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Balancing Paying Off Student Loans & Starting a Family

These days, planning for parenthood can seem even more daunting thanks to student loan debt. Older millennials ages 25 to 34 owe an average debt of $42,000, including credit card and student loan debt, according to Northwestern Mutual’s 2018 Planning & Progress Study.

So when looking to start a family, it’s important to understand how to prioritize your debts and all of the new budget needs you’ll encounter. Raising a baby while making student loan payments is certainly possible, but it just means taking those nine months (or more, if you are thinking ahead) to sort out your finances first.

Student loans and pregnancy go almost hand-in-hand these days, since American women carry two-thirds of all student debt , according to the American Association of University Women. The last thing anyone wants to be thinking about when pregnant, or holding a new baby, is missing a student loan payment, so it helps to plan ahead to start getting your debt under control. Paying off student loans while saving for children is definitely doable.

Whether you are considering refinancing your student loans, lowering your monthly payments by switching to an income-based repayment plan, or are just looking to save more money before the arrival of your new baby, there are plenty of ways to stay on top of your student loan payments while saving for new kid costs.

Preparing Financially for Your First Child

For most families, housing-related costs such as rent, insurance, or a mortgage are their largest expenses. So, if bringing a new baby into your home means saving up for a big move, or even just expanding into a two-bedroom apartment, evaluating if you need more space for your growing family can certainly put a strain on the budget. Childcare itself is the second-largest expense after housing for most families.

Plus, perhaps you even want to start saving now for your child’s future education, so that hopefully they are less burdened by student debt. All of these expenses, in addition to the general costs of raising a child, can really add up and make it feel like paying your monthly student loan payment is not a priority.

However, there are a number of solutions to explore to see if you can reduce your monthly student loan payments and put those savings toward a new baby.

Exploring Income-Based Repayment

If one person in your partnership is becoming a stay-at-home parent, or even taking an extended parental leave from work, consider applying, or reapplying, for an income-based repayment plan, even if you’re already on one for your student loans.

Since your loan payments were originally calculated based on your income while employed, if you inform your loan servicer about your change in circumstance, you might be granted a different, lower payment plan.

These plans can make your monthly payment more affordable, based on your income and family size. Most federal student loans are eligible for at least one income-driven plan .

Income-Based Repayment

Payments are generally 10% or 15% of your discretionary income , depending on when you first received your student loans. Any outstanding balance is forgiven after 20 or 25 years, but you may have to pay income tax on that amount . You generally must have a high debt relative to your income to qualify for this repayment plan.

Income-Contingent

Payments will be either 20% of your discretionary income, or the amount you would pay on a fixed 12-year repayment plan adjusted to your income, whichever is less. Most borrowers can qualify for this plan, including parents, who can access this option by consolidating their Parent PLUS loans into a Direct Consolidation
Loan
. Outstanding balances are forgiven after 25 years.

Revised Pay As You Earn (REPAYE)

Payments are 10% of discretionary income , and outstanding balances will be forgiven after 20 years for undergraduate loans.

Pay As You Earn (PAYE)

For this repayment plan, you are required to make payments of 10% of your discretionary income. To qualify, each of those payments must be less than what you’d pay if you went with the 10-year Standard Repayment Plan. The repayment period for PAYE is capped at 20 years. You must be a new borrower on or after Oct. 1, 2007 to qualify .

The important thing to remember about all of these plans is that you must reapply every year, even if your circumstances don’t change. Once you switch over to an income-based repayment plan, you can start saving the difference in amount from your earlier payments. This extra savings could go toward expenses for your new baby.

Student Loan Consolidation and Forbearance

Another option to consider when having a baby while paying off student loan debt is consolidation. Student loan consolidation can lower your monthly payment; however, it does so by lengthening your repayment period, meaning you will end up paying more overall due to the additional interest payments.

A Direct Consolidation Loan can be a smart way to stay on top of student loan payments, and also set yourself up to qualify for eventual loan forgiveness and/or income-based repayment plans.

If you find yourself in a situation where you are truly unable to make your student loan payments due to the costs of a new baby, you can also consider student loan forbearance.

Forbearance temporarily allows you to stop making your federal student loan payments, or at least temporarily reduce the amount you have to pay. In order to request a general forbearance and get approved, you must meet certain requirements .

This usually means you are unable to make monthly loan payments because of financial difficulties, medical expenses (which might include high hospital bills from pregnancy), or change in employment (especially key if one parent is going to stay at home with the baby).

Ways To Save Money

If you are already on an income-based repayment plan and have considered other options to reduce your student loan debt, and are finding it is still not enough to comfortably save for a new baby, consider some other savings tricks to help you manage your money better.

In order to make sure some money ends up in your savings account every month, you can set up a portion of your paycheck to deposit directly into your savings account, instead of just a checking account.

Most banks also have the option to set up recurring transfers yourself between your own accounts. This way, your desired amount will get transferred into savings without you having to think about it.

Keep in mind there are also tax benefits to having a baby , which can earn you some extra cash back to help you reduce your overall amount of student debt.

Refinancing Your Student Loans During Pregnancy

Refinancing your student loans is another way to make your loans more manageable. Refinancing student loans through a private lender such as SoFi can give future parents the opportunity to consolidate multiple student loans into one loan with a single monthly payment.

Refinancing can provide great value as you can choose your repayment terms and potentially end up with a lower payment to free up money. (Just remember that doing this means extending your loan term, which would up the total interest you’ll pay over the life of the loan.)

Take a look at our student loan refinance calculator to see how your loan could change when you refinance. Those savings can then be put toward staying financially secure while having a baby.

Learn more about refinancing with SoFi and see what your new loan could look like in just two minutes.


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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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 about bankruptcy.
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How Compound Interest Works for Investments

Compound interest is a force to be reckoned with—its power is pretty amazing. It explains why the money you invest today—even a seemingly modest amount—can go so much further than the same sum invested years later.

You’ve probably heard that you should start saving and investing as early as possible, especially for retirement. That sounds like good advice, but we all have other financial priorities. That’s especially true for younger people dealing with mounting student loan debt, higher housing costs, and stagnating salaries. Why is it really so important to put money into the market sooner rather than later?

Because the longer you invest, the more time you have to weather the inevitable ups and downs of the stock market. And the more time your earnings have to compound.

Below, we describe exactly what compound interest is and how it works. Chances are this knowledge may make you want to be the early bird that catches the worm when it comes to investing.

What is Compound Interest?

There are two ways to calculate interest. With simple interest, interest is calculated only based on the original amount of the loan or investment (known as the principal). With compound interest, however, interest is calculated based on the investment principal, as well as on the interest you’ve earned to date. As you can imagine, essentially earning interest on your interest allows your money to grow faster.

For example, as a hypothetical scenario, if $5,000 is invested and receives 10% interest that compounded annually, after the first year, the account would earn $500. But starting with the second year, the 10% interest would be calculated based on the new amount of $5,500, not just the original $5,000.

The numbers add up quickly. After 10 years, the account would be worth around $12,9701. (If you want to see how this works for yourself, an online compound interest calculator can generate hypothetical results depending on the initial investment, interest rate, additional contributions, and length of time.)

How to Compound Interest

If you want to get technical, there’s a compounding interest formula you can use to calculate returns:

A = P(1+r/n)nt

Let’s break this down. “A” is the final amount of money you’ll end up with. “P” is the principal, or original amount invested. The “r” is the interest rate as a decimal, so 0.1 for 10%. The “n” is the number of times interest compounds each year, and “t” is the number of years you’re looking at.

The “n” in the formula above—how often interest gets compounded—makes a big difference. If interest is compounded monthly instead of yearly, for example, that can really change things.

Why Making Additional Contributions Matters

While investing early helps you take advantage of compound interest, so does investing regularly. If you make additional contributions each year on top of your initial investment, compounding interest has the chance to go even further.
Getting in on compound interest doesn’t mean you need to have $5,000 to invest today. Even small contributions can make a difference. The earlier you start investing and the more time you have, the more of a chance compound interest has to work its magic.

To illustrate, let’s revisit the equation above with a smaller hypothetical initial investment. Let’s say $500 is contributed to a retirement account today, compounded annually at 10%, and nothing else was done for 10 years. At the end of that time, the account would have:

A = 500 (1+0.1/1)(1*10)
A = 500 * 1.110
A = 500 * 2.5937424601
A = $1,296.87

But if you have 40 years, you get a different answer:

A = 500 (1+0.1/1)(1*40)
A = 500 * 1.140
A = 500 * 45.2592555682
A = $22,629.63

That’s quite a jump! And all it took was time.

If you were also to add just $50 a month to that initial $500 contribution, you’d have around $10,860 in 10 years. And after 40 years? You’d have $288,185.1 Even investing small amounts, especially consistently over time, can pay off, depending on the rate of interest, compound interest.

Taking Advantage of Compound Interest with SoFi Invest®

If you want to start making compound interest work for you, you can begin online investing today through SoFi Invest. You can get started with as little as $1.

You can invest through a retirement account (traditional, Roth, or SEP IRA) or through an after-tax account. Your funds will go into a portfolio of Exchange-Traded Funds, a lower-cost and more diversified investing strategy.

SoFi’s credentialed financial advisors will rebalance your portfolio at least quarterly to make sure it matches your risk tolerance and investment trajectory.

Learn more about how SoFi Invest can help both novice and sage investors.


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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.
1IMPORTANT: The projections and other information included above regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
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.
Advisory services offered through SoFi Wealth, LLC a registered investment advisor. SoFi Securities, LLC, member FINRA / SIPC .
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Understanding Your Student Loan Promissory Note

You’ve accepted a college offer and student aid package. First of all, congratulations! Nothing beats the excitement of going to college, moving away from the ’rents, having the opportunity to meet new people, and getting to throw yourself into a subject that interests you. (And hey, the parties are pretty fun, too.)

Curious about the next steps? Soon, you may need to accept a student loan offer by signing what is called a promissory note. (Or perhaps you already signed one and are wondering what the heck you just signed.)

Generally speaking, promissory notes are legally binding contracts that state the terms of a loan, such as the amount to be repaid, the interest rate that will be charged, and any other important terms and conditions of that particular loan.

A student loan promissory note is no different; you’ll be required to sign one, accepting the terms of your student loan(s) before the lender disburses your money.

If a student loan promissory note sounds super important, that’s because it is. You can think of it as your student loan contract. Like any legal contract, it’s important to know the nuances of what you’re signing. Here’s what you should know about student loan promissory notes and master promissory notes.

What Is a Student Loan Promissory Note?

A promissory note is your student loan contract. It details the terms and conditions of that loan, as well as any rights and responsibilities you have as a borrower. Both federal loans—loans backed by the U.S. government—and private loans require that you sign a promissory note.

You’ll need to sign a promissory note for each of your student loans, because each loan’s terms will be different. There is one possible exception, here: If you have multiple federal student loans, you may be able to sign just one promissory note, called a master promissory note.

Whether you’ll be able to sign a master promissory note is determined by the school you attend and the types of federal loans you have. So be certain to understand what your school allows, and whether you need to sign multiple promissory notes or one master promissory note. The financial aid office at your college should be able to guide you through the process.

What Should I Look for on My Student Loan Promissory Note?

Understanding the terms and conditions of a student loan promissory note is akin to understanding the terms of student loans. Here are some important items to consider on your loan, and note:

Loan type: First, it is important to know what type of loan you have. Federal loans will have different terms than private loans, which are loans accessed through an independent bank, credit union, or other lender.

Repayment options: Federal loans come with many options to help you manage your debt post-graduation, such as student loan forgiveness and income-driven repayment. If you have federal loans and access to multiple repayment plans, take some time to understand the ins and outs of different plans.

Deferment options: Federal loans may also offer options for student loan deferment, which would allow you to suspend making payments during periods of economic hardship, immediately after you leave school, etc. Private loans may also offer such programs, but every lender is different, so you’ll need to check your note.

Interest rate: The interest rate is a percentage of the principal loan amount that the borrower is charged for borrowing money. Be certain to understand the interest rate on your student loans, and whether that rate is fixed or variable. Only private student loans would have variable rates. If the rate is variable, it is possible that it will increase in the future, which would also increase your monthly payments. Be especially wary of private loans that offer introductory rate offers that later expire—they could end up costing you quite a bit of money.

Additional costs: In addition to the loan’s interest rate, a student loan promissory note should include information on any additional costs, such as a loan fee (also known as an origination fee). Student loan fees will vary by lender, so be sure to check yours. Sometimes a loan fee is deducted directly from the amount that is disbursed.

Prepayment fees: Speaking of additional costs, one thing to check for is whether your student loan allows you to “pre-pay” loan payments. If you think there’s a chance you’ll want to pay your loan back faster than the stated terms (and save yourself some money on interest), check to see whether prepayment is allowed, and if so, how additional payments are applied and whether there are any fees attached.

Cosigner removal: With some loans, especially private loans, you may be required to have a cosigner, such as a parent. (That’s because private loans rely on your—or your parent’s/cosigner’s—creditworthiness to determine the terms of your loan. Federal loans do not.) Upon graduation, some borrowers want to release their cosigner of the responsibility of having their name on the loan, so you may want to find out whether that’s a possibility.

Allocation of funds: Some loans may require that the money is spent only on designated expenses, such as books or tuition. If you’re looking to upgrade your apartment, you might not be allowed to do so using student loan funds. Make sure to check on any stipulations on how you can spend the money.

Know Your Options

If you haven’t picked up on it already, knowing how student loans work and understanding your student loan contract is the name of the game. Taking out a student loan can be a huge financial commitment and shouldn’t be done without careful consideration—which means knowing what’s on that promissory note.

Before going to sign your student loan promissory note, it’s also a good idea to spend some time thinking about your financial goals. A good place to start is by looking at how much you’ll take out in loans, total, and compare that to how much money you can expect to make after you graduate from school. Use a student loan calculator to get an idea of what your monthly payments could be given your total debt and the interest rate.

Rarely is it financially sound to take out more in loans than you absolutely need. It might seem like Monopoly money now, but this is all money that you’ll have to pay back, with interest. The repayment process can be painstaking, especially as a person early in their career or during a setback, like layoffs or a health issue. Taking out the bare minimum in student loans may mean working part-time in college, exploring more affordable college options, or continuing to apply for scholarships after you’re enrolled.

Once you’ve graduated, keep in mind that refinancing your student loans is a way for some graduates to lower the interest rates on their loans or lower their monthly payments. Refinancing is a process where your existing loans are consolidated and paid off with a new loan from a private lender such as a bank or online refinancing company, like SoFi.

Generally, the borrower has the option to keep the same repayment schedule or increase or decrease the amount of time left on their loan. (Increasing the duration of a loan may result in paying more interest over time, whereas decreasing the duration of a loan may result in higher monthly payments, but less interest paid overall.)

If you’re planning on using your federal loans’ flexible repayment plans or student loan forgiveness programs, refinancing with a private lender may not the right choice for you as you will lose access to those federal benefits. However, some private lenders, like SoFi, are now offering protections to borrowers who lose their jobs or experience economic hardship. SoFi even provides career counseling to help their borrowers get back on track.

The whole point of going to college is to put yourself in a position to excel in your career and increase your earning potential. Get yourself off to a good financial start by knowing the terms and conditions of your loan, and by taking the signing of your promissory note as serious business.

Whether you need help paying for school or help paying off the loans you already have, SoFi offers competitive interest rates and great member benefits as well.

See what you’re pre-qualified for in just a few minutes.


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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the
FTC’s website on credit.
SoFi private student loans are subject to program terms and restrictions and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. View payment examples. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQ
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How to Manage Your Money Better

If you want to manage your money more efficiently and effectively, you definitely aren’t alone. For example, when you think about New Year’s resolutions made each year by friends, family members, and coworkers, they probably include:

•  I’m going to save more money this year.

•  This year, I’m going to pay off all my credit cards.

•  I’m going to create a budget and stick to it this year.

And while everyone may have similar resolutions, no two people have the exact same financial situation, goals, challenges, or opportunities, so no two financial strategies should be precisely the same.

Yet, there are certain strategies that will help nearly everyone improve their financial situation, bringing them closer to achieving their money-related goals. In this post, we’ll share five money management tactics.

The five tactics are:

•  Set financial goals, along with a realistic budget.

•  Start saving money (or more money).

•  Use your credit cards wisely.

•  Manage your debt appropriately.

•  Use the right bank account.

Keep reading to get tips on how to accomplish those tactics.

Setting Financial Goals, Along With a Realistic Budget

No matter what financial situation you’re in, a great way to manage money begins with goal setting and budget making. If the idea of doing so stresses yotu out, know that setting goals doesn’t have to be stressful.

That’s because, while it’s important to set concrete, realistic goals, it’s also okay to create, say, a five-year plan that culminates in the vacation of your dreams—or whatever else puts a big smile on your face.

Let’s delve into budget making first and then return to goal setting. Here are some tips to create a solid budget:

  1. Collect the most recent statements from all of your lenders, as well as your most recent utility bills, property tax statements, and the like. Make sure you have everything gathered together.

  2. Using these documents, make a list of your monthly expenses, including:

 a. fixed ones, such as rent or mortgage payment, insurance payments, credit card payments, student loan payments, your typical grocery expenses, and so forth

 b. more flexible ones, such as eating out at restaurants, hobby expenses, clothing, and so forth

  3. List all sources of monthly income; use your take-home pay after taxes and after pre-tax contributions are taken out.

  4. Add up your savings, including your retirement accounts.

  5. Create a draft of your monthly budget.

  6. Identify weak spots in your budget and adjust it, as needed. If, for example, your dining out expenses are cutting into your ability to save, what adjustments can you make to improve your financial picture while remaining realistic?

Now, think about your financial goals. Try to break them down into multiple-year plans, not just this year or 25 years from now. They might include items like this:

•  One-year plan: Pay off credit card debt.

•  Two-year plan: Increase savings account by 50%.

•  Five-year plan: Have enough savings for a down payment to build a new house.

This can help your goals feel more achievable. Keep those in mind as we go through the other tips for learning how to manage money better. For additonal help with budgeting, get started with SoFi Relay. SoFi Relay tracks all of your money, all in one place (at no cost) so you stay on pace to hit your goals.

Starting Saving Money (or More Money)

Once you have a reasonable draft of a budget and you know your financial goals, know that you can continue to tweak the budget to help you achieve your goals.

It’s typically recommended that, ideally, everyone has an emergency fund that would cover living expenses for three to six months (or even up to 12 months). So, what are you willing to cut back on to create that fund?

Do you subscribe to numerous subscription-based services and apps? Which ones don’t you really use? Which ones are a bonus and not something of true importance? Rather than going on a big trip this year, how can you create a staycation to remember? If you’re a fan of designer clothes, what outlets might help you to get the outfits you love at a price that’s gentler on your wallet?

Here are three more ideas to consider:

•  Pay yourself first by having money automatically deducted from your paycheck to put into a savings account.

•  Monitor how well you’re meeting your savings goals and revisit your budget until you find the right mix of strategies to meet your savings goals.

•  If you discover that there are luxuries you really don’t want to give up, you can always pick up a side hustle and use that extra cash for your splurges.

If you think of saving as a game to see how quickly you can reach a certain goal, it can make the whole process much more enjoyable.

Using Your Credit Cards Wisely

When thinking about how to manage finances, you may think about credit card management first—and you’re right that this is a core component. The average credit card annual percentage rate (APR) in 2018 was 15.32%. By just paying credit card minimums, the principal balance may not seem go down very much.

There are, however, three time-tested tips that could help you escape credit card debt. They include:

  1. The snowball method is a debt payoff strategy where you focus on the smallest debts first. Then once you tackle your smallest debt, you continue to pay off your debts in order from smallest to largest. Remember, it is important to continue to pay the minimum payment on all of your debts, even though you are focusing on the smallest one.

  2. Or, use the same basic system, but pay them off starting from the one with the highest interest rate then down to the lowest.

  3. Or, consolidate credit card debt into a low interest personal loan and focus on paying off that one loan.

A big advantage of the third method is that you have an opportunity to get a lower interest rate from a personal loan than a credit card.

No matter which method you choose, once credit cards are paid off, it’s probably smart to only use them to the degree that you can pay them off in full each month. Then, when emergencies arise, you can use your emergency savings fund to address those needs.

Managing Your Debt

As you tackle your credit card debt, you’ve already begun the process of better managing your debt overall. And, if you have student loans, it may make sense to also consider how to address that debt effectively. And, it can be a good strategy to investigate how much money you can save when you refinance your student loans into one convenient, low interest loan.

You can find your rate at SoFi in just two minutes. At SoFi, we consolidate and refinance federal and private loans together. We charge no application fees and there are no prepayment penalties or hidden fees. Plus, you can find the rate you qualify for in 2 minutes with no commitment.

Using the Right Bank Account for You

As you’re building up your emergency savings, it’s important to consider your savings account’s interest rate. Right now, rates are rising on savings accounts, but it is still important to make sure there aren’t conditions in the fine print that could make the deal less than appealing. Conditions to be aware of can range from minimum balances that are beyond your current financial reach to fees and more.

You can also go with a non-traditional option, such as a cash management account with SoFi Money®. It is a cash management account that will provide you with tools to spend and save.

About SoFi Money

You can simplify your finances with SoFi Money. SoFi Money is a cash management account and has no account fees.

SoFi Money comes with numerous benefits, including:

•  You’ll receive a debit card.

•  You can make mobile transfers and photo check deposits.

•  You can benefit from complementary career coaching and SoFi community resources.

•   You can count on security SSL encryption and fraud protection. Plus, once your money arrives at our partner banks, it is FDIC insured up to $1.5 million.

You can open a SoFi Money account quickly and easily. Start saving and spending in one place.



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.
Each business day, cash deposits in SoFi Money cash management accounts are swept to one or more sweep program banks where it earns a variable interest rate and is eligible for FDIC insurance. FDIC Insurance does not immediately apply. Coverage begins when funds arrive at a program bank, usually within two business days of deposit. There are currently six banks available to accept these deposits, making customers eligible for up to $1,500,000 of FDIC insurance (six banks, $250,000 per bank). If the number of available banks changes, or you elect not to use, and/or have existing assets at, one or more of the available banks, the actual amount could be lower. For more information on FDIC insurance coverage, please visit www.FDIC.gov . Customers are responsible for monitoring their total assets at each Program Banks to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. The deposits in SoFi Money or at Program Banks are not covered by SIPC.
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Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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The Cost of Buying a Fixer-Upper

Buying a home is a monumental decision and one you’ve surely made with care. But today’s housing market can make it tricky to get exactly what you want right out of the gate.

According to Reuters , the shortage of affordable homes across the country will continue well into 2019 and possibly beyond.

Supply hasn’t been able to keep up with demand, the article says, and the average house price is far outpacing inflation. So, instead of going for a move-in ready home you may be tempted to buy a fixer-upper and save a little cash.

However, though the home’s initial price may seem enticing, the cost to renovate a house could deter you from remodeling your dream home.

Just how much does it cost to fix up a house? Let’s break down the most common costs associated with gutting a house and remodeling so you can make an informed buying decision.

Decide If This Is Your Home or a Flip

Many times, people looking to purchase a fixer-upper are in it for the short game of a flip. This means they are hoping to purchase a home well under market value, make a few renovations, and then quickly sell the home for a profit. And that’s all good—you just need to decide which camp you’re in.

This Old House explains that fixer-uppers that just need a little paint and cosmetic work are excellent for flippers as they are a relatively low-cost investment that could provide bigger returns. But, if you’re looking to build your dream home and just require good bones, then go ahead and look at properties that may need structural changes or something more than just a facelift.

This type of home is typically less expensive but could take years and lots of money to renovate. However, if you’re planning to make it your forever home, then it might be worth it to you.

Do Your Homework Before You Buy

It’s crucial to add up all the costs of potential renovations before you put a down payment on a home. And don’t let the dreamy idea of just wanting your own home get in the way. This isn’t the time to go easy on your potential property investment. Instead, it’s all about being brutal before you buy. And doing so may actually pay off in the long run. Otherwise, you may end up in your own version of “The Money Pit” movie.

“If people are unforgiving upfront about assessing the costs of renovation, the value of the property and the neighborhood, and how much money they have, they can come out ahead and buy more house than they otherwise could ever afford,” Bradley Inman, CEO of HomeGain.com, told This Old House .

Like Inman says, assess the upfront cost and add up all potential material and labor needs—think both big and small, like plumbers, electricians, carpenters, all the way down to any new doorknobs you’ll buy along the way. Then, subtract that from the home’s renovated market value. Inman suggests subtracting a further 5% to 10% for unforeseen costs, and that number is what you should consider offering.

For example, if you’ve done the math and found that fully renovating a two-bedroom home in Denver, Colorado, will cost $50,000 for labor and materials, you might add in an extra $5,000 for extras. Then, subtract that from $424,200, which is the current median home value (as of January 2019) for a two-bedroom property in the city. That equates to $369,200, which would then be your maximum offer. Of course, you could always mitigate the renovation costs by doing some of the work yourself.

Preparing to Invest in Home Renovations

Though each home is unique and each renovation will be different, Realtor.com provides a general cost breakdown for different remodel hypotheticals.

Than Merrill, founder of FortuneBuilders.com, told Realtor.com that a person can expect to pay about $25,000 to $45,000 for smaller remodels that include painting both the inside and outside of a home, light refinishing of cabinets, and updating landscaping.

For a heavier lift, which includes all of the above plus a complete kitchen renovation and a small bathroom fixup, the cost could be between $46,000 and $75,000.

And a major upgrade (the cost of gutting a house and remodeling), which includes everything listed above plus fixing structural issues, like the foundation and roof, will likely cost $76,000 or more.

Here’s what the cost breakdown looks like for a few of the most common fixer-upper areas. (Note: These are national averages and may vary depending on where you are.)

Common Fixer Upper Project Costs

Kitchen Remodels

According to HomeAdvisor’s 2018 remodel estimates, the average cost of kitchen remodels currently sits at $20,474. And, as HomeAdvisor points out, the National Kitchen and Bath Association estimates the top expenses for an average kitchen remodel include cabinetry/hardware (29%), installation (17%), appliances (14%), countertops (10%), and flooring (7%).

You could always save by purchasing stock cabinets from a place like Ikea, which only run a few hundred dollars per cabinet, or go big and get custom cabinets, which could set you back approximately $1,500 for just one.

Bathroom Renovation

The average bathroom renovation ranges from $6,000 to $14,000, according to HomeAdvisor. The biggest cost in the room is, once again, the cabinets. Next is the bath itself which HomeAdvisor said could cost between $400 and $1,500 for a basic tub. If you’re looking to go high end, that tub could set you back a cool $8,000.

Roof Installation

A roof should typically last two to three decades on a home—or longer if you choose the right material. The average cost for replacing a roof, according to HomeAdvisor, is $6,838.

But, again, that cost can vary greatly depending on if you want to go low or high quality. For example, asphalt shingles, which are the most common roofing type, could cost as little as $1,700, but slate, which could last even longer without needing repair, may run up to $120,000.

How to Handle the Cost of a Fixer Upper

These numbers can seem overwhelming, but remember, you’re bringing out your home’s maximum potential for both you and any potential future sale. To help pay for these improvements, you could look into applying for a home improvement loan to finance your home addition project.

SoFi applicants have an average online approval-to-funding in just seven days. Furthermore, they are unsecured loans, meaning you’re not required to put up collateral against the loan. And with fixed monthly payments, you can better plan for the road ahead. Now, all you need is a hammer and you’re ready to go.

Thinking about renovating a fixer-upper? SoFi personal loans can help you turn your new purchase into a dream home.


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.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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