How Timeshare Financing Works for Vacation Property

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, 9.9 million U.S. households own at least one timeshare, according to the American Resort Development Association (ARDA). The average price of a weekly timeshare is $24,140. This figure can vary widely depending on the location, size, and quality of the property, the length of stay, time of year, and the rules of the contract.

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 $1,000 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.

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.

Recommended: What Is Revolving Credit?

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.

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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.

SoFi personal loans offer lower fixed rates to qualified applicants. And there are no fees ever. Find out your interest rate online with no impact to your credit1 and no commitment.

Thinking about using a personal loan for timeshare financing? Check out SoFi to see your rate in just 60 seconds.

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.


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What Is a Qualified Mortgage?

A qualified mortgage is a type of loan with certain more stable features that help make it more likely that a borrower will be able to repay their loan. This doesn’t necessarily involve more work for the borrower, but it does mean that lenders will take a deeper dive into a potential borrower’s finances. The lender will analyze factors such as a borrower’s ability to repay to better determine if the mortgage they applied for is considered affordable for them under the guidelines.

Created in an effort to clamp down on the excessive risk-taking in the mortgage industry prior to 2008, the rule is intended to protect consumers from harmful practices. However, it may also make it harder to qualify under certain loan programs.

How Qualified Mortgages Work

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

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

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

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

Based on these ideas, the CFPB created stricter guidelines for loans that are not sold to Fannie Mae or Freddie Mac to ensure that borrowers could repay loans.

For these loans, there is a limit on how much of a borrower’s eligible income can go toward debt. In general, total monthly debts cannot exceed 43% of a borrower’s gross monthly income, a percentage referred to as a debt-to-income ratio (DTI). Limiting the amount of debt a borrower can take on makes them a safer bet for banks and less likely to default on their mortgage. Keeping the loan within a reasonable DTI ensures that a borrower is not borrowing more money than they can repay.

Next, the loan term on a qualified mortgage 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 the extended term means longer payback and additional interest — both key considerations when it comes to how to choose a mortgage term.

In addition, a qualified mortgage is barred from having 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 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: With amortization, the amount of the loan goes down with each regular payment, as is illustrated when using a mortgage calculator. In the case of negative amortization, however, 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 after five or seven years.

Additionally, qualified mortgages have certain limits on the points and fees that lenders are allowed to charge. A lender can only charge up to the following maximum fees and points on a qualifying mortgage; otherwise, it’s 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

•   For a loan of $60,000 to $100,000: $3,000

•   For a loan of $20,000 to $60,000: 5% of the total loan amount

•   For a loan of $12,500 to $20,000: $1,000

•   For a loan of $12,500 or less: 8% of the total loan amount

Alongside caps on points and fees, there are also limits on the annual percentage rate (APR) that can be charged on a qualifying mortgage. This threshold can vary depending on the loan’s size or type.

Lastly, lenders must verify a borrower’s ability to repay the loan, so they’re not immediately scrambling to figure out how to lower mortgage payments. The ability-to-repay rule encompasses different aspects of a borrower’s financial history that a lender must review. Specifically, a 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 (such as private mortgage insurance, homeowners association fees, or taxes)

Under some circumstances, however, lenders might not have to follow the ability-to-repay rule and the mortgage can still count as a qualified loan.

In addition to the protections provided to borrowers, the rule also grants lenders some protection. 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 can’t sue based on the claim that the institution had no basis for thinking they could repay their loans. The rules also make it harder for borrowers to buy more house than they can afford.

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What Is a Non-Qualified Mortgage?

A non-qualified mortgage (non-QM) is a type of mortgage loan that does not meet the standards required for a qualified mortgage, outlined above.

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

Non-qualified mortgage 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 qualified mortgage DTI limit, can be more flexible.

The upside is that this can provide eligible borrowers with more loan program choices. That being said, non-qualified loans can vary by lender, so borrowers who take this route should research their options carefully and take advantage of tools like a home affordability calculator to help ensure they don’t get in over their head.

Recommended: Home Buying Guide

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

While qualified mortgages have safeguards in place for both the lender and the borrower, in some circumstances, it can make sense for a borrower to choose a non-qualified mortgage.

Many lenders offer non-QM loan programs because they have more flexible loan features. In some instances, a borrower may opt for a non-QM loan because of property issues, such as a condo that doesn’t meet certain criteria or a certain property type.

This type of loan may be right for borrowers who can afford the mortgage 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. This could be 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 may find it challenging to meet the requirements for qualified mortgages because they may have a low or nonexistent credit score in the U.S.

While understanding the nitty-gritty of qualified mortgages vs. non-qualified mortgages might feel overwhelming, understanding the differences and other mortgage basics might make choosing the best loan fit for your needs easier. It’s important to do your research and ask lenders questions about the different loan programs available.

If you’re looking for a mortgage to fit your financial needs, consider checking out SoFi’s Mortgage 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.

If you’re considering financing a home, visit SoFi home mortgage loans today.


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12 Ways to Save Money on Water

12 Ways to Save Money on Water

Reducing water usage at home is a great way to lower your monthly expenses and be a better steward to the environment at the same time. But how exactly can you save H2O as well as money spent on water in your daily life?

Read on for answers, including 12 ways to save on your water bill, and:

•   What is the average monthly water bill?

•   Will using less water save you money?

•   Can lawn care lower your water bill?

•   How can you save water and money on laundry?

What Is the Average Monthly Water Bill Per Household?

The average water bill for a family of four each using roughly 100 gallons of water a day is nearly $73 a month, according to recent statistics. Water bills can vary significantly depending on where you live, how much water your family uses, and the time of year.

On average, families use more than 50% of their water in the bathroom alone. Those living in an apartment without an outdoor space may spend less on water; outdoor water usage (for gardens, lawns, and pools) accounts for about 30% of the average American’s water bill — up to 70% in the summer.

Quick Money Tip:Typically, checking accounts don’t earn interest. However, some accounts will pay you a bit and help your money grow. An online bank account is more likely than brick-and-mortar to offer you the best rates.

Does Using Less Water Save Money?

You can save money by using less water. That’s because your monthly water bill reflects water usage: The more water you use, the more money you’ll spend. Beyond financial savings, conserving water is great for the environment and can help to provide reliable water for families today and in the future.

12 Ways to Reduce Your Water Bill and Save Money

If you’re wondering “How can I save money on my water bill?” you’re in the right place. We’ve compiled a list of 12 helpful ways to save on your water bill every month:

1. Only Using the Washer for Full Loads

Washing machines are an essential appliance for keeping our clothes and linens clean, but they require a lot of water to operate. Waiting until you have enough dirty clothes for a full load — or using the machine’s “small load” option in a pinch — can go a long way in reducing water usage.

Bonus Tip: Because washing machines and laundry detergents have improved significantly over the years, you rarely need to use the hot water option. Using cold water only can keep gas or electric bills down as well.

Recommended: The Importance of Saving Money

2. Using a Dishwasher — And Only If It’s Full

Dishwashers are more efficient at washing dishes than our own hands. The trick? Only run it if it’s fully loaded. That’s how to save money on water usage and your water bill.

Bonus Tip: Save even more water by simply scraping food scraps off your plate before loading it in the dishwasher. No need to rinse it, which wastes water!

Recommended: How Much of Your Paycheck Should You Save?

3. Upgrading to Water-Efficient Appliances

Today’s washing machines and dishwashers are far more efficient than appliances from even 15 years ago. In fact, an ENERGY STAR-certified dishwasher saves nearly 3,900 gallons of water in its lifetime, and an ENERGY STAR washing machine uses 33% less water per cycle (and requires 25% less electricity to run, too).

While replacing home appliances has an upfront cost, you’ll save money on water and energy bills in the long run. Some energy-efficient appliances may even come with rebates.

Bonus Tip: Look for front-load washers; these can use up to half as much water per cycle as top-load units.

4. Upgrading Plumbing Fixtures, Too

Major appliances aren’t all you can upgrade. Plumbing fixtures like toilets and showerheads offer another opportunity to cut back on water usage. Search for low-flow (and dual-flush) toilets that use less water per flush; low-flow showerheads better conserve water (saving up to 20% per shower) but actually offer superior performance. In both cases, look for the EPA’s WaterSense label.

Recommended: How to Find a Contractor for Home Renovations

5. Taking Shorter Showers

This tip is pretty simple but bears repeating: The less time you spend in the shower, the less water you’ll use. And as long as you keep your showers short, you’ll save water — and money — by showering instead of taking a bath.

Bonus Tip: Want to reduce your usage and save more money on water? Get wet when you first step into the shower, then turn off the water while you lather and scrub; then rinse.

Recommended: Creative Ways to Save Money

6. Fixing Leaks

Leaky faucets and toilets that won’t stop running are noticeable, but your home may have other, less obvious plumbing leaks to watch out for, like your hot water tank or supply line. Because many drain pipes exist behind your walls, you may only catch a leak by hearing it, so keep your ears sharp throughout the year.

The cost to repair a plumbing leak can be high, but doing so will lower your water bill in the long run — and leaks left alone can develop into larger, more expensive problems down the road.

7.Turning Off the Water When Brushing Your Teeth

Letting the water run the entire time you brush your teeth — especially if you brush them for the ADA’s recommended two minutes — has become the poster child for wasting water. Turning off the water while you brush can be such an easy way to cut back on water usage and avoid the consequences of not saving money.

Bonus Tip: This also applies while shaving; only run the water when you need it.

8. Composting Instead of Using the Garbage Disposal

Have food scraps? Don’t throw them all in the garbage disposal, which uses water; try composting instead. You can compost foods like fruits, vegetables, eggshells, meat, and coffee (filters included!); doing so can be great for your garden.

Bonus Tip: Another way to reduce water usage in the kitchen is to thaw frozen meat overnight in the refrigerator, rather than running it under warm water.

Recommended: How to Save Money While Living Sustainably

9. Keeping a Pitcher of Water in the Fridge

If you let the tap run until the water gets cold enough to fill your drinking glass, you’re wasting water. Consider putting a pitcher of water in the fridge instead so that it’s cold when you want it. As a bonus, you can invest in a pitcher with a water filter for cleaner drinking water.

10. Caring for Your Lawn Strategically

Before watering your lawn, check the weather forecast. If rain is predicted in the next few days, don’t bother watering the lawn at all. Even if it’s hot out and hasn’t rained lately, your grass may not need water. Try stepping on it; if it springs back up, you don’t need to water it yet.

If you must water your lawn, check your sprinkler system to ensure there are no leaks, and don’t overwater.

Bonus Tip: Mowing your lawn less regularly is actually a good thing. Longer grass allows for deeper root growth — and thus a drought-resistant lawn that doesn’t need to be watered as often.

Recommended: 10 Most Common Budgeting Mistakes

11. Using a Commercial Car Wash

Car aficionados may insist upon washing their car every other week (or every week, if they’re dedicated). While washing and waxing your car is good for protecting its paint and maintaining its value, you can get away with fewer car washes. To keep water usage down, try once a month at most.

You can also cut your own water costs entirely by paying for a commercial wash. Commercial car washes use 60% less water and are designed to prevent water pollution from runoff. Many locations also recycle their wash water multiple times.

Recommended: How Much Auto Insurance Do You Need?

12. Covering Your Pool

Have a pool outside? Make sure you cover it when not in use. Not only does this keep unwanted debris out of the swimming area, but it also helps reduce the amount of water that evaporates each day.

Recommended: Ways to Stay Motivated to Save Money

The Takeaway

Saving money on water isn’t just great for your wallet; it’s also great for the environment. From composting to upgrading appliances to cutting back on car washes, you can dramatically reduce your family’s water consumption — and see great savings on your water bill as a result.

Better banking is here with up to 3.75% APY on SoFi Checking and Savings.

FAQ

How much money can you save on your water bill by using less water?

The average American spends just under $75 a month on their water bill. If your family reduces water usage by 25%, your bill could drop to roughly $56; if you reduce water usage by 50%, your bill could be below $40. How much money you can save on your water bill depends on how much water you’re able to conserve and what the cost of water is in your city.

Why is saving water important?

Reducing water usage does more than lower your water bill. Saving water means that we use less water from rivers, bays, and estuaries — and this is a big deal for our environment. When we use less water, we also reduce water and wastewater treatment costs. Plus, it takes a lot of energy to treat, pump, and heat our water, all of which contribute to air pollution. In areas threatened by drought, reducing our personal water usage ensures our neighbors, friends, and family also have access to the water they need.

How much water is used per household a year?

The EPA estimates that the average American uses 82 gallons of water per day. For a family of four, that’s 328 gallons a day or nearly 120,000 gallons a year. Families can save a lot of water by taking simple measures: For example, the EPA estimates families save 13,000 gallons of water per year by replacing inefficient toilets — and 9,400 gallons of water annually by repairing leaks.


Photo credit: iStock/vorDa

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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Should I Sell My House to Pay Off Student Loans?

Selling a house to pay off student loans may not make the most sense for most borrowers. If you’re thinking about selling your home to pay off your mortgage debt and then buying another home after you pay off your student loans, it’s important to remember that no matter what, you’ll still have to pay back debt. Due to certain characteristics of both student loans and mortgages, it might not be advantageous to you as a borrower.

Read on to learn about mortgage debt vs. student loan debt, the challenges of selling your house to pay off student loans, and alternative options to selling your house to pay off student loans.

Paying Off Student Loans

It’s understandable that some borrowers may want to leverage the sale of a house to sweep away student loan debt. After all, student loan borrowers in the United States collectively owe about $1.6 trillion, up from $250 billion in 2004, according to Brookings and the U.S. Department of Education. Student loans take up the second largest portion of household debt after mortgages.

However, there are specific repayment plans that could help you put a plan in place to tackle the process of paying off your student loans. Here are several repayment plans available to federal student loan borrowers:

•   Standard Repayment Plan: The most common repayment option for federal student loans is the Standard Repayment Plan, which means you pay a fixed amount each month. You must make payments of at least $50 per month over a 10-year period in order to repay the loan in full.

•   Extended Repayment Plan: The federal fixed or graduated Extended Repayment Plan allows you to take up to 25 years to pay off your student loans in full. You must owe more than $30,000 to qualify under the Direct Loan or a Federal Family Education Loan (FFEL) program.

•   Graduated Repayment Plan: You can start out with a lower monthly payment and increase your payment amount every two years with the federal Graduated Repayment Plan. You’ll still pay your loans off in 10 years but the graduated repayment plan theoretically allows for your student loan payments to grow along with your salary.

•   Income-Driven Repayment Plan: The Income-Driven Repayment Plans set your monthly payments based on your income and family size. It can take up to 25 years to pay off your loan using four different options: the Revised Pay As You Earn Repayment Plan (REPAYE Plan), Pay As You Earn Repayment Plan (PAYE Plan), Income-Based Repayment Plan (IBR Plan), and Income-Contingent Repayment Plan (ICR Plan). You may even be able to cancel your remaining balance after you meet certain requirements.

These plans give you opportunities to pay off your student loan debt with a goal in mind as an alternative to selling your home.

The repayment plans available for private student loans will vary based on the lender’s policy.

Mortgage vs. Student Loan Debt

Whether you choose mortgage and student loan debt, the fact of the matter is that you’ll still have debt.

One of the first things you may look into when you’re trying to decide whether to sell your house and pay off your student loan debt may be your interest rate. The interest rate is the amount you pay per month as a portion of the loan you receive from your lender. The higher your interest rate, the more you’ll pay over the life of the loan.

Mortgage lenders set interest rates based on the action on secondary markets, where bundles of loans are bought and sold as well as the amount of risk you present to a lender. Rates fluctuate depending on the 10-year Treasury yield. Mortgage lenders will also evaluate factors like your personal credit score, the type of mortgage, and loan terms, your down payment, and more when determining your mortgage interest rate.

The U.S. Department of Education also sets interest rates for federal student loans based on the 10-year Treasury note. Private student loan lenders use market factors and information they gather about you, the borrower, and your cosigner (if applicable). Private lenders also use a benchmark index rate to determine interest rates called the Secured Overnight Financing Rate (SOFR).

Student loan interest rates may be higher or lower than mortgage rates, depending on the type of mortgage loan you choose. If your student loan interest rate is higher than your mortgage, you may want to consider keeping your mortgage and refinancing your student loans to a lower interest rate.

However, the interest rate isn’t the only thing you’ll want to consider before you make your decisions about how to pay off student loans. In the next section, we’ll discuss several other important considerations before you make the big decision about whether to sell your house to pay off debt.

Challenges of Selling Your House to Pay Off Student Loans

Why may you want to avoid selling your house to pay off student loans? Let’s walk through a few reasons why you might want to consider other options.

Your Home Serves as Collateral

A mortgage is a home loan secured by the property you finance. In other words, when you get a mortgage, you put your home up as collateral. This means that when you borrow money, you agree to put an asset up to back the loan or as backing for that loan. If you fail to make your payments, your lender could take away your home through foreclosure.

Student loans are not backed by any collateral. You can’t lose your home if you’re having trouble making your student loan payments — there are benefits to having student loans!

You Lose Out on Certain Tax Benefits

If you’re not paying interest on student loans, you can’t claim the student loan interest deduction, which allows you to deduct up to $2,500 of the interest paid for student loans on Form 1040. You may deduct $2,500 or the amount of interest you actually paid during the year, whichever is less.

It’s true that you can also take advantage of the mortgage interest deduction, which is a tax deduction on the mortgage interest paid on your mortgage debt. You can deduct interest on the first $750,000 of your mortgage as long as you itemize your tax return.

However, if you’re asking, “Should I sell my house to pay off student loans?” — it may be a better idea to keep your student loan and your mortgage and get the tax benefits of both the student loan and mortgage interest deductions.

Alternatives to Selling Your House to Pay Off Student Loans

What alternatives are available if you’re thinking, “I don’t know if I want to sell my house to pay off student debt?” Let’s go over a few options.

Consolidating Student Loans

If you have multiple federal student loans from different loan servicers, you may be able to combine them into one loan with a fixed interest rate by choosing student loan consolidation. You can also change your loan term when you consolidate and also adjust the repayment terms on your loans without paying extra fees. Though it’s worth noting that it’s possible to change your repayment plan for federal student loans at any time.

You must complete the Federal Direct Consolidation Loan Application to consolidate your loans but you can only use this option for federal student loans, not private student loans. You may consider refinancing your private student loans if you are interested in changing the rates or terms on them — continue reading for additional details on student loan refinancing.

Student Loan Forgiveness

It’s important to note that most student loan forgiveness programs don’t offer complete loan cancellation right away. As mentioned earlier in the article, with an income-driven repayment plan it could take 25 years to qualify for complete forgiveness.

One of the most common types of forgiveness, Public Service Loan Forgiveness (PSLF), means you no longer have to pay your remaining federal student loan debt after you make a specified number of monthly payments. You must satisfy all of the requirements before you get your loans forgiven or canceled. Note that the program only applies to federal direct student loans, including:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Parent PLUS Loans

•   Graduate PLUS Loans

•   Direct Consolidation Loans

Pursuing loan forgiveness through a program like PSLF requires a series of on-time, qualifying payments. The program requirements can be strict so be sure to read the details closely to be sure you are fulfilling them. If you have any questions about whether you qualify for loan forgiveness, contact your loan servicer.

Refinancing Student Loans

Refinancing your student loans essentially means you trade in your current loans to a private lender and exchange them for a new loan with a better interest rate and payment plan. The goal with refinancing is to save more money over time with a lower interest rate over a fewer number of years.

The Takeaway

Ultimately, you’ll have to consider a wide variety of factors before you decide whether it makes sense to sell your house to pay off student loans, including:

•   Interest rates

•   Loan term

•   Repayment options

•   Student loan consolidation options

•   Forgiveness options

•   Refinancing opportunities

•   Tax deductions

In some situations, it doesn’t make sense to sell your house to pay off your student loans. Selling your home may mean eliminating a mortgage, but it also requires you to find a new place to live. Before you decide to sell your house to pay off student loans or buy a house again after doing so, it’s also important to remember that your home is a great investment — a nest egg that you can build on throughout your loan term.

Check out SoFi’s student loan calculator to see how you can refinance student loans and potentially secure a lower interest rate. You’ll quickly learn your estimated savings over the life of your loan. SoFi might have the answer to handling your student loans — no need to sell your home.

FAQ

Should I move to pay off student debt?

Moving to pay off your student loans is a personal choice. However, if you can find a lower-cost home, it may be beneficial for you to be able to make lower mortgage payments because you may be able to devote more money per month toward your student loan payments. Weigh the pros and cons and also find out if you’ll owe money for paying off student loans early. Most lenders don’t charge a prepayment penalty, but it’s possible that your lender could charge one.

Is it wise to sell a house to pay off debt?

Selling your home to pay off debt can be one option for eliminating some of your debt, especially if you feel that you’re paying too much for your mortgage. Downsizing can be an effective way to expedite the repayment of other debts because you can use the excess money to make extra payments. The general rule of thumb is to spend 28% or less of your monthly gross income on your mortgage payment, which includes your principal, interest, taxes, and insurance. Before you sell your home to pay off debt, consider all the angles before you take the leap.

Is it better to pay off a house before selling?

You may think it’s a good idea to pay off a house before you sell it to make a clean, fresh start before buying a new home. However, you might end up owing more at closing because you might be subject to a prepayment penalty through your lender. Check your loan terms before you decide.


Photo credit: iStock/Quils

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

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.


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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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How Much Does It Cost to Remodel or Renovate a House?

The cost to renovate a house can vary drastically based on a myriad of factors, with the average price ranging anywhere from just shy of $20,000 to nearly $80,000. Of course, that’s a whole house renovation — the cost of a house remodel, say in just the kitchen or an outdated bathroom, can run much lower.

Before you start in on a project, it’s critical to assess how much it will cost to remodel or renovate so you can make decisions that are financially realistic. While it might seem like a pain upfront, creating a budget beforehand can help you avoid headaches and hard choices down the line.

What Is The Average Cost to Remodel a House?

The national average cost to remodel a whole home generally falls in the mid-$40,000s. That being said, the cost to remodel a house can vary quite a bit depending on the scope of the project, the size of the house, the quality of the materials used, and the location of the home. On the low end, someone could spend just a few thousand dollars, while on the other side of the spectrum, a home remodels cost could reach $200,000.

Cost to Renovate a House Per Square Foot

Because the size of the house can play a big role in the ultimate cost to remodel a house, it can be helpful to know the cost of house renovation by square foot. On average, the cost to renovate or remodel a whole house runs between $10 and $60 per square foot.

For certain rooms, however, the price per square foot is typically higher. For instance, the cost for a kitchen or bathroom renovation may be more like $100 to $250 per square foot. This is because of the materials needed and also the labor involved due to plumbing and electrical work required.

Factors of a Home Remodel Cost

As mentioned, there are several factors to take into account when budgeting for a home remodel. Some of the major factors to consider that will influence the ultimate cost of a house renovation include whether the remodels are high-end, mid-range, or low-end, the type of home, and the number and size of rooms to be renovated.

Recommended: Home Affordability Calculator

High-End Versus Low-End Renovation

The variation in price for a home renovation project stems mostly from the scale of the projects. According to HomeGuide, a homeowner generally can expect to complete the following home remodels within each budget range:

•   Low-end home remodel: A low-end renovation would include small changes such as new paint, updated hardware, and fresh landscaping. It might also include inexpensive finishes like new counters and flooring.

◦   Budget: $15,000-$40,000

•   Mid-range home remodel: In addition to the low-budget projects, a mid-range home renovation includes full-room remodels like a bathroom and kitchen, as well as a higher quality flooring than the low-end renovation.

◦   Budget: $40,000-$75,000

•   High-end home remodel: A high-end home remodel 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.

◦   Budget: $75,000-$200,000

As a homeowner, you can expect to customize your home remodel budget once you identify what rooms you want to upgrade and to what extent. Only one in five homeowners finish home remodels under budget, so it’s smart to pad estimates by 10% to 15% in the event of unexpected renovation costs.

Type and Age of Home

Older homes will typically need more attention during the home renovation process, especially as new issues arise when existing problems are addressed. Once walls and floors are opened up, for example, a homeowner might realize the wiring and plumbing are outdated and should be brought up to code.

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

If your home is deemed old enough to be considered “historic”— which is generally 50 years or older, according to the National Park Service — you’ll want to check on any existing guidelines that your city’s codes office may have, or if there’s a historic overlay that enforces the need for an architectural review. Designated historic properties in states like California, where owners of qualified historic buildings can receive property tax relief for maintaining their homes, could boost a home’s value.

Depending on the condition of the house and any past upgrades, its age can have an impact on the cost of a home remodel, but so, too, can the type of home, regardless of age. According to Angi, Victorian homes generally cost the most to renovate — anywhere from $20 to $200 per square foot — while farmhouses and townhouses tend to have the lowest cost per square foot, between $10 and $50.

Recommended: Homebuyer’s Guide

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Typical Renovation Costs by Room

When it comes to home-renovation expenses, generally not every room is created equal. Rooms with cabinets and appliances — think bathrooms and kitchens — tend to be the priciest and are often where a home remodel budget can go awry.

Kitchen Remodel

The typical range for the cost of remodeling a kitchen comes in between $13,379 and $38,6419, with $25,898 — or around $150 per square foot — being the average. But kitchens also can have the most variation when it comes to cost, depending on cabinetry, finishes, appliances, and other add-ons.

Here’s what a homeowner might expect to pay for a home remodel of a kitchen:

•   Low-end kitchen remodel: This would include new lighting, faucets, a coat of paint, refreshed trim, and a new but budget-friendly sink backsplash. A low-end kitchen remodel also might include knocking down walls or a counter extension project.

◦   Budget: $5,000-$30,000

•   Mid-range kitchen remodel: A remodel of this level could encompass new appliances, floors, and tiled backsplash to the sink and countertop. It also might include new cabinets and mid-range slabs for the countertop.

◦   Budget: $30,000-$60,000

•   High-end kitchen remodel: With this range of remodel, there could be custom cabinets, high-end countertops like rare stone or granite, and deluxe appliances added. When the budget for a kitchen is expanded, the projects start to take on custom finishes. Other projects might include new lighting, hardwood flooring, and new faucet fixtures.

◦   Budget: $65,000 and up

Because a kitchen can be extremely customizable and include so many levels of finishes, your home remodel budget could fluctuate greatly due to the cost and availability of materials, the labor involved, and where you live.

Bathroom Remodel

Bathrooms take on a similar budgeting structure to kitchen remodels. The typical range for the cost of a bathroom remodel is between $6,1618 and $16,657, with $11,229 being average. However, that budget includes a range of projects, customizations, and features.

For example, new cabinets in a bathroom can account for up to 30% of the budget. Other big-ticket items affect pricing based on whether you choose low-end or high-end finishes.
On the low-end, a new bathtub might cost around $400, but if you are looking for a high-end tub, you could pay upward of $8,000. Similarly, a sink can run anywhere from $190 to $6,500, while a toilet might cost between $130 and $800.

Bedroom Remodel

Budgeting for a bedroom remodel can be a little more cut-and-dried, since it generally doesn’t include as many costly fixtures as you might find in the bathroom or kitchen. You can expect to remodel your bedroom for around $8,215 on average.

This typically includes installing new carpet, windows, and doors, as well as refreshing the molding or trim. A bedroom remodel might also include new heating and insulation and updated wiring and lighting.

Remodeling a master suite could cost a bit more since it typically includes a bathroom and bedroom renovation in one. If you want to add or expand a closet in the master suite, you can estimate adding around $2,940 to the room’s budget, on top of the bathroom and bedroom.

Living Room Remodel

Similar to a bedroom remodel, a living room remodel can be more economical, costing between $4,000 and $10,000, on average. Like the bedroom, living rooms tend to lack the “wet” features (plumbing and appliances) that can drive up the cost of bathroom and kitchen renovations.

If you plan to add a fireplace feature to a living room, expect to spend a bit more. A fireplace could add up to $5,000 per room.

Exterior Remodel

Updating roofing and refreshing the exterior of a home is a common part of a home remodel. The national average cost to replace a roof is currently $7,211, but that price will vary depending on materials and the house’s square footage.

Adding new siding to a home typically costs anywhere from $4,300 to $15,000, with the cost again fluctuating based on the material used. Painting the exterior of a home will cost between $1,800 and $4,400.

Other Home Remodel Considerations

A home remodel isn’t just financial spreadsheets. There are other things you may want to consider — like if you are planning to sell the house or make it your forever home — before taking a sledgehammer to a room.

Home Remodel Timeline

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

Additionally, home renovations can be stressful and might be best scheduled around other big life events. For example, you might think twice about a full home remodel that coincides with a wedding, the holidays, or a baby on the way. Unexpected events could arise, but there often is no need to pile on projects with other major life events going on.

Who Is the Home Remodel for?

Before diving deep into plans, you may want to consider who your home remodel ultimately is for. Is it for you 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 your answer to this critical question.

If the remodel is just for you as the homeowner, you might choose fixtures based on personal taste or decide to splurge on high-end bathroom features that you’ll enjoy for years to come. On the other hand, if you plan to sell within a few years, you may consider tackling projects that have the greatest return on investment (ROI), which 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.

Home Remodel Delays and Unforeseen Expenses

When deciding to take on a major home remodel, it’s helpful to expect the unexpected. Unforeseen delays like a shortage of materials during a global pandemic could extend your home remodel timeline, or emergency expenses could drive a project over budget. As a general rule of thumb, estimate at least 10% in added budget for emergencies or unexpected costs.

Financing a Home Remodel

Coming up with the money to finance a home remodel can be daunting enough to make some homeowners abandon the whole process entirely. However, there are multiple financing avenues you can explore.

Out-of-Pocket Home Remodel Expenses

Homeowners who take on small renovations and have liquid savings might decide to pay for everything out of pocket. The upside of this approach is not having to deal with debt or interest rates.

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

Borrowing Money from Friends or Family

Another alternative to financing your home remodel is borrowing money from family members or friends. While this may save you from having to deal with loan applications and approvals — and potentially provide more flexible terms — it can come with its own share of issues, such as risking the personal relationship if you’re unable to pay back the lender.

Additionally, loans from family members may be considered gifts by the IRS — and, thus, may be taxable. Consider discussing this method of financing a home remodel with a tax professional before proceeding if you have any concerns or uncertainties.

HELOC

A HELOC, or home equity line of credit, allows homeowners to pull a certain amount of equity from their home to finance things like renovations. Qualifying for a HELOC depends on several factors, including the outstanding mortgage amount on the home, the home’s market value, and the homeowner’s financial profile.

HELOCs typically come with an initially low interest rate, and a homeowner generally has the option to only pay interest on the amount they’ve actually withdrawn. However, HELOCs also could have high upfront costs. They can come with a variable interest rate with annual and lifetime rate caps. Plus, your home is acting as collateral, meaning that if you fail to make payments, your home could be on the line.

Personal Loan

If you don’t have the cash on hand or enough equity in your home for a HELOC, then a personal loan is another consideration. The most common type of personal loan is an unsecured loan, meaning the loan isn’t attached to your home equity.

Personal loans might be a good option for people who recently bought their homes, need capital quickly for unexpected reasons, or need a loan for their home improvement project — there are a number of potential uses for personal loans.

Figuring out your remodel costs ahead of time is important if you want to take out a personal loan though. One of the steps to get a personal loan approved is determining how much you’ll need to borrow.

Recommended: Personal Loan Calculator

The Takeaway

The cost to remodel a house will depend on the number of rooms you decide to renovate, the degree to which each room is remodeled, the materials you use, and the area in which you live. Opting to DIY some projects could help bring down the budget, but it can be smart to bring in a professional for more specialized projects like electrical work and plumbing.

Before you get started, consider mapping out a plan that prioritizes which projects you tackle first and how you intend to finance your home remodel. One option you might consider is a home improvement loan from SoFi, which is a type of personal loan. You could get your loan funded as soon as the same day, with competitive rates and no fees. Qualified borrowers may be eligible to borrow $5,000 to $100,000 for a home improvement project or other personal needs.

Learn more and apply today for a SoFi home improvement loan!

FAQ

What’s the difference between a house rehab, remodel, and renovation?

A house rehab, or rehabilitation, involves keeping and repairing old or historical elements of a home to make it in better condition, which could include introducing new materials. With a remodel, you’re changing the structure of a room, whereas a renovation is reviving the existing room to make it more attractive or personalized.

How do I estimate renovation costs?

The best way to estimate your renovation costs is to talk to a local contractor. You might contact a few to get some different estimates to work with. From there, you might consider adding at least 10% to that figure to account for unforeseen expenses or other surprises.

How much should I spend on a home renovation?

It’s really up to you how much to spend on a home renovation. That being said, it’s important to keep in mind the value of surrounding homes as you add value to your own. You might contextualize remodeling costs in the context of the overall value of your home.

How much remodeling can be done with $100,000?

It’s possible to renovate an entire house with a budget of $100,000, considering the national average cost to remodel a whole home generally falls in the mid-$40,000s. However, the amount of remodeling you can do also depends on factors such as the quality of materials used, the square footage of the house, and the home’s location. The cost of remodeling can vary widely based on these factors and others.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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