The Ultimate Guide to Updating Interior Doors: interior doors in need of upgrade

The Ultimate Guide to Updating Interior Doors

Doors can be a portal to another world, or maybe just a great first impression when you walk through a home. But when they don’t look their best, a dated or damaged door can make an entire space feel off.

The doors inside your home come in all kinds of different styles, and can be updated in just as many ways. Some updates can be done on a dime, while replacing doors entirely will likely come at a higher cost. Utilizing a home improvement calculator can be useful as you navigate through this process.

What Are the Different Types of Interior Doors?

Interior doors come in many styles, and the costs to replace them vary just about as much depending on the labor involved.

•   Swing. Standard swing doors, such as a bedroom door, swing in or out to open and close. This type of door can be either hollow core, or solid composite or wood varieties.
Cost to replace: $30 to $600.

•   Pocket. These space-saving doors slide “into” the wall when they’re open. Pocket doors hang from the top and slide along a track mounted in a space inside the wall and across the top of the door opening.
Cost to replace: $140 to $1,000

•   French. The door with a certain je ne sais quoi, French doors can be either single or paired, and can have either a full (single) glass pane or a number of divided panes. French doors are often used as exterior doors to porches or patios, but they can also be a great way to let light diffuse inside a home.
Cost to replace: $200 to $4,000

•   Sliding. A cousin to the pocket door, sliding doors save space by sliding in tracks at the top and bottom of the door frame. Unlike a pocket door, however, they don’t disappear into the wall. Glass sliding doors are typically used as exterior doors to a patio or deck, but can be used indoors to separate rooms while maintaining visibility between them.
Cost to replace: $400 to $4,500

•   Bifold. Also called folding doors or concertina doors, bifolds are made of panels that fold next to each other when opened, sliding on tracks both on top of and below the door. Single bifold doors are sometimes used as doors to smaller closets, and a pair of bifold doors might divide a large room.
Cost to replace: $35 to $70

•   Barn. A sliding barn door in the home takes rustic farmhouse trends to the next level. These doors slide on a track mounted on the wall above the door. Barn doors have a low profile, as they do not swing out.
Cost to replace: $150 to $4,000

•   Saloon. Head straight to the wild west with these doors. Sometimes called cafe doors, saloon doors hang on a pivot hinge, meaning they can easily swing in and out with a nudge. Because they swing in both directions, they’re commonly used as kitchen doors or in cafes where traffic goes both in and out.
Cost to replace: $100 to $500

•   Murphy. You may have encountered a murphy door before without even knowing it. Often custom made, murphy doors are typically bookcases that swing out, turning a door into storage space.
Cost to replace: $700 to $2,500

Signs You May Need New Interior Doors

Interior doors in a home take quite a beating. They’re slammed, kicked, scuffed and maybe pounded on a few times. Depending on the quality of the door, as well as its age, there’s a chance your doors may simply have seen better days.

If these signs sound familiar, it may be time to buy some new doors for your home:

1. The door is stuck and has trouble staying open or closed. The more someone struggles to open and close a door that doesn’t budge, the more damage they’ll do. If a door’s always sticking or never manages to stay closed, it’s time to replace it.
2. The door is warped or cracked. Age will affect the quality of any door, and if the frame or hinges are visibly cracked or peeling, it’s time to think about replacing them.
3. The door’s style is dated or old-fashioned. If your kitchen’s classic saloon-style doors feel decidedly old school—not in a good way—it might be time to consider replacing them. Even if they still work, dated styles can negatively impact a home’s value at the time of sale.

Depending on the style of door and the complexity of the installation, swapping out an interior door can cost anywhere between $364 to $1,108, a couple hundred of which can include the cost of professional labor.

While hanging a door might sound simple, doing it wrong can lead to improper closure or a door that just won’t close at all, which leaves you back at the drawing board. It could be worth asking for estimates from a few professional contractors if you decide to replace several specialty interior doors at once.

A door can make an impression—good or bad—when someone enters a room. That first impression might become very important when considering home value. This kind of home improvement project could pay off when a person eventually sells their home.

Recommended: Tips for Maintaining the Value of Your Home

DIY Ways to Update Your Interior Doors

Replacing interior doors altogether can be expensive, and is not always necessary. If your door is in good shape, an inexpensive DIY can update your interior doors to look more modern or trendy.

Interior door styles can be updated before ditching a door altogether.

•  Swapping out door knobs and hardware.
Sometimes dated brass or an ornate finish might make a standard swing door feel out of place. For between $75 and $150, a door’s hinges, knob and lock can be updated.

•  Trying a new hue.
A fresh coat of paint might transform a door’s entire vibe. Instead of a standard white, opt for a neutral shade, make a statement with a black door, or choose a rich, deep tone that complements other colors in your home. You can even switch things up by painting the frame and the door different colors. Although you have to remove the door from its frame, this project is DIYable, and can be done within a day or two.

•  Updating hollow core doors.
Hollow core doors are the standard type of door installed in most homes when they’re built. It’s a swing door with a flat surface. These are basic doors that can be a blank slate for your personal taste.

For a small investment, some patience and elbow grease, molding, and beadboard panels can be used to create a paneled look on standard doors. It can make a builder-grade, hollow-core door look like a custom-molded door. This DIY project is a small investment for a big payoff.

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

The Takeaway

In your home, doors don’t just provide privacy, they’re a feature of a property. If your interior doors are in poor shape, replacing and updating them could help increase the value of your property. However, the cost of an update shouldn’t keep you from improving your home.

That’s where SoFi home improvement loans can help. With low rates and a fixed monthly payment, SoFi can help you finance a home improvement project and open the door to a better home.

Learn more about how a personal loan from SoFi can help you make your home more homey.



SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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How Much Does it Cost to Refinance a Mortgage?

How Much Does It Cost to Refinance a Mortgage?

As a homeowner makes monthly payments on a mortgage, each payment typically contains a mixture of principal and interest. The interest is money paid to the lender with the principal portion reducing the homeowner’s outstanding balance on the mortgage. As the balance goes down, more of each payment will go towards the principal, although it’s a gradual process.

As the balance decreases, the homeowner has an increasing amount of equity in the home (given that the home’s value doesn’t decrease). Homeowner’s equity is the portion of the property that’s “free and clear,” what the owner owns without a mortgage on it—and, once the owner has a certain amount of equity in the home, then they may be able to borrow against it, such as through a refinance.

What Is the Average Cost to Refinance a Mortgage?

In April 2020, ClosingCorp reported on the average national mortgage closing costs for a single family home in 2019:

•  When including taxes, the figure was $5,749.
•  When excluding taxes, the figure was $3,339.

These figures included the following expenses:

•  Lender’s title
•  Owner’s title
•  Appraisal
•  Settlement fees
•  Recording fees
•  Land surveys
•  Transfer tax

And a few things to consider:

•  Closing costs vary widely from state to state, with Indiana having the lowest average at $1,909 and the District of Columbia the highest at $25,800.
•  Not all lenders charge the same in closing costs.
•  Refinancing closing costs can be similar to when purchasing a home but there may be some differences.

What Are the Typical Equity Requirements?

A mortgage lender typically want at least 20% of equity (80% loan to value) to exist for a refinance to take place, although that ratio is not universal.

Here’s an example of equity. If a home is worth $150,000 and the current mortgage loan is $100,000, then there is $50,000 in equity, with a loan to value ratio of 66.6% ($100,000/$150,000). This scenario, therefore, fits the typical loan to value parameter required by many lenders for a refinance to take place.

People refinance their mortgages for numerous reasons. They can include:

•  They need cash, perhaps to do some home remodeling; this may be called a cash-out refinance;
•  Rates are lower than when they bought the home and they want to take advantage of a lower rate; sometimes, the refinance may shorten the term of the mortgage with the borrower’s goal being to pay less interest over the life of the loan—and these scenarios are sometimes called “rate and term” refinances;
•  Consolidating debt, perhaps balances on high interest credit cards; this is another example of a cash-out refinance.

To refinance, a homeowner takes out a new loan against a piece of real estate, pays off the current loan(s) on that property, and then, if applicable, uses the remaining funds for another purpose, whether that’s to consolidate credit card balances or to get a new roof.

Recommended: How to Refinance a Mortgage

In general, refinancing a mortgage comes with costs that are similar to purchasing a home. These costs vary from lender to lender—and what a particular lender charges a borrower may depend upon the loan amount among other factors. Borrower credit scores may play a role in the interest rate.

Role of Credit Scores

Having what lenders would consider a “good” score can help a borrower get a more attractive rate and, if the credit score has improved since the initial mortgage loan was taken out, that could be a reason to refinance all by itself. FICO® Scores can be checked here .

Experian provides insights into credit score ranges:

•  Exceptional: 800 to 850
•  Very good: 740 to 799
•  Good: 670 to 739
•  Fair: 580 to 669
•  Very poor: 300 to 579

Experian notes that conventional lenders may approve applications with a FICO Score of 620 or higher, with ones in the mid-700s and above giving borrowers an even better shot of getting a low rate. Besides the credit score, lenders typically review other elements of a borrower’s history, including recent credit applications, track record of making payments on time, how much available credit is being used (known as a “credit utilization ratio”) and so forth. Major red flags can include bankruptcies and foreclosures.

Borrowers who see errors on their credit reports can contact credit bureaus to request corrections, which may help when refinancing.

A better interest rate is one way to save money over the life of the refinance loan. Another way to be cash savvy is to compare closing costs among lenders before deciding which one to choose for the refinance.

What Are Some Mortgage Refinancing Fees?

This is not intended to be a comprehensive list. Rather, it’s an overview of some of the more common fees charged during a refinance.

Loan Application Fee
Some lenders may charge this fee when a borrower applies to refinance. Sometimes, it’s paid upfront, although some lenders will waive the fee if the process is completed. Typically, if a borrower pays this fee and the application is turned down, this fee is not refundable.

Loan Origination Fee
Some lenders will charge a fee, perhaps 1% of the loan amount, to pay for their time while they investigate the borrower’s ability to repay the loan.

Home Appraisal
Lenders typically want to know the current value of the home to determine how much a person can borrow against it. There can be circumstances when they won’t require one on a refinance.

Credit Report Fees
A lender may decide to use data from multiple credit reports from different bureaus, although the FICO Score is the most commonly used. Fees charged for this item may vary, based upon a lender’s policies.

Title Search and Insurance
This search identifies liens on the property along with other issues with ownership, with the insurance covering the lender in case any problems arise after the refinance has taken place.

Settlement Fees
This covers the paperwork and processes involved in closing the loan.

Mortgage Points/Discount Points
Lenders can offer borrowers the ability to pay mortgage points at closing time to lower their interest rates. A point equals 1% of the money being borrowed. So, for example, a lender may be willing to lower the interest rate by 0.25% for each 1% of the loan amount that’s paid up front. If the refinance loan amount was $200,000, for example, a borrower under this arrangement could pay $2,000 for each point to lower the interest rate, which in turn could help save a significant amount of interest payments over the life of the loan.

When Is It Smart to Refinance?

This topic can be broken down into two questions:

•  When can a borrower refinance a home loan?
•  When does it make sense to do so?

In response to the first question, the borrower should check to see if a current mortgage agreement has a prepayment penalty. Credit Karma notes that, although it’s become less common to see this feature in mortgages since the 2008 housing crisis, they do still exist.

A prepayment penalty, as the name suggests, is a penalty that a borrower may incur when paying off the mortgage during the first few years—which can be included when refinancing the property during that designated timeframe. The amount and timetable of a prepayment penalty, if included in mortgage terms, varies by lender. And, if one is applicable, they can cost a borrower thousands of dollars.

If there is not a prepayment penalty involved, then the borrower can likely apply to refinance (although whether they qualify depends upon their financial circumstances and lender requirements).

Moving on to the second question, there are specific times when it may make sense to refinance. When considering whether a refinance is a good idea, think about the closing costs and calculate how long it would take to recoup them.

Here’s an example. Let’s say that refinancing to a lower rate causes a payment to go down by $100 a month. If closing costs were $3,500, then it would take 35 months to recoup the costs and start to see savings. If the borrower planned to sell the house in two years, then refinancing may not be the right strategy. If, however, the borrower intended to stay in the house, long term, it may be an idea to explore.

Other people may decide to refinance to shorten their loan’s term, say from 30 years to 15. Monthly payments may well go up, but a lower interest rate and a shorter term can help those borrowers pay less over the life of their loans. This loan amortization calculator can show how much interest may be saved.

Other people may decide to refinance, in order to switch their adjustable-rate mortgage (ARM) to a fixed-rate one. Someone might have originally taken out an ARM because of its low initial rate but now may want the security of knowing there won’t be future rate increases.

Yet another strategy is a cash out refinance where equity in a person’s home can be used to perform home repairs or consolidate high-interest debt. In some cases, this can be a great strategy; other times, the reduction in home equity may not be worth the trade-off.

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

Mortgage Refinancing With SoFi

No matter your reasons for refinancing a mortgage, SoFi can help you save money. SoFi offers competitive rates, exclusive member discounts, and guidance from mortgage loan officers and member specialists. Plus, at SoFi, there are never any hidden fees.

Discover more about home loans at SoFi.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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When to Consider Paying off Your Mortgage Early

Maybe you saved up money over the past few years, got a hefty raise, or received an inheritance. Whatever the reason, you now have the means to pay off your mortgage early. Isn’t that the best move? It just depends.

It can be tempting to rush to pay off your home loan when you have the ability to, especially if you’ve struggled with debt management. And why wouldn’t you want to pay off your mortgage? Getting rid of debt could potentially increase cash flow.

When it comes to your mortgage loan, it all depends on your unique financial situation—there is no one right answer.

Why You May Not Want to Pay Your Mortgage Off Early

Here are a few reasons why many consider not paying their mortgage off early:

You have a reasonable interest rate on your mortgage loan. Unless you’ve reached all of your financial goals, it may not make the most sense to pay off your mortgage early when you have a competitive interest rate.

For example, if you are saving to send your child to college or you’re trying to rebuild your emergency fund after a home repair, those might take priority.

Paying off your mortgage loan early would deplete liquid savings. This could make it more challenging to handle financial emergencies.

You might face a prepayment penalty. Make sure to review your mortgage terms closely. Some lenders charge an early payoff penalty, usually a percentage of the principal balance at the time of payoff.

You might miss out on the mortgage tax deduction. For many people who itemize, having a mortgage helps push their itemized deductions higher than the standard deduction. It’s worth discussing the mortgage tax deduction with your accountant or other tax professional before you resolve to pay your mortgage off early.

When an Early Payoff May Make Sense

There are some situations when paying off a mortgage early might make more sense than waiting.

You’ve Met All of Your Financial Goals

If your emergency savings account is right where you feel it needs to be and you’re diligently contributing to your retirement accounts, you may feel like all of your financial boxes are checked right now.

If you’ve met all your other financial goals, then you may be in the clear to prepay your mortgage.

You’re Interested in Being 100% Debt-Free

Sometimes just the idea of having loan payments can be mentally taxing, even if you’re in a good place financially. Money is not just about numbers for many; it’s also about emotions.

So if paying off your mortgage loan early relieves anxiety because it’s helping you become debt-free, then that might be something to consider.

Of course, reflecting on why you want to become debt-free is important when thinking about paying your mortgage off. If, for example, it’s because you’re approaching retirement and will no longer be getting a steady paycheck, it might make sense to pay off your mortgage.

Ways to Pay Off a Mortgage Early or Faster

Let’s say that you’ve decided to prepay your mortgage because it’s the right financial move for you. How do you do it?

Lump sum. You could pay it off in a lump sum if you have that kind of cash lying around.

Extra payments. You could potentially pay more toward your mortgage each month, whether because you got a raise at work or because you’ve trimmed some fat in your budget that allows you to pay more toward the mortgage.

If you make higher payments or extra payments toward your mortgage, it could lead to paying off the loan faster than if you were just to make the set payment each month.

Refinancing. There is one more way you may be able to pay off your mortgage faster: refinancing.

Refinancing your mortgage means replacing your current mortgage with a new one, with terms that better suit your current needs.

It may make sense to refinance if you are going to get a significantly lower interest rate and/or change your loan term.

If you shorten your loan term from, say, 30 to 15 years, it may increase your monthly payments but in turn, allow you to pay your mortgage off faster. Home loans with shorter terms often come with lower interest rates, too, so more of your monthly payments will be applied to the loan’s principal balance.

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

The Takeaway

Should you pay off your mortgage early? Maybe. What’s right for your neighbors or friends may not be right for you. If you’re trying to decide whether to refinance, consider your current lender’s terms and the new terms you could get. Then you can make an educated decision based on your financial picture.

Mortgage refinancing with SoFi means getting a competitive rate.

And finding your rate takes just two minutes.

Interested in refinancing your mortgage? Apply with SoFi today.



SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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8 Tips for Millennial Homebuyers

Preparing to buy your first home is a thrilling time. Dreaming up all the new furniture, new routines, and brand-new life you’ll live inside those four walls is exciting. And it appears that a portion of the millennial generation is ready to get in on the happy home action.

Realtor.com’s 2021 Housing Market and Predictions projected that members of Generation Y will continue to shape the market, both as first-time buyers and “trade up” buyers, as nearly 5 million Americans turn 30 every year through 2024.

If you happen to be one of these would-be millennial homebuyers, you may have questions about where to look, how to pick a real estate agent, how to save for a down payment, and how to deal with a heated seller’s market.

The process requires being realistic about how much home you can afford, learning about the many resources available, and tips that millennial homebuyers can use to make the entire dream come together.

Recommended: What Is the Average Age to Buy a House?

Pay Down Debt First

The average millennial carries $27,900 in personal debt, excluding mortgages, according to a 2019 survey conducted by The Harris Poll. A big bulk of that debt is student loans. The Pew Research Center found that the median amount of student loan debt carried by millennials was $19,000.

Clearing out other debts may be a great place to start on a millennial homeownership journey. That’s because you’ll likely need to take out a mortgage to purchase a new house, which will account for an even larger portion of personal debt.

There are several strategies to pay off debt or other student loans, including the snowball and avalanche methods.

Recommended: Home Buyer’s Guide

Start Saving for a Down Payment Early On

After paying off outstanding debts it’s time to start thinking about saving for a down payment. Though traditional thinking dictates that people should save enough to cover 20% of the house cost, there may be a way to put down even less.

In fact, the down payment on a house can be as little as 3.5% for those who qualify for an FHA home loan, and in a few cases, a person may be able to buy a home with no money down at all. (This option is usually reserved for veterans and those who qualify for a USDA home loan in rural areas.)

All of the different down payment options come with their own benefits. For example, putting down 20% may mean a better mortgage rate and could make monthly mortgage payments more manageable.

Once you figure out what you may qualify for, a good next step is to start saving toward a down payment. That can be done in a number of ways (just like paying down your debt), including proper budgeting, the snowflake savings method, taking on a side hustle, or even asking your boss for a raise.

You might even ask Mom and Dad, Granddad, or Aunt Charity for a gift.

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


Determine Your Must-Haves

Here’s one of the most fun parts about purchasing a home: getting to plot out a dream space.

Before starting your home search, it’s helpful to take some time and think about what you really want. Do you want an open-concept home, or need a minimum number of bedrooms and bathrooms? Are you looking for a condo, single-family house, or townhouse?

Get down to the nitty-gritty and think about everything on your must-have vs. like-to-have list to narrow the search.

Recommended: How to Know If You’re Ready to Buy a Home

Find a Real Estate Agent

A buyer’s agent will be your partner throughout the homebuying process, a guide from the first viewing to closing the deal. A real estate agent has access to the multiple listing service, which allows them to sift through every home in your area at once.

A real estate agent is also well-versed in what needs to take place before a person can take ownership of a home, including everything from the offer process to home inspection and insurance.

They may also already have a list of trusted inspectors, lawyers, contractors, and insurance agents a buyer may need along the way.

Though you don’t technically need to use a real estate agent to purchase a home, it may be a good idea to have an experienced and knowledgeable person by your side.

According to a survey by Homes.com, 44% of people felt stressed throughout the homebuying process, but having a navigator may ease the pain.

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

Set Up Real Estate Alerts

Once your list of must-haves is complete and you’ve picked a real estate agent to assist you, it could be a good idea to set up alerts across listing sites such as the MLS, Zillow, and Redfin. You’ll be notified whenever a home in your chosen area, price range, and desires comes on to the market.

These websites also typically allow users to save favorites and gather intel on a specific home such as its tax and sales history. They also allow users to book viewing appointments.

Think About Long-Term Value

While viewing homes, it may be easy to fall in love with fresh subway tiles, staged furniture, and the simple shine of a brand-new spot. However, it helps to take a beat and a breath and think about the long-term value of the home.

Are you buying this as a forever spot to raise a family? Then make sure the schools are a good fit and it’s a walkable neighborhood. Looking at purchasing a home to rent out short term? Check local laws to ensure you’re zoned properly.

Want to purchase that new place but plan on painting the front door red and planting trees? You may want to ensure it’s allowed by the homeowners association, if one exists. That way you don’t buy a house and become stuck with things that don’t work for the long haul.

Recommended: Local Housing Market Trends by City

Prepare to Make a Personal Plea

Once you’ve found the right spot in your price range that comes with all your must-haves, it’s time to put in an offer. However, you could be just one of many putting in similar offers for the home. There is something you can add to your offer to stand out from the crowd: a personal letter.

Write a letter to the current homeowner expressing how much you love the space and why you feel you’d make the next great owner. You may also want to point out all the things you love about the home design.

Beyond the letter, there are a few other ways your offer can stand out. Talk to your agent about providing a quick closing date, offering to pay for things like a termite inspection, and even offering to rent back the home to the owners until they are ready to move out to help move your offer to the top of the list.

Shop for a Mortgage

When choosing a home loan, you may want to shop around and see the various offers from lenders.

When looking at mortgage options, look into loan terms, the application process, and of course interest rates, but don’t forget to look for hidden fees in the application or repayment of the mortgage.

A lender to consider is SoFi, which offers a variety of mortgage options without hidden fees and with competitive rates.

The Takeaway

Millennials face challenges when buying homes in a hot market, but many are suiting up to take the homebuying plunge. Members of Gen Y can employ a number of strategies before searching for the right mortgage.

A lender to consider is SoFi, which offers a variety of mortgage loan options with competitive rates and without hidden fees.

Ready to buy? A mortgage with SoFi could open the door to your perfect place.



SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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What Is an Accessory Dwelling Unit (ADU)?

The term “accessory dwelling unit” might sound foreign, but chances are you’ve encountered one. Sometimes called an in-law suite, granny flat, or, more romantically, carriage house, an ADU is a secondary dwelling unit on the same lot as a primary single-family home.

Although ADUs have risen in popularity in recent years, they’ve been around for decades, according to a study by the Federal Home Loan Mortgage Corp., known as Freddie Mac.

When the suburbs boomed in the 1950s, municipalities across the country created zoning laws prohibiting higher-density residential structures, the Freddie Mac report noted, but in cities like Los Angeles, San Francisco, and others that lacked affordable housing, the practice continued in secret.

As zoning laws across the country have changed to allow ADUs, the trend has boomed in tandem with population growth in the South and the West. “Half of our total 1.4 million ADUs are located in the Sun Belt states of California, Florida, Texas, and Georgia,” Freddie Mac reported.

What’s the attraction? Some property owners add an ADU to generate rental income; others want a place to accommodate guests, and still others need living space for aging parents.

Read on to learn why ADUs are all the rage in pricey cities and what it takes to build one.

ADU Meaning Explained

An ADU goes by many names, but its features make it unique among types of dwellings.

•   ADUs are smaller than the primary residence they accompany. In California, which passed statewide laws making many city restrictions on ADUs obsolete and streamlining the approval process, the size generally ranges from 500 to 1,000 square feet.
•   ADUs are self-contained. They usually include a bathroom, kitchenette, living area, and separate entrance.
•   ADUs require a special permit, which varies by location, according to the American Planning Association. Building codes may limit the size of the ADU and the number of occupants. (Interestingly, the city of San José, the “Capital of Silicon Valley,” and other communities are offering an ADU amnesty program to help legalize under-the-radar units.)
•   Unlike a duplex, ADUs usually share utility connections with the primary residence.

Recommended: A Guide to Buying a Duplex

What Are The Different Types of ADUs?

All ADUs have to follow ordinances and laws, but they don’t all look the same. Depending on homeowner preference, it might look like one of the following:

•   Detached. This is likely new construction, formal or informal.
•   Converted garage. This might mean retrofitting the garage or adding a second floor to create an ADU. Fans of Happy Days might recall Fonzie living in the Cunninghams’ converted garage, which was actually an ADU.
•   Attached. Typically this is an addition to the existing residence.
•   Interior conversion. An existing portion of the house, perhaps the basement, is transformed into an ADU. Fans of Full/Fuller House might recall the Tanners’ attic conversion and the basement/garage living space.

Benefits of an ADU

For the right homeowner, an ADU has upsides.

•   Rental income. Choosing to rent out the space could bring in income, whether with a long-term rental or short-term Airbnb. Realtor® Magazine estimated that homeowners who rent out their ADU could pay it off in seven to 10 years. (Of course much depends on the initial cost, rent, taxes, expenses, and consistency of occupancy.)
•   A true mother-in-law suite or adult-child dwelling. For multi-generational families, adding an ADU could be a good way to create privacy and be close … but not too close. An ADU can also house an adult who returns to the nest.
•   A space to age in place. Conversely, aging homeowners or empty-nesters might choose to build an ADU for themselves. The homeowners could move into the smaller, more manageable space and rent out the larger property for passive income.
•   Flexibility. An ADU could become a home office or art studio. For some homeowners, it might just be a good place to host guests.
•   Enhanced property value. Compare the cost of buying a second small home or condo in your area with the cost of adding an ADU. How much value will a permitted habitable accessory dwelling add? A property appraisal will tell the tale.

Drawbacks of an ADU

ADUs may also come with their fair share of potential downsides.

•   Can be expensive. A detached ADU may cost as much as a small house to build (though the homeowner already owns the land). An attached ADU or conversion of an existing structure will probably cost less, but still may cause sticker shock. Size, features, and the cost of professional services, permits, and any financing come into play. An 850-square-foot jewel in LA added up to $250,000.
•   Occupancy requirements. Some local ordinances require that a home that has an ADU be owner-occupied in some capacity. That means a property with an ADU may not be the right fit for someone who wants to rent out the entire property.
•   Higher taxes. On one hand, adding value to your property is a good thing. On the other, an ADU can make a property tax bill spike.
•   A smaller yard. Unless a homeowner is retrofitting an ADU into their existing dwelling, building an ADU will cut down on outdoor space.
•   Financing. Can be tricky. Read on.

Recommended: The Pros and Cons of Owning Rental Property

Ways to Pay for an ADU

While ADUs have different shapes and designs, they have a commonality: a price tag. If homeowners don’t have cash on hand to finance the build, they’ve got a few options to move forward.

A home improvement loan is a personal loan used to pay for a home renovation or update. When a homeowner takes out a home improvement loan, it’s not secured by the property—meaning the home isn’t collateral in the transaction.

A home equity line of credit leverages homeowners’ equity in a property and allows them to borrow money against the value of the home. Unlike a home improvement loan, a HELOC is tied to the house, meaning the property is used as collateral. With HELOC, homeowners can draw different amounts at different times, typically with a variable interest rate.

With sufficient equity in your home, homeowners could also consider a cash-out refinance.

Advocates of accessory dwelling units—to increase the housing supply, reduce overcrowding, provide rental income, and build home equity—want to see expanded financing options for low- and moderate-income homeowners.

The Takeaway

Determining if an accessory dwelling unit is the right move for a homeowner comes down to needs, preferences, and finances. ADUs have pros and cons, but many areas have eased the way for this cottage industry.

Homeowners who don’t have much equity in their property or don’t want to use their home as collateral may want to consider a SoFi unsecured personal loan of up to $100,000 to create an ADU.

SoFi’s home improvement loans are fee-free and come with a fixed rate.

Imagine the possibilities. Then check your rate. It’s easy.



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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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