10 Steps for the Perfect Bathroom Remodel

A bathroom remodel is one of the most challenging projects you can take on in your home. Bathroom remodel costs range from modest cosmetic updates ($3k) to full gut renos ($30k), with the national average coming in at $11k.

Your bathroom budget will greatly depend on the purpose of your remodel. Whatever you have in mind, these 10 steps can help you plan appropriately, anticipate problems, and ensure you end up with a room you love.

Why Homeowners Remodel Bathrooms

There are several potential reasons behind a homeowner’s decision to remodel a bathroom. For some people, it might be a combination of reasons.

Updating the Look

Happy with the layout of your current bathroom and feel it just needs a refresh? Focus your attention on material selection, and perhaps add new cabinetry or plumbing fixtures. You can find lots of ingenious ideas online for how to make a small bathroom look bigger.

You’ll still want to pay attention to the age of your home and the remodels done by previous homeowners. After all, laying new tile over a foundation rife with mold or making do with an outdated electrical system is inviting big problems down the road.

It’s best to tackle essential updates first. If your budget doesn’t allow for a full reno, you might want to hold off until you have the money to do the job right.

Recommended: 32 Inexpensive Ways to Refresh Your Home

Resale Value

If you’re updating your bathroom in preparation for selling your home, think about what potential buyers might look for. While it’s impossible to anticipate what one random buyer might want in a new home, you can research your local real estate market to learn what appeals to the majority of homeowners.

You also can find out the resale value of bathroom remodels by using SoFi’s Home Project Value Estimator.

Better Functionality and More Storage

Perhaps you’ve always hated how the door hits the vanity as it swings open. Or you’re tired of stacking toilet paper on the toilet tank and seeing makeup on the counter. Maybe you never use the bathtub and long for a large shower stall, or wish for two sinks instead of one to expedite the family’s morning rush. Or it’s possible your bathroom is a dark, moist cave, crying out for natural light and better ventilation.

This level of bathroom remodel will likely have you gutting the entire space, possibly rearranging the fixtures and rerouting plumbing. Not only will your bathroom be brand new in that case, it could be higher end, too.

Here are the 10 steps to take while planning your perfect bathroom remodel.

1. Determine What Your Bathroom Remodel Should Achieve

When embarking on any project that requires a good chunk of time and cash, you want to determine what the overall goal is for your bathroom remodel. Is it to expand the existing space? To add a shower or a tub? To improve your home’s value? Or to update a vintage bathroom to one that is more modern in design and functionality?

All of these answers will factor into your design and budget. Other considerations to make when planning a bathroom remodel include:

•   How many people will use the room?

•   How much time do you spend in the bathroom in the morning, afternoon, and evening?

•   What’s your routine — how does your current space hinder it, and how could a new space improve it?

•   Do you just want something that’s easy to clean? Or do you want to improve the look for resale?

2. Research and Budget

Before you get too far with planning, it’s good to know how much bathroom you can afford. Even if you have a ballpark figure in mind, you’ll want to understand how much a full bathroom remodel is going to cost in the end.

A bathroom remodel typically costs between $3,000 and $30,000, with $11,000 the national average. Before proceeding with your dream plans, first think about whether you’re after a basic update, a mid- to upper-range remodel, or a deluxe spa getaway. Factor in a cushion of 20% for unforeseen costs.

To keep costs down, avoid moving the existing plumbing and wiring. Some homeowners focus on just a shower remodel, which can run from $1,100 to $5,500. To get a sense of how much it would cost to update your home use our Home Improvement Cost Calculator.

Recommended: How to Pay for Emergency Home Repairs

3. Hire a Designer Who Loves Bathroom Remodels

Given the complexity of rerouting plumbing, laying tile and flooring, and installing vanities and toilets, you may need to hire a few different professionals to get the job done:

•   Interior designer, to reimagine the space and source materials

•   Architect, to handle structural changes

•   Plumber

•   Electrician

•   Tile installer

•   General contractor, to manage them all

What exactly will all these folks be doing, besides spending your money? We’ll walk you through it.

First, a professional interior designer will think of things a homeowner will not. For instance: which way the cabinet doors open, if there’s room for a washer/dryer, how a skylight could brighten the space, or ways to rearrange the room in a creative way that maximizes both functionality and efficiency.

On the other hand, if you know what you want and where to find the products you need — and you have at least some DIY experience — then you might take on the design process yourself.

A general contractor will hire and supervise the various subcontractors, and keep the project on schedule and on budget. If you’re very comfortable tackling the demolition, construction, and installation, you may not need a general contractor. Just remember that once you start exposing layers of old work, a straightforward update can devolve into something more complex.

For major structural changes, you’ll want to hire an architect, and consider bringing in an experienced plumber and electrician, too. In some places, it’s required by law.

While you’re keeping an eye on the budget, don’t forget about your valuable time. Even with DIY experience, a bathroom remodel can take homeowners several times as long as a professional to complete — and your results may not be up to your high standards.

Don’t hesitate to bring in hired help as needed. To keep your budget on track, you can still agree to take on simpler tasks like demo and painting.

4. Refine Your Bathroom Remodel Plan

If your dream bathroom doesn’t seem as though it could ever fit in the space you have, think about what’s on the other side of the bathroom walls. Can you steal square footage from an adjacent closet, adjoining bedroom, or underused hallway? Is it possible to punch out an exterior wall to add square footage?

Other options to consider: whether you want the toilet out in the open or housed in its own private water closet, and what kind of special storage you need — for hair tools, makeup, and other everyday essentials?

Choosing the style of bathroom you want can also be complicated. You may love the look of the industrial-style bathroom in your favorite restaurant, but will it look right in your Craftsman bungalow? Designers recommend that you look to the rest of your house for inspiration or consult resources like Pinterest for ideas.

5. Approve Your Bathroom Remodel Design

Next you’ll consult with your interior designer and/or architect to review preliminary floor plans and sketches. These will show how the room’s components — shower, vanity, any cabinetry — fit in the space.

At this point, you’ll focus on the big picture: where the major elements go and the functionality of the space. Don’t worry about the finishing touches like colors and materials. These drawings and scope of work will be used to interview contractors and solicit estimates.

Once the measurements are nailed down, you’ll know how many square feet of tile you’ll have to order or how big of a marble slab you’ll want for the countertop. You or your designer can use this information to start shopping around for the best price on materials.

6. Choose Your Bathroom Materials, Finishes, and Colors

Now it’s time to research materials, so you’ll have a basic knowledge of what you need and how much it will cost. Marble may look great, but it’s not stain-resistant and so is a pain to maintain.

Maybe you want to look at easy-to-clean options. Or perhaps you didn’t know that wood can indeed work for countertops in bathrooms if properly treated. Or you weren’t aware of the vast stone possibilities that could work with your design.

7. Work on Design Development and Construction Documents

At this stage, you should be actively reviewing the floor plan, elevations, tile layout, and any other relevant drawings associated with your project. More planning on the front end of the project means fewer mistakes will arise later in the process.

You’ll also want to be kept up to speed on everything that goes into your project: what materials will be used and how they will be laid out. If something in construction drawings isn’t specified — such as general tile layout or how you want trim pieces in your shower niche to look — chances are your tile installer will make a decision on the spot, especially if you’re not around on the install day.

This stage will also involve pulling permits. If you’re working with a knowledgeable contractor, they will likely take this on. Many are skilled at navigating the process with contacts they’ve made at the local planning office. If you’re doing much of the work yourself, you’ll need to brush up on what permits you’ll need, and where and how to submit drawings for approval.

8. Get Estimates From Contractors

It’s a common process to get three separate estimates from licensed contractors for each home remodel project in which you bring in professional help. If you’re already working with a designer, he or she may know skilled contractors or can help you interview professionals to make sure they’re right for the job.

It helps to know about what goes into a contractor’s bid. Don’t let the highest bid scare you, and don’t immediately jump on the lowest bid.

9. Plan for Installation and Prepare for Bathroom Demo

In an ideal world, you will have every last detail planned and every material picked out and ordered before construction starts. The last thing you want is to get halfway through your remodel and have to tell your construction crew to take a two-week break while you wait for that back-ordered marble to arrive from Italy.

You’ll want to nail down the nuts and bolts of how construction will flow and where supplies will be stored. You’ll need a dry space inside for most materials, so you’ll need to decide where you’re going to keep displaced furniture and household items while construction is underway. Can you make space in your garage or on the side of your house?

Other questions to consider:

•   Are you prepared for the disruption?

•   What time will the workers be there, and will someone be on-site to answer questions and oversee the construction?

•   Will it affect your work schedule or any trips planned?

•   Where will you shower during construction?

•   Do you have an alternate place to stay should the inconvenience of not having a bathroom become too much?

•   Who in your family will be available should a construction question come up?

•   Think about how long the crew will be there and if the materials will arrive in time.

Any last-minute decisions need to take top priority to ensure a smooth-running bathroom remodel that stays on budget and on time.

10. Make a Post-Completion Punch List

The National Kitchen & Bath Association recommends that you keep all receipts, contracts, warranties, and product information for every major purchase so that you understand how to care for and maintain the materials.

Nevertheless, it’s highly likely that something with your bathroom remodel will go wrong. Maybe you overlooked something, materials arrived broken or scratched or not at all, there’s a dent in the wall, or the caulk was too messy.

Now is the time to make a list of these things, either in an informal email or more formal document with your contractor. Get it into the hands of the person responsible for correcting the mistakes and include a date by which the fixes and finish work should be completed.

It’s normal for a contractor to return several times to address any post-project concerns, so try not to worry. Everyone makes little mistakes in a big, complicated project like a bathroom remodel. Just hold off making your final payment until the problems are fixed.

The Takeaway

Bathroom remodel costs can vary widely from $3k to $30k, with the average about $11k for a full bathroom. Most of your money will be going to labor (typically $50–$70/hour) rather than materials. To keep costs down, take the time to plan meticulously and get multiple bids from contractors.

Need a way to finance your new bathroom remodel? Check out SoFi unsecured Personal Loans. Compared to a home equity line of credit (HELOC), which may only cover a handful of projects, a SoFi Personal Loan of up to $100,000 allows you to use the money for whatever your dream bathroom demands.

Get prequalified online for a SoFi Personal Loan with no fees and no obligation.


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

Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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
.

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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Mortgage Broker vs Direct Lender: What’s the Difference?

You’re ready to buy a house, and you need financing. There are two main options: direct lenders and mortgage brokers.

Which should you shop for a mortgage with? If you have credit issues or other needs, considering a broker’s array of options would make sense. If your financial health is solid and you want to save time and money, applying with a direct lender could be a good course of action.

In any case, it’s smart to get a few quotes and compare offers for the same type of loan and term.

What Is a Mortgage Broker?

A mortgage broker is a middleman between the mortgage seeker and lenders, including banks, credit unions, and private mortgage companies.

With a single application, a broker will provide you with access to different types of mortgage loans and, if you choose one, will walk you through underwriting.

Mortgage brokers are licensed and regulated. You’ll want to ensure that any broker you’re interested in working with is credentialed by checking the Nationwide Multistate Licensing System & Registry consumer access site. You can also check platforms like the Better Business Bureau and Yelp to see what past clients say.

Brokers are compensated by the borrower or lender. Borrower fees typically range from 1% to 2% of the total loan amount. Lender commissions may range from 0.50% to 2.75% of the total loan amount, but lenders usually pass the costs on to borrowers by building them into the loan.

How to Find a Mortgage Broker

You could ask your current lending institution, friends, family members, or real estate agent for a referral to a mortgage broker.

After checking licensing, you may interview more than one broker before deciding on one. You might want to ask about their fees, lenders they work with, and experience.

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


What Is a Direct Lender?

In the mortgage broker vs. lender dichotomy, a direct lender is the bank, credit union, or mortgage company that originates, processes, and funds mortgages.

Mortgage loan officers, processors, and underwriters work for the company. Loan originators usually work on commission.

A loan officer may offer a mortgage at various price points, from a loan with discount points for a lower rate to a no-closing-cost loan, which is when the lender agrees to pay the closing costs in exchange for a higher interest rate.

Recommended: First-Time Home Buying Guide

How to Find a Direct Lender

Most people have a relationship with a bank or credit union, which they might want to expand on by getting a mortgage quote. Then there are myriad online mortgage lenders.

Pulling up the day’s mortgage rates online will conjure a list of direct lenders advertising their rates.

What Are the Pros of Working With a Mortgage Broker?

Because they are able to offer a variety of quotes from different sources, brokers can be useful if you’re looking to easily compare mortgage options.

They may offer specialized loans.

Loan brokers set their own profit margins, so negotiating could be easier.

A broker could be useful if you have concerns like a fair or bad credit score or student loan debt.

What Are the Cons of Working With a Mortgage Broker?

Brokers may have preferred lenders that don’t necessarily offer the best interest rate. And some lenders won’t work with brokers at all.

If paid by lender commission, a broker could be tempted to steer a borrower to a more expensive loan.

Brokers’ loans may take longer to close.

Broker fees tend to be higher, but that could be because the mortgages offered are sometimes more complex. And mortgage brokers may charge borrowers directly (the fee of 1% to 2% of the total loan amount).

What Are the Pros of Working With a Direct Lender?

By working with a direct lender, you’ll skip the broker fees, and you may get a better rate with lower closing costs (although both lenders and brokers can offer “rebate pricing” — a higher interest rate in exchange for lower up-front costs).

A direct lender typically does all the loan processing, underwriting, and closing in-house.

You may be able to negotiate underwriting or origination fees.

What Are the Cons of Working With a Direct Lender?

Comparing rates and terms on your own from a sample of lenders takes time.

You’re limited to the loan programs of the institutions where you decide to shop.

What Works for My Situation?

You’ve probably toyed with at least one home affordability calculator and gotten pre-approved for a loan.

Once you’ve found a home and your offer has been accepted, it’s decision time on a lender. You are not required to stay with the lender you used for pre-approval.

If you have a sparse credit history, subpar credit, or other challenges, a mortgage broker might be able to find a loan program that’s a good fit.

But if you have solid credit, a strong income, and assets, you may be able to save time and money by working with a direct lender.

What about rates? In weighing mortgage broker vs. bank, there might be no difference to speak of. The rate you’re offered depends more on your qualifications than on the lender.

The mortgage loan process can seem mysterious, and a broker or a loan officer at a direct lender can act as a loan seeker’s guide.

That guide should be willing to answer all of your mortgage questions, including those about points, fees, mortgage insurance, and the closing timetable.

You’ll receive loan estimates after applying. When comparing mortgage offers, it’s important to look at more than the interest rate. Be sure to compare APRs.

Look at the fees in the “loan costs” section, and compare closing costs.

Gain home-buying insights
with the latest housing
market trends.


The Takeaway

If you’re in the market for a mortgage, you might think the choice comes down to mortgage broker vs. direct lender. But you may get loan quotes from both and compare them. It’s called shopping, and a home is a rather important purchase.

You might find that the fixed-rate mortgage loans from SoFi stand up to the competition nicely.

Finance a primary home, second home, or investment property. Live large with a jumbo loan.

Get a personalized rate quote in a few clicks.


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

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

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

The size of the mortgage you may be offered depends on your income, debts, credit history, assets, and down payment.

Fortunately, you can get an idea of how much of a mortgage you can afford by using calculators and pre-qualifying with lenders, and a specific number by getting pre-approved.

An old standard, the 28/36 rule, says that your mortgage payment shouldn’t be more than 28% of your monthly gross income and 36% of your total debt.

How Much Mortgage Can I Afford?

The mortgage loan process often starts informally.

You know, you look at advertised rates and plug numbers into calculators.

You learn about conventional vs. government-backed loans and think about mortgage terms.

To get more realistic, it’s good to know your credit score and debt-to-income ratio (DTI), the percentage of your gross monthly income that you spend on monthly debt payments.

A credit score in the 500s may be enough to qualify for an FHA or VA loan; a score of at least 620 will probably be needed to obtain a conventional mortgage. In general, mortgage lenders like to see a DTI ratio of 36% or under, although a lot depends on other qualifications and the type of loan you’re applying for.

Getting pre-qualified is usually quick and painless: You provide a few basics about your finances to a lender by phone or online. The lender does a soft credit inquiry and provides an estimate of what you can afford.

Maybe you get serious and seek pre-approval for a mortgage, which most sellers in a competitive market demand. Lenders train a microscope on your finances, do a hard credit pull, and come up with a specific number for what you can tentatively afford.

It might be a good idea to have any gift toward a down payment or closing costs already reflected in your account. Any mortgage lender you choose will expect a gift letter documenting the funds.

How high can you go? High. For conventional loans, the conforming loan limit for a one-unit property was $647,200 in most of the country and $970,800 in high-cost areas in 2022. But jumbo loans go above those limits.

Calculate Your Potential Mortgage

How Much House Can I Afford With an FHA Loan?

Mortgages insured by the Federal Housing Administration are issued by private lenders like banks, credit unions, and mortgage companies that offer them, which weigh an applicant’s credit score (sometimes as low as 500) and two ratios:

•   DTI ratio. Up to 50%, if the credit score is at least 580 and other qualifications are in place.

•   Front-end ratio, or the ratio of proposed monthly mortgage payments to monthly income. Can be as high as 40% if the credit score is at least 580.

If your credit score is from 500 to 579, you may be able to get an FHA loan and put 10% down. If your score is 580 or higher, you may put as little as 3.5% down.

Home loan limits vary by area for traditional FHA loans, which may be used for up to four units as long as the buyer lives in one unit. An upfront mortgage insurance payment of 1.75% of the purchase price and annual mortgage insurance premiums (MIP) apply.

How Much House Can I Afford With a VA Loan?

The Department of Veterans Affairs issues some home loans directly, but most VA loans are guaranteed in part by the VA and procured from private lenders.

VA loans are for active-duty service members, veterans, and some surviving spouses. Lenders often look for a minimum credit score in the low to mid-600s and a DTI of 41% or under, but those figures are not set in stone.

There is no home purchase limit if a borrower has never used a VA loan, has paid off a VA loan and sold the property, or has had a foreclosure or short sale but repaid the VA in full.

No down payment is required as long as the sales price of the one- to four-unit owner-occupied property or VA-approved condo does not exceed the appraised value. Most borrowers will pay a one-time funding fee of 1.4% to 3.6% of the amount being borrowed.

Factoring Insurance and Taxes Into Your Mortgage

A mortgage payment is made up of more than principal and interest. Homeowners insurance and property taxes are part of the deal.

Part of the mortgage payment for those bills is usually held in escrow by the mortgage servicer and paid in full when due. Flood insurance, if you’re in a high-risk flood area or your lender requires it, also will be included.

The local tax rate and the property’s assessed value determine the amount of property taxes owed. Homeowners insurance varies by area, but $250,000 in dwelling coverage averages $1,380 a year. Flood insurance, if required, averages $800 to $1,200 per year, but premiums vary widely depending on location and a home’s risk level.

Any lender you apply for a loan with will send you a loan estimate, a three-page summary of the loan offer. Total monthly costs listed will include principal and interest, property taxes, homeowners insurance, and any mortgage insurance.

Keeping Track of All Other Homeowner Fees

Buyers can be floored by the true cost of buying a home. Consider these other costs.

Private Mortgage Insurance

Annual private mortgage insurance (PMI) is the price to pay if you put less than 20% down on a conventional mortgage, unless you avoid PMI by seeking a piggyback loan or lender-paid mortgage insurance.

PMI often ranges from 0.5% to 1.5% of the total loan amount annually until you reach 20% equity.

MIP for an FHA loan ranges from 0.45% to 1.05% of the loan amount per year for the life of the loan if you put less than 10% down.

HOA Costs

Monthly or quarterly homeowners association fees are usually paid directly to the HOA. They can be significant in size and in another way: If the assessments are brushed off, the HOA can place a lien on your property and even foreclose.

Closing Costs

Painful yet necessary, closing costs average 2% to 5% of the amount of the home loan. Many lenders allow them to be rolled into the loan.

Low- to moderate-income homebuyers, and especially first-time homebuyers, may be able to get help with a down payment and closing costs.

Utilities

You might try to research what similar-size homes in the area are spending for electricity, gas, water and sewer, and garbage collection, as well as internet and possibly cable TV.

Repairs

Things deteriorate, sooner or later. They just do.

How Much Can I Afford to Spend on a House?

Divulging all your financial intel, allowing a deep credit check, and getting pre-approved for a mortgage will give you a limit to work with. You can get pre-approved with more than one lender and compare offers.

Rate shopping within 14 days will be treated as a single credit inquiry.

How Much House Can I Afford On My Salary?

Your salary certainly is a big factor in qualifying for a mortgage, but so is your debt load. Credit history and assets also play roles in determining how much of a mortgage you can afford.

The Takeaway

If you’re thinking of buying a home, you’re probably asking yourself: How much mortgage can I afford? A good online calculator can provide an idea. Getting pre-approved for a mortgage will be much more informative.

SoFi offers a range of fixed-rate home loans with competitive rates. Check out the advantages of SoFi Mortgage Loans and get pre-qualified today.


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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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What Is a USDA Loan? Am I Eligible for One?

When you think of the USDA, what comes to mind? Beef, school lunches, amber waves of grain? Well, yes, there’s all that, but the U.S. Department of Agriculture also helps people buy, build, and repair homes in rural areas of the country.

USDA loans have many advantages, but eligibility largely depends on borrower income and home location.

Among the many USDA programs, the agency also offers loans and grants to very low-income homeowners to repair their homes. Let’s look at the details of three programs.

How USDA Loan Programs Work

USDA Rural Development’s housing programs give individuals and families the opportunity to buy or build a rural single-family home with no money down, repair their existing home, or refinance their mortgage under certain circumstances.

The USDA promotes homeownership for low-income families and economic development in rural areas.

USDA loans are available to eligible first-time and repeat buyers, and millennial homebuyers to retirees, for primary residences.

Single Family Housing Guaranteed Loan Program

This program is the one that most people think of when they hear about USDA loans.

The USDA guarantees 30-year fixed-rate loans originated by approved lenders so that people in households with low to moderate incomes can buy homes in eligible rural areas . (You’ll need to search with an exact address.)

The income threshold is defined as no more than 115% of area median household income. In other words, your household income can’t exceed the area median income by more than 15%.

Buyers can finance 100% of a home purchase, get access to better-than-average mortgage rates, and pay a lower mortgage insurance rate.

That means no down payment, but borrowers still might want to look into down payment assistance programs that also may help with closing costs.

A USDA loan can be used to purchase, renovate, or build a primary single-family home (no duplexes).

Single Family Housing Direct Home Loans

These subsidized loans, issued directly by the USDA, are available for homes in certain rural areas and for applicants with low and very low incomes.

The amount of the subsidy depends on the adjusted income of the family, and it reduces the family’s mortgage payment for a certain amount of time.

Adjusted income must be at or below what’s required for the geographical area where the house is located, and applicants must currently be without housing that’s considered safe, sanitary, and decent.

In addition, they must be unable to qualify for loans elsewhere; meet citizenship requirements (or eligible noncitizen ones); legally be allowed to take on a loan; and not be suspended from participating in federal programs.

The home itself must meet certain requirements for USDA loan eligibility. It must:

•   Typically have no more than 2,000 square feet

•   Not have an in-ground swimming pool

•   Not have a market value that exceeds the loan limit for the area

•   Not be used to earn income from the home

Typically no down payment is required, although borrowers who have more assets than are allowed may need to use part of them toward the purchase. The rate is fixed and, when taking payment assistance into account, could be as low as 1%. The repayment term can be up to 33 years, or 38 years for applicants with very low income.

Funds can be used to purchase, build, repair, or renovate a single-family home. Once the title is out of the borrowers’ names or they no longer live in the house, they must repay part or all of the subsidies received.

Apply directly with your state Rural Development office .

This online eligibility tool can help potential borrowers see if they might qualify.

Single Family Housing Repair Loans and Grants

This program, also called the Section 504 Home Repair Program, is for homeowners with very low incomes who need a loan to improve, repair, or modernize their homes.

The program also offers grants if the applicants are 62 or older with very low incomes and if the money will be used to remove hazards to health and safety. The borrower must own the home and live in it. Income must be less than 50% of the area median income, and homeowners must not be able to find affordable credit through other venues.

Limits on both the loans and the grants are as follows:

•   Maximum loan amount: $20,000.

•   Maximum grant amount (lifetime limit): $7,500. If the home is sold within three years of receipt of a grant, the money must be repaid.

•   Maximum per person: $27,500, if they qualify for both the loan and grant.

Loan terms can be up to 20 years, with a fixed 1% interest rate.

For details about how to apply, applicants may contact their state Rural Development office.

Homeowners of higher income levels who need to finance home repairs may want to look into home improvement loans.

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


Pros and Cons of USDA Loans

This section will focus on the USDA guaranteed loan program.

USDA Loans Pros

•   Typically no down payment is required.

•   Lower rates than FHA and conventional loans on average.

•   There isn’t a minimum FICO® score to qualify, so a less-than-ideal credit history may not prevent the loan from going through, though lenders like to see a credit score of at least 640 and a debt-to-income ratio of 41% or under.

•   The guarantee fee of 1% of the loan amount can be rolled into the loan if it would be too difficult for the borrower to pay it out of pocket.

USDA Loans Cons

•   Homes must be in eligible rural areas.

•   Applicants must meet income limits.

•   Only certain lenders offer the program.

•   USDA loans require a 1% upfront guarantee fee and a 0.35% annual guarantee fee, based on the remaining principal balance each year.

Other Types of Mortgage Loans

In general, if your household income is more than 115% of the area median income, you can’t qualify for a USDA loan. The income of the entire household is considered, even if someone isn’t going to be on the mortgage note. That’s just one reason you might need to seek another type of mortgage.

Three broad types are:

Conventional loans: These are provided by banks and other private lenders and are not government-backed loans. This is the most common type of mortgage today. Borrowers typically need to have a down payment of 3% to 20%, and the lender will look at the debt-to-income ratio and credit scores when deciding whether to grant the mortgage loan.

FHA loans: Lenders that issue these loans are insured by the Federal Housing Administration, and it can be easier to qualify for this type of loan than a conventional mortgage. Lending standards can be more flexible and, with a credit score of 580 or higher, the borrower might qualify for a down payment of 3.5%. Note that mortgage insurance for an FHA loan can be high.

VA loans: Veterans, active military members, and some surviving spouses may receive VA loans provided by banks and other lenders but guaranteed by the VA. Eligible borrowers can benefit from a loan with no down payment and no monthly mortgage insurance. Most borrowers will pay a one-time funding fee, though.

Different types of mortgage loans have benefits and disadvantages. As a homebuyer it is beneficial to understand what is applicable to your situation.

First-Time Homebuyer Programs

Borrowers who qualify as first-time homebuyers can receive benefits. Loan programs include:

•   Freddie Mac’s Home Possible® program and Fannie Mae’s 97% LTV. The programs offer down payments as low as 3% for buyers who have low to moderate incomes.

•   The Fannie Mae HomeReady® mortgage program. Borrowers who undergo educational counseling can get help with closing costs.

•   SoFi mortgages for qualifying first-time buyers, who can put just 3% down.

It can make sense for low- and moderate-income borrowers to contact their state housing agency to see what programs are available for first-time homebuyers.

Recommended: Find First Time Home Buyer Programs in Your State

The Takeaway

USDA loans support rural homebuyers and homeowners who meet income limits. Others shopping for a mortgage will need to research home loans and find a choice they can live with.

Whether you’re putting down stakes in the country, city, or ’burbs, SoFi might just have a mortgage for you. Get prequalified for a mortgage in just a few clicks.


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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Tips for Buying a New Construction Home

Homebuyers who want modern touches and few maintenance worries may opt to purchase new construction or have a home built to order.

In mid-2022, the median price of an existing home was higher than a new home for a change, the National Association of Home Builders and U.S. Census Bureau reported. Builders continued to grapple with labor shortages and building material bottlenecks.

Understanding New Construction Homes

On the upside, newly constructed homes can come with warranty-backed electronics, energy efficiency, and high-end features.

But new construction isn’t without potential snags, such as construction delays and the mounting price of upgrades.

The type of new construction you choose will determine cost and ability to customize.

•   Tract homes. These go up in a builder’s new development. The buyer chooses the lot and design features.

•   Spec homes. These are move-in-ready homes, but the buyer still might be able to choose some of the finishings. It’s a good idea to understand the difference between standard property features and upgrades.

•   Custom homes. A builder tailors a house to the buyers’ specifications on their land.

How Do I Buy a New Construction Home?

A first step is to get pre-approved for a mortgage and hire a real estate agent. You’ll choose a builder, go over your desired home features, and sign the builder contract, which will include the anticipated timeline, the cost, and all other details.

Mortgage options for a tract or spec home are the same as buying an existing home: conventional or government-backed home loans.

Those who are building a custom home might use a construction loan for the build and then obtain a mortgage once the home is complete. There are, however, FHA, VA, USDA, and conventional construction-to-permanent loans, also called single-close loans.

Figuring Out the Costs of New Construction

How much does it cost to build a new house? For 2,500 square feet, it could cost $345,000, but of course, there are lots of variables, including location, the price of labor and materials, and your tastes.

For a spec home, it might be a good idea to look at comparables in your area. For a new build, HomeAdvisor suggests budgeting the amount each project of the home requires as well as the necessary time to build.

In normal times, expect to spend about 50% of your budget on materials, HomeAdvisor says while noting the rising price of materials.

Buying a perfectly staged model house? The upgrades are considered marketing costs, and the home may have been walked through many times. You might have lots of room to negotiate.

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


Pros and Cons of Building or Buying a New Construction Home

Buying new has its pros and potential cons.

Pros

Everything’s New. Novelty can be a lure all its own. From a practical standpoint, new items signal less maintenance for years.

Additionally, with a from-scratch property, homebuyers may also be able to build their house on the precise plot of land that they want. Buying an existing home could mean having more neighbors nearby or less choice about the size or borders of the property.

Warranties. Appliances, roofing, and the HVAC system may be covered by manufacturer and construction warranties. Replacement or repair may be guaranteed for years, which can be a big relief as opposed to buying an existing home. Ask most homeowners about typical home repair costs. They are the opposite of fun.

Energy Efficiency. Homebuilding has been moving toward energy efficiency, or green architecture. Features like solar panels, treated windows, efficient lighting, and energy-saving appliances curb home energy expenses over the life of owning a home.

Reduced Homebuyer Competition. If a buyer opts to build a new home on an undeveloped tract of land, chances are low that a competing homeowner wants to build in that exact location at the same time.

Benefitting From Buying Discounts. A local contractor has ties to building supply companies and hardware stores. These business-to-business connections may translate into lower costs.

Cons

Land-Starved Locations and Zoning. The denser a community — think a big city or large suburb — the harder it may be to find land to build on. Moreover, local zoning regulations often regulate the size and type of new homes that can be built on residential lots.

Potential Building Delays. It took 9.4 months on average for a contractor to build a house in 2021, and 12.1 months for an owner to, according to census data. That’s a significant wait, but building delays are fairly common and add to the bottom line. If a homebuyer needs to rent, for instance, while the house is being constructed, any delays could mean extra housing expenses.

New-home buyers can prepare for changes by touring similar finished homes in the community, researching the builder’s reputation, and speaking to residents. It’s also a good idea to talk with the builder about common construction delays and how unexpected costs are handled.

Negotiating Price May Be Harder. When working with a homebuilding company, negotiating may not be possible. Many builders attach a minimum price to the construction of a new home.

Upgrades Add Up. If wood floors, glass-front cabinets, and premium tile are must-haves, be prepared to pay for them. There is usually a “starting-from” price attached to newly constructed homes. Upgrades can add substantial costs to a new home.

Buying Tips for Newly Built Homes

Prepare to breathe in that new-house smell, but first lay the foundation.

Line Up Financing

When it comes to buying any type of house, getting pre-qualified is good. Getting pre-approved is more serious, because you will have let lenders vet your finances and give you a specific amount you qualify for.

Lenders can also recommend the best kind of financing for a new build.

Hire a Real Estate Agent

Homebuyers wanting to make a new dream home a reality may want to find a good real estate agent. Here’s one reason why that’s important: The sales contact from the home construction company is hired to represent the seller (i.e., the builder or developer).

A buyer’s agent can champion buyers’ interests, negotiate the contract, and answer questions.

Ask for Builder Concessions, Sign the Contract

Homebuyers aren’t likely to get a builder to slash a new home’s sales price, but they might be able to gain some concessions. Some builders may offer upgrades at a reduced price to incentivize a homebuyer to buy.

Upgrades may come in the form of a higher grade of carpet, granite countertops, a more advanced HVAC unit, or higher-end kitchen appliances. It doesn’t hurt to ask.

Once you’re pleased with your decisions, you’ll sign the builder contract to buy a spec home or start construction on a home.

The Takeaway

Newly constructed homes have obvious appeal, but they can come with potential delays and other drawbacks. Buyers who have their heart set on a brand-new home will find that financing often works the same way as it does for an existing-home purchase.

SoFi can help. SoFi online mortgages come with competitive fixed rates and a variety of terms.

Get a rate quote in a few clicks.


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

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

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