SoFi

When you fill out the Free Application for Federal Student Aid (FAFSA®) form, one of the first things you’ll need to determine is whether you’re a dependent or independent student. Your dependency status not only impacts the information you need to report on the form, but also the type and amount of aid you may be awarded.

Dependent students must include both their own and their parent’s financial information on the FAFSA. Independent students, on the other hand, only need to report their own finances (and their spouse’s, if married).

Below, we break down what it means to be independent vs. dependent for FAFSA purposes.

The Difference Between Independent and Dependent Students

Your FAFSA dependency status determines whose financial information is considered when calculating your aid eligibility.

What Is an Independent Student?

An independent student is generally defined as someone who is not reliant on their parents for financial support and can therefore file their FAFSA without including their parents’ information.

You’re considered an independent student if you meet at least one of the following criteria:

•  Age 24 or older

•  Married

•  Enrolled in a graduate or professional program

•  A veteran

•  A member of the U.S. armed forces

•  An orphan

•  A ward of the court

•  A current or former foster youth

•  In a legal guardianship (current or past)

•  Have legal dependents other than a spouse

•  An emancipated minor

•  Unaccompanied and homeless or at risk of becoming homeless

💡 Quick Tip: You can fund your education with a competitive-rate, no-fees-required private student loan that covers up to 100% of school-certified costs.

What Is a Dependent Student?

If none of the independent criteria apply, you’re classified as a dependent student. Generally, dependent students are under 24 years old, unmarried, without dependents, and not veterans or active duty members of the U.S. armed forces.

If you are considered a dependent student, your parents’ information will be assessed along with your information to get a full picture of your family’s financial situation. Even if your parents do not intend to contribute to your education costs, their information will be used to determine what aid, if any, you receive. A dependent student is assumed to have the support of their parents.

How FAFSA Determines Your Status

Each year, the FAFSA asks a series of key questions to help students determine their official status. These questions change slightly each year, so be sure to read them carefully.

Here’s a look at the dependency status question on the 2025–26 FAFSA Form:

•  Were you born before Jan. 1, 2002?

•  As of today, are you married? (Answer “No” if you are separated but not divorced.)

•  At the beginning of the 2025–26 school year, will you be working on a master’s or doctorate program (such as an M.A., MBA, M.D., J.D., Ph.D., Ed.D., graduate certificate, etc.)?

•  Are you currently serving on active duty in the U.S. Armed Forces for purposes other than training? (If you are a National Guard or Reserves enlistee, are you on active duty for other than state or training purposes?)

•  Are you a veteran of the U.S. Armed Forces?

•  Do you have children or other people (excluding your spouse) who live with you and who receive more than half of their support from you now and between July 1, 2025, and June 30, 2026?

•  At any time since you turned age 13, were you an orphan (no living biological or adoptive parent)?

•  At any time since you turned age 13, were you a ward of the court?

•  At any time since you turned age 13, were you in foster care?

•  Are you or were you a legally emancipated minor, as determined by a court in your state of residence?

•  Are you or were you in a legal guardianship with someone other than your parent or stepparent, as determined by a court in your state of residence?

•  At any time on or after July 1, 2024, were you unaccompanied and either (1) homeless or (2) self-supporting and at risk of being homeless?

Recommended: Penn State Out-of-State Tuition

Dependent Students

If you answered “No” to all of the questions above, you are considered to be a dependent student. This means that your Student Aid Index (SAI) will be based on both your income and your parents’ financial profile. While this may reduce your eligibility for need-based aid, your parents can access Federal Parent PLUS Loans and may qualify for education tax credits when they fill out their federal tax return.

If you are considered a dependent student by the FAFSA but are not in contact with your parents or have left home due to an abusive situation, you may qualify for a dependency override. In this case, you’ll want to fill out the FAFSA and select “Yes” to the “Do unusual circumstances prevent the student from contacting their parents or would contacting their parents pose a risk to the student?” question on the form. You’ll be considered provisionally independent. To complete your application, you’ll need to contact the financial aid office at the college you plan to attend to find out what supporting documentation you’ll need to submit directly to the school.

Independent Students

If you answered “Yes” to one or more of the questions listed above, you are considered to be an independent student. This means you only need to report your own finances (and your spouse’s, if applicable) on the FAFSA form. Being independent could increase your potential for financial aid, as your parents’ income and assets are not considered in the aid calculation.

💡 Quick Tip: Even if you don’t think you qualify for financial aid, you should fill out the FAFSA form. Many schools require it for merit-based scholarships, too.

When Federal Student Aid Falls Short

FAFSA-based aid is a great starting point, but it’s often not enough to cover the full cost of going to college. Here are some other funding options to explore:

•   Scholarships: There are numerous scholarships available through individuals, businesses, nonprofits, community groups, and professional associations. They may be awarded based on merit, financial need, athletics, field of study, religion, ethnicity, or other criteria, and do not need to be repaid. You can find out about scholarships through your high school guidance counselor, your chosen college’s financial aid office, and by using an online scholarship finder. “Start researching scholarships early,”advises Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “Gathering the required documents and information to apply takes time, and early deadlines are common for large awards.”

•   Part-time jobs: Even if you weren’t awarded Federal Work-Study, you can still look for a part-time job on or off campus to help cover costs. Working can provide valuable experience and help reduce the amount you need to borrow. Your school’s career services office may be able to help you find a position. Summer jobs can also help you rack up extra cash to help pay for college.

•   Federal student loans: If you need to borrow money, it’s a good idea to exhaust all federal student loan options before turning to private loans. Federal loans often have lower fixed interest rates and offer benefits (like income-driven repayment and borrower protections) that may not be available with private loans. You’ll need to complete the FAFSA to be eligible for federal student loans.

•   Private student loans: If you still have a funding gap after exploring federal loans, private student loans can help cover the difference. These loans are offered by banks, credit unions, and other financial institutions. They are credit-based, so you may need a cosigner, especially if you have limited credit history. It’s a good idea to compare offers from different lenders, considering interest rates, fees, and repayment terms.

Recommended: Ohio State University Cost

The Takeaway

Understanding whether you’re considered a dependent or independent student for FAFSA purposes is critical because it directly affects how much financial aid you may qualify for. Dependent students will need to include their parents’ financial information, while independent students report only their own (and their spouse’s, if applicable).

If federal aid alone isn’t enough, you can also look into scholarships, part-time work, and responsible borrowing options to help cover the cost of your education. The more you understand your status and options, the better prepared you’ll be to create a solid financial plan for college.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

Is it better for a college student to file independent or dependent?

For the FAFSA®, you’re generally better off being classified as independent. As an independent student, you do not need to report your parents’ income and assets on the form, which could lead to more aid. However, you need to meet specific criteria, such as being over age 24, being in graduate school, being married, having dependents, or being a veteran. If you don’t meet any of these criteria, you’ll be considered a dependent student and must provide your parents’ financial information on the FAFSA.

Who qualifies as a dependent student?

For FAFSA® purposes, a student is typically considered a dependent if they are under age 24, unmarried, without dependents, and not veterans or currently serving in the U.S. military.

At what age are you considered an independent student?

In terms of financial aid, a student automatically becomes independent at age 24. Before then, students can qualify as independent only under certain circumstances, such as being married, having dependents of their own, serving in the military, being a veteran, or being an emancipated minor. If none of these special circumstances apply, a student is considered dependent until their 24th birthday, even if they live on their own and cover their own expenses.

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.

Grad PLUS loans are federal student loans for graduate and professional students. Although Grad PLUS loans have higher interest rates and fees than some other types of federal student loans, they also have a major benefit — virtually no borrowing limits. You can borrow up to the full cost of attendance of your school, minus any other financial aid you’ve already received.

Read on for more on how Grad PLUS loans work, including their eligibility requirements, interest rates, and repayment options.

What Are Grad PLUS Loans?

If you’re planning to attend a graduate or professional program, a Grad PLUS loan (also known as a Direct PLUS loan) could help cover costs. Issued by the Department of Education, Grad PLUS loans are student loans designed for graduate and professional students.

PLUS loans are not the only federal loans available to you as a graduate student — you can also borrow federal Direct Unsubsidized loans. Direct Unsubsidized loans have lower interest rates and fees than PLUS loans, but they come with borrowing limits.

If you’ve hit your limit and need additional funding, a Grad PLUS loan could cover the gap. As mentioned above, you can borrow up to the full cost of attendance of your program, minus any other financial aid you’ve already gotten. This flexibility can be helpful for students who are attending pricey programs.

Recommended: How Do Student Loans Work? Guide to Student Loans

What Can Grad PLUS Loans Be Used for?

Grad PLUS loans can be used for tuition, fees and other education-related expenses. These expenses include,

•   Housing

•   Food

•   Textbooks

•   Computers and other supplies

•   Study abroad expenses

•   Transportation

•   Childcare costs

A Grad PLUS loan will first be disbursed to your financial aid office, which will apply the funds toward tuition, fees, room and board, and any other school charges. The financial aid office will then send any remaining funds to you.

Recommended: What Can You Use Student Loans For?

Who Is Eligible for Grad PLUS Loans?

To be eligible for a Grad PLUS loan, you must be a graduate or professional student enrolled at least half-time at an eligible school. What’s more, your program must lead to a graduate or professional degree or certificate.

You’ll also need to meet the eligibility requirements for federal financial aid (more on this below), as well as submit the Free Application for Federal Student Aid (FAFSA®).

Typical Grad PLUS Loan Requirements

Besides being enrolled in an eligible graduate or professional program, you need to meet a few other requirements to take out a Grad PLUS loan:

Meet the Requirements for Federal Student Aid

Since Grad PLUS loans are part of the federal student aid program, you must be eligible for federal aid to borrow one. Here are some of the criteria:

•   Be a U.S. citizen or eligible noncitizen

•   Have a valid Social Security number (with some exceptions)

•   Have a high school diploma, General Educational Development (GED) certificate or other recognized equivalent

•   Maintain satisfactory academic progress while in school

•   Not already be in default on a federal student loan or owe money on a federal grant

If you’re a non-U.S. citizen or have an intellectual disability or criminal conviction, additional requirements might apply.

Submit the FAFSA

You’ll need to submit the FAFSA before you can borrow a Grad PLUS loan. After applying to grad school, you can submit this form, free of charge, on the Federal Student Aid website or by mail. Since the FAFSA only applies to a single academic year, you’ll need to submit it every year you’re in school and want to receive financial aid.

Complete the Grad PLUS Loan Application

Along with submitting the FAFSA, you’ll also need to fill out a separate application for the Grad PLUS loan. You can find and submit the GRAD Plus loan application on the Federal Student Aid website, though some schools have separate processes. Your financial aid office can advise you on the steps you need to take.

If your application is approved, you’ll need to agree to the terms of the loan by signing a Master Promissory Note. If you haven’t borrowed a Grad PLUS loan before, you’ll also be required to complete student loan entrance counseling.

Not Have Adverse Credit History (or Apply With an Endorser)

While you don’t need outstanding credit to qualify for a Grad PLUS loan, you can’t have adverse credit. According to the Department of Education, you have adverse credit if one of the following applies to you:

•   You have accounts with a total balance greater than $2,085 that are 90 or more days delinquent

•   You’ve experienced a default, bankruptcy, repossession, foreclosure, wage garnishment, or tax lien in the past five years

•   You’ve had a charge-off or write-off of a federal student loan in the past five years

If you have adverse credit, you have two options:

•   Appeal the decision due to extenuating circumstances. For example, you could provide documentation showing that you paid off a delinquent debt on your credit report.

•   Apply with an endorser who does not have adverse credit. Your endorser will be responsible for repaying the loan if you fall behind on payments.

💡 Quick Tip: New to private student loans? Visit the Private Student Loans Glossary to get familiar with key terms you will see during the process.

Grad PLUS Loans Interest Rates

Grad PLUS loans come with fixed interest rates that will remain the same over the life of your loan. They also have a disbursement fee, which is a percentage of your loan amount that gets deducted from your loan.

Congress sets rates and fees on federal student loans periodically. These are the current Grad PLUS loan interest rates and fees:

Repaying Your Grad PLUS Loans

Grad PLUS loans are eligible for a variety of federal repayment plans:

•   Standard repayment plan, which involves fixed monthly payments over 10 years.

•   Income-driven repayment, including Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). These plans adjust your monthly student loan payments to a percentage of your discretionary income while extending your loan terms to 20 or 25 years. If you’ve made on-time payments but still have a balance at the end of your term, it may be forgiven on the IBR plan only, as of late March 2025. (Forgiveness on the other IDR plans is currently paused.) The amount forgiven may be considered taxable income by the IRS.

•   Extended repayment, which extends your repayment term to 25 years and lets you pay a fixed or graduated amount.

•   Graduated repayment, which lowers your student loan payments in the beginning and increases them every two years. You’ll pay off your loan over 10 years, and your final payments won’t be more than three times greater than your initial payments.

Grad PLUS loans are also eligible for certain federal forgiveness programs, such as Public Service Loan Forgiveness.

Other Options to Pay for Grad School

Grad PLUS loans aren’t the only way to pay for graduate school. Here are some alternative options:

Direct Unsubsidized Loans

You can borrow up to $20,500 per year in Direct Unsubsidized loans as a graduate student with an aggregate loan limit of $138,500, including any loans you borrowed as an undergraduate.

Here are the interest rate and disbursement fee for graduate students:

Grants and Scholarships

Besides student loans, you can also pursue grants and scholarships for graduate school. You can find grants and scholarships from a variety of sources, including the Department of Education, your state, your school, or a private organization. By earning grants and scholarships, you might not need to borrow as much in student loans.

Private Student Loans

You can also explore your options for private graduate student loans from banks, online lenders, or credit unions. Some lenders offer interest rates that start lower than Graduate PLUS loan interest rates and don’t charge an origination fee.

Although private student loans aren’t eligible for federal repayment plans or programs, some lenders offer flexible repayment options or deferment if you need to pause payments. But, because private student loans aren’t required to offer the same borrower benefits as federal student loans, they are generally borrowed as a last resort option after all other sources of financing have been exhausted.

The Takeaway

If you’re looking for ways to pay for graduate school, a Grad PLUS loan could help. You can use this flexible loan to cover your school’s cost of attendance, as well as choose from a variety of federal repayment plans when it comes time to pay it back.

Alternative options to paying for school include federal Direct Unsubsidized loans, scholarships and grants, and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What kind of loan is Grad PLUS?

The Grad PLUS loan is a federal student loan issued by the Department of Education. It is designed specifically for graduate and professional students.

Is there a max on Grad PLUS loans?

There is virtually no limit on the amount you can borrow with a Grad PLUS loan. You can borrow up to your school’s cost of attendance, minus any other financial aid you’ve already received.

Can Grad PLUS loans be used for living expenses?

Yes, you can use Grad PLUS loans to cover your living expenses while at school. You must use your loan for education-related expenses, which can include housing, food, supplies, transportation, and other costs related to attending school.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

Photo credit: iStock/PeopleImages
SOISL-Q225-007

Every consumer has multiple credit scores. Why is that? Because the major credit bureaus — Experian, Equifax, and TransUnion — may have slightly different credit information on any one person, and credit scoring models vary.

Credit scores are an important financial metric to keep track of throughout the year. The three-digit number can help people qualify for everything from mortgages to student loans and apartment rentals.

Here’s why credit scores vary and how to keep track of each.

What Is a Credit Score?

A credit score is a three-digit number assigned to each consumer that businesses use to measure the risk of lending to that person. It’s not the only thing lenders consider, but it is one of the most important metrics, if not the most important.

Your credit score is based on a bunch of factors, including if you typically pay your bills on time, what your debt is relative to your income, how long you’ve carried credit, how many loans or lines of credit you have at once, and if you have ever had a negative financial event, including bankruptcy.

Credit Scoring Models Vary

Though there are a number of credit scoring models out there, the majority of lenders use either FICO® or VantageScore®. Both determine a person’s credit score using the factors above, including history of borrowing, repayment history, and how much of the consumer’s credit they are currently using (known as a utilization rate).

Though both use the same factors, each one uses its own formula to weigh the worth of each factor. For example, a person’s credit history may be more important in one model than the other.

Based on the information gathered, the scoring models assign each consumer a three-digit number, which denotes that person’s lending risk compared to others.

To complicate matters, there are often multiple versions of each scoring model available from its developer at any given time. And adoption rates for updated versions can be low, meaning some lenders may be using older models that calculate a person’s score differently than an updated version. But for now, the FICO scoring model breaks down as follows:

•   Payment history: 35%

•   Amounts owed: 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

Recommended: What Is Considered a Bad Credit Score?

Scoring Ranges Vary, Too

Both FICO and VantageScore calculate credit scores in a range between 300 to 850.

VantageScore 3.0 and FICO 8 are the most used scoring models and frequently mirror each other, so if your FICO number is high then your VantageScore will likely be high as well.

However, it’s important to note that the two pull the same data but weigh that individual data differently, putting greater importance on some aspects of a person’s credit history and usage than others.

While all creditors and lenders have their own standards, here are the FICO and VantageScore credit score categories:

FICO:

•   Exceptional: 800 to 850

•   Very good: 740 to 799

•   Good: 670 to 739

•   Fair: 580 to 669

•   Very poor: 300 to 579

VantageScore:

•   Excellent: 781 to 850

•   Good: 661 to 780

•   Fair: 601 to 660

•   Poor: 500 to 600

•   Very poor: 300 to 499

To put it all into perspective, in 2024, the average FICO credit score hit 715. Minnesotans reigned supreme with an average of 742.

Report Data Can Differ From Bureau to Bureau

Each of the credit bureaus collects its own data independently, and some lenders may only report data to one or two of the credit bureaus rather than all three.

To add to the complexity, the bureaus usually do not share information with one another, so none can really promise to show a consumer’s total financial picture.

Say Joanna goes into collection for her car loan, but the lender only reports this information to Experian. That means it will likely only appear on and affect her Experian credit report and may not affect her TransUnion or Equifax report. Thus her Experian report could be lower than her other two credit reports.

Scores Can Change Depending on the Lender

Lenders typically build their own relationships over time with at least one of the credit bureaus. This means they may only report information to the credit agencies they have relationships with.

Before applying for a line of credit, a car, home, or student loan, or any other credit, it may be prudent to ask the lender which agencies they share information with and check in with those to see where you stand.

How Often Should You Check Your Credit?

Here’s the good news: Checking your credit won’t hurt your credit score, so go ahead and keep an eye on it. The bad news? The number a person sees when checking their score for free likely won’t match the one any lenders do.

The report a consumer has access to is a simple free report, lacking detail. But again, that’s okay, because it will show any errors or possible identity theft, which can be corrected if caught early enough.

Anyone can order a copy of their credit report from all three reporting agencies once a week at no cost at AnnualCreditReport.com. The report breaks down a person’s credit history but does not give a score.

However, again, this is the time to look for any mistakes and amend them ASAP. Consumers who do see an error can dispute it with the credit reporting agency and the company that holds the account.

It’s also a good idea for people to periodically check their credit to ensure it’s on the up and up.

Those interested in improving their credit scores to potentially get a better rate on loans should pay all their bills on time, limit their credit utilization ratio, and pay down existing debt.

Know what’s cooler than keeping track of your credit score? Keeping track of your credit score and finances at once. If you’re on the market for a money tracker tool that will let you do both, SoFi may be just the thing.

The Takeaway

An individual’s credit scores differ for a variety of reasons. It might be a good idea to ask lenders which agencies they share information with. It’s always a good idea to periodically check your credit report to make sure everything is accurate, to pay bills on time, and to keep credit utilization low.

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.

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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-Q225-003

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.

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

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

SOHL-Q225-057