How Much Does it Cost to Remodel a House?

In the world of HGTV renovation shows, remodeling a home might look like a breeze. Interior design pros tackle a home in 30 minutes (including commercial breaks) and finish on time—miraculously under budget.

But, real life is rarely like reality TV. Home remodels can sometimes be complicated, and costly. Coming up with a budget beforehand could help avoid the headaches and hard choices that can crop up down the line.

Ready to start calculating a potential dream home remodel? Turn off the home renovation show, grab a calculator, and read on.

There’s no one “magic number” a person can bank on when it comes to the cost of a home renovation.
However, there are several factors that a homeowner can take into account when budgeting for a home remodel: high-end vs low-end, type of home, and rooms renovated.

Factors of a Home Remodel Cost

High-end Versus Low-end Renovation

A renovation of a 2,500 square foot home could cost anywhere between $25,000 and $150,000 on average . The variation in price stems mostly from the scale of the projects. According to HomeAdvisor , a homeowner can expect to generally complete the following within each budget range:

•   Low-end ($15,000-$45,000). A renovation of this size would include small changes, such as new paint and fresh landscaping. It might also include inexpensive finishes, such as new counters and flooring.
•   Middle-end ($46,000-$70,000). In addition to the low-end projects, a middle-end home renovation includes full room remodels, like a bathroom and kitchen, as well as a higher quality flooring than the low-end renovation.
•   High-end ($71,000-$200,000). A high-end budget would include the low- and middle-end projects, as well as high-quality finishes including custom cabinetry and new appliances. It might also include improvements to the foundation, HVAC, plumbing, and electrical.

As a homeowner begins to identify what rooms they want to upgrade and to what extent, they will begin to customize their renovation budget. Just one in five homeowners finish renovations under budget, so it’s recommended to pad estimates in the event of unexpected costs.

Type and Age of Home

Older homes will typically need more TLC during the renovation process. Once walls and floors are opened up, a homeowner might realize the wiring and plumbing is outdated and should be brought up to code.

While a person’s home won’t be unsellable if everything isn’t up to code, there could be issues with financing because generally lenders will not close on a home where health and safety issues are identified.

People may decide that adhering to building standards ensures the work is up to code and that it’s a safe renovation. That can involve time, money, and work. That is why sometimes older homes can involve more work than the average renovation.

If a person’s home is old enough to be considered “historic” in their town or community, they’ll want to be careful about the changes they make. Depending on where a person lives, they’ll likely need to adhere to their city’s guidelines to make sure their home still falls into the “historic“ categorization, even after a remodel.

Designated historic properties in states like Connecticut could boost a home’s value between 4% and 19% , on average.

Depending upon the condition of the home and any past upgrades, a home’s age can have an impact on the cost of renovation, but so too can the type of home, regardless of age.

HomeAdvisor estimates that Victorian homes generally cost the most to renovate per square foot, up to $200 and that farmhouses and townhouses tend to have the lowest cost per square foot, between $10-$35 .

Use SoFi’s Home Improvement Cost Calculator
to estimate the price of your next remodel.


Typical Renovation Costs by Room

For many homeowners, a dream renovation would cover every inch of the home, but for the budget-conscious, that might not be possible.

When it comes to renovation expenses, generally, not every room is created equally. Rooms with cabinets and appliances tend to be the priciest—think bathrooms and kitchens.

Kitchen Remodel

The typical range for the cost of remodeling a kitchen comes in between $13,052-$37,026 , but kitchens can have the most variation when it comes to cost, depending on finishes, appliances, and projects.

Here’s what a homeowner could expect to overhaul in a kitchen based on the budget range :

•   Low-end ($5,000-$30,000). New lighting, faucet, coat of paint, refreshed trim, and a new but budget-friendly sink backsplash. This also might include knocking down walls or a counter extension project.
•   Middle-end ($30,000-$60,000). This budget could include new appliances, floors, and tiled backsplash to the sink. It might also include new cabinets and mid-range priced countertops.
•   High-end ($65,000+). When the budget expands for a kitchen, the projects start to take on custom finishes. A high-end budget would likely include custom cabinets, high-end countertops like stone or granite, and expensive appliances. Other projects might include new lighting, hardwood flooring, and new faucet fixtures.

Because a kitchen can be so customizable and include so many levels of finishes, the budget could fluctuate greatly.

Bathroom Remodel

Bathrooms take on a similar budgeting structure. The typical range for the cost of a bathroom remodel is between $5,989-$14,964 , but that includes a range of projects and features.

For example, new cabinets in a bathroom can account for up to 30% of the budget . Other big-ticket items come in a range of prices based on low-end versus high-end finishes.

On the low-end, a new bathtub might cost just $400 , but if a homeowner is looking for a high-end tub, they could pay upwards of $8,000 . The final cost will likely hinge on the homeowner’s decision on budget range.

Bedroom and Living Room Remodel

Budgeting a bedroom remodel can be a little more cut and dry since it generally doesn’t include as many costly fixtures as a person might find in the bathroom or kitchen. A homeowner can expect to tackle a bedroom for about $7,880, on average .

This typically includes new carpet, windows, door, and refreshed molding. It might also include new heating, insulation, and updated wiring and lighting. But this budget doesn’t account for new furnishings in the bedroom, like a bed or wardrobe.

Remodeling a master suite could cost a bit more since it typically includes a bathroom and bedroom renovation. If a homeowner wants to add or expand a closet in the master suite, they can estimate adding around $1,500 to $2,000 to the room’s budget, on top of the bathroom and bedroom.

A living room remodel can cost between $1,500-$5,500, on average . Like the bedroom, living rooms tend to lack the “wet” features, plumbing and appliances, that can drive up the cost of the bathroom and kitchen.

If a living room has a fireplace feature, homeowners can expect to spend a bit more. Looking to add a fireplace? That could add at least $2,000 to the room .

Exterior Remodel

Updating roofing and refreshing the exterior of a home is commonly part of a renovation. A new roof could cost $20,000 , on average, but will vary depending on materials.

Adding new siding to a home will typically cost around $14,000 , but will once again fluctuate based on the material used. Painting the exterior of a home will cost between $1,710 and $4,000 .

Of course, depending on the degree to which each room is remodeled, the estimates could vary. DIY-ing projects in various rooms could also help bring down the budget.

Other Remodel Considerations

A remodel isn’t just financial spreadsheets. There are other considerations a homeowner may want to consider before taking a sledgehammer to a room.

Timeline

A renovation could take anywhere from a few days to a few months, so a homeowner may want to plan their timeline accordingly. It might be tempting to duck out of town when big projects are underway, but staying around means the homeowner could monitor projects and provide answers if any unexpected issues arise.

Additionally, renovations can be stressful and might be best scheduled around other big life events. For example, homeowners might think twice about a full home remodel that coincides with nuptials, or a baby on the way. Of course, unexpected events could arise, but there may be no need to pile on projects when so much is going on.

Who Is the Renovation for?

Before diving deep into plans, homeowners may want to consider who the renovation is for. Is it for the homeowner to enjoy decades from now, or is it to make the house more marketable for a future sale? The renovation could take a different shape depending on a homeowner’s answer.

If the remodel is just for the homeowner, then they might choose fixtures based on personal taste, or might decide to splurge on high-end bathroom features that they’ll enjoy for years.

On the other hand, if the homeowner plans to sell within a few years, they may consider tackling projects that have the greatest return on investment (ROI). That could mean prioritizing projects like a kitchen update or bathroom remodel.

Not sure about a project’s resale value? SoFi’s home project value estimator can be a useful tool to help determine the approximate resale value of a home improvement project.

Delays and Unforeseen Expenses

Homeowners might expect the unexpected when undergoing a remodel. Unexpected delays could extend the timeline, or emergency expenses could drive a project over budget.

As a general rule of thumb, it is recommended for homeowners to pad their budget by at least 10% for emergencies or unexpected costs.

Financing a Remodel

Coming up with the capital to finance a remodel can be daunting enough to make some homeowners abandon the whole process. However, there are multiple avenues homeowners can explore to start the remodel of their dreams.

Out of Pocket

Homeowners who take on small renovations and have liquid savings might decide to pay for everything out of pocket. This means no debt or interest rates to contend with.

However, paying cash for a large project can be challenging for some, and might lead to cutting corners on important elements in an effort to keep costs down. Plus, unexpected emergency costs could drive the homeowner into unexpected debt.

Out of pocket is possible for some homeowners, but it’s not the only way to pay for a remodel.

From Friends or Family

Another alternative is to borrow money from family members or friends. While this saves homeowners from having to deal with loan applications and approvals, and potentially provides more flexible terms, it can come with its own share of issues, such as risking the relationship if the borrower is unable to pay back the lender (in this case, family or friends).

Homeowners may want to carefully consider the effect borrowing money for a remodel might have on a relationship, and make sure there are plans in place in case the money can’t be repaid.

Additionally, loans from family members may be considered gifts by the IRS (and may be taxable), so it’s best to discuss with a tax professional before proceeding.

HELOC

A HELOC, or Home Equity Line of Credit, allows homeowners to pull a certain amount of equity out of their home to finance things like renovations.

Qualifying for a HELOC depends on several factors, including the outstanding mortgage amount on the home, the market value of the home, and the owner’s financial profile.

HELOCs typically come with an initial low-interest rate, and a homeowner generally has the option to only pay interest on the amount they’ve actually withdrawn.

However, they could also have high upfront costs, and can come with a variable interest rate with annual and lifetime rate caps.

Personal Loan

If a homeowner doesn’t have the cash on hand or enough equity in their home for a HELOC, then a personal loan might be a consideration.

An unsecured personal loan is generally an unsecured installment loan that isn’t attached to a person’s home equity, and typically can be funded faster than secured loans and with fewer or no upfront fees.

Personal loans might be a good option for people who recently bought their homes, need capital quickly for unexpected personal reasons, or need a loan for their home improvement project.

SoFi’s personal loans are generally funded in as little as three days, with competitive rates, and no fees. Qualified borrowers may be eligible to borrow $5,000 to $100,000 for a home improvement or other personal needs, and can apply online in a few clicks.

Home remodels are stressful enough, but with a home improvement loan from SoFi, finding a way to pay for them doesn’t have to be.


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How to Leverage Home Equity to Pay Off Student Debt

Student loan debt can be difficult to manage. Trying to make ends meet when you are saddled with a monthly payment from your education can be a challenge. The burden can become overwhelming once you add a mortgage, a car, and other financial obligations. Stare at your owed balances long enough and you may start wondering just how illegal robbing a bank really is.

Fortunately, there’s another option available—that won’t end with you in handcuffs.
Fannie Mae offers a way for you to use the excess value of your home to pay off student loan debt directly. Some families may benefit from consolidating student loan debt into their mortgage with a new lower fixed rate applied and consolidated into one loan with one monthly payment.

It’s good to note that although the rate and payment may be lower, the term of the debt may be lengthened which would result in higher interest payments over an extended period of repayment.

Mortgage interest rates can run lower than student loan interest rates. Some homeowners may be able to use that to their advantage. Paying off multiple student loans with one loan means making only one payment per month, which not only simplifies life, but could also save borrowers money.

How much you can potentially save depends on things like the difference in interest rates —depending on your loan terms, it can be said, the bigger the gap, the better the savings.

For example, if you’re paying 7.08% interest on a Direct PLUS student loan for 25-years, but can lower the rate on your 30-year mortgage at say a 4.00% interest rate, you’ll not only pay off your student loans with less interest over the life of the loan, but can also refinance your mortgage to a lower rate, possibly saving you significant mortgage interest in the long run.

Working with SoFi, you can consolidate your student loans with your existing mortgage, refinance the total amount at a lower rate, and simultaneously pay off those student loans.

Under the student loan cash-out refinance program, student loans would be paid off directly through escrow after the loan funds which allows this loan program to avoid any additional pricing bumps for cashout to the borrower. Loans must be paid in full, no partial payments are allowed.

The Elements of Equity

Some cash-out refinance loans such as a student loan cash-out refinance is priced to be used for a specific purpose, consolidating your student loan debt and mortgage into better loan terms.

You can also take cash out of your home for most any reason with a vanilla cash-out refinance type loan or if you already have a low rate on your mortgage, you can opt for a 2nd mortgage such as a home equity line of credit (HELOC.)

When your home’s market value is higher than what you owe on your mortgage(s), you have equity in your home. The equity you earn in your home can be utilized as an asset. That means if eligible under the loan program you choose, you can draw upon the available equity, for a variety of reasons (e.g. to pay off your student loans).

You can gain equity in two ways. The first is by making payments on the mortgage; as you pay back what you owe the principal amount owing on your loan is reduced, and if your homes market value doesn’t decline, your equity increases. Say that you purchased a home for $350,000 and you took out a $250,000 mortgage 10 years ago, and have since paid back $50,000 of what you owe.

If your home value remains the same as when you purchased it, you may have $150,000 in available equity for an in-ground pool for the kids, a new car, or, best of all, to refinance and consolidate your student loans. The amount of equity that can be utilized will depend upon many factors, such as the lender, loan program, qualifying, etc.

Sound good? It may be even better. The second way to earn equity in your home is through price appreciation, so as your home gains market value, you earn equity.

If you’re a ladder-climbing professional, who’s great at financial planning, it’s possible that you bought that dream home in a growing market, and it’s now worth $400,000 or more. As of 2018, untapped home equity reached an all time high in the United States, reaching about $14.4 trillion . If your home’s equity is part of that sum, it could be used as a tool to help you further your financial priorities.

Deciding to Pay Off Student Loans with Home Equity

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 may 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.

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, try to factor those in. Doing this leg work can help you determine if going through the process is worth it in the long run.

As you are reviewing options, consider the term length of the mortgages. The standard repayment plan for student loans has a 10 year term unless you consolidated them already, 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 .

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, which could factor into your decision making process.

Another benefit may be 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 have all been 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.

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. Firstly, using your home equity to pay off your student loans could potentially put your home at risk.

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.

Second, when you use your home equity to pay off your student loans, you’ll still owe the debt (now as a part of your mortgage), but you’ll no longer be eligible for borrower protections that are afforded to borrowers who have federal loans.

These benefits include deferment or forbearance, which could allow you to temporarily pause payments in the event of financial hardship, and income-driven repayment plans, which tie a borrower’s monthly payment to a percentage of their discretionary income.

If you are pursuing student loan forgiveness through one of the programs available to federal borrowers, for example Public Service Loan Forgiveness, consolidating your student loan debt with your mortgage would eliminate you from the program. If you’re currently taking advantage of any of these options it may not make sense to use the equity in your home to pay off your student loans.

As you weigh your options, you might 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.

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 get you started on paperwork. It could also be a good idea to check your credit score.

To secure a cash out refinance lenders guidelines will likely require a credit score of 620 or higher. The minimum score required depends upon 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 make a few changes to improve your credit score before applying for a cash-out refinance.

At the very least, you’ll likely need 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 them every time you try to refinance. So it can be helpful to keep them handy.

When utilized responsibly, home equity can be a useful tool in helping to improve your overall finances. Home equity can be used for most any purpose such as consolidating higher interest credit card debt, student loan debt or home improvements.

Shop Smart

Interested in using your home’s equity to pay off your student loan debt? Take a look at SoFi. This student loan cash-out refinance option offers qualified borrowers competitive rates with no cash-out pricing add-ons applied.

Pre-qualifying takes just two minutes online, so you can get an idea of the rates and terms available to you. Loans are usually approved in about 30 days.

Unlike taking your chances with the lottery, the odds could be more in your favor when you leverage your home equity responsibly. Explore your rate and term options, and then get in touch with us to start the refinancing process. Learning is a lifetime commitment; student loan debt doesn’t have to be.

Learn more about borrowing a student loan cash-out refinance with SoFi.



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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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What is the Federal Family Education Loan Program?

If college seems more expensive than ever, that’s because it is. Tuition more than doubled between 1978 and 2015 and is now at an all-time high. Not surprisingly, most families can’t afford to pay these costs out of pocket.

The numbers show that students and their families end up borrowing from the federal government to pay for education. As of late 2018, federal loans represented more than 92% of all outstanding student debt; as of late 2019, borrowers owed the government more than $1.6 trillion.

One federal loan program you may have heard of is called the Federal Family Education Loan Program (FFEL). The program was launched by the Higher Education Act of 1965 and was the main source of federal student loans for decades.

It included several types of loans for undergraduate and graduate students: Subsidized and Unsubsidized Stafford Loans, PLUS Loans, and FFEL Consolidation Loans.

FFEL loans had a unique structure: They were issued by private financial institutions and state-level lenders. The federal government guaranteed the loans against losses if the borrower defaulted, became disabled, or in certain other situations.

The government also sometimes paid an interest subsidy to ensure a certain rate of return for lenders. However, the government did not directly originate these loans or provide the capital for them.

Does the Federal Family Education Program Still Exist?

No. Congress discontinued FFEL loans in 2010 as part of the Health Care and Education Reconciliation Act , and no new loans have been issued under the program since that July 1, 2010.

The reform took place after the Congressional Budget Office found that, if the government eliminated “middlemen” private lenders and just loaned the money directly, it could save up to $68 billion over 10 academic years.

At that point, FFEL was replaced by the William D. Ford Federal Direct Loan Program. Loans offered under this program are similar to the earlier ones, including Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

However, there are big differences in how the program is administered. The federal government itself now draws on its own capital to directly lend to students, while several federal contractors take care of originating and servicing the loans.

Even though no new FFEL loans are being issued, they are far from paid off. As of late 2019, nearly $271.6 billion of FFEL Loans remained outstanding. Borrowers of these loans are still responsible for making these payments, lenders are required to service them, and the federal government still insures them.

In 2015, the Department of Education banned debt loan holders from charging FFEL borrowers exorbitant interest rates on overdue student loans, as long as borrowers entered the government’s loan-rehabilitation program within 60 days of defaulting. However, the government rolled back those protections in 2017 . Here’s more info on what FFEL loans look like today.

Understanding Your FFEL Loan

If you have a FFEL loan, the biggest difference from a Direct Loan is the source of the money—you received it from a private lender instead of the federal government. Within the FFEL, you have one of four types of loans:

•   Stafford: A loan for undergraduate students where interest is covered by the federal government while the student is in school at least half-time, and during grace or deferment periods.

•   Unsubsidized Stafford Loan: A loan for undergraduate, graduate, and professional degree students where interest is charged during the entire life of the loan.

•   Federal PLUS Loan: This loan is available for either parents of dependent undergraduate students, or for graduate or professional students. Interest is charged for the entire loan period.

•   Federal Consolidation Loan: Designed for borrowers to combine multiple federal student loans into a single loan with a single payment. Interest is still covered by the government on subsidized parts of the loan if it’s in deferment.

If you’re not sure what type of loan you have, one place to look is the National Student Loan Data System . This database houses everything you need to know about your federal student loans, including your interest rate, balances, and payment plans.

Are FFEL Loans Eligible for Forgiveness?

With certain types of federal loans, eligible borrowers can opt for an income-driven repayment plan (IDR). As long as borrowers make on-time payments, which are tied to a share of their discretionary income, the balance is forgiven after 20 or 25 years.

Borrowers who are employed by a qualifying employer may be eligible under the Public Service Loan Forgiveness Program to have their loans forgiven after 10 years of payments, and those who qualify for the Teacher Loan Forgiveness Program could have up to a maximum of $17,500 in certain federal loans wiped away.

FFEL loans are generally not eligible for forgiveness through any of the above programs. At least not on their own. However, FFEL loans that are consolidated into a Direct Consolidation Loan may be eligible for forgiveness. Here are some details around that:

•   Subsidized and Unsubsidized Federal Stafford Loans, as well as FFEL PLUS Loans made to students and FFEL Consolidation Loans that did not repay any PLUS Loans made to parents, are eligible for the Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans.

•   FFEL PLUS Loans to parents, or consolidation loans that include these, are eligible for the ICR Plan only.

Can I Still Consolidate or Refinance My FFEL Loans?

Federal student loan interest rates are set by Congress annually and are fixed for the term of the loan. If you’re still paying on your original FFEL loan, it will have the same interest rate as it did on the date you took the loan out.

For borrowers looking to streamline their payments or potentially lower their interest on FFEL loans, or on Direct or private loans, consolidation or refinancing are options to consider.

Consolidation is a government program that combines multiple federal loans into one Direct Consolidation Loan. The new interest rate is the weighted average of all the interest rates rounded to the nearest 1/8th of a percent. As mentioned above, FFEL loans are no longer available and don’t qualify for federal loan forgiveness programs.
But if you consolidate your FFEL loans into a Direct Consolidation Loan, that loan may be eligible for the federal repayment programs described above.

However, consolidation has some drawbacks . Because the interest rate for a consolidated loan is the weighted average of all the loans you choose to consolidate—rounded up to the nearest one-eighth of a percent—there is a chance your interest rate may actually go up a bit.

And if your payments are lower under any repayment program, it is likely because your loan term has been extended, which means you may pay more interest over the life of the loan. Finally, private loans aren’t eligible for federal consolidation.

As an alternative, whether you hold FFEL loans, Direct Loans, or a combination of private and federal student loans, refinancing may be one option to consider. When you refinance your student loans, you take out a single new loan from a private lender and use it to pay off your existing loans.

Refinancing can allow some borrowers, especially those with a strong credit and employment history (among other factors that vary by lender), to get more favorable loan terms, such as a lower interest rate or a lower monthly payment.

Even though the FFEL program doesn’t exist anymore, borrowers with these loans still very much have to pay them off. If you decide refinancing is an option you want to pursue, you can apply to refinance these loans.

Quick note if you do: refinancing any federal loans with a private lender automatically makes them ineligible for the repayment programs mentioned above, Direct Consolidation Loans, and other federal protections and benefits.

If you qualify for a lower interest rate than you received on your initial student loan, refinancing may allow you to reduce the total amount you pay over the life of the loan.

See if refinancing your student loans with SoFi could give you a new, lower interest rate.


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 Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
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The Basics of a Qualified Mortgage

In the 2015 Academy Award–winning film The Big Short, there’s a scene in which actress Margot Robbie sips champagne in a bubble bath and explains the origins of the 2008 financial crisis. At the root of the crisis, she explains, was the practice of banks bundling an increasing number of subprime mortgages into bonds. “Whenever you hear subprime, think ‘shit,’” is how she puts it.

To help prevent history from repeating itself, Congress passed a rule in 2010, as part of the Dodd-Frank Act , to clamp down on the excessive risk-taking in the mortgage industry prior to 2008. The rule, which went into effect in January 2014, created something called a “qualified mortgage.”

Basically, a qualified mortgage is a type of loan that has certain, more stable features that help make it more likely that the borrower actually is able to repay their loan. This means the bank has to do some more in-depth work to make certain that a borrower can repay the loan, such as analyzing the borrower’s “ability to repay .”

It doesn’t necessarily mean more work for the borrower, but it does mean lenders will take a deeper dive into a potential borrower’s finances to better determine whether the mortgage they applied for is considered affordable for them under the guidelines. The rule is intended to protect consumers from harmful practices, but it may also make it harder to qualify under certain loan programs. Unfortunately, not everything in the financial world comes with a Margot Robbie explanation. Since the terminology around qualified and non-qualified mortgages can get confusing, here are a few basics.

What Is a Qualified Mortgage?

Qualified mortgages follow three basic tenets, as outlined by the Consumer Financial Protection Bureau (CFPB):

1. Borrowers should be able to pay back their loans.

2. A qualified mortgage will likely be easier for the borrower to understand.

3. The qualified mortgage should be a fair deal for the borrower.

Based on these simple ideas, the CFPB created stricter guidelines for loans not sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC) to ensure that borrowers could repay loans. FNMA and FHLMC are government-sponsored entities (GSEs)—this designation allows them a special pass on QM rules, commonly referred to as the “QM GSE Patch .” The conforming loans that follow GSE guidelines are normally input by lenders and approved in the automated underwriting systems set by FNMA and FHLMC.

For QM loans not approved and sold to FNMA or FHLMC, there is a limit on how much of a borrower’s eligible income used for qualifying can go toward debt. In general, total monthly debts cannot exceed 43% of gross monthly income, this is referred to as a debt-to-income ratio or DTI.

Limiting the amount of debt a borrower can take on can make them a safer bet for banks and less likely to default on their mortgage. Instead of granting a mortgage that’s possibly not affordable, keeping the loan within a reasonable DTI ensures a borrower is not borrowing more money than they can repay.

Next, the loan term must be no longer than 30 years. Once again, this is in place to protect the home buyer. A loan term beyond 30 years is considered a riskier loan because of the extended loan term with longer payback and additional interest. In addition, a qualified mortgage is barred from some other risky features, such as:

•   Interest-only payments. Interest-only payments are payments made solely on the interest of the loan, with no money going toward the paying down the principal. When a borrower is only paying interest, they don’t make a dent in paying off the loan itself.

•   Negative amortization. Amortization means “paying off a loan with regular payments, so the amount goes down with each payment.” In the case of negative amortization, the borrower’s monthly payments don’t even cover the full interest due on the mortgage. The unpaid interest then gets added to the outstanding mortgage total, so the amount owed actually increases over time. In some cases, depending upon market conditions, a borrower could end up owing more than the home is worth.

•   Balloon payments. These are large one-time payoffs due at the end of the introductory period of the loan, historically 5 or 7 years. These loans are fully amortizing during the full term and are unlikely to carry any sort of prepayment penalty.

In this example, we will refer to points as origination discount points. Origination discount points can vary based on many things such as lender, loan program, rate chosen, but a qualified mortgage will have a cap on the number of total points allowed to be charged to the consumer.

According to the Consumer Financial Protection Bureau , effective in 2017, the maximum total points and fees a borrower could be charged are limited to the following without being referred to as a high priced mortgage which carries additional guidelines:

•   For a loan of $100,000 or more: 3% of the total loan amount or less
•   For a loan of $60,000 to $100,000: $3,000 or less
•   For a loan of $20,000 to $60,000: 5% of the total loan amount or less
•   For a loan of $12,500 to $20,000: $1,000 or less
•   For a loan of $12,500 or less: 8% of the total loan amount or less

Lenders also verify a borrower’s ability to repay the loan. The ability-to-repay rule encompasses different aspects of a borrower’s financial history that a lender must review. The ability-to-pay rule means the lender is likely to review items such as:

•   Income
•   Assets
•   Employment
•   Credit history
•   Alimony or child support, or other monthly debt payments
•   Other monthly mortgages
•   Mortgage-related monthly expenses (PMI, HOA fees, taxes)

Under some circumstances, lenders might not have to follow the ability-to-repay rule but still count the loan as a qualified loan. These lenders and institutions may include:

•   Groups certified by the U.S. Treasury Department to provide mortgage services to underserved populations
•   Nonprofit service groups that receive aid from HUD to make down payments affordable in developing communities
•   Small nonprofit organizations that lend to a select number of low- to moderate-income consumers each year
•   State agencies that provide low rates and down payment assistance
•   Any loans made through the assistance of the Emergency Economic Stabilization Act

In addition to the protections provided to borrowers, the rule also grants lenders safe harbor through verification of the borrowers ability to repay by limiting the ability of borrowers who can’t pay their mortgages from suing the lender. Qualified mortgages offer safe harbor to the lender if ability to repay rules were properly adhered to when qualifying the borrower(s) for the requested loan program.

In these instances, borrowers cannot sue based on the claim that the institution had no basis for thinking they could repay their loans. They also make it harder for borrowers to buy more home than they can afford.

While qualified mortgages include a more involved process, they’re ultimately meant to protect both the lender and the borrower.

What Is a Non-Qualified Mortgage?

A non-qualified mortgage (non-QM) is a home loan that does not meet the standards required for a qualified mortgage.

But a non-QM loan is not the same as the subprime loans available before the housing market crash. Typically, with a non-QM loan, lenders confirm that borrowers can repay their loans based on reasonable evidence, which can include verifying many of the same information as QM loans such as assets, income, or credit score.

Non-QM loans allow lenders to offer loan programs that don’t necessarily meet the strict requirements of qualified mortgages. Because non-QM loans don’t have to adhere to the same standards, it means the underwriting requirements like the QM DTI limit for instance, can be more flexible and provide eligible borrowers with more loan program choices.

Non-qualified loans can also vary by lender, so borrowers who take this route should research their options carefully.

Not all lenders are built the same, similar to borrowers. In some situations a non-QM loan might be the right choice for a borrower.

When Could a Non-QM Loan Be the Right Option?

Many lenders offer non-QM loan programs because they have more flexible loan features. This type of loan may be right for borrowers who can afford to pay but don’t conform to additional qualified-mortgage requirements.

Examples of borrowers who might seek a non-qualified mortgage are:

•   The self-employed. Borrowers with streams of income that might be difficult to document, like freelance writers, contractors, and others, might consider a non-qualified mortgage.

•   Investors. People investing in real estate properties, including flips and rentals, might choose to apply for a non-qualified mortgage because they need funding faster, or have a challenging time proving income from their rental properties.

•   Non-U.S. residents. People who are not U.S. residents can be challenged by qualified mortgages, because they may have a low or nonexistent credit score in the U.S.

Qualified mortgages have safeguards in place for both the lender and the borrower, but in some circumstances, it can make sense for a borrower to choose a non-qualified mortgage. In some instances, this type of loan may be chosen because of property issues such as a condo that doesn’t meet certain criteria, property type, etc.

If you are looking for a mortgage to fit your financial needs, you could check out SoFi’s home loans. Borrowers can put as little as 10% down for loans up to $3 million, and with competitive rates and dedicated mortgage loan officers, applying for a new home might be easier than you think.

While the nitty-gritty of qualified mortgages versus non-qualified mortgages might not be as fun or thrilling as a Hollywood blockbuster, deciding the route to take as a borrower is an essential and important step of the home-buying process, so do your research and ask your chosen lender questions about the different loan programs available.

Understanding the differences between the qualified and non-qualified mortgage programs might make choosing the best loan fit for your needs easier. The process of securing a mortgage has changed considerably in the past decade, but policies have been put in place to ensure better protections and in turn, a better experience for the borrower.

If you’re considering financing a home and are ready to learn more about qualifying for a mortgage, visit SoFi Home Loans today.


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.
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. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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Tips for Teaching Your Kids About Investing

People talk about improving financial literacy for kids, but few seem ready to do much about it.

According to the Council for Economic Education, only one-third of states require their students to take a personal finance class. And its most recent Survey of the States , performed in 2018, “reflects no growth in personal finance education in recent years and little improvement in economic education.”

While states and school districts are still struggling with the idea of adding financial literacy to the curriculum for middle- and high-school students, what are parents of younger children supposed to do?

If you’re thinking about taking matters into your own hands, here are a few ideas:

1. Forgetting the stuffed animals and giving kids stocks.

If you’re a parent (or grandparent), you know how hard it can be to find just the right gift for the child in your life—something that won’t be lost or quickly forgotten. Many of us turn to toys we hope will be fun and educational, but finding toys related to stock market investing for kids can be tough.

Which means you might have to move on to the real world and actually give your child control of some stocks.

If you want to make it official, you can open a custodial account and either make some picks yourself or let your child do the choosing.

One way to make the lesson more meaningful might be to think about the things that are important to the child at each stage of life and pick a stock that represents it. (The company that makes your child’s diapers, for example, a favorite toy brand or toy store.

As the child ages, they can have more input, and you can talk about dividends, compounding, diversification, and what it means to buy and hold. If your kiddo can’t make up their mind between two companies you can work together to do some research.

Older kids also can look for news stories that summarize analysts’ reports on Google Finance , Yahoo Finance , or MarketWatch , where the writers typically decipher analysts’ jargon.

It’s important to note that there are pros and cons to the different types of investing accounts available to minors, so you’ll likely want to check out any consequences related to future taxes and when the child applies for financial aid for college.

Another, more personal, consequence is that the child you love might not be thrilled with a share of stock when what they really want is the latest game. But if your child is truly intrigued, you might even find them eventually investing money of their own.

2. Making a game of it.

Not quite ready to put real money into a kid-centric portfolio? You and your children can still follow the markets together and track how they’d do if they were invested.

You could even make it a bit of a competition between siblings. (Kind of like making picks at a horse race without placing any bets.) You can do it on your own or sign up for an online game.

Either way, you can teach your child about how the markets work without any actual losses (or crushing disappointments).

3. Buying the book.

This might sound like an old-school, boring way to explain investing for kids, but there are books out there that include plenty of illustrations, fun language, and important lessons, including these highly-rated offerings from Amazon.

What All Kids (and adults too) Should Know About … Savings and Investing, by Rob Pivnick, covers saving, budgeting and investing.

Go! Stock! Go!: A Stock Market Guide for Enterprising Children and Their Curious Parents, by Bennett Zimmerman, follows the Johnson family as they learn the fundamentals of stocks and bonds, the mechanics of investing, and the ups and downs of risk and reward.

How the World REALLY Works: Asset Management 2018: A Children’s Guide to Investing, published by the Guy Fox History Project Limited, takes a big topic and breaks it down into terms kids can understand.

I’m a Shareholder Kit: The Basics About Stocks—For Kids/Teens, by Rick Roman, is a spiral-bound book that was recently updated (May 2018) and designed to appeal to kids who want to know about investing and managing their money.

4. Getting some help from the Web (and Warren Buffett!).

If your child is more into screen time than reading books, you might want to check out Warren Buffett’s Secret Millionaires Club to inspire the investing and entrepreneurial spirit.

This animated series includes 26 four- to five-minute webisodes, and there are parent guides to download for each one (in English and Spanish). Sorry, there are no stock tips, but an animated version of the “Oracle of Omaha” does serve as a mentor on the show.

Want to teach your child about the magic of compounding interest? It’s missing the bells and whistles that generally appeal to kids, but the Compound Interest Calculator on the U.S. Securities and Exchange Commission’s investor.gov website is easy to use and understand.

Just plug in an initial investment, how much you expect to add each month, and the interest rate you expect to earn. The calculator will chart out an estimate of how much your child’s initial savings would grow over time.

5. Sharing your own family’s adventures in investing.

Whether it’s a success story or a cautionary tale, kids can learn a lot from their own family history.

For example, you could talk about how your parents and grandparents made and saved their money vs. how it’s done today in a conversation about the value of investing and goal-setting.

You can focus on storytelling instead of lecturing and encourage questions, which may keep them more involved.

6. Keeping lessons uncomplicated

No matter which platform you choose to teach your kids about investing, consider trying to make it as pain-free and uncomplicated as possible.

If you decide you’re ready to do some real-world investing, for example, you could look for an account that makes it easier—and as hands-on or hands-off as you want it to be.

SoFi Invest® offers both options. And to make things even simpler for beginners, SoFi has a low minimum deposit and no transaction or management fees.

You can handle your account completely on your own online, but if you want help, you can have one-on-one access to SoFi’s team of financial advisors.

Keep it fun and keep the effort going, and someday your adult children might be telling tales around the dinner table about how your lessons helped advance their financial savvy.

Want to help your kids get a handle on investing? Get started by downloading the SoFi app today.


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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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