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If you’re shopping for a home loan, you may be wondering if using mortgage points to “buy down” your interest rate is a good move for you.

The answer is … it’s complicated.

Whether you’re buying or refinancing your home, purchasing mortgage points from your lender can lower your monthly payment and reduce the overall amount of interest you’ll pay on your loan. And that’s certainly an appealing prospect.

But it’s important to understand how points work — how much they can cost and how much they might save you over the life of your loan — before you decide to hand over that extra cash up front at your closing.

What Are Mortgage Points?

Mortgage points, also known as discount points, may be used by a borrower to prepay some of the interest on a home loan in exchange for a lower mortgage rate. The borrower pays more up front (the points are paid as a fee at closing) but can end up saving money over time because the interest rate is then reduced for the life of the loan.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

How Do Mortgage Points Work?

Lenders typically base their interest rate offers on several factors, including a borrower’s credit profile and current market rates. But once you receive that initial offer, your lender also may give you the opportunity to buy down your rate through the use of mortgage points. (If the lender doesn’t bring it up, you can ask.)

Every point purchased reduces the interest rate a borrower pays by a predetermined percentage, which can vary from one lender to the next. But let’s say your lender offers you an initial rate of 3.25% and provides a 0.25% rate reduction if you purchase one discount point. If you decide to buy the point, your rate would then be 3%.

Each point you buy typically costs 1% of the amount you’re borrowing, and that money is due up front. So, for example, if your loan is for $200,000, a point will cost $2,000 at closing. If that seems too steep, you may be able to purchase a fraction of a point. A half-point in this scenario would cost $1,000, or three-quarters of a point would be $1,500.

How Do Points Affect Your Mortgage?

Here’s a hypothetical example to illustrate how buying one point could reduce the cost of a 30-year, fixed-rate $200,000 mortgage. (This is a bare-bones example, so the payment amount includes principal and interest only.)

Keep in mind that the borrower in this scenario would have to stay with the loan for the entire 30-year term to get the full savings — and that can be rare these days. Homeowners only stay in a home for an average of eight years, and many refinance their home loans.

That’s why it’s important to factor in your “break-even point” — when the savings from the lower mortgage cost offset what you paid for the discount points — before you make your decision.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

What Is the Break-Even Point?

Paying points on a mortgage can lower your monthly payment and save you thousands of dollars — if you keep the same loan long enough to recover the money you paid up front. If you plan to move or refinance before you reach and pass that threshold, paying points may not make sense.

To calculate the approximate point at which you would get back what you spent on prepaid interest, you can divide the amount you paid for any points by the amount you’ll save each month on your payment. For example, as noted in the chart above, if you purchased one point for $2,000 at closing, you’ll save $27 each month. Divide $2,000 by $27 and you’ll see you can expect to break even in 74 months — or about six years. If you plan to stay in your home much longer than that, buying down your rate could be worth considering.

Can You Buy Points for an ARM?

You can buy points if you decide to go with an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. But it may not be worth it if the points apply only to the ARM’s initial interest rate, which typically lasts for three, five, seven, or maybe ten years. If the rate goes up after that and you decide to refinance, you could lose out on the savings you hoped to get when you paid for the points.

Recommended: How an Interest-Only Mortgage Works

Are Mortgage Points Tax Deductible?

Discount points, which are considered prepaid interest, may be deducted as home mortgage interest if you itemize deductions on Schedule A of your Form 1040. But you’ll need to meet certain criteria in order to deduct mortgage points and you may not be able to deduct all of the mortgage interest and points in the year you paid them.

It’s important to note that only discount points, which represent prepaid interest, are tax deductible. “Origination points,” which also may be referred to as mortgage points, are not tax deductible. These points, which you’ll also pay at closing, refer to the various fees lenders may charge in preparing your mortgage (such as processing, underwriting, administration, or document preparation costs).

Your accountant or tax preparer should be able to answer your questions if you aren’t clear about the amount you can deduct on your annual return.

Is There a Limit on the Points You Can Buy?

The maximum number of points you can purchase to reduce your interest rate may differ based on factors like the financial institution, type of loan you choose, or how much you need to borrow. According to a survey of lenders performed weekly by Freddie Mac, the average number of points reported on 30-year, fixed-rate conventional loans in 2022 was 0.9.

Benefits and Risks of Mortgage Points

Here are some things to consider when you’re deciding if buying points makes financial sense for you.

How Long Do You Plan to Stay in the Home?

If you run the numbers and think you’ll keep your loan past your break-even point, it could be worth paying extra up front. But if it’s a starter home, or you expect to relocate for your career, buying points may not be prudent.

Do You Have Plenty of Money Saved?

Homeownership can be expensive. Are you certain you have enough saved to make a decent down payment, pay for points as well as other closing costs, and still have funds in reserve for the inevitable expenses related to homeownership? If not, you may want to reconsider the benefits of buying down your interest rate.

Did the Seller Agree to Pay Some Closing Costs?

If the seller agreed to pay some or all of your closing costs, you may be able to negotiate discount points as part of that offer.

Do You Plan to Make Extra Payments?

Paying for points could be a smart strategy if you expect to hold on to the same loan for a long time. However, if your goal is to pay off your mortgage early — perhaps by paying more toward the loan principal whenever possible — points may not offer the savings you expected.

Would the Money Be Better Spent on Your Down Payment?

If you have plenty of money saved and you’re trying to decide between increasing your down payment or buying points, you may want to run the numbers to determine which choice will give you a better return on your investment.

If your time horizon is short, you may save more by making a bigger down payment. If you plan to stick around for several years at least, you may choose to put your money toward discount points.

Remember, depending on the type of loan you have, if you make a down payment that’s less than 20%, your lender probably will require that you purchase private mortgage insurance. PMI could add about 0.3% to 1.5% to the cost of your mortgage. And you’ll likely have to pay it every year until your equity in the home reaches 20%.

Pros and Cons of Mortgage Points

Ready to Go Rate Shopping?

Make sure when you shop rates, you’re comparing apples to apples. Some lenders may offer an interest rate that appears lower than others but has a fraction of a point or a point tied to it. If two lenders are offering a 3% interest rate on a 30-year, fixed-rate loan, but one is charging a point to get that rate and one isn’t, the one that isn’t charging the point is offering you a more affordable deal.

Be cautious when comparing mortgage rates: If it isn’t clear how much you’ll pay to borrow, you can ask a loan officer to walk you through your loan estimate and/or to calculate your costs based on different time frames. Lenders are required to disclose information about their products in a way that allows borrowers to make meaningful comparisons.

The Takeaway

What’s the point of mortgage points? They allow homebuyers to reduce their loan’s interest rate by paying some of the interest up front. Buying discount points can save you money on interest over time, but only if you keep the loan long enough to recover the upfront cost.

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.

Photo credit: iStock/Prostock-Studio

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.

SOHL0124019

The main difference between a soft vs. hard credit check is that each hard check can knock a few points off your credit score, whereas soft checks don’t affect your score. Both hard and soft checks pull the same financial data but for different purposes. Hard checks are typically done when you apply for a loan or credit card; soft checks are conducted for most other purposes, such as pre-screening for credit card offers.

It’s important for consumers to understand this difference because too many hard checks — also known as hard pulls and hard inquiries — can significantly lower your credit score. This in turn can hurt your chances of getting the best offers on credit cards and loans. Keep reading to learn more about credit checks and how to prevent unnecessary hard checks of your credit file.

What Is a Soft Credit Inquiry?

A soft inquiry is when a person or company accesses your credit as part of a background check. They will be able to look at:

•   The number and type of all your credit accounts

•   Credit card balances

•   Loan balances

•   Payment history for revolving credit (credit cards and home equity lines of credit)

•   Payment history for installment loans (auto loans, mortgages, student loans, and personal loans)

•   Accounts gone to collections

•   Tax liens and other public records

Soft inquiries are not used during loan or credit card applications, and do not require the consumer’s permission or involvement. Reasons for a soft check can include:

•   Employment pre-screening

•   Rental applications

•   Insurance evaluations

•   Pre-screening for financial offers by mail

•   Loan prequalification

•   Checking your own credit file

•   When you’re shopping personal loan interest rates or credit cards

Soft credit checks do not affect your credit score, no matter how often they take place. Some soft checks appear on your credit report, but not all — you may never find out they took place.

When they are listed, you might see language like “inquiries that do not affect your credit rating,” along with the name of the requester and the date of the inquiry. Only the consumer can see soft inquiries on their report; creditors cannot.

Recommended: Does Applying for Credit Cards Hurt Your Credit Score?

What Is a Hard Credit Inquiry?

A hard credit inquiry typically takes place when you apply for credit, such as loans or credit cards, and give permission for the lender or creditor to pull your credit file. As with a soft credit pull, the lender will look at the financial information listed above.

Each hard pull may lower your credit score — but typically by less than five points, according to FICO® Score. All hard inquiries appear on your credit report. While they stay there for about two years, they stop affecting your credit score after 12 months.

Not all loans require a hard credit inquiry — but consider that a red flag. Some small local lenders may offer short-term, high-interest, unsecured personal loans. Borrowers must show proof of income via a recent paycheck, but no credit check is required. The risks of these “payday loans” are so great that many states have outlawed them.

Avoiding Hard Credit Inquiries

Consumers should carefully consider if they really need new credit before applying for an account that requires a hard credit check.

For example, department stores and some chains like to entice you to apply for their store credit card by offering a generous discount on your purchase as you’re checking out. In that situation, ask yourself if it’s worth a credit score hit (albeit a small one).

Another way to minimize hard inquiries is to ask which type of credit check a company intends to run. If, for example, a cable company usually requires a hard credit inquiry to open an account, you might ask if a hard pull can be avoided. Other situations where there may be some flexibility include:

•   Rental applications

•   Leasing a car

•   New utility accounts

•   Requesting a higher credit limit on an existing account

Disputing Inaccurate Hard Inquiries

A good financial rule of thumb is to review your credit reports every year to check for common credit report errors and signs of identity theft. You can access your credit reports from the three consumer credit bureaus (Equifax, Experian, and TransUnion) for free at AnnualCreditReport.com.

To check for inaccurate hard inquiries, look for a section on your credit report with any of these labels:

•   Credit inquiries

•   Hard inquiries

•   Regular inquiries

•   Requests viewed by others

You can dispute hard inquiries and remove them from your credit reports under certain circumstances: if you didn’t apply for a new credit account, you didn’t give permission for the inquiry, or the inquiry was added by mistake.

That said, under federal law, certain organizations with a “specific, legitimate purpose” can access your credit file without written permission. They include:

•   Government agencies, usually in the context of licensing or benefits applications

•   Collection agencies

•   Insurance companies, when certain restrictions are met

•   Entities that have a court order, as in child support hearings

Even so, if you didn’t give permission for a hard credit pull, it’s worth filing a dispute to request that the credit check be removed from your report.

Consumers may dispute hard inquiries online through AnnualCreditReport.com, or by writing to the individual credit reporting agencies.

Hard Credit Checks and Your Credit Scores

As mentioned, hard inquiries appear on your credit report, and each hard pull may lower your credit score by five points or less. Here we’ll go into a bit more detail.

Why Hard Inquiries Matter

Multiple hard inquiries within a short time frame can do significant damage to your credit score. It could potentially be enough to move you from the Good credit range down to the merely Fair. Someone in a Fair credit range can pay substantially more over a lifetime in interest and fees than someone with a Good score or higher.

How Many Points Will a Hard Inquiry Cost You?

As noted above, each hard pull can lower your credit score by less than five points. One or two hard inquiries per year may not matter, especially if you’re not planning on applying for a loan.

If you’re rate shopping for a particular type of loan, such as a mortgage or auto loan, keep in mind that multiple hard credit checks within a specific period (often several weeks) for the same purpose are usually counted as one inquiry by credit scoring companies. However, this is not the case with hard pulls for credit card applications.

How Long Do Inquiries Stay On Your Credit?

Hard inquiries stay on your credit report for two years. While they’re on your credit report, they are visible to anyone who checks your credit. But their impact on your credit score typically lasts less than 12 months.

Soft inquiries may remain on your credit report for one or two years, but only you can see them.

The Takeaway

Soft credit inquiries do not affect a credit score, while hard credit inquiries may cost you a few points. In both cases, individuals or businesses pull information from your credit reports. Checking your own credit report counts as a soft pull, as do most other situations where the consumer hasn’t given written permission. Hard pulls are typically done only when you’re applying for a loan or new credit account.

Many lenders allow you to “prequalify” for a loan without running a hard credit check. This allows you to shop rates without risking any impact to your credit.

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.

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-Q324-025

As winter approaches, it may make sense — practically and financially — to prepare for the season ahead. Seasonal weather can transform minor issues into major ones, and cracks and holes around doors and windows can allow the money you spend on heating to literally fly away.  

Here, some smart moves for protecting your home, from the top of the chimney to the water heater in the basement. Plus, you’ll learn ways to finance improvements that will help get (and keep) your property in top condition.

Ways to Winterize a House

While the steps to winterize a home may differ in Alaska vs. Texas, it still helps to get ahead of any issues that may arise. No one wants to wind up with a leaky roof or an ice-cold home during a cold snap. 

It can be a smart move to start planning to winterize several months before the season arrives. The timing of the first frost varies from state to state, and of course, there are some regions of the U.S. that enjoy mild temperatures year-round. It may help to check the National Weather Service’s data that forecasts the first frost for each state to assist in your winterization preparation timeline. 

The following tips for winterizing a house may help you reduce future repair costs and heating bills. 

Protect Pipes or Pay the Piper

When deciding how to winterize a house, you may first consider how to address plumbing leaks and other issues.

Angi.com reports that the average burst pipe repair costs $500, but charges of up to $3,000 are not uncommon. Pipes in unheated areas of a home, including basements, attics, and garages, are among the most likely to sustain damage. But pipes running through exterior walls (including those in kitchens and bathrooms) in the heated parts of your home can also freeze.

Protecting the plumbing is clearly a situation where being proactive may save you a bundle. Pipe insulation can range from $0.50 to $1.50 or more per foot depending on whether you opt for tubular foam, spray foam, fiberglass, rubber or other kinds of insulation. Compare that to the $3,000 figure above to repair a significant leak, and the rewards of winterization can quickly become clear.

Adding insulation to attics (typically a $1,500 to $6,000 job), crawl spaces, and basements can help to keep those areas warmer, which can also help to keep pipes from freezing. (Yes, many houses have pipes in the attic.) What’s more, the E.P.A. says that homeowners can save up to 15% on heating and cooling costs by pumping up their home’s insulation. The higher an insulation’s R value, the better it may keep your home toasty. It can be a wise move to check the U.S. Department of Energy’s map and guide for more details on this topic.

Address HVAC Maintenance and Repair

Nobody wants the heating system to perform poorly during the winter — much less have it break down.

It’s a good idea to schedule a professional maintenance appointment (about $300 on average), including a filter change, before freezing temperatures arrive. Afterward, it’s best to change the filter at least every 90 days to keep your system operating optimally.

Additionally, maintenance and repairs to the heating, ventilation, and air conditioning (HVAC) system and cleaning out vents can improve airflow in your home.

One good move (if you haven’t already made it) can be to install a smart thermostat. If people in a home are away during reasonably regular times of the day or you want to lower the thermostat at night, it can make sense to install a programmable thermostat to save on energy costs. You could quickly shave $140 off your annual energy bill and plunk that into a high-yield savings account or your emergency fund.

It may be time to consider a new HVAC system for some people. The Department of Energy’s Energy Star program provides tips to homeowners to decide if replacing an HVAC system would be a good move.

Signs that it might be time to replace the unit include:

If you’re dreaming of a home of your own, pulling together a down payment is probably on your financial to-do list. That sum can seem hard to wrangle, but take heart: First-time homebuyers with good credit have an edge. They often can put just 3% down, and they have access to a host of down payment assistance programs. What’s more, there are other ways to gather cash for your property purchase.

In this guide, you’ll learn more about down payments and how to afford one for your first home.

What Is a Down Payment?

Simply put, a down payment is a sum of money, often a percentage of the purchase price, that a buyer pays upfront when purchasing a home or a car.

When talking about buying a home, many people believe that 20% in cash is required, but that’s not the case. Twenty percent is the figure needed to avoid paying PMI, or private mortgage insurance, but there are mortgages available with 3% or even 0% down payments in some situations.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

How to Afford a Down Payment on Your First Home

There are many ways to afford a down payment on your first home. Below, you’ll learn some ways to save up and find low down payment options as well.

But first, consider some general ways to raise cash:

•   Start a side hustle to bring in more income. That could mean driving a rideshare, selling your ceramics on Etsy, walking dogs, or any number of other pursuits. This is a popular strategy: In an April 2024 SoFi survey of 500 would-be homeowners, 41% of people said they had taken on more work or started a side hustle to increase their income.

•   Sell your stuff. If you have gently used items, such as clothing, housewares, electronics, and jewelry, you might get cash by selling them.

•   Automate your finances. Have some money direct-deposited into savings with every paycheck. That can build your down payment, and the money doesn’t go into your checking account, where you might be tempted to spend it.

•   Make a better budget. If you’re not saving at all or as much as you’d like, evaluate your earnings, spending, and saving to optimize that. The 50/30/20 budget rule is one popular budgeting method.

Smart Ways to Save Up for a Down Payment

Here’s the lowdown on how to afford a down payment on a house. Read on before you go shopping for a mortgage.

1. Get a Low Down Payment Conventional Mortgages

Conventional loans, the most common type of mortgage, are offered by private mortgage lenders, such as banks, credit unions, and mortgage companies. If you can find one with a low down payment requirement, that can take some of the pressure off of accumulating a large down payment. Getting prequalified or preapproved by a lender can help you determine your home-buying budget (in SoFi’s survey, more than one in four homebuyers based their budget off a lender’s assessment).

Some points to note:

•   Many lenders allow a down payment of 3% for a fixed-rate conventional conforming loan.

•   To qualify, borrowers usually will need to have a credit score of at least 620 and a debt-to-income ratio of 46% or less, though you might get approved with a DTI of 50%. Income limits may apply.

•   Putting 20% down, however, will allow a borrower to avoid private mortgage insurance (PMI) on a conventional loan.

2. Focus on Government-Backed Loans

If you are a low- to moderate-income borrower or have a lower credit score, you might want to pursue a government-backed loan, like an FHA, VA, or USDA mortgage. These also can have lower down payment requirements.

•   An FHA loan requires as little as 3.5% down on one- to four-unit owner-occupied properties as long as the borrower occupies the building for at least one year. To qualify for 3.5% down, your credit score must be 580 or higher. Someone with a credit score between 500 and 579 may qualify to put 10% down.

•   A VA loan, for veterans, active-duty military personnel, National Guard and Selected Reserve members, and some surviving spouses, requires no down payment. Borrowers can buy a property with up to four units, as long as the borrower occupies the property throughout the ownership. There is no stated minimum credit score, but generally speaking, lenders require a minimum credit score in the low- to mid-600s to qualify.

•   A USDA loan, for properties in eligible rural and suburban areas, also requires no down payment. Lenders typically want to see a credit score of at least 640, and household income can’t exceed 115% of the area’s median household income.

USDA and VA loans typically come with lower interest rates than conventional or FHA loans, but a USDA loan requires a guarantee fee, a VA loan requires a funding fee, and an FHA loan, upfront and annual mortgage insurance premiums (MIP). It pays to understand PMI vs. MIP to gain more insight onto the total costs of your loan.


💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

3. Down Payment Gifts

“Hey, Mom and Dad (or Great-Aunt Beth), I’d love it if you gave me a large cash infusion to help me buy a house.” It just rolls off the tongue, right? But in fact, one or more loved ones may be willing to pitch in toward your down payment or closing costs. In fact, almost one in four homebuyers (24%) in SoFi’s April 2024 survey had sought financial assistance from family or friends to buy a home.

Some details to know:

•   Under conventional loan guidelines, gift money for a principal or second home is allowed from someone related by blood, marriage, adoption, or legal guardianship, or from a domestic partner or fiance. There’s no limit to the gift, but conventional loans may require borrowers to come up with a portion of the down payment.

•   FHA guidelines allow gift money from relatives, an employer, a close friend, a charitable organization, or a government agency that provides homeownership assistance.

•   With USDA or VA loans, the only people who cannot provide gift funds are those who would benefit from the sale, such as the seller, lender, real estate agent, or developer. A mortgage gift letter signed by donor and recipient will be required, verifying that the down payment funds are not expected to be repaid. A lender may also want to track the gift money.

•   There are also gifts of equity, when a seller gives part of the home’s equity to the buyer to fund all or part of the down payment on principal or second homes. For FHA loans, only equity gifts from family members are acceptable. A signed gift letter will be required.

4. Crowdfunding a Down Payment

Crowdfunding to help buy a house? It’s possible with sites like GoFundMe, Feather the Nest, HomeFundIt, and even Honeyfund (which is set up as a crowdfunder for honeymoons). A couple of details to consider, because fees are often involved when you use these platforms:

•   GoFundMe charges 2.9% plus 30 cents per gift.

•   Feather the Nest isn’t associated with a mortgage lender, so donation seekers can decide where to go for a loan. It charges a fee of 5% for every contribution.

•   HomeFundIt charges no fees, but you must pre-qualify and then use CMG Financial for your home purchase. The site shows a money match toward closing costs for first-time buyers.

•   For Honeyfund, U.S. residents receiving U.S. dollars via PayPal are charged 3.5% plus 59 cents per transaction.

5. Retirement Account Withdrawals or Loans

It might be a good idea to explore all options for getting cash before tapping your 401(k) savings account.

As you probably know, taking money out of your 401k before age 59 ½, or before you turn 55 and have left or lost your job, is met with a 10% early withdrawal penalty and income tax on the amount. So withdrawing money early from this tax-deferred account has a painful cost and impairs long-term growth.

Here are other options if you want to tap retirement savings:

•   Borrowing from a 401k may be possible. Your employer’s plan might let you borrow money from your 401k and pay it back to your account over time, with interest, within five years, in most cases. You don’t have to pay taxes and penalties when you take a 401k loan, but if you leave your current job, you might have to repay the loan in full fairly quickly. If you can’t repay the loan for any reason, you’ll owe taxes and a 10% penalty if you’re under 59 ½.

•   A traditional IRA allows first-time homebuyers to take an early withdrawal up to $10,000 (the lifetime limit) to use as a down payment (or to help build a home) without having to pay the 10% early withdrawal penalty. They still will have to pay regular income tax on the withdrawal.

•   With a Roth IRA, if you take a distribution of its earnings before age 59 ½ and before the account is less than 5 years old, the withdrawal may be subject to taxes and penalties. You may be able to avoid penalties but not taxes if you use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.

If you’re under age 59 ½ and your Roth IRA has been open for five years or more, a withdrawal of earnings will not be subject to taxes if you use the withdrawal to pay for a first-time home purchase.

Recommended: First-Time Homebuyers Guide

First-Time Homebuyer Assistance Programs

Here’s another way to help make your home-buying dreams come true: State, county, and city governments and nonprofit organizations offer down payment assistance programs to help get first-time homebuyers into homes. (By the way, the definition of who qualifies as a first-time homebuyer is more expansive than it may seem.)

Down payment assistance may come in the form of grants or second mortgage loans with various repayment or loan forgiveness provisions.

HUD steers buyers to state and local programs, and the National Council of State Housing Agencies has a state-by-state list of housing finance agencies; each offers a wealth of information designed to boost housing affordability and accessibility.

First-Time Homebuyer Tips

As you save for your down payment, follow this advice to get ready to become a property owner:

•   Figure out how much house you can afford with a home affordability calculator. You want to budget appropriately. SoFi’s survey showed that 37% of prospective homebuyers used a home affordability calculator to help set their budget.

•   Don’t forget to account for closing costs, which are typically 3% to 6% of your loan amount.

Check your credit score and credit report. Building your credit and eliminating any errors on your report can help you qualify for favorable rates.

Recommended: Most Affordable Places to Live in the US

The Takeaway

How to afford a down payment on your first house? Saving is, of course, part of the equation. But you may not need to accrue that 20% of the purchase price that so many people aim for. There can be mortgages available with as little as 3% or even 0% down. Also, first-time homebuyers may benefit from assistance programs, down payment gifts, and other forms of funding.

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

How much should I save for a down payment on my first house?

While many people aim for a 20% down payment to avoid paying PMI, there are mortgages available to qualified buyers with as little as 3% or even 0% down.

Can I borrow money for a down payment on a house?

You might be able to find a personal loan to use for a down payment, or you could see if a relative or significant other has funds to lend you. Check with your lender to see if this source of cash is acceptable, though.

What credit score do I need to buy a house with no money down?

You’ll typically need a credit score of at least 640 for the 0% USDA loan program. VA loans with no money down (and low down payment FHA and conforming loans) usually require a minimum credit score of 580 to 620.

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-Q324-107

A real estate contract is one agreement you do not want to sign without reading and understanding fully. Get it right, and you’ll likely have a smooth transaction. Miss something, and you’ll face delays, lost money, or even cancellation of the contract.

What Are Real Estate Purchase Agreements?

When buying a home, you’ll make your offer on a form standardized by your state known as a real estate purchase agreement (also commonly referred to as a real estate purchase contract, a real estate contract, a real estate sales contract, a home purchase contract, or a home contract). This legally binding agreement, in general, says the buyer will pay an agreed-on amount for the purchase of the property, and the seller will convey the title in exchange.

The purchase agreement, or contract, details the terms and conditions of the sale. The fundamentals include the parties in the transaction, a description of the property, the sales price, the closing date, and the date of the title transfer and possession.

Who Prepares the Contract?

The initial offer is most often filled out by the buyer’s real estate agent and sent to the seller for review. Sellers can ask for adjustments to dates, reject or accept contingencies, negotiate the price and repairs, or even reject the offer altogether. The contract is considered a working document until both parties reach an agreement on terms. When signed by both parties, the terms are set and the contract becomes binding.


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Key Components of a Home Contract

There’s a lot of legal language in a home contract, but the core details are actually quite clear. These are essential details that both buyer and seller need to know so they can complete the transaction in a timely, legal manner.

1. Identity of the Parties

For a legal contract, full identification of the parties in the contract is required, and the parties to the contract must have the capacity to enter into the contract.

2. Property Details

The property must be described with certainty. This is a legal description of the property filed with the county recorder’s office.

3. Details, Rights, and Obligations

Buyers and sellers agree to certain responsibilities and obligations in entering into a real estate contract with each other.

•   Good faith. Parties should act in good faith with each other, meaning neither party should act to destroy or injure the right of the other party to receive the benefits of the contract.

•   Time is of the essence. Parties should understand that deadlines are absolute and must be met. If deadlines need to be adjusted, an addendum with the new dates can be submitted by one party to the other for consideration. A signature validates the change.

•   Legal and tax counsel. All parties should understand the legal and tax ramifications of entering into a contract and may want to consult with appropriate experts.

4. Purchase Price and Financing

Sales price, amount of down payment, and payment method are outlined in the real estate contract. An amount of earnest money is also listed on the contract. Earnest money is a deposit held in escrow by a third party that signals to the seller that the buyer is putting forth a good-faith effort to complete the purchase of the home. Earnest money may be forfeitable to the seller if the buyer does not meet the conditions of the sale. It is also refundable to the buyer under the contingencies outlined in the contract.

5. Contingencies

A real estate sales contract usually includes contingencies, which are terms the buyer or seller sets that must be satisfactorily met for the contract to become binding. One of the most common contingencies is a home inspection. If something on the checklist for a home inspection is not to the buyer’s standards, they are able to cancel the contract and have their escrow money returned to them.

Some other common contingencies are:

•   Financing

•   Sale of the buyer’s home

•   Title review

•   Appraisal

•   Survey

•   Homeowners association document review

When competing against multiple offers in a hot market, buyers have been known to waive some or all contingencies.

6. Closing Date

The closing date is the day the transaction will be finalized. Buyers often wonder how long it takes to close on a house, and the answer can vary widely depending on the property and circumstances of the buyer and seller. If you’re looking for a definitive number, national statistics show an average of 45 days to close.

On the contract, parties will agree to a closing date, identify the title company, and disclose any other terms for the final transfer of the property. At the closing, final signing and transfer of the deed occurs, the transfer of title is recorded, and the buyer often receives the keys to the house (though possession can occur in subsequent days, as per the agreement between the buyer and seller).

7. Possession Date

The possession date is the first day the buyer can occupy the home. Possession can occur immediately after closing, at an earlier date, or at a later date that is agreed on by both parties. It is most often listed as the closing date or the day after closing.

8. What Is Included in the Sale

Buyers can negotiate what is included in the sale of the property. Common items listed are the washer and dryer, refrigerator, and other heavy items that are not easily moved.

9. Closing Costs

Though exact closing costs won’t be listed in the real estate purchase agreement, the contract can be written to name who will pay for closing costs. It’s common, for example, for a buyer to offer an amount over the list price of the property and then ask the seller to help cover the buyer’s closing costs with the overage amount. Wondering how much typical closing costs are? They average 2% to 5% of the loan principal.

10. Addendums

An addendum is an additional document to the real estate purchase agreement that includes more information or buyer requests that were not included in the original contract. It has the power to override the terms of the original contract.


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Can Purchase Agreements Be Canceled?

Canceling a contract is different for buyers and sellers. Buyers usually have contingency clauses built into the purchase agreements. If certain conditions of the sale are not met, the buyer can back out of the contract and have their earnest money returned. Some common reasons rest on:

•   Financing

•   Sale of their home

•   A satisfactory home inspection

•   An appraisal

•   Title work

It’s common, for example, for a buyer to cancel the real estate contract if the home has serious issues found during a home inspection. Foundation, electrical, pest, mold, or any other issue found during the home inspection will allow the buyer to cancel the contract if an inspection contingency is in place.

Buyers can also walk away from the purchase agreement for any reason, but they risk losing their earnest money or face court action if the reason and timing for breaking the contract do not fall within the contingencies outlined in the contract.

A seller, on the other hand, has fewer options for canceling the purchase agreement. Sellers can cancel the contract if the buyer fails to meet the conditions and deadlines outlined in the contract. Sellers who default on the contract for other reasons may be forced to pay the buyer an amount equal to the earnest money deposit. They could also face a lawsuit from the buyer to enforce the contract.

The Takeaway

A real estate purchase contract can be lengthy but it’s important to read and understand what you are signing, whether you are buying or selling a property, and to keep on top of the deadline imposed by the closing date in the agreement. Being smart about the contract can protect you as a home changes hands.

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