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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.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
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SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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.

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.

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-Q225-014

If you’re planning on buying a house with your partner, you need to learn at least the basics of joint tenancy. What is joint tenancy? It’s a common way that couples take title to a property.

The basic definition of joint tenancy is simple: It’s when two or more people buy a property together, and each individual has an undivided interest in the property.

What makes joint tenancy unique in that each owner owns the entirety of the property. This means that if you and a spouse have a joint tenancy in a property you purchased, you both own the whole house versus each owning half.

Joint tenancy also includes what is called a “right of survivorship.” This means that if one of you dies, your co-owner will own the entire home on their own, regardless of whether you had any agreement to leave them the property (other than the recorded title itself).

Learn more about joint tenancy here.

How Does Joint Tenancy Work?

Joint tenancy is controlled by the state where you live, so you’ll need to look to state law to see exactly how to enter into a joint tenancy. The laws about joint tenancy also vary depending on whether you’re talking about real or personal property.

Real property is land and buildings attached to the land, and personal property is everything else, like your car, blender, or bank account.

Joint tenancy can technically be created in any property, so you could theoretically bequeath your blender to your sister and brother-in-law as joint tenants if you really wanted. However, joint tenancy is most often associated with things like real property and however many bank accounts you have.

Worth noting: Another option when buying a house with a partner is to purchase it as a tenancy in common (TIC). The main difference between joint tenancy and TIC is that tenancy in common doesn’t include the right of survivorship.

This means that property won’t automatically be inherited by the co-owner(s) or other tenants in common if the other owner dies — each tenant’s ownership portion goes to the party selected in the deceased owner’s will. Determining how you will structure ownership is an important part of buying a home, right up there with deciding on a down payment and finding a mortgage loan.

Joint Tenancy in Real Property

Joint tenancy might come up when you’re considering buying a home with another person, like your spouse or partner. When you take ownership of your house, you will normally take title of the home. The deed typically specifies whether you and your co-owner own the home as joint tenants or as tenants in common.

The escrow officer will often supply the buyer with a list of ways the owner(s) can take title to the property and help explain each choice available before the purchaser makes a decision.

There can be different options for right of survivorship depending upon the state the property is located and who is taking the property title. For instance, in the state of California, among others, spouses can take title as Community Property with the Right of Survivorship. This allows for better potential tax benefits on capital gains. When a property is held as community property with right of survivorship, if one spouse dies, the property automatically passes to the other and the property’s cost basis, for tax purposes, is adjusted to its value at that point in time. If the surviving spouse later sells the property, he or she would pay capital gains tax only on any gains since the first spouse’s death. (Always talk over decisions that affect taxes with a tax advisor.)

Deciding which type of tenancy you’d like the deed to specify is an important choice because there are different rights and responsibilities involved, as well as possible tax implications.

For example, tenants in common only own a designated share of the co-owned property, even if they have the right to occupy the whole house. Also, if one co-owner in a TIC agreement dies, that person’s designated heirs may be the one to inherit their portion of the property instead of the other co-owner (unless that co-owner is the heir).

Tenants in common might also agree to share financial responsibility or costs proportional to the percentage of the property they actually own. Say that you buy a beach house with your friend as tenants in common. You paid for 40% of the house and your friend paid 60%.

Your TIC agreement might specify that your friend owns a three-fifths share in the property and you own a two-fifths share, even though you both will be occupying the whole house.

Because of the different levels of ownership, you may also decide that your friend will pay for three-fifths of the cost of upkeep and home repairs, while you only pay for two-fifths. And if your friend passes away, her kids or other heirs might inherit that three-fifths interest in the beach house.

With joint tenancy, you may avoid some of the more complicated ownership questions that can arise with TIC. For example, if you buy a mountaintop vacation cabin with your wife as joint tenants, both of you would have equal ownership of 100% of the cabin.

If one of you were to pass away, the other spouse would simply continue to own 100% of the cabin and the deceased spouse’s co-ownership of the cabin would not pass on to anyone else.

Joint Tenancy in a Bank Account

Another situation where joint tenancy might come up is with bank accounts. Although you might not consider yourself a “tenant” of your bank account, a bank account is considered personal property, which means you can own it as a joint tenant with someone else. It is not quite as complicated as it might sound.

Like joint tenancy on a house, a joint bank account allows for both owners to have total ownership of the account and to have a right of survivorship in the account.

This means that either co-owner may be able to withdraw all of the money in the account without the permission or knowledge of the other co-owner.

It also means that if one co-owner of the joint account dies, the other co-owner automatically gets ownership of the account and everything in it. You could also have a tenancy in common agreement for a bank account.

Recommended: Buying a House When Unmarried

Pros and Cons of Joint Tenancy

Many people, particularly married couples and family members, choose to own property as joint tenants because it is convenient and can help to ensure that if one co-owner dies, the other co-owner automatically gets full possession of the property.

Of course, because of the right of survivorship inherent in joint tenancies, you are more limited when it comes to making decisions about whom to leave your property to in a will as part of your estate planning. If you own your home in joint tenancy with your wife, but you leave the house to your kids in your will, your wife would maintain ownership of the house despite the will.

This could make figuring out the ownership of a property after losing a family member more complicated depending upon whether the state is a community property state or not.

Recommended: How to Buy a Starter Home

Joint Tenancy and Mortgages

If you’re considering buying a property, it is also important to find the right mortgage loan. This path helps get you and your partner into your dream home without having to save up enough cash to buy a home outright.

For most couples, buying a new home involves saving up for a down payment and then taking out a mortgage to cover the remaining cost. You can take out a joint mortgage as co-borrowers, so both borrowers are equally responsible for the payment.

The Takeaway

Joint tenancy is one way to share ownership of property and allows the joint tenants to share equal ownership. If one tenant dies, the other will have 100% of the home. Deciding on the type of ownership you and a partner will share is one of the milestones of a home purchase, along with finding your dream home and obtaining a mortgage.

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 happens to a jointly owned property when one owner dies?

If the two owners are joint tenants with the right of survivorship, a common way that couples own homes, the property passes directly to the surviving partner, with no need for probate. (This is different from tenants in common, in which there is no right of survivorship.)

What is a downside to joint tenancy?

The chief downside to joint tenancy is that it offers homeowners limited flexibility in deciding who inherits the jointly held property in the event of one partner’s death. The surviving partner would automatically inherit the property.

How is tenants in common different from joint tenancy?

In a tenants-in-common agreement, each partner in the property owns a share of the property, even though they might have use of the entire home. The main difference is seen upon the death of one of the owners. In a tenants-in-common arrangement, the heirs of the deceased tenant inherit that owner’s portion of the property.

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

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

SOHL-Q225-049

An amortizing loan requires monthly payments that go toward the principal and interest for a set period of time. In the early years, payments go mostly toward the loan interest.

Amortizing loans are common in personal finance. If you have a home loan, auto loan, personal loan, business loan, or student loan, you likely have an amortizing loan. Understanding how your amortizing loan works could be helpful if you’re thinking of refinancing, selling a car or house early, or getting rid of mortgage insurance.

In this article, we’ll cover what an amortizing loan is, how a fully amortizing loan works, and types of amortizing loans. We’ll also explain amortization schedules and calculators.

What Is an Amortizing Loan?

An amortizing loan is one in which the borrower makes monthly payments, usually fixed, toward the loan principal (amount borrowed) and interest (the financing charge).

An amortization schedule shows borrowers how their payments are spread out over the full term of the loan. You can use a mortgage calculator to show amortization over time for any given home mortgage loan value. (Move your cursor over it to see the breakdown of principal, interest, and remaining loan balance over time.)

Typically, early payments are largely directed at the interest and later payments go toward the principal. Borrowers who make additional payments on the principal, especially early in the loan, can shave time off their repayment schedule and save on total interest paid.

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

Importance in Business Financing

In addition to mortgages, loan amortization plays a crucial role in business financing by providing structure, predictability, and financial clarity. Through amortization, a business repays a loan in regular installments over a set term, with each payment covering both principal and interest. This predictable repayment schedule helps businesses manage cash flow effectively and plan for future expenses.

Amortization also allows companies to understand the true cost of borrowing, making it easier to compare financing options. By breaking down payments into interest and principal components, businesses can assess how quickly they’re building equity and reducing debt. Overall, amortization supports better budgeting, enhances financial planning, and ensures a disciplined approach to debt management.

How Does a Fully Amortizing Loan Work?

Borrowers who make payments on a fully amortizing loan consistently and on time can expect their loan to be paid off in the number of months or years originally discussed when taking out the loan.

While it’s not important for borrowers to understand the intricacies of the math, it is important to know that early payments largely cover the calculated interest and that payments closer to the end of the loan term will go more toward the principal.

Most lenders will provide an amortization schedule so you can track how the ratio of interest to principal changes over time.

Impact on Business Cash Flow

An amortizing business loan impacts cash flow by requiring consistent, scheduled payments over the life of the loan, which can help businesses manage their finances more predictably.

This structure helps businesses plan ahead, but it also means committing a portion of monthly revenue to debt service. While predictable, these fixed payments can limit flexibility — especially during slow seasons or periods of unexpected expenses.

Recommended: How to Get a Small Business Loan in 6 Steps

Types of Amortizing Loans

Installment loans are typically considered amortizing loans. If you make a monthly installment payment to pay down a fixed amount of debt by a certain time period, you likely have an amortizing loan.

Here’s a look at the different types of amortizing loans.

Mortgages

Most home loans — fixed-rate or adjustable-rate mortgages — are fully amortizing loans.

If you have a fixed-rate mortgage, you will make fixed monthly payments, whose principal and interest composition will change over the life of the loan. (Note that payments can fluctuate slightly based on homeowners insurance, changing property taxes, and the presence of mortgage insurance.)

With an adjustable-rate mortgage (ARM), you don’t have a complete amortization schedule to review upfront. Principal and interest amounts change at the end of the loan’s fixed-rate introductory period and every time the rate adjusts — once a year in the case of a 5/1 ARM. But the monthly payments are calculated to pay off the loan at the end of the term, which is usually 30 years.

Non-amortizing mortgages include interest-only loans and balloon mortgages: The principal does not get paid until the loan is due. Most lenders don’t offer non-amortizing mortgages.

Recommended: Guide to the Mortgage Loan Process

Auto Loans

A car loan is another type of amortizing loan. Terms are shorter than those of mortgages (which are commonly 30-year loans). With a mortgage, the loan is backed by the house; with an auto loan, the car that you are financing acts as the collateral.

Personal Loans

Borrowers take out personal loans for a variety of reasons: debt consolidation, emergency payments, or home improvements.

Because these are installment loans, they are considered amortizing loans.

Student Loans

Because student loans are not revolving — you borrowed a lump sum that you’re now making regular payments on — student loans are installment loans and amortizing loans.

How does student loan amortization work? As with mortgages and auto loans, student borrowers pay more in interest at the start of the loan repayment term; in fact, some borrowers are only paying interest when they start repayment. Over the life of the loan, the balance will shift, and borrowers’ payments will largely be directed to the outstanding principal balance.

Term Loans

A business term loan is typically also an amortizing loan. That means the borrower repays the loan in regular, fixed payments over a set period, with each payment covering both interest and a portion of the principal. As the loan progresses, more of each payment goes toward reducing the principal balance. This structure helps businesses plan their cash flow and gradually pay off the debt in full by the end of the term.

What Is an Amortization Schedule?

Lenders may provide borrowers with an amortization schedule, often in the closing paperwork for a house or car, but also usually online in the loan account platform. The schedule, displayed as a table, demonstrates how your monthly payments are split between interest and principal over the life of your loan.

An amortization schedule typically shows you:

•   Month: Each month over the life of a loan appears as a table row. A 30-year mortgage will have 360 rows. These tables can get long!

•   Payment details: You’ll typically see how much your monthly payment is, but more specifically, the interest payment and the principal payment. This helps you to track how each changes over time.

•   Balance: This column shows what your remaining balance will look like after each monthly payment.

Your amortization schedule will include information about the amount borrowed, the terms of the loan, and the interest rate.

Your lender may also provide a helpful column that demonstrates how additional payments on your principal balance can affect your remaining payments.

Financial Planning Implications

An amortization schedule outlines how loan payments are divided between principal and interest over time, carrying several key financial implications:

1.   Predictable payment structure: Fixed monthly payments simplify budgeting, allowing borrowers to manage cash flow more effectively and plan for other expenses.

2.   Interest cost awareness: Early in the schedule, a larger portion of payments goes toward interest. Understanding this helps borrowers recognize the true cost of borrowing and the benefits of early repayment.

3.   Equity and principal growth: For asset-backed loans like mortgages, the schedule shows how equity builds gradually, especially after the midpoint of the loan term.

4.   Tax planning: Since interest payments may be tax-deductible in some cases, the schedule helps estimate deductible amounts for financial reporting and tax preparation.

5.   Debt management: By providing a clear repayment timeline, the amortization schedule supports better debt tracking, refinancing decisions, and long-term financial planning.

In short, an amortization schedule is a powerful tool that supports disciplined financial management and strategic long-term planning.

How to Use an Amortization Calculator

Because amortization calculations can be difficult to understand, you may find it helpful to use an online amortization calculator, especially for a home or auto loan. Such calculators can help you visualize:

•   How much money you’ll spend in interest over the life of a loan

•   When you’ll hit important milestones, like 20% paid off for a home loan (that’s when you can typically ask to drop private mortgage insurance)

•   How different interest rates and loan terms can affect your payments (important if considering a refinance or a cash-out refinance)

•   How additional principal-only payments can affect your loan

Budgeting and Forecasting Strategies

Using an amortization calculator is a powerful strategy for budgeting and forecasting, as it provides a detailed breakdown of how loan payments will be allocated over time. By inputting various loan scenarios — such as interest rates, terms, and principal amounts — businesses and borrowers can project monthly obligations and identify how these payments will impact cash flow.

This foresight allows for more accurate financial planning, helping companies and individuals plan for large expenses and assess the feasibility of taking on additional debt. It also aids in long-term forecasting by showing how quickly principal is reduced and how much interest will be paid over the life of the loan.

What You Need to Know About Your Amortizing Loan

Since amortizing loans usually require fixed monthly payments over the life of the loan, you may feel like it’s something you don’t need to think about. You can simply put the loan on autopay for years and never give it a second thought. But there are several reasons you might want to think twice about your amortizing loan:

Refinancing

If you’re looking for a faster payoff or better interest rate, you may want to refinance your mortgage, auto loan, or student loans. Comparing your current amortization schedule with a proposed schedule with your new rate and terms can help you see if refinancing will actually save you money in the long run.

Short-Term Purchases

If you’re planning to buy a home but know you won’t live in it for long, it’s a good idea to review an amortization schedule (even if it’s an online estimate) before making an offer.

Since you pay significantly more toward interest than principal at the beginning of most long-term loans, you won’t immediately build significant equity — and if you sell just a couple of years later, you may owe more than you make from the sale.

Recommended: How Rising Inflation Affects Mortgage Interest Rates

Mortgage Insurance

Borrowers usually must purchase private mortgage insurance (PMI) if they do not put 20% down on a conventional loan. Once you have reached 20% equity, you can ask to have the mortgage insurance removed, reducing your monthly payment. (PMI is typically terminated automatically when a borrower has gained 22% equity — when they reach a 78% loan-to-value ratio — and payments are current, or when the loan term has hit its midpoint.)

By using an amortization schedule, you can track when you’ll hit 20%. You may even want to make additional principal payments to reach that date earlier, thus saving you money over the life of the loan.

The Takeaway

With an amortizing loan, borrowers make regular payments consisting of principal and interest over a set number of years. In the early years, borrowers pay more toward the interest, but the balance shifts toward the principal over time. Home loans are amortizing, so it’s important to understand the payments and secure the best possible rate before signing on to your mortgage.

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 is amortization in a loan?

Amortization refers to a loan with regular monthly payments over the duration of that loan. Typically, the vast majority of initial payments goes toward the interest of the loan, with a small amount (if any) going toward the principal balance. Over time, payments are more significantly directed toward the principal balance.

What are amortized loan examples?

Amortized loans are common in everyday life. Examples of fully amortizing loans are mortgages, auto loans, personal loans, and student loans.

Can you pay off an amortized loan early?

You can pay off an amortized loan early. For a mortgage, it may be possible to schedule automatic principal-only payments in your lender’s platform; you may also be able to make manual one-time principal-only payments or request a full payoff quote. With shorter-term loans, like personal loans and auto loans, it is possible to pay off the loan early to save money on interest — but it might be better for your credit score to keep the loans open.

How do amortizing loans affect small business financial planning?

Amortizing loans affect small business financial planning by providing predictable monthly payments that include both principal and interest. This consistency helps businesses manage cash flow, forecast expenses, and plan for future investments.

What factors impact a small business loan’s amortization schedule?

A small business loan’s amortization schedule is impacted by the loan amount, interest rate, repayment term, and payment frequency. Larger loans or higher interest rates typically result in higher payments. Longer terms lower monthly costs but increase total interest paid. Changes in payment structure or refinancing also affect amortization.

Photo credit: iStock/nd3000

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

SOHL-Q225-059

You’ll likely hear the terms home loan and mortgage used interchangeably, but the phrase “home loan” is an umbrella term that covers a variety of mortgages, home refinances, and home equity loans.

It’s helpful to understand the difference between a typical mortgage, used to buy a home, and the larger universe of home loans, which are sometimes used to tap the equity you’ve gained.

What Is a Mortgage?

Let’s get this straight: Mortgages are home loans, used when buying a home or other real estate. When you take out a mortgage, your lender is loaning you the money you need to purchase a home in exchange for charging you interest. You’ll repay the loan and interest in monthly installments.

Mortgages are secured loans, meaning the property is used as collateral. If you fail to make mortgage payments, your lender can foreclose on the home to recoup its money.

In order to take out a mortgage, you’ll typically need to make a down payment equal to a percentage of the purchase price. Your down payment is the portion of the cost of the home that you aren’t financing and provides immediate equity in the property.

Buyers may put down 20% on conventional mortgages to avoid private mortgage insurance (PMI), but many buyers put down much less. In fact, the median down payment for all homebuyers was 18% in 2024, according to a National Association of Realtors® report. A mortgage calculator can help you determine what effect the size of your down payment will have on your monthly payments.

When shopping for a home, you can seek mortgage preapproval. After investigating your financial history, your lender will provide you with a letter stating how much money you can likely borrow and at what mortgage rate.

Types of Mortgages

There are several types of mortgages available. Mortgage insurance, in the form of PMI or mortgage insurance premiums (MIP), may be part of the deal. It’s good to understand PMI vs MIP.

•   Conventional mortgages are funded by private lenders like banks and credit unions. They are not backed by a government agency. You’ll typically need to pay PMI if you don’t make a 20% down payment; mortgage insurance is canceled when 22% equity is reached. Conventional conforming loans adhere to lending limits set each year by the Federal Housing Finance Agency.

•   Jumbo loans are mortgages that exceed the lending limits set for conventional loans. So a jumbo loan is a “nonconforming” loan. Conventional lenders issue jumbo loans, and the U.S. Department of Veterans Affairs guarantees a VA jumbo loan, possibly with no down payment.

•   FHA loans are made by private lenders and guaranteed by the Federal Housing Administration. You may qualify to make a down payment of as little as 3.5%. Upfront and annual MIPs are required, usually for the life of the loan.

•   USDA loans are backed by the U.S. Department of Agriculture and help low- to moderate-income households buy property in designated rural and suburban areas. No down payment is required. An upfront and annual guarantee fee are required. (Note: SoFi does not offer USDA loans at this time, but we do offer FHA and VA loans.)

•   VA loans are designed for active-duty and veteran military service members and some surviving spouses. VA loans don’t require a minimum down payment in most cases. There’s no MIP; there is a one-time funding fee.

What Is a Home Loan?

If a friend tells you they have a home loan, there’s a very good chance they are talking about the mortgage they used to purchase their home. But there is also a chance that they are referring to a home equity loan. As you ponder what is a mortgage vs. a home loan, it helps to get to know the home loans that aren’t purchase mortgages.

Types of Home Loans

A home equity loan is technically a second mortgage — assuming a homeowner is still paying their first mortgage. Home equity loans allow homeowners to borrow against the portion of their home they own outright. As with typical mortgages, home equity loans are secured using the home as collateral. But if an owner falls into foreclosure, in the home loan vs mortgage loan equation, the mortgage lender would be paid from the proceeds of the sale before the home equity loan lender.

The amount you’re able to borrow will be determined by a few factors, including your credit history and how much equity you’ve built — in other words, the current value of your house less any outstanding debt. The borrower may pay closing costs based on the loan amount.

It’s common for lenders to allow you to borrow up to 80%-85% of the equity you’ve established. The loan arrives in a lump sum. You repay the home equity loan with interest over a set period of time. If you miss payments, your lender can foreclose on the house.

A home equity loan is not to be confused with a home equity line of credit, or HELOC. A HELOC is also a second mortgage; your home equity is collateral. But it functions somewhat like a credit card. Rather than receiving a lump sum, you have a revolving line of credit and can borrow and repay the debt repeatedly as needed during a given time period — typically a decade.)

Another form of home loan is a cash-out refinance. In this case, a homeowner takes out a new loan to pay off their old one, but they also borrow a lump sum at the same time. What they can borrow is based on — you guessed it — their home equity.

Similarities Between a Home Equity Loan and a Mortgage

When you apply for a mortgage as part of the home-buying process, or when you seek a home equity loan as a homeowner, lenders will look into your financial history to help them establish terms and the interest rate for the loan. For example, they will examine your credit reports, often awarding more favorable terms and interest rates to those with higher scores. Mortgages and home equity loans are both secured loans. Both types of loan also usually involve an appraisal of the property that will secure the loan.

Differences Between a Home Equity Loan and a Mortgage

A mortgage must be used to purchase a specific property — or in some cases to purchase the property and make necessary renovations. There are fewer limitations on the money received from a home equity loan. Some borrowers use funds from a home equity loan or cash-out refi for renovations. Others use the money to pay off higher interest debt or send a child to college.

Mortgage interest can often be deducted if homeowners itemize their deductions. However, you can only deduct interest on a home equity loan if you use the loan to buy, build, or substantially improve your main or second home. So if you want to buy a boat, that deduction won’t hold water. Consult a tax advisor before you count on any type of deduction.

When You Should Consider a Mortgage

If you don’t have the cash to buy a home outright, you will have to finance the purchase with a mortgage. However, there are some considerations you may want to take into account. For example, the larger your down payment, the more equity you will have in your home and the smaller your monthly mortgage payments will be.

Because you have more equity in the home, the lender will see you as less risky. As a result, larger down payments also tend to translate into lower interest rates. So, consider putting down as much as you can afford to.

Also, even if you have the cash to pay for a home in full, you may consider a mortgage anyway. You may not want to tie up cash that could be used for other purposes, such as in an emergency. You may be able to invest that money and earn a return that’s higher than the interest rate you’d pay on the loan.

When You Should Consider a Home Loan

Many people choose to take out home equity loans to make home improvements. That can increase the value of your home, putting you ahead if you ever choose to sell.

You may also consider a home equity loan when consolidating other debt, including high-interest credit card debt. The average interest rate for a home equity loan remains significantly lower than the average credit card rate. As a result, it can make financial sense to pay off the more expensive debt with a new, cheaper loan.

There are times when a HELOC is preferable to a home loan: If you need funds but don’t need a huge sum all at once, or if you aren’t sure exactly how much you might need, you can borrow in increments with a HELOC and only pay interest on the portion of the credit line that you are actively using.

The Takeaway

A mortgage is one type of home loan, but it’s not the only type. There are other ways to borrow money using a home as collateral. A mortgage gets you into a new home, but a home equity loan or HELOC could help you fund a new kitchen or cover another big expense. Whether you’re looking for a mortgage, another type of loan, or a refinance, it’s always a good idea to compare rates and terms.

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

Why is a home loan called a mortgage?

“Mortgage” comes from the old French mort gage, meaning a death pledge — a morbid origin for the pledge you make to a lender to pay back the money you borrow.

Is a mortgage cheaper than a home loan?

Mortgages are a type of home loan. Your interest rate will depend on the type and size of your loan, your down payment, and your financial history, such as your credit score.

Can I use a home loan for reasons other than buying a home?

There are some circumstances when a home loan can be used for a reason other than making a purchase. Certain mortgages allow you to buy a home and make renovations to the property. And if you borrow based on your home equity — via a home equity loan, home equity line of credit, or cash-out refinance — you can use the funds for whatever purpose you wish.

Do home loans have lower interest rates than mortgages?

A mortgage is a type of home loan, but there are also other loans, such as home equity loans, that allow you to borrow against the equity you have built up in your home and that use your home as collateral. These loans often have a lower interest rate than an unsecured loan, such as a personal loan, but they typically still have a higher interest rate than a purchase loan. Exactly how rates compare will depend on how much you borrow, your credit score, and other factors.

Are there tax benefits for home loans vs. mortgages?

The potential tax benefits of a mortgage or other type of home loan such as a home equity loan are essentially the same. In 2025, the mortgage interest deduction allows taxpayers who itemize to count interest they pay on a loan related to building, purchasing, or improving a primary home against their taxable income, lowering the taxes they owe. The tax deduction also applies to mortgage interest paid on a residence. Consult a tax advisor to learn how this deduction might apply in your specific situation.

Can I refinance a home loan into a mortgage or vice versa?

A mortgage is a type of home loan, so homeowners who refinance a mortgage typically emerge from the process with a new mortgage. Those who undertake a cash-out refinance get a new mortgage that pays off their first loan and leaves them with a lump sum of cash to use as they wish, such as on a renovation project.

Photo credit: iStock/Brandon Ruckman

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

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

SOHL-Q225-012