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Mortgage fraud involves lying or omitting information to fund or insure a mortgage loan. It results in billions of dollars in annual losses nationwide. In the second quarter of 2023, 0.75% of all mortgage applications were estimated to contain fraud, which is about 1 in 134 applications, according to CoreLogic. Rates of fraud were higher for two- to four-family properties than for single-family homes. The top states for mortgage application fraud in 2023 were New York and Florida.

What Is Mortgage Fraud?

The FBI, which investigates mortgage fraud, defines it as “a material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.” A borrower might apply for a loan saying they had received a gift of money to help purchase a home when in reality, the borrower simply used money borrowed from a family member to temporarily inflate their assets during the loan application process.

Sometimes those working in the mortgage industry are the fraudsters: In one recent case, employees of a New Jersey mortgage business misled lenders about the intended use of properties to fraudulently secure lower mortgage interest rates. They often submitted loan applications saying that borrowers would reside in a property when in fact the property was being used as a rental or investment property.

How Does Mortgage Fraud Happen?

Mortgage fraud happens when someone involved in the process of obtaining a loan for a property purchase makes false statements about their financial situation or the planned use of the property. It may involve falsifying documents, lying about the source of income, or even creating an entirely false identity.

Types of Mortgage Fraud

The FBI investigates two distinct areas of mortgage fraud: fraud for profit and mortgage fraud schemes used for housing.

Fraud for Profit

The FBI says that those who commit this type of mortgage fraud are often industry insiders. Current investigations and reporting indicate that a high percentage of mortgage fraud involves collusion by bank officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals in the industry. The FBI points out that fraud for profit is not about getting a home, but manipulating the mortgage process to steal cash and equity from lenders and homeowners.

Fraud for Housing

It’s not only industry insiders who can look to milk the system with mortgage scams. With fraud for housing, the perpetrators are borrowers who take illegal actions in order to acquire or maintain ownership of a house. They could do this by lying about income or presenting false information about assets on their loan application to get a good mortgage rate, for example. One area where fraud is on the increase in recent years is occupancy misrepresentation, in which an investor claims that an investment property is their primary residence in order to get a more favorable mortgage rate.


💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

What Are the Penalties for Mortgage Fraud?

Mortgage fraud schemes abound, and mortgage fraud is serious. In fact, it’s typically a felony. It’s usually the FBI who investigates mortgage fraud, and conviction for federal mortgage fraud can result in a federal prison sentence of 30 years; state convictions can last a few years. If the crime is a misdemeanor and the amount involved is less than $1,000, there can be a one-year sentence.

A conviction on a single count of federal mortgage fraud can result in a fine of up to $1 million. State fines can range from a few thousand dollars for a misdemeanor to $100,000 or more for a felony. Those found guilty can expect to pay restitution to compensate the victims and to be on probation following jail time.

9 Main Types of Mortgage Fraud

Mortgage fraud comes in many flavors so let’s get a closer look at exactly what is mortgage fraud. Scammers are big on creativity, particularly when it comes to scams targeting seniors. The FBI has a list of common mortgage fraud schemes and scams to watch out for. Here are a few of theirs and others to keep in mind.

1. Property Flipping

There’s nothing innately evil about flipping properties. In fact, adding investment properties to your portfolio can be a way to build wealth if you’re good at it. But then there’s the sinister side of flipping. It goes something like this: A property is purchased below the market price and immediately sold for profit, typically with the help of a shady appraiser who puffs up the value of the property. This is illegal.

2. Equity Skimming

The FBI explains how this works: An investor may use a “straw buyer” (a knowing accomplice), false income documents, and false credit reports to obtain a mortgage loan in the straw buyer’s name. After closing, the straw buyer signs the property over to the investor in a quit-claim deed, which relinquishes all rights to the property and provides no guarantee to title. The investor does not make any mortgage payments and rents out the property until foreclosure takes place several months later.

3. Asset Rental

It’s one thing to borrow something blue on your wedding day, and quite another to borrow or rent the assets of your best friend or loved one to make yourself look better in the eyes of a lender. You “borrow” the asset, maybe a hefty chunk of cash, and after the mortgage closes, you give it back to your partner in crime. Sounds harmless, but it’s a common and serious mortgage scam.

4. Inflated Appraisals

Appraisers have the keys to the kingdom. They state the fair market value of a home. Crooked appraisers can do a couple of things that are illegal: They can undervalue the property so that a buyer gets a “deal,” or more often, they overstate the value of the property. The goal is to help a buyer or seller, or a homeowner planning to refinance or tap home equity.

5. False Identity/Identity Theft

Identity theft is an epidemic. According to the Federal Trade Commission, in 2022, it received over 1.1 million reports of identity theft.

Scammers use financial information like Social Security numbers, stolen pay stubs, even fake employment verification forms to get a fraudulent mortgage on a property they do not own. If you’ve been a victim, report identity theft as soon as possible.

6. Foreclosure Scams

Talk about kicking somebody when they’re down. Predators seek out those who are in foreclosure or at risk of defaulting on their loan and tell them that they can save their home by transferring the deed or putting the property in the name of an investor. It can sound rational when you’re desperate.

The perpetrator cashes in when they sell the property to an investor or straw borrower, creating equity using a fraudulent appraisal and stealing the seller proceeds or fees paid by the homeowners. The homeowners are typically told that they can pay rent for at least a year and repurchase the property when their credit has improved.

But that’s not how the story goes. The crooks don’t make the mortgage payments, and the property will likely wind up going into foreclosure.

7. Air Loan

This may as well be in a movie, because nothing is real with this — it’s probably the most bizarre of the mortgage fraud schemes. The FBI describes an air loan as a nonexistent property loan where there is usually no collateral. Brokers invent borrowers and properties, establish accounts for payments, and maintain custodial accounts for escrow. They may establish an office with a bank of phones used as the fake employer, appraiser, credit agency, and so on, to deceive creditors who attempt to verify information on loan applications.

8. Inaccurate Income

A lie can be what you leave out as much as what you say. Given the nature of how self-employed people file taxes, some do not report their full income on their taxes. When it comes to a “stated income” loan, a borrower claims a certain amount of income, and an underwriter makes a decision based on that figure to give them a loan or not.

If the borrower tells a little white lie about their income, it’s not little at all. It’s mortgage fraud. One way lenders try to ensure the information a borrower provides is accurate is to request a letter of explanation about anything that might be concerning in a borrower’s application. This is also why a lender asks for bank statements for a mortgage application, and may ask for extra documentation if you are self-employed.

9. Repaying Gift Money

You can receive part of a down payment for a home, but the gift is not to be repaid. In fact, when you plan to use gift funds, you’ll need to provide a gift letter that proves the money is not a loan to be repaid. You may also be asked to provide documentation to prove the transfer of the gift into your bank account. This may include asking the donor for a copy of their check or bank account statement.

If that gift is to be repaid, it is mortgage fraud. It can also put your loan qualification at risk, as all loans need to be factored into your debt-to-income ratio.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

Why Is Mortgage Fraud Committed?

Borrowers who know they are not really mortgage-ready — perhaps because of a poor credit history, a low credit score, or a nothing-to-brag-about salary that would likely get them the thumbs down from a lender — may be driven to try to enhance their chances of getting a loan, even by illegal means.

As for industry professionals, be it appraisers, real estate agents, mortgage brokers, or anyone who has a role in the home buying and selling process, they could be motivated by the almighty dollar. If they can look the other way to get the transaction done, or manipulate facts so they get their piece of the action, they may do so. (Home improvement scams are widespread too, so exercise caution when commissioning work on your home as well.)

Avoiding and Preventing Mortgage Fraud

When it comes to buying or selling a house, there are a lot of moving parts and many cooks in the kitchen. It’s a good idea to, above all, be truthful about everything, and if anyone along the way seems to be pushing you in any other direction, you could pay dearly for taking that bad advice.

You can play the game straight, but what about all the others involved in the process? It’s smart to get referrals for companies and real estate and mortgage pros that you’ll be working with, and to check state and local licenses. Visit a home loan help center to familiarize yourself with the ins and outs of getting a mortgage before you start your home search.

Once you’ve found a home you love and begin the buying process, do your homework to ensure your property evaluation, or appraisal, is on target. It might be helpful to look at other homes that are similar to see what they have sold for, and recent tax assessments of nearby homes.

Guard your John Hancock as well. Be careful what you sign, and never sign a blank document or one containing blank lines.

Once you’re a homeowner, never sign over the house deed “temporarily.” This could be a set-up. Someone may be asking you to sign over your house deed as part of a scheme to avoid foreclosure. Know that chances are you’ll lose your house permanently.

Can You Accidentally Commit Mortgage Fraud?

Even if you didn’t set out to perpetrate a mortgage scam, you could commit fraud unwittingly by signing fraudulent documents presented by a clever thief, by guessing at your assets and writing numbers into your application without checking them, or by borrowing money for a down payment without disclosing the loan.

Victims of Mortgage Fraud

What do you do if you’re the victim of mortgage fraud? Your local police department may take a report. Your state attorney general’s office may be another good resource. The FBI, however, is the agency that handles most mortgage fraud investigations. You can go to tips.fbi.gov to report a crime. Other federal agencies also investigate mortgage fraud, but the FBI is likely the best first option.

The Takeaway

Mortgage fraud isn’t rare, and both industry insiders and borrowers can be involved. It’s smart to approach the process of getting a home loan with care. Do your homework to find a loan provider you trust and read everything before you sign.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is considered mortgage fraud?

Intentionally providing false information or omitting information during the mortgage loan application process is considered mortgage fraud.

What are common mortgage fraud tactics?

Mortgage fraud takes many different shapes but common tactics include borrowers falsely inflating assets or income; those involved in the mortgage lending process inventing fake borrowers; or appraisers artificially inflating property values.

What is the typical sentence for mortgage fraud?

The average sentence for mortgage fraud is 14 months, but prison time can extend to 30 years. Fines (of up to $1 million) and the payment of restitution — repaying the money that resulted from the fraud — are also usually part of the sentence.

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Photo credit: iStock/fizkes

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.

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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

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A mortgage commitment letter is a step beyond prequalification and preapproval and could give a homebuyer an edge in a competitive market. It lays out the loan details and indicates that a buyer has an agreement for a mortgage.

But who should obtain a mortgage commitment letter and when? Let’s take a look at those answers and more.

What Is a Mortgage Commitment Letter?

A mortgage commitment letter — conditional or final — is a step closer to finalizing a mortgage but short of “cleared to close.” The letter signals to the seller that the buyer and a chosen financial institution have forged an agreement.

Buyers may seek a conditional mortgage commitment letter when they’re house hunting, and a final commitment letter when they’re ready to make an offer on a specific home.

In both types of loan commitments, the lender outlines the terms of the mortgage.

Recommended: Buying in a Seller’s Market With a Low Down Payment

Types of Mortgage Loan Approvals

In the mortgage loan process, buyers will hear “approval” thrown around a lot. But not all approvals are built equally, and each type signifies a different part of the process.

Prequalification

Getting prequalified is often an early step for buyers in the home search. It’s quick, can be done online, and doesn’t require a hard credit inquiry.

To get prequalified, buyers provide financial details, including income, debt, and assets, but no documentation, so this step serves as an estimate of how much home they can afford.

Prequalification can help buyers create a realistic budget, but the amount, interest rate, and loan program might change as the lender gets more information.

Preapproval

Preapproval is slightly more complicated, requiring a hard credit inquiry and documentation from the buyer. Lenders may ask for the following:

•   Identification

•   Recent pay stubs

•   W-2 statements

•   Tax returns

•   Activity from checking, savings, and investment accounts

•   Residential history

Armed with this information, a lender will give buyers a specific amount they’ll likely qualify for.

Preapproval also shows sellers that a buyer is serious about a home, as it means a lender is willing to approve them for a mortgage.

Conditional vs Final Commitment

Prequalification and preapproval can be important steps during the home search. But especially in a seller’s market and in certain cities, the mortgage commitment letter can become an important tool.

While a mortgage loan commitment letter can show a seller that the buyer is serious, not all letters are the same.

A conditional mortgage approval letter, the most common type, means that the lender will approve buyers as long as they meet certain conditions.

Conditions could include:

•   No change to the buyer’s finances before the closing date

•   Proof of funds to cover the down payment and closing costs

•   Passing of a home inspection

•   An appraisal

•   Proof of homeowners insurance

•   No liens or other problems with the property title

A final commitment letter means the lender has unconditionally approved the buyer for a loan to purchase a home. However, this doesn’t mean the buyer is guaranteed a loan; it just means the lender is ready to approve the mortgage.

Having a mortgage commitment letter in hand is a good way to ensure that nothing will go wrong during underwriting.

Recommended: See Local Housing Market Trends by City

How to Know If You Need a Mortgage Commitment Letter

Buyers don’t need to provide a mortgage commitment letter to a seller. Still, that extra step beyond preapproval indicates how serious they are about a property.

Since it may require a little extra work, it shows sellers that a buyer is less likely to back out, especially due to financing issues.

A mortgage commitment letter could convince a seller to take a buyer more seriously in a seller’s market. And it could calm the nerves of buyers who face home-buying angst, including the challenge of covering a down payment and closing costs (even if they plan to roll closing costs into the loan).

How to Get a Mortgage Commitment Letter

Getting a mortgage commitment letter might sound like a hassle during an already stressful home-buying process, but doing so could save buyers time and provide a sense of relief as they creep closer to closing.

First off, buyers will need to be preapproved. If they have chosen a home, once under contract, their lender or underwriter will want more information, which may include:

•   A gift letter if another party is helping with the down payment

•   Employment verification

•   Explanation of any late payments

•   Proof of debts paid and settled

From there, it could be a back-and-forth between the lender and buyer, with the lender asking for clarification or additional documentation. Common issues that arise include:

•   Tax returns with errors or inconsistencies

•   Unexplained deposits into buyer bank accounts

•   Multiple late payments or collections on a credit report

•   Unclear pay stubs

At this point, the lender may grant a conditional commitment letter, with the caveat of additional information and an appraisal. If the buyer has an appraisal and meets lender expectations with documentation, they’re likely to get a final commitment.

Contents of a Commitment Letter

A commitment letter will vary from lender to lender but generally include the following details:

•   Loan amount

•   Loan number

•   What the loan is for

•   Mortgage loan term

•   Type of loan

•   Lender information

•   Expiration date of the commitment letter

What happens after the commitment letter? The lender and underwriter will continue to iron out the mortgage details, aiming for cleared-to-close status before the closing date on the property.

The Takeaway

A mortgage commitment letter is like a short engagement before the wedding: It signals an agreement before the real deal. Buyers in an active seller’s market might find a mortgage commitment letter advantageous.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How long does it take to get a mortgage commitment letter?

It typically takes 20 to 45 days to get a mortgage commitment letter. The average closing process takes 50 days.

Does a mortgage commitment letter expire?

Yes.

How long is a mortgage commitment letter valid?

Timing can vary by lender, but the length of commitment is typically 30 days.

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Photo credit: iStock/MartinPrescott

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.

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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The longer you live in your house, the more obvious it may become that you could use more living space — perhaps for a guest bedroom, home office, or workout space. Your first thought might be to build an addition, but the sticker shock may cause you to shelve that idea and instead consider an attic conversion.

Fortunately, an attic conversion is an idea that may be more economical than a complete home addition. Read on for a full breakdown of the cost to finish an attic.

Should You Convert Your Attic Space?

There are many benefits of converting an attic into usable space, including:

•   The space already exists in your home, making this choice both cost- and time-effective.

•   You don’t need to pour a foundation, again making it a more viable and economical option.

•   Wiring is likely already in place and can be modified to suit your needs.

An attic conversion also allows you to use the entire envelope of your home, rather than wasting potential living space.

Before you fully commit to your attic remodel, though, it’s crucial to make sure your attic has the potential to become a usable living space (more on that below).

Tips on Converting an Attic

One of the first things you might do before converting your attic is to see if your roof is being supported by W-shaped trusses in your attic. If so, building an addition might be a better choice. If your attic contains A-shaped rafters, though, that’s a plus; if there’s enough open space beneath the rafters, then you can potentially convert your attic into usable space.

Other steps to take before an attic remodel include:

•   Check your local building codes to make sure your remodel will fit. The rules vary by area but a typical requirement is that the attic space must be at least 7.5 feet high and over 50% of the floor area. The thickness of the material will also factor into the final headroom and ceiling height. The quickest way to add significant costs to your attic remodel is to be forced to change course mid-project because of a code violation.

•   Determine how you’ll get into the space. Will you need to add a staircase or expand the current one? Stairs that go straight up will need more floor space than, say, spiral staircases. Or perhaps your only option is a pull-down access point; this will limit what furniture and materials you can fit into your attic conversion and how utilitarian the new living space might be.

•   Consider whether you’ll need to add windows. If you’re creating an additional bedroom, codes may require an egress window in case of fires. But even if they aren’t required, you might consider adding windows or punching skylights that open to brighten the space with natural light.

•   Decide how much flooring needs to be reinforced, along with any electrical or plumbing issues. If you ultimately decide that your attic has what’s needed for a successful conversion, it’s time to think both practically and creatively to shape what may well become the most interesting — and potentially challenging — room in your house.

•   Consider your priorities and budget. Once you get a sense of costs (listed below) and what’s most important to you, you’ll want to come up with a budget and a plan for how you’ll pay for the upgrade. If you don’t have enough cash to cover the project, you may want to explore financing. Funding options for finishing an attic include using a credit card (generally the most expensive route), getting a home improvement loan (a type of unsecured personal loan designed for small to mid-sized home renovations), or applying for a home equity loan or line of credit (which uses your home as collateral for the loan).

•   Consult with a professional unless you’re already an experienced builder. Ask friends, family members, and building associations for recommendations and referrals, then request quotes from at least three contractors to understand both possibilities and associated costs. When you contact contractors, ask them for credentials. Compare bids and, tempting as it may be, don’t automatically choose the lowest one. Make sure the contractor describes what will be provided as well as the estimated time frame.

Want to know how much value your attic conversion will bring to the table? Check out SoFi’s Home Project Value Estimator.

How Much Does It Cost to Finish an Attic per Square Foot?

On average, you can expect to pay between $10,600 to $50,000 — or $50 and $150 per square foot — to refinish your attic, according to Angie (formerly Angie’s List). A specialized or high-end attic conversion can cost as much as $200 per square foot.

Overall, costs vary depending on the overall square footage and the materials you use.

How Much Does It Cost to Finish an Attic per Task?

If you hire individual contractors for each aspect of your attic remodel, then it’s easy to see what each portion of the remodel is costing you. However, if you hire a contractor to manage the entire project, you likely won’t receive the project broken down into great detail.

What follows is a breakdown of common costs involved in an attic renovation.

Cost of Walls and Ceilings

New walls and ceilings can effectively transform an unfinished attic into a space that’s both comfortable and livable. Although prices vary by where you live, attic drywall can cost an average of $1,000 to $2,600 to install, with ceilings costing anywhere from $200 to $12,000.

Other aspects to consider: Will you paint the walls and ceilings? Add wallpaper? Do you need trim and crown molding? All of these features will be additional costs and can quickly cause your project budget to skyrocket.

Cost of Flooring

Flooring is another important consideration, so first think about what’s located directly below the attic space. Do you need soundproofing? If a bedroom is located below the attic space, you’ll likely want some sound control. Insulation provides that to some degree, and carpeting adds even more dampening.

The cost of attic flooring will depend on the current state of the attic and what materials you choose. Replacing floor joists to beef up the strength will cost anywhere between $1,000 and $10,000, while installing subfloor will run between $500 and $800. Installing the flooring itself averages between $1,531 and $4,848, depending on material and square footage.

Recommended: Renovation vs. Remodel

Cost of Windows and Skylights

If there currently are no windows in your attic, you may want to add an egress window, which will run you between around $800 and $2,400, as a safety precaution. You also might want windows or skylights to brighten the space with natural light. Expect to pay an average of $2,500 – $5,500 to install an attic window, and $1,000 to $2,400 to add a skylight.

Recommended: How Much Does It Cost to Replace Windows?

Cost of Heating and Cooling

Your attic conversion might require additional heating and cooling. The price to install an attic fan is around $400 to $900, and a standard window AC costs about $150 to $800 per unit. A skillful contractor could also potentially tie in your current climate control system.

For heat, baseboard heaters run $942 on average. If you need to add HVAC ductwork and vents to extend your home’s AC and central heating systems to the attic, you can, expect to pay anywhere from $1,000 to $5,000.

If your attic is difficult to access during the renovation period, contractors may tack on a surcharge. To get an idea of how much your attic renovation will cost, you may want to use an online home improvement cost calculator.

How Much Does It Cost to Finish an Attic Yourself?

It’s generally cheaper to go the DIY route than to hire a professional — though you will need some know-how. If you’re making minor improvements to your attic space (such as adding an attic fan and cleaning it up, you may be looking at an attic remodel cost as low as $300. However, if you’re looking to make a total transformation, your costs for materials could run as high as $50,000.

Though you’ll certainly save on labor costs, make sure to take into account the time involved if you decide to do it yourself as opposed to bringing in a professional.

Recommended: Four Ways to Upgrade Your Home

How Much Does It Cost to Finish an Attic by Type?

How much it costs to finish an attic will also vary depending on the type of attic space you’re creating. Here’s a look at how much an attic remodel costs by attic type.

Cost of Finishing a Walk-Up Attic

The cost of finishing a walk-up attic generally ranges anywhere from $8,100 and $26,000. Large portions of the costs are typically adding a staircase and installing flooring.

Finishing an Attic as a Storage Space

If you’re finishing an attic to serve as a storage space, your costs are generally a little lower as there isn’t as much polishing involved. Generally, the attic remodel cost for a storage space runs from $4,600 for a simpler setup to $18,900 if the space is larger and you opt for more elaborate storage systems.

Cost to Finish an Attic With a Dormer

Installing a dormer — a window that juts out vertically on a sloped roof — can add in some ceiling height and natural sunlight into an attic. However, it will set you back. On average, the cost to add in a dormer along with finishing the attic can run between $8,800 and $32,400.

Cost to Finish an Attic Above a Garage

The cost to finish an attic above a garage can vary widely depending on what’s involved, such as the installation of heating, insulation, or ventilation. You can typically expect to pay anywhere from $4,600 up to $24,000.

Recommended: Garage Conversion Ideas Worth the Effort

What Factors Influence the Cost of Finishing an Attic?

As you may have guessed from the wide-ranging estimates above, the cost of finishing an attic can vary a lot depending on what’s involved and what materials you use. Here a look at some major factors that can affect how much it costs to finish an attic.

•   Square footage: How large your attic is will play a big role in the total costs involved in remodeling. The bigger an attic is, the more materials required and the more time it will take to finish it, which translates to additional labor costs.

•   Need for structural changes: You’ll also pay extra if your attic is an odd shape or difficult to access. These challenges could call for structural updates, such as the addition of height, the expansion of space, or the creation of a staircase.

•   Intended use: Your planned purpose for your attic will also influence cost. If you just want to add in some additional storage space, you’ll pay a lot less than if you plan to install a full suite complete with a bedroom, bathroom, and closet.

•   Extra features desired: Perhaps unsurprisingly, the more features you want in your newly remodeled attic, the more it will cost you. Big-ticket items include windows, electricity, plumbing, and heating and cooling.

Of course, another factor that influences your cost is whether you need to get financing for the project and, if so, what terms you’re able to secure.

The Takeaway

An attic conversion can be one way to create a unique room and add more usable space to your home. It also tends to be more economical than adding an addition to your house. There are a lot of technical aspects to consider, and before getting started, it’s best to check with your local building department so you know any building or permit requirements upfront. You can then come up with a project wishlist and start soliciting bids from at least three contractors.

At the same time, you’ll want to determine if you’ll pay cash or finance all or some of the project. One financing option you might consider for an attic renovation is an unsecured personal loan. Offered by banks, credit unions, and online lenders, rates are typically lower than credit cards. And unlike a home equity loan or home equity line of credit (HELOC), you don’t need to use your home as collateral to qualify.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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.

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

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What does it mean to be prequalified or preapproved for a mortgage? One lets a future homebuyer dream, and the other takes that homebuyer one giant step closer to reality. Here’s a look at how these two steps vary, how each can play a part in a home-buying strategy, and how one in particular can increase the chances of having a purchase offer accepted.

What Does Prequalified Mean?

Getting prequalified is a way of finding out how much you might be able to borrow to purchase a home, using the most basic information about your finances. Getting prequalified by phone or online usually takes just minutes.

Here’s how it goes: You provide a few financial details to mortgage lenders. The lenders use this unverified information, usually along with a soft credit inquiry, which does not affect your credit scores, to let you know how much you may be able to borrow and at what interest rate.

Getting prequalified can give homebuyers a general idea of loan programs, the amount they may be eligible for, and what monthly payments might look like, the way a home affordability calculator provides an estimate based on a few factors.

You might want to get prequalified with several lenders to compare monthly payments and interest rates, which vary by mortgage term. But because the information provided has not been verified, there’s no guarantee that the mortgage or the amount will be approved.

What Does It Mean to Be Preapproved?

After you get prequalified, you can consider the options before you from a range of lenders. You’ll want to brush up on types of mortgage loans, and then zero in on the lender — and loan — you feel is the best fit. Then you’ll face the probe known as mortgage preapproval.

Preapproval for a mortgage loan requires a more thorough investigation of your income sources, debts, employment history, assets, and credit history. Verification of this information, along with a hard credit pull from all three credit bureaus (which may cause a small, temporary reduction in your credit scores) allows the lender to conditionally preapprove a mortgage before you shop for homes.

A preapproval letter from a lender stating that you qualify for a loan of a specific amount can be useful or essential in a competitive real estate market. When sellers are getting multiple offers, some will disregard a purchase offer if it isn’t accompanied by a preapproval letter.

When seeking preapproval, besides filling out an application, you will likely be asked to submit the following to a lender for verification:

•   Social Security number and card

•   Photo ID

•   Recent pay stubs

•   Tax returns, including W-2 statements, for the past two years

•   Two to three months’ worth of documentation for checking and savings accounts

•   Recent investment account statements

•   List of fixed debts

•   Residential addresses from the past two years

•   Down payment amount and a gift letter, if applicable

The lender may require backup documentation for certain types of income. Freelancers may be asked to provide 1099 forms, a profit and loss statement, a client list, or work contracts. Rental property owners may be asked to show lease agreements.

You should be ready to explain any negative information that might show up in a credit check. To avoid surprises, you might want to order free credit reports from www.annualcreditreport.com. A credit report shows all balances, payments, and derogatory information but does not give credit scores.

Knowing your scores is also helpful. There are a few ways to check your credit scores without paying.

Those who have filed for bankruptcy may have to show documentation that it has been discharged.

Calculate Your Potential Mortgage

Use the following mortgage calculator to get an idea of what your monthly mortgage payment would look like.

Do Preapproval and Prequalification Affect Credit Scores?

Getting prequalified shouldn’t affect your credit scores. Only preapproval requires a hard credit inquiry, which can affect scores. But the good news for mortgage shoppers is that multiple hard pulls are typically counted as a single inquiry as long as they’re made within the same 14 to 45 days.

Newer versions of FICO^® allow a 45-day window for rate shoppers to enjoy the single-inquiry advantage; older versions of FICO and VantageScore 3.0 narrow the time to 14 days.

You might want to ask each lender you apply with which credit scoring model they use.

Do I Have to Spend How Much I’m Preapproved for?

No! The preapproval amount is your maximum house-hunting budget. Staying well under that number can’t hurt and might free up money for, say, a college fund, retirement, or — groan — emergency home repairs.

Recommended: Guide to First-Time Home Buying

Are Prequalification and Preapproval the Same Thing?

By now you know that they are not one and the same. Here’s a visual on what’s needed for each:

Prequalification	Preapproval
Info about income	Recent pay stubs
Basic bank account information	Bank account numbers and/or recent bank statements
Down payment amount	Down payment amount and desired mortgage amount
No tax information needed	Tax returns and W-2s for past two years

Do I Need a Prequalification Letter to Buy a House?

No. Nor do you have to have a preapproval letter when making an offer on a house.

But getting prequalified can allow you to quickly get a ballpark figure on a mortgage amount and an interest rate you qualify for, and preapproval has at least three selling points:

1.    Preapproval lets you know the specific amount you are qualified to borrow from a particular lender.

2.    Going through preapproval before house hunting could take some stress out of the loan process by easing the mortgage underwriting step. Underwriting, the final say on mortgage approval or disapproval, comes after you’ve been preapproved, found a house you love and agreed on a price, and applied for the mortgage.

3.    Being preapproved for a loan helps to show sellers that you’re a vetted buyer.

The Takeaway

Prequalified vs. preapproved: If you’re serious about buying a house, it’s important to know the difference. Getting prequalified and then preapproved may increase the odds that your house hunt will lead to a set of jangling keys.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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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.

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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.

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

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Most people in the market for a new dwelling will buy an existing home that more or less fits their needs. But new homes don’t come with the problems that old homes might, from lead paint to a kitchen crying out for remodeling. And building a house may seem attractive because you can construct it to fit your specifications, from the number of bathrooms to building an outdoor kitchen.

If you’re ready to build your own house, here are the steps to take.

10 Steps to Building Your Own Home

Condo. Townhouse. Single-family home. Modular or manufactured home. Cabin or even houseboat. A house hunter has all of those types of homes to choose from. If you’re building a home, you’ll have a lot of choices to make as well, starting with where your home will be located. Here are the steps to building your own home:

1. Find a Location

The first thing you’ll need to do is find a site that’s zoned for a residential property. Look into local building regulations to see how much of the site you are allowed to build on and how far from property lines the building must be set back. Check ordinances that might limit size or height. Is there a homeowners association (HOA)? Scour the rules.

It’s generally suggested that you not spend more than 20% of your total budget on the building site. When you purchase the land, you will acquire a property deed, which will also act as the house deed.

2. Obtain Permits

Before a shovelful of earth is turned, the local building department must OK the plans and provide permits for the whole shebang: grading, zoning, construction, electrical work, plumbing, and more. When the permits are in hand, construction can start.

On a related note, at various points during construction, the home will need to be inspected for code compliance. If you are using a loan for new construction, your lender may also send an inspector to keep track of construction status before releasing payments from a construction loan.

3. Prep the Site and Your Finances

Site Prep

Before you start building, you’ll need to prepare the building site. You’ll want to be sure that soil conditions are stable. You may want to engage a civil engineer to give the site a look. A site surveyor can stake the property boundaries. Then you’ll need to clear brush and debris at least to 25 feet around the planned perimeter of the house.

Size and Cost

The cost of building a house averaged $313,884 in 2022, according to HomeAdvisor, the directory of service pros, but a typical range is from around $137,000 to $582,000. Obviously location, materials, and level of detail affect the bottom line.

But size is the biggie. The larger the build, the more labor and material costs you should expect. The average new home in the country has about 2,200 square feet at $150 per square foot, HomeAdvisor notes.

After the peak of the pandemic, there were months-long delays to receive materials, from appliances to garage doors, and construction costs increased. Oil prices significantly increased transportation expenses. Rising inflation left its mark, but prices leveled off in 2023. All of which is to say, cost numbers are a moving target.

Finance Options

When you build a home, you may need a loan that covers the purchase of land, buying materials, and hiring labor. In this case, you may want to look into a construction loan. Unlike mortgage loans, construction loans are not secured by an existing home, so approval might be tricky and take a bit longer.

The money is paid to your builder in installments. You’ll often only pay interest on the portion of the loan that has been withdrawn. After the typical 12 to 18 months of a construction-only loan, the usual route is to take out a mortgage and pay off the construction loan.

Other financing options are a home equity loan, if you already own a home.

A personal loan of up to $100,000 can pay for part of the construction (or maybe all, for a modest build).

If you’re buying the land, Federal Housing Administration (FHA) one-time close loans cover the lot purchase, construction, and permanent mortgage. But the loans can be hard to find and are tougher to qualify for than traditional FHA loans.

Check out these additional resources for homeowners.

Choosing Materials

Only an experienced and highly organized person may want to act as their own general contractor for a new house build. Most people will put the job in a contractor’s hands, and add 20% to 30% for the cost of materials and labor.

General contractors already have priced and sourced many of the materials when making a bid. They usually have relationships with wholesale distributors, lumberyards, and retailers.

That said, you may have some skills that you could apply to cut costs. For example, you could look into how much it costs to paint a house and determine if painting the home’s interior could help you save.

Building a Work Team

If you choose to fly solo, you’ll be on the hook for finding subcontractors yourself.

A general contractor will hire all of the team members needed to complete the project and charge 20% to 30% of the overall cost of the home. However, they also typically have regular relationships with subcontractors, who may charge them less than they would a person who hires them on a one-off basis.

As a result, you may not end up saving much or any money by finding subcontractors yourself.

4. Pour the Foundation

Once the building site is cleared, construction can begin, starting with the foundation. Some houses are built on level slabs of concrete that are poured on the ground, leaving space in which to run utilities, like plumbing and electrical.

A home with a full basement requires that a hole is dug and that footings and foundation walls are formed and poured. The concrete will need time to cure, and no construction will take place until it has set properly.

5. Set Up Plumbing

Once the concrete has set, crews install drains, water taps, the sewer system, and any plumbing going into the first-floor slab or basement floor, and then backfill dirt into the gap around the foundation wall.

6. Assemble the Frame, Walls, and Roof

With the foundation complete, framing carpenters will build out the shell of the house, including floors, walls, and the roof. Windows and exterior doors are installed, and the house is wrapped in a plastic sheathing that protects the interior from outside moisture while allowing water vapor from inside the home to escape.

7. Install Insulation, Complete Electric and Plumbing Installs

Now plumbers can install water supply lines and pipes to carry water through the floors and walls. Bathtubs and showers may be added at this time.

Electricians will wire the house for outlets, light fixtures, and major appliances. Ductwork and HVAC systems can be installed.

8. Hang Drywall and Install Interior Fixtures and Trim

With plumbing and electrical complete, the house can be insulated and drywall can be hung. A primary coat of paint goes on, and the house will start to look relatively finished.

Light fixtures and outlets can be installed, as can bathroom and kitchen fixtures, like sinks and toilets. Interior doors, baseboards, door casings, windowsills, cabinets, built-ins, and decorative trim go in. The final coat of paint is applied.

9. Install Exterior Fixtures

Crews begin exterior finishes like brick, stone, stucco or siding. Some builders pour the driveway when the foundation is completed, but many opt to do so toward home completion, along with walkways and patios.

10. Install the Flooring

Wood, ceramic tile, or vinyl floors and/or carpet can be installed at this point.

Recommended: First-Time Homebuyer Guide

Is It Cheaper to Buy or Build a New House?

There are so many variables that it’s hard to say.

The median sales price for new construction in April 2024 was $433,500, according to FRED, or Federal Reserve Economic Data. Can you beat that price with a DIY build? Maybe, if you act as the general contractor and choose cheaper materials.

Keep in mind that HomeAdvisor’s average of $313,884 to build a house does not include the land.

Ultimately, the price of your dream home hinges on location, the cost of labor and materials, and your taste.

3 Home Loan Tips

1.   Since lenders will do what’s called a hard pull on an applicant’s credit, and too many hard pulls in a short period can affect your application, it’s a good idea to know what interest rate a lender will offer you before applying for a personal loan. Viewing your rate with SoFi involves only a soft pull on your credit — and takes one minute.

2.   Before agreeing to take out a personal loan from a lender, you should know if there are origination, prepayment, or other kinds of fees.

3.   Traditionally, mortgage lenders like to see a 20% down payment. But some lenders allow home mortgage loans with as little as 3% down for qualifying first-time homebuyers.

The Takeaway

Building your own home will allow you maximum flexibility in terms of your choices of everything from floorplan to finishes. But it is a complex process and you’ll want to take it step by step, with careful consideration of your budget and how you plan to finance what you build.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

https://www.sofi.com/home-loans/mortgage/“>

FAQ

How long can you expect to live in a self-built home?

If a home is well built and maintained properly, you can expect it to last a lifetime.

How long will it take to build a home?

The average time it takes to build a home from start to finish is 9.4 months for a contractor build and 12 for an owner build, according to data collected by the U.S. Census Bureau.

Is it dangerous to build a home yourself?

If the question means completely DIY — clearing a lot, pouring a foundation, framing, installing electrical, and so on — the answer is “it sure could be.”

Are there safe financing options for self-build projects?

DIY builders and remodelers may use a construction loan, personal loan, home equity loan, or FHA one-time close loan. If you do use a construction-only loan, shop for a mortgage that makes sense once you stand there admiring the finished product.

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Photo credit: iStock/Giselleflissak

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.

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

^²To obtain a home equity loan, SoFi Bank (NMLS #696891) may assist you obtaining a loan from Spring EQ (NMLS #1464945).

All loan terms, fees, and rates may vary based upon individual financial and personal circumstances and state.

You may discuss with your loan officer whether a SoFi Mortgage or a home equity loan from Spring EQ is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit brokered through SoFi. Terms and conditions will apply. Before you apply for a SoFi Mortgage, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and loan amount. Minimum loan amount is $75,000. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria.

SoFi Mortgages originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org). Equal Housing Lender. SoFi Bank, N.A. is currently NOT able to accept applications for refinance loans in NY.

In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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