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Whether you’re planning to renovate your kitchen, add a room to your home, or upgrade your backyard, home improvement projects typically require a sizable financial investment. While you might be able to pay cash for small-scale repairs and upgrades, a more substantial project could require funding. That’s where home improvement loans come in. These are personal loans used to pay for home repairs and renovation projects. These loans aren’t backed by the equity you have in your home, and they are generally one of the quickest ways to get funding for a home improvement project. However, they may have higher interest rates and offer lower amounts than other options, such as a home equity loan.

Read on to learn how home improvement loans work, their pros and cons, and how they compare to other home remodel financing options.

What Is a Home Improvement Loan?

Typically, a home improvement loan refers to a personal loan that is designed to be used to pay for home upgrades and renovations.

These are unsecured loans — meaning your home isn’t used as collateral to secure the loan. In fact, lenders typically don’t ask for any information about your home with this type of financing. Instead, a lender decides how much to lend to you and at what rate based on your financial credentials for a personal loan, such as your credit score, income, and how much other debt you have.

With a home improvement personal loan, you receive a lump sum of cash up front you can then use to cover the costs of your project. You repay the loan (plus interest) in regular installments over the term of the loan, which is often one or seven years.

One of the advantages of a home improvement loan is that it allows you to access a significant amount of money upfront quickly, often within a day or two. You also don’t need to have built up any equity in your home, or risk losing your home should you default on the loan.

However, personal loans for home improvement tend to be shorter-term and offer smaller loan amounts than other home loan options, making them best suited for small to midsize projects, say renovating a bathroom or repainting the exterior of your home.

Recommended: Can I Pay off a Personal Loan Early?

Alternatives to a Personal Loan

While personal loans can be a quick and convenient way to fund home improvement projects, they aren’t your own option. Here are some alternatives you may also want to consider.

Home Equity Loan

Home equity is the portion of your home that you actually own. More specifically, it is the difference between what your home is currently worth and what you owe your lender. So, for example, if you took out a mortgage for $200,000 and have paid down $50,000 of that loan, you owe the lender $150,000. If your home gets appraised for $250,000, you have $100,000 in equity.

A home equity loan is a loan that utilizes the equity you have built in your home as collateral. Home equity loans often have fixed interest rates and terms that typically range from five to 30 years. These loans provide homeowners with a lump sum of money that can be used for various purposes, including home improvements. As you repay a home equity loan, your payments get added back to your principal, allowing you to build your equity back up.

With a home equity loan, you can often borrow up to 85% of the equity you have in your home.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is similar to a home equity loan, except that the funds are not distributed in a lump sum. The amount of money you can borrow is still tied to the amount of equity you have in your home, but you are given access to a line of credit that you can borrow from as needed.

HELOCs have a draw period, usually 10 years, when you can use some or all of the funds you’re approved to borrow. During that time you typically make interest-only payments on the amount you draw. You then repay the principal later, during the repayment period.

Like a home equity loan, a HELOC is essentially a second mortgage, so you’re using your house as collateral. Unlike a home equity loan, HELOCs have variable rates, which means your annual percentage rate (APR) could go up or down in the future.

One key advantage to a HELOC is its flexibility. This type of financing can be particularly useful for projects you’re doing in stages, or when you don’t know exactly how much the renovation will cost.

Cash-out Refinance

A cash-out refinance involves refinancing your existing mortgage for a higher amount than what you currently owe. The difference between the new loan amount and your current mortgage balance is paid out to you in cash, which you can use for home improvements.

Because cash-out refinancing involves revising your mortgage, it can be a good move if rates have dropped since you financed your home, or you’re in a better financial situation than when you originally took out your mortgage. Lenders typically look at an applicant’s financial history, as well as the appraised value of the home and how long the existing mortgage has been in place.

You’ll want to keep in mind, however, that closing costs can be 2% to 6% of the new mortgage amount, which could potentially be more than you plan to spend on the improvement project.

Construction Loan

If you’re planning significant renovations or an extensive home improvement project, a construction loan may be worth exploring. Construction loans are specifically designed for large-scale projects, such as significant structural changes or additions to a property. These loans usually have variable interest rates and short terms, often just one year.

Unlike mortgages and personal loans that make a lump-sum payment, the lender pays out the money for a construction loan in stages as work on the home progresses. Generally, you make interest-only payments during the construction stage. Once construction finishes, the construction loan needs to be repaid or converted into a mortgage.

Applying for a Home Improvement Loan

Before choosing any type of home improvement loan, it’s a good idea to shop around and compare interest rates, terms, and fees from different lenders to ensure you’re getting the best possible deal.

When applying for a home improvement loan, you’ll need to gather all the necessary documentation to support your application. Lenders typically require proof of income, proof of residence, and information about the project you plan to undertake. Some lenders may also ask for estimates or contractor bids to assess the cost of the project.

Your current debts, housing payment, credit history, and total income will all play a role in what rates and terms you qualify for. If possible, take advantage of lenders that offer a prequalification process. This gives you a sense of your approval odds, predicted interest rate, and the total cost of your home improvement loan. Plus, prequalifying doesn’t require a hard credit check, so you won’t have to worry about it impacting your credit score.

The Takeaway

Home improvement loans allow you to finance a repair or remodeling project for your home. You may be able to get an unsecured personal loan designed to be used for home improvement or, if you’ve built up equity in your home, use a home equity loan, HELOC, or a cash-out refinance, to fund an upgrade. For a substantial structural change, you might consider a construction loan.

If you think a personal loan might work well for your home improvement project, SoFi can help. SoFi’s home improvement loans range from $5K-$100K and offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score.

FAQ

Why are home improvement loans so expensive?

Home improvement loans may have higher interest rates compared to traditional mortgages for a few reasons. One is that these loans are often unsecured, meaning you don’t have to use your home as collateral to get the loan, which poses more risk to the lender. Another is that these loans typically have shorter repayment terms compared to mortgages, resulting in higher monthly payments. Also keep in mind that interest rates can vary based on the borrower’s creditworthiness and prevailing market conditions.

Is a home improvement loan the same as a mortgage?

No. A mortgage is a loan used to purchase a property, while a home improvement loan is specifically used to fund renovations or improvements on an existing property. Home improvement loans are typically smaller in amount and have different terms and repayment options compared to mortgages.

How much debt to income do I need for a home improvement loan?

The specific debt-to-income (DTI) ratio required for a home improvement loan can vary depending on the lender and other factors. Generally, a DTI ratio below 43% is considered favorable for loan approval. This means that your total monthly debt payments, including the new loan, should not exceed 43% of your gross monthly income. However, different lenders may have different criteria, so it’s essential to check with the lender you’re considering for their specific DTI requirements.

What is the average length of a home improvement loan?

The average length or term of a home improvement loan will depend on the type of loan you choose. Personal loan terms can range from five or seven years. Loans based on the equity in your home (such as a home equity loan or line of credit) can have terms up to 30 years.

What is the downside to a home equity loan?

While home equity loans can be a useful option for funding home improvements, there are some potential downsides to consider. These loans use your home as collateral, which means you risk foreclosure if you’re unable to repay the loan. Also, should your property value decline, you may owe more on the loan than the home is worth, which is known as being “underwater.” Finally, home equity loans typically come with closing costs and fees, which will add to the cost of your remodel.

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

SOPL-Q225-092

Buying a new home requires managing a lot of moving parts, from mortgage preapproval to closing. Even after an offer is accepted, buyers and sellers are still at the negotiating table. If closing costs or surprise expenses become too much for the buyer, a seller concession could help seal the deal.

Although seller concessions can work to a buyer’s advantage, they are neither a guaranteed outcome nor a one-size-fits-all solution for every real estate transaction.

To determine if seller concessions are the right move from a buyer’s perspective, here are some key things to know, including what costs they can cover and when to consider asking for them.

Note: SoFi does not offer seller concessions at this time.

What Are Seller Concessions?

Seller concessions represent a seller’s contribution toward the buyer’s closing costs, which include certain prepaid expenses and discount points. A seller concession is not the equivalent of a price reduction; nor is it received as cash or a loan discount.

Closing costs usually range from 2% to 5% of the loan principal on your mortgage. When that’s combined with a down payment, the upfront expense of buying a home can be burdensome, especially for first-time homebuyers.

Buyers can ask for concessions on the initial purchase offer or later if the home inspection reveals problems that require repairs.

Although this can be a helpful tool to negotiate a house price, there are rules about eligible costs and limits to how much buyers can ask for.

Recommended: Homebuyer Guide

What Costs Can Seller Concessions Cover?

A buyer’s closing costs can vary case by case. Generally, buyers incur fees related to the mortgage loan and other expenses to complete the real estate transaction.

There are also types of prepaid expenses and home repairs that can be requested as a seller concession.

Some common examples of eligible costs include the following:

•   Property taxes: If the sellers have paid their taxes for the year, the buyer may be required to reimburse the sellers for their prorated share.

•   Appraisal fees: Determining the estimated home value may be required by a lender to obtain a mortgage. Appraisal costs can vary by geography and home size but generally run between $300 and $400 for a single-family home and a conventional loan.

•   Loan origination fees: Money paid to a lender to process a mortgage, origination fees, can be bundled into seller concessions.

•   Homeowners insurance costs: Prepaid components of closing costs like homeowners insurance premiums can be included in seller concessions.

•   Title insurance costs: A title insurance company will search to see if there are any liens or claims against the property. This verification, which varies widely in price, but generally costs between 0.1% to 2% of the loan principal, protects both the homeowner and lender.

•   Funding fees: One-time funding fees for federally guaranteed mortgages, such as FHA and VA loans, can be paid through seller contributions. Rates vary based on down payment and loan type.

•   Attorney fees: Many states require a lawyer to handle real estate closings. Associated fees can run from about $750 to $1,250 or more, based on location.

•   Recording fees: Some local governments may charge a fee to document the purchase of a home.

•   HOA fees: If a home is in a neighborhood with a homeowners association, there will likely be monthly dues to pay for maintenance and services. A portion of these fees may be covered by the seller.

•   Discount points: Buyers may pay an upfront fee, known as a discount point, to lower the interest rate they pay over the life of the mortgage loan. (The cost of one point is typically 1% of the loan amount and may lower your mortgage rate by as much as 0.25%.)

•   Home repairs: If any issues emerge during a home inspection, the repair costs can be requested as a seller concession.

Closing costs can also be influenced by the mortgage lender. When shopping for a mortgage, evaluating expected fees and closing costs is a useful way to compare lenders. Factoring in these costs early on can give buyers a more accurate idea of what they can afford and better inform their negotiations with a seller.

Recommended: How Much Are Closing Costs on a New Home?

Rules and Limits for Seller Concessions

Determining how much to ask for in seller concessions isn’t just about negotiating power. For starters, the seller’s contributions can’t exceed the buyer’s closing costs.

Other factors can affect the allowable amount of seller concessions, including the type of mortgage loan and whether the home will serve as a primary residence, vacation home, or investment property.

Here’s a breakdown of how concessions work for common types of loans.

Conventional Loans

Guidance on seller concessions for conventional loans is set by Fannie Mae and Freddie Mac. These federally sponsored enterprises buy and guarantee mortgages issued through lenders in the secondary mortgage market.

With conventional loans, the limit on seller concessions is calculated as a percentage of the home sale price based on the down payment and occupancy type.

If it’s an investment property, buyers can only request up to 2% of the sale price in seller concessions.

For a primary or secondary residence, seller concessions can add up to the following percentages of the home sale price:

•   Up to 3% when the down payment is less than 10%

•   Up to 6% when the down payment is between 10% and 25%

•   Up to 9% when the down payment is greater than 25%

FHA Loans

FHA loans, which are insured by the Federal Housing Administration, are a popular financing choice because down payments may be as low as 3.5%, depending on a borrower’s credit score.

For this type of mortgage, seller concessions are limited to 6% of the home sale price.

VA Loans

Active service members, veterans, and some surviving spouses may qualify for a mortgage loan guaranteed by the Department of Veterans Affairs. For buyers with this type of mortgage, seller concessions are capped at 4% of the home sale price.

VA loans also dictate what types of costs may qualify as a seller concession. Some eligible examples: paying property taxes and VA loan fees or gifting home furnishings, such as a television.

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

Seller Concession Advantages

There are a few key ways seller concessions can benefit a homebuyer. For starters, they can reduce the amount paid out of pocket for closing costs. This can make the upfront costs of a home purchase more affordable and avoid depleting savings.

Reducing closing costs could help a buyer make a higher offer on a home, too. If it’s a seller’s market, this could be an option to be a more competitive buyer.

Buyers planning significant home remodeling may want to request seller concessions to keep more cash on hand for their projects.

Seller Concession Disadvantages

Seller concessions can also come with some drawbacks. If sellers are looking for a quick deal, they may view concessions as time-consuming and decline an offer.

When sellers agree to contribute to a buyer’s closing costs, the purchase price can go up accordingly. The deal could go awry if the home is appraised at a value less than the agreed-upon sale price. Unless the seller agrees to lower the asking price to align with the appraised value, the buyer may have to increase their down payment to qualify for their original financing.

Another potential downside is that buyers could ultimately pay more over the loan’s term if they receive seller concessions than they would otherwise. If a buyer offers, say, $350,000 and requests $3,000 in concessions, the seller may counteroffer with a purchase price of $353,000, with $3,000 in concessions.

The Takeaway

Seller concessions can make a home purchase more affordable for buyers by reducing closing costs and expenses, but whether it’s a buyer’s or seller’s market will affect a buyer’s potential to negotiate. A real estate agent can offer guidance on asking for seller concessions.

FAQ

How do you explain seller concessions?

Seller concessions are the costs and fees that a seller may agree to pay on behalf of a buyer to sweeten the deal. These could include expenses like property taxes, appraisal fees, loan origination fees, homeowners insurance costs, attorney fees, title insurance fees, recording fees, funding fees, HOA fees, mortgage point costs, and even repair costs.

Can seller concessions exceed closing costs?

Seller concessions cannot be greater than closing costs. The maximum amount of seller concessions you can get with a given mortgage depends on a number of factors, including the type of loan it is, but the amount will never exceed the amount of the closing costs.

What is the most a seller can pay in closing costs?

The maximum a seller can pay in closing costs depends on the type of mortgage that’s involved. For a conventional loan, the maximum for an investment property is 2% of the sale price. For a primary or secondary residence, it depends on the down payment: up to 3% when the down payment is less than 10%; up to 5% when the down payment is between 10% and 25%; and up to 9% when the down payment is more than 25%. The amount sellers can pay in closing costs is capped at 6% for FHA loans and 4% for VA loans.

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

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

SOHL-Q225-172

If you own a home, you should have homeowners insurance. (And in some cases, your mortgage lender may even require it.) That’s because this type of coverage can help you pay for losses and damage to your home and belongings if the unexpected occurs, such as a fire, wind, hail, or theft.

Homeowners insurance includes property and liability coverage. But it doesn’t cover every situation, so it’s important to read your policy’s fine print. Let’s dive in.

Property Coverage Explained

Most homeowners insurance policies include two categories of coverage: property coverage and liability coverage. Four types of property coverage include dwelling, other structures, personal property, and loss of use. Here’s a closer look at each.

Coverage A: Dwelling

Dwelling coverage covers your house structure. This includes things like walls, floors, roof, windows, attached garages, and attached porches. It also includes built-in components like furnaces or fireplaces.

Coverage B: Other Structures

Other stand-alone structures of your home, like sheds, detached garages, or fences, are also covered. If one of these structures is damaged from things like fire, snow, wind or hail, the insurance company would pay to repair it, minus your deductible.

Tip: Homeowners insurance involves a lot of terms, so check out a homeowners insurance glossary if you are confused.

Coverage C: Personal Property

Your personal property, which includes your personal belongings like furniture, clothes, art, jewelry, and sports equipment, is covered under homeowners insurance if items are stolen or destroyed by fire, hurricane, or other insured disasters. The coverage for personal property is generally 50 to 70 percent of the insurance you have on the structure of the house, according to the Insurance Information Institute.

Your homeowners insurance may even cover personal belongings that are stored outside of the home. However, there may be a limit for this coverage. Expensive personal items like art, jewelry, collectibles and other household items are often covered, but there is usually a dollar limit if they are stolen. Taking inventory of your belongings can help you determine how much insurance you need.

In most homeowners insurance policies, personal property coverage works differently than other types of coverage. A policy typically only covers personal property damage from disasters that are listed, instead of from any cause that isn’t excluded.

These disasters are called “perils” and may include an array of events or occurrences — from smoke, fire, and lightning to vandalism, theft, and damage from aircraft or vehicles. Ask your insurance company for a list of perils.

Coverage D: Loss of Use

Loss of use coverage helps pay temporary additional living expenses while your home is being repaired due to damage from a covered claim. Loss of use coverage could pay for things like hotel stays, food, or other expenses incurred in the event your home is deemed uninhabitable after a covered disaster. However, if your home is damaged from a disaster that is not covered under your homeowners insurance, like a flood, then your insurance won’t pay for loss of use.

Liability Coverage Explained

The other type of homeowners insurance coverage is liability coverage. Liability coverage includes personal liability and medical payments to others.

Coverage E: Personal Liability

Personal liability coverage helps if you or your family member are responsible for injuring someone else or damaging their property. This coverage also extends to damage done by your pets, like if your dog bites someone.

Personal liability coverage pays for the cost of defending you or your family member in court and for any damages a court rules that you must pay. Liability insurance doesn’t have a deductible like other types of coverage. And it won’t cover damages due to certain things, criminal acts, harm that is caused on purpose, or injuries or damage from a car accident.

Coverage F: Medical Payments to Others

Medical payments coverage pays if you cause physical harm to someone outside your home. For example, if someone receives a minor injury on your property, medical payments to others would cover the costs.

Typically, you will not receive coverage for exclusions like car accidents or intentional acts of harm.

What Does Homeowners Insurance Typically Not Cover

If you’re buying homeowners insurance, you’ll want to double-check what your policy will and will not cover. In many cases, you’ll get protection for damages due to fire, lightning, wind, and hail. But oftentimes, insurance companies won’t cover damages due to floods and earthquakes, wear and tear, maintenance issues, intentional acts, or war.

Flood and Earthquake Damage

Homeowners insurance does not cover damage due to floods or earthquakes, though you can purchase separate flood insurance or earthquake insurance.

If you live in an area that experiences floods, hurricanes, earthquakes or other natural disasters, you may want to look into additional homeowners insurance options. Be sure to do your research to find out what flood insurance covers when selecting policies.

Wear and Tear/Maintenance Issues

Damages or issues due to wear and tear, neglect, or not properly maintaining your home are not covered under most homeowners insurance policies. For example, homeowners insurance covers roof leaks if the leak is due to things like storms or a falling tree. But it generally won’t cover a roof leak due to typical wear and tear or lack of maintenance.

Certain Other Perils

Certain other perils, like intentional acts, nuclear hazard or government actions like war, are also not covered under typical homeowners insurance policies.

The Takeaway

If you own a home, homeowners insurance is important to have. But don’t assume that it will cover all damages. If your home is damaged from an event that’s not covered, such as a flood, earthquake, or war, you will likely have to pay for the repairs and other associated costs yourself (unless you have supplemental insurance).

If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.

FAQs

What are the main parts of a homeowners policy?

The main parts of a homeowners policy include dwelling, other structures, personal property, loss of use, personal liability, and medical payments to others.

Does home insurance cover other buildings on my property?

Home insurance covers other stand-alone structures of your property, like sheds, detached garages or fences. Attached garages are also covered.

How are my belongings covered differently from my house?

Personal belongings like furniture, clothes and art are covered under homeowners insurance if they are stolen or destroyed by disasters that are listed. Personal belongings that are stored outside of the home may also be covered, but there may be a limit. The coverage for personal property is generally 50 to 70 percent of the insurance you have on the structure of the house.

What liability protection does home insurance provide?

Homeowners insurance includes liability coverage for personal liability and medical payments to others. Personal liability coverage helps if you or your family member are responsible for injuring someone else or damaging their property. Medical payments coverage kicks in if you cause physical harm to someone outside your home.

Are natural disasters like floods or earthquakes covered?

Homeowners insurance often does not cover natural disasters like floods or earthquakes. If you live in an area that experiences floods, hurricanes, earthquakes or other natural disasters, you may want to look into additional homeowners insurance options.

Photo credit: iStock/Anchiy

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Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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

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.

SOPRO-Q225-039

Termites can be a homeowner’s nightmare because they can wreak havoc on your home. Consider this: Every year, the insects damage around 600,000 homes in the U.S., costing homeowners an estimated $5 billion in control and repair costs, according to Orkin.

And unfortunately, most homeowners’ insurance policies don’t cover termite damage or the cost to get rid of the bugs. This means if termites start chewing away at your home, you’ll likely be on the hook for the repairs and treatment.

When Homeowners Insurance Might Cover Termite Damage

As we mentioned, termite damage usually isn’t covered by homeowners insurance. However, in some rare cases, there may be exceptions — especially if the damage is caused by something your policy already covers, such as a fire.

For example, if termites chew through wiring and that leads to a fire, or if part of your home suddenly collapses because of hidden termite damage, your insurance might help pay for it. It’s a good idea to read your policy carefully so you know exactly what is (and isn’t) covered.

New to insurance? A homeowners insurance glossary can help you make sense of unfamiliar terms.

Why Homeowners Insurance Almost Always Excludes Termite Damage

Most home insurance policies don’t cover termite damage because insurance companies see it as something you can prevent. Termites usually work slowly over time, so it doesn’t count as an unexpected event.

One smart way to protect your home from potentially devastating damage is to schedule regular termite inspections.

Can You Get Termite Insurance?

Insurance providers typically don’t offer extra coverage options for termite damage. But there are still options.

Some certified pest control companies offer something called a termite bond or termite warranty. This type of service contract often includes an initial termite treatment, regular inspections, and, in some cases, will even cover the cost of repairs if termites cause damage. While costs can vary, most termite bonds range from $500 to $2,500.

You may want to think about getting a termite bond if:

•   You’re selling your home.

•   You recently found termites and are worried they’ll come back.

•   You live in an area where termites are common.

It’s worth noting that some home warranty plans might cover certain pest control services, like inspections. Check your plan details to see if termite coverage is included.

Recommended: Home Insurance Costs Explained

Preventing Termite Damage in Your Home

Here are some simple tips to make your home less inviting to these pests:

•   Get regular termite inspections. Consider scheduling yearly inspections if you live in a high-risk area, like someplace hot and humid. If you live in a place where termite infestations are less likely — such as cooler or drier regions — an inspection every two to three years may be enough.

•   Fix leaks. Termites love damp spaces. So, make sure to quickly repair leaky taps, toilets, and appliances. Also, check that water from AC units and hot water systems drains away from your home, and ventilate attics to reduce humidity.

•   Trim trees and bushes. Overgrown branches and plants can give termites a direct path to your home, so keep your yard and lawn nicely trimmed and maintained.

•   Keep porch and garden lights off when termites are active. Termites are attracted to lights. Turning off outdoor lights can help keep them away.

•   Seal cracks and cover crawl spaces. Use caulk to fill gaps in your home’s exterior and cover crawl spaces with plastic to block entry points.

•   Store firewood away from your house. Keep firewood and untreated wood off the ground and away from your home. Any wood you use for your home should be treated appropriately since termites thrive on untreated wood.

•   Keep water from pooling around your foundation. Make sure to fix drainage issues and regularly clean gutters and downspouts.

How to Spot Termite Damage

Termite damage can show up in all kinds of places, like ceilings, bathrooms, fireplaces, and walls. These pests eat wood from the inside out, which can cause moisture to build up. That can lead to warped floors and sticky doors.

Some early signs of termites include:

•   Flying or crawling termites inside your home

•   Mud tubes along walls or foundations (termites use these to travel safely)

•   Small piles of wings near windows or doors

•   Droppings that look like tiny pellets

•   Floors that feel soft, uneven, or saggy

•   Doors and windows that suddenly stick or won’t open easily

•   Paint that bubbles or peels, even if there’s no water leak

•   Wood that feels empty or thin when you tap it

What to Do If You Find Termite Damage

If you spot any of these signs of termite damage, the best thing to do is contact a pest professional right away. They’ll inspect your home to see if termites are still active and make sure there’s no ongoing risk of another infestation.

Once your home is in the clear, the expert can walk you through the damage and explain what needs to be repaired. They may also suggest treatment options and give you tips to help prevent termites from coming back.

You’ll want to make sure the infestation is fully taken care of before starting any repairs. Fixing the root of the problem first can help you avoid even more costly damage later on. Remember, since home insurance doesn’t cover termite damage, you’ll have to pay out of pocket for any repairs.

Recommended: Condo vs. Homeowners Insurance

The Takeaway

Does homeowners’ insurance cover termite damage? Unfortunately, many policies do not — and the cost of repairs and treatments can add up quickly. That’s why it’s important to help keep the pests out of your home in the first place. Scheduling regular inspections, controlling moisture, and staying up to date on basic home maintenance can all make a big difference. And if you live in a high-risk area, a termite bond might be worth exploring for extra protection.

If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.

FAQ

How much does termite treatment and repair typically cost?

The cost of termite treatment and repairs can vary depending on how bad the infestation is and the type of treatment needed. But on average, you can expect to pay around $1,000 for treatment and anywhere from $1,000 to $10,000 or higher for repairs.

Does insurance cover termite inspections or prevention plans?

Most home insurance policies won’t pay for termite damage. However, some pest control companies offer service plans — called termite bonds — that can help. These plans often include treatments, inspections, and sometimes even repair coverage. Remember that plan types and costs can vary, so it’s a good idea to look at your options and see if a termite bond is the right fit for your home.

Does homeowners insurance cover damage from other pests, like rodents or ants?

No, homeowners insurance usually doesn’t cover damage caused by pests like ants, mice, rats, or other critters.

What is a termite bond and how does it differ from insurance?

A termite bond, also known as a termite warranty, is a service plan from a certified pest control company that covers termite treatments and regular inspections. Sometimes, it may even help pay for repairs if termites cause damage after your home has been treated. Unlike homeowners insurance, it isn’t offered by your insurer and only covers termite damage.

Does renters’ or condo insurance typically cover termite damage?

Just like homeowners insurance, renters and condo insurance policies usually don’t cover termite damage. In most cases, you or your landlord would be responsible for the cost of treatment, removal, and any repairs caused by termites.

Photo credit: iStock/Aleksandar Pirgic

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
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Whether you’re a first-time homebuyer or you’re thinking about putting your home on the market, it’s critical to know the value of the property. Property valuation also comes into play in home financing, property taxes, real estate investing, and home insurance. But who does the valuation, and how do they determine the value of a home?

The answers to both questions will depend on the situation. Read on to learn more about property valuations, including what they are and why they matter.

What Is a Property Valuation?

Broadly defined, a property valuation is a method of determining how much a property is worth for purposes of pricing it for sale, qualifying for a mortgage, or determining a property tax bill.

Someone selling their home, for example, may use a property valuation to determine how much their house is worth and how much they can charge on the open market.

If you are applying for a mortgage, the lender will typically have a home appraisal done to determine if the price you are paying for the house reflects its actual fair market value. Insurance companies and local tax authorities also do property valuations.

Typically, property valuations are done by an independent third party, such as a licensed appraiser. The lender, buyer, seller, tax authority, and insurer generally cannot have any relationship with the appraiser so that the valuation is unbiased.

The value of a property is determined by many factors, including its location, its size, the condition of the inside and outside of the building, and the current real estate market.

Types of Property Valuations

There are several different types of property valuations. Here are some of the most common you may encounter.

Appraised Value

When you are looking to qualify for a mortgage to buy a home, your lender will usually need to know the appraised value of the house you want to buy. The appraised value of a home is determined by a licensed appraiser who thoroughly evaluates the property’s size and features, market conditions, and comparable sales data. Typically, a lender will offer a loan for no more than 80% of the home’s appraised value (though some lenders and loan programs will allow you to borrow more).

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

Assessed Value

The assessed value of your home is used in determining your property taxes. Depending on where you live, a municipal or county tax assessor will perform a property value assessment based on a number of factors, which may include sales of similar homes, square footage, current market conditions, and findings from a home inspection.

Local tax officials will use your home’s assessed value to calculate your property taxes. The higher your home’s tax-assessed value, generally the higher your property taxes will be. It is important to note that assessed values may not always accurately reflect the property’s market value, as they can vary depending on the jurisdiction’s assessment practices.

Recommended: Are Property Taxes Included in Your Mortgage Payments?

Fair Market Value

Fair market value of a property refers to the price at which the property would change hands in the open market between a willing buyer and a willing seller, with neither party under any pressure to buy or sell. Put another way, it’s the amount for which you could expect to buy or sell a property based on the current real estate market. This value is considered the most objective and widely used in real estate transactions.

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

Actual Cash Value and Replacement Cost Value

Actual cash value and replacement cost value are methods used by home insurance companies to determine how they will pay out when you file a claim. Actual cash value takes into account depreciation and wear and tear when determining a property’s value. Replacement cost value estimates the cost of rebuilding or replacing a property with a similar one, considering current construction costs.

What If You Get a Low Appraisal?

If you’re buying a home and the lender’s appraised value is as much as the agreed-upon price or more, the lender will likely move forward with the home loan, assuming that the other aspects of the property and your application are in order.

If the appraisal comes in under the agreed-upon price, the lender may reduce the amount of the loan it’s willing to offer.

At that point, you or the sellers can dispute the appraisal with the lender or ask for a second look. If the value is still too low, there are a few different routes:

•  You can try to get the seller to reduce the price.

•  You can agree to contribute the difference in cash.

•  You and the seller may agree to split the difference.

If the purchase agreement contains an appraisal contingency, you are protected in the case of a low appraisal. This means that If you can’t get the seller to adjust the price or come up with the difference in cash, you can walk away from the sale and get your earnest money deposit returned to you.

Property Valuation Methods

There are different ways to assess the value of a property. Which method will be used will depend on the situation.

Sales Comparison Approach

The sales comparison approach determines a property’s value by comparing it to recently sold properties with similar characteristics in the same area, also known as “comps.” Appraisers make adjustments for differences in size, condition, and amenities to arrive at an estimated value. The sales comparison approach is the one most often used by real estate agents in determining the value of a property for sale.

Income Approach

The income approach is primarily used for investment properties that result in a stream of income, such as rental apartments or commercial buildings. It estimates the property’s value based on its income potential, taking into consideration factors such as expense statements, rental rates, vacancy rates, and market conditions.

Cost Approach

The cost approach evaluates a property’s value by estimating the cost required to rebuild or replace it on its current plot of land. This appraiser determines the replacement cost by considering the cost of materials and labor, then subtracts depreciation and adds in the value of the land to determine the property’s worth. This method is often used by insurance companies.

Automated valuation models (AVMs) are software programs that use data about other properties and sales combined with mathematical or statistical modeling to arrive at an estimate of the value of a property. There are commercial AVM providers, including Equifax®, as well as free AVMs available online, such as Zillow’s “Zestimate.”

Because AVMs are based on existing data, the property valuations they produce are only as good as the information available. An AVM may be inaccurate if the data is outdated or incorrect. While they can be speedy and convenient, at least for the time being, AVMs have not eliminated the need for appraisals or inspections.

The Takeaway

Understanding property valuations is essential for navigating any kind of real estate transaction, whether you are on the buying, selling, investing, or financing side of the deal. There are many different types of home valuations, including appraised value, assessed value, fair market value, actual cash value, and replacement cost value. There are also different ways of doing property valuations, such as the sales comparison approach, income approach, and cost approach. For a quick valuation, you can even use an online computer-generated valuation tool or AVM.

Whatever approach you take, a property valuation can help you confidently make informed decisions and negotiate effectively in the real estate market.

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.

FAQs

How do you determine the value of a property?

The value of a property is typically determined by an independent licensed appraiser who considers factors such as the property’s location, size, condition, amenities, and recent comparable sales data in the area.

What are the 4 ways to value a property?

The four primary ways to value a property are: the market comparison approach, which compares the property to similar recently sold properties in the same area; the income approach, in which the value is estimated based on the property’s income potential; the cost approach, which involves evaluating the cost to replace or rebuild the property on the same land; and the appraised value, in which the value of the property is determined by a qualified appraiser through a comprehensive evaluation.

How does valuation work?

Valuation of a home typically involves having an appraiser inspect the property, analyze relevant data, and apply appropriate valuation methods (such as the market comparison approach or cost approach, for instance). Appraisers will generally assess factors such as location, condition, amenities, recent sales, and market trends to determine the property’s value. A comprehensive report is then prepared, detailing the value, data, and reasoning behind the valuation. Valuation serves as a crucial step in real estate transactions, providing objective estimates of property worth.

*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.

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