equity crowdfunding can be better than rewards-based or donation-based crowdfunding if you need to raise large amounts of money for your business. The tradeoff, however, is that you have to be sure that you’re observing SEC regulations for launching this type of campaign, and you’ll need to spend time carefully determining the value of your business.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is another type of crowdfunding that allows businesses to raise capital through pooled loans. With this kind of crowdfunding, you borrow money from a group of investors. You then pay that money back over time with interest.

Getting a peer-to-peer loan may be preferable if you’d rather not give up equity shares in the business or deal with regulatory issues. And a P2P loan may be easier to qualify for compared to traditional business loans.

There is, however, the cost to consider. If you have a lower credit score, you could end up with a higher interest rate which would make this type of loan more expensive.

Pros and Cons of Crowdfunding

Relying on different crowdfunding methods can benefit businesses in a number of ways. Companies may lean toward crowdfunding in lieu of other financing methods, including debt financing with loans, or equity financing through angel investors or venture capitalists. There are, however, some potential drawbacks associated with crowdfunding for business. Here’s a quick rundown of how both sides compare.

Crowdfunding Pros

•   Raise capital without trading equity. Venture capital and angel investments require businesses to trade equity or ownership shares for capital. Depending on the types of crowdfunding you’re using, you may not have to give up any ownership to get the capital you need.

•   Increased visibility. Launching a crowdfunding campaign online through a funding platform and/or social media could help attract attention from investors and potential clients or customers alike, increasing brand awareness.

•   Get funding when you can’t qualify for loans. If you’re having trouble getting approved for a business loan or start-up loan, crowdfunding could help you access the capital you need without having to meet a lender’s strict standards.

Crowdfunding Cons

•   Requires time and effort. Launching a successful crowdfunding campaign means doing your research to understand who your campaign is likely to reach and what kind of response it’s likely to get. In that sense, it can seem more complicated than filling out a loan application.

•   No guarantees. Using crowdfunding to raise capital for your business is risky because there’s no guarantee that your campaign will attract the type or number of investors you need. It’s possible that you may put in a lot of work to promote a campaign only to come up short with funding.

•   Fees. Crowdfunding platforms typically charge fees — for example, a percentage of the money raised — to launch and run a campaign. The fees can vary from platform to platform but it’s important to factor the costs in if you’re considering this fundraising method.

•   Scams. Owing to the proliferation of crowdfunding platforms, some scammers have found ways to defraud potential investors.

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How to Decide If Crowdfunding Is Right for Your Business

If you look at some of the most successful crowdfunding examples, you’ll see that it’s possible for companies to raise large amounts of capital this way. Some of the most successful crowdfunding campaigns, in terms of outpacing their original funding goals, include numerous crypto- and blockchain-related projects, entertainment (such as movies, video games, and even novels), wind farms, solar-powered cars and more.

•   The Micro, a 3D printer that raised $3.4 million in 11 minutes, easily surpassing its original $50,000 fundraising goal

•   Reading Rainbow, which raised over $5 million and broke the Kickstarter record for having the most backers of any project

•   Pono, which met its $800,000 goal within a day of campaign launch and went on to raise more than $6 million

•   Pebble smartwatch, which with more than $10 million raised is the most funded Kickstarter campaign of all time

Whether crowdfunding, an IPO, or some other source of capital is right for your business depends on how much capital you need to raise, whether you’re interested in or able to qualify for loans, and what types of crowdfunding you’re interested in. Weighing the pros and cons and comparing crowdfunding to other types of equity and debt financing can help you decide what may work best for your business.

The Takeaway

Crowdfunding involves raising capital for a business, the arts, or other ventures by soliciting a large number of small investors. Crowdfunding can also have appeal for investors as well, though it’s important to understand how SEC regulations work. It has pros and cons for both entrepreneurs and investors.

If you’re interested in funding up-and-coming companies without having to observe net worth and income requirements, you can consider a number of different avenues.

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FAQ

Do you have to pay back crowdfunding money?

Generally no. People contribute money to the business or cause, without the expectation of being repaid. In the case of debt-based crowdfunding, where the capital supplied is structured more like a loan, those funds would be repaid according to the terms investors agreed to.

What are four kinds of crowdfunding?

There are generally four common types of crowdfunding. Donation-based crowdfunding is when people donate money without expecting anything in return (reward-based means backers get a product or service in exchange for capital). Equity crowdfunding allows investors to get shares in the enterprise. Debt-based crowdfunding is like a collective loan, which has to be repaid with interest.

What is the downside of crowdfunding?

One downside of crowdfunding is that, while it can be easy to set up a campaign, it takes a lot of effort and energy to promote it, sustain it, and get enough attention that your crowdfunding campaign takes off. Crowdfunding can also include substantial fees — and there’s always the risk that your endeavor won’t raise enough money.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.