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Your home’s heating, ventilation, and air conditioning (HVAC) system plays an important role in regulating temperature and air quality and keeping your house comfortable. Maintaining or upgrading the ductwork involved can be a small or major expense, depending on the job’s specifics, with costs ranging from $200 to $12,000, typically, and an average price of $1,252.

This guide will give you the basics of how HVAC ductwork operates and key cost considerations.

What Is Ductwork?

In the broadest sense, ductwork can be defined as the channels used for transferring heated and/or cooled air through the rooms and zones of a home or building.

In many cases, HVAC systems need separate supply and return ducts to circulate, filter, and treat air continuously. Supply ducts bring air from the furnace, geothermal pump, or other type of system to blowers and vents to heat or cool an area. On the flipside, return ducts transport untreated air back to the HVAC system.

Some of the most common HVAC systems that need ductwork include:

•   Geothermal or ground source heating and cooling

•   Central air conditioning

•   Furnaces

•   Central gas heating

Between these different systems and a home’s unique characteristics, ductwork can be handled in a variety of ways.

Recommended: How to Winterize a House

Installing New Ductwork

Figuring out how to install ductwork varies in complexity and cost between new construction and finished and furnished homes.

Additional steps that may be necessary for a finished home, such as cutting holes in existing walls, ceilings, and floors, may likely drive up the price of labor and require more materials and time for installation. Depending on where the system is placed, ducts may be run through closets, attics, basements, or up stairwells.

Since different homes require different amounts of ductwork, it’s helpful to think of cost on a linear foot basis. New ductwork can cost about $40 to $65 per linear foot, with the variation coming down to costs for materials and labor.

On average, retrofitting an existing home without ducts can run $2,400 to $6,600.

If you’re building a new home, including plans for HVAC ductwork from the getgo could reduce the overall installation cost. For starters, it would bypass the need to retroactively cut holes throughout a home for ducts and vents.

Additionally, it may be easier to design systems that utilize fewer linear feet since ductwork can be installed before walls and floors are completed.

Replacing Ductwork

If your home is already fitted with ductwork, replacing a portion of it or the entire system might be necessary due to leaks, cracks, or reduced efficiency over time. Since ducts are usually kept out of sight behind walls and ceilings or in attics and basements, accessibility is a key factor in repairing a system.

The replacement process involves both removing the existing materials and installing new ductwork. Replacing ductwork can cost from $25 to $55 per linear foot depending on the location of the existing system and choice of materials for the new ductwork.

Replacing ductwork in a home between 2,000 and 2,500 square feet can run $2,800 to $5,600.

Exposed ductwork can be easier for you to reach and replace on your own, but a professional contractor may be necessary for more complicated repairs and getting to concealed HVAC systems.

Additionally, a skilled professional could likely complete the job in less time than a DIYer might, and time may be a more pressing factor than money in the middle of a cold snap or during a heatwave.

The U.S. Environmental Protection Agency’s EnergyStar program recommends getting quotes from contractors with North American Technical Excellence (NATE) or Building Performance Institute (BPI) certification to get the job done right on the first try.

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Ductwork Materials

There are several types of materials to consider when planning how to install ductwork in a home. Broadly speaking, ductwork can be categorized as flexible or rigid, with options for materials within each category. Each comes with tradeoffs in terms of price, lifespan, efficiency, and flexibility.

Flexible Ductwork

True to its name, flexible ductwork is characterized by its ability to bend, which can come in handy when installing inside tight and tricky spaces.

In most cases, aluminum or non-metallic materials like plastic, polyester, and PVC are used for flexible ductwork. Here’s how they compare.

Flexible Aluminum: Costs between $4 to $7 per linear foot (excluding labor).

Pros:

•   Ideal for installing in hard-to-reach places

•   Longer lifespan than non-metallic flexible ductwork

•   Generally cheaper than rigid ductwork

Cons:

•   Poor energy efficiency without added insulation and sealing

•   Needs to be reinforced to minimize kinks and bends to improve airflow and efficiency

Flexible Polyester: Costs between $1 to $4 per linear (excluding labor)

Pros:

•   Useful for compact spaces

•   Generally one of the cheapest options

•   Resistant to mold and rust

Cons:

•   Prone to tearing and less durable than flexible aluminum

•   Needs to be reinforced to minimize kinks and bends to preserve airflow and efficiency

Rigid Ductwork

Rigid ductwork can be made from several materials, such as fiberglass and galvanized steel or aluminum. These options can also vary in shape (e.g., cylindrical or rectangular) and size. Additionally, there are differences in cost and features for each type of rigid ductwork.

Sheet Metal Ductwork: Made from galvanized steel or aluminum, these materials usually cost anywhere from $7 to $13 per linear foot.

Pros:

•   Greater durability than other materials

•   Can produce less noise than flexible ductwork

•   Less susceptible to mold and mildew

Cons:

•   Difficult to install if there isn’t space for long, straight lines of ductwork

•   Adding insulation may be required for greater energy efficiency

•   More expensive than flexible ductwork

Fiberglass Duct Board: Consisting of metal ductwork lined with fiberglass, this option costs between $4 and $6 on average.

Pros:

•   Built-in insulation improves energy efficiency and temperature control

•   Easy to cut and seal

•   Well suited for installing between a building’s rafters or floor joists

Cons:

•   Over time, they can release fiberglass particles into the air and be susceptible to mold and mildew

•   Can be difficult to clean

•   Often the most expensive option per linear foot

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Sealing and Insulation

Depending on the structure of a home, the type of HVAC system, and other factors, sealing and insulating ductwork may be necessary for health and safety concerns. It might also improve the efficiency of a system, thus potentially lowering your energy use, and may help pay for itself through lower utility bills.

If combustion is involved in your HVAC system, which is generally the case for furnaces and central gas heating, harmful gases like carbon monoxide are generated in the process. Sealing ductwork can further safeguard that such gases are not circulated into the living space of home instead of being emitted outside.

While professional contractors are recommended for sophisticated ductwork insulation and sealing jobs, homeowners may choose to take a DIY approach to sealing near vents and other ductwork connection points with metal tape. These locations, especially vents, can be more accessible and are more common locations for leaks.

How Often Should Ductwork Be Replaced?

While we may immediately notice when the power goes out or the plumbing is backed up, it’s harder to tell if we’re getting the most out of a heating and cooling system.

Maintenance and cleaning can help extend the lifespan of ductwork and heating and cooling systems, but a time will come when replacement is a safer and more financially sound choice.

Erring on the side of caution, you may want to have a heat pump or air conditioner (including ductwork) replaced if it’s more than 10 years old. For a furnace, the estimated lifespan is around 15 years.

To keep your ductwork in tiptop shape, there are some maintenance tasks, like changing air filters monthly, that can be done on a DIY basis. More complex procedures, such as cleaning blowers, checking electrical connections, and lubricating mechanical parts, may be better handled by a professional contractor.

Having a maintenance checklist handy can be helpful for staying on top of your cleaning and maintenance schedule, as well as making sure a contractor checks all the boxes when inspecting your HVAC system.

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

How to Finance Ductwork

Whether you’ve saved in advance or are responding to a sudden home repair cost, there are options available for paying for HVAC ductwork.

Installing energy-efficient heating and air conditioning systems may qualify for a residential energy property tax credit. Additionally, some states and utilities offer incentives and rebates.

Although helpful, these incentives and tax credits still leave a portion of the cost to the homeowner. It can sometimes be difficult to save for potentially pricey repairs like these if a budget is already stretched thin.

One financing option you might consider is an unsecured home improvement loan. This is a personal loan designed to be used for home upgrades and repairs, and typically comes with a fixed interest rate, set term, and regular monthly payments. Unlike a home equity loan or line of credit, personal loans don’t require you to have equity in your home or use your home as collateral.

The Takeaway

Ductwork plays an important role in your home’s HVAC system and keeping your home healthy and comfortable. But, like all parts of a property, it can get old and/or damaged and need repair or replacement. Typically, a ductwork repair will cost $1,252, but the price tag can be considerably higher. If you need help financing ductwork, you might consider a home improvement loan, which is a kind of personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How much should new ductwork cost?

How much new ductwork will cost will vary with the size of the project, where it’s located, and whether it’s a repair or a replacement. Average costs stand at $1,252, but the range of costs can run from a couple of hundred dollars to over $10,000.

Does homeowners’ insurance usually cover ductwork?

While insurance policies differ, most homeowners’ insurance does not cover ductwork repair or replacement.

Can I replace my own ductwork?

While you could DIY a ductwork repair, experts in HVAC caution that it’s a complex job requiring a solid understanding of how the system works and building code specifics. It may be wiser to call in a pro.

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-Q225-059

An underwater mortgage, also known as an upside-down mortgage, occurs when your mortgage has a higher principal balance than the current fair market value of your home. In other words, you owe more on your loan than your home is actually worth. This can happen if housing prices in your area have dropped since you purchased your home.

Having a mortgage underwater can make it challenging to refinance your mortgage, take out a second mortgage, or sell your home. Fortunately, there are a number of ways you can manage the problem and get out from under an upside-down mortgage. Here’s what you need to know.

What Does it Mean to Have an Underwater Mortgage?

An underwater mortgage is defined as a mortgage in which the principal balance is higher than the home’s fair market value, resulting in negative equity. An underwater (or upside-down) mortgage can happen when property values fall but you still need to repay a large portion of your original loan balance.

Having a mortgage underwater can make refinancing difficult, since lenders generally won’t give you a loan for more than what the home is worth (in fact, they typically will only give you up to 80% of a home’s current value). It can also stand in the way of selling your home, since the proceeds from the sale likely won’t be enough to pay off your mortgage.

What Causes an Underwater Mortgage?

One of the most common reasons for an underwater mortgage is a decline in property value after the borrower purchases a home.

Homeowners who are most at risk of ending up underwater are those who bought their home recently with a very low down payment. Some lenders and types of mortgage allow you to put as little as 3% or even 0% down. If, for example, a home costs $300,000 and you put down 3%, you start with just $9,000 in equity in your home. If your home’s market value drops by $9,200, you’d be underwater by $200.

As you pay off your mortgage, you gradually chip away at the principal balance and end up with more and more equity. You also build equity as your home (ideally) grows in value over time. This helps protect you from becoming underwater due to any downward fluctuation in housing prices.

Missing payments on your mortgage also puts you at risk of going underwater. When you miss payments, your principal balance doesn’t decrease as fast as it should. As a result, you’re more likely to owe more than your home is worth.

💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

How Do I Know If I Have an Underwater House?

To find out if your home is underwater, you can follow a few simple steps:

1.   Check your loan balance. You can typically find your balance on a recent mortgage statement or by logging into your online account. If you can’t find it, you can always call the company that holds your loan and ask how much you still owe on your principal.

2.   Determine how much your home is worth. You can get a good estimate of your home’s current value using online tools from websites like Zillow and Redfin. For a more accurate valuation, you would need to get a professional home appraisal, which may not be worth it unless you absolutely need to know if you are underwater.

3.   See how the numbers compare. By subtracting how much you still owe on your principal from your home’s current value, you’ll end up with either a positive number (you’re not underwater) or a negative number (you are underwater).

What Are My Options If My Mortgage Is Underwater?

While you can’t control falling home prices, there are other things you can do to get an underwater mortgage back on dry land. Here are some to consider.

Stay and Keep Paying Down Your Principal

It’s not uncommon to be underwater on a mortgage if you haven’t owned your home for a very long time. If you don’t have an immediate need to sell (such as job relocation), your best bet may be to sit tight and keep on making your mortgage payments. Over time, your equity will increase and home prices may rebound.

If your budget allows, you might also want to make additional payments toward the principal balance in order to get back on track faster.

Explore Refinancing

Generally, you can’t refinance a mortgage that is underwater. However, there are some exceptions. If you have a government-backed loan (such as an FHA, USDA, or VA loan) and you qualify for a streamline refinance, you can refinance without a home appraisal. This allows you to get a new loan even if your current mortgage is underwater. It may be possible to use a streamline refinance to lower your interest rate or shorten your repayment term, which can help you pay down your principal (and get out from being underwater) faster.

In the past, Freddie Mac and Fannie Mae offered special refinancing programs for underwater mortgages, but they’ve temporarily stopped taking applications due to low volume.

Work With Your Lender

If you’re having trouble keeping up with your monthly payments, or you need to relocate and sell your home, it can be worth reaching out to your lender to discuss your options. You may be able to do one of the following:

Modify Your Loan

Your lender might agree to loan modification, which involves changing one or more terms of the loan. For example, you may be able to lower your monthly payment by extending your repayment term or reducing your interest rate. A lender might even agree to lower your principal balance. Just keep in mind that any amount of negative equity forgiven by your mortgage lender can count as income, so you’ll want to factor that in come tax time.

Short Sale

In a short sale, the lender agrees to accept a sales price that is less than the amount owed on the mortgage, effectively taking a loss. Typically, a lender will only consider a short sale as a final option before foreclosure. A short sale is typically preferable to a foreclosure for both parties involved — it costs less for the lender and is less damaging to the borrower’s credit history.

Deed in Lieu of Foreclosure

A deed in lieu allows you to forfeit ownership of your home to the lender, typically as a way to avoid the foreclosure process. If you go with this option, you’ll want to make sure you get all the details of the agreement in writing, so you are not liable for any remaining amount owed on the mortgage down the line.

Note: SoFi does not offer Deed in Lieu at this time. However, SoFi does offer mortgage refinance options.

File for Bankruptcy

A last resort option that you would only want to pursue if you’ve tried everything else, is to file for bankruptcy. There are two different types:

•  Chapter 13 With this type of bankruptcy, the court will put you on a plan to repay some or all of your debt. You won’t lose your home and will have time to work on getting your mortgage current. The court will monitor your budget, and your repayment plan will typically last for three to five years.

•  Chapter 7 This means all (or most) of your assets will be sold by the court to repay your debt. As a result, you could lose your home, car, or other assets. Any remaining debt is forgiven.

Filing for any type of bankruptcy is expensive, distressing, and can have serious and long-lasting consequences on your credit. However, it may provide much-needed relief if you’re deeply underwater on your mortgage.

Foreclose on Your Home

Foreclosure is another last resort option. In foreclosure, the lender will take control of your home, and, if you’re still living there, you’ll be evicted. The lender will typically then sell the house as quickly as possible to try to recoup as much money as they can. You’ll have your debt wiped away clean but your credit will be badly damaged and you’ll likely have to wait seven years before getting another mortgage. In addition, the canceled mortgage amount may count as taxable income.

The Takeaway

If you owe more on your home than it’s currently worth, you’re underwater (or upside down) on your mortgage. This can happen if property values drop and you don’t have a lot of equity built in your home. While it’s not an ideal situation to be in, there are options, including waiting it out, exploring possible refinancing options, and working with your lender to modify your loan.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What to do if your mortgage is underwater?

If your mortgage is underwater, meaning your loan balance is more than the house is worth, there are still things you can do. You could opt to wait things out and keep making mortgage payments till you’re no longer underwater. Or you can consider refinancing your mortgage, working with your lender to modify your loan, or selling short.

Can a bank foreclose on an underwater mortgage?

Your lender can’t foreclose on you just because your property is underwater, as long as you’re making your payments on time. But you may be slightly more at risk of foreclosure, simply because you may have fewer options for refinancing or selling your home if you do start having trouble paying your mortgage.

Can you refinance a mortgage if you’re underwater?

Refinancing is likely to be more difficult if you have an underwater mortgage, but it may still be possible. If you have a government-backed loan – like an FHA loan, VA loan, or USDA loan – you may be able to refinance.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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.

SOHL-Q225-070

Whether your living room is looking dated, cramped, cluttered, or is simply no longer working well for you and your family, there are makeover options for every taste and budget. Also keep in mind that living room remodels can happen in various stages — they don’t have to be all or nothing. Even simple, affordable updates like new lighting, paint, or flooring, can have a big impact on the look and feel of a living room.

Whether you have the budget for a total overhaul or you’re just looking for a quick and affordable update, here are some living room remodel ideas to consider.

Living Room Remodel Ideas: Top Elements To Change

Ready for a new living room look? These are the features to think about.

Layout

Effective use of space makes a room feel comfortable and inviting. If your living room seems underused, perhaps changing the layout will make family and friends want to hang out in it more often.

For someone moving into a new home and starting with a blank space, looking first at the layout of the room is a good starting point. Where do you enter the room? Where does your focus go first? Are the windows situated for convenient placement of furnishings?

If you’re currently living in the home, but the living room just isn’t functional, look at the layout in terms of what can be easily changed.

What in the room do you regularly use, e.g., couch or closets? Where do piles tend to accumulate? Do the windows cause a glare on the television? Is your furniture arranged to allow for good traffic flow and good conversation? The more effortlessly the room setup can support your daily movements, the better.

Recommended: Home Equity Loans vs Personal Loans for Home Improvement

Windows

Windows not only let light in, they affect our perception of how large, open, and welcoming a space is. Replacing them can be pricey, but might increase a home’s value and can generate energy savings: On average, 25% to 30% of a home’s energy use is due to heat gained or lost through the windows.

If the window itself is fine but the aesthetic is not, new window trim or window treatments can make a world of difference. Painting dark-stained trim in a shade of white can make a space feel lighter, brighter, and more modern.

Updating window treatments with ceiling to floor length curtains adds drama and interest, while Roman shades that fit inside the window casing keep things unobtrusive while still adding texture and privacy.

Recommended: How Much Does It Cost to Replace Windows?

Lighting

Lighting is functional, of course, but it can also be an aesthetic choice. Think about taking a picture indoors with or without a flash: Room lighting has that same sort of visual resonance, affecting how the other elements of the room appear and how you feel in the space.

In choosing lighting for your living room remodel, consider if you want the fixture to disappear, as with recessed lighting, or be a visual focal point. How bright or dim, warm or cool do you want your light levels? Where in the room will you need the most light? And adding dimmer switches to any lighting setup gives you loads of control.

Ceiling

Like the sky outside, what’s hanging above our heads indoors dramatically affects how we feel in a space. If you have a textured or popcorn ceiling, refinishing it to be smooth can instantly brighten and update your living room. It’s a messy DIY project, but one experienced painters or contractors can do while keeping the mess to a minimum.

If the ceiling would benefit from a new coat of paint, veering from the standard white might give the room a stylish quality. Light hues can create the illusion of a taller space, while something a little darker can evoke coziness.

Recommended: Beginner’s Guide to a Bedroom Remodel

Flooring

Along with layout and paint, flooring has perhaps the biggest impact on a room. It’s a large, dominant, visual element that affects how sound echoes in the room or carries beyond it, how much light reflects into the room, and how much dirt shows up.

When buying a new home, it’s a good idea to check what’s under the carpet. You might find lovely hardwood floors in pristine condition — or a mess of a subfloor. Knowing what you will have before signing the mortgage agreement will allow you to make a plan for any needed renovations. For a quick change, don’t underestimate a simple area rug.

Recommended: Four Ways to Upgrade Your Home

Molding

Molding hits the sweet spot of a decorative finish that feels structural. The trim around windows and doors, crown molding and baseboards, picture and knee rails — all inform the character of a space and add visual interest and structure. In particular, if things feel blank or sterile, adding decorative trim can make a space a little more impressive.

Paint

Fresh paint works wonders. Even if you don’t have time or budget for anything else, reimagine the wall color. Samples painted on the wall will show how the room’s light will affect the paint. Many paint brands now also offer virtual ways to “paint” your room.

Just as a room’s lighting can affect your mood, paint color has an effect on one’s psyche, too. For instance, the color blue has been shown to have a calming effect, while red has a stimulating effect and can create feelings of excitement or even stress in some people.

Furniture and Decoration

You can replace it, move it, or just pull it from another room. Alone or in conjunction with other major changes, furniture and decor can have a major effect on the finished space — and keeping layout top-of-mind when selecting furniture will help make sure it’s the right stuff for the space.

Using online room planners or going old school with graph paper to map out, to scale, what will go where is a good way to experiment without the heavy lifting.

When you’re ready to make changes (which can enhance your home’s value if you are planning on selling soon), it’s wise to develop a budget. If you don’t have funds saved to finance your remodel, you might consider a personal loan vs. using your credit cards. You may find a more favorable interest rate and save money over the long run with one of these home improvement loans.

Recommended: How to Apply for a Personal Loan

What Color Should You Paint Your House Quiz

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

The Takeaway

When your living room is feeling outdated, looking worn, or isn’t working well for your household, it could be time for a remodel. Changing the paint color, lighting, floors, and furnishings can make it more comfortable and functional. It can also make your home show better if you are planning on selling. To finance your living room remodel, you might consider a home improvement loan, a form of personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How often should you change your living room?

The living room tends to be the hub of your household’s social life, and it can get a lot of wear and tear. Design pros suggest updating it every three to five years to keep it looking fresh and working well for your family.

How much does it cost to redo a living room?

Remodeling a living room can cost from $2,500 to $15,000, according to Angi, depending on the extent and specifics of your renovation. If you are just repainting one wall and adding some new throw pillows, it can be at the less expensive end of the range. If you are buying all new furniture, window treatments, and lighting, as well as refinishing the floors and adding wallpaper, it can cost significantly more.

What are some key areas of a living room in a remodel?

Key areas of a living room remodel can include furniture, lighting, floors, walls, and window treatments. Accessories are also part of the overall look and feel of a living room.

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-Q225-054

An interest-only mortgage lets you pay just interest for a set period of time, typically up to 10 years, as opposed to paying interest plus principal from the beginning of the loan term.

While interest-only mortgages can mean lower payments for a while, they also mean you aren’t building up equity (ownership) in your home. Plus, you will likely have a big jump in payments when the interest-only period ends and you are repaying both interest and principal.

Read on to learn how interest-only mortgages work, their pros and cons, and who might consider getting one.

Note: SoFi does not offer interest only mortgages at this time. However, SoFi does offer conventional mortgage loan options.

How Do Interest-Only Mortgages Work?

With an interest-only mortgage, you make only interest payments for the first several years of the loan. During this time, your payments won’t reduce the principal and you won’t build equity in your home.

When the interest-only period ends, you generally have a few options: You can continue to pay off the loan, making higher payments that include interest and principal; you can look to refinance the loan (which can provide for new terms and potentially lower interest payments with the principal); or you can choose to sell the home (or use cash you’ve saved up) to fully pay off the loan.

Usually, interest-only loans are structured as a type of adjustable-rate mortgage (ARM). The interest rate is fixed at first, and then, after a specified number of years, the interest rate increases or decreases periodically based on market rates. ARMs usually have lower starting interest rates than fixed-rate loans, but their rates can be higher during the adjustable period. Fixed-rate interest-only mortgages are rare.

An interest-only mortgage typically starts out with a lower initial payment than other types of mortgages, and, depending on your loan conditions, you can stick with those payments as long as 10 years before making any payments toward the principal. However, you typically end up paying more in overall interest than you would with a traditional mortgage.

Interest-Only Loan Pros and Cons

Before you choose to take out an interest-only mortgage, it’s a good idea to carefully weigh both the benefits and drawbacks.

Pros

•  Lower initial payments The initial monthly payments on interest-only loans tend to be significantly lower than payments on other mortgages, since they don’t include any principal.

•  Lower interest rate Because interest-only mortgages are usually structured as ARMs, initial rates are often lower than those for 30-year fixed-rate mortgages.

•  Frees up cash flow With a lower monthly payment, you may be able to set aside some extra money for other goals and investments.

•  Delays higher payments An interest-only mortgage allows you to defer large payments into future years when your income may be higher.

•  Tax benefits Since you can deduct mortgage interest on your tax return, an interest-only mortgage could result in significant tax savings during the interest-only payment phase.

Cons

•  Costs more overall Though your initial payments will be smaller, the total amount of interest you will pay over the life of the loan will likely be higher than with a principal-and-interest mortgage.

•  Interest-only payments don’t build equity You won’t build equity in your home unless you make extra payments toward the principal during the interest-only period. That means you won’t be able to borrow against the equity in your home with a home equity loan or home equity line of credit.

•  Payments will increase down the road When payments start to include principal, they will get significantly higher. Depending on market rates, the interest rate may also go up after the initial fixed-rate period.

•  You can’t count on refinancing If your home loses value, it could deplete the equity you had from your down payment, making refinancing a challenge.

•  Strict qualification requirements Lenders often have higher down payment requirements and more rigorous qualification criteria for interest-only mortgages.

💡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.

Who Might Want an Interest-Only Loan?

You may want to consider an interest-only mortgage loan if:

•  You want short-term cash flow A very low payment during the interest-only period could help free up cash. If you can use that cash for another investment opportunity, it might more than cover the added expense of this type of mortgage.

•  You plan to own the home for a short time If you’re planning to sell before the interest-only period is up, an interest-only mortgage might make sense, especially if home values are appreciating in your area.

•  You’re buying a retirement home If you’re nearing retirement, you might use an interest-only loan to buy a vacation home that will become your primary home after you stop working. When you sell off your first home, you can use the money to pay off the interest-only loan.

•  You expect an income increase or windfall If you expect to have a significant bump up in income or access to a large lump sum by the time the interest period ends, you might be able to buy more house with an interest-only loan.

Recommended: Tips for Shopping for Mortgage Rates

Qualifying for an Interest-Only Loan

Interest-only loans aren’t qualified mortgages, which means they don’t meet the backing criteria for Fannie Mae, Freddie Mac, or the other government entities that insure mortgages. As a result, these loans pose more risk to a lender and, therefore, can be more difficult to qualify for.

In general, you may need the following to get approved for an interest-only loan:

•  A minimum credit score of 700 or higher

•  A debt-to-income (DTI) ratio of 43% or lower

•  A down payment of at least 20%

•  Sufficient income and assets to repay the loan

The Takeaway

An interest-only mortgage generally isn’t ideal for most homebuyers, including first-time homebuyers. However, this type of mortgage can be a useful tool for some borrowers with strong credit who fully understand the risks involved and are looking at short-term ownership or have a plan for how they will cover the step-up in payment amounts that will come down the road.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

When should you use an interest-only mortgage?

There are several situations in which it may make sense for homebuyers to consider an interest-only mortgage. If they are anticipating a windfall or increase in income before the initial interest-only period is up, these loans could allow them to buy a more expensive house. If they’re looking for a second home to retire to, they can eventually use the proceeds from the sale of their primary home to pay off principal. And if they plan to move and sell the house before the interest-only period ends, an interest-only loan may be practical.

What is a main disadvantage of an interest-only loan?

Interest-only loans have several potential disadvantages. Most notably, borrowers typically end up paying more interest over the life of the loan than they would with other loans, they do not build home equity during the initial, no-interest period, and when they do start paying principal, the size of the payments may be larger than they anticipated.

Do banks still do interest-only mortgages?

Not all banks offer interest-only mortgages, but some do. Be aware that banks that offer the loans may have more demanding criteria for borrowers, like a credit score of 700 or more, a DTI ratio of 43% or less, and a down payment of at least 20%.

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.

SOHL-Q225-068

The decision to buy a home is a significant milestone in life, representing stability, security, and investment. The process of purchasing a home, however, can be complex and overwhelming, especially for first-time homebuyers. There are numerous steps involved, some more complex than others, and you generally need to follow the steps in a certain order to ensure everything goes smoothly.

To help you navigate the home-buying process successfully, we’ve created a simple step-by-step home-buying checklist. Each item you cross off the list will bring you one step closer to achieving your dream of home ownership.

10 Key Steps to Buying a House

1. Determine How Much House You Can Afford

The first step in the home-buying process is to evaluate your financial situation and determine a realistic budget. While a lender can tell you how large of a mortgage you can get approved for, you may want to do some calculations on your own to make sure your budget doesn’t get stretched too thin. A general rule of thumb is to spend no more than 28% of your gross monthly income on housing costs, including mortgage (interest and principal), property taxes, insurance, and any association fees.

Using a home affordability calculator can help you determine how much house you can afford to buy by taking into account your income, debts, location, and down payment amount.

2. Make a Plan for the Down Payment

Once you have a budget in mind, you’ll need to plan for the down payment. You may have heard that you need to make a 20% down payment on a home, but that’s really just the threshold many lenders use for requiring private mortgage insurance (PMI) on a conventional loan.

The minimum down payment you need to make for a house will depend on the type of mortgage you’re planning to apply for. Loans guaranteed by the U.S. Department of Veterans Affairs (VA) usually do not require a down payment, while FHA loans, which are backed by the Federal Housing Administration, may require as little as 3.5% down.

When choosing how much to put down, however, you’ll want to keep in mind that a higher down payment brings down the principal (and lifetime interest payments), which can lower the total cost of homeownership.

💡 Quick Tip: Buying a home shouldn’t be aggravating. Online mortgage loan forms can make applying quick and simple.

3. Get Preapproved for Your Mortgage

Working with a lender to get preapproved for a mortgage is an essential step that demonstrates your seriousness as a buyer and strengthens your position in negotiations. You may want to shop around and look at mortgage offerings and rates from different lenders before you choose a lender for preapproval. Keep in mind, though, that you do not have to use the same lender to finance your loan that you use for your preapproval.

In order to get preapproved, a lender will usually require a significant amount of information and documentation. This may include:

•  Income statements (such as W2s, 1099s, and tax returns)

•  Proof of assets (such as bank statements and retirement accounts)

•  Debts (including student loans, credit cards, and any other mortgages)

•  Records of bankruptcies and foreclosures

•  Current rent

Once you submit all your paperwork, the lender will assess your financial situation and preapprove you for a specific loan amount, which will be spelled out in a preapproval letter. This letter will give you a clear understanding of your buying power. It can also come in handy when submitting an offer, since it shows sellers and real estate agents that you’re a serious buyer who will be able to get financing.

A preapproval letter is typically valid for only 90 days (sometimes less), after which it will need to be updated.

4. Find the Right Real Estate Agent

The right real estate agent can make a significant difference in your home-buying experience. A knowledgeable and experienced agent will guide you through the process, provide valuable insights, and negotiate on your behalf. Ideally, you want to choose an agent who understands your needs, has expertise in the local market, and communicates effectively. You may want to ask for recommendations from friends, family, and colleagues, then interview at least three agents before choosing the one you want to work with.

Recommended: Preparing to Buy a House in 8 Simple Steps

5. Shop for Your Home

With the help of your real estate agent, you can begin the fun part of the home-buying process — searching for your dream home. Before you start, it can be a good idea to create a list of your must-haves and nice-to-haves, considering factors such as location, size, amenities, and proximity to schools, workplaces, and public amenities. This will help guide your real estate agent in finding the right homes to show you.

6. Make an Offer

When you find a home that fits the bill, you’ll want to work with your agent to make a competitive offer that reflects your budget and market conditions. Your agent will then prepare a complete offer package, which will include your offer price, any special terms or contingencies, your preapproval letter, and (in some cases) proof of funds for a down payment. If the seller accepts your offer, congratulations — you only have a few more steps left in the home-buying process. At this point, you will likely need to write a check that will serve as a deposit on the home. This typically goes into an escrow account.

7. Get a Mortgage

Once your offer is accepted, you’ll need to get official approval for a mortgage. You’re not obligated to go with the same lender that issued your preapproval, so you may want to shop around and compare rates and terms from different banks, credit unions, and online lenders.

If you do decide to officially apply for your loan with the same lender that did your preapproval, they already have many of the documents you’ll need for your application. However, you will likely need to provide updated and perhaps additional financial statements. If you apply with a new lender, you’ll need to supply much of the same information as you did for preapproval.

The lender will evaluate your financial information, review your creditworthiness, and conduct an appraisal of the property. You’ll want to be sure to work closely with your lender and respond quickly to any requests to ensure a smooth and timely mortgage approval process.

8. Get a Home Inspection

A home inspection is crucial to uncover any potential issues or defects in the property. For this step, you’ll likely need to hire a professional home inspector to assess the condition of the home, including its structure, systems, and components. The inspector will provide a detailed report highlighting any areas of concern. Once you receive the inspector’s report, you’ll want to review it with your real estate agent and discuss potential repairs or negotiating points with the seller.

9. Negotiate any Repairs or Credits with the Seller

Based on the home inspection and lender’s appraisal results, you may need to negotiate repairs or credits with the seller. Your real estate agent will guide you through this process, helping you assess the necessary repairs/credits and determine fair solutions.

Your ability to negotiate with the seller will likely depend on the current real estate market. If it’s a hot seller’s market, for example, it may be challenging to get concessions, since the seller can move on to the next offer. However, if it’s an issue that will likely come up with other buyers, you may have success. In a buyer’s market, there will typically be more room for negotiation at this stage of the process.

10. Close the Sale

The final step in the home-buying process is the closing. During the closing, you and the sellers will sign legal and financial documents and ownership of the property is transferred to you. It’s important to review all the closing documents carefully, including the settlement statement, loan documents, and homeowner’s insurance policy. You’ll also need to provide all the necessary funds, including the down payment and closing costs. Once the final paperwork is executed, you will receive the keys to your new home. Congratulations, you’re a homeowner!

The Takeaway

Buying a home is a multi-step process that starts with assessing your current income and expenses and determining how much you can afford to spend on a home. You then need to start saving up for a downpayment, get preapproved for financing, and find the right home. Once you have an offer accepted, it’s time to secure a mortgage, conduct an inspection, negotiate repairs, and close on the sale. It’s a lot. But taking a systematic approach — and following a home-buying checklist — can help ensure a smooth and stress-free home-buying experience.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What are the 3 most important things when buying a house?

Three of the most important things to consider when buying a house are its location, its condition, and its affordability. Where it’s located will affect your commute times, safety, and access to amenities, as well as its future property value. To assess the condition of the house, it’s a good idea to have a home inspection. Consider factors such as age, maintenance requirements, repairs needed, and potential future costs. Finally, in gauging affordability, look at not just the purchase price, but also ongoing expenses, such as mortgage payments, property taxes, insurance payments, and maintenance costs.

What is the most difficult step in buying a house?

Securing financing and obtaining a mortgage is often the most challenging step in buying a house. To qualify for a mortgage, you generally need to meet certain criteria, understand various mortgage options, and navigate the loan approval process, which involves providing extensive financial documentation and meeting strict timelines.

What are the 5 phases of buying a home?

The process of buying a home can be broken down into five phases: First comes planning, when you evaluate your finances, create a budget, start saving for a down payment, and get preapproval for a mortgage. Next is the property search, when you look for the house you want to buy. Third is the offer, when you submit your offer to the seller and, if necessary, negotiate. Once your offer has been accepted, the closing is scheduled, where you review and sign legal and financial documents. And once you have closed, the final stage is ownership, as you make the necessary payments and receive the keys to your new home.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

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.

SOHL-Q225-069