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Home equity loans put cash in your hands that you can use for virtually any purpose. Using a home equity loan to renovate could make sense if you’re making improvements that are likely to increase your property’s value.

Getting a home equity loan or home equity line of credit (HELOC) for home improvements offers some advantages over other types of loans, but you’ll need to have sufficient equity to borrow. A good credit score can also make a difference if you hope to qualify for a low interest rate.

How does a home equity loan or HELOC work for home improvements? Here’s what you should know.

Understanding Home Equity Loans

To understand how does a home equity loan work for home improvements, you first need to understand equity. So, what is home equity? In simple terms, it’s the difference between what you owe on your mortgage and your home’s value. A home equity loan allows you to take some of that value out in cash, pulling equity out of your home with your home used as collateral.

A home equity loan is a type of second mortgage, also called a junior lien. This means that in order of repayment, your first mortgage (which is the home loan you used to purchase the property) takes precedence. Should you end up in foreclosure and your home is auctioned off, the proceeds would pay off the first mortgage and anything left would go to the second.

There are different types of home equity loans and credit line arrangements:

•   Fixed-rate home equity loan. A fixed-rate home equity loan offers a lump sum of money that you pay back at a fixed or set interest rate.

•   Fixed-rate HELOC. A home equity line of credit or HELOC is a revolving line of credit you can borrow against as needed. Fixed-rate HELOCs are less common, but some lenders offer them.

•   Variable-rate HELOC. A variable-rate HELOC has an interest rate that’s tied to an index or benchmark rate. If the benchmark rate rises or falls, your HELOC rate moves in tandem.

Having a home equity loan or HELOC means you’ll have two mortgage payments to make each month. If you’re considering a home equity loan to renovate, it’s important to understand what you’ll pay to make sure it’s a good fit for your budget. A home equity loan calculator can help you crunch the numbers.

Benefits of Using a Home Equity Loan for Home Improvements

Using a home equity loan or HELOC for home improvements offers some unique benefits. For one thing, it may allow you to access a large amount of cash. Considering that the average cost to remodel a home can run anywhere from $20,000 to $90,000, that’s a plus. Here are some other good reasons to consider a home equity loan for home renovation.

Lower Interest Rates

Home equity loans can offer lower interest rates than unsecured loans for qualified borrowers. The higher your credit score is, the lower your rate is likely to be.

A fixed rate is another advantage because it offers predictability. Your payments stay the same and you can easily estimate how much you’ll pay in interest. For example, if you get a $100,000 home equity loan at 7.75% with a 30-year term, you’ll always pay $716 a month. (A HELOC is more likely to have a variable interest rate — one that rises or falls at regular intervals in response to market rates.)

Home equity loan rates tend to be higher than purchase loan rates since there’s more risk for the lender. However, they can still be cheaper than personal loans or unsecured home improvement loans.

Potential Tax Deduction

The IRS offers a tax deduction when you use a home equity loan or HELOC to “buy, build, or substantially improve the residence” that secures the loan.

You can claim this deduction in addition to any mortgage interest you deduct for your primary home loan if you itemize on your return. You’ll just need to be sure that you’re only using your equity loan or HELOC to cover eligible expenses related to your renovations. (Save your receipts as part of your tax records.) You’ll want to talk to your tax advisor about this, especially given that, as of early 2025, the current tax rules for deducting home equity loan interest are set to sunset at the end of 2025.

Increased Home Value

Using a home equity loan to remodel could help boost your home’s value, depending on the projects you decide to tackle. That could leave you with more profit in your pocket if you eventually decide to sell the home, or more equity to borrow against later.

Here are some of the home improvement projects offering the highest return on investment:

•   Garage door replacement

•   Entry door replacement

•   Midrange kitchen remodel

•   Deck addition

•   Vinyl siding replacement

•   Window replacement

•   Roof replacement

•   Bathroom remodel

When deciding which projects to fund, consider the ROI as well as the projected time to complete them. Upgrading to your dream kitchen, for instance, could take months, so you have to be patient enough to see the renovations through.

Evaluating Your Home’s Equity

One of the most important factors lenders consider is the amount of equity you have in your home. Specifically, they look at your loan-to-value (LTV) ratio. If you don’t have sufficient equity in the home, you may not qualify for a home equity loan or HELOC.

Impact on Borrowing Capacity

What is loan-to-value ratio? It’s a ratio that measures the amount you want to finance against the value of your property. Here’s how to calculate it.

LTV ratio = (Current loan balance) / (Appraised value) x 100

Typically lenders look for a maximum LTV ratio of 80% to 90% for home equity loans and HELOCs.

How much home equity can you borrow? Let’s say you owe $300,000 on your home and it’s valued at $500,000. Your LTV would be 60%. In terms of how much of your $200,000 equity you could borrow, you might be able to withdraw up to $100,000 with a home equity loan if a lender allowed a max LTV of 80%, or $150,000 if the lender allowed a max LTV of 90%.

Steps to Obtain a Home Equity Loan for Renovation

How do you get a home equity loan for remodeling? It’s a multi-step process but for the most part, it isn’t that different from getting a mortgage to buy a home. Here’s an overview of how it typically works.

•   Calculate your home equity, then calculate your loan-to-value ratio.

•   Shop around to compare mortgage rates for home equity loans and HELOCs. Consider getting quotes from several lenders to see how they measure up.

•   Consider getting preapproved. Preapproval means that you’re conditionally approved for a home equity loan.

•   Select a lender and finalize your application. Most home equity lenders allow you to apply online and upload your documents digitally.

•   Wait for the lender to schedule an appraisal. Your lender may request an in-person appraisal, offer a desk appraisal, or use a hybrid approach that combines an in-person visit with use of an automated valuation model.

•   Review the loan terms. Assuming you’re approved, you’ll have a chance to review your loan terms before signing off on the final paperwork.

•   Close and sign the documents. You’ll pay any closing costs that are due, sign the loan agreement, and tell the lender where to send the loan proceeds.

The process to get a home equity loan or HELOC can take a few weeks to a few months, depending on your situation and choice of lender.

Alternatives to Home Equity Loans for Renovation

A home equity loan for remodeling is just one way to fund home improvements. If you’re looking for other options, you’ve got choices.

•   Personal loan. The main difference between home equity loans vs. personal loans is that one is secured by your home; the other isn’t. Personal loans can offer generous lending limits, and you can use the money for anything, but interest rates may be higher. And instead of closing costs, you might pay application or origination fees to borrow.

•   Personal line of credit. A personal line of credit is a revolving credit line that you can draw against as needed. A line of credit might be a good fit if you don’t know exactly how much money you’ll need for renovations. The upside is that you only pay interest on the part of your credit line that you use, whereas a home equity loan requires you to pay interest on the entire loan amount.

•   Credit card. A credit card could be a good fit to fund home improvements if you have a low interest rate and earn rewards on your purchases. For example, you might use a card that rewards you with 5% cash back at home improvement stores. Just keep in mind that the interest you pay to a credit card (or personal loan) for home remodeling isn’t tax-deductible.

The Takeaway

Using a home equity loan or HELOC to remodel could be an attractive option if you’re ready for a home makeover but don’t want to pull from your reserves. Checking your credit scores before you can apply can give you an idea of what you might qualify for, as far as rates go. From there, the next step is checking mortgage rates and terms from different lenders to see who has the best offer.

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

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

FAQ

Are there risks associated with using a home equity loan for renovations?

There are risks to using a home equity loan for renovations. If you end up in a situation where you can’t make your home equity loan or mortgage payments, you could end up in foreclosure. That would allow your lenders to take the home from you, since it secures both of your mortgages.

Can I use a home equity loan for any type of home improvement?

You can use a home equity loan for home improvements big and small, whether that means a full kitchen remodel, adding on an extension, or simply replacing some of your fixtures and appliances. Home equity loans offer flexibility since you can use the money for virtually any expenses.

What are the typical interest rates for home equity loans?

Interest rates for home equity loans are typically a percentage point or two higher than rates for first mortgages. So if a lender is charging 6.50% on average for purchase loans, it might charge 7.50% to 8.50% for a home equity loan or HELOC. A good credit score can help you qualify for the lowest rate possible on a home equity loan.

How long does it take to get approved for a home equity loan?

Home equity loan approval may take a few weeks since the lender will need to review your credit and income, and schedule an appraisal to determine the home’s value. The entire underwriting process could take a few months if you hit any snags. For example, if you’re self-employed, you may need to provide additional documentation of your income or assets to the lender.

Are there closing costs associated with home equity loans?

Home equity loans can have closing costs just like other mortgages. Typical closing costs for a home equity loan range from 2% to 5% of the loan amount. Some lenders may allow you to roll the closing costs into your loan so you pay nothing upfront; however, that does add to the amount you’ll pay interest on.

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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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOHL-Q125-068

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Most physicians can expect to earn a good living once they complete their education and training. But by the time they graduate and start their first job, many new doctors are also likely to find themselves deep in student loan debt.

That debt may make it difficult for physicians to qualify for a conventional home mortgage — even though they have a promising financial future. That’s where home loans for doctors come in. Some lenders offer special mortgages called physician loans or doctor mortgage loans. These loans have terms designed to meet the unique needs of newcomers to this profession. Note: SoFi does not offer physician mortgages, but it does offer home mortgage loans with a low down payment for first-time homebuyers.

Read on for a look at how physician mortgages work, some pros and cons, and what it can take to qualify.

What Are Physician Mortgage Loans?

Physician mortgage loans are private mortgages designed specifically to meet the needs of doctors, dentists, medical residents, and fellows. The terms and benefits of these home loans for medical doctors can vary from one lender to the next. But they generally offer more generous terms and/or looser qualifying requirements than conventional home loans. This can make borrowing easier for physicians who have a high income potential but may be struggling with student loan debt or haven’t been able to set aside enough for a down payment.

How Physician Mortgage Loans Differ from Traditional Loans

Doctor loans are a type of nonconforming loan, which means they aren’t backed by the federal government like FHA loans, and they aren’t bound by the same Fannie Mae and Freddie Mac standards as conventional loans. Here are a few important differences you can expect to find with this type of mortgage vs. a conventional loan:

Recommended: Different Types of Mortgage Loans

Low or No Down Payment

Most lenders require at least a 3% to 5% down payment for a conventional mortgage, with the lowest rates typically available to first-time homebuyers. Lenders who offer physician mortgages may not require any money down. (Or the down payment amount required may be very low.)

No Private Mortgage Insurance (PMI)

With a conventional loan, private mortgage insurance, which is meant to protect the lender in case of a default, is usually added to borrowers’ monthly payments until they reach 20% equity in their home. Though PMI rates vary, they typically range from 0.50% to 2% of the loan amount. But doctor loans don’t require PMI, even though the borrower may not make any down payment.

Flexible Debt-to-Income (DTI) Ratio Requirements

As part of their underwriting, lenders typically calculate a borrower’s DTI ratio (all monthly debt payments ÷ gross monthly income = DTI). For conventional mortgages, they usually require a DTI ratio below 45%, although some require the DTI to be below 36%. But lenders who provide physician loans may look at a borrower’s student loans (which they expect to be high) as separate from other debt and not include them in the DTI, or they may include the student loans but set a higher DTI limit.

You may want to keep in mind, though, that just because you can get a loan with a higher DTI ratio doesn’t mean you should. A home affordability calculator can help you see what might fit into your budget and a mortgage calculator can show you what your monthly payments would look like at different interest rates.

It might also be helpful to talk to a financial advisor about how much house you can really afford, and what the costs of homeownership could mean for your overall financial well-being.

Looser Employment and Salary Requirements

Proving that you have stable employment as well as an adequate income is usually part of qualifying for a conventional loan. (Lenders generally like to see at least two years of work history.) Employment requirements may vary with a doctor loan, but lenders who offer these types of mortgages typically understand that a new doctor could be working as an intern, resident, or fellow, and may not be earning as much starting out as they will take home even just a few years into their career. (Borrowers still can expect to provide paperwork that documents their salary and employment, however, along with their medical license.)

Recommended: Understanding Mortgage Basics

Benefits of Physician Mortgage Loans

If you’re eager to get into your own home once you wrap up medical school, a physician home loan may make that possible — and less expensive. Avoiding PMI on a new home could save you hundreds or even thousands of dollars a year, for example. And if you don’t have to make a down payment, you can use that money for other expenses.

Lenders also may offer higher loan amounts with a physician loan than with other loan types. And though some lenders offer doctor loans with fixed rates, most come with variable interest rates, so you can expect to start out with a lower, more affordable interest rate when you begin making payments. (That means you’ll have an adjustable rate after a fixed introductory period, so your monthly payments could change. But if the rate becomes unmanageable down the road, you can look at refinancing to a conventional loan with a more competitive mortgage rate.)

How to Qualify for a Physician Mortgage Loan

Though the underwriting requirements may be more relaxed for doctor loans, you should be prepared to provide the following:

•   Proof of identity (this might include your driver’s license, Social Security number, or other documentation)

•   Proof of employment and income (you may be able to use an employment contract if you don’t yet have a W-2, pay stubs, or similar documents)

•   Documentation of assets and debts

•   A contract for your home purchase, including the purchase price

•   Information about the type of home you’re purchasing (condo, single-family home, etc.)

•   Proof of a medical degree (M.D., D.O., D.D.S., etc.) that meets the lender’s requirements

Other parts of the mortgage process — from determining what you can afford to choosing mortgage terms to closing on the deal — will likely be similar to what you’d expect if you were applying for just about any type of loan.

The Takeaway

If you’re finally starting your career as a doctor and you’re wondering if student debt or minimal savings could keep you from reaching the goal of home ownership — despite your income potential — a physician home loan may be an option worth researching.

Because these special loans typically don’t require a down payment or private mortgage insurance payments, and the eligibility requirements are often less strict than for conventional loans, doctors may not have to wait until they’re on firmer financial footing to purchase a home.

Of course, you’ll want to compare all the pros and cons of a physician mortgage — or any home loan. Buying a home is a big decision, and you’ll likely want to balance your eagerness to reach this milestone with your ability to keep pace with your mortgage payments and your debt payments, as well as other expenses.

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.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What credit score do I need to get a physician mortgage loan?

A credit score of at least 700 or 720 may be required to get a physician loan, although some lenders may accept a lower credit score. Each lender has its own criteria.

Are physician mortgage loans available for residents and fellows?

Employment requirements may vary, but lenders who offer these types of loans typically understand that a new doctor could be working as an intern, resident, or fellow.

How do interest rates compare for physician mortgage loans vs. conventional loans?

Doctor’s mortgage loans generally come with a variable interest rate. After a fixed introductory period, your payments could go up or down, depending on several factors. With conventional mortgages, you may have a wider range of interest rate types to choose from.

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Photo credit: iStock/nortonrsx

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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

SOHL-Q125-061

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If you own a home, a home equity line of credit (HELOC) lets you tap into your home equity to finance renovations or other expenses. Before borrowing against your home equity, it’s worth asking, how does a HELOC affect credit scores?

Taking out a new credit account has an impact on your credit score. But how a home equity line of credit affects credit scores depends on multiple factors, including your payment history and existing credit.

Here’s a look at how a HELOC could affect your credit score across the entire lifespan of the line of credit, from filing your application to closing a HELOC account — plus tips to maintain your credit score.

Understanding HELOCs and Credit Scores

First, let’s start with a HELOC definition. A HELOC, or home equity line of credit, is a revolving line of credit that typically allows homeowners to borrow up to 90% of their home’s value, minus the outstanding mortgage principal. Borrowers can draw against their approved credit line as needed until the end of the draw period, which is usually 5 or 10 years, before having to repay the balance over another 10 to 25 years. That’s HELOCs explained, in a nutshell.

Meanwhile, your credit score is calculated based on how you manage debt payments, also known as credit. A variety of factors affect your credit score, including payment history, credit utilization, length of credit history, credit mix, and applications for new credit. Your credit score appears as a three-digit number. Credit score ranges run from 300 to 850, with scores of 670 or higher being considered good to excellent.

Impact of Applying for a HELOC on Your Credit

So how does a HELOC impact credit scores? Similar to other types of credit, applying for a HELOC involves a credit check, which is added to your credit report.

Hard Inquiries

When you apply for a HELOC, lenders will run a credit check to assess your creditworthiness. This involves requesting to review your credit report, which is known as a hard inquiry.

A record of any hard inquiry, sometimes referred to as a hard pull, is registered on the credit report. Having one hard inquiry could lower your FICO® Score by up to five points, but only for one year.

To avoid multiple hard credit pulls, you can check to see if lenders offer HELOC prequalification with a soft credit pull instead.

New Credit Accounts

Applying for a HELOC means opening a new credit account. This could decrease the average age of your credit accounts and ding your credit score by a few points.

Effects of Using a HELOC on Your Credit

Once you’ve been approved for a HELOC, how you begin using funds and managing payments can affect your credit. Let’s explore what goes into these HELOC credit score impacts.

Credit Utilization Ratio

Your credit utilization ratio is a calculation of how much of your credit you’re using. In other words, it’s the percentage of your credit limit you’re using on all your revolving credit accounts, such as credit cards, combined.

So does a HELOC affect your credit score and credit utilization ratio? While HELOCs operate like a revolving line of credit, they’re secured by a property. This means that it isn’t included in your credit utilization ratio as part of your FICO score.

Using funding from a HELOC to pay off high-interest debt like credit cards could lower your credit utilization ratio and boost your credit score. Maintaining a credit utilization ratio below 30% is recommended to qualify for financing or get mortgage preapproval.

Payment History

Payment history is the largest component of a credit score. Making consistent, on-time payments each month on a HELOC could help build your credit score over time. On the flip side, failing to stay current on payments could hurt your credit score and ultimately put your property at risk.

HELOCs are typically structured to have higher monthly payments after the draw period ends. Once the repayment period begins, you won’t have the ability to continue drawing funds. You can use a HELOC repayment calculator to see what your monthly payment would be based on how much you owe on a HELOC, your repayment term, and interest rate.

Credit Mix

Your credit mix refers to the number and types of credit accounts you have, including student loans, home loans, credit cards, and car loans. Demonstrating your ability to manage different types of debts can benefit your credit score.

Taking out a HELOC could improve your credit mix (and credit score) if you don’t have other types of revolving credit, especially for borrowers without much credit history.

Bottom line: The HELOC–credit score connection can be significant.

Recommended: FHA Loans

Closing a HELOC and Its Credit Implications

Paying off and closing a HELOC can have impacts on your credit. (Paying the balance off on a HELOC removes the lender’s lien on your home.) Here are some potential credit implications to consider when closing a HELOC.

Account Age

If you’ve been making payments on a HELOC for several years, closing the account could potentially lower the average age of your accounts. How much this impacts your credit score will depend on the age of your other accounts.

But if the account is in good standing with no late payments, it can still factor into your credit history for several years after closure.

Credit Availability

Closing a HELOC won’t affect your credit utilization for your FICO score. But if you don’t have other revolving lines of credit, it could reduce your credit mix, potentially putting a small dent in your credit score.

Strategies to Minimize Negative Credit Impact

Applying for a HELOC — or opening any new credit account — can initially lower your credit score by a few points. But there are several ways to reduce further damage to your credit score.

Timely Payments

As a reminder, your payment history is the largest component that goes into calculating your credit score. Continually making on-time payments each month can build up your credit. Conversely, paying less than the minimum or missing a monthly payment could harm your credit score.

Note that the interest on monthly payments could be eligible for a tax deduction, like mortgage interest, if used to make substantial improvements on your home. You’ll want to discuss this with your tax advisor.

Managing Credit Utilization

As you manage monthly HELOC payments, keep an eye on the balances for other revolving lines of credit, such as credit cards. Again, keeping a credit utilization ratio below 30% is considered beneficial for your credit score.

Monitoring Credit Reports

Periodically checking your credit report can help detect any instances of fraud or payment errors and inform strategies to improve your credit score. Requesting a credit report is free, and it’s a good idea to do so before applying for a new loan or credit card to understand how lenders will evaluate you as a borrower.

Recommended: Mortgage Rates

The Takeaway

How does a home equity line of credit affect credit scores? Applying for a HELOC involves a hard credit check, which can have some impact on your credit. However, making timely payments, keeping a strong credit mix, and maintaining a low credit utilization ratio can mitigate these effects and strengthen your credit over time.

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

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

FAQ

Does opening a HELOC significantly lower my credit score?

Opening a HELOC typically involves a hard credit check which can lower your credit score by several points. Whether this is significant will depend on what score you start with — if your credit score is teetering near an important benchmark, such as the 669-670 dividing line between “fair” and “good” credit, it may be an important effect. The hard credit check can stay on your credit report for 12 to 24 months.

How does a HELOC affect my credit utilization ratio?

A HELOC typically does not affect your credit utilization ratio, as it’s secured with a property as collateral versus other revolving lines of credit, such as credit cards, which are unsecured.

Will closing a HELOC improve my credit score?

Closing a HELOC can have a negative effect on your credit score by reducing your credit mix and age of accounts. However, if you made on-time payments over the life of the loan, that will be reflected on your credit history for several years.

Can a HELOC help diversify my credit mix?

Yes, a HELOC can help diversify your credit mix and show lenders that you’re a responsible borrower. If you have installment credit like a mortgage, student loans, or personal loans, taking out a HELOC would provide a form of revolving credit to your credit mix.

How can I use a HELOC responsibly to maintain a good credit score?

Paying off higher-interest debt, such as personal loans or credit cards, and funding home improvements that may make it possible for you to deduct the interest paid on a HELOC, are examples of how to responsibly use a HELOC. Making monthly payments on time and in full is essential to safeguarding your credit score when taking out a HELOC.

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Photo credit: iStock/kate_sept2004

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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOHL-Q125-057

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Who doesn’t dream of nabbing a really good deal when shopping for a home? Maybe you’re even considering a fixer-upper, a property that would allow for some sweat equity and would, over time and with work, help you grow your wealth.

If you have been studying the real estate listings, you have probably seen some potentially excellent deals on repossessed or bank-owned properties.

While the prices may look enticingly low, when it comes to how to buy a foreclosed house, you may be in for a lot of research, a long timeline, and financing issues.

What Is a Foreclosed House?

A foreclosed house is a home that a mortgage lender owns. Homebuyers agree to a voluntary mortgage lien when they borrow funds. If they don’t keep current with their payments and end up defaulting, the lender can take control of the property.

When the lender does so, the house is called a “foreclosed home” and can be offered for sale. Read on to learn more about the foreclosure process.

What Does ‘Foreclosure’ Mean?

A foreclosure is a home a lender or lienholder has taken from a borrower who has not made payments for a period of time. The lender or lienholder hopes to sell the property for close to what is owed on the mortgage.

Who can place a lien on a home? A mortgage lender or the IRS can. So too can the U.S. Department of Housing and Urban Development (aka HUD) for nonpayment of an FHA loan, resulting in HUD homes for sale.

A county (for nonpayment of property taxes), an HOA, or a contractor also can place a lien on a home.

Recommended: Foreclosure Rates for All 50 States

Types of Home Foreclosures

There are three main types of home foreclosures:

•   Judicial foreclosures: This type of foreclosure occurs when the lender files suit (that is, in court, hence the word “judicial”) to begin the foreclosure process. This usually happens when the borrower fails to pay three consecutive payments. If the loan isn’t brought up to date within 30 days of that point, the home can be auctioned off by a sheriff’s office or the court.

•   Nonjudicial foreclosures: Known as a power of sale or a statutory foreclosure, this process may currently take place in 32 out of the 50 states. The contract in this situation allows for an auction of a foreclosed property to occur without the judicial system becoming involved, as long as certain notifications and waiting periods are appropriately observed.

•   Strict foreclosures: This kind of foreclosure only occurs in Connecticut and Vermont, and usually these only happen when the value of the loan debt is more than that of the house itself. If the defaulting borrower doesn’t become current with their loan in a certain amount of time, the lender gets possession of the property directly but is not obliged to sell.

How Does the Foreclosure Process Work?

Foreclosure processes differ by state. The main difference is whether the state generally uses a judicial or nonjudicial foreclosure process. A judicial foreclosure may require an order from a judge.

•   Once a borrower has missed three to six months of payments, depending on state law, the lender will post a public notice, sometimes known as a notice of default or “lis pendens,” which means pending suit.

•   A borrower then typically has 30 to 120 days to attempt to avoid foreclosure. During pre-foreclosure, a homeowner may apply for a loan modification, ask for a deed in lieu of foreclosure, pay the amount owed, or attempt a short sale.

   A short sale is when the borrower sells the property and the net proceeds are short of the amount owed on the mortgage. A short sale needs to be approved by the lender.

•   If none of the options work, the lender might sell the foreclosed property at auction — a trustee or sheriff’s sale. Notice of the auction must be given at the county recorder and in the newspaper.

•   If no one buys the home at auction, it becomes a bank or real estate-owned (REO) property. These properties are sold in the traditional real estate market or in bulk to investors at liquidation auctions.

•   In some states under the judicial foreclosure process, borrowers may have the right to redeem their property after the sale by paying the foreclosure sale price or the full amount owed to the lender, plus other allowable charges.

Recommended: Home Affordability Calculator

How to Find Foreclosed Homes for Sale

In addition to checking with local real estate companies for foreclosed homes, there are paid and free sites to search when you are shopping for a repossessed or foreclosed home.

Among the free:

•   Equator.com

•   HomePath.fanniemae.com (Fannie Mae’s site)

•   HomeSteps.com (Freddie Mac’s site)

•   Realtor.com

•   foreclosures.bankofamerica.com

•   treasury.gov/auctions/irs/cat_All%2066.htm for IRS auctions

•   properties.sc.egov.usda.gov/ for USDA resales

•   hudhomestore.gov (the official government website for foreclosed homes)

Paid sites include foreclosure.com and RealtyTrac.com, among others.

Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.

How to Buy a Foreclosed Home

Here are the usual steps for buying a foreclosed house. Whether you qualify as a first-time homebuyer or someone who has purchased before, it can be wise to acquaint yourself with the process before searching for a home.

Step 1: Know the Options

Buying foreclosed houses at an auction or through a lender are the main ways to purchase these homes. Keep in mind that a foreclosure is usually an “as-is” deal.

Buying at Auction: In almost all cases, bidders in a live foreclosure auction must register and show that they have sufficient funds to pay for the property in full.

Online auctions have gained popularity. You can sign up with a site to find foreclosure auctions in an area where you want to buy. Or you might research foreclosure sales data by county online, at the county courthouse, or from the trustee (the third-party foreclosure sales agent).

It’s important to look into how much the borrower owes and whether there are any liens against the property. The winning bidder may have to pay off liens. It’s smart to hire a title company or real estate attorney to provide title reports on properties you’re interested in bidding on.

Buying From the Lender: You can find listings on websites that aggregate REO properties or on a multiple listing service. When checking out the homes you like, take note of the real estate agent’s name. Banks usually outsource the job of selling foreclosed homes to REO agents, who work with standard real estate agents to find a buyer.

REO listings are often priced at or below market value. Also good to know: The lender usually clears the title and evicts the occupants before anyone buys a foreclosed home.

Looking at Opportunities Before Foreclosure: If the lender allows a short sale, potential buyers work with the borrower’s real estate agent and the lender to find a suitable price.

With pre-foreclosures, when borrowers have missed three or more mortgage payments but still own the home, the lender might work with them to avoid foreclosure. Another scenario: The homeowner might entertain purchase offers, whether the home is listed or not.

Step 2: Hire a Real Estate Agent

It’s a good idea not to go with just any agent, even if you like them and have used their services for a standard home purchase, but to find an agent who specializes in foreclosure sales.

That agent can help you search for a home, understand the buying process, negotiate a price, and order an inspection. Your offers might be countered as well, and an agent can help you figure out the best next step.
An agent can also help you understand the market in general and ways to smooth your path to homeownership, such as programs for first-time homebuyers.

Step 3: Find Foreclosures for Sale

As mentioned above, there are paid and free sites where one can scan for homes. Some divisions of the government offer foreclosed homes, as do some lenders.

Also, there are real-estate companies that specialize in these properties and can help you with your search.

Step 4: Get Preapproved for a Mortgage

If you want to act fast on buying a foreclosed home, you’ll want to get preapproved for a mortgage. Preapproval tells you how much money you are eligible to borrow and lays out the terms of final approval on a mortgage in a preapproval letter.

Preapproval may help you compete with the all-cash buyers who are purchasing foreclosures. Bonus: As you move through this step, you are also likely to learn important home buying and financing concepts, like loan-to-value (LTV) ratio.

(If you are looking into repossessed properties, owner financing, or a purchase-money mortgage, will not be an option.)

Step 5: Get an Appraisal and Inspection

Buyers of REO properties would be smart to order a home inspection. A thorough check-up can document flaws and help you tally home repair costs.

An REO property appraisal usually consists of an as-repaired valuation — the market value if the property is repaired, compared with comps — and an as-is valuation. Some lenders also ask for a quick-sale value and a fair market value.

You can challenge the results of an appraisal if you think the figures are off, and you can hire another appraiser for an independent assessment.

Step 6: Purchase Your New Home

If you decide to move forward, contact your mortgage lender to finalize your loan. Submit your offer with the help of your real estate agent. If your offer is accepted, you will sign a contract and transfer ownership. You may be required to pay an earnest money deposit.

The certificate of title may take days to complete. During that time, the original borrower may, in some states, be able to file an objection to the sale and pay the amount owed to retain their rights to the property. This is called redeeming or repurchasing a home, but it rarely happens. Nevertheless, it’s a good idea to not dig in and start any work on the property until you receive the certificate of title.

Recommended: What’s the Difference Between Preapproved vs Prequalified?

Benefits of Buying a Foreclosed Home

Buying a foreclosed home can be a great deal for a buyer who sees the potential, is either handy or budgets realistically for repairs, and knows the fixed-up value. Some points to consider:

•   Not all foreclosed properties are in poor shape, as you might expect. If a homeowner dies or has a reverse mortgage that ends, a home that was well maintained may be returned to the lender.

•   REO properties rarely have title discrepancies. The repossessing lender has extinguished any liens against the property and ensured that taxes were paid.

•   It can be possible to negotiate when buying REO properties. You could ask the lender to pay for a termite inspection, the appraisal, or even the upgrades needed to bring the property up to code.

Risks of Buying a Foreclosed Home

Buying a foreclosed home can be complicated. The process is governed by state and federal laws. Take note of these possible downsides:

•   Some foreclosed homes have indeed been sitting empty and may have maintenance/repair issues, necessitating that you have cash available to get the work done.

•   Because many REO properties have sat vacant and most are sold as-is, financing can be a challenge. See below for more details.

•   Many people, especially first-time home buyers, think foreclosures are offered at a deep discount, but even low-priced homes might get multiple offers above the asking price from buyers eager to snap up a fixer-upper. You might find yourself tempted to pay more than you had expected just to close the deal.

What Are Financing Options for Foreclosed Homes

When it comes to financing the purchase of a foreclosed property, here’s what you need to know:

•   Some sales may be cash-only. If you don’t have access to the amount needed, it’s smart to sidestep looking at these kinds of auctions.

•   If the home is in livable condition, you may be able to get a conventional or government-back mortgage loan.

If you are planning to finance the purchase of a repossessed home, consider this:

•   Fannie Mae dictates that for a conventional conforming loan, the home must be “safe, sound, and structurally secure.”

•   For an FHA, VA, or USDA loan, the home must be owner occupied (that is, not a multi-family home where you will rent out all units) and in livable condition, with a functional roof, foundation, and plumbing, electrical, and HVAC systems, and no peeling paint.

•   A standard FHA 203(k) loan includes the purchase of a primary house and substantial repairs costing up to the county loan limit. But relatively few lenders offer these loans. Also, the application process is more labor-intensive, and contractors must submit bids and complete paperwork. Mortgage rates are somewhat higher than for standard FHA loans.

Who Should Buy a Foreclosed Home

Buying a foreclosed home is usually best for people who are prepared for a lengthy and potentially expensive process to buy a home at a good price.

•   You will need to do considerable research to find available homes and know how to make an offer.

•   You will likely face a significant amount of paperwork and time delays.

•   Having cash reserves to pay for repairs and deferred maintenance issues is important, as well as dealing with unpaid taxes and liens on the property.

Who Should Not Buy a Foreclosed Home

A foreclosed home may not be the right move for someone who is under time pressure to move into a new home.
It can also be a problematic process for those who don’t have a good amount of cash set aside to pay for rehabilitating a property that has been sitting empty or to take care of overdue tax bills and liens.

The Takeaway

Buying a foreclosed home requires vision, risk tolerance, and realistic number crunching. If you need financing, it’s a good idea to get preapproved for a mortgage so that all your ducks are in a row when you spot a potential deal.

If you’re shopping for a mortgage, consider what SoFi offers. Our home mortgage loans have competitive, flexible options, and down payments as low as 3% for first-time borrowers or as low as 5% for all other borrowers.

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.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What are the disadvantages of buying a foreclosed home?

Disadvantages of buying a foreclosed home can include the amount of research involved, the considerable amount of paperwork and potential delays, and the cash often required to make repairs, pay back taxes, and remedy liens.

How are repossessed houses sold?

Foreclosed homes are often sold at auction, by a lender, or by a real estate company (often ones that specialize in such repossessed properties).

How long does it take for a repossessed house to be sold?

Depending on the state and the specific property, the sale of a foreclosed house may take anywhere from a few months to a few years.

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

SOHL-Q125-046

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House hacking is a relatively new term for an old-school goal: Finding a way to earn income from a property you own while you also reside there.

Generally, house hacking is defined as renting out parts of your home (one or two rooms, a basement apartment, or one side of a duplex, for example), and using your tenants’ payments to help cover your mortgage and other expenses. But whether you’re a first-time homebuyer, an aspiring real estate investor — literally trying to get a foot in the door of a high-priced housing market — or a longtime homeowner hoping to earn some passive income, there are multiple house-hacking methods to consider.

You’re really only limited by the amount of time and effort you want to put in … and, of course, the homeowners association (HOA) rules and zoning laws in your area. Read on for a look at some of the benefits and challenges of house hacking, and some ways you might put an income-generating home-sharing strategy into action.

How House Hacking Works

In its most basic form, house hacking isn’t that different from sharing an apartment with one or several roommates, with everyone paying their portion of the rent to a landlord or management firm. Except in this scenario, you’re the landlord. You own the house, condo unit, or multi-family building, and you also live there. And you’re using your property as a tool to earn money to make your monthly mortgage loan payments and cover other costs; pay down student loans and other debts; or grow your savings.

Benefits of House Hacking

Millennials and Gen Zers often use a house hack as a way to cut the costs of homeownership. And for those interested in real estate investing, it may also be a step toward building a portfolio of properties. But it could also be an opportunity for boomers who own a home to create a passive income stream in retirement (and maybe enjoy a little company while they’re at it). These are are some of the benefits a house-hacking strategy, done right, can offer:

Reducing Expenses While Building Equity

Housing prices can be daunting, especially for first-time homebuyers who often are just starting out on their own. For those on a tight budget, house hacking may make homeownership more affordable by reducing the burden of monthly payments, and possibly helping to cover other costs, such as insurance, HOA fees, and maintenance. Meanwhile, successful house hackers can look forward to building equity — in a starter home that leads to something bigger or better, or maybe the forever home they hope to live in with their future family someday.

Accessing the Tax Benefits of Homeownership

How does homeownership affect your taxes? If you itemize on your tax return, you may be able to deduct several expenses, including your mortgage interest, property taxes, certain home improvements, and some of the costs of purchasing a home. It’s important to remember, though, that you’ll also have to include the income from your tenants’ rent payments on your return. Talk with a tax professional about your new benefits and obligations.

Testing Out a Rental Property Career

Want to get a feel for what life as a landlord might be like? Living on-site with your tenants can give you an up-close-and-personal look at what property management involves, from dealing with late payments to making sure appliances and fixtures are working.

Building Wealth

Single- and multi-family homes don’t always appreciate with time, but if you take care of your property, and choose the location carefully, you may see an increase in your property’s value, which can add to your equity and your net worth. (You also may be able to charge higher rental prices over time, which could further help you grow your wealth.)

House-Hacking Strategies for Beginners

If you think house hacking might be something you want to try, you’re probably wondering how to get started. It can be a good idea to do some research first, to determine what is and isn’t allowed in your community, city, or county. And, of course, you’ll want to choose a hack that fits with your priorities.

Here are some tips on how to house hack that could be especially useful for beginners:

Renting Out Extra Rooms

If you already own a home, or plan to purchase one soon, renting out extra rooms may be the easiest way to dip your toe into house hacking. You can get help with your mortgage payments and perhaps other costs, including utilities. And if the experiment doesn’t work out, you can always find a new housemate or, if you can afford it, opt for going it alone.

Offering Short-Term Rentals

Not sure you want to commit to a long-term lease? You may want to consider offering a spare room on a short-term rental platform. Your rental income may not be as stable, and the cleaning and guest prep associated with turnover may be challenging, but you’ll get more me-time alone in your home with this option. (Just make sure you aren’t breaking any HOA or other rules.)

Trying a Live-In Flip

Forget about finding suitable housemates: With this strategy, you can go it alone (or team up with a like-minded weekend warrior) to buy and renovate a property with the idea of selling it for a profit in a few months. In the meantime, you can live in the place yourself — as long as it’s deemed habitable. Keep in mind, though, that you’ll be paying the mortgage during that time, while also dealing with repairs and other expenses. So unless you have enough money stashed away, or a few co-investors, the upfront costs may be problematic.

Buying a Multifamily Home

By purchasing a multifamily property, you may be able to maintain a little more personal privacy while also reaping the benefits of bigger rent payments. Anything larger than a duplex might be an ambitious undertaking for a beginner, though — unless you’re willing to go full-on landlord, and set rules, manage repairs, collect rent, and deal with potential disputes with or between your neighbors.

Financial Considerations When House Hacking

If you’re preparing to purchase a property with a plan to house hack, there are several financial considerations to keep in mind.

Researching Your Best Financing Options

As an owner-occupant, you may qualify for a few different types of mortgages, including a conventional loan from a private lender or a government-backed FHA or VA loan. Taking the time to compare loan types and lenders can be an important part of going through the mortgage process and getting the interest rate and loan term that best suit your needs.

For example, if you plan to expand your real estate portfolio using the BRRRR method (buy, rehab, rent, refinance, and repeat), having a good relationship with your lender can help you move on to the next property with fewer worries.

Finding the Best Property for Your Budget

Even if you’re buying a home you expect to live in for a while, it can still be helpful to look at your purchase as a business decision. That means considering the location, the condition of the property, the rental potential, what you might charge, if you want a separate entrance for a tenant, etc. Also, as a beginner, you may want to get some professional advice from a real estate agent or an experienced real estate investor.

Deciding If Your Choices Make Financial Sense

Whether you’re looking at sharing a single-family home with one housemate or a building with several tenants, don’t forget to run the numbers to be sure the arrangement makes financial sense. Add up all your costs vs. what you hope to take in. Will the net amount help you achieve your financial goals?

Recommended: Understanding Mortgage Basics

Risks and Challenges of House Hacking

It’s not hard to imagine where this could all go wrong. House hacking is not without risk. Being a landlord for just one housemate (even a friend) turns out to be more than some people are willing or able to deal with. Some potential pitfalls include:

Maintaining Work-Life Balance

House hacking can blur the lines between what is your home and what is your business/investment. It’s not unlike working from home every day — except your tenants may be even more demanding than your family or your boss. As a live-in landlord, you may find it more difficult to go on vacation, have a pet, throw a party, or take a new job on short notice.

Tenant Troubles

Depending on how much of your space will be shared, the lack of privacy could get old. And even with careful vetting, personality differences (noise, cleanliness, tenant disputes) may become a problem.

Occupancy Instability

If you’re relying on the extra rental income to manage your mortgage payments, keeping your extra room, basement apartment, or multiple units occupied could make or break your ability to hold on to your home. When you budget for income with a long-term tenant, it’s wise to assume your property won’t be rented 100% of the time.

Increased Wear and Tear

With multiple occupants, with or without pets or children, your property might show more wear and tear than a standard owner-occupied home in the neighborhood. This could mean higher maintenance and repair costs than you expected, or it could lower the resale value if you decide to move on.

Recommended: Home Mortgage Calculator

The Takeaway

If all goes well, house hacking can provide an effective way to help pay off your mortgage, build equity, expand your real estate portfolio, and grow your net worth. But making it work can take patience and planning. Beginners may want to start with small steps — renting to just one or two housemates or tenants, for example, and becoming familiar with the appropriate financing options for your needs — before building up to a bigger investment.

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.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What financial factors should I consider when house hacking?

If you plan to purchase a home or building, it’s a good idea to be sure the loan type and terms fit both your short- and long-term goals, that the property costs will fit with your budget, and that the amount you expect to net from your rentals makes sense for the time and effort you’ll put in and the risk you’re taking.

Are there risks involved with house hacking?

Yes, there are both personal and financial risks involved with house hacking.

Can I house hack with a mortgage?

Absolutely. Using the income from your house hack to help pay down your mortgage is typically one of the primary goals of investors who choose to use this strategy.

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Photo credit: iStock/andresr

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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SOHL-Q125-063

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