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Land loans allow borrowers to purchase acreage, or a piece of land, often with the intention of building a home there or developing the plot for business.

Because of the inherent risk to lenders, land loans can be challenging to obtain. The rate and required down payment are typically higher than those of traditional mortgage loans, and the repayment term is often shorter.

Let’s dig into land loans and look at some alternatives.

What Is a Land Loan?

A land loan, also referred to as a “lot loan,” finances a piece of land. Borrowers may have plans to build a home or start a business on the land, but they also might want to keep the plot for just fishing or hunting. Developers can also get land loans to build homes or businesses.

A land loan is different from a construction loan, which is typically a short-term loan to build or rehab a home. With a land loan, the borrower might not have immediate plans to develop the land or build the house.

A land loan can be more challenging to obtain because, unlike with traditional types of mortgage loans, there is no home to serve as collateral for the lender. Thus, lenders may have stricter requirements and higher rates attached to a land loan.

Types of Land Loans

The land loan rate and terms you get — and the down payment you’re required to make — may depend on the type of land you’re trying to buy.

Raw Land

Securing financing for raw land can be challenging. Land that has never been built on, also called unimproved land, is entirely undeveloped, meaning it lacks roads and electrical, water, and sewage systems.

To improve your chances of loan approval, it’s a good idea to have a comprehensive development plan to show lenders.

Of course raw land is generally cheaper than land that has been partially developed, but because it is virtually untouched, it is not possible to know what major issues await when you start development.

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Improved Land

Because improved land is developed, with utilities routed to the property and road access achieved, lenders may be more willing to offer financing. But acreage featuring these improvements typically costs more than raw land.

How to Find Land Loan Lenders

Finding land loan lenders can prove to be more challenging than finding a lender for a traditional mortgage.

Potential land buyers can try these routes for securing financing:

•   Local banks and credit unions: If your personal bank doesn’t issue land loans or you’re struggling to find a big-name financial institution that offers them, you might have more luck with a local bank or credit union.

•   Online lenders: Searching the web allows you to compare land loan rates from the comfort of your couch. It also means you can read reviews about the lenders before applying.

•   USDA loans for low-income borrowers: The U.S. Department of Agriculture offers Section 502 direct loans to help low- to moderate-income individuals or households purchase homes or buy and prepare sites, including providing water and sewage systems, in rural areas. The rate is well under current market rates. The term is as long as 38 years. Down payments are not usually required.

•   SBA loans: Business owners planning to use land for a business may qualify for a 504 loan through the U.S. Small Business Administration. The SBA and a lender issue loans for up to a combined 90% of the land purchase cost. The rate is based on market rates.

Recommended: What Is a USDA Loan?

What Are Typical Land Loan Rates and Terms?

Like any other loan, the interest rate will largely depend on your credit score. That said, land loan rates are typically higher than traditional mortgage rates, thanks to the inherent risk and only the land as collateral.

And the repayment term? A land loan from a bank often is a five-year adjustable-rate loan with a balloon payment at the end. Rarely you might find a 30-year fixed-rate loan through a financial institution in the Farm Credit System.

The Federal Deposit Insurance Corp. (FDIC) recommends loan-to-value (LTV) limits. Lenders may set down payment requirements even greater than the FDIC proposes, however.

•   For raw land, the FDIC advises a 65% LTV, meaning borrowers must put 35% down.

•   For land development, the FDIC recommends a 75% LTV, meaning borrowers must put 25% down.

•   For construction of a one- to four-family residence on improved land, the FDIC calls for an 85% LTV, meaning borrowers must put 15% down on the land loan.

If you don’t plan to develop the land, the rate and down payment could be steep.

If you do build a home on the land, you may be able to refinance the land loan into a traditional mortgage.

Alternatives to Land Loans

A land loan is not your only option when purchasing a lot. One of these alternatives to land loans may be a better choice for you:

Construction-to-Permanent Loans

If you plan to build a house in short order, this kind of loan could work. At first, you would make interest-only payments on the purchase price of the land. The loan then allows for draws until the house is done, often 12 months from closing. The loan then converts to a permanent mortgage, sometimes with the same rate.

You may need to make a down payment of at least 20% of the total loan amount. The rate for construction loans in general is higher than a regular mortgage.

FHA, VA, and USDA single-close loans are also available to eligible borrowers.

Seller Financing

Though not as common as traditional financing, owner financing is when the current landowner acts as the lender. Also called a land contract, this type of financing does not involve a bank, credit union, or traditional lender.

While it can be beneficial for those who cannot secure a land loan, buyers have fewer consumer protections working in their favor.

Home Equity Loan or HELOC

If you have significant equity in your primary home, you may qualify for a home equity loan. Your home would serve as the collateral for the loan.

Similarly, you may be able to finance the land purchase with a home equity line of credit (HELOC) or a cash-out refinance.

How much home equity can you tap? Many lenders will let you borrow up to 85% of your home equity, the home’s current value minus the mortgage balance, but some allow more than that.

Personal Loan

Though personal loan rates may be higher than home equity products’ and you may need to pay off the loan in a shorter time, it might be possible to use a personal loan to finance your land purchase.

You’ll receive the funds quickly, and an unsecured personal loan requires no collateral.

What You Need to Know Before Applying for a Land Loan

Before applying for a land loan, it’s important to educate yourself about land development and to understand the details of the specific lot you’re interested in.

Survey

When buying a large plot of land, knowing the boundaries can be more challenging. Hiring a surveyor to mark the boundaries can be helpful before applying for the loan.

Utilities and Roads

Unspoiled land may be beautiful, but it can be difficult to develop. Understanding what utilities and roads are available — or how to make them available and how much it will cost to do so — is important before applying.

Zoning

When considering a land purchase, it’s a good idea to research any zoning restrictions in that area. Before purchasing land, you’ll want to know that you can actually build on it the way you envision.

The Takeaway

Land loans allow borrowers to purchase land to develop as they see fit. Because there is more risk involved for the lender, it can be challenging to find a land loan, and the rates and terms tend to be less favorable than those of typical mortgages.

A personal loan, cash-out refinance, home equity loan, or seller financing may also allow a land buyer to hit pay dirt.

SoFi offers fixed-rate personal loans from $5,000 to $100,000 and a cash-out refinance.

And SoFi brokers a home equity line of credit that allows qualified homeowners to access up to 90%, or $500,000, of their home’s equity.

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

FAQ

Is it hard to get a loan to buy land?

Getting a loan for a land purchase can be more difficult than getting a traditional mortgage. Fewer lenders offer land loans, and because there is more risk involved, they typically require a higher down payment, impose higher interest rates, and offer shorter repayment terms.

Are land loans higher interest?

Land loan rates are typically higher than traditional mortgage rates because there is no home to act as collateral for the lender. Interest rates may vary depending on credit scores and the down payment amount.

What is the first step to apply for a land loan?

First, research land loan lenders. Before applying, it’s also smart to devise a plan that shows the lender how you will develop the land, accounting for things like utilities, land boundaries, roads, and construction costs.

Photo credit: iStock/shapecharge

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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.

Renovations can improve your home and increase its value. But as any seasoned homeowner will tell you, those projects can be expensive. If you can’t afford to cover the costs out of pocket, you may wonder if a construction loan is right for you. While it is an option, there are complications that people should be aware of.

We’ll take a look at construction loans, their requirements, and some alternatives to consider.

Overview of How Construction Loans Work

Construction loans finance the building of a new home or substantial renovations to a current home. They are typically short-term loans with higher interest rates, designed to cover the costs of land, plans, permits and fees, labor, materials, and closing costs. They can also provide a contingency reserve if construction goes over budget.

With a construction loan for a remodel, applicants must submit project plans and schedules along with their financial information. Once approved, they receive funding for the first phase of building only, rather than a lump sum. As construction progresses, assessments are provided to the lender so that the next round of funds can be released. Meanwhile, borrowers make interest-only payments on the funds they’ve received.

When construction is finished — and the borrower now has a home to serve as collateral — the construction loan may be converted to or paid off by a regular mortgage. The borrower then begins repaying both the principal and interest.

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Renovation Loans vs. Construction Loans: What’s the Difference?

Though renovation loans and construction loans can be used for similar purposes, there are important differences to know. Let’s take a closer look at both types of loans.

Renovation Loans

Unlike other types of home improvement loans, a renovation loan takes into account the property’s after-repair value, which is an estimation of the home’s value once the improvements are made. This can be good news for borrowers, especially those buying a fixer-upper. That’s because they may be able to secure a larger loan amount than they would with a traditional mortgage based on the home’s current value.

What’s more, renovation loans often come with lower interest rates than credit cards and unsecured personal loans.

Some common types of renovation loans include:

•   Government-sponsored loans, such as the FHA 203(k) home loan, Freddie Mac’s CHOICERenovation loan, and Fannie Mae’s HomeStyle renovation loan. Each type has its own rules and requirements.

•   A home equity loan

•   A home equity line of credit (HELOC)

•   VA renovation loans, which are available to eligible veterans and active-duty military personnel.

Construction Loans

As we mentioned, a construction loan is commonly used to pay for building a brand-new home. In some cases, the loan can be converted to a mortgage after your home is finished. However, getting one can be more challenging than securing a conventional mortgage.

Lenders generally want to see a debt-to-income ratio of 45% or lower and a high credit score, and you may be required to make a down payment of at least 20%. Depending on the type of construction loan you apply for, you may also be required to provide a detailed plan, budget, and schedule for the construction. Some lenders will also need to approve your builder.

There are different types of construction loans to consider:

•   Construction-to-permanent loans, or single-close loans, which converts to a mortgage once the project is finished. The borrower saves money on closing costs by eliminating a second loan closing.

•   Construction-only loans, or standalone construction loans, which must be paid off when the building is complete. You will need to apply for a mortgage if you don’t have the cash to do so.

•   Renovation construction loans, which are designed to cover the cost of substantial renovations on an existing home. The loan gets folded into the mortgage once the project is complete.

Pros and Cons of Using a Renovation Loan

As you explore different home improvement loans, consider the following pros and cons of renovation loans.

Pros

•   Borrowers may have access to substantial funds that can pay for major upgrades or repairs.

•   Money can be used for a wide variety of renovation projects.

•   The loan amount is based on the home’s projected value after the repairs and renovations are complete.

•   Interest rates tend to be lower than what you’d be offered with an unsecured loan or credit card.

Cons

•   You may be required to use your home as collateral.

•   As with any loan, you’ll need to meet certain eligibility requirements, such as a good credit score, low debt-to-income ratio, and proof of income and employment.

•   A renovation loan increases your debt load, which could put a strain on your finances.

Recommended: Home Inspection Checklist

Pros and Cons of Using a Construction Loan

There are advantages and disadvantages to consider before taking out a construction loan to fund renovations.

Pros

•   Funds can be used to cover all construction expenses.

•   Borrowers can use equity from other investments as collateral.

•   Loan requirements are generally focused on the construction process instead of a borrower’s credit profile.

•   Borrowers may only need to make interest payments during construction.

•   Loan terms may be more flexible than a traditional loan.

Cons

•   Funds are released as work progresses instead of in one lump sum.

•   It can be difficult to find lenders that offer competitive rates and to qualify for them — particularly if you don’t have a flawless credit history.

•   Loans tend to be short-term and must be paid in full at the end of the term.

•   May need to provide extensive documentation on the construction process in order to get approved.

•   If construction is delayed, you may need to ask the lender for an extension on the loan. This can cause interest rates and fees to accumulate.

Alternative Ways to Finance Home Renovations

If you are planning a small construction project or renovation, there are a few financing alternatives that might be easier to access and give you more flexibility.

Personal Loans for Renovations

An unsecured personal loan can fund a renovation project or supplement other construction financing.

Personal loan interest rates are typically lower than construction loan rates, depending on your financial profile. And you can frequently choose a personal loan with a fixed interest rate.

Personal loans also offer potentially better terms. Instead of being required to pay off the loan as soon as the home is finished, you can opt for a longer repayment period. And applying for a personal loan and getting approved can be much faster and easier than for a construction loan.

The drawbacks? You won’t be able to roll your personal loan into a mortgage once your renovation or building project is finished.

And because the loan is disbursed all at once, you will have to parse out the money yourself, instead of depending on the lender to finance the build in stages.

Cash-Out Refinance for Construction Costs

A cash-out refinance is also a good financing tool, particularly if you have a lot of equity in your current home. With a cash-out refinance, you refinance your home for more than you owe and are given the difference in cash.

You can estimate your building or renovation expenses with this Home Improvement Cost Calculator. Add your estimate to what you owe on your home to get the amount of your refinance.

The Takeaway

Planning a new home or substantial renovation? There are several ways to pay for the projects. One option is a renovation loan, which lets you pay for major (and minor) renovations without having to dip into your personal savings. Another option is a construction loan, which typically covers the entirety of new construction expenses. For smaller projects, a personal loan can be a good option — and a lot less complicated.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

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.

SOPL-Q424-060

Many of us would love to own a vacation home, but the added expense is not always doable. Because we can’t all own multiple properties, vacation timeshares continue to be a popular choice for solo travelers, couples, and families who want more space, amenities, and “a place to call home” at their locale of choice.

We’ll give you an honest rundown of how timeshares work, their pros and cons, and a few financing options.

What Is a Timeshare?

A timeshare is a way for multiple unrelated purchasers to acquire a fractional share of a vacation property, which they take turns using. They share costs, which can make timeshares far cheaper than buying a vacation home of one’s own.

Timeshares are a popular way to vacation. In fact, nearly 10 million U.S. households own at least one timeshare, according to the American Resort Development Association (ARDA). The average price of a timeshare transaction is $23,940. This figure can vary widely depending on the location, size, and quality of the property, the length of stay,

How Do Timeshares Work?

If you’ve ever been lured to a sales presentation by the promise of a free hotel stay, spa treatment, or gift card, it was probably for a vacation timeshare. As long as you sit through the sales pitch, you get your freebie. Some invitees go on to make a purchase. You can also buy a timeshare on the secondary market, taking over from a previous owner.

What you’re getting is access to a property for a set amount of time per year (usually one to two weeks) in a desirable resort location. Timeshares may be located near the beach, ski resorts, or amusement parks. You can trade weeks with other owners and sometimes even try out other properties around the country — or around the world — in a trade.

In addition to the upfront cost of the timeshare, owners pay annual maintenance fees based on the size of the property — about $1,120 on average — whether or not you use your timeshare that year. These fees, which cover the cost of upkeep and cleaning, often increase over time with the cost of living. Timeshare owners may also have to pay service charges, such as fees due at booking.

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Types of Timeshares

There are two broad categories of timeshare ownership: deeded and non-deeded. In addition, you’ll find four types of timeshare use periods: fixed week, floating week, fractional ownership, and points system.

It’s important to understand all of these terms before you commit.

Deeded Timeshare

With a deeded structure, each party owns a piece of the property, which is tied to the amount of time they can spend there. The partial owner receives a deed for the property that tells them when they are allowed to use it. For example, a property that sells timeshares in one-week increments will have 52 deeds, one for each week of the year.

Non-deeded Timeshare

Non-deeded timeshares work on a leasing system, where the developer remains the owner of the property. You can lease a property for a set period during the year, or a floating period that allows you greater flexibility. Your lease expires after a predetermined period.

Fixed-Week

Timeshares offer one of a handful of options for use periods. Fixed-week means you can use the property during the same set week each year.

Floating-Week

Floating-week agreements allow you to choose when you use the property depending on availability.

Fractional Ownership

Most timeshare owners have access to the property for one or two weeks a year. Fractional timeshares are available for five weeks per year or more. In this ownership structure, there are fewer buyers involved, usually six to 12. Each party holds an equal share of the title, and the cost of maintenance and taxes are split.
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Points System

Finally, you may be able to purchase “points” that you can use in different timeshare locations at various times of the year.

Is a Timeshare a Good Investment?

Getting out of a timeshare can be difficult. Selling sometimes involves a financial loss, which means they are not necessarily a good investment. However, if you purchase a timeshare in a place that your family will want to return to for a long time — and can easily get to — you may end up spending less than you would if you were to purchase a vacation home.

Benefits of Timeshare Loans

The timeshare developer will likely offer you financing as part of their sales pitch. The main benefit of a timeshare loan is convenience. And if you’re happy to return to the same vacation spot year after year, you may save money compared to staying in hotels. Plus, for many people, it may be the only way they can afford getting a vacation home.

Drawbacks of Timeshare Loans

Developer financing offers often come with very high interest rates, especially for buyers with lower credit scores: up to 20%. And if you eventually decide to sell, you will probably lose money. That’s because timeshares tend not to gain value over time. Finally, if you’re not careful about running the numbers before you commit, you can end up paying more in annual fees than you expect.

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Financing a Timeshare

Developer financing is often proposed as the only timeshare financing option, especially if you buy while you’re on vacation. However, with a little advance planning, there are alternative options for financing timeshares. If developer financing is taken as an initial timeshare financing option, some timeshare owners may want to consider timeshare refinance in the future.

Home Equity Loan

If you have equity built up in your primary home, it may be possible for you to obtain a home equity loan from a private lender to purchase a timeshare. Home equity loans are typically used for expenses or investments that will improve the resale value of your primary residence, but they can be used for timeshare financing as well.

Home equity loans are “secured” loans, meaning they use your house as collateral. As a result, lenders will give you a lower interest rate compared to the rate on an unsecured timeshare loan offered at a developer pitch. You can learn more about the differences in our guide to secured vs. unsecured loans.

Additionally, the interest you pay on a home equity loan for a timeshare purchase may be tax-deductible as long as the timeshare meets IRS requirements, in addition to other factors. Before using a home equity loan as timeshare financing, or even to refinance timeshares, be aware of the risk you are taking on. If you fail to pay back your loan, your lender may seize your house to recoup their losses.

Personal Loan

Another option to consider for timeshare financing is obtaining a personal loan from a bank or an online lender. While interest rates for personal loans can be higher than rates for home equity loans, you’ll likely find a loan with a lower rate than those offered by the timeshare sales agent.

Additionally, with an unsecured personal loan as an option for timeshare financing, your primary residence is not at risk in the event of default.

Getting approved for a personal loan is generally a simpler process than qualifying for a home equity loan. Online lenders, in particular, offer competitive rates for personal loans and are streamlining the process as much as possible.

The Takeaway

Timeshares offer one way to secure a place to stay in your favorite vacation destination each year — without having to buy a second home. And timeshares may save you money over time compared to the cost of a high-end hotel. However, beware of timeshare financing offered by developers. Interest rates can be as high as 20%. There are other ways to finance a timeshare that can be more affordable, including home equity loans and personal loans.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can I rent my timeshare to someone else?

Whether or not you can rent your timeshare out to others will depend on your timeshare agreement. But in many cases, your timeshare resort will allow you to rent out your allotted time at the property.

Can I sell my timeshare?

Your timeshare agreement will give you details about when and how you can sell your timeshare. In most cases, you should be able to sell, but it may be hard to do so, and you may take a financial loss.

Can I transfer ownership of my timeshare or leave it to my heirs?

You can leave ownership of a timeshare to your heirs when you die and even transfer ownership as a gift while you’re living. Once again, refer to your timeshare agreement for rules about what is possible and how to carry out a transfer.

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.

SOPL-Q424-047

If you’re home shopping, you may be looking at duplexes. These properties are typically a single structure with two separate units. At face value, buying a duplex might seem like a BOGO (buy one, get one free) deal, but it isn’t as simple as purchasing two homes for the price of one.

It’s important to analyze the pros and cons of buying a duplex before you start bidding or sign a contract. In this guide, you’ll learn about the following topics:

Defining ‘Duplex’

A duplex is composed of two living units on top of each other or side by side.

Duplexes have separate entrances for each occupant. That means single-family homes that have been subdivided typically do not count as duplexes.

For a side-by-side duplex, both entrances are likely on the street. If a duplex is stacked, the second-floor occupant might share an exterior entrance with the first-floor occupant, and then have an entrance to themselves upstairs.

In addition to private entrances, the units have their own bathrooms, kitchens, and other living features. In terms of the exterior, occupants may share a backyard, garden, or driveway.

Every duplex has one thing in common: a shared wall. If the duplex units are side by side, the occupants will share a wall. One on top of the other? Occupants share a ceiling/floor.

Just because properties share a wall doesn’t inherently make them a duplex. Sometimes duplexes are confused with twin homes.

A twin home may look like a duplex, but the shared wall is in reality the lot line between the two homes. So it’s two connected properties, each on its own lot. A duplex is two properties, owned by the same person, on a single lot.

The square footage of each duplex half is typically quite similar to the other. In many, occupants will find that the layouts mirror each other (if they’re side by side), or duplicate exactly (if they’re on top of each other).

Properties with carriage houses or guesthouses are not considered duplexes: They usually do not share walls, and the smaller residence is considered an accessory dwelling unit or ADU.

Duplexes fall in the category of multifamily dwellings, which also includes triplexes and quads (aka fourplexes). According to the National Multifamily Housing Council, more than 17 million renters (or about 17% of all renters) live in two- or four-unit dwellings.

The appeal of multi-family structures, including duplexes, has increased in recent years, with mortgages becoming more easily available and with down payments as low as 5%.

Benefits of a Duplex

Duplexes have the exciting “two for one” energy, which can make buying them enticing. The style of living comes with benefits for the buyer, including:

•   Income to help with mortgage. Duplex owners who decide to live in one of the units can rent out or Airbnb the other, making income to help offset the monthly mortgage payments and upkeep.

•   Potential tax benefits. Mortgage interest is tax-deductible for a primary or secondary home if the home acquisition debt is $750,000 or less ($375,000 for a married couple filing separately).

   Resident duplex owners can write off mortgage interest and property tax only on the half of the property they live in. However, if they have a renter, they can write off repairs to that unit, any utility bills paid for the rental, and management fees. The IRS even allows the owner to depreciate the rented half of the property.

•   Flexibility in the future. Having two homes on one lot opens up options for owners. They can rent out a unit or use it as an office or studio space. In the future, the unit could become an apartment for aging parents or a guest suite for visiting family members.

•   Landlord proximity. If a duplex owner is getting into the landlord business for the first time, it might be beneficial to live close to the tenant. In the event of a repair or emergency, the tenant is just steps away.

   Additionally, because of landlord proximity, duplex owners might find that renters keep the home in better condition. If the landlord is living on the property, a tenant might be less likely to abuse features or leave problems unreported.

   A duplex could also be a good opportunity to live next to a family member or close friend. It means both parties live on the same property but not with each other. For some arrangements, it’s a good balance between living together while also apart.

•   Affordability. If you’re wondering how much duplexes cost, know this: A duplex by definition is two properties with a single price, and can be more affordable than two single-family homes. The appeal of multi-family structures has increased in recent years as mortgages have become more easily available, and down payments can be as low as 5%.

Recommended: Factors That Affect Property Value

Drawbacks of a Duplex

Double the property doesn’t always mean double the fun. Here’s why a duplex might not be the right fit for all buyers:

•   Affordability. Duplexes may often be located in more affordable neighborhoods, and two properties in one sounds like a deal — but when the numbers are crunched, the duplex price may be higher than that of a single-family home nearby.

•   Acquisition costs. If a duplex buyer does not plan to occupy the property, the down payment will typically be at least 15% of the purchase price.

•   Insurance. Multifamily homeowners coverage, known as landlord insurance, will usually be more expensive (often as much as 25% more) for an investment property. This can be a key concern when thinking about how to buy a duplex.

•   Tax season could be complicated. Yes, a homeowner can offset costs with a tenant in a duplex, but they’ve just signed themselves up for a more complicated tax scenario than with an owner-occupied single-family home.

•   Landlord responsibilities. Many homebuyers are drawn to the idea of a duplex because they can generate income while living there. However, being a landlord isn’t just about collecting rent checks each month. Duplex owners are responsible for their renter’s unit, meaning fixing issues and being available for general repairs.

   No one wants to address an overflowing toilet at 2 am, but as a landlord, that might well be a reality. It’s a 24/7 job, and not only will a duplex owner be responsible for fixing the issues, but the cost of repairs will have to come out of their pocket.

•   Finding good tenants. Finding renters can be challenging. Owning a duplex doesn’t automatically guarantee extra income, and the process of finding reliable renters can be time-consuming. Plus, duplex owners will have to start the process anew each time a tenant moves out.

   Remember, if the second dwelling is unoccupied, the duplex owner still owes the same amount each month. Before buying a duplex, it’s worth considering how much time owners can put into searching for the right tenant, and if they want to have that responsibility long term.

•   Bad tenants. Let’s face it, not all tenants will be perfect. In reality, they could be loud, rude, messy, and/or late on rent. There are a multitude of things that could go wrong with a renter, and duplex owners should be comfortable bringing issues to the table. Owners who decide to live onsite could get stuck with a less-than-considerate neighbor.

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Estimate a Mortgage Payment for a Duplex

Now that you know about the pros and cons of owning a duplex, if you’re still interested in the idea of purchasing one, use the mortgage calculator below to get an estimate of what future mortgage payments would be.

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Obtaining a Mortgage

If, now that you know the pros, the cons, and the costs, you are still ready to move ahead, the next step in how to buy a duplex would be financing your purchase. A potential duplex buyer can apply for a Fannie Mae loan with 5% down if they plan to live in the multifamily home themselves.

Other options for a buyer who plans to occupy one of the units is a 2-, 3-, and 4-unit (multifamily) home FHA loan, a VA loan, or conventional financing. (Investors are limited to conventional mortgage loans.) FHA loans can be a good choice for first-time home buyers, or those with less-than-perfect credit.

Check out our first-time home buyers guide for additional information on mortgages, loans, and closing costs.

Applicants may be able to use projected rental income to qualify for a loan. For rental income to be taken into account, though, renters usually must have already signed a lease. And not all of the projected income applies; a percentage is usually subtracted to account for maintenance and vacancies.

It makes sense for would-be buyers to have a good feel for their budget, as well as the potential costs associated with buying a property.

Knowing whether you plan to live at the address or rent out both units is a big consideration. Investors sometimes need a higher down payment than owner-occupants do. And if your down payment is less than 20%, you’ll need to have private mortgage insurance as well.

The Takeaway

Buying a duplex can be a great opportunity to own two properties, perhaps occupying one and earning rental income on the other. But there are pros and cons to be considered, as well as implications for your finances.

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.

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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.

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Updating the wiring in a house could cost between $6 and $10 per square foot, but keeping old wiring could have disastrous consequences. Electrical issues are the third most common cause of house fires in the United States.

Modern technology also may demand rewiring a house. Powering multiple electronic devices, having adequate interior and exterior lighting, and heating and cooling a home to today’s standards are difficult if a home’s electrical system is not up to the task.

Factors That Affect the Cost to Rewire a House

Rewiring a home involves removing the outdated wiring inside a home’s walls and installing new, modern wiring that can safely meet today’s electrical needs.

Rewiring is typically done by a licensed electrician who strips out the old wiring and runs new wiring throughout the entire house, installs a new circuit breaker panel to handle the load of the new wiring system, and ensures that building codes are met.

It can be a big job — and an expensive one, too. Let’s look at some common factors that can impact the total cost.

Size of the House

The bigger the home, the more materials and labor the job will likely require. And that can drive up the price. Rewiring a 1,300-square-foot house, for instance, runs around $7,800 to $13,000. For a 2,500-square-foot home, you can expect to pay between $15,000 to $25,000.

House’s Age

Older homes weren’t constructed with 21st century living in mind, so a rewiring project will likely cost more. Common necessities like opening a wall to reach out-of-the-way wiring ($4-$8 per square foot), upgrading outdated wiring ($200-$2,300), and replacing an electrical outlet ($125-$200) can all add to the price tag.

Extent of Work Needed

Small-scale projects are typically cheaper than larger, more complex ones. If you’re planning to set up a new alarm system, run wiring to a backyard shed, or upgrade the electric panel, you’ll likely need to adjust your budget accordingly.

Recommended: How to Find a Contractor for Home Remodeling

Signs You Need to Rewire a Home

Flickering lights, outlets making a popping sound, or tripped breakers indicate that a home might need to be rewired. When buying an older home, a home inspection typically reveals if rewiring is recommended or necessary.

Even before a professional inspection, prospective homebuyers may be able to get a good idea of how the home is wired by peeking into the attic, basement, or crawl space.

Vintage charm does not extend to knob and tube wiring, which was common through the mid-1900s. The lack of a ground wire is seen as a significant fire hazard, and most carriers will deny homeowners insurance for a home that has knob and tube electrical wiring.

Another way to check for outdated wiring is to find the electrical panel and see if it has modern breaker switches or round fuses. The fuses indicate that the system is outdated, and rewiring the house might be recommended.

In almost every state, home sellers must disclose defects, but cautious buyers may still want to include the inspection contingency in the purchase contract.

If you’re living in a home with older wiring and notice that your circuit breakers trip often, lights flicker, the light switches feel warm to the touch, or there is a burning smell coming from an outlet, it’s time to schedule an appointment with an electrician.

Cost to Rewire a House Per Material

The cost of rewiring a house depends on square footage and how easy or difficult it is to access the space. But the wiring and cable materials can also have an impact. Let’s take a look:

•   Used in most homes, nonmetallic (NM) cables are easy to install, flexible, and cost-effective. If you’re rewiring these cables, expect to pay between $0.40 and $0.80 per linear foot, according to Angi.

•   Underground feeder (UF) cables are similar to NM cables, except that they’re designed to go underground or in damp areas. Rewiring UF cables costs around $0.50 to $0.75 per linear foot.

•   Durable and able to handle high temperatures, THHN and THWN wires are often used in an unfinished space, like a basement, or for hot water heaters and garbage disposals. They cost $0.80 to $1.60 per linear foot to rewire.

•   Coaxial cables have high bandwidth support and are easy to install, which once made them a go-to choice for televisions and video equipment. Today, they’re more commonly used to connect cable or satellite TV signals or for internet connectivity. These cables cost around $0.25 to $0.35 per linear foot to rewire.

Updating a doorbell or thermostat? You’ll likely be working with low-voltage wires, which are used for circuits less than 50 volts. Rewiring typically costs between $0.25 and $0.35.

Recommended: How Much Is My House Worth?

How to Cover Your House Rewiring Costs

Rewiring a home is not a small expense. Fortunately, there are various ways to pay for it. Here’s a look at some options.

Home Equity Loans

If you’ve built up equity in your home and are facing a major rewiring project, a home equity loan may be the right choice. There are three main types to consider: a fixed-rate home equity loan, a home equity line of credit (HELOC), and cash-out refinancing.

Each has its pros and cons. For instance, with a fixed-rate home equity loan, you receive a lump sum payment, which you’ll pay back over a period of time with a set interest rate.

A HELOC, on the other hand, is revolving debt. As the balance borrowed is paid down, it can be borrowed again during the draw period, which typically lasts 10 years.

With a cash-out refinance, you can refinance your mortgage for more than what you currently owe, and then take the difference in cash.

Home Improvement Loans

A home improvement loan is a type of personal loan used to fund renovations and upgrades, including rewiring a house. Once your loan application is approved, you’ll receive a lump sum of cash, which you can use to pay for home improvements. You’ll repay the loan, with interest, in regular installments over the life of the loan — typically five to seven years.

These loans are unsecured, which means your home isn’t used as collateral. As a result, they often come with a higher interest rate.

💡 Quick Tip: Check out SoFi’s home improvement loan rates to explore competitive terms and find the right financing for your renovation needs.

Credit Cards

A credit card is a fast, easy way to fund a rewiring project, and it can be a good option if you’re able to pay off the balance on the card that month. Or look for a card with an introductory 0% annual percentage rate (APR), as this allows you anywhere from six to 18 months to pay back the balance with zero interest. But keep in mind that any balance left after the promotional period ends will start accruing the card’s regular APR.

Cash

Depending on the scope of the project and your budget, you may decide to dip into your savings account or withdraw money from your emergency fund, if you have one.

As you create a budget and weigh your financing options, look for opportunities to save money. Research how much rewiring a house costs in your area, and include a cushion in your budget for unexpected expenses. If you’re not planning to tackle the job yourself, gather quotes from reputable licensed electricians in your area and see which one can offer you the best deal.

Finally, factor in the long-term costs and benefits. Although rewiring might seem cost-prohibitive when buying a single-family home, owners may find that the cost of rewiring a house — and the peace of mind the upgrade provides — can be money well spent.

The Takeaway

At $6 to $10 per square foot, the cost of rewiring a house may seem high. But adequate electrical panels and modern wiring can amp up your home value and prevent fires. Wondering how you’re going to pay for it all? Home equity loans, savings, credit cards, and home improvement loans are all ways to pay for the average cost to rewire a house.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Is it worth rewiring an old house?

Yes, it’s worth rewiring an old house. Replacing outdated wiring can help prevent a house fire and add value to the property. Plus, updated, energy-efficient fixtures are sometimes included in a remodeling job of this scope, which can potentially lower utility costs.

How much does it cost to replace all the electrical wiring in a house?

According to the home services website Angi, home owners can expect to pay anywhere from $601 to $2,590 to rewire a house. However, if you have an older, larger home, you’ll likely pay closer to $6,000.

Can a house be rewired without removing drywall?

In many cases, at least some drywall will need to be removed during a rewiring project. But talk to your electrician to see if the work can be done without disrupting your walls.

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.

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