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If you own a home, you may be interested in tapping into your available home equity. One popular way to do that is with a home equity line of credit (HELOC). What is a HELOC? Well, for starters, it’s different from a home equity loan. But like a home equity loan, it can help you finance a major renovation or cover other expenses.

Homeowners sitting on at least 20% equity — the home’s market value minus what is owed — may be able to secure a HELOC. Let’s take a look at how a HELOC works, the pros and cons, and what alternatives to HELOC might be.

How Does a HELOC Work?

The purpose of a HELOC is to tap your home equity to get some cash to use on a variety of expenses. Home equity lines of credit offer what’s known as a revolving line of credit, similar to a credit card, and usually have low or no closing costs. The interest rate is likely to be variable (more on that in a minute), and the amount available is typically up to 90% of your home’s value, minus whatever you may still owe on your mortgage. (You can roughly calculate home equity before you apply for a HELOC by using online property estimates; ultimately your lender will likely do an appraisal.)

Once you secure a HELOC with a lender, you can draw against your approved credit line as needed until your draw period ends, which is usually 10 years. You then repay the balance over another 10 or 20 years, or refinance to a new loan. Worth noting: Payments may be low during the draw period; you might be paying interest only. You would then face steeper monthly payments during the repayment phase. Carefully review the details when applying.

Here’s a look at what is a HELOC good for:

•   HELOCs can be used for anything but are commonly used to cover big home expenses, like a home remodeling costs or building an addition. The average cost of a bathroom remodel topped $12,000 in 2025 according to Angi, while a kitchen remodel was, on average, almost $27,000.

•   Personal spending: If, for example, you are laid off, you could tap your HELOC for cash to pay bills. Or you might dip into the line of credit to pay for a wedding (you only pay interest on the funds you are using, not the approved limit).

•   A HELOC can also be used to consolidate high-interest debt. Whatever homeowners use a home equity credit line for — investing in a new business, taking a dream vacation, funding a college education — they need to remember that they are using their home as collateral. That means if they can’t keep up with payments, the lender may force the sale of the home to satisfy the debt.

HELOC Options

Most HELOCs offer a variable interest rate, but you may have a choice. Here are the two main options:

•   Fixed Rate: With a fixed-rate home equity line of credit, the interest rate is set and does not change. That means your monthly payments won’t vary either. You can use a HELOC interest calculator to see what your payments would look like based on your interest rate, how much of the credit line you use, and the repayment term.

•   Variable Rate: Most HELOCs have a variable rate, which is frequently tied to the prime rate, a benchmark index that closely follows the economy. Even if your rate starts out low, it could go up (or down). A margin is added to the index to determine the interest you are charged. In some cases, you may be able to lock a variable-rate HELOC into a fixed rate.

•   Hybrid fixed-rate HELOCs are not the norm but have gained attention. They allow a borrower to withdraw money from the credit line and convert it to a fixed rate.

Note: SoFi does not offer hybrid fixed-rate HELOCs at this time.

HELOC Requirements

Now that you know what a HELOC is, and the basics of how does a HELOC work, think about what is involved in getting one. If you do decide to apply for a home equity line of credit, you will likely be evaluated on the basis of these criteria:

•   Home equity percentage: Lenders typically look for at least 15% or more commonly 20%.

•   A good credit score: Usually, a score of 680 will help you qualify, though many lenders prefer 700+. If you have a credit score between 621 and 679, you may be approved by some lenders.

•   Low debt-to-income (DTI) ratio: Here, a lender will see how your total housing costs and other debt (say, student loans) compare to your income. The lower your DTI percentage, the better you look to a lender. Your DTI will be calculated by your total debt divided by your monthly gross income. A lender might look for a figure in which debt accounts for anywhere between 36% to 50% of your total monthly income.

Other angles that lenders may look for is a specific income level that makes them feel comfortable that you can repay the debt, as well as a solid, dependable payment history. These are aspects of the factors mentioned above, but some lenders look more closely at these as independent factors.

Example of a HELOC

Here’s an example of how a HELOC might work. Let’s say your home is worth $300,000, and you currently have a mortgage of $200,000. If you seek a HELOC, the lender might allow you to borrow up to 80% of your home’s value:

   $300,000 x 0.8 = $240,000

Next, you would subtract the amount you owe on your mortgage ($200,000) from the qualifying amount noted above ($240,000) to find how big a HELOC you qualify for:

   $240,000 – $200,000 = $40,000.

One other aspect to note is a HELOC will be repaid in two distinct phases:

•   The first part is the draw period, which typically lasts 10 years. At this time, you can borrow money from your line of credit. Your minimum payment may be interest-only, though you can pay down the principal as well, if you like.

•   The next part of the HELOC is known as the repayment period, which is often also 10 years, but may vary. At this point, you will no longer be able to draw funds from the line of credit, and you will likely have monthly payments due that include both principal and interest. For this reason, the amount you pay is likely to rise considerably.

Recommended: What Are the Different Types of Home Equity Loans?

How to Get a Home Equity Line of Credit

If you’re ready to apply for a home equity line of credit, follow these steps:

•   First, it’s wise to shop around with different lenders to reveal minimum credit score ranges required for HELOC approval. You can also check and compare terms, such as periodic and lifetime rate caps. You might also look into which index is used to determine rates, and how often and by how much it can change.

•   Then, you can get specific offers from a few lenders to see the best option for you. Banks (online and traditional) as well as credit unions often offer HELOCs.

•   When you’ve selected the offer you want to go with, you can submit your application. This usually is similar to a mortgage application. It will involve gathering documentation that reflects your home’s value, your income, your assets, and your credit score. You may or may not need a home appraisal.

•   Lastly, you’ll hopefully hear that you are approved from your lender. After that, it can take approximately 30 to 60 days for the funds to become available. Usually, the money will be accessible via a credit card or a checkbook.

How Much Can You Borrow With a HELOC?

Depending on your creditworthiness and debt-to-income ratio, you may be able to borrow up to 90% of the value of your home (or, in some cases, even more), less the amount owed on your first mortgage.

Thought of another way, most lenders require your combined loan-to-value ratio (CLTV) to be 90% or less for a home equity line of credit.

Here’s an example. Say your home is worth $500,000, you owe $300,000 on your mortgage, and you hope to tap $120,000 of home equity.

Combined loan balance (mortgage plus HELOC, $420,000) ÷ current appraised value ($500,000) = CLTV (0.84)

Convert this to a percentage, and you arrive at 84%, just under many lenders’ CLTV threshold for approval.

In this example, the liens on your home would be a first mortgage with its existing terms at $300,000, and a second mortgage (the HELOC) with its own terms at $120,000.

How Do Payments On a HELOC Work?

A HELOC is distinguished from other types of loans by its two-phase payment structure. During the first stage of your HELOC (the draw period), you can borrow against your credit line, up to the approved ceiling, but you may be required to make only minimum payments. These are often interest-only payments. (Of course, if you choose to repay all that you owe, you can then borrow against the entire credit line again, and again, up to the end of the draw period.)

Once the draw period ends, your regular HELOC repayment period begins, when payments must be made toward both the interest and the principal.

Interest-Only vs. Principal and Interest Payments

After the draw period ends and the repayment period begins, you’ll begin making monthly payments that, similar to a home mortgage loan, include both principal and interest. For some borrowers, the end of the interest-only period can be a bit of a shock to the budget, so make sure you are prepared and know when the draw period is ending (often at the 10-year mark). A HELOC repayment calculator can help you understand what your payments might be based on how much you borrow.

Remember that if you have a variable-rate HELOC, your monthly payment will fluctuate over time. And it’s important to check the terms so you know whether you’ll be expected to make one final balloon payment at the end of the repayment period.

Pros of Taking Out a HELOC

Here are some of the benefits of a HELOC:

1. Initial Interest Rate and Acquisition Cost

A HELOC, secured by your home, may have a lower interest rate than unsecured loans and lines of credit. What is the interest rate on a HELOC? The average rate for a $100,000 HELOC in March 2025 was 7.61%.

Lenders often offer a low introductory rate, or teaser rate. After that period ends, your rate (and payments) increase to the true market level (the index plus the margin). Lenders normally place periodic and lifetime rate caps on HELOCs.

The closing costs may be lower than those of a home equity loan. Some lenders waive HELOC closing costs entirely if you meet a minimum credit line and keep the line open for a few years.

2. Taking Out Money as You Need It

Instead of receiving a lump-sum loan, a HELOC gives you the option to draw on the money over time as needed. That way, you don’t borrow more than you actually use, and you don’t have to go back to the lender to apply for more loans if you end up requiring additional money.

3. Only Paying Interest on the Amount You’ve Withdrawn

Paying interest only on the amount plucked from the credit line is beneficial when you are not sure how much will be needed for a project or if you need to pay in intervals.

Also, you can pay the line off and let it sit open at a zero balance during the draw period in case you need to pull from it again later.

Cons of Taking Out a HELOC

Now, here are some downsides of HELOCs to consider:

1. Variable Interest Rate

Even though your initial interest rate may be low, if it’s variable and tied to the prime rate, it will likely go up and down with the federal funds rate. This means that over time, your monthly payment may fluctuate and become less affordable (or more!).

Variable-rate HELOCs come with annual and lifetime rate caps, so check the details to know just how high your interest rate might go.

2. Potential Cost

Taking out a HELOC is placing a second mortgage lien on your home. You may have to deal with closing costs on the loan amount, though some HELOCs come with low or zero fees. Sometimes loans with no or low fees have an early closure fee.

3. Your Home Is on the Line

If you aren’t able to make payments and go into loan default, the lender could foreclose on your home. And if the HELOC is in second lien position, the lender could work with the first lienholder on your property to recover the borrowed money.

Adjustable-rate loans like HELOCs can be riskier than others because fluctuating rates can change your expected repayment amount.

4. It Could Affect Your Ability to Take On Other Debt

Just like other liabilities, adding on to your debt with a HELOC could affect your ability to take out other loans in the future. That’s because lenders consider your existing debt load before agreeing to offer you more.

Lenders will qualify borrowers based on the full line of credit draw even if the line has a zero balance. This may be something to consider if you expect to take on another home mortgage loan, a car loan, or other debts in the near future.

Alternatives to HELOCs

If you’re looking to access cash, here are HELOC alternatives.

1. Cash-Out Refi

With a cash-out refinance, you replace your existing mortgage with a new mortgage based on your home’s current value, with a goal of a lower interest rate, and cash out some of the equity that you have in the home. So if your current mortgage is $150,000 on a $250,000 value home, you might aim for a cash-out refinance that is $175,000 and use the $25,000 additional funds as needed.

Lenders typically require you to maintain at least 20% equity in your home (although there are exceptions). Be prepared to pay closing costs.

Generally, cash-out refinance guidelines may require more equity in the home vs. a HELOC.

Recommended: Cash Out Refi vs. Home Equity Line of Credit: Key Differences to Know

2. Home Equity Loan

HELOCs and home equity loans are often confused. Both are second mortgages (assuming you still have your first mortgage) that allow you to borrow against your home equity. The key difference in the HELOC vs. home equity loan comparison: With a home equity loan, you get a lump sum all at once and begin repaying what you owe (principal plus interest) immediately. A HELOC, as noted above, works more like a credit card. You borrow what you need in increments before you reach your repayment term.

Another difference: Home equity loans almost always come with a fixed interest rate, which allows for consistent monthly payments. HELOCs typically have a variable rate.

3. Personal Loan

If you’re looking to finance a big-but-not-that-big project for personal reasons, and you have a good estimate of how much money you’ll need, a low-rate personal loan that is not secured by your home could be a better fit.

With possibly few to zero upfront costs and minimal paperwork, a fixed-rate personal loan could be a quick way to access the money you need. Just know that an unsecured loan usually has a higher interest rate than a secured loan.

A personal loan might also be a better alternative to a HELOC if you bought your home recently and don’t have much equity built up yet.

4. Reverse Mortgage

If you are 62 or older, a reverse mortgage could allow you to turn part of your home equity into cash. Funds can be paid out as a lump sum, a monthly payment, or available as a line of credit, and are repaid when the home is sold. Borrowers who want a reverse mortgage usually turn to a home equity conversion mortgage, or HECM, which has fairly rigid standards. All owners must be at least age 62, and the home must be paid off or largely paid for.

Note: SoFi does not offer home equity conversion mortgages (HECMs) at this time.

5. Bridge Loan

A short-term bridge loan lets owners use the equity in their existing home to help pay for a home they’re ready to purchase. A bridge loan is secured by the first home and typically issued by a lender who will be the lender on their new mortgage. If you’re buying and selling a home at the same time, a bridge loan might be an appropriate way to help cover costs in the transitional period, such as when closing dates on the two properties don’t align.

Note: SoFi does not currently offer bridge loans for home financing.

The Takeaway

If you are looking to tap the equity of your home, a HELOC can give you money as needed, up to an approved limit, during a typical 10-year draw period. The interest rate is usually variable. Sometimes closing costs are waived. It can be an affordable way to get cash to use on anything from a home renovation to college costs.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

What can you use a HELOC for?

It’s up to you what you want to use the cash from a HELOC for. You could use it for a home renovation or addition, or for other expenses, such as college costs or a wedding.

How can you find out how much you can borrow?

Lenders typically require 20% equity in your home and then offer up to 90% or even more of your home’s value, minus the amount owed on your mortgage. There are online tools you can use to determine the exact amount, or contact your bank or credit union.

How long do you have to pay back a HELOC?

Typically, home equity lines of credit have 20-year terms. The first 10 years are considered the draw period, and the second 10 years are the repayment phase.

How much does a HELOC cost?

When evaluating HELOC offers, check interest rates, the interest-rate cap, closing costs (which may or may not be billed), and other fees to see just how much you would be paying.

Can you sell your house if you have a HELOC?

Yes, you can sell a house if you have a HELOC. The home equity line of credit balance will typically be repaid from the proceeds of the sales when you close, after any mortgage principal is paid off.

Does a HELOC hurt your credit?

A HELOC can hurt your credit score for a short period of time. Applying for a home equity line can temporarily lower your credit score because a hard credit pull is part of the process when you seek funding. This typically takes your score down a bit.

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

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

*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.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

SOHL-Q225-009

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For many people, a monthly mortgage payment is their biggest recurring bill. It may be the main expense that guides the development and management of their monthly budget, because that is an important bill to pay on time.

Prevailing wisdom says that your mortgage payment shouldn’t be more than 28% of your gross (pre-tax) monthly pay. But whatever that sum actually is, you may be wondering how to shave down the amount. Think about it: A lower mortgage payment could reduce your financial stress. And it can also open up room in your budget to allocate more money toward shrinking other debt, pumping up your emergency fund, and saving for retirement or other goals.

Below, you’ll learn more about your mortgage payment and possible ways to lower it.

Pros and Cons of Lowering Your Mortgage Payments

There are upsides and downsides to lowering your mortgage payments.

On the plus side, learning how to lower your monthly mortgage payment means you could have more money to apply elsewhere. You might apply the freed-up funds to:

•   Pay down other debt

•   Build up your emergency fund

•   Put more money toward retirement savings

•   Use the cash for discretionary spending.

On the other hand, there are downsides to consider too:

•   You might wind up paying a lower amount over a longer period of time, meaning your debt lasts longer

•   You could pay more in interest over the life of the loan

•   If a lower monthly payment means you are not paying your full share of interest due, you could wind up in a negative amortization situation, in which the amount you owe is going up instead of down.

How to Lower Your Mortgage Payments

Now that you know a bit about how mortgage payments work and the pros and cons of lowering your mortgage payments, consider these ways you could minimize your monthly amount due.

Recommended: How to Pay Off a 30-Year Mortgage in 15 Years

1. Refinance Your Mortgage

One of the best ways to reduce monthly mortgage payments is to refinance your mortgage. A refinance (not to be confused with a reverse mortgage) means replacing your current mortgage with a new one, with terms that better suit your current needs.

There are a number of signs that a mortgage refinance makes sense, such as lower interest rates being offered or the desire to secure a fixed rate when you have an adjustable-rate mortgage. If your credit score has improved markedly since you purchased your home, you may qualify for a better rate than you were able to obtain initially.

Refinancing can result in a more favorable interest rate, a change in loan length, a reduced monthly payment, and a substantial reduction in the amount you owe over the life of your mortgage. Do note, however, that there are often fees for refinancing your mortgage.

A cash-out refinance can refinance your loan and provide you with a lump sum to use for home improvement projects. It’s often less costly than taking out a separate home improvement loan. (You can use a Home Improvement Cost Calculator to get an idea of what your project will cost.)

2. Recast Your Mortgage

If refinancing isn’t for you, study up on how to lower mortgage payments without refinancing — specifically, by doing a recast. If you get a bonus or other windfall, consider throwing some of that money at your mortgage. If you are in a position to make a major lump-sum payment toward the loan principal on your home loan, you may benefit from mortgage recasting.

With recasting, your lender will re-amortize the mortgage but retain the interest rate and term. The new, smaller balance equates to lower monthly payments. Worth noting: Many lenders charge a servicing fee and have equity requirements to recast a mortgage, but fees are significantly lower than they would be for a refinance, and you don’t have to worry about what current mortgage rates might be.

If you don’t have a large sum on hand to use for a recast, you can also make extra payments on a schedule or whenever you can. Just make sure you tell your lender to apply the extra funds to the principal and not the interest. Paying extra toward the principal provides two benefits: It will slowly reduce your monthly payment, and it will pare the total interest paid over the life of the loan.

3. Extend the Term of Your Mortgage

If your goal is to reduce your monthly payment — though not necessarily the overall cost of your mortgage — you may consider extending your mortgage term. For example, if you refinanced a 15-year mortgage into a 30-year mortgage, you would amortize your payments over a longer term, thereby reducing your monthly payment.

This technique could lower your monthly payment but will likely cost you more in interest in the long run.

(That said, just because you have a new 30-year mortgage doesn’t mean you have to take 30 years to pay it off. You’re often allowed to pay off your mortgage early without a prepayment penalty by paying more toward the principal.)

4. Get Rid of Mortgage Insurance

Mortgage insurance, which is needed for some loans, can add a significant amount to your monthly payments. Luckily, there are ways to eliminate these payments, depending on which type of mortgage loan you have.

Getting rid of the FHA mortgage insurance premium (MIP). Consider your loan origination date that impacts when you can get rid of the extra expense of mortgage insurance:

•   July 1991 to December 2000: If your loan originated between these dates, you can’t cancel your MIP.

•   January 2001 to June 3, 2013: Your MIP can be canceled once you have 22% equity in your home.

•   June 3, 2013, and later: If you made a down payment of at least 10% percent, MIP will be canceled after 11 years. Otherwise, MIP will last for the life of the loan.

Another way to shed MIP is to refinance to a conventional loan with a private lender. Many FHA homeowners may have enough equity to refinance.

Getting rid of private mortgage insurance (PMI). If you took out a conventional mortgage with less than 20% down, you’re likely paying PMI. Ditching your PMI is an excellent way to reduce your monthly bill.

To request that your PMI be eliminated, you’ll want to have 20% equity in your home, whether through your own payments or through home appreciation. Your lender must automatically terminate PMI on the date when your principal balance reaches 78% of the original value of your home. Check with your lender or loan program to see when and if you can get rid of your PMI.

5. Appeal Your Property Taxes

Here’s another of the seven ways to lower your mortgage payment: Take a closer look at your property taxes. Your property taxes are based on an assessment of your house and land conducted by your county’s tax assessor. The higher they value your property, the more taxes you’ll pay.

If you think you’re paying too much in taxes, you can appeal the assessment. If you do, be prepared with examples of comparable properties in your area valued at less than your home. Or you may also show a professional appraisal.

To challenge an assessment, you can call your local tax assessor and ask about the appeals process.

Recommended: First-Time Homebuyer Programs

6. Modify Your Loan

Getting a loan modification from your lender is different from a refinance and is often a solution for homeowners who wouldn’t qualify for a new loan because they are experiencing financial difficulties. A modification changes the terms of a loan to make monthly payments more affordable. It’s a tactic that is usually used to provide relief to homeowners who are struggling to make their loan payments. If this is your situation, you can ask your lender for a new repayment timetable, a lower interest rate, or a switch from an adjustable rate to a fixed rate. Lenders aren’t obligated to agree, but if you can show proof of financial hardship, such as bank statements and tax returns, this may be an option.

7. Shop for a Lower Homeowners Insurance Rate

Many homeowners take a “set it and forget it” approach to homeowners insurance and pay for their insurance through their monthly mortgage payment. It’s smart to assess your coverage annually to make sure it is adequate. Take this opportunity to shop around for a lower rate. Three ways to potentially lower your insurance costs: Increase your deductible; buy your home and auto policies from the same insurer; and explore whether making your home more secure or storm-resistant might qualify you for a lower rate. Just remember: If you are getting a new policy, make sure it is fully in place before you cancel your old one.

The Takeaway

How to lower your mortgage payment? There are several possible ways. And who wouldn’t love to shrink their house payment? You might look at strategies to build equity and ditch mortgage insurance, extend the term of your loan, or refinance to reduce your monthly payment.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

A new mortgage refinance could be a game changer for your finances.

FAQ

What is the average mortgage payment?

According to the C2ER’s 2024 Annual Cost of Living index, the median monthly mortgage payment in the U.S. (excluding property taxes and homeowners insurance) is $2,132.

Can you pause or temporarily reduce mortgage payments?

If you can demonstrate that you are experiencing sudden financial hardship, a lender may allow you to pause or temporarily reduce your mortgage payments for six months or so through a process called mortgage forbearance. You’ll continue to accrue interest on your loan during this time, but requesting and being granted forbearance can help prevent foreclosure and damage to your credit.

Does refinancing always lower monthly mortgage payments?

Refinance doesn’t always lower your mortgage payment amount. Borrowers who do a cash-out refinance (borrowing against their home equity to get a lump sum they can use for education expenses, for example) might emerge from the refi with higher monthly payments. Another possible scenario: If you obtain a lower interest rate with a refi but choose a shorter loan term (10 or 15 years, for example), your monthly payment amount might increase.

Can rental income help with monthly mortgage payments?

Taking on a roommate or building an accessory dwelling unit (ADU) on your property that you rent out can certainly help defray monthly mortgage expenses. It won’t lower what you owe on your mortgage, but it will reduce your actual out-of-pocket cost.

What credit score do you need to refinance for a lower mortgage payment?

If you’re refinancing a conventional mortgage, you’ll typically need a minimum FICO® credit score of 620, although a score of 740 or more qualifies borrowers for the best interest rates. If you have a government-backed FHA loan, you’ll need a score of 580 or more. Whether refinancing will result in a lower mortgage payment will depend on the interest rate on your original mortgage, current interest rates, and the type of refi you choose as well as your credit score.

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

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

*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.


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.

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

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.

SOHL-Q225-013

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When you buy a home, you’re likely paying more than just the down payment and closing costs. You’ill probably also need to purchase homeowner’s insurance. While this coverage is not mandated by law, many mortgage lenders require it before they agree to finance the purchase of your home.

Here’s what first-time homebuyers need to know before shopping for homeowners insurance.

What Does Homeowners Insurance Cover?

Homeowners insurance coverage usually provides protection for both a home and its contents against damage, theft, and up to 16 named perils, including fire, hail, windstorms, smoke, vandalism, and theft. It also typically includes personal liability coverage for accidents that may happen on the property (think of people slipping and falling down your stairs, or your dog biting a neighbor on the property).

On the flip side, basic homeowners insurance likely won’t cover damage from disasters such as floods and earthquakes, and even war (seriously). Homebuyers who live in an area prone to certain events or natural disasters may want to consider supplemental coverage. In some cases, their lender may even require it.

It’s a good idea to learn what’s generally covered by each homeowners insurance policy type — and what isn’t — to ensure you have the right protection in place.

Recommended: Mortgage & Homeowners Insurance Definitions

When You Need to Buy Homeowners Insurance

If buyers plan to get a mortgage to purchase their home, their lender will likely require they obtain homeowners insurance coverage before signing off at closing.

In reality, this is a sound business tactic, as the lender will want to protect its investment, which is the property, not the person it’s lending to (harsh, we know). Let’s say the home is damaged in a windstorm or burns to the ground. Insurance will cover the cost, after a deductible, without burdening the homeowner. The homeowner can then continue to pay their mortgage on time, much to the delight of the lender.

Again, if you live in an area prone to certain disasters like floods or earthquakes, your lender may require additional coverage. Check with your lender on what’s necessary before signing.

If a person’s first home happens to be a condo or co-op, the board may also require specific coverage, thanks to a shared responsibility for the entire complex.

Recommended: House or Condo: Which Is Right For You? Take the Quiz

Can You Forgo Homeowners Insurance?

Technically, there are no laws requiring a person to obtain homeowners insurance, but it’s a rule put in place by many lenders.

If you’re paying cash for a new home, you can forgo purchasing homeowners insurance, though that may be a risky proposition.

Think you can somehow snake the system? Think again. If a lender doesn’t feel that the homebuyer is working hard or fast enough to find homeowners insurance before closing, the lender may go ahead and purchase insurance in that person’s name with what’s called “lender-placed insurance.”

This isn’t as cool as it sounds. Not only will it increase the mortgage payment, lender-placed insurance is typically more expensive than traditional homeowners insurance. And it may not even provide all the protection a homeowner needs or wants.

To give yourself enough time to find the right policy for you, aim to start shopping around a good 30 days before closing.

How Much Coverage a Person Needs

How much homeowners insurance a new homeowner needs will depend on the value of their home and the possessions in it. As a first step, would-be homeowners can ask their agent for a recommended amount of coverage.

After determining that number, it’s also a good idea to take stock of belongings and see if any items may require additional coverage (think expensive antiques, paintings, or other irreplaceable items). It could also be smart to photograph and digitally catalog major items in a home for proof needed on any claims.

Replacement Cost vs. Actual Cash Value

When shopping for homeowners insurance, there’s replacement cost coverage and actual cash value coverage.

Replacement cost coverage pays the amount needed to replace items with the same or similar item, while actual cash value coverage only covers the current, depreciated value of a home or possessions.

This means that if you have actual cash value coverage and disaster hits, you’ll only be able to get enough cash for the depreciated value of the home and items, not the cost of what it may take to replace them.

Most standard homeowners insurance policies cover the replacement cost of a physical home and the actual cash value of the insured’s personal property, but some policies and endorsements also cover the replacement cost of personal property.

The upshot: It’s best to go for replacement cost coverage whenever possible.

Recommended: Hazard Insurance vs. Homeowners Insurance

The Takeaway

Is homeowners insurance required to buy a home? If you’re taking out a mortgage, that’s almost always a “yes.” It’s worth looking at your options — and understanding what will and will not be covered — so you can feel at ease in your new home for years to come. And keep in mind that shopping for homeowners insurance often requires considering several options, from the amount of coverage to the kind of policy to the cost of the premium.

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.

Find affordable homeowners insurance options with SoFi Protect.

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

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The cost to renovate a house can vary drastically based on myriad factors, with the average whole house remodel cost ranging anywhere from $40,000 to $75,000. Of course, that’s a whole house renovation — the cost of a house remodel, say in just the kitchen or an outdated bathroom, can run much lower.

Before you start in on a project, it’s critical to assess how much it will cost to remodel or renovate so you can make decisions that are financially realistic. While it might seem like a pain upfront, creating a budget beforehand can help you avoid headaches and hard choices down the line.

What Is the Average Cost to Remodel a House?

The national average cost to remodel a whole home generally falls between $40,000 and $75,000. That being said, the cost to remodel a house can vary quite a bit depending on the scope of the project, the size of the house, and the quality of the materials used. On the low end, someone could spend just a few thousand dollars, while on the high side, a home remodel’s cost could reach $200,000.

National vs. Regional Remodeling Cost Averages

One key factor to consider when considering a remodeling project is your home’s location. Consider whole home renovation costs: A home remodel in a lower-priced market might fall near the low end of the $40,000-$70,000 average cost range, while higher prices for materials and labor in markets like New York City or San Francisco could push prices up. The Bureau of Labor Statistics reports that the mean annual wage for an electrician in the highest-cost areas (New York, Illinois, Alaska, Hawaii, and Washington, D.C.), tops $75,000, whereas wages in less expensive states in the South, such as Tennessee and Alabama, don’t often top $51,000).

Cost to Renovate a House Per Square Foot

Because the size of the house can play a big role in the ultimate cost to remodel a house, it can be helpful to know the average cost to remodel per square foot. On average, the cost to renovate or remodel a whole house runs between $15 and $60 per square foot.

For certain rooms, however, the price per square foot is typically higher. For instance, the cost for a kitchen or bathroom renovation may be more like $100 to $250 per square foot. This is because of the materials needed and also the labor involved due to plumbing and electrical work required.

Factors of a Home Remodel Cost

As mentioned, there are several factors to take into account when budgeting for a home remodel. Some of the major factors to consider that will influence the ultimate cost of a house renovation include whether the remodels are high-end, mid-range, or low-end, the type of home, and the number and size of rooms to be renovated.

Recommended: Home Affordability Calculator

1. High-End Versus Low-End Renovation

The variation in price for a home renovation project stems mostly from the scale of the projects. According to HomeGuide.com, a homeowner generally can expect to complete the following home remodels within each budget range:

•   Low-end home remodel: A low-end renovation would include small changes such as new paint, updated hardware, and fresh landscaping. It might also include inexpensive finishes like new counters and flooring.

◦   Budget: $15,000-$40,000

•   Mid-range home remodel: In addition to the low-budget projects, a mid-range home renovation includes full-room remodels like a bathroom and kitchen, as well as a higher quality flooring than the low-end renovation.

◦   Budget: $40,000-$75,000

•   High-end home remodel: A high-end home remodel would include the low-end and mid-range projects, as well as high-quality finishes including custom cabinetry and new appliances. It might also include improvements to the foundation, HVAC, plumbing, and electrical.

◦   Budget: $75,000-$200,000

As a homeowner, you can expect to customize your home remodel budget once you identify what rooms you want to upgrade and to what extent. Only one in five homeowners finish home remodels under budget, so it’s smart to pad estimates by 10% to 15% in the event of unexpected renovation costs.

2. Type and Age of Home

Older homes will typically need more attention during the home renovation process, especially as new issues arise when existing problems are addressed. Once walls and floors are opened up, for example, a homeowner might realize the wiring and plumbing are outdated and should be brought up to code.

While a house won’t necessarily be unsellable if everything isn’t up to code, there could be issues with sellers financing. That’s because lenders generally will not close on a house where health and safety issues are identified as problems.

If your home is deemed old enough to be considered “historic”— which is generally 50 years or older, according to the National Park Service — you’ll want to check on any existing guidelines that your city’s codes office may have, or if there’s a historic overlay that enforces the need for an architectural review. Designated historic properties in states like California, where owners of qualified historic buildings can receive property tax relief for maintaining their homes, could boost a home’s value.

Depending on the condition of the house and any past upgrades, its age can have an impact on the cost of a home remodel, but so, too, can the type of home, regardless of age. According to Angi.com, Victorian homes generally cost the most to renovate — anywhere from $20 to $200 per square foot — while farmhouses and townhouses tend to have the lowest cost per square foot, between $10 and $50.

3. Size and Layout

The square footage of a home has a sizable impact on renovation costs, with a small-footprint home of 1,200 square feet averaging about $20,000 and a home over 3,000 square feet averaging more than $75,000.

4. Permits and Local Building Codes

The permitting process can be costly, HomeGuide.com reports. Small jobs might require a single permit that is priced as low as $50, but for large projects, a permit might cost $500 and some projects require multiple permits. And that is just the cost of the permit itself. Some projects require an expeditor who is a pro at securing permits to help move permits through the buildings department process. In an expensive market like New York City, for example, this can add several thousand dollars to costs.

5. Labor and Material

As noted above, labor costs are a big part of any renovation project and can vary greatly by region. As a general rule, you can expect labor to be about two-thirds of your budget, although the exact proportion differs according to the type of project. Materials are another significant line on the budget, with a kitchen or bathroom typically having higher materials costs. A kitchen, for example, might need cabinets, appliances, countertops, and flooring.

Recommended: Homebuyer’s Guide

Typical Renovation Costs by Room

When it comes to home-renovation expenses, generally not every room is created equal. Rooms with cabinets and appliances — think bathrooms and kitchens — tend to be the priciest and are often where a home remodel budget can go awry.

Kitchen Remodel

The typical range for the cost of remodeling a kitchen comes in between $14,590 and $41,533, with $26,972 being the average, according to Angi.com. But kitchens also can have the most variation when it comes to cost, depending on cabinetry, finishes, appliances, and other add-ons.

Here’s what a homeowner might expect to pay for a home remodel of a kitchen:

•   Low-end kitchen remodel: This would include new lighting, faucets, a coat of paint, refreshed trim, and a new but budget-friendly sink backsplash. A low-end kitchen remodel also might include knocking down walls or a counter extension project.

◦   Budget: $5,000-$30,000

•   Mid-range kitchen remodel: A remodel of this level could encompass new appliances, floors, and tiled backsplash to the sink and countertop. It also might include new cabinets and mid-range slabs for the countertop.

◦   Budget: $30,000-$60,000

•   High-end kitchen remodel: With this range of remodel, there could be custom cabinets, high-end countertops like rare stone or granite, and deluxe appliances added. When the budget for a kitchen is expanded, the projects start to take on custom finishes. Other projects might include new lighting, hardwood flooring, and new faucet fixtures.

◦   Budget: $65,000 and up

Because a kitchen can be extremely customizable and include so many levels of finishes, your home remodel budget could fluctuate greatly due to the cost and availability of materials, the labor involved, and where you live.

Bathroom Remodel

Bathrooms take on a similar budgeting structure to kitchen remodels. The typical range for the cost of a bathroom remodel is between $6,639 and $17,621, with $12,119 being average. However, that budget includes a range of projects, customizations, and features.

For example, new cabinets in a bathroom can account for up to 30% of the budget. Other big-ticket items affect pricing based on whether you choose low-end or high-end finishes.
On the low-end, a new bathtub might cost around $400, but if you are looking for a high-end tub, you could pay upward of $8,000. Similarly, a sink can run anywhere from $190 to $6,500, while a toilet might cost between $130 and $800.

Bedroom Remodel

Budgeting for a bedroom remodel can be a little more cut-and-dried, since it generally doesn’t include as many costly fixtures as you might find in the bathroom or kitchen. You might spend as little as $3,500, although $20,000 is the average cost.

This typically includes installing new carpet, windows, and doors, as well as refreshing the molding or trim. A bedroom remodel might also include new heating and insulation and updated wiring and lighting.

Remodeling a primary suite could cost a bit more since it typically includes a bathroom and bedroom renovation in one. If you want to add or expand a closet in the primary suite, you can estimate adding around $3,000 to the budget.

Living Room Remodel

Similar to a bedroom remodel, a living room remodel can be more economical, costing between $2,500 and $15,000, with an average spend of around $8,000. Like the bedroom, living rooms tend to lack the “wet” features (plumbing and appliances) that can drive up the cost of bathroom and kitchen renovations.

If you plan to add a fireplace feature to a living room, expect to spend a bit more. A fireplace could add up to $5,000 per room.

Exterior Remodel

Updating roofing and refreshing the exterior of a home is a common part of a home remodel. The national average cost to replace a roof runs $4 to $11 per square foot, but that price will vary depending on materials.

Adding new siding to a home typically costs anywhere from around $5,000 to $17,000, with the cost again fluctuating based on the material used. Painting the exterior of a home will cost between $1,800 and $4,400.

Basement or Attic Remodel

A basement remodel can be surprisingly costly, especially if it involves digging up the floor to increase the room height. On average, it will run you $22,000, with costs trending higher if you are starting with a raw, unfinished space. An attic remodel is similarly costly, averaging $20,000. It could creep much higher if you want to bring plumbing lines up to the floor.

Garage Remodel

A garage remodel could be slightly less costly than an attic or basement, averaging around $17,000. Adding plumbing or needing to increase insulation could push prices upward.

Other Home Remodeling Considerations

A home remodel isn’t just financial spreadsheets. There are other things you may want to consider — like if you are planning to sell the house or make it your forever home — before taking a sledgehammer to a room.

Home Remodel Timeline

A renovation project could take anywhere from a few days to a few months, so you may want to plan your home remodel timeline accordingly. It might be tempting to duck out of town when big projects are underway, but staying around means that you can monitor projects and provide answers to your contractors if any unexpected issues arise.

Additionally, home renovations can be stressful and might be best scheduled around other big life events. For example, you might think twice about a full home remodel that coincides with a wedding, the holidays, or a baby on the way. Unexpected events could arise, but there often is no need to pile on projects with other major life events going on.

Who Is the Home Remodel for?

Before diving deep into plans, you may want to consider who your home remodel ultimately is for. Is it for you to enjoy decades from now, or is it to make the house more marketable for a future sale? The renovation could take a different shape depending on your answer to this critical question.

If the remodel is just for you as the homeowner, you might choose fixtures based on personal taste or decide to splurge on high-end bathroom features that you’ll enjoy for years to come. On the other hand, if you plan to sell within a few years, you may consider tackling projects that have the greatest return on investment (ROI), which could mean prioritizing projects like a kitchen update or bathroom remodel.

Not sure about a project’s resale value? SoFi’s home project value estimator can be a useful tool to help determine the approximate resale value of a home improvement project.

Home Remodel Delays and Unforeseen Expenses

When deciding to take on a major home remodel, it’s helpful to expect the unexpected. Unforeseen delays like a shortage of materials can extend your home remodel timeline, or materials cost increases due to tariffs could drive a project over budget. As a general rule of thumb, estimate at least 10% in added budget for emergencies or unexpected costs.

Using a General Contractor vs Subcontractors

As you weigh the costs of your project, one consideration will be whether you plan to manage the project yourself or use a general contractor, who would hire subcontractors for different aspects of the work. Having a general contractor to manage project costs, deal with permits, and ensure subcontractors are licensed and insured can be a timesaver and provide peace of mind, although it may add to costs.

Financing a Home Remodel

Coming up with the money to finance a home remodel can be daunting enough to make some homeowners abandon the whole process entirely. However, there are multiple financing avenues you can explore.

Out-of-Pocket Home Remodel Expenses

Homeowners who take on small renovations and have liquid savings might decide to pay for everything out of pocket. The upside of this approach is not having to deal with debt or interest rates.

However, paying cash for a large project can be challenging for some homeowners. It might even lead to cutting corners on important elements in an effort to keep costs down. Plus, unexpected emergency costs could drive you into debt.

Borrowing Money from Friends or Family

Another alternative to financing your home remodel is borrowing money from family members or friends. While this may save you from having to deal with loan applications and approvals — and potentially provide more flexible terms — it can come with its own share of issues, such as risking the personal relationship if you’re unable to pay back the lender.

Additionally, loans from family members may be considered gifts by the IRS — and, thus, may be taxable. Consider discussing this method of financing a home remodel with a tax professional before proceeding if you have any concerns or uncertainties.

HELOC

A HELOC, or home equity line of credit, allows homeowners to pull a certain amount of equity from their home to finance things like renovations. Qualifying for a HELOC depends on several factors, including the outstanding mortgage amount on the home, the home’s market value, and the homeowner’s financial profile.

HELOCs typically come with an initially low interest rate, and a homeowner generally has the option to only pay interest on the amount they’ve actually withdrawn. For many homeowners, the ability to borrow in increments makes a HELOC preferable to a home equity loan, because funds can be withdrawn as needed over the course of a renovation project. It’s important to remember, though, that your home is acting as collateral, meaning that if you fail to make payments, your home could be on the line.

Personal Loan

If you don’t have the cash on hand or enough equity in your home for a HELOC, then a personal loan is another consideration. The most common type of personal loan is an unsecured loan, meaning the loan isn’t attached to your home equity. For home projects, a home improvement loan is often a good fit.

Personal loans might be a good option for people who recently bought their homes, need capital quickly for unexpected reasons, or need a loan for their home improvement project — there are a number of potential uses for personal loans.

Figuring out your remodel costs ahead of time is important if you want to take out a personal loan though. One of the steps to get a personal loan approved is determining how much you’ll need to borrow.

Cash-out Refinance

Another way to finance a large remodeling project is to do a cash-out refinance. This involves getting a completely new home loan with a new interest rate and term. The amount you borrow will cover whatever you owe on your original mortgage, so you can pay that one off. It will also provide a lump sum of extra cash that you can use to fund your remodel.

Recommended: Personal Loan Calculator

The Takeaway

The cost to remodel a house will depend on the number of rooms you decide to renovate, the degree to which each room is remodeled, the materials you use, and the area in which you live. Opting to DIY some projects could help bring down the budget, but it can be smart to bring in a professional for more specialized projects like electrical work and plumbing.

Before you get started, consider mapping out a plan that prioritizes which projects you tackle first and how you intend to finance your home remodel. One option you might consider is a home improvement loan. Another smart choice is a home equity line of credit.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

What’s the difference between a house rehab, remodel, and renovation?

A house rehab, or rehabilitation, involves keeping and repairing old or historical elements of a home to make it in better condition, which could include introducing new materials. With a remodel, you’re changing the structure of a room, whereas a renovation is reviving the existing room to make it more attractive or personalized.

How do I estimate renovation costs?

The best way to estimate your renovation costs is to talk to a local contractor. You might contact a few to get some different estimates to work with. From there, you might consider adding at least 10% to that figure to account for unforeseen expenses and other surprises.

How much should I spend on a home renovation?

It’s really up to you how much to spend on a home renovation. That being said, it’s important to keep in mind the value of surrounding homes as you add value to your own. You might contextualize remodeling costs in the context of the overall value of your home.

How much remodeling can be done with $100,000?

It’s possible to renovate an entire house with a budget of $100,000, considering the national average cost to remodel a whole home generally falls between $40,000 and $75,000. However, the amount of remodeling you can do also depends on factors such as the quality of materials used, the square footage of the house, and the home’s location. The cost of remodeling can vary widely based on these factors and others.

What is the most expensive part of a home renovation?

Labor — especially skilled trades such as plumbers or electricians — typically constitutes the bulk of the cost of any home renovation project. As a rule of thumb, you can expect labor to require two-thirds of your budget and materials one-third.

What are some ways to save on home renovation costs?

You can save money on home renovations by creating and sticking to your budget and managing the project and doing some part of the labor yourself. Of course, not everyone has the skills or time to be their own contractor. Other ways to save include reusing materials and choosing more affordable finishes, fixtures, and appliances. Minimizing the moving of plumbing or electrical lines can also help save costs.

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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.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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