Home Ownership

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A cash-out refinancing loan is treated differently by the IRS than a traditional mortgage. Although you receive a lump sum of cash, cash-out refinancing is considered a form of debt restructuring, and you do not pay taxes on the cash you receive.

With cash-out refinancing, you cash out a percentage of the equity that you have accrued in your home and replace your existing mortgage with one with a higher principal. You can use the cash for any reason, such as consolidating debt, paying for home renovations, or unexpected medical expenses.

Here’s what you should know about cash-out refinancing and the tax implications.

How Cash-Out Refinancing Works

When you refinance your mortgage, you cash out equity. Equity is the difference between your current mortgage balance and the value of your home today. Let’s say your home is worth $300,000 and the balance on your mortgage is $150,000, you have $150,000 in home equity.

A lender typically requires you to keep at least 20% of the value of your home in equity. In the above case, you would leave $60,000 in equity and have $90,000 to cash out. Your mortgage lender would also charge around 1% in closing costs.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

The Tax Implications of Mortgage Refinancing

A cash-out refinancing loan is treated differently by the IRS than a traditional home loan because it is considered a form of debt restructuring. You do not pay tax on the money you receive in cash, and you might also be able to deduct some of the interest you pay on that cash from your taxes.

Here’s a closer look at the tax implications of a cash-out refinancing loan.

Is a Cash-Out Refinance Taxable?

Because the IRS considers a cash-out refinance to be a form of debt restructuring, the cash you receive is considered a loan, not income, and is not taxed. In addition, you could receive additional tax benefits depending on how you spend the money you receive.

If you use the cash to increase the value of your home, such as putting on a new addition or replacing your heating or cooling system, you can claim the interest that you pay on the loan as a tax deduction.

Before you do this, however, consult a tax professional to make sure that the work qualifies. Simple repairs like painting or general maintenance do not qualify for tax deductions. You will also have to keep meticulous records and save receipts documenting what you spend so that you can prove your case when you file your taxes.

Requirements for Interest Deductions on a Cash-Out Refinance

Capital improvements to a property that increase its value will qualify for an interest deduction. Examples could include a new addition, a security system, or a new swimming pool. General maintenance and repairs will not qualify, nor can you deduct the interest you pay on the loan if you spend the money on a vacation, medical bills, or credit card debt.

How to Make a Cash-Out Refinance Tax-Deductible

Below is a list of home improvements that qualify for the interest deduction.

Qualifying Home Improvements

•   Renovating or adding on an addition, such as a garage or a bedroom

•   Putting in a swimming pool

•   New fencing

•   New roof

•   New heating or cooling system

•   Installing efficient windows

•   Installing a home security system

Improving your property’s value means you can also save money if you sell your home. Capital home improvements count toward the total amount you spent on the property and can potentially lessen your capital gains tax liability when you sell your home.

Deductions for Adding a Home Office

Adding a home office to your home is a capital improvement that qualifies for the interest deduction on a cash-out refinancing loan. There are also additional potential tax benefits to adding a home office for small businesses or the self-employed.

How Home Offices Can Impact Your Taxes

You can deduct the interest on your cash-out refinancing loan if you use the money to add a home office, because it will increase the value of your home and is considered a capital improvement. If you are a business owner or self-employed, you could also qualify for the home office deduction on your federal taxes.

The home office deduction is a benefit that allows you to claim a percentage of what you pay on your loan as a business expense. You must use the designated office space for business purposes only, and it cannot be used as a spare bedroom or family space or it will not qualify. Also, your home office must be the primary place where you conduct business.

Recommended: What to Know Before You Deduct Your Home Office

Tax Implications of a Cash-Out Refinance for Rental Property

Rental income is considered personal income by the IRS. If you use the capital from a cash-out refinance to improve or repair a rental property, the expenses are tax-deductible. Also, interest, closing costs, and insurance paid on a rental property can be deducted from your income as business expenses.

What Are the Limitations for Interest Deduction with a Cash-Out Refinance?

For the 2022 tax year, single filers and married couples filing jointly could deduct mortgage interest up to $750,000. Married taxpayers who file separately could deduct up to $375,000 each. (The limit is higher for debts incurred prior to December 16, 2017: $1 million or $500,000 each for married couples filing separately.)

Can You Deduct Your Mortgage Points?

Mortgage points, also known as discount points, are fees you pay a lender upfront so that you can pay a lower interest rate on your loan. One point is equal to 1% of your mortgage loan. With a cash-out refinance, you cannot deduct the money you paid for points in the year you refinanced until after 2025. But you can spread out the cost throughout the loan. That means if you accumulate $2,500 worth of mortgage points on a 15-year refinance, you can deduct around $166 per year throughout the loan.

Risks of a Cash-Out Refinance

Cash-out refinancing is a risk. You are taking on a larger loan than your original home mortgage, which means that your monthly mortgage payment will increase unless interest rates are lower than when you applied for your current mortgage. If your payments are higher and you can’t keep up with them, you could be at greater risk of foreclosure.

Alternatives to a Cash-Out Refinance

Two financing alternatives that also use equity in your home are a home equity loan or a home equity line of credit (HELOC).

A home equity loan is a second mortgage for a fixed amount that you repay over a set period while keeping your original loan. The payments include interest and principal, just like a traditional mortgage, but the interest rate may be higher than a primary mortgage. This is because the primary lender is paid first in the event of foreclosure, so the secondary lender takes on more risk.

A home equity line of credit (HELOC) is also a second mortgage but with a revolving balance. That means you can borrow a certain amount, pay it back, and then borrow again. As with a credit card, your payments are based on how much you use from the line of credit, not on the available credit amount. If you don’t need to borrow a large sum, this might be a cheaper option than cash-out refinancing because a HELOC tends to have a lower interest rate.

Recommended: Home Equity Loans vs HELOCs vs Home Improvement Loans

The Takeaway

Cash-out refinancing is a way to access the equity in your home and use it to pay for expenses, though it does mean taking on increased debt. The cash from this type of mortgage refinancing can be used any way you like, such as to pay for home renovations, college, or unexpected medical expenses.

When you opt for cash-out refinancing, your original mortgage is replaced by a larger mortgage. If interest rates are lower than when you took out your original mortgage, your monthly payments may go down, but it will take you longer to pay off the loan. Depending on how much cash you need, you can also consider a HELOC or a home equity loan to obtain the money you need.

Turn your home equity into cash with a cash-out refi. Pay down high-interest debt, or increase your home’s value with a remodel. Get your rate in a matter of minutes, without affecting your credit score.*

Our Mortgage Loan Officers are ready to guide you through the cash-out refinance process step by step.

FAQ

Is cash-out refinance tax-deductible?

Some of the interest you pay on a cash-out refinancing loan might be tax deductible if you use the money to make capital improvements on your home and you keep meticulous documentation to prove it. It’s best to consult with a tax professional to make sure the improvements you do on your home qualify for the deduction.

Do you pay taxes on a cash-out refinance?

No. The funds you receive from cash-out refinancing are not subject to tax because the IRS considers refinancing a form of debt restructuring, and the money isn’t categorized as income.

How do I report a cash-out refinance on my tax return?

You don’t need to report the cash you receive from a cash-out refi as income, so the refi would only show up if you record the interest you are paying on the new mortgage on an itemized return.

What are the tax implications of a cash-out refinance on a rental property?

Rental income is taxed as personal income by the IRS. The good news is that if cash from a refinancing is used to improve or repair a rental property, the expenses are tax-deductible. Also, closing costs, interest, and insurance paid on a rental property may also be deductible from your income as business expenses.

How does the timing of a cash-out refinance affect my taxes?

As long as you meet the requirements for capital improvements, you can deduct the interest paid on your refinanced loan every year that you make payments throughout the life of your refinance loan. So, if you refinance your mortgage to a 15-year term, you must spread your deductions over the 15 years. However, you can only deduct the interest you pay each year, and the amount of interest paid will become less as the loan matures and you pay more toward the principal.

Photo credit: iStock/Jun

*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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 for more information.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Source: sofi.com

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Of all the details that come across your plate when you’re buying a home, one of the questions you might be asking is, “How does buying a house affect taxes?” The short answer? Buying a home could reduce your overall tax liability if you itemize deductions and pay a large amount of mortgage interest.

There are other conditions that need to be met, and it is possible that the amount of taxes you owe will stay the same. Of course, it’s always best to consult with a tax advisor for your individual situation.

To give you a general idea about how buying a home in 2023 affects taxes, we’ve compiled everything you need to know about how tax breaks work, what you can deduct, what you can’t deduct and whether or not it will make sense to itemize deductions.

Does Buying a House Help With Taxes?

It’s possible that buying a house can help with taxes — but only for tax filers who itemize their deductions. In 2020, the most recent year with data available, more than 87% of Americans took the standard deduction rather than itemizing. This signals that it may be unlikely you’ll have enough deductions for itemizing to make sense. Of course, if it can reduce your taxes, it’s worth looking into.

You might also be wondering, “How does buying a house in cash affect taxes?” If you don’t have a mortgage, you’re not paying interest, so you’re not able to take the home mortgage interest deduction. But you’re still able to deduct property taxes if you itemize. Remember to consider this even if your property taxes are part of your mortgage payments.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

How Do Homeowner Tax Breaks Work?

Tax breaks start as programs passed into law and funded by the U.S. Congress. However, it is up to individual homeowners to find and file the correct paperwork to take advantage of these tax breaks.

Tax breaks come to homeowners as either tax credits or tax deductions.

Recommended: First-Time Homebuyer Programs

The Difference Between Tax Deductions and Tax Credits

The difference between a tax deduction and a tax credit is where it lies on IRS form 1040 and how much it reduces your final tax bill or refund. This will make more sense after we explain each.

Deductions On IRS Form 1040, deductions are compiled before being subtracted from your income. This is done before tax is calculated, so having deductions can reduce the overall amount of tax you owe. But because a deduction comes before tax is calculated, the reduction in tax liability is generally less than if the amount of tax owed was directly reduced by a credit (though this depends on the amount of each).

Credits Credits are subtracted from the amount of tax you owe. If you don’t owe tax but are instead receiving a tax refund, credits can increase the amount of money coming your way from the IRS. Generally speaking, credits put more money back in your pocket. You may have heard about a first-time homebuyer tax credit. A bill was introduced in 2021 that would have provided for this benefit, but as of June 2023 it had not passed into law.

Deductions are more common; however, with the revamp of the tax code in 2017 with the Tax Cuts and Jobs Act, the standard deduction was increased substantially and fewer people find the need to itemize. Nevertheless, it’s probably a good idea to add “keep track of possible tax deductions” to your list of New Year’s financial resolutions.

What Are the Standard Deduction Amounts for 2023?

It’s important to know the standard deduction amounts so you know if taking the home mortgage loan interest deduction will make financial sense for you.

•   For single filers: $13,850

•   For head of household: $20,800

•   For married people filing jointly: $27,700

If the amount of mortgage interest you pay is far below the threshold for choosing the standard deduction, you may not be able to find enough deductions for itemizing to make sense. The increased standard deduction in 2017 made this especially true, but there are certain scenarios where you should still itemize deductions.

Recommended: What Is a Gift Tax Return and When Is It Due?

Who Should Itemize Deductions

You should itemize deductions if the amount of your deductions is more than the standard deduction. If you have any of the following situations, you may have enough qualified deductions for itemizing to make sense.

•   If you have large medical or dental expenses that are not paid for by an insurance company

•   If you paid a large amount of interest on your mortgage

•   If you donated large sums to charity

•   If you can claim a disaster or theft loss

•   If you cannot take the standard deduction

•   If you can qualify for large amounts of the “other itemized deductions” found on the IRS forms

It’s hard to say if your individual situation will make sense for itemizing deductions. It may be worth it to consult with a tax professional.

Which Home Expenses Are Tax Deductible?

When you’re looking for home expenses that are tax-deductible, the IRS defines it very narrowly. The costs that are deductible include:

•   State and local real estate property taxes up to $10,000

•   Home equity loan interest if you used the funds from a home equity loan on your property

•   Mortgage interest deduction up to defined limits:

◦   For loans taken out after December 15, 2017: You can deduct home mortgage interest on the first $750,000 of debt (for married couples filing jointly) or the first $375,000 of debt for a married person filing separately.

◦   For loans taken out prior to December 15, 2017: You can deduct home mortgage interest on the first $1,000,000 of debt (for married couples filing jointly) or the first $500,000 for separate filers.

Which Home Expenses Are Not Tax Deductible?

Most home expenses, unfortunately, are not tax deductible. These include things to budget for after buying a home. The IRS specifically outlines these living expenses that cannot be claimed as a deduction:

•   Utility expenses, like gas, water, electricity, garbage, sewer, internet, etc.

•   Home repairs

•   Insurance

•   Homeowners association or condo fees

•   Cost of domestic help

•   Down payment and earnest money

•   Closing costs

•   Depreciation

Potential tax deductions are one thing to factor into your financial considerations as you think about whether you are ready to buy a home, but they certainly aren’t what should be driving your decision to make a purchase.

The Takeaway

It is possible for the amount of tax you owe to be lower after you become a homeowner — but only with certain conditions met. You’ll want to do the math and compare what your taxes will look like when you itemize deductions vs. when you take the standard deduction. That will be the best way to tell how buying a house will affect your taxes.

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.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is the tax break for buying a house in 2023?

If you itemize deductions on your federal return, you can claim a deduction for your mortgage interest paid on a home bought in 2023, along with state and local taxes paid in 2023.

Will my tax return be higher if I bought a house?

While there are a lot of factors that go into a tax return, generally speaking, if the deductions that come from homeownership reduce your tax liability compared to previous years while all other factors remain the same, then you should owe less (or even get money back).

What are the major tax changes for 2023?

For tax years 2022 and beyond, you can no longer claim mortgage insurance premiums as a deduction. Beyond the tax deductions that come with homeownership, major changes to taxes for 2023 include reduced amounts to the child tax credit, earned income tax credit, and the child and dependent care credit.

Photo credit: iStock/marchmeena29

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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

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

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Source: sofi.com

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If you’re planning to buy a higher-priced home, you may be looking to finance your purchase with a jumbo loan. And you’re probably also wondering about the difference between a jumbo and a conventional loan.

A jumbo loan is necessary to purchase a home where the loan amount is above the conforming loan limit values set by the Federal Housing Finance Agency (FHFA). Conforming loan limits change every year. For 2023, the limit for a single-unit property is $726,200 for most counties across the U.S. In high-cost areas, this amount increases to $1,089,300.

If you’re buying a home below this amount, you can finance with a traditional, conventional, conforming mortgage, or perhaps through one of several first-time home buyer programs. But if you need a mortgage that goes above the conforming loan limit, you’re going to be looking at a jumbo loan, so it’s time to get familiar with how to qualify and how the costs compare to other loans.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Recommended: The Cost of Living by State

What’s the Difference Between Jumbo and Conventional Loans?

Here’s a surprise: There isn’t really a difference between a jumbo and a conventional loan. Jumbo loans are conventional. “Conventional” simply means that a loan isn’t backed by a specific government agency such as the Federal Housing Administration (FHA), United States Department of Agriculture (USDA), or U.S. Department of Veterans Affairs (VA).

Many people get tangled up in the terminology. While jumbo loans are conventional, they are not “conforming.” Though the terms conventional and conforming are often used interchangeably (and mistakenly), a conforming loan is one that falls within the FHFA limits, meaning the lender can sell it to Fannie Mae and Freddie Mac to increase its liquidity. (Again, in 2023, the amount is $726,200 for most areas in the U.S., but can go up to $1,089,300 for high cost of living areas. If you’re wondering about your specific region, have a look at the conforming loan levels by state.)

💡 Quick Tip: One answer to rising house prices is a jumbo loan. Apply for a jumbo loan online with SoFi, and you could finance up to $2.5 million with as little as 10% down. Get preapproved and you’ll be prepared to compete in a hot market.

A jumbo loan exceeds these limits and is, thus, non-conforming. So when you’re comparing jumbo loans against other loans, you’re really comparing non-conforming loans against conforming loans. Other differences that affect borrowers are summarized in the table below:

Conforming Loan Jumbo Non-conforming Loan
Loan amount Below $726,200 for most areas, $1,089,300 for high-cost areas Above $726,200 for most areas, above $1,089,300 for high-cost areas
Loan type Fixed or variable rate Fixed or variable rate
Down payment Can be as low as 3% Usually 10% or more
Credit score 660+ 700+
Income requirements Lower income requirements Higher income requirements. For example, a payment on a $726,200 mortgage at 6.7% interest would be $4,969. In order for your payment to not exceed 28% of your monthly income (the margin of safety, you would need to make $17,746 per month or $212,952 per year.
Cash reserves or assets Not required 6 to 12 months may be needed
How the loan is backed Backed by Fannie Mae and Freddie Mac Not backed by Fannie Mae or Freddie Mac

How to Qualify for a Jumbo Loan

Requirements for jumbo loans are more stringent than those for other types of loans. Because these types of mortgages can’t be sold to Fannie Mae or Freddie Mac, the lender takes on more risk should the borrower default.

These requirements include:

•   Debt-to-income (DTI) ratio. You need plenty of income to qualify for a jumbo loan. Qualified mortgages require a DTI of 43% or lower.

•   High credit score. Lenders want to be sure you’ll repay the loan, especially since it’s a much larger amount. A credit score of 700 or above is recommended.

•   Assets. Lenders look for cash that can be used to pay the mortgage. To be safe, you may want to put aside enough money to cover the mortgage for 6 to 12 months.

What to Know About Jumbo Loan Mortgage Rates

Prospective jumbo loan borrowers often wonder, “Are jumbo loan rates higher than other loans?” Jumbo conventional loans don’t automatically have higher interest rates and can be competitive with conforming conventional loan interest rates. They fluctuate with market conditions. Sometimes, they’re even lower than conventional loan interest rates.

You may be able to check your jumbo loan rate with your lender before submitting a full application.

Jumbo Loan Closing Costs

With a larger loan amount, you can also expect jumbo loan closing costs to be higher. While many closing costs are fixed, there are others that are larger due to percentage-based compensation closing costs.

Should I Choose a Jumbo Mortgage?

If you have the option to choose between a jumbo loan vs. a conforming loan, (such as when you have enough money to reduce the principal loan amount so that it qualifies as a conforming loan), you’ll want to ask yourself if it’s worth it to put down the extra money to qualify for a conforming conventional loan. There are some specific scenarios where a jumbo loan vs. a conforming loan makes sense.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

When to Choose a Jumbo Mortgage

Borrowers who should consider jumbo mortgages:

•   If you’re looking for a luxury home

•   If you’re buying a vacation home

•   If you live in a high-cost area

•   If you have a great credit score

•   If you have a strong DTI ratio

•   If you have plenty of income

When to Choose a Conventional Mortgage

Borrowers who should consider conventional mortgages:

•   If you have moderate income

•   If you’re looking for a moderately priced home

•   If the mortgage amount is below the conforming loan limits

•   If you need a down payment lower than 10%

•   If your cash reserves after your down payment will be limited

If you’re close to the conforming loan limits, you may also want to consider a piggyback mortgage. If you’re able to obtain a piggyback loan, you may be able to buy your home with a conventional, conforming mortgage instead of a jumbo loan.

How it works: A piggyback loan allows you to take a second loan to “piggyback” off the first mortgage with the purpose of lending you enough money to avoid a jumbo mortgage or the PMI that comes with a down payment less than 20%. It’s essentially a second mortgage, and you’ll be making a second payment to cover it.

The Takeaway

When it comes to whether or not to choose a jumbo loan, the decision may be made for you based on the price of the home you want to buy. Mortgages above the conforming loan limit need jumbo loan financing. If you want a conforming, conventional loan, you’ll need to get a mortgage below $726,200 for most areas in the U.S. and $1,089,300 for high cost of living areas.

When you’re ready to take the next step, consider what SoFi Home Loans have to offer. Jumbo loans are offered with competitive interest rates, no private mortgage insurance, and down payments as low as 10%.

SoFi Mortgage Loans: We make the home loan process smart and simple.

FAQ

Are jumbo rates higher than a conventional mortgage?

Jumbo rates fluctuate with market conditions. They may be on par with rates of loans that fall within the limits for conforming loans set by the Federal Housing Finance Agency (so-called conforming loans). Sometimes, they’re even lower.

What is the downside of a jumbo mortgage?

Possible downsides of a jumbo mortgage include requirements for a higher down payment, higher credit score, more cash reserves, and a higher monthly payment because of the higher home price.

Do jumbo loans have PMI?

Private mortgage insurance is not always required on jumbo loans. Whether or not PMI is needed will depend on your lender and the size of your down payment.

Photo credit: iStock/courtneyk

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

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

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.

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Source: sofi.com

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Townhouses offer convenience and amenities that appeal to a range of homebuyers. They’re also growing in popularity, with new townhouse construction up more than 28% from 2020 to 2021. Construction costs also increased during the same time period.

Whether you’re building an investment property or your own new home, determining the project cost is essential before breaking ground. The cost to build townhouses depends on the size, location, number of units, onsite amenities, and the style of the building.

What Is a Townhouse?

A townhouse, also called a townhome, is a type of single-family home that has two or more floors and a shared wall with at least one other home. Compared to different home types, like duplexes and triplexes, each townhouse is individually owned and has its own entrance. Given the high-density design, townhouses tend to be more common in urban and suburban communities.

Townhouses often have their own yard or garage, but may share other communal amenities, such as a pool or tennis court, with neighboring townhouses. These shared facilities are typically governed by a homeowner’s association (HOA), which townhouse owners pay fees to for managing amenities and providing services like landscaping and snow removal.

If choosing between a condo or townhouse, another distinction is that townhomes usually have more autonomy in customizing the exterior of their home and outdoor living space, and more responsibility for that space as well.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Recommended: What is a Townhouse?

What Determines the Cost of Building a Townhouse?

The cost to build townhomes depends on a variety of factors. The type of townhouse, size, number of units, location, and additions like garages and basements all contribute to the total construction cost.

Here’s what to consider when estimating how much to build a townhouse.

Type of Townhouse

There are different types of townhouse layouts and configurations, including traditional, stacked, and urban.

•   Traditional: Generally organized in a row with two floors of living space, a basement, and garage.

•   Stacked: Refers to townhouse units stacked in a multi-floor building, which typically have their own entrances.

•   Urban: Similar to traditional townhomes, but often have more modern and spacious floor plans and higher prices.

Another key decision when purchasing a new construction home or townhome is whether to go with a modular or stick-built design. The components of a modular townhome are manufactured off-site, saving time and labor.

Stick-built townhouses are constructed on-site using a wooden frame and finished with a brick or vinyl exterior. This type of construction allows for greater customization, but generally comes at a higher cost than modular townhomes.

Recommended: Pros and Cons of Building a Townhouse

Square Footage

The cost to build a townhouse is impacted by the size, which is measured in square feet.

Townhomes cost between $111 to $125 per square foot on average. Because townhouses share walls and occupy smaller lots, they’re often more affordable than detached single-family new construction, which breaks down to an average of $150 per square foot.

Using the square footage to estimate total townhome cost is a fairly straightforward calculation. For instance, builders can expect to pay between $222,000 and $250,000 to erect a 2,000-square-foot townhouse based on the average range. Bear in mind that does not include the cost of the building site.

With these estimates, you can compare mortgage rates and determine what financing you qualify for.

Number of Rooms

The interior layout, including the number and types of rooms, is a key determining cost factor.

Not all rooms are created equal though, with kitchens and bathrooms being the most expensive due to appliances, tiling, plumbing, and more complex electrical work. The living spaces and bedrooms are generally simpler and cheaper to build.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Number of Units

By definition, townhouses are built in groups. Leveraging economies of scale to build multiple units or a complex could reduce the cost per unit. Keeping the design and floor plan consistent across units can also lower the price.

So, how much does it cost to build a townhouse complex? That depends on the extent of amenities included, as well as the number of units.

Location

Location, location, location. Where you choose to build a townhouse will impact the cost of construction and its value once completed.

The cost of labor varies significantly between regions. Paying builders and contractors typically accounts for 40% of new home construction expenditures. The location of the townhouse also matters in terms of costs related to accessing the site and sourcing materials.

Additions

Wondering how much to build townhomes with attractive amenities? Here’s what you can expect to pay for common townhome add-ons.

•   Basement: Building a basement foundation costs between $24,000 and $44,500 on average.

•   Driveway: The materials and installation costs for a new driveway range from $2 to $15 per square foot depending on the material used.

•   Fencing: More affordable fence materials like wood, vinyl, and composite range from $10 to $45 per linear foot.

•   Garage: Cost varies by size, with one-car garages ranging from $10,500 to $27,000 and double garages costing between $14,500 and $40,300.

•   Pool: Expect to pay between $28,000 and $66,500 for an in-ground pool, with vinyl and fiber-glass lining typically costing less than concrete.

•   Shed: Adding a storage shed ranges from $300 to $15,000, with pre-fabricated options usually costing less than custom builds.

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Construction Cost for Building a Townhouse

Construction costs are often the deciding factor when thinking of buying or building a house. Townhouses are generally less expensive to build per unit than a detached single-family home.

In addition to the factors discussed above, townhouse construction involves a range of pre-construction costs, like purchasing land, building permits, and architectural or design fees. The materials and labor usually account for the majority of the expenses to build a townhouse.

Townhouses can be designed as starter homes or luxury properties, and project budgets can be structured according to the target market and expected return on investment. Still wading into the waters of homebuying? Consult a Home Loan Help Center for useful tips and guides to master the basics.

Recommended: Construction Loans for Building a House

The Takeaway

How much does it cost to build a townhouse? In short, it depends on the type of townhouse, size, number of units, location, and added amenities. But you can estimate roughly $111 to $125 per square foot or $225,000+ for a 2,000 square-foot abode, not including land 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.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How many townhouses can fit on an acre?

The number of townhomes that can fit on an acre will depend on what’s permitted by local zoning, as well as space allocated for landscaping, parking, and other amenities. However, an acre can accommodate around 20 two- or three-story townhomes.

How much are utilities in a townhouse?

Utility costs vary by location, unit size, personal energy use, and equipment used for heating and cooling. Due to their smaller footprint, townhomes typically have lower utility bills than single-family homes.

Should I buy a townhouse or single-family home?

There are pros and cons with either type of home. Townhomes may require less maintenance and include extra amenities, while single-family homes can offer more space and discretion in how you design and decorate your home’s exterior.

What are the disadvantages of living in a townhouse?

Living in a townhouse can mean less privacy from your neighbors and noise from shared walls.

Photo credit: iStock/vkyryl

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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

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

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.

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Source: sofi.com

Apache is functioning normally

Buying a home is a big deal, both emotionally and financially. For many people, homeownership is still an essential part of the American dream. And, of course, it’s the biggest investment some will ever make. With the median price of a house hitting $428,700 in mid-2022 (ka-ching), it’s not a purchase to be made lightly.

If you’re buying a home for the first time, you may expect it to be the same as those quick, fun-and-done experiences portrayed on reality TV shows. In truth, however, it’s a process with a steep learning curve and many moving parts, from figuring out your home-shopping budget to satisfying your final mortgage contingencies. There can be minor hiccups as well as major missteps along the way.

That’s where this article comes in. It will educate you about the six most common first-time homebuyer mistakes and help you avoid them, including:

•   Not knowing how much house you can afford

•   Not shopping around for the best mortgage rate

•   Waiving an inspection because you’ve found your dream house.

First-Time Homebuyer Mistakes to Avoid

You’ve new to this homebuying business, so it’s worthwhile to educate yourself a bit about a few of the key moves to make the process go smoothly. Here, we’ll highlight the steps required for first-time homebuyers and help you avoid some common mistakes when buying a house.

1. Not Getting Your Mortgage Paperwork Moving

Before you start browsing online listings or get your heart set on a certain neighborhood, it might be a good idea to contact a lender (or, better yet, lenders) to show sellers that you are loan-worthy. If you don’t get your mortgage pre-qualification or even a pre-approval started, you’re unlikely to impress sellers as a serious bidder worth their consideration. You might just look like a person who enjoys poking around open houses for design ideas.

Nip that in the bud as follows:

•   Pre-qualification: You’ll provide basic information about your debt, income, assets, etc., and they will run a credit check and can give you an idea of how much you can borrow.

•   They will also share information on different types of loans — such as fixed-rate vs. variable-rate and 30-year vs. 15-year term — so you can see what best suits your financial situation and goals.

Remember, though: Mortgage pre-qualification isn’t a commitment for the lender or buyer — it’s just a first step. If you appear to meet a lender’s standards, you could move on to the pre-approval stage.

•   Pre-approval: This involves submitting additional income and asset documentation for a more in-depth review of your finances.

•   Once the lender approves these aspects of your loan application, you’ll receive a conditional commitment for a designated loan amount — called a pre-approval letter — and have a better idea of what your loan terms will be.

•   Mortgage pre-approval can help demonstrate to sellers that you’ve completed the first step in getting a mortgage because your credit, income, and assets have already been reviewed by an underwriter. This can smooth the bidding process and could give you an edge over others in a competitive situation with multiple offers.

2. Not Checking Out First-Time Homebuyer Programs

It’s wise to shop around for a few different mortgage quotes, but it can be a rookie mistake to overlook some great, government-sponsored programs that make homebuying more affordable. These include:

•   insurance (PMI), along with lower closing costs and a low interest rate.

•   FHA Loans : These mortgages are designed for those with low to moderate incomes. They typically offer low down-payment requirements, low interest rates, and the ability to get approval even if you have a fair credit score.

•   USDA Loans : These provide affordable mortgages to those with a lower income who are planning on buying a home in a qualifying rural area.

•   VA Loans : These mortgages help those on active military duty, veterans, and eligible surviving spouses become homeowners. If you can check one of those boxes, you may be eligible for a home loan with no down payment and no private mortgage.

3. Not Being Realistic About What You Can Afford

Once you know more about your mortgage pre-qualification, you can avoid the homebuying mistake of not knowing your home buying budget. The lender you choose will tell you the maximum amount you’re approved to borrow for a home, but you don’t have to use every penny of that money.

It’s important to keep other factors in mind as you determine the top price you’ll pay for your first home. If you don’t have your pricing guardrails in place, you could wind up overbidding and winding up with a too tight budget. Here, some ways set your sights realistically:

•   Ask yourself if your projected mortgage payment will fit comfortably into your monthly budget. You may have to make some tradeoffs — less travel, shopping, or dining out — if your new payment is higher than your current rent or loan payment, which you can figure out with a mortgage calculator.

•   Keep in mind that your mortgage probably isn’t the only new expense you’ll have to cover. If you’re buying a bigger place than your current rental, you will likely pay more for utilities. If the home has a lawn or pool, you might have to maintain them or pay someone else to do it. Or you may have a homeowner association (HOA) fee. Add those costs, gleaned from online sources and/or open houses, to your projected monthly budget (you can make a budget in Excel, use paper and pencil, or work with an app).

•   You’ll also have to account for the cost of homeowner’s insurance and paying your property taxes. You can get some idea of what those costs will be by searching online. There are insurance calculators, and most home listings give you the annual property taxes.

By doing the math, you’ll make sure you are ready to keep up with the monthly flow of expenses without dipping into savings or taking on credit card debt.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

4. Digging Too Deep for a Down Payment

In their eagerness to become homeowners, many first-time buyers make the mistake of going overboard and directing every bit of money they have to the purchase.

If you have to drain your emergency savings to manage the down payment on a home, you might want to dial down the amount or wait and save up a bit more. Consider what could happen if the home needs a costly repair or, worse, if you or someone in your family suddenly has an expensive medical bill. That’s a good example of when to use an emergency fund.

The same thing holds for taking money from your retirement savings. The IRS allows first-time homebuyers (which the IRS defines as not owning a primary residence in the past two years) to withdraw money from an IRA penalty-free . But this is capped at $10,000, and you’ll still pay federal and state income taxes on the money — and lose out on the growth you’d possibly have if you left those funds alone.

If you have a 401(k), you could take a loan against those funds, but again, there are consequences. There may be a provision in your plan that prohibits you from making additional contributions until the loan balance is repaid, so you’ll miss out on any growth, and you may be required to pay back the loan immediately if you quit or lose your job. If that happens, the money you borrowed will become fully taxable and may be subject to a 10% early withdrawal penalty.

There are benefits to putting 20% down on a home: You’ll avoid paying private mortgage insurance (PMI) and your monthly payments will be lower. But 20% isn’t required. For example, the minimum down payment required for a conventional loan is 3%, and for an FHA loan, it’s 3.5%. According to the National Association of Realtors, first-time buyers typically put down 7% of a home’s price in 2021.

With all the other costs you could be looking at as you move into a home — closing costs, utility deposits, moving expenses, decorating, and more — your down payment amount is something to consider if you want to avoid getting in over your head.

5. Passing on a Full Inspection

It may be tempting to waive the home inspection when you’re trying to buy the home of your dreams — especially if you have some stiff competition to be the winning bidder for an in-demand property.

Sorry to say, this is a risky strategy. A home inspection might reveal critical information about the condition of a home and its systems, from electrical problems to hidden mold; from a failing septic system to a leaky roof. What you learn in an inspection could reveal that your dream home is actually a money pit.

What’s more, your inspection report might serve as a useful negotiating tool: You could use it to ask for repairs or to work out a better price from the seller. And if you really aren’t happy with the inspection results, you may be able to use it to cancel the offer to buy.

💡 Recommended: 7 Important Factors That Affect Property Value

6. Letting Your Emotions Get The Better of You

Homebuying can be a roller coaster, so it’s important to prepare yourself psychologically as well as financially. If you’ve ever talked to someone buying a house, you know there are potential pitfalls all through the purchasing process.

You might fall in love with the perfect house and find it’s way over your budget. You might get annoyed with the sellers or their Realtor, especially during the negotiation process. You might disagree with your spouse or a co-buyer about priorities.

All of these scenarios can cause a person to behave emotionally. It might make you want to walk away from a great deal. It might lead you to barrel ahead with a purchase, even when warning lights are flashing.

How to avoid such mistakes when buying a house? By recognizing that this will be a challenging and at times stressful process (especially because you are new to it), you can proceed more calmly. Find tools that help you move ahead with patience and a sense of calm, best as you can. With your eye on the prize — namely, your first home — you’ll get there.

💡 Recommended: 31 Ways to Save for a Home

The Takeaway

Buying a home for the first time is an exciting moment, but one that takes some time and care to make sure you avoid rookie mistakes. You’ll want to do due diligence, not skip steps, or get carried away by emotion.

When you’re ready to line up your financing, the loan terms you get could be nearly as significant as your home’s location in terms of long-term satisfaction.

When shopping for a mortgage, you may want to compare different interest rates, the length of the loan, and other factors that make one lender a better fit than another.

With a SoFi mortgage loan, for example, the pre-qualification process is super simple, and our loans have competitive rates. What’s more, qualifying first-time homebuyers can put down as little as 3%, and work with our Mortgage Loan Officers who can coach you through the required steps.

If you’re thinking about buying a home, see what a SoFi mortgage could do for you.

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

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

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

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

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Source: sofi.com

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Homebuyers choose the number of years they’d like their mortgage to last. The 30-year fixed-rate mortgage is by far the most popular, followed by the 15-year fixed-rate mortgage, but terms of 10, 20, 25, and even 40 years are available.

The term that will work best for each borrower largely depends on the monthly mortgage payment they can handle and how long they plan to keep the property.

What Is a Mortgage Term?

The term is the number of years it will take to pay off a home loan if the minimum payment is made each month.

During the pandemic, homeowners have kept their homes for eight years on average, according to the 2021 National Association of Realtors® Profile of Home Buyers and Sellers. Knowing how long you plan to stay in your home can affect the type of home loan that fits your situation when you shop for a mortgage — short or long term, fixed or adjustable interest rate?

How Mortgage Terms Work

For fixed-rate home loans, payments consist of principal and interest, with a fixed interest rate for the life of the loan. With mortgage amortization, the amount going toward the principal starts out small and grows each month, while the amount going toward interest declines each month.

A shorter term, conventional loan generally translates to higher monthly payments but less total interest paid, and a longer term, vice versa. A shorter-term loan also will have a lower interest rate.

This mortgage calculator tool includes an amortization chart that shows how payments break down over a fixed-rate loan term. And total interest paid is predictable.

Most adjustable-rate mortgages (ARMs) also have a 30-year term. You can’t know in advance how much total interest you will pay because the interest rate changes.

How Long Can a Mortgage Term Be?

A few lenders out there offer 40-year mortgages. Qualifying is more difficult, and the rates are the highest among fixed-rate loans, while ARMs can be unpredictable.

The long term means a borrower will make the lowest possible monthly payments but pay more over the life of the loan than any other.

Fixed-Rate Mortgages vs Adjustable-Rate Mortgages

When you’re first choosing mortgage terms or looking at different types of mortgages, start with one of the basics.

A fixed-rate mortgage is exactly what it sounds like. You lock in an interest rate for the entire term. If market rates rise, yours will not.

An adjustable-rate mortgage is much more complicated. An ARM usually will have a lower initial rate than a comparable fixed-rate mortgage, and a borrower may be able to save significant cash over the first years of the loan.

Recommended: Adjustable Rate Mortgage (ARM) vs. Fixed Rate Mortgage

But a rate adjustment can bring a spike in mortgage payments that could be hard or impossible to bear. With the most common variable-rate loan, the 5/1 ARM, the rate stays the same for the first five years, then changes once a year.

An interest-only ARM has an upside and downside. You’ll pay only the interest for a specified number of years, when payments will be small, but you will not be paying anything toward your mortgage loan balance.

An ARM may suit those who are confident that they can afford increases in monthly payments, even to the maximum amount, or those who plan to sell their home within a short period of time.

ARM seekers may want to apply for more than one loan and compare loan estimates. It’s a good idea to know the answers to these questions:

•   How high can the interest rates and my payment go?

•   How high can my interest rate go?

•   How long are my initial payments guaranteed?

•   How often do the rate and payment adjust?

•   What index is used and where is it published?

•   Will I be able to convert the ARM to a fixed-rate mortgage in the future, and are there any fees to do so?

•   Can I afford the highest payment possible if I can’t sell the home, or refinance, before the increase?

Looking to take out a mortgage?
See what SoFi Mortgages has to offer.

Comparing 15-Year and 30-Year Mortgages

Clearly, paying off a mortgage in 15 years rather than 30 sounds great. You’ll get a lower rate, pay much less total interest, and be done with house payments in half the time. The catch? Higher monthly payments.

Here’s an example of how a 30- and 15-year fixed-rate mortgage might shake out, not including property taxes and insurance and any HOA fees.

30-Year vs. 15-Year Fixed-Rate Mortgage

Type Loan Specs Rate Payments Total Interest Paid
30-year Appraised value: $375,000
Down payment: $75,000
Loan size: $300,000		 4% Mortgage payment: $1,432 $215,607
15-year Appraised value: $375,000
Down payment: $75,000
Loan size: $300,000		 3.2% Mortgage payment: $2,101 $78,130

There’s a reason that the 30-year fixed-rate mortgage reigns supreme: manageable payments that ideally leave enough money for emergencies and retirement savings. Borrowers making lower payments can always pay more toward the principal if they want to pay off the mortgage early.

Then again, borrowers with stable finances who can afford the higher payments of a 15-year home loan may find it quite appealing.

The Takeaway

How to pick a mortgage term? Look at your budget, decide how long you plan to stay in the home, and weigh your financial goals and priorities.

Speaking of terms, SoFi offers fixed-rate home loans with a variety of terms to fit your needs.

The SoFi home loan help center also covers mortgage refinancing, which may change an existing loan rate and term.

SoFi rates are competitive, and finding yours takes just 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.

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

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

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

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Source: sofi.com

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A home for sale by owner opens the door for you to buy the property without a middleman—though you may choose to use your own real estate agent to facilitate the transaction.

Here’s a look at how the homebuying process with a for-sale-by-owner deal can differ from a typical real estate transaction.

For Sale by Owner: Good for Buyers?

When homeowners choose the FSBO (“fizz-bo”) route, they take on all of the responsibilities real estate agents would typically shoulder, from listing the house and showing it to negotiating and closing the deal.

The main motivation for doing so is often cash. Sellers who go it alone can save money on the commission that real estate agents would normally earn. If neither side uses an agent, the deal sidesteps the typical 5% to 6% for agent commissions.

On the buyer’s side there can be a number of benefits of buying a house for sale by owner. First of all, the lack of a listing agent means you have more direct contact with the seller, which might give you more negotiating power.

The seller will also likely have detailed knowledge of the house and neighborhood, which can be a bonus as you decide whether or not you want the property.

However, you may run into some pitfalls with FSBO properties. A seller may love her home and overprice it, potentially complicating matters when you get an appraisal.

Recommended: How to Buy a House Without a Realtor

Using a Buyer’s Agent

Just because a home’s seller doesn’t want to use a listing agent doesn’t mean you can’t engage the services of a buyer’s agent.

You may already be working with an agent who can contact a FSBO seller for you. Or you may need to look for an agent who is willing to take on the job.

In some cases, buyer’s agents may be hesitant to work on a FSBO property. They may be wary of taking on extra liability, or extra work for which they will not necessarily be compensated.

That said, a buyer’s agent can negotiate the sale on your behalf and walk you through the complicated paperwork. If the seller is putting the contract together, your agent can also check the work to make sure you don’t run into any problems.

Sellers typically pay the agent commission. Just be sure the seller agrees to pay the buyer’s agent commission in the purchase agreement.

Here’s what to expect in the buying process when using a buyer’s agent.

Shopping for a Mortgage

Before making an offer on a home, it’s a good idea to shop for a mortgage to get an idea of the terms different lenders offer and how much you are likely to pay each month.

A mortgage calculator can help you understand how down payments of various sizes will affect the numbers. And you may consider getting preapproved for a mortgage to see exactly how much you can afford to spend.

In an FSBO situation, homeowners may have no experience with the home financing process, and getting prequalified or preapproved for a home loan may remove some roadblocks on your path to making a purchase.

Viewing the Home

Your agent can contact the seller and set up an appointment to view the home.

Be on the lookout for sagging floors or cracks in walls that might indicate structural issues. Test windows. Look for water damage on ceilings or walls that may indicate a leaky roof.

Since the seller will most likely be showing the house, take this opportunity to get as much detail about the home’s history as possible. What repairs have been made recently, and which ones haven’t been made in a while? It’s smart to ask about any warranties, and to be sure they will remain after a sale.

Recommended: What to Look for When Buying a House

Getting an Inspection

When buying a home for sale by owner, it’s not in your best interests to skip an inspection. Home inspectors go over the house with a fine-toothed comb, looking at structure, plumbing, electricity, and appliances to see whether they need repair now or in the near future.

If the inspector finds any problems, you can ask the seller to fix them, credit you the cost of repairs, or reduce the sales price. If you’ve already signed a purchase agreement, severe problems found during an inspection can be a reason to pull out of the contract.

Recommended: The Ultimate Home Inspection Checklist

Negotiating a Sale Yourself

If you decide not to use a buyer’s agent, you and the seller will have to negotiate the sale and write up the purchase contract yourself.

You may also choose to hire a transactional agent or attorney who can help you write the contract and ensure it is done legally and in a way that protects your rights.

If you do decide to go it alone, there are a few things to keep in mind.

Recommended: Guide to Buying, Selling, and Updating Your Home

Making an Offer

Before making an offer on a house, check comparable properties in the neighborhood and see if the listing price is reasonable. Doing so can help you pin down what a reasonable offer is.

Consider offering less than the listing price. The seller may ask you to come up in price, but if you start too high, it’s difficult to negotiate down again. You can use the neighborhood comps you’ve researched as a negotiating tool.

Including Contingencies

Contingencies are certain conditions that must be met in order to close the deal. Some common contingencies are a satisfactory home inspection and appraisal.

If a home is appraised at less than the agreed-upon price, a lender may be unwilling to loan the buyer the money. In that case, the appraisal contingency can be an opportunity to negotiate the sales price.

A clear title is another common contingency. The title is a document that shows who has owned and now owns the home. The title company will make sure there are no liens or disputes associated with the property. If there are unresolvable issues, the clear-title contingency gives the buyer a way out of the contract.

Negotiating Fees

It can’t hurt to ask for seller concessions, closing costs that the seller agrees to pay. A seller may agree to help pay for property taxes, attorney fees, appraisal inspections, and the like.

Even in a seller’s market, if the property has been sitting, possibly because the price was too high, a seller may offer a financial incentive to move the home.

Putting Earnest Money in Escrow

Your earnest money deposit is the money you submit with your offer to demonstrate your serious intent to buy.

The listing agent would usually put this money into escrow. But if you’re going it alone, it’s a good idea to engage a title company or escrow company to hold the money for you until the sale goes through.

If you give the money directly to the seller, they may refuse to give it back to you if a contingency causes the deal to fall through, which could mean suing to retrieve your cash.

Determining When You’ll Get Possession

It’s a good idea to be sure your purchase agreement specifies when you will take possession of the new house and receive the keys. Possession may take place immediately after closing, or the contract may give the seller time to move.

The Takeaway

Buying a house for sale by owner can come with challenges and opportunities. It may make sense to engage a professional to help you negotiate, safeguard your interests, and deal with the documents.

If you’re in the market for a mortgage, check out SoFi’s line of fixed-rate mortgage loans that may allow you to put less than 10% down.

SoFi also offers investment property loans.


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 for more information.

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.

SOHL0421020

Source: sofi.com

Apache is functioning normally

A $450,000 fixed-rate mortgage, with an annual percentage rate (APR) of 7.3% and a 30-year term, would cost you $3,085.07 per month, or $37,020.84 per year in combined principal & interest payments. Of course, your exact payment would depend on your interest rate and other individual factors.

The same loan amount with a 15-year fixed-rate loan would warrant a lower mortgage rate, but the monthly payment would be higher due to the compressed repayment period. For example, a 15-year mortgage for $450,000 with a 6.3% APR would cost $3,870.68 per month, or $46,448.16 per year.

Keep in mind that these costs factor in your mortgage alone but don’t account for any taxes, fees, insurance, or other payments you may incur over your ownership period. Let’s break down the expected costs of a $450K mortgage payment as well as any additional expenses you’ll need to keep in mind over the life of your loan.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Total Cost of a $450K Mortgage

While it’s easy to focus on your monthly mortgage payment, the economics of taking out one of the many different types of home loans become more pronounced when you weigh the total lifetime cost of the loan.

To put this into perspective, the total cost of the 30-year $450,000 mortgage quoted above at an APR of 7.3% would cost you $1,110,624.90 in payments over the life of the loan. If you were to make every single payment on schedule without any prepayments or late payments, you would pay $660,624.90 in interest over 30 years. A shorter mortgage term would result in significant savings on interest.

Owning a home also involves other costs aside from your mortgage, including things like maintenance, and property taxes; we’ve broken these down into the upfront and long-term costs below.
💡 Quick Tip: SoFi’s new Lock and Look+ feature allows you to lock in a low mortgage financing rate for up to 90 days while you search for the perfect place to call home.

Upfront Costs

Upfront costs on a home usually consist of all the expenses required to close on your home purchase, including closing costs, your down payment, and any earnest money you put down on the property.

While your earnest money and down payment are rolled into the purchase price of the home and will eventually come back to you in the form of home equity, closing costs consist of fees to compensate lenders, agents, and other third-parties for the services they provide to facilitate your home purchase.

Earnest money This generally won’t be more than 1-2% of the home’s purchase price and can be rolled into the down payment on your home. It serves as a good-faith deposit to show that you’re serious about buying a home.

Down payment On average, down payments typically make up 3-20% of the purchase price of the home according to the underwriting standards of most major mortgage programs. Lenders usually require a down payment contribution to ensure that buyers have some “skin” in the game, which reduces the likelihood of default on a loan. You also may wish to contribute a greater down payment upfront if you can afford it, as it also directly reduces the amount you need to borrow on your mortgage.

Closing costs Average upfront closing costs will typically set the buyer back 2-5% of the total purchase price of your home, however the amount paid will vary depending on the taxes and fees in your area as well how the fees are allocated between the buyer and seller.

Long-Term Costs

Long-term costs include property taxes, homeowner’s insurance, maintenance, and utility bills.

Property taxes These are levied annually and can vary anywhere from around 0.5% of your home’s assessed value to as high as 3% or more depending on your state and county of residence.

Insurance The average cost of homeowners insurance in the United States is $1,393 per year. However, this can vary widely depending on your policy terms and property type. In many cases, you can save hundreds of dollars on your home insurance each year by shopping around for the best provider.

Maintenance Maintenance expenses vary widely depending on the age and condition of your home. Generally, it’s a good idea to set aside 1-2% of the cost of your home annually for emergency expenses such as roof repairs, plumbing issues, or appliance repairs.

Don’t forget to factor in homeowners association, co-op, or condo fees if these apply to your purchase.

Recommended: First-Time Homebuyers Guide

Estimated Monthly Payments on a $450K Mortgage

The estimated monthly payment on a $450K mortgage with a 7.3% APR and 30-year loan term is $3,085.07. The interest payments on fixed-rate mortgage loans are front-weighted, which results in $4,313 worth of principal paid back within the first year, even though you’ve made total payments of $37,020.83.

As principal is paid off over time, the balance on which interest accrues will decline. As a result, the majority of your monthly payments made during the early years of your mortgage will be dedicated towards interest. During the later years, the principal portion making up your monthly payment will increase as well, accelerating the rate at which you pay off your mortgage.

Here’s an amortization table showing how that plays out over the life of the loan:

Year Beginning balance Interest paid Principal paid Ending balance
1 450,000.00 $32,707.58 $4,313.25 $445,686.75
2 $445,686.75 $32,381.96 $4,638.87 $441,047.89
3 $441,047.89 $32,031.76 $4,989.07 $436,058.82
4 $436,058.82 $31,655.13 $5,365.71 $430,693.11
5 $430,693.11 $31,250.05 $5,770.78 $424,922.34
6 $424,922.34 $30,814.40 $6,206.43 $418,715.91
7 $418,715.91 $30,345.86 $6,674.97 $412,040.94
8 $412,040.94 $29,841.95 $7,178.88 $404,862.06
9 $404,862.06 $29,300.00 $7,720.83 $397,141.23
10 $397,141.23 $28,717.13 $8,303.70 $388,837.53
11 $388,837.53 $28,090.26 $8,930.57 $379,906.97
12 $379,906.97 $27,416.07 $9,604.76 $370,302.21
13 $370,302.21 $26,690.98 $10,329.85 $359,972.36
14 $359,972.36 $25,911.16 $11,109.67 $348,862.69
15 $348,862.69 $25,072.46 $11,948.37 $336,914.31
16 $336,914.31 $24,170.44 $12,850.39 $324,063.93
17 $324,063.93 $23,200.33 $13,820.50 $310,243.43
18 $310,243.43 $22,156.99 $14,863.84 $295,379.58
19 $295,379.58 $21,034.87 $15,985.96 $279,393.63
20 $279,393.63 $19,828.05 $17,192.78 $262,200.85
21 $262,200.85 $18,530.12 $18,490.71 $243,710.14
22 $243,710.14 $17,134.21 $19,886.62 $223,823.52
23 $223,823.52 $15,632.92 $21,387.91 $202,435.60
24 $202,435.60 $14,018.28 $23,002.55 $179,433.06
25 $179,433.06 $12,281.76 $24,739.07 $154,693.99
26 $154,693.99 $10,414.14 $26,606.69 $128,087.30
27 $128,087.30 $8,405.53 $28,615.30 $99,472.01
28 $99,472.01 $6,245.29 $30,775.54 $68,696.46
29 $68,696.46 $3,921.96 $33,098.87 $35,597.59
30 $35,597.59 $1,423.24 $35,597.59 $0

💡 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.

How Much Interest Is Accrued on a $450K Mortgage?

One choice you will need to make is the term of your loan. Often the choice is a 30-year versus a 15-year loan term. Over a 30-year term, a $450K mortgage with a 7.3% APR will accrue $660,624.90 in total interest expense over the life of the loan, assuming no prepayments. A similar loan balance with the same interest rate and a 15-year loan term will accrue $291,703.73 worth of interest.

The amount of interest accrued on a mortgage is directly related to the loan balance, interest rate, and speed at which the loan is repaid. The faster a loan is repaid, the less interest that is accrued on the loan balance. This is because the interest has less time to accrue as the loan is paid off.

Monthly Payment Breakdown by APR and Term

We’ve broken down the estimates for a $450K mortgage payment across two interest rates, assuming both 30-year and 15-year terms. Try using a mortgage payment calculator to estimate the payments on your loan terms.

Interest rate 30-yr term 15-yr term
5% $2,416 $3,559
5.5% $2,555 $3,677
6% $2,698 $3,797
6.5% $2,844 $3,920
7% $2,994 $4,045
7.5% $3,146 $4,172
8% $3,302 $4,300

What Is Required to Get a $450K Mortgage?

To qualify for a $450K mortgage, you’ll need to meet minimum income and credit requirements, have enough funds on hand for the lender-mandated down payment, and fall within loan limits for the property type you’re attempting to purchase in your area. We’ve spelled out each step of the process below.

1.    Estimate your budget and review your finances

You can start by pulling a copy of your credit report and conducting an honest review of your budget. All Americans are entitled to one free copy of their credit report each year at Annualcreditreport.com; it’s important to do a detailed review of your credit history to ensure everything is correct and address any outstanding issues.

It’s a good idea to shore up your credit score by taking care of any outstanding debt, within reason, prior to starting the loan approval process. Your credit profile doesn’t have to be perfect, but it’s important to ensure it’s as spotless as possible to 1) increase your probability of being approved, and 2) ensure you get the best terms on your loan.

2.    Get prequalified with multiple mortgage lenders

This step will give you an estimate of how much home you can afford. During this step, each lender will do a soft-pull on your credit report, calculate your debt-to-income (DTI) ratio, and give you a sense of how much you would be eligible to borrow at what interest rate. From there, you’ll move on to getting preapproved for a mortgage in the amount you think you will need to purchase a home.

Recommended: Home Loan Help Center

3.    Place a bid on your dream home

You’ll work with an agent to scout homes in your top neighborhoods and identify your potential dream home. It’s important to have your lender preapproval in hand when you arrive at this step in the process, as that signals to both your agent and home sellers that you’re serious about buying a home.

4.    Complete the mortgage application process

Once you’ve submitted a bid and had your offer accepted, you’ll furnish your chosen lender with more financial documentation so that it can formally underwrite your mortgage loan. All your terms will be finalized during this formal mortgage application stage.

5.    Close on your home

Assuming no hiccups arise during the underwriting process, once your loan is formally approved, the only thing to do is wait for the closing date and ensure all legal forms are signed and payments are transferred in good order. Congratulations!

The Takeaway

A $450,000 mortgage could mean you’re spending between $2,400 and $4,300 per month to pay off your loan, depending on your interest rate and loan term. Even a fraction of a percentage point in your quoted interest rate can mean the difference of tens of thousands of dollars in interest payments over the life of your loan. Consequently, it’s important to get the best terms for your mortgage to maximize your value in this transaction.

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.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much does a $450,000 mortgage cost per month?

While the estimates will vary depending on your quoted interest rate and loan terms, a $450,000 mortgage with a 6% interest rate would cost $2,698 per month over 30 years.

What credit score is required for a $450K mortgage?

In most cases, the minimum FICO score required for a conventional $450,000 mortgage is 620, according to Fannie Mae’s underwriting guidelines. However, to qualify for the best terms, you’ll want your credit score to be as high as possible.

Photo credit: iStock/Hispanolistic

+Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 90 calendar days at the time of preapproval. Credit card information to maintain the lock must be received within 7 calendar days of preapproval, or the lock will be forfeited. If you have not submitted a fully executed purchase contract within 60 days of your initial rate lock, you will be charged 0.25% of the loan amount. When you close with SoFi, the 0.25% fee will be credited back to you at the time of closing.
If you submit a fully executed purchase contract within 30 days of the initial rate lock, SoFi will automatically reduce the interest rate by an additional 0.125% at no cost. If current market pricing improves by 0.75 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for an additional rate reduction. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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

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

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.

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Source: sofi.com