The Federal Housing Administration (FHA) faces a potential loss of roughly $7 billion in receipts in 2024, and a failure by Congress to come to terms on certain spending agreements could force across-the-board cuts to non-defense spending of roughly 5-to-9%.
This is according to a letter published this week by the Congressional Budget Office (CBO), submitted to the chairman and ranking member of the U.S. House of Representatives budget committee.
CBO projections for FHA
“This letter provides CBO’s assessment of the effects of the caps on discretionary funding in fiscal year 2024,” the letter reads. “Those effects will depend on the nature and timing of appropriation legislation and on decisions by [OMB]. If necessary, the caps will be enforced by OMB through sequestration, the process by which across-the-board reductions are applied to budgetary resources.”
If Congress is unable to come to a compromise on government funding — with current continuing resolutions in place in two phases — sequestration would force cuts to both defense and nondefense government spending. The latter would see far more severe cuts, according to CBO.
“In the scenarios CBO examined, if enacted funding equaled the annualized amount of funding under the continuing resolution, sequestration would be required and would result in across-the-board reductions ranging from 5 percent to 9 percent for nondefense funding and from zero to 1 percent for defense funding, depending on when appropriations were enacted and what form they took,” the letter said.
FHA’s lower expected receipts in 2024 are cited by CBO as one of the reasons that nondefense spending could see more severe cuts in 2024, but both housing groups and the agencies themselves have explained that additional resources from Congress are needed to adequately handle the housing challenges across the country today.
MBA, NRMLA advocate for full FHA, Ginnie Mae funding
Leaders in Congress have been entertaining the notion of a 1% cut to housing agencies. In December, leaders at housing advocacy groups including the Mortgage Bankers Association (MBA) and the National Reverse Mortgage Lenders Association (NRMLA) submitted a letter urging leaders in Congress to fully fund FHA and Ginnie Mae.
“The [budget agreement] enacted this past spring contained an overall discretionary spending level of 1% below FY 2023 spending levels,” the letter said. “At this time, it is unclear whether FY 2024 HUD funding will be approved through a traditional conference report, a continuing resolution, or a reversion to the budget agreement default process.”
FHA, the groups said, provides “the most important mortgage option for affordable mortgage loans for first-time, minority, and other underserved homebuyers – responsibly serving qualified borrowers with low down payment requirements or minor credit blemishes,” while Ginnie Mae maintains a “critical role” in the housing ecosystem with its mortgage-backed securities (MBS) program and its other important roles in rural housing and loans for veterans.
A one percent cut to these agencies, the letter said, would “prove inadequate and substantially undermine FHA’s ability to fulfill its baseline responsibilities and pursue the initiatives identified above,” and would “result in harmful mortgage market impacts and taxpayer risks” for Ginnie Mae.
Possible reverse mortgage impacts
A reduction in FHA’s budget could negatively impact the administration of the Home Equity Conversion Mortgage (HECM) program, but another reverse mortgage impact could be from potential cuts to Ginnie Mae due to liquidity challenges being faced in the reverse mortgage business.
After assuming control of Reverse Mortgage Funding (RMF)’s portfolio of HECM-backed securities late last year, Ginnie Mae officials explained throughout last year that the assumption of a large portfolio — estimated to contain as much as one-third of all HMBS issuance as of mid-2023 — necessitated more appropriations from Congress to adequately manage it.
In its 2024 budget request submitted to Congress last March, Ginnie Mae explained some of the challenges inherent in managing the RMF portfolio.
“We continue to spot new issues as we take the RMF portfolio in-house,” Ginnie’s budget request document said. “It has become clear that the HECM program requires enhanced governance across how Ginnie Mae makes decisions […] because the HMBS program presents a heightened set of operational risks for Ginnie Mae, we require additional staff to work through these issues.”
A continuing resolution keeps Ginnie Mae ‘flat’
In an interview with RMD late in 2023, Ginnie Mae President Alanna McCargo spoke about some of the challenges in securing additional appropriations considering the narrow political majorities in both houses of Congress.
“We’ve been on a journey to right-size Ginnie Mae since I started, and then the acquisition of this portfolio and with the role we’re playing right now in the reverse industry, [that has] only accelerated our need to have more focus, more resources and more people to do the business that we have to do,” McCargo said.
While there has been some support shown for fully funding Ginnie Mae in Congress, operating off of a continuing resolution has stifled any potential growth in appropriations, she explained.
“Unfortunately, the [continuing resolution] that we’re currently operating under keeps us flat, so it really does slow down our ability to do the hiring and planning that we want and need to do,” McCargo said.
External to the budget issues, Ginnie Mae has taken steps to improve reverse industry liquidity by reducing the minimum size required to create HMBS pools to assist smaller issuers and changing certain pool eligibility requirements to ease some strain.
Many people mistakenly believe they can’t afford to buy a home because they don’t really know what their options are. Fortunately, home loans are not one-size-fits-all. There are various mortgages available to suit your budget and preferences.
So, before you start visiting open houses, take some time to familiarize yourself with the different home loans that are available. Going into the home buying process informed could help you save a lot of money on your down payment, interest, and fees.
The 8 Types of Mortgage Loans Available
Understanding the different types of mortgage loans will help you choose the option that’s best suited for you. Let’s look at a brief overview of the eight types of mortgages available in 2024.
1. Conventional Loans
A conventional loan is a mortgage that’s not issued by the federal government. There are two different types of conventional mortgages you can choose from: conforming and non-conforming loans.
A conforming loan falls within the guidelines laid out by Fannie Mae and Freddie Mac. You’ll take out a conforming loan through a private lender like a bank, credit union, or mortgage company. Since the government doesn’t guarantee the loan, conventional mortgages typically come with more stringent lending requirements.
According to the CFPB, the maximum loan amount for a conventional loan is $484,350. However, it may be as high as $726,525 in counties with a high cost of living. You’ll have to take out private mortgage insurance (PMI) if you don’t have a 20% down payment.
Conventional loans are fixed-rate mortgages, which means your monthly mortgage payment remains the same throughout the entire life of the mortgage loan. The terms typically range from 10 to 30 years:
30-year fixed-rate mortgage
20-year fixed-rate mortgage
15-year fixed-rate mortgage
10-year fixed rate mortgage
Pros:
It can be used to purchase a primary home or an investment property
Tends to cost less than other types of loans
You can cancel your private mortgage insurance (PMI) once you reach 20% equity in your home
Cons:
Must have a minimum FICO score of 620 or higher
Harder to qualify for than government-backed loans
You’ll need to have a low debt-to-income ratio to qualify
2. Conventional 97 Mortgage
A conventional 97 mortgage is similar to a conventional loan in that it’s widely available to various borrowers. The main difference is that with this type of home loan, you only have to pay a 3% down payment.
The program is available for first-time and repeat home buyers. However, it must be your primary place of residence, and the maximum loan amount is $510,400.
Pros:
Widely available to most borrowers
Only requires a 3% down payment
Available for first-time and repeat homebuyers
Cons:
Cannot be used to purchase investment properties
The maximum loan amount is $510,400
Requires a minimum FICO score of 660 or higher
3. FHA Loans
FHA loans are backed by the Federal Housing Administration and are a popular option for first-time home buyers. To qualify, you need to have a 3.5% down payment and a minimum credit score of 580.
If you have a credit score of 500 or higher, you can qualify for an FHA loan with a 10% down payment. These flexible requirements make FHA loans a suitable option for borrowers with bad credit.
To qualify for an FHA home loan, you must have a debt-to-income ratio of 43% or less. These loans can’t be used to purchase investment properties, and your home must meet the FHA’s lending limits.
These limits vary by state, so you’ll need to check the FHA’s website to see what the guidelines are for your area.
Pros:
Loans come with low down payment options
A viable option for borrowers with bad credit
Available for first-time and repeat homeowners
Cons:
Loans can’t be taken out for investment properties
If your credit score is below 580, a 10% down payment is required
You must have a debt-to-income ratio below 43%
Mandatory mortgage insurance premiums
4. FHA 203(k) Rehab Loans
An FHA 203(k) rehab loan is sometimes referred to as a renovation loan. It allows home buyers to finance the purchase of their home and any necessary renovations with a single loan.
Many people purchase older homes to fix them up. Instead of taking out a mortgage and then applying for a home renovation loan, you can accomplish both within a single mortgage.
A rehab loan is similar to an FHA loan in that you’ll need a 3.5% down payment. However, the credit requirements are stricter, and you’ll need a minimum credit score of 640 to qualify.
Pros:
Allows you to buy a home and finance the remodel within one mortgage
Requires a minimum 3.5% down payment
Easier to qualify since the FHA backs your loan
Cons:
Credit requirements are more stringent than typical FHA loans
You must hire approved contractors and cannot DIY the renovations
The closing process takes longer than other types of mortgages
5. VA Loans
The Department of Veteran Affairs guarantees VA loans. These loans are designed to make it easier for veterans and service members to qualify for affordable mortgages.
One of the biggest advantages of taking out a VA loan is that it doesn’t require a down payment or mortgage insurance premium (MIP). And there are no listed credit requirements, though the lender can set their own minimum credit requirements. VA loans typically come with a lower interest rate than FHA and conventional loans.
To qualify for a VA loan, you must either be active duty military, a veteran or honorably discharged. You’ll need to apply for your mortgage through an approved VA lender.
Pros:
No down payment required
No PMI required
Flexible credit requirements
Cons:
Must be a veteran to qualify
Some sellers will not want to deal with a VA loan
6. USDA Loans
A USDA loan is a type of mortgage that’s available for rural and suburban home buyers. It’s a viable option for borrowers with lower credit scores that are having a hard time qualifying for a traditional mortgage.
USDA loans are backed by the U.S. Department of Agriculture, and they help low-income borrowers find housing in rural areas. USDA loans do not require a down payment, but you will need a minimum credit score of 640 to qualify.
You will need to meet the USDA’s eligibility requirements to qualify for the loan. But according to the department’s property eligibility map, over 95% of the U.S. is eligible.
Pros:
No down payment required
A practical option for low-income borrowers
Available to first-time and repeat home buyers
Cons:
A minimum credit score of 640 is required
Housing is limited to rural and suburban areas
7. Jumbo Loans
A jumbo loan is a mortgage that exceeds the financing guidelines laid out by the Federal Housing Finance Agency. These loans are unable to be purchased or guaranteed by Fannie Mae or Freddie Mac.
A jumbo mortgage is financing for luxury homes in competitive real estate markets, and the limits vary by state. In 2024, the FHFA raised the limits for a one-unit property to $766,550, increasing from $726,200 in 2023. In certain high-cost areas, the limits for jumbo loans vary, reaching up to $1,149,825. These jumbo loans are for mortgages that exceed the set limits in their respective counties.
If you’re hoping to buy a home that costs more than $1 million, you’ll need to take out a super jumbo loan. These loans provide up to $3 million to purchase your home. Both jumbo and super jumbo mortgages can be difficult to qualify for and require excellent credit.
Pros:
These loans make it possible to purchase large homes in expensive areas
Typically comes with flexible loan terms
Cons:
Jumbo loans and super jumbo loans come with higher interest rates
You’ll need a good credit history to qualify
8. Adjustable Rate Mortgages (ARMs)
Unlike a fixed-rate mortgage, where the interest rate is set for the life of the loan, an adjustable-rate mortgage (ARM) comes with interest rates that fluctuate. Your interest rate depends on the current market conditions.
When you first take out an ARM, you will typically start with a fixed rate for a set period of time. Once that introductory period is up, your interest rate will adjust on a monthly or annual basis.
An ARM can be a suitable option for some borrowers because your interest rate will likely be low for the first couple of years you own the home. But you need to be comfortable with a certain level of risk.
And if you choose to go this route, you should look for an ARM that caps the amount of interest you pay. That way, you won’t find yourself unable to afford your monthly payments when the interest rates reset.
4 Types of ARMs
There are 4 different types of adjustable-rate mortgages typically offered:
One Year ARM – The one-year adjustable-rate mortgage interest rate changes every year on the anniversary of the loan.
10/1 ARM – The 10/1 ARM has an initial fixed interest rate for the first ten years of the mortgage. After 10 years is up, the rate then adjusts each year for the remainder of the mortgage.
5/5 and 5/1 ARMs – ARMs that have an initial fixed rate for the first five years of the mortgage. After 5 years is up, for the 5/5 ARM, the interest rate changes every 5 years. For the 5/1 ARM, the interest changes every year.
3/3 and 3/1 ARMs – Similar to the 5/5 and 5/1 ARMs, except the initial fixed-rate changes after 3 years. For the 3/3 ARM, the interest rate changes every 3 years and for the 3/1 ARM, it changes every year.
Pros:
Interest rates will likely be low in the beginning.
If you pay the loan off quickly, you could pay a lot less money in interest.
Cons:
Your monthly mortgage payments will fluctuate.
Many borrowers have gotten into financial trouble after taking out an ARM.
Choosing the Right Home Loan
When it comes to choosing a home loan, you need to consider a few key factors. First, you’ll want to think about the type of loan that is best suited to your needs.
Fixed-rate mortgages offer stability and predictability, while adjustable-rate mortgages (ARMs) can be a viable option for those who expect their income to increase significantly over time. You’ll also want to consider your budget and how much you can afford to borrow, as well as the size of your down payment and the length of the loan term.
It’s also crucial to shop around and compare offers from multiple mortgage lenders. While it’s tempting to go with the first lender you find, it pays to do your homework and see what other options are available.
This can help you get a better rate and more favorable terms on your loan. It’s a good idea to get quotes from at least three different lenders, and to consider both traditional banks and online lenders.
Tips for Getting the Best Rates and Terms
One of the most effective strategies is to improve your credit score. Lenders look closely at credit scores when deciding whether to approve a loan. Those with higher scores are typically offered better terms. You can improve your credit score by paying your bills on time, reducing your debt, and correcting any errors on your credit report.
Another tip is to make a larger down payment, which can help you secure a lower interest rate and reduce the size of your monthly payments. Finally, consider working with a mortgage broker, who can help you shop around and find the best deal.
Bottom Line
As you can see, there are many home loans for you to choose from. The type of mortgage that’s best for you will depend on your current income and financial situation.
If you’re not sure where to start, consider working with a qualified loan officer. They can assess your situation and recommend the option that will be best for you.
Prior to her current position, she spent nearly five years at CBC Mortgage Agency where she was tapped as diversity, equity and inclusion officer. In that role, she oversaw the Chenoa Fund, a nationwide down payment assistance program designed to make housing more affordable, especially for low- to -moderate-income buyers and first-time purchasers. “I still … [Read more…]
FHA loans have been making homeownership more accessible for decades. Tailored to borrowers with lower credit, the FHA makes it possible to buy a house with a credit score of just 580 and only 3.5% down.
But home buyers aren’t the only ones who can benefit. For current homeowners, an FHA refinance may let you access low rates and home equity, even without great credit.
Not sure whether you’ll qualify for a mortgage? Check out the FHA program. You might be surprised.
Verify your FHA loan eligibility. Start here
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>Related: How to buy a house with $0 down: First-time home buyer
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA).
FHA insurance protects mortgage lenders, allowing them to offer loans with low interest rates, easier credit requirements, and low down payments (starting at just 3.5%).
Thanks to their flexibility and low rates, FHA loans are especially popular with first-time home buyers, home shoppers with low or moderate incomes, and/or lower-credit home buyers.
But FHA financing isn’t limited to a certain type of buyer — anyone can apply.
Verify your FHA loan eligibility. Start here
How does an FHA loan work?
The first thing to know about FHA mortgages is that the Federal Housing Administration doesn’t actually lend you the money. You get an FHA mortgage loan from an FHA-approved bank or lender, just like you would any other type of home mortgage loan.
The FHA’s role is to insure these mortgages, offering lenders protection in case borrowers can’t pay their loans back. In turn, this lets mortgage lenders offer FHA loans with lower interest rates and looser standards for qualifying.
The one catch — if you want to call it that — is that you pay for the FHA insurance that protects your mortgage lender. This is called “mortgage insurance premium” or MIP for the life of the loan or until the FHA home loan is refinanced into another type of mortgage. We go over this in detail below.
Types of FHA loans
FHA loans offer various options to meet different home buying needs. These government-backed loans are designed to make homeownership more accessible, especially for those with less-than-perfect credit scores or limited savings.
Each type of FHA loan is tailored to different financial situations and home buying needs. Here’s what you can expect.
Compare FHA loan quotes from multiple lenders. Start here
FHA mortgage loan
An FHA mortgage is ideal for first-time home buyers, requiring a minimum credit score of 580 for a 3.5% down payment. Those with credit scores between 500 and 579 can still qualify for a 10% down payment. These loans are popular due to their lenient credit score requirements and low-down payment options.
FHA rate-and-term refinance
An FHA refinance loan is suited for borrowers looking to improve their loan terms or lower interest rates, especially if their credit scores have improved since obtaining their original mortgage. It offers a way to adjust loan terms to better fit current financial situations.
FHA Streamline Refinance
For current FHA loan holders, the FHA Streamline Refinance provides an efficient way to refinance with minimal documentation and underwriting. It often results in lower interest rates and can potentially reduce mortgage insurance premiums. This option is advantageous for those who want to refinance without a complicated process.
FHA cash-out refinance
An FHA cash-out refinance allows homeowners to tap into their home equity, converting it into cash. It requires a minimum credit score of 620, and borrowers must leave at least 15% equity in their home after the refinance. It’s suitable for those needing extra funds for expenses or investments.
FHA Home Equity Conversion Mortgage (HECM)
HECM is a reverse mortgage for homeowners aged 62 and older, allowing the conversion of home equity into cash. It provides financial flexibility for seniors by enabling access to their home equity without selling the home.
FHA 203(k) loan
The FHA 203(k) loan is designed for home purchases requiring renovations. It combines the cost of the home and renovation expenses into one loan. Borrowers must meet specific credit score requirements and ensure that renovations are completed within six months.
FHA Energy Efficient Mortgage
This loan type allows borrowers to include energy-efficient upgrades in their FHA loan. It’s aimed at reducing utility costs and increasing the home’s environmental friendliness, thereby potentially increasing its value.
Section 245(a) loan
The Section 245(a) program is for borrowers expecting an increase in their income. It offers a graduated payment schedule that starts low and increases over time, aligning with anticipated income growth. This loan is particularly beneficial for young professionals expecting career advancement.
Check your FHA loan eligibility. Start here
FHA loan requirements
Homeownership can be a liberating experience, especially for first-time buyers. With their flexible guidelines and government backing, FHA home loans provide a welcoming path.
Understanding FHA loan requirements can make the process much easier, opening the door to a future in your ideal home.
Check your FHA loan eligibility. Start here
To be eligible for an FHA loan, applicants must adhere to specific guidelines:
The property must undergo a home appraisal by an FHA-approved appraiser.
The property must serve as the applicant’s primary residence; investment properties and second homes are not eligible.
Occupancy of the property is required within two months following the closing.
A mandatory inspection is conducted to ensure the property meets FHA’s basic standards.
There are a few more specific conditions to qualify, such as a down payment amount, mortgage insurance, credit score, loan limits, and income requirements.
FHA loan down payment requirements
FHA loans require a minimum down payment, which varies based on credit score. For credit scores of 580 and above, a minimum down payment of 3.5% is required. Borrowers with credit scores between 500 and 579 must make a 10% down payment.
FHA mortgage insurance premiums
FHA mortgage insurance premium (MIP) is what makes the FHA program possible. Without the MIP, FHA-approved lenders would have little reason to make FHA-insured loans.
There are two kinds of MIP required for an FHA loan. One is paid as a lump sum when you close the loan, and the other is an annual premium, which becomes less expensive each year as you pay off the loan balance:
Upfront Mortgage Insurance Premium (UFMIP) = 1.75% of the loan amount for current FHA loans and refinances
Annual Mortgage Insurance Premium (MIP) = 0.85% of the loan amount for most FHA loans and refinances
MIP is split into monthly payments that are included in your mortgage payment. You’ll have to pay FHA insurance for the life of the loan or if you refinance into another type of mortgage loan.
The good news is that, as a homeowner or home buyer, your FHA loan’s MIP rates have dropped. Today’s FHA MIP costs are now as much as 50 basis points (0.50%) lower per year than they were in previous years.
Also, you have ways to reduce what you’ll owe in FHA MIP.
Depending on your down payment and loan term, you can reduce the length of your mortgage insurance to 11 years instead of the entire loan.
Loan term
Original down payment
MIP duration
20, 25, 30 years
Less than 10%
Life of loan
20, 25, 30 years
More than 10%
11 years
15 years or less
Less than 10%
Life of loan
15 years or less
More than 10%
11 years
Or, you could refinance out of FHA MIP at a later date.
With FHA interest rates as competitive as they are today, refinancing could reduce your monthly mortgage payments and cancel your mortgage insurance premium if you have enough equity in the home.
Check your FHA loan rates. Start here
FHA loan credit score minimums
The minimum credit score requirement for an FHA loan is 500. However, a score of 580 or higher allows for a lower down payment. Credit scores directly impact loan terms and down payment amounts.
Debt-to-income ratio
FHA loans consider the borrower’s debt-to-income (DTI) ratio, a measure of monthly debt payments against monthly income. The FHA prefers a DTI ratio of no more than 43%, though exceptions can be made for higher ratios with compensating factors.
Income and employment requirements
There is no specific income threshold for FHA loans, but borrowers must demonstrate steady employment history. Verification includes pay stubs, W-2s, tax returns, and bank statements.
FHA loan limits
Loan limits for FHA loans vary by county. However, starting January 1, 2024, the new FHA loan limit will be $498,257 for a single-family home in most parts of the country. Limits increase for 2-, 3-, and 4-unit properties.
FHA loan rates
Interest rates for FHA loans are competitive and can vary based on factors such as prevailing market rates, borrower’s credit score, income, loan amount, down payment, and DTI ratio. Government backing often enables lenders to offer lower rates compared to conventional mortgages.
Compare your FHA loan rates from multiple lenders. Start here
Today’s rates for a 30-year, fixed-rate FHA loan start at % (% APR), according to The Mortgage Reports’ daily rate survey.
Thanks to their government backing, FHA loan rates are competitive even for lower-credit borrowers. But interest rates can vary a lot from one lender to the next, so be sure to shop around for your best offer.
FHA loan benefits
Check your FHA loan eligibility. Start here
1. Lower down payment: Just 3.5 %
For today’s home buyers, there are only a few mortgage options that allow for down payments of 5% or less. The FHA loan is one of them.
With an FHA mortgage, you can make a down payment as small as 3.5% of the home’s purchase price. This helps home buyers who don’t have a lot of money saved up for a down payment along with home buyers who would rather save money for moving costs, emergency funds, or other needs.
2. FHA allows 100% gift funds for the down payment and closing costs
The FHA is generous with respect to using gifts for a down payment. Very few loan programs will allow your entire down payment for a home to come from a gift. The FHA will.
Via the FHA, your entire 3.5% down payment can be a gift from parents or another family member, an employer, an approved charitable group, or a government homebuyer program.
If you’re using a down payment gift, though, you’ll need to follow the process for gifting and receiving funds.
3. FHA loans allow higher debt-to-income ratios
FHA loans also allow higher debt-to-income ratios.
Your debt-to-income ratio, or DTI, is calculated by comparing two things: your debt payments and your before-tax income.
For instance, if you earn $5,000 a month and your debt payment total is $2,000, your DTI is 40%.
Officially, FHA maximum DTIs are as follows.
31% of gross income for housing costs
43% of gross income for housing costs plus other monthly obligations like credit cards, student loans, auto loans, etc.
However, a 43% DTI is actually on the low end for most FHA borrowers. And FHA will allow DTI ratios as high as 50%. Although to get approved at such a high ratio, you’ll likely need one or more compensating factors — for instance, a great credit score, significant cash savings, or a down payment exceeding the minimum.
In any case, FHA is more lenient in this area than other mortgage loan options.
Most conventional mortgage programs — those offered by Fannie Mae and Freddie Mac — only allow debt-to-income ratios between 36% and 43%.
With down payments of less than 25%, for example, Fannie Mae lets you go to 43% DTI for FICOs of 700 or higher. But most people don’t get conventional loans with debt ratios that high.
4. FHA loans accept lower credit scores
Officially, the minimum credit scores required for FHA mortgage loans are:
580 or higher with a 3.5% down payment
500-579 with a 10% down payment
High credit scores are great if you have them. But past credit history mistakes take a while to repair.
FHA loans can help you get into a home without waiting a year or more for your good credit to reach the “excellent” level. Other loan programs are not so forgiving when it comes to your credit rating.
Fannie Mae and Freddie Mac (the agencies that set rules for conventional loans) say they accept FICOs as low as 620. But in reality, some lenders impose higher minimum credit scores.
5. FHA even permits applicants with no credit scores
What if an applicant has never had a credit account? Their credit report is, essentially, blank.
FHA borrowers with no credit scores may also qualify for a mortgage. In fact, the U.S. Department of Housing and Urban Development (HUD) prohibits FHA lenders from denying an application based solely on a borrower’s lack of credit history.
The FHA allows borrowers to build non-traditional credit as an alternative to a standard credit history. This can be a huge advantage to someone who’s never had credit scores due to a lack of borrowing or credit card usage in the past.
Borrowers can use payment histories on items such as utility bills, cell phone bills, car insurance bills, and apartment rent to build non-traditional credit.
“Not all lenders who are FHA approved offer these types of loans, so check with your loan officer individually,” cautions Meyer.
6. FHA loans can be up to $ in most of the U.S.
Most mortgage programs limit their loan sizes, and many of these limits are tied to local housing prices.
FHA mortgage limits are set by county or MSA (Metropolitan Statistical Area), and range from $ to $ for single-family homes in most parts of the country.
Limits are higher in Alaska, Hawaii, the U.S. Virgin Islands, and Guam, and also for duplexes, triplexes, and four-plexes.
7. FHA also allows extended loan sizes
As another FHA benefit, FHA loan limits can be extended where home prices are more expensive. This lets buyers finance their home using FHA even though home prices have skyrocketed in certain high-cost areas.
In Orange County, California, for example, or New York City, the FHA will insure up to $ for a mortgage on a single-family home.
For 2-unit, 3-unit and 4-unit homes, FHA loan limits are even higher — ranging up to $.
If your area’s FHA’s loan limits are too low for the property you’re buying, you’ll likely need a conventional or jumbo loan.
8. If you have an FHA loan, you can lower your rate with an FHA Streamline Refinance
Another advantage for FHA-backed homeowners is access to the FHA Streamline Refinance.
The FHA Streamline Refinance is an exclusive FHA program that offers homeowners one of the simplest, quickest, and most affordable paths to refinancing.
An FHA Streamline Refinance requires no credit score checks, no income verifications, and home appraisals are waived completely.
In addition, via the FHA Streamline Refinance, homeowners with a mortgage pre-dating June 2009 get access to reduced FHA mortgage insurance rates.
Verify your FHA loan eligibility. Start here
FHA loan disadvantages
What is the downside to an FHA loan? Among the numerous benefits of FHA loans, there are certain disadvantages that potential borrowers should be aware of. These drawbacks can impact the overall cost and flexibility of the loan.
Here are the downsides that you should know about FHA home loans.
FHA loan mortgage insurance premiums
One of the primary drawbacks of FHA loans is the mandatory mortgage insurance premiums. These include an upfront premium at closing, generally 1.75% of the loan amount, and ongoing monthly payments. This additional cost can make FHA loans more expensive over the long term
Loan limits
One notable limitation of FHA loans is the lower loan limits compared to conventional loans, which can be restrictive for higher-income buyers. The FHA mortgage limit for a one-unit property ranges from $ to $ for single-family homes in most parts of the country, which may not be sufficient in areas with higher property values.
Strict property requirements
FHA loans come with stringent property requirements. The purchased home must be the borrower’s primary residence and must meet specific safety and condition standards. This requirement can limit the types of properties that qualify for an FHA loan.
FHA loan alternatives
Alternative loans, like USDA and VA loans, offer distinct advantages, such as no down payment requirements, but come with specific eligibility criteria. Understanding these alternatives ensures you make a well-informed decision about the type of mortgage that’s right for you.
Conventional 97
The Conventional 97 program comes with a down payment requirement of just 3%. It stands out due to the absence of income limits and mandatory home buyer education, making it accessible to a broader range of homebuyers.
Check your conventional loan eligibility. Start here
HomeReady Mortgage by Fannie Mae
The HomeReady mortgage program is designed for low- to moderate-income families, allowing a home purchase with only a 3% down payment. Furthermore, this program permits the entire downpayment and closing costs to be covered by gifts or grants, offering significant financial flexibility.
Freddie Mac Home Possible
The Home Possible loan is notable for its reduced mortgage insurance costs compared to other similar programs. With a 3% down payment requirement and lower ongoing costs, Home Possible is an attractive alternative for those looking to save on mortgage insurance.
USDA loans
USDA loans, backed by the U.S. Department of Agriculture, are an attractive alternative, especially for moderate-income buyers in rural areas. They don’t require a down payment, which is a significant advantage. However, eligibility for USDA loans is restricted based on income and geographical limits, and not every property qualifies for this type of financing.
VA loans
VA loans are another viable alternative, particularly for U.S. military service members, veterans, and certain surviving spouses. Like USDA loans, VA loans also require no down payment. However, eligibility for VA loans is exclusive to the military community, limiting their accessibility to the general public.
FAQ: FHA loans
Can I choose between a fixed rate and an adjustable-rate FHA loan?
Yes, FHA loans offer both fixed-rate and adjustable-rate (ARM) options. A fixed-rate FHA loan provides a consistent interest rate and monthly payment for the life of the loan, ideal for those who prefer stability. An adjustable-rate FHA loan, on the other hand, has an interest rate that can change over time, typically offering lower initial rates.
Do FHA loans have lower interest rates?
FHA loans often have lower interest rates compared to many conventional loan options. This is largely due to the government backing of FHA loans, which reduces the risk for lenders. As a result, lenders are generally able to offer more competitive mortgage rates to borrowers. However, the actual interest rate you’ll receive on an FHA loan can vary based on several factors, including your credit score, loan amount, and the current market conditions. It’s always a good idea to compare rates from multiple lenders to ensure you’re getting the best deal possible for your situation.
Are FHA loans assumable?
Yes. A little-known FHA benefit is that the agency will allow a home buyer to assume the existing FHA mortgage on a home being purchased. The buyer must still qualify for the mortgage with its existing terms but, in a rising mortgage rate environment, it can be attractive to assume a home seller’s loan. Five years from now, for example, a buyer of an FHA-insured home could inherit a seller’s sub-3 percent mortgage rate. This can make it easier to sell the home in the future.
Can you buy a rental property with an FHA loan?
While you can’t buy a true rental property with an FHA loan, you can buy a multi-unit property — a duplex, triplex, or fourplex — live in one of the units, and rent out the others. The rent from the other units can partially, or even fully, offset your mortgage payment.
Are closing costs higher for FHA loans?
Closing costs are about the same for FHA and conventional loans with a couple of exceptions. First, the appraiser’s fee for an FHA loan tends to be about $50 higher. Also, if you choose to pay your upfront MIP in cash (instead of including this 1.75% fee in your loan amount), this one-time fee will be added to your closing costs. Additionally, the fee can be rolled into your loan amount.
What credit score do I need for an FHA loan?
Most borrowers will need a minimum credit score of 580 to get an FHA loan. However, home buyers who can put at least 10% down are eligible to qualify with a 500 score. Yet, each lender may have their own credit score minimums, separate to those established by the Federal Housing Administration.
What is the loan-to-value ratio requirement for FHA loans?
The loan-to-value (LTV) ratio for FHA loans typically cannot exceed 96.5%, meaning you can borrow up to 96.5% of your home’s value. This high LTV ratio is part of what makes FHA loans accessible, especially for first-time homebuyers who might not have substantial savings for a down payment.
How does PMI work with FHA loans?
For FHA loans, the equivalent of private mortgage insurance (PMI) is the mortgage insurance premium (MIP). MIP is required for all FHA loans, regardless of the down payment or loan-to-value ratio. This insurance protects lenders from losses in case of borrower defaults and is included in both upfront and ongoing mortgage costs.
What happens if I default on an FHA loan?
If you default on an FHA loan, the lender can initiate foreclosure proceedings. The FHA loan program, backed by the Federal Housing Administration, is designed to minimize the risk of defaults by offering more lenient qualification criteria. However, consistent failure to make mortgage payments may lead to foreclosure, impacting your credit score and homeownership status.
Today’s FHA loan rates
Now is an opportune time to consider an FHA loan, with current mortgage rates being historically competitive.
FHA loan interest rates are typically among the most competitive. To capitalize on these favorable rates, start by comparing offers from FHA-approved lenders.
Finding the most affordable loan could be just a few clicks away. Begin your journey towards homeownership today by exploring your options and discovering the best rates available for your financial situation.
Time to make a move? Let us find the right mortgage for you
Even though it’s a large city, San Francisco still retains a very welcoming and neighborly vibe, and much like San Diego, New York and Los Angeles, there’s a certain charm here that draws in many new residents each year. The cost of living in San Francisco scares many off, but there are plenty of secrets to discover within this picturesque city.
All of these incredible amenities come with a steep monetary price. Even in the area’s most affordable neighborhoods, estimated monthly costs are high. In fact, the cost of living in San Francisco is a whopping 84.2 percent higher than the national average.
This is how San Francisco’s cost, as a whole, all breaks down.
San Francisco housing prices
When searching for apartments in San Francisco, you’ll face a lot of competition, even where the median rent is high. Despite the infamous San Francisco cost of living, though, people still want a San Francisco home.
As one of the hottest markets in the country, San Francisco housing is 242.3 percent above the national average. Although there are some affordable neighborhoods, many properties have an average apartment rent that’s sky-high. Not surprisingly, this greatly affects your estimated monthly costs and raises your living index. It’s also the primary reason this is such an expensive city.
To break down what this cost means, the average monthly rent for a one-bedroom in San Francisco is $3,554, up 4 percent over last year. For a two-bedroom, rent averages out to $5,007, an increase of 10 percent over last year. This is mind-boggling when you look at nearby cities like San Jose, where the average monthly rent is almost $1,000 less for both one- and two-bedroom units.
For those looking to buy, home prices vary widely depending on the neighborhood, but the median sale price in San Francisco is $1.525 million. This is up only 1.2 percent over last year, but homes often sell quickly. The median days on the market is less than three weeks.
Apartment hunting in San Francisco
Whether living a life of luxury or trying to keep things affordable in San Francisco, there’s a neighborhood for you. Even in expensive cities, you can find those hidden gems if you’re willing to look.
If you want to live in one of the more popular downtown neighborhoods like Rincon Hill and Nob Hill, prepare to pay (or find a roommate.) The average rent for a one-bedroom apartment is between $3,595 and $4,505.
For a neighborhood geared more toward young families, the average rent for a two-bed in Bernal Heights is only $2,800. For those wanting to live in California on a budget and still stay safe, the average rent for a two-bed in Outer Richmond is only $3,195.
San Francisco food prices
San Francisco is the epicenter of delicious food — more than 30 restaurants have garnered 44 Michelin stars. But, having such fantastic options does not often come cheap. Thankfully, when you’re on a budget, just go for that bread bowl, whatever is in it. In fact, you can get an entire meal at an inexpensive restaurant for $20.
For those who like to cook at home, San Francisco grocery costs are 29.8 percent higher than the national average. The data isn’t all bad, though, as this total is down by 0.6 percent compared to the past year.
Although there’s obviously variation by brand and store, there are some standard product prices that shed a light on grocery costs. For example, a dozen eggs will cost you $3.47, and a half-gallon of milk rings up at $3.55. For those who can’t get enough of that sourdough (or any kind of bread,) the average loaf will run you $4.81.
While there are plenty of locally-crafted, small-batch breweries, you’ll pay a premium price for your lager — the average six-pack is $10.19.
San Francisco utility prices
Utility rates in San Francisco neighborhoods won’t help keep your cost of living index low. While they’re 33.8 percent higher here than the national average, the saving grace is the year-round mild Bay Area weather.
As a result of the mild temperatures, there’s little need to turn on the apartment air conditioner during the summer. And during the wet winter months, a sweatshirt indoors will usually suffice. That said, the average energy bill is still high, at $275.58.
This makes utilities in San Francisco a cost of living concern, compared with most other cities. Even the companion California cities of Los Angeles and San Diego have lower utility averages.
San Francisco transportation prices
Transportation costs in San Francisco are 41.6 percent higher than the national average, which is actually 3.4 percent less than last year. The most expensive city for transportation in California behind San Fran is Oakland, San Francisco’s next-door neighbor, which has an average that’s 39.2 percent above.
What’s great about San Francisco is that the city comes with the advantage of multiple public transit options. There are the famous cable cars, the bus and rail systems and an abundance of ride-share services.
To travel in style, an iconic cable car is a great way to experience the city. Offered through San Francisco Municipal Railway (MUNI), riders can pay $8 per ride. The MUNI buses take your transportation expenses down a notch with single-ride fares at only $2.50. You can also purchase a monthly pass, which includes busses and cable car rides, for $81.
To take the train in, out and around the city, use BART (Bay Area Rapid Transport). Stops include the airport, as well as an assortment of East Bay cities. Six lines are available, with easy color-coded routes. The best way to verify the price of your one-way fare is to use the BART fare calculator. To save a little, get a Clipper Card and buy in bulk.
Thanks to its extensive public transit network, San Francisco leaves you with plenty of ways to explore where you don’t have to own a car.
Biking and walking
Biking, a popular way to get around the city, is cheap but arduous thanks to the many famously steep hills that San Francisco neighborhoods are known for. With a bike score of 77, you’ll often see bright green, bike-only lanes running next to busy streets — plus, plenty of bike-share stalls located throughout the city.
San Francisco is also ideal for walking, especially for renters in city-centric apartments. With so many amenities in proximity to area housing, this city earned itself a walk score of 93.
San Francisco healthcare prices
At 33.9 percent higher than the national average, the data says that San Francisco is an expensive market when it comes to healthcare. However, the upside to living in San Francisco is that renters do have access to some of the nation’s top doctors and treatment facilities.
It’s difficult to calculate an average for healthcare expenses, as prices are dependent on personal needs and other factors. That being said, the price for healthcare issues in San Francisco is more than in most places. Overall prices are 18.9 percent more than in Los Angeles and 26.7 percent more than in San Diego, and these other cities have their own reputations for being high-end.
Looking at medical costs in the Bay Area, a routine visit with your doctor averages out to $177.33. For an eye exam, you’ll see an average bill of $156.75 from your optometrist, while a trip to the dentist will set you back $150. These prices are without medical insurance, so the total cost could be very different depending on your plan.
San Francisco goods and services prices
Whenever your cost of living includes something you want more than you need, it’s most likely a good or service. Many of these expenses are optional, unlike housing costs, so it’s easier to keep them in check.
That said, this is an expensive item on the list. The cost of goods and services in San Francisco is 24.3 percent higher than the national average, up 2.4 percent over last year. This means you’ll most likely spend more for that movie ticket ($15), yoga class ($24.17) or a trip to the salon ($85.71) than friends in other cities.
Taxes in San Francisco
California has the highest state sales tax in the nation at 7.25 percent, and localities can add an additional tax on top of it. This makes the minimum combined sales tax rate for San Francisco 8.625 percent.
What this means is when you purchase $1,000 worth of clothing and home goods, as you browse around Union Square, you would pay $86.25 of that in sales tax.
California also has a progressive income tax, with rates between 1 percent and 13.3 percent, separated into nine brackets. Making less money means paying lower income taxes while those with a higher salary should expect to sit in the upper end of the tax bracket.
How much do I need to earn to live in San Francisco?
The price to rent a San Francisco apartment is not cheap, but it’s a huge factor in working out your own cost of living. If you’re not sure how much apartment you can afford on your annual salary, you can figure it out using our rent calculator.
You can also do a little estimating using the current standard cost of a one-bedroom apartment. The monthly rent for this unit is $3,621. If you apply 30 percent of your annual income to rent, as many experts suggest, you’d need a job that pays at least $134,720 to live on your own.
This isn’t always possible, given that the median household income in the city is $119,136. You may have to spend a little more than that 30 percent of a more average salary to live alone or consider other options. This may mean finding a monthly rent that’s lower, spending less money on those goods and services or even living with roommates. All of these options can bring San Francisco costs down and improve your own cost of living in this expensive city.
Living in San Francisco
San Francisco is full of unique beauty and charm. With its many parks, perks, great schools and happy people, this is a city for dreamers and doers — one of the best in all of California. The trick is to not let the high cost of living deter you from calling this great city home. You can do it if you watch costs carefully and budget well.
The Cost of Living Index comes from coli.org.
The rent information included in this summary is based on a calculation of multifamily rental property inventory on Rent. as of August 2022.
Rent prices are for illustrative purposes only. This information does not constitute a pricing guarantee or financial advice related to the rental market.
Savings bonds are a cornerstone of conservative investing, offering a secure and reliable means to grow one’s wealth over time. Yet, many people remain unclear about the intricacies of this financial instrument.
In this article, we aim to demystify this valuable financial tool by delving into its core characteristics, advantages, and practical applications. Whether you’re an individual seeking to diversify your investment portfolio or a professional aiming to optimize your financial strategies, understanding the ins and outs of savings bonds can be a game-changer.
What is a savings bond?
Savings bonds are a low-risk, U.S. government-backed investment that you can buy to help raise funds over time. When you purchase one, you are loaning money to the government. In return, the government promises to repay the amount you invested with interest.
Electronic savings bonds are simple to buy, safe to invest in, and affordable. You receive interest payments, and the bonds purchased can go to many purposes later, such as qualified education expenses. The purchase amounts range from a minimum investment of $25 – $10,000. However, there are maximum purchase limits per calendar year depending on the type of bond you purchase.
How do savings bonds work?
Think of a savings bond as a loan to the government. While there are a few rules, the main idea is that the government promises to pay back your loan through interest payments.
The government sets the interest rate for the loan, which doesn’t change for the bond’s duration. You buy these bonds at face value.
Savings bonds offer fixed terms, meaning they mature at a specific date. Once they reach that state, you can redeem them for their total value – plus interest.
The type of bond you purchase determines the maturity date. Some can take up to 30 years, while others take much less time.
Different Types of Savings Bonds
There are two main types of savings bonds in the US today, both a fixed rate, while paper bonds are slowly being phased out.
The U.S. Government issues two main types at face value: Series I Bonds and Series EE Bonds. Below is an overview of what each entails.
Series I Bonds
A Series I U.S. Savings Bond is a type of bond that offers a fixed interest rate that adjusts for inflation. The bonds are sold at face value, meaning that the price you purchase savings bonds for is what it is worth once the bond reaches maturity. With I Bonds, you can protect your investment from the variable inflation rate.
The government sets the I Bond inflation rate twice annually, once for each upcoming six-month period.
The current interest rate is 5.27% for I Bonds issued between November 1, 2023 to April 30, 2024.
I Bonds can earn interest for up to 30 years, unless you decide to cash them out beforehand. You can buy them from the U.S. Treasury using a TreasuryDirect account, or purchase paper bonds using your IRS tax refund.
Series EE Bonds
Series EE Savings Bonds are savings bonds that earn interest regularly for up to 30 years. The government guarantees that the Series EE Bond doubles in value in 20 years, even if it needs to add money at 20 years to reach that number.
Series EE bonds differ from I bonds in multiple ways. Primarily, they are not inflation adjustable. The second is that new EE bonds are only available for electronic purchase.
The government applies the bond’s interest rate to a new principal every six months. A principal is the sum of the previous principal and the fixed rate of interest in the past six months.
As of 2005, new EE Bonds earn a fixed interest rate set on the day you buy a bond. After 20 years pass, the government may adjust the interest on it.
When should I consider a savings bond?
You can buy a savings bond anytime, depending on your finances and long-term investment goals. There are multiple reasons why buying bonds is a good idea for later, however, such as:
Their low-risk nature
They generate a stable and low-risk investment
The interest earned on them is exempt from state and local taxes
Any investor with $25 and above can buy them
Bonds pay back, helping you plan for the future
Enjoying the stability of a fixed rate of interest announced twice annually
Are savings bonds worth it?
Savings bonds are worth the investment if you are looking for a stable way to increase your money at a reliable, fixed rate. If you want faster and higher returns, saving bonds may not be your best option. Remember that you do have to pay federal taxes as the bonds accrue interest, but not state or local taxes.
Ultimately, the selling point for purchasing a savings bond is a stable and safe return on your investment. Not all investments you make come with a guarantee as solid as the one you can get from the government.
The TreasuryDirect website also lets you send an announcement to someone to let them know you purchased a savings bond for them as a gift.
How do I redeem my savings bonds?
Redeeming a savings bond is usually an uncomplicated and seamless process. If you purchased your bonds electronically, such as the Series EE or Series I bonds, you could cash them in through your online TreasuryDirect account. Once you do so, you will receive your money in a checking or savings account of your choice in a few business days.
If you purchased older paper savings bonds, you could redeem them at financial institutions where you have an account. The option to cash in a bond at a bank or credit union depends on how long you had an account with them.
For older series of savings bonds, like HH bonds, you can’t redeem them through banks or credit unions. The FAQ section will cover HH bonds, as the government no longer issues them.
For HH Bonds, you must complete a specific form called the FS Form 1522. Once completed, you must mail the bond with a certified signature and direct deposit information to the Treasury Retail Securities Services.
Early Withdrawal Penalty
Sometimes, a circumstance may force you to withdraw your savings bond early. Although not advisable as savings bonds are long-term investments, you still have options when something unexpected happens.
Series EE and Series I savings bonds have an early withdrawal penalty if you redeem them less than five years after their issue date.
So, if you cash in the bond before the five-year mark, you receive the principal amount plus the interest earned up to that point minus the interest accrued in the past three months.
After the five-year mark, there are no penalties for redeeming your savings bond. You can receive the total value of the principal and interest earned.
Savings Bonds vs. Savings Accounts vs. Certificates of Deposit (CDs)
A savings account and a CD are financial products that banks and credit unions offer. With a savings account, you can deposit money and earn interest on electronic bonds over time. A CD is when you keep a specific amount of money with the bank for a timeframe in exchange for fixed interest rates.
Although savings accounts and CDs are low-risk investment options, they are not backed by the government like savings bonds. And unlike savings bonds, you must pay federal, state, and local income taxes for CDs and savings accounts.
Benefits and Drawbacks of Investing in Savings Bonds
In terms of benefits, an electronic bond comes with low-risk, guaranteed returns backed by the government. You can use them as a future nest egg, for retirement, or to fund a child or grandchild’s education. Moreover, they come with tax benefits. The federal government allows exemptions on state and local taxes and are simple to buy and later redeem. Keep in mind that you do have to pay federal income tax on them in some cases.
One drawback to electronic bonds is the time it takes to make a solid amount of interest like a money market account. Additionally, they do not offer the potential for capital gains, only from the interest accrued over time. Finally, if you do not have a Series I bond, you do not have sufficient protection against inflation.
Bottom Line
Bottom line: Savings bonds are an excellent investment option if you are looking for guaranteed returns by the United States government. Although it takes time to get their full benefit, they are a reliable way to save money, helping you plan for the future or pay tuition for college. You don’t have to worry about a variable interest rate, and the interest payment is always stable.
Frequently Asked Questions
Where can I purchase savings bonds?
You can purchase savings bonds online from the U.S. Department of the Treasury through their online platform, www.treasurydirect.gov. Buying from the treasury guarantees safety and security. Paper bonds can only be purchased for Series I U.S. savings bonds. Additionally, you can only pay for a paper bond using a tax return.
What is an HH savings bond?
HH savings bonds offer semi-annual interest directly to the bondholder. They were only available as a paper bond by exchanging Series EE or Series E bonds. The government discontinued them in 2004, and they are no longer available for sale. However, some HH bonds are still redeemable depending on their year of purchase.
When can I redeem my savings bonds?
Savings bonds can be redeemed after a minimum holding period, which is typically one year. However, if you redeem the bond before it is five years old, you will lose the last three months of interest as a penalty. Bonds reach their full face value at maturity, which is usually 20 to 30 years from the issue date.
Home loans for nurses come in various forms, specifically designed to cater to the unique needs of healthcare workers.
Beyond these specialized mortgage options, numerous local and national assistance programs can also offer financial help — like with down payments and closing costs.
Find the best home loan program for you. Start here
However, just because you’re a nurse doesn’t mean a specialized “nurse home loan” is best. You might find you can buy a home more easily with a standard mortgage program. So do your research and choose carefully.
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Are there special home loans for nurses?
Yes, there are special home loans for nurses that are designed to meet their unique financial and professional circumstances. These specialized mortgage options often come with benefits like lower interest rates, reduced down payments, and more flexible qualification criteria.
Additionally, there are grants for nurses and various local and national assistance programs that provide financial aid. These can be particularly helpful in covering down payments and closing costs, making the home-buying process more accessible, especially for nurses who are first-time homebuyers.
6 best home loans for nurses
When looking for the best home loan programs for nurses, it’s worth considering a mix of both specialized and standard options.
We recommend six mortgage programs in total—two are specialized home loans for nurses, while the other four are standard loan programs open to almost anyone. Surprisingly, you may find that a mainstream mortgage program, rather than a nurse-specific one, ends up being your best fit.
Find the best home loan program for you. Start here
To give a quick overview, the six best home loans for nurses are:
Nurse Next Door program
Homes for Heroes
Conventional mortgages
FHA mortgages
VA mortgages
USDA mortgages
Let’s dig into each program in a little more detail.
1. Nurse Next Door program
The Nurse Next Door1 program is not a “true” mortgage loan program. It does not lend money or originate loans. Rather, it’s a home buyer assistance program that will help match you with the right property, mortgage, and aid program for your needs (if required).
Nurse Next Door provides grants for nurses of up to $8,000 (where available) and down payment assistance of up to $10,681. You may also reduce closing costs by eliminating a home appraisal and other fees.
Keep in mind that grants are generally only awarded to nurses and medical professionals who are first-time buyers purchasing a primary residence. This means that you must refrain from using the funds for an investment property or vacation home.
Before you use this program, though, check that you can’t get more generous grants or loans from your state or local down payment assistance program.
2. Homes for Heroes: Healthcare professionals
Homes for Heroes2 is another nationwide homeowner assistance program that aims to make buying a new home more affordable for firefighters, law enforcement, teachers, military, and medical professionals.
The website says, “Most heroes save at least $3,000 when they buy or sell a home with us. When you add up savings from real estate agents, loan officers, title companies, home inspectors, and other everyday deals, the savings are way beyond what you’ll get from other national programs.”
Note that you must use real estate professionals recommended by Homes for Heroes to benefit. Again, check other local programs to ensure this is your best option before buying.
3. Conventional loans for nurses
Conventional mortgages are the most popular type of home loan available today. These loans are not backed by the government, like others on this list, but most conform to the rules laid down by Fannie Mae and Freddie Mac, which are two government-sponsored enterprises. This is why they’re also referred to as “conforming loans.”
Conventional loans require a credit score of 620 or better. But they offer a low down payment option of only 3% of the purchase price to qualify. Although, if your down payment is less than 20%, you’ll need to pay for private mortgage insurance (PMI), which means higher monthly payments.
4. FHA loans for nurses
Nurses and medical professionals with a credit score between 580 and 620 could opt for a mortgage backed by the Federal Housing Administration, an FHA loan. This type of loan is popular with first-time home buyers because of its flexible approval guidelines.
FHA loans also have a low down payment option of 3.5%. But you will have to pay mortgage insurance premiums (MIP) for the life of the loan. Note that MIP is different from private mortgage insurance on a conventional loan. Still, many FHA buyers simply refinance out of mortgage insurance down the road when their credit scores improve.
Consider opting for a conforming loan if you can. Because of those, you can escape mortgage insurance costs more easily and cheaply.
Verify your FHA loan eligibility. Start here
5. VA loans for nurses
Backed by the Department of Veterans Affairs, a VA loan is an option for nurses who have served or are still serving in the military. If you’re eligible, this will likely be your best bet.
Lenders set their own credit score thresholds, usually between 580 and 660. But you need no down payment. And you’ll be in line for a below-market interest rate, no private mortgage insurance, and low closing costs.
VA buyers must pay a one-time VA funding fee that is typically between 2.3% and 3.6% of the loan amount. However, many borrowers roll this fee into their loan balance, so they don’t have to pay it upfront.
Verify your VA loan eligibility. Start here
6. USDA loans for nurses
The US Department of Agriculture backs USDA mortgages. These, too, require no down payment. But you’ll likely need a score of 640 or better. Similar to the VA loan, a USDA mortgage frequently has lower interest rates than the “going” rate.
You must also meet household income limits and buy a home in a designated rural area. Some suburbs are included. Use the USDA’s maps to find out whether the place where you want to buy is eligible.
Find out if you qualify for a USDA loan. Start here
Grants for nurses
Most of the home loan programs for nurses we highlighted above can be used with down payment assistance (DPA) programs, which could help cover your down payment and closing costs.
Check your home buying options. Start here
All states and many cities and counties offer grants and DPA programs for first-time buyers. There are thousands of these across the country. In some places, you can get home buying assistance running into the tens of thousands of dollars.
Some of these down payment assistance programs offer special privileges to nurses and other essential workers. To find one that covers the area where you want to buy, read this article or check out your state’s page on the Department of Housing and Urban Development (HUD) website.
Note that each DPA sets its own eligibility requirements and caps the amount of money it will grant or lend you. So you’ll have to do a bit of research to find out what you could be in line for and whether you qualify.
Nurse home loans from private lenders
Some private mortgage lenders offer reduced closing costs or other perks for nurses. For example, Homes for Champions (RealFi Home Funding Corp.) says that it’s offering for nurses and doctors can save you “up to 2.00% to 3.00%” by eliminating many fees normally due on closing.
But this company is a licensed direct lender in only 13 states, plus Washington DC: CT, DE, FL, GA, MD, NC, NJ, NY, PA, SC, TX, and VA.
Find the best home loan program for you. Start here
Other companies or organizations also offer help to homebuyers who are nurses.
One such program is the Everyday Hero Housing Housing Assistance Fund. It seems that it refunds seller concessions negotiated by specialist real estate agents. You wouldn’t be alone in assuming that’s a scam. Although it has an A+ rating with the Better Business Bureau. So it may be worth checking out. Remember that seller concessions are hard to obtain in sellers’ markets, which most are at the time of this writing.
Meanwhile, Nurse Home Loan Programs says its goal is “to educate and connect our Nurses with the best home loan solutions for them all over the country.”
It might be worth talking to one of the company’s specialists if your applications are getting rejected. Because that does sometimes happen with lenders that don’t understand nurses’ special working conditions, such as overtime and differential income, or that struggle to grasp the challenges of high student debt and travel nurses’ seemingly chaotic employment records. (More on those and similar challenges below.)
How to overcome home buying challenges as a nurse
Qualifying for a mortgage as a nurse often comes with its own set of hurdles. Lenders are generally focused on income verification, but they may lack a comprehensive understanding of how the nursing profession is structured.
As a result, you might find yourself in the position of having to explain why nurses should be considered a special case in the mortgage application process.
Check your home buying eligibility. Start here
Here are some tips to help you qualify for a nurse home loan.
Nursing income for mortgages
Of course, your basic pay should count toward your qualifying income when applying for a mortgage. But it can become more complicated when it comes to overtime, shift differentials, and “extra” pay.
With those, lenders are likely to look back over the last couple of years to see your average gross pay. If you recently had a schedule change or took on more hours, that might not count toward your income right away.
For example, if you’ve only just started earning the higher hourly rate for night shifts, lenders are unlikely to consider that when deciding how much you can borrow. It might help to get your employer to write the lender, verifying that this will be a long-term arrangement.
You can also write an explanatory letter with your application, telling the lender why you think it should take more of your income into account. Sometimes, this strategy works. But not always.
Travel nurses
Travel nurses sometimes have to seek out lenders that understand their work.
You know that you can hop from contract to contract and agency to agency and never skip a beat, except when you choose to take a vacation. But to a lender, your employment record looks patchy and might suggest you can’t hold down a job.
Again, you can explain to lenders how your employment works. If one won’t listen, move on to those who will.
Student debt
As higher nursing qualifications become more valuable, many nurses take on high levels of student debt. That can affect your home-buying budget because of your debt-to-income ratio (DTI).
Lenders worry that borrowers cannot comfortably afford their mortgage payments and other homeownership costs if they have too many other debts. Unfortunately, student loans can compound that debt burden.
There are ways to drive down your DTI, including paying off big monthly debts with small balances. For example, if your auto loan payments are high but you’ve nearly paid them off, get rid of them before applying for your mortgage.
Nurse.org has an excellent article that goes into more detail about applying for a mortgage as a nurse. And it covers most of what we’ve said and more. You can learn more here.
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How to choose the right home loan for nurses
Finding the ideal mortgage is an important step in the home-buying process, and for nurses, this choice may be affected by a number of factors.
While there’s no one-size-fits-all answer, the best home loan for nurse practitioners will depend on individual circumstances such as credit score, down payment, and even military service.
Check your home buying eligibility. Start here
When should nurses consider a VA loan?
If you have served or are currently serving in the military, either as a nurse or in another capacity, a VA loan is likely your best option.
VA loans come with several benefits, including no down payment and no private mortgage insurance (PMI), making them an attractive choice for those who qualify.
When should a nurse choose a conventional loan?
For nurses who have never served in the military but have a good credit score and a decent down payment, a conventional loan is often the next best option.
These loans typically offer competitive interest rates and may require a lower down payment compared to other loan types.
When should nurses use an FHA loan?
If your credit score falls within the 580–619 range, an FHA loan might be your best bet. The Federal Housing Administration is backing these loans, which are more forgiving of lower credit scores.
However, they do require an upfront mortgage insurance premium and ongoing monthly premiums.
When should a nurse choose a USDA loan?
Lastly, for nurses and eligible healthcare workers with limited savings who are looking to buy in a rural area, a USDA loan could be the perfect fit, provided your household income meets the eligibility criteria.
These loans offer 100% financing, meaning no down payment is required, and they also have lower mortgage insurance costs.
FAQ: Home loans for nurses
Do nurses get discounts on mortgages?
Yes, there are special home loan programs for nurses that offer discounts on mortgages. These programs are designed to assist healthcare professionals like registered nurses, nurse practitioners, and even travel nurses in buying a home. The discounts may vary by state and lender, so it’s a good idea to shop around and inquire about home loan assistance for nurses.
Is it easier for nurses to get a mortgage?
While nurses may have stable incomes, the mortgage application process can be complex due to the unique structure of nursing pay, which often includes overtime and shift differentials. Travel nurses may face additional hurdles as their employment can appear inconsistent to lenders. However, there are home loan programs for nurse practitioners that offer relaxed qualification criteria, making the mortgage application process more straightforward.
Do nurses get better interest rates?
While various factors, such as credit score and debt-to-income ratio, affect interest rates, nurses may be able to obtain better interest rates through specialized home loan programs. These programs may offer competitive rates as part of the package. It’s advisable to consult with different lenders to find the best loan type in terms of interest rates.
Can I get a mortgage as a new nurse?
Absolutely, you can get a mortgage as a new nurse. Many lenders offer home loan programs for nurses that don’t require a long employment history in the field. However, you may need to provide proof of employment and your nursing license. If you’re a first-time home buyer, there are also specific loans tailored to your needs, like first-time home buyer loans for nurses.
Are there home loans for nurses?
Yes, there are home loans for nurses with bad credit. While having a lower credit score can be a hurdle in the mortgage application process, certain programs are designed to help nurses overcome this challenge. FHA loans, for example, are more forgiving of lower credit scores and may be a suitable option if your credit falls within the 580–619 range. Additionally, some specialized nurse home loan programs offer more flexible qualification criteria, which can be beneficial for those with less-than-perfect credit. It’s always a good idea to consult with a mortgage advisor to explore all your options.
What are today’s mortgage rates?
Nurses can often find excellent deals when they take advantage of healthcare-oriented mortgage and assistance programs.
But don’t stop at finding the right loan program. You should also shop around for the best mortgage lender.
Each lender you apply to will probably present you with a different set of mortgage rates and closing costs. So get quotes from several and pick the one with the best deal for you.
Time to make a move? Let us find the right mortgage for you
The seniors who are often the parents of Generation X and Generation Y (millennials) could become a pronounced expense for their kids in the coming years, but adult children also want to see their parents successfully age in place.
This is according to a commentary from Sarita Mohanty, president and CEO of elder financial advocacy organization The SCAN Foundation in a commentary published by Fortune.
There will be 16 million “middle-income” seniors in the U.S. by 2033, Mohanty said, citing a 2022 study from the National Opinion Research Center (NORC) at the University of Chicago.
“As NORC’s research summary explains: ‘Many will struggle to pay for the health, personal care, and housing services they need. […] Even with home equity, nearly 40% will not be able to afford assisted living,’” she cited.
These kinds of expenses have only become more burdensome over time, Mohanty said.
“In 2002, adults over 65 spent $48,000 (adjusted for inflation) a year on average, according to data from the Bureau of Labor Statistics,” she wrote. “Today, the average is $58,000, a more than 20% increase. The average rent and medical costs for those in assisted living currently stand at $65,000 a year.”
The far and away preference for both U.S. seniors and their children is for the seniors to age in place in their own homes, Mohanty said. Citing a survey from Today’s Homeowner, 89% of Americans at or over the age of 55 want to remain in their homes.
But a late 2023 survey by CNBC found that nearly 60% of Americans feel they are not on track to retire comfortably, Mohanty pointed out, and that lack of assurance in their own retirement security means the younger generations are often unprepared to assume any support position for their parents.
“Something has to give,” she said. “If you’re in the sandwich generation – Gen X and older millennials – and want to share in the responsibility for their parents’ retirement, you should begin by thinking of your parents’ retirement plans in the context of your own.”
In December, the U.S. Department of Housing and Urban Development (HUD) announced a $40 million notice of funding opportunity to connect seniors in affordable housing with resources that could help them age in place.
The reverse mortgage industry often describes its product as a vehicle that can help older Americans remain in their homes since a core requirement of any reverse mortgage is for the borrower to remain in the property as their primary residence.
If you’re looking to buy a condo or townhome, understanding the distinctions may help you home in on the choice that better suits your lifestyle and needs. Read on to learn the major differences between these two kinds of property.
What Is a Condo?
A condominium is a private property within a larger property, whether that be a single building or a complex. Residents share amenities like clubhouses, gyms, pools, parking, and the common grounds, and pay homeowners association (HOA) dues to support those shared assets. If you buy a condo, you’ll own your interior space only.
What Is a Townhouse?
A townhouse is a single-family unit that shares one or more walls with another home, usually has two or more floors, and may have a small backyard or patio. If you buy a townhouse, you’ll own the interior and exterior of the unit and the land on which it sits. Upkeep of the exterior could be split between you and the homeowners association (HOA). 💡 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.
Condo vs Townhouse: Differences
Both are part of a larger structure, unlike some other house types, and both usually share one or more walls, but some similarities end there. Here are the key differences.
1. Construction
In the condo vs. townhouse debate, construction differs. A townhouse will share at least one wall with a property next door. A condo could have another unit below and above it, in addition to neighbors on either side. That could mean sharing all surrounding walls and floors/ceilings.
2. Actual Ownership
If you’re considering townhouse vs. condo, what would you actually own? With townhomes, the buyer owns the land and the structure. That could mean some creativity with decorating the lot or the home’s exterior. With condos, the buyer owns the interior of the unit and an “interest” (along with all of the other owners) in the common elements of the condominium project.
3. Community
With both condos and townhouses, residents will have fairly close contact with their neighbors. With shared walls and spaces, residents may have more social relationships with their community than they would with a single-family home. That means it’s important for buyers to research the community when condo shopping. Is the condo social? Does it plan a lot of events, or do people generally keep to themselves? Since there are many shared spaces, understanding how the community functions could directly affect living there.
If a townhome isn’t part of an HOA, living in the complex could feel similar to living in a single-family home. In that case, it could be up to the buyer to create a sense of community.
4. Homeowners Associations
Condos come with an HOA, a resident-led board that collects ongoing fees that can range from $200 to thousands of dollars, and mandates any special assessments. The HOA also enforces its covenants, conditions, and restrictions (CC&Rs).
Not all townhouse communities have an HOA, but if they do, townhouse owners usually pay lower monthly fees than condo owners because they pay for much of their own upkeep.
5. Obligations and Regulations
What’s the difference between a townhouse and a condo when it comes to rules and regulations? Condo owners will be required to meet all HOA standards. That could dictate anything from what residents want to hang on their front door to whether they can have pets, how many, and whether Biff needs to be registered as a service animal or emotional support animal. If an owner wants to renovate their condo, they may have to get the work approved by the HOA.
If a townhome is part of an HOA, many of the above restrictions could apply. However, if it’s not an HOA community, townhouse owners have more freedom to decorate the exterior of their home or maintain their landscape as they see fit.
6. Insurance
Condos have their own form of property insurance. HO-6 provides coverage for the interior of a condo and the owner’s personal belongings. In addition, the entire building needs to be insured, which is paid for with HOA dues.
If a townhouse is part of an HOA community, each property requires HO-6 insurance and coverage for the community through HOA dues. When a townhouse isn’t part of an HOA, buyers are typically required to have homeowners insurance.
7. Fees and Expenses
HOA fees for condos are usually higher than for townhouses because they cover exterior maintenance and shared amenities. If townhouse owners are part of an HOA, they’ll usually pay lower monthly fees because they pay for much of their own upkeep.
Condo owners don’t have to worry about repairing the roof or replacing siding. Everything exterior-facing is managed collectively and paid for with HOA dues, but those fees may be high and are periodically reevaluated, and so may rise over time.
8. Financing
It can be harder to obtain financing for a condo than for a townhouse. Condos may be eligible for conventional mortgage loans and government-insured loans. (Study the mortgage basics to learn more about the difference between these types.) Lenders of conventional loans will review the financial health of an HOA, whether most of the units are owner-occupied, and ownership distribution. Interested in an FHA loan or a VA loan? Both agencies maintain respective lists of approved condos.
In the case of a townhouse, the financing process is similar to that of a traditional mortgage because a townhouse includes the land it’s built on. Its value is factored into the process.
9. Resale Value
A large factor in a condo holding value is the management, which isn’t always in the hands of the owner. Strong management can help a condo maintain or grow in value. Additionally, where the condo is located will influence resale value. Condos generally hold value but don’t see the boost in resale expected with single-family homes. Similarly, buying a townhouse may not usher in the appreciation of most single-family homes. 💡 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.
Condo vs Townhouse: Which May Be Right for You?
Condos and townhomes have their fair share of differences, as well as some similarities. Overall, condos can offer a low-maintenance property where owners simply look after their condo interior. With condo ownership comes the added perk of shared amenities. But condos come with monthly HOA fees, which must be factored into any purchase. Additionally, the community association and its management of the property will likely have a large impact on what life is like in a particular condo complex. Condo buyers may be more community-minded, as they share space with their neighbors. (If a condo feels like the right choice, read a guide to buying a condo as you embark on your search.)
Townhouses offer more freedom and privacy than condos. Owners may have the option of personalizing their exterior and enjoying outdoor space if the property has a patio or backyard. Townhomes generally require more responsibility and upkeep than a condo, even if there’s an HOA involved. Exterior maintenance will be required. If this sounds like a good fit, dig deeper by reading a guide to buying a townhouse.
Of course, you may be better suited to a different living situation altogether. House or condo? Take a quiz to learn which of these options might be best for you.
The Takeaway
When it comes to finding a home, the perfect fit is up to the individual, but buyers may want to take a hard look at monthly fees, community rules, how social they intend to be, and precisely what they own and must maintain.
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
Between condos and townhouses, which is cheaper to buy?
The cost of a condo and townhome will vary based on location and size, but condos are often less expensive than townhouses because they come with no land.
Do you own the land around a condo if you buy it?
No. The purchase of a condo only includes the interior.
Is the resale value higher for a condo or townhouse?
In general, condos and townhomes don’t appreciate as quickly as single-family homes. The value will vary based on area, upkeep, and other conditions.
Between condos and townhouses, which has better financing options?
Financing a townhome is like financing a single-family home. A buyer can choose from multiple types of mortgages.
Financing a condo, on the other hand, involves a lender review of the community or inclusion on a list of approved condominium communities. Because a private lender could see a condo as a riskier purchase, the interest rate could be higher unless a large down payment was made.
Photo credit: iStock/Inhabitant
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.
*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.
A condo is a privately owned unit in a community of other units, often with shared areas or amenities. If you’re considering whether to buy or rent a condo, you’ll want to think about the costs, benefits, and responsibilities of each option.
Of course, those who are deciding whether or not to rent have much less riding on their choice, but it’s still worth delving into the pros and cons of this kind of property and if it suits your needs.
Here, you’ll learn about the characteristics that define condos, the pros and cons of these units, and what it’s like to rent or buy a condo.
What Is a Condo?
As noted above, a condo is a privately owned unit that is part of a community of other units, whether that means there are a couple of other residences or dozens. Typically, a condo owner only possesses their unit, unlike the situation with a single-family homeowner, who owns the home and the land under it.
You may be familiar with condos that are rented out for income. If you’ve ever rented an apartment in, say, a complex by the beach, with a shared pool and patio, there’s a chance you’ve been in a condo. Real estate investors often buy condos and rent them out in this way. 💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.
Characteristics of a Condo
Individual condo units are owned by private owners, while common areas are owned and maintained by an association or organization. This might be called a condo association (CA) or a homeowners association (HOA). These groups are not identical, but they do manage a multi-unit residential community.
Your ownership rights may be limited to the space within your condominium, as is the case with most condo high-rises, or you may own an entire standalone structure within a larger community. In a condo situation, the CA or HOA owns the land. In a planned unit development, the homeowners own their lot and share the common area.
Maintenance and Finances of Condos
Condos are popular starter homes, thanks to their low maintenance, relatively cheap purchase price, and general convenience. They may also appeal to investors and people who are downsizing.
With detached single-family homes, you’re on the hook for the bill if any repair issues arise, whether it’s a broken water heater, leaky roof, or malfunctioning air conditioner. This generally isn’t the case with condos, as the property management company employed by the CA or HOA maintains common areas and shared amenities.
Convenience comes with a price, though. Condo owners share maintenance costs, and the expense of a master insurance policy, by paying dues monthly or quarterly. It’s important to budget for these costs. HOA fees,for example, have recently been rising 10% per year. Atop those fees, special assessments can be levied if the HOA needs to pay for a major project.
Condos tend to appreciate at a slower rate than traditional single-family homes, but they cost less. So buyers may want to take both realities into consideration when deciding on house vs. condo.
Recommended: First-Time Homebuyers Guide
Types of Condos
Condos vary widely in structure and appearance, ranging from high-rise buildings to communal developments. Take a closer look:
Condo Developments
These are communities of standalone homes where maintenance of both the interior and exterior are carried by the condo owner, but services like the maintenance of common areas and snow removal are typically handled by a property management company.
All properties within a condo development are bound by the rules of the CA or HOA, so it’s similar to a traditional neighborhood with fixed rules and less upkeep.
Condo Buildings
These are high-rise apartments consisting of individual condo units. The maintenance of the structure, shared utilities, and common areas are the responsibility of the property management company.
If you’re looking at buying or renting an apartment in a large metropolitan area, make sure you understand what it means to choose between a condo and a co-op.
High-rise condo buildings are more common in urban areas and may have higher fees in order to cover the greater costs of maintaining an apartment building and often the salaries of full-time maintenance staff members and doormen.
Pros and Cons of Condos
Next, take a look at the pros and cons of a condo.
Pros of Condos
Here are the upsides of condo life:
• Less maintenance since the CA or HOA is responsible for many aspects of upkeep.
• Affordability. Since you don’t own the land, the price can be lower.
• Possible investment opportunity; can use a condo for rental income.
• Security. Some people appreciate having a condo staff and neighbors nearby.
• Social life. You’re part of a community and will likely know and connect with your neighbors to some extent.
• Amenities. There are often such features as gyms, pools, dog run, coworking space, party rooms, and other perks to enjoy.
Cons of Condos
Next, consider the potential downsides of a condo:
• Association rules. You have to adhere to the guidelines of the community, which may or may not suit you. This can include everything from the appearance of your home’s exterior to when and for how long you may rent your place out.
• Higher interest rates. If you are shopping for a condo to purchase, you may find that the mortgage rates are somewhat higher than what you’d be quoted if you were buying a single-family home.
• Investment risk factor. If you are buying a condo, its value could depend to some extent on other residents and how well they maintain their property.
• Lack of privacy and land. You will have neighbors…so the experience is different from being in your own single-family home on your own land. And you likely won’t have acres of property to plant and use as you wish.
• Rising costs. Your association payments can rise considerably, and assessments are possible as well. That can throw a wrench in your budget.
Recommended: Most Affordable Places to Live in the US
Buying or Renting a Condo: Which Is Better?
Whether you’re better off buying or renting a condo — or any of the other types of houses, from modular home to manufactured home, tiny house to townhouse — depends as much as your own circumstances as it does the cost of buying vs. renting in an area.
• Buying: Assuming you’ve decided to settle down in an area for the next three to five years, you might be better off buying a condo if you have a stable income stream and can cover the down payment and closing costs without emptying your emergency fund.
Given how real estate values have risen in the past few years, buying a condo may be a good choice if you’re looking for long-term investment and a chance to build home equity over time.
• Renting: You may be better off renting if there’s a chance you’ll need to relocate within the next few years, or if any upcoming life events might require you to upsize your residence, like having children.
Here’s a closer look at these scenarios.
Pros of Renting a Condo
Renting a condo gives you all of the benefits of living in a private condo unit without the long-term commitment and upfront costs.
• Few maintenance responsibilities: If you’re renting a condo unit in an apartment building, the association is responsible for maintenance, or in the case of an individually owned HVAC system, the owner is.
• More leeway for negotiation: Reliable renters are hard to come by; some condo owners may be more willing to negotiate your monthly rent than professional property managers are.
• Flexibility to end or extend your lease: As a renter, you can often decide whether to end or continue your lease. This makes it easy to cut ties if needed.
Pros of Buying a Condo
Taking out a mortgage to buy a condo more or less freezes your living costs into the future. This will help you avoid rising rents, though association fees can certainly rise.
• More affordable than single-family homes: The price of a condo is usually lower than a single-family home in a given area. This makes it attractive to homebuyers on a budget.
• Freedom to make it your own: Owning a condo gives you more freedom over such features as the appliances and color palette than you’d likely have with a rental.
• Rental potential: Depending on the rules of your association, you may have the right to rent out your condo to generate income.
Finding a Condo
If you’re ready to go out and shop for a condo, you’ll want to assemble a list of must-haves to narrow your search. This applies whether you’re looking to rent or buy.
Are you looking for a more affordable apartment condo or something with more space like a community development? Browse local listings for condo units that match your requirements.
For those seeking to buy a condo, it’s a good idea to find a real estate agent who’s well versed in condo sales. They know the area and can obtain vital info regarding association rules and financials. It’s important to review the rules and fees, and check for any special assessments and their frequency over the years.
Condo Tips
A few more suggestions as you start your hunt:
• If you are planning to buy, it’s also a good idea to thoroughly understand mortgage basics and have financing lined up with a mortgage company so you’re ready to make a bid on a property.
• Know your budget. A mortgage calculator is an excellent tool for helping you figure out your costs.
• Consider checking this HUD site for FHA-approved condos as your primary residence if you are seeking financing with an FHA loan.
💡 Quick Tip: Keep in mind that FHA home loans are available for your primary residence only. Investment properties and vacation homes are not eligible.1
The Takeaway
What is a condo? A condo is a privately owned unit within a community that can be a good starter home or a place to downsize. Or it might be a wise investment property that can bring in rental income. If you’re able to rent a condo, it’s much like renting an apartment, except your landlord may be the owner.
If you’re interested in buying a condo, realize that condo buyers are able to access the same kinds of loans available to buyers of single-family homes, though rates may be slightly higher.
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’s the difference between an apartment and a condo?
A condo can be a kind of apartment, which is a residential unit that’s part of a larger building. An apartment can be owned or rented, as can a condo. However, a condo is a specific kind of unit ownership in which there are communal facilities and shared maintenance charges.
What is the difference between a condo and a townhouse?
With a condo, you own your unit but not the land under and around it. You pay for your unit (rent or mortgage). Association charges cover maintenance and repairs, and property taxes apply to owners. With a townhouse, the property includes the residence and the land it sits on and that surrounds it. You will pay your rent or mortgage and real estate taxes, but may not be part of an association or obligated to pay those fees.
Is a condo the same as a flat?
Many people use the terms condo, apartment, and flat interchangeably. While an apartment and a flat are the same thing, a condo refers to a style of ownership of a dwelling unit that’s part of a community. It may be an apartment, but the way it’s bought or rented can differ.
Photo Credit: iStock/Edwin Tan
*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and 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.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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.