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One thing you should always look out for — regardless of the type of loan you’re applying for — is loan origination fees. Many lenders charge origination fees for new loans to help cover costs on their end. However, what these fees are called and the amount of these fees can vary quite a bit from lender to lender.

Before you settle on a lender, here are some things you need to know about origination fees, so you can make the best borrowing decision for your financial situation.

What Is a Loan Origination Fee?

An origination fee is a cost the lender charges for a new loan. It’s a one-time fee charged at the time the loan closes. The fee covers the costs the lender incurs for processing and closing the loan.

How Are Origination Fees Determined?

Loan origination fees depend on a number of factors. This includes:

•   Loan type

•   Loan amount

•   Credit score

•   Inclusion of a cosigner

•   Your financial situation, including assets, liabilities, and total income

Do I Have to Pay Origination Fees?

You don’t necessarily have to pay origination fees — while most lenders charge this fee, not all do. Additionally, origination fees may be negotiable. If you ask, a lender could simply lower the fee, or they could offer a credit to offset at least a portion of the origination fee. Or, they might agree to lower the fees if you’ll pay a higher interest rate.

To minimize the sting of loan origination fees, it also pays to research your loan options. Make sure to compare how much you’d pay overall for different loan offers, factoring in the term of the loan, the interest rate, and any fees.

One way to effectively compare and contrast different loan options is to check each loan’s annual percentage rate (APR), an important mortgage basic to understand. A loan’s APR provides a more comprehensive look at the cost you’ll incur over the life of the loan. This is because APR factors in the fees and costs associated with the loan, in addition to the loan’s interest rate.

The Truth in Lending Act requires all lenders to disclose an APR for all types of loans. You’ll also see any fees that a lender may charge listed there, including prepayment penalties.

How Much Are Loan Origination Fees?

How much a lender charges (and what the fee is called) varies based on the type of loan and the lender.

A traditional origination fee is usually calculated based on a percentage of the loan amount — and that percentage depends on the type of loan. For a mortgage, for instance, an origination fee is generally 0.50% to 1%. Origination fees for personal loans, on the other hand, can range from 1% to 8% of the loan amount, depending on a borrower’s credit score as well as the length, amount, and sometimes intended use of the loan.

There are a variety of other origination fees that lenders may charge, and these can be a flat amount rather than a percentage of the loan amount. Other fees that lenders may charge to originate a loan could be called processing, underwriting, administration, or document preparation fees.

Can Loan Origination Fees Affect Your Taxes?

Loan origination fees, categorized by the IRS as points, can be deductible as home mortgage interest. This can be the case even if the seller pays them. Borrowers who can deduct all of the interest on their mortgage may even be able to deduct all of the points, or loan origination fees, paid on their mortgage.

To claim this deduction, borrowers must meet certain conditions laid out by the IRS. They’ll then need to itemize deductions on Schedule A (Form 1040), Itemized Deductions.

The Takeaway

Loan origination fees are important to consider when shopping for a loan during the home-buying process. These fees are charged by lenders to help cover their costs of processing and closing a new loan application. While many lenders do charge origination fees, not all do, and some may be willing to negotiate.

Origination fees are just one reason it’s important to take the time to shop around and compare home loans. With a SoFi Home Loan, for instance, qualified first-time homebuyers can make a down payment as low as 3%.

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.

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). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Maybe you’ve spent a serious amount of time watching HGTV and now have visions of turning your kitchen into a chef’s paradise. Or perhaps you have an entire Pinterest board full of super-deep soaking tubs that you’re dreaming about.

Either way, the home improvement bug has bitten you, and you’re hardly alone. In the U.S. $538 billion was spent on home improvement in 2021, and that number is expected to hit $625 billion by 2025. For a bit more context, consider that the average American spent almost $8,500 on home improvement projects in 2022. That’s a lot more than just buying a new bathroom sink.

While your home might be begging for some updates and improvements, not all of us have close to $10,000 stashed away in a savings account. For many people, realizing their home improvement goals means borrowing money. But how exactly?

Read on to learn about some of your options. This guide will cover:

•   What’s the difference between home equity loans, HELOCs, and home improvement loans?

•   In which situations do home equity loans, HELOCs, and home improvement loans work best?

•   Which home improvement loan option is right for you?

What’s the Difference Between Home Equity Loans, HELOCs, and Home Improvement Loans?

If you’ve figured out how much a home renovation will cost and now need to fund the project, the options can sound a bit confusing because they all involve the word “home.”

What’s more, you may hear the term “home equity loan” loosely applied to any funds borrowed to do home improvement work. However, there are actually different kinds of home equity loans to know about, plus one that doesn’t involve home equity at all.

So, before digging into home improvement loans vs. home improvement loans vs. HELOCs, consider the basics for each:

•   A home equity loan is a lump-sum payment that a lender gives you using the equity in your home to secure the loan. These loans often have a higher limit, lower interest rate, and longer repayment term than a home improvement loan.

•   A home equity line of credit, or HELOC, is a revolving line of credit that is backed by your equity in your home. It operates similarly to a credit card in that the amount you access is not set, though you will have a limit on how much you can access.

•   A home improvement loan is a kind of lump-sum personal loan, and it is not backed by the equity you have in your home. It may have a higher interest rate and shorter repayment terms than a home equity loan. What’s more, it may have a lower limit, making it well suited for smaller projects.

Worth noting: If you use your home as collateral to borrow funds, you could lose your property if you don’t make payments on time. That’s a significant risk to your financial security and one to take seriously.

Next, here’s a look at how key loan features line up for these options.

How Much Can I Borrow?

The sky isn’t the limit when borrowing funds. This is how much you will likely be able to access:

•   For a home equity loan, you can typically borrow between 80% and 85% of your home’s value, minus what’s owed on your mortgage. So if your home’s value is $300,000, 80% of that is $240,000. If you have a mortgage for $200,000, then $240,000 minus $200,000 leaves you with a potential loan of $40,000.

•   For a HELOC, you can typically access up to 80% of the equity you have in your home, though some lenders may go even higher. In that case, you are likely to pay a higher interest rate. In the scenario above, with a home valued at $300,000 and a mortgage of $200,000, that means you have $100,000 equity in your home. A loan for 80% of $100,000 would be $80,000. As with other lines of credit, your credit score and employment history will likely factor into the approval decision.

•   For a home improvement loan, the amount you can borrow will depend on a variety of factors, including your credit score, but the typical range is between $3,000 and $50,000 or sometimes even more.

What Can the Funds Be Used for?

Interestingly, some of these funds can be used for purposes other than home improvement costs. Here’s how they stack up:

•   For a home equity loan, you can certainly use the funds for an amazing new kitchen with a professional-grade range, but you can also use the money for, say, debt consolidation or college tuition.

•   For a HELOC, as with a home equity loan, you can use the money as you see fit. Redoing your patio? Sure. But you can also apply the cash to open a business, pay for grad school, or knock out credit card debt.

•   For a home improvement loan, there is often the requirement that you use the funds for, as the name suggests, a home improvement project, such as adding a hot tub to your property. In some cases, you may be able to use the funds for non-home purposes. Your lender can tell you more.

Recommended: How to Find a Contractor for Home Renovations & Remodeling

How Will I Receive the Funds? How Long Will It Take to Get the Money?

Consider the different ways and timing you may encounter when getting money from these loan options:

•   With a home equity loan, you receive a lump sum payment of the funds borrowed. The timeline for getting your funds can take anywhere from two weeks to two months, depending on a variety of factors, including the lender’s pace.

•   With a HELOC, you open a line of credit, similar to a credit card. For what is known as the draw period (typically 10 years), you can withdraw funds via a special credit card or checkbook up to your limit. It typically takes between two and six weeks to get funds, but some lenders may be faster.

•   With a home improvement personal loan, you receive a lump sum of cash. These tend to be the quickest way to get cash: It may only take a day or so after approval to have the funds available.

How Much Interest Will I Pay?

How much you pay to access funds for your project will vary. Take a closer look:

•   For a home equity loan, you typically get a lower interest rate than some other loan types, since you are using your home equity as collateral. These are typically fixed-rate loans, so you’ll know how much you are paying every month. At the start of 2023, the average rate of a fixed, 15-year home equity loan was 5.82%.

•   For a HELOC, the line of credit will typically have a rate that varies with the prime rate, though some lenders offer fixed-rate options. HELOCs may have lower interest rates than personal and home equity loans, but you will need a high credit score to snag the lowest possible rate.

•   For home improvement loans, which are a kind of personal loan, rates vary widely. Currently, you might find anything from 6% to 36% depending on the lender and your qualifications, such as your credit score. These loans are typically fixed rate.

How Long Will I Have to Repay the Funds?

Repayment terms differ among these three options:

•   For home equity loans, you will agree to a term with your lender. Terms typically range from five to 20 years, but 30 years may be available as well.

•   With a HELOC, you usually have a draw period of 10 years, during which you may pay interest only. Then, you may no longer withdraw funds, and move into the principal-plus-interest repayment period, which is often 20 years.

•   With a home improvement personal loan, your repayment terms are typically shorter than with the other options and will vary with the lender. You may find terms of anywhere from one to seven years or possibly longer.

Here’s how these features compare in chart form:

Which Home Improvement Loan Option Is Better?

Now that you’ve learned about the features of these loan options, here’s some guidance on which one is likely to be best for your needs.

When Home Equity Loans Make Sense

Here are some scenarios in which a home equity loan may be a good choice:

•   If you have significant home equity and are looking to borrow a large amount, a home equity loan could be the right move to access a lump sum of cash.

•   If you want to have a long repayment period, the possibility of a 30-year term could be a good fit.

•   When you are seeking to keep costs as low as possible. These loans may offer lower interest rates.

•   A home equity loan can be a wise move when you need cash for other purposes, such as debt consolidation or educational expenses.

•   Some interest payments may be tax-deductible, depending on how you use the funds, which could be a benefit of this kind of loan.

When HELOCs Make Sense

A HELOC may be your best bet in the following situations:

•   You aren’t sure how much money you need and like the flexibility of a line of credit.

•   You want to keep your payments as low as possible in the near future. HELOCs can usually be an interest-only loan during the first 10-year draw period of the arrangement.

•   A HELOC can be a good fit for people who are doing a renovation in stages, and want to draw funds as needed versus all upfront.

•   You need cash for something other than just home renovation, such as to pay down credit card debt or fund tuition.

•   Depending on what you put the money towards, interest payments may be tax-deductible to a degree.

When Home Improvement Personal Loans Make Sense

Consider these upsides:

•   These personal loans tend to have a straightforward, fast application process, and often have fewer fees, such as no origination fees.

•   Home improvement loans are usually approved more quickly than other kinds of home loans.

•   These loans can be a good way to borrow a small sum, such as $3,000 or $5,000 for a project you need to complete quickly (say, a bathroom without a functional shower).

•   Home improvement loans can be a good option for new homeowners, who haven’t yet built up much equity in their home but need funds for renovation.

•   For those who are uncomfortable using their home as collateral, this kind of loan can be a smart move.

The Takeaway

Home improvement is a popular pursuit and can not only make daily life more enjoyable, it can boost the value of what is likely your biggest asset. If you are ready to take on a renovation, you’ll have options in terms of how to access funds; depending on your needs and personal situation, you might prefer a home equity loan, a home equity line of credit (HELOC), or a home improvement personal loan.

SoFi can help with two of these: If you’ve decided that a personal loan could be the right move for you, SoFi’s home improvement loans are fee-free, range from $5K to $100K, and you may be able to get same-day funding.

SoFi also offers a home equity line of credit or HELOC with low interest rates, the flexibility to use the amount you need, and you can borrow up to 95% or $500K of your home’s equity.

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.

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

Third-Party Brand Mentions: No brands, 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.

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.

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.

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.

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If you’re finding your student loan debt difficult to manage, one option for tackling it is by leveraging your home equity. It’s possible to do this through the student loan cash-out refinance program offered by Fannie Mae or through a general cash-out refinance.

Either option would allow you to use the excess value of your home to pay off student loan debt directly. Plus, because borrowers would be consolidating their student loan debt into their mortgage, they’d have to make just one payment each month. They might also secure a lower interest rate than they had on their student loans.

Still, there are major downsides to consider before paying off student loans with home equity.
For one, the student loan debt won’t actually go away — you’ll still owe that money. Additionally, borrowers will lose access to student loan benefits and protections. And, if you aren’t able to stay on top of monthly payments, your home is on the line.

Recommended: First-Time Home Buyer’s Guide

Using a Student Loan Cash-Out Refinance to Pay Off Student Loans

With a cash-out refinance, you take out a new mortgage for an amount that exceeds what you currently owe. You then get the difference in cash, which you could then use to pay off your student loan debt.

One option for doing this is through Fannie Mae’s Student Loan Solutions program, which is specifically designed to allow homeowners to use their home equity to pay off student loans. To qualify, borrowers must use the funds from the cash-out refinance to fully pay off at least one of their student loans. Additionally, it’s stipulated that this loan must belong to the individual who applied for the refinance.

For borrowers who don’t qualify for the Fannie Mae program, or who want to use their cash for costs other than student loan repayment, it’s also possible to get a general cash-out refinance through another lender.

Whether you go with Fannie Mae or another lender, there are typically certain requirements that a borrower must meet to qualify for a cash-out refinance. Generally, there are stipulations for credit score, debt-to-income ratio, and the amount of equity in the home after closing. As such, it’s helpful to determine before applying how much equity you have in your home.

Should I Tap Into My Home Equity to Pay Off Student Loans?

Using the equity you’ve earned in your home to pay off your student loans may sound like an easy fix. But before you commit to refinancing, you’ll want to weigh the decision carefully. While it may make sense for some, a student loan cash-out refinance won’t work for everyone. Here are a few pros and cons to consider as you make your decision.

Benefits of Paying Off Student Loans with Home Equity

Like most financial decisions, paying off your student loans with the equity you’ve earned on your home is a multifaceted decision. Here are some of the ways you could find it beneficial:

•   You may be able to get a better rate. Securing a lower interest rate is potentially the most appealing reason to use the equity in your home to pay off student loans. As part of your decision-making process, consider reviewing mortgage options at a few different lenders. While reviewing rate quotes from each lender, do the math to determine if paying off student loans with home equity will truly reduce the amount of money you spend in interest. If there are any fees or prepayment penalties, make sure to factor those in. Keep in mind this isn’t the only way to get a better rate either — another option to explore is student loan refinancing.

•   You may get more time to pay off your loan. When making your decision, also take into account the length of the mortgage term. The standard repayment plan for student loans has a 10-year term, unless you have already consolidated them, in which case you could have a term of up to 25 years. With a mortgage, term lengths can be as long as 30 years. Just keep in mind that while repaying your debt over a longer time period could lower monthly payments, it may also mean you pay more in interest over the life of the loan.

•   You can streamline your payments. Another benefit is reducing the number of monthly payments you need to keep track of. Instead of paying your mortgage and each of your student loans, those bills will get consolidated into a single payment. Streamlining your payments could help you stay on top of your payments and make your finances a little bit easier to manage.

Recommended: Home Affordability Calculator

Downsides of Paying Off Student Loans with Home Equity

There are a few potential negatives that could impact your decision to pay off student loans with your home equity:

•   You risk foreclosure. Using your home equity to pay off your student loans could potentially put your home at risk. That’s because you’re combining your student loans and mortgage into one debt, now all tied to your home. That means if you run into any financial issues in the future and are unable to make payments, in severe cases, such as loan default, your home could be foreclosed on.

•   Your student debt won’t really disappear. When you use your home equity to pay off your student loans, you’ll still owe that debt. Only now, it’s part of your mortgage.

•   You’ll lose access to student loan benefits and protections. When you do a student loan cash-out refinance, you’ll no longer be eligible for borrower protections that are afforded to borrowers who have federal loans. These benefits include deferment or forbearance, as well as income-driven repayment plans. If you’re pursuing student loan forgiveness through one of the programs available to federal borrowers, such as Public Service Loan Forgiveness, consolidating your student loan debt with your mortgage would eliminate you from the program. As such, it may not make sense to use the equity in your home to pay off your student loans if you’re currently taking advantage of any of these options.

•   You could owe more than your home is worth. As you weigh your options, consider comparing the available equity in your home to the amount you owe in student loans. In some cases, you may owe more in student loan debt than you have available to use in home equity under the various loan guidelines. If you end up owing more than what your home is worth, that could make it tough to sell your home, as you’d need to add your own funds to repay your loan balance.

When It’s Time to Leverage Your Home Equity

Cashing in on your home equity isn’t as easy as withdrawing money from your checking account, but it’s also not as difficult as you might think. A good first step is to contact a mortgage lender, who will order an appraisal of your home and help you to get started on the paperwork.

It could also be a good idea to check your credit score. To secure a cash-out refinance, lenders will likely require a credit score of 620 or higher. That being said, the minimum score required depends on many factors, such as credit, income, equity, and more. If you don’t meet the minimum FICO score requirement for your chosen program, you might want to try to improve your credit score before applying.

At the very least, you’ll likely need to gather necessary documents so you have them handy. Get together your latest tax filings, pay stubs, and bank statements. Lenders use those documents to evaluate whether you have the savings and cash flow to pay back a fatter mortgage, and they may ask for when you apply to refinance.

The Takeaway

When used responsibly, home equity can be a useful tool in helping to improve your overall financial situation — including using home equity to pay off student loans. While there could be upsides, such as streamlining payments and securing a better rate, it’s important to also weigh the drawbacks, like losing access to student loan protections and putting your home on the line.

Beyond a student loan cash-out refinance, another way to access your home’s equity is a home equity line of credit (HELOC). When you take out a HELOC, you can borrow only as much as you need at a given time. Plus, with SoFi, you can access up to 95% (or $500,000) of your home’s equity, so you’ll have plenty of funds to work with.

Access your home’s equity through a HELOC with SoFi.

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.

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

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.