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Homebuyers choose the number of years they’d like their mortgage to last. The 30-year fixed-rate mortgage is by far the most popular, followed by the 15-year fixed-rate mortgage, but terms of 10, 20, 25, and even 40 years are available. The term that will work best for each borrower largely depends on the monthly mortgage payment they can handle and how long they plan to keep the property.

What Is a Mortgage Term?

The term is the number of years it will take to pay off a home loan if the minimum payment is made each month. Knowing how long you plan to stay in your home can affect the type of home loan that fits your situation when you shop for a mortgage — not only short or long term, but also fixed or adjustable interest rate.

Of course, every borrower’s situation is unique. But according to the National Association of Realtors®, the average homeowner tenure was 13.2 years in 2021. And in 2023, people who were selling homes had typically lived in the property for a decade.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

How Mortgage Terms Work

For fixed-rate home loans, payments consist of principal and interest, with a fixed interest rate for the life of the loan. With mortgage amortization, the amount going toward the principal starts out small and grows each month, while the amount going toward interest declines each month.

A shorter term, conventional loan generally translates to higher monthly payments but less total interest paid, and a longer term, vice versa. A shorter-term loan also will have a lower interest rate.

This mortgage calculator tool includes an amortization chart that shows how payments break down over a fixed-rate loan term, as well as the total amount of interest paid, which in a fixed-rate loan is predictable.

Most adjustable-rate mortgages (ARMs) also have a 30-year term. You can’t know in advance how much total interest you will pay because the interest rate changes.

How Long Can a Mortgage Term Be?

A few lenders out there offer 40-year mortgages. Qualifying is more difficult, and the rates are the highest among fixed-rate loans, while ARMs can be unpredictable.

The long term means a borrower will make the lowest possible monthly payments but pay more over the life of the loan than any other.


💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Fixed-Rate Mortgages vs Adjustable-Rate Mortgages

When you’re first choosing mortgage terms or looking at different types of mortgages, start with one of the basics.

A fixed-rate mortgage is exactly what it sounds like. You lock in an interest rate for the entire term. If market rates rise, yours will not.

An adjustable-rate mortgage is much more complicated. An ARM usually will have a lower initial rate than a comparable fixed-rate mortgage, and a borrower may be able to save significant cash over the first years of the loan.

Recommended: Adjustable Rate Mortgage (ARM) vs. Fixed Rate Mortgage

But a rate adjustment can bring a spike in mortgage payments that could be hard or impossible to bear. With the most common variable-rate loan, the 5/1 ARM, the rate stays the same for the first five years, then changes once a year.

An interest-only ARM has an upside and downside. You’ll pay only the interest for a specified number of years, when payments will be small, but you will not be paying anything toward your mortgage loan balance.

An ARM may suit those who are confident that they can afford increases in monthly payments, even to the maximum amount, or those who plan to sell their home within a short period of time.

ARM seekers may want to prequalify for more than one loan and compare loan estimates. It’s a good idea to know the answers to these questions:

•   How high can the interest rates and my payment go?

•   How high can my interest rate go?

•   How long are my initial payments guaranteed?

•   How often do the rate and payment adjust?

•   What index is used and where is it published?

•   Will I be able to convert the ARM to a fixed-rate mortgage in the future, and are there any fees to do so?

•   Can I afford the highest payment possible if I can’t sell the home, or refinance, before the increase?

Comparing 15-Year and 30-Year Mortgages

Clearly, paying off a mortgage in 15 years rather than 30 sounds great. You’ll get a lower rate, pay much less total interest, and be done with house payments in half the time. The catch? Higher monthly payments. Here’s an example of how a 30- and 15-year fixed-rate mortgage might shake out, not including property taxes and insurance and any homeowners association (HOA) fees.

30-Year vs. 15-Year Fixed-Rate Mortgage

Type	Loan Specs	Rate	Payments	Total Interest Paid
30-year	Appraised value: $375,000 Down payment: $75,000 Loan size: $300,000	4%	Mortgage payment: $1,432	$215,607
15-year	Appraised value: $375,000 Down payment: $75,000 Loan size: $300,000	3.2%	Mortgage payment: $2,101	$78,130

There’s a reason that the 30-year fixed-rate mortgage reigns supreme: manageable payments that ideally leave enough money for emergencies and retirement savings. Borrowers making lower payments can always pay more toward the principal if they want to pay off the mortgage early.

Then again, borrowers with stable finances who can afford the higher payments of a 15-year home loan may find it quite appealing.

The Takeaway

How to pick a mortgage term? Look at your budget, think about how long you plan to stay in the home, and weigh your financial goals and priorities. Consider getting prequalified so you can see what your options are.

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.

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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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Both a loan modification and a loan refinance can lower your monthly payments and help you save money. However, they are not the same thing. Depending on your circumstances, one strategy will make more sense than the other.

If you’re behind on your mortgage payments due to a financial hardship, for example, you might seek out a loan modification. A modification alters the terms of your current loan and can help you avoid default or foreclosure.

If, on the other hand, you’re up to date on your loan payments and looking to save money, you might opt to refinance. This involves taking out a new loan (ideally with better rates and terms) and using it to pay off your existing loan.

Here’s a closer look at loan modification vs. refinance, how each lending option works, and when to choose one or the other.

What Is a Loan Modification?

A loan modification changes the terms of a loan to make the monthly payments more affordable. It’s a strategy that most commonly comes into play with mortgages. A home loan modification is a change in the way the home mortgage loan is structured, primarily to provide some financial relief for struggling homeowners.

Unlike refinancing a mortgage, which pays off the current home loan and replaces it with a new one, a loan modification changes the terms and conditions of the current home loan. These changes might include:

•   A new repayment timetable. A loan modification may extend the term of the loan, allowing the borrower to have more time to pay off the loan.

•   A lower interest rate. Loan modifications may allow borrowers to lower the interest rates on an existing loan. A lower interest rate can reduce a borrower’s monthly payment.

•   Switching from an adjustable rate to a fixed rate. If you currently have an adjustable-rate loan, a loan modification might allow you to change it to a fixed-rate loan. A fixed-rate loan may be easier to manage, since it offers consistent monthly payments over the life of the loan.

A loan modification can be hard to qualify for, as lenders are under no obligation to change the terms and conditions of a loan, even if the borrower is behind on payments. A lender will typically request documents to show financial hardship, such as hardship letters, bank statements, tax returns, and proof of income.

While loan modifications are most common for secured loans, like home mortgages, it’s also possible to get student loan modifications and even personal loan modifications.


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

What Is Refinancing a Loan?

A loan refinance doesn’t just restructure the terms of an existing loan — it replaces the current loan with a new loan that typically has a different interest rate, a longer or shorter term, or both. You’ll need to apply for a new loan, typically with a new lender. Once approved, you use the new loan to pay off the old loan. Moving forward, you only make payments on the new loan.

Refinancing a loan can make sense if you can:

•   Qualify for a lower interest rate. The classic reason to refi any type of loan is to lower your interest rate. With home loans, however, you’ll want to consider fees and closing costs involved in a mortgage refinance, since they can eat into any savings you might get with the lower rate.

•   Extend the repayment terms. Having a longer period of time to pay off a loan generally lowers the monthly payment and can relieve a borrower’s financial stress. Just keep in mind that extending the term of a loan generally increases the amount of interest you pay, increasing the total cost of the loan.

•   Shorten the loan repayment time. While refinancing a loan to a shorter repayment term may increase the monthly loan payments, it can reduce the overall cost of the loan by allowing you to pay off the debt faster. This can result in a significant cost savings.

Recommended: What Are Personal Loans Used For?

Refinance vs Loan Modification: Pros and Cons

Loan refinance is typically something a borrower chooses to do, whereas loan modification is generally something a borrower needs to do, often as a last resort.

Here’s a look at the pros and cons of each option.

Loan Modification		Refinancing
Pros	Cons	Pros	Cons
Avoid loan default and foreclosure	Could negatively impact credit	May be able to lower interest rate	You’ll need solid credit and income
Lower your monthly payment	Cash out is not an option	May be able to shorten or lengthen your loan term	Closing costs may lower overall savings
Avoid closing costs	Lenders not required to grant modification	May be able to turn home equity into cash	You could reset the clock on your loan

Benefits of Loan Modification

While a loan modification is rarely a borrower’s first choice, it comes with some advantages. Here are a few to consider.

•   Avoid default and foreclosure. Getting a loan modification can help you avoid defaulting on your mortgage and potentially losing your home as a result of missing mortgage payments.

•   Change the loan’s terms. It may be possible to increase the length of your loan, which would lower your monthly payment. Or, if the original interest rate was variable, you might be able to switch to a fixed rate, which could result in savings over the life of the loan.

•   Avoid closing costs. Unlike a loan refinance, a loan modification allows you to keep the same loan. This helps you avoid having to pay closing costs (or other fees) that come with getting a new loan.

Drawbacks of Loan Modification

Since loan modification is generally an effort to prevent foreclosure on the borrower’s home, there are some drawbacks to be aware of.

•   It could have a negative effect on your credit. A loan modification on a credit report is typically a negative entry and could lower your credit score. However, having a foreclosure — or even missed payments — can be more detrimental to a person’s overall creditworthiness.

•   Tapping home equity for cash is not an option. Unlike refinancing, a loan modification cannot be used to tap home equity for an extra lump sum of cash (called a cash-out refi). If your monthly payments are lower after modification, though, you may have more funds to pay other expenses each month.

•   There is a hardship requirement. It’s typically necessary to prove financial hardship to qualify for loan modification. Lenders may want to see that your extenuating financial circumstances are involuntary and that you’ve made an effort to address them, or have a plan to do so, before considering loan modification.

Recommended: Guide to Mortgage Relief Programs

Benefits of Refinancing a Loan

For borrowers with a strong financial foundation, refinancing a mortgage or other type of loan comes with a number of benefits. Here are some to consider.

•   You may be able to get a lower interest rate. If your credit and income is strong, you may be able to qualify for an interest rate that is lower than your current loan, which could mean a savings over the life of the loan.

•   You may be able to shorten or extend the term of the loan. A shorter loan term can mean higher monthly payments but is likely to result in an overall savings. A longer loan term generally means lower monthly payments, but may increase your costs.

•   You may be able to pull cash out of your home. If you opt for a cash-out refinance, you can turn some of your equity in your home into cash that you can use however you want. With this type of refinance, the new loan is for a greater amount than what is owed, the old loan is paid off, and the excess cash can be used for things like home renovations or credit card consolidation.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

Drawbacks of Refinancing a Loan

Refinancing a loan also comes with some disadvantages. Here are some to keep in mind.

•   You’ll need strong credit and income. Lenders who offer refinancing typically want to see that you are in a solid financial position before they issue you a new loan. If your situation has improved since you originally financed, you could qualify for better rates and terms.

•   Closing costs can be steep. When refinancing a mortgage, you typically need to pay closing costs. Before choosing a mortgage refi, you’ll want to look closely at any closing costs a lender charges, and whether those costs are paid in cash or rolled into the new mortgage loan. Consider how quickly you’ll be able to recoup those costs to determine if the refinance is worth it.

•   You could set yourself back on loan payoff. When you refinance a loan, you can choose a new loan term. If you’re already five years into a 30-year mortgage and you refinance for a new 30-year loan, for example, you’ll be in debt five years longer than you originally planned. And if you don’t get a lower interest rate, extending your term can increase your costs.

Is It Better to Refinance or Get a Loan Modification?

It all depends on your situation. If you have solid credit and are current on your loan payments, you’ll likely want to choose refinancing over loan modification. To qualify for a refinance, you’ll need to have a loan in good standing and prove that you make enough money to absorb the new payments.

If you’re behind on your loan payments and trying to avoid negative consequences (like loan default or foreclosure on your home), your best option is likely going to be loan modification. Provided the lender is willing, you may be able to change the rate or terms of your loan to make repayment more manageable. This may be more agreeable to a lender than having to take expensive legal action against you.

Recommended: 11 Types of Personal Loans & Their Differences

Alternatives to Refinancing and Loan Modification

If you’re having trouble making your mortgage payments or just looking for a way to save money on a debt, here are some other options to consider besides refinancing and loan modification.

Mortgage Forbearance

For borrowers facing short-term financial challenges, a mortgage forbearance may be an option to consider.

Lenders may grant a term of forbearance — typically three to six months, with the possibility of extending the term — during which the borrower doesn’t make loan payments or makes reduced payments. During that time, the lender also agrees not to pursue foreclosure.

As with a loan modification, proof of hardship is typically required. A lender’s definition of hardship may include divorce, job loss, natural disasters, costs associated with medical emergencies, and more.

During a period of forbearance, interest will continue to accrue, and the borrower will still be responsible for expenses such as homeowners insurance and property taxes.

At the end of the forbearance period, the borrower may have to repay any missed payments in addition to accrued interest. Some lenders may work with the borrower to set up a repayment plan rather than requiring one lump repayment.

Mortgage Recasting

With a mortgage recast, you make a lump sum payment toward the principal balance of the loan. The lender will then recast, or re-amortize, your remaining loan repayment schedule. Since the principal amount is smaller after the lump-sum payment is made, each monthly payment for the remaining life of the loan will be smaller, even though your interest rate and term remain the same.

Making Extra Principal Payments

With any type of loan, you may be able to lower your borrowing costs by occasionally (or regularly) making extra payments towards principal. This can help you pay back what you borrowed ahead of schedule and reduce your costs.

Before you prepay any type of loan, however, you’ll want to make sure the lender does not charge a prepayment penalty, since that might wipe out any savings. You’ll also want to make sure that the lender applies any extra payments you make directly towards principal (and not towards future monthly payments).

The Takeaway

Loan modification vs loan refinancing…which one wins?

It depends on your financial situation. If you’re dealing with financial challenges and at risk of home foreclosure, you may want to look into a loan modification, which could be easier to qualify for than loan refinancing.

If you’re interested in getting a lower interest rate or lowering your monthly debt payment, refinancing likely makes more sense. A refinance may also make sense if you’re looking to tap your home equity to access extra cash. With a cash-out refi, you replace your current mortgage with a new, larger loan and receive the excess amount in cash.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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

FAQ

What are the disadvantages of loan modification?

A loan modification typically comes with a hardship requirement. A lender may ask to see proof that your financial circumstances are involuntary and that you’ve made an effort to address them before considering loan modification.

A loan modification can also have a temporary negative effect on your credit.

Is a loan modification bad for your credit?

A lender may report a loan modification to the credit bureaus as a type of settlement or adjustment to the loan’s terms, which could negatively impact on your credit. However, the effect will likely be less (and shorter in duration) than the impact a series of late or missed payments or a foreclosure on your home would have.

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Photo credit: iStock/AlexSecret

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.

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 .

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.

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If your monthly mortgage payment no longer fits your lifestyle or financial goals, you may be able to change it with mortgage refinancing or recasting. Recasting and refinancing are two ways a borrower can save on mortgage costs — sometimes a jaw-dropping amount. To understand which might be best for you, it helps to understand the difference between them and the pros and cons of each.

Recasting vs Refinancing

Recasting is the reamortizing of an existing mortgage, meaning the lender will recalculate your monthly payments. Refinancing involves taking out a completely new mortgage with a new rate, and possibly a new term, and paying off your old mortgage in the process.

Recasting

If your lender offers mortgage recasting and your loan is eligible, here’s how it works: You make a large lump-sum payment — $10,000 might be required — toward the principal balance of your mortgage loan. The lender recalculates the monthly payments based on the new, lower balance, which shrinks the payments. The lender may charge a few hundred dollars to reamortize the loan.

Mortgage recasting does not change your loan length or interest rate. But because your principal amount is lower, you’ll have lower monthly payments and will pay less interest over the life of the loan.

If you were to put a chunk of money toward your mortgage principal and not recast the loan, your payments would not change, though the extra principal payment would reduce your interest expense over the life of the loan.

Who might opt for mortgage recasting? Someone who has received a windfall and wants to put it toward the mortgage might like this option. Sometimes it’s someone who has bought a new home but hasn’t sold the previous one. Once the old home is sold, the homeowner can use some of the proceeds to recast the new mortgage.

Another fan of recasting might be someone who wants to use the lump sum to pay their loan down to 80% of the home’s value so they can stop paying for private mortgage insurance (PMI).

FHA, VA, and USDA loans are not eligible for mortgage recasting. Some jumbo loans are also excluded. If you want to change the monthly payments on those types of mortgages, you’ll need to refinance your loan.

Refinancing

When you seek refinancing, you’re applying for a brand-new loan with a new rate and terms and possibly from a new lender. Most people’s goal is a lower interest rate, a shorter loan term, or both.

While finding a competitive offer might take some legwork, refinancing could help you save money. A lower interest rate for a home loan of the same length will reduce monthly payments and the total amount of interest paid over the life of the loan.

A homeowner who refinances to a shorter term, say from 30 years to 15, will pay much less total loan interest. Fifteen-year mortgages also often come with a lower interest rate than 30-year home loans.

Equity-rich homeowners who’d like to get their hands on cash may find cash-out refinancing appealing.


💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).

Pros and Cons of Recasting

Mortgage recasting lowers your monthly mortgage payments and lets you save on total loan interest while keeping the same interest rate. Since you recast your mortgage with your existing lender, the process is pretty straightforward, and the cost could be as low as $150.

There are some potential drawbacks to mortgage recasting, however. Making a large lump-sum payment means you could be trading liquidity for equity, and creating financial instability if unexpected expenses arise or if the housing market takes a downward turn.

If you have other debts with higher interest rates, you may want to avoid mortgage recasting. It could make more sense to use the money you would put toward the principal to pay down your higher-interest debt first.

Recommended: Cash-Out Refinance vs HELOC

Pros and Cons of Refinancing

If you are eligible to refinance, you won’t need a large cash source in order to lower your mortgage payments. Instead, your main goal is to qualify for a lower interest rate. If you succeed, you will save a lot of money in interest over time.

With a cash-out refi, you can use that money for whatever you need: pay down higher-interest debt, add to the college fund, or remodel your kitchen.

Refinancing involves what looks like a bummer: closing costs, which could range from 2% to 6% of the remaining principal. You’re taking out a new mortgage, after all. Some lenders will let you roll closing costs into your loan.

A lower rate could make it all worthwhile, though. It’s a good idea to calculate the break-even point, when interest savings will exceed closing costs. Everything beyond that break-even point will be savings.

Reducing your loan term with a refi could result in a higher mortgage payment but tremendous interest savings over the life of the new loan.

Refinancing may make sense for homeowners who are planning to stay put for years; those who want to switch their adjustable-rate mortgage to a fixed-rate one; and borrowers with FHA loans who want to shed mortgage insurance premiums (MIP), on a loan they’ve paid down or a home that has appreciated. Most FHA loans carry mortgage insurance for the life of the loan.

No matter the home financing topic, find a lender willing to provide transparent answers to your mortgage questions.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

The Takeaway

A mortgage recast vs. refinance: different animals with similar aims. A recast requires a lump sum but will shrink payments and total loan interest. A mortgage refinance may greatly reduce borrower costs and sometimes free up cash. Which one is right for you will depend on your current loan terms and your available cash, among other factors.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

A new mortgage refinance could be a game changer for your finances.

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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.

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If you’re in the market for a home, the thought of building your own house may have crossed your mind. Not only does building your own home take you out of the rat race of bidding for a home in a seller’s market, but you get the luxury of building your dream house to spec.

Building a home comes with a multitude of costs, including labor, materials, and land. The costs of all of these elements have risen in recent years along with everything else. The good news is that inflation slowed in 2023 and is expected to continue easing in 2024.

Let’s dive into how much you can expect to spend on building a home today.

Average Cost of Building a House

The cost to build a house (not including land) can range anywhere from $42,000 to $900,000-plus depending on the type and size of the house, where you build it, and how you choose to customize the home. On average, it costs around $329,000 to build a house in the U.S.

When calculating how much it will cost to build a house, you’ll want to consider how many bedrooms you’ll need, since this will impact the square footage and ultimate cost.

On average, building a new house costs $150 per square foot. Here’s a look at the average cost of building a house based on size.

Home Size	Average Cost to Build
800 – 1,500 square feet (2 bedrooms)	$122,000
1,000 – 2,500 square feet (3 bedrooms)	$147,000
1,900 – 2,600 square feet (4 bedrooms)	$285,000
2,500 – 3,500 square feet (5 bedrooms)	$375,000

💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

Typical Costs Associated With Building a Home

The lion’s share of your home building expenses will consist of land, labor, and materials. And, depending on market conditions when you decide to build a home, these costs can vary widely. Building a home can take many months and cost hundreds of thousands of dollars. In most cases, these expenses aren’t paid out in one lump sum, and you’ll find yourself having to budget over several months.

If you’re thinking of building a house and want to figure out how to properly allocate your funding over the life of the construction project, it’s a good idea to split the home construction project into individual segments. For ease of understanding, we’ve split construction costs into three phases:

•   Preparation costs

•   Construction costs

•   Post-construction costs

Preparation Costs

Preconstruction costs include the land, the initial costs to assemble a team for the construction project, and fees for permits and reviews that must be completed before you’re approved to proceed.

This phase can take several weeks to months. The timing will usually depend on the time to obtain all zoning and permit approvals as well as the availability of contractors.

Purchasing the Land

Before you can build a home you’ll typically need to buy a plot of land, which can range anywhere from $3,000 to $150,000 depending on the size of the lot and the location.

If you already own the land where you want to build the house, you’ll save a significant amount of the total cost of your new home build.

Water & Sewer Inspection

Local ordinances will require professional inspections of water and sewer lines before you break ground. Not only is this mandatory, but it’s also a good idea to ensure that everything is in good working order to avoid costly future problems with your water and sewer lines.

Getting utility connections professionally inspected can run around $8,400.

Architect and Home Planning Fees

Hiring an architect to create a plan for your home can run around 10% of the total cost to build the home. The cost can range anywhere from $2,000 and $20,000 depending on the complexity of your intended home and the local market. Homebuyers interested in smaller or simpler home plans can cut costs by buying pre-designed stock blueprints for as little as $500 or considering a prefabricated home.

Getting Permits & Approvals

Building a new home requires a building permit and other approvals. The cost of obtaining a building permit varies widely but averages from $1,200 to $2,000, depending on your municipality.

Getting the proper permits and zoning approvals is usually one of the most time-consuming parts of the home-building process. Working with your construction team to obtain these permits as early as possible will help to avoid delays.

Recommended: How Long Does It Take to Build a House?

Construction Costs

Construction costs encompass all the expenses of breaking ground, constructing the framework, and erecting the structure, as well as paying for all the materials and labor.

Erecting the structure and ensuring that all of the utilities are hooked up can take months, depending on how complex your home plan is. To mitigate the possibility of delays, most home construction projects begin in the spring and (ideally) plan to wrap up before the end of fall.

Excavating and Laying the Foundation

If the land hasn’t already been prepared for building, you’ll need to have it cleared, or excavated. This can cost around $2,300. After that, the crew can lay the foundation, which can be as simple as a concrete slab or involve building out a basement, which increases the cost. On average, a foundation costs around $4 per square foot. The average foundation for a new home runs around $8,900.

Putting Up the Frame

The frame of your home makes up its skeletal structure and is vital to its structural integrity. Framing costs will vary widely based on the size of the property, choice of materials, and the market costs for obtaining the materials.

On average, you can expect to pay between $7 and $16 per square foot for framing. The average cost to frame a new house ranges from $20,000 to $50,000.

Installing Electrical

The average cost of installing an electrical system in a new home ranges between $7,000 and $13,000.

This includes the cost of hiring licensed electricians, having them install wiring, outlets, switches, and electrical panels throughout your new home to code. The cost depends on your area, the power needs of your home, and whether you choose to install any bells and whistles like backup generators or solar panels.

Installing Plumbing

The average cost of installing a plumbing system in a new home ranges from $1,500 to $17,500.

Licensed plumbers will install piping throughout your home and connect it to the public water and sewer system. Like the rest of your construction expenses, your plumbing expenses will vary depending on the size of your property. It will also depend on how many water hookups you’ll need, the plumbing materials used (PVC pipes cost much less than copper), and the water capacity of the system you choose to install.

Recommended: 12 Ways to Reduce Your Water Bill and Save Money

Installing HVAC System

Installing a new heating, ventilation, and cooling (HVAC) system in your home can run anywhere from $5,000 to $34,000. The cost of a system that can adequately heat your house during the winter and cool it during the summer can vary widely. Generally the larger your home, the more expensive your system is likely to be.

Installing the Insulation, Drywall, and Flooring

Insulation, drywall, and flooring can significantly add to the cost of building a home. These costs break down as follows:

•   Insulation: $3,000 to $10,000

•   Drywall: $2.25 per square foot or $15,550 on average

•   Flooring: $1 per square foot for synthetic materials (like laminate); $10-plus per square foot or for natural solid hardwood plank

Proper insulation of your home will go a long way toward ensuring that it retains heat in the winter and stays cool in the summer. Installing drywall and flooring gives shape to your home and a canvas with which you can begin to paint.

Expect costs for all three services to fluctuate with the size and location of your home. While drywall costs remain fairly consistent, insulation and flooring costs can vary by geography. If you choose to go with tiles and hardwood flooring in sections of your home, expect to pay a premium for it, especially when compared with linoleum or vinyl.

Roofing

The installation of a brand-new roof costs an average of $8,500, but will depend on the type of roofing material you choose. The standard roofing material is asphalt shingles, which costs around $1.50 to $5.50 per square foot (including installation).

Doors, Windows, and Finishing the Exterior

Finishing the exterior of your new home involves installing siding, trim, windows, and doors. We’ve broken down these average costs as follows.

•   Doors: $250 (interior doors); $400 to $3,500 (exterior doors)

•   Windows: $150 to $1,500 (depending on the style and window type)

•   Exterior siding: $2 to $9 per square foot

•   Trim: $1,500

Single-pane windows and doors with cheap weather stripping are more likely to leak cold air in the winter, contributing to higher heating bills. Expect to pay extra for solid timber doors, double-paned windows, and high-tech garage door systems.

Post-Construction

Now that you’ve got your structure in place, it’s time to install the cosmetic finishes that will make your home shine. This includes paint, appliances, lighting, and home fixtures.

This stage is your chance to brand your home with a personality of its own.

Kitchen, Bathroom, & Light Fixtures

Plumbing fixtures include sinks, toilets, tubs, showers, and faucets, and all together can run you around $5,000. Lighting fixtures for a new home can range anywhere from $2,000 to $12,000.

These expenses can vary based on the size of your home, how many bathrooms you have, and the quality and materials of your chosen fixtures.

Painting

The cost of labor and paint required to finish the interior of a new home will depend on the size of the home and whether you choose to paint the interior of your home yourself or hire painters. If you opt to DIY, you could spend as little as $300. If you hire a professional, the cost to paint a house could run as high as $28,000 for a large home with a lot of molding and trim.

Keep in mind that higher-quality paint is usually thicker and lasts longer than cheaper brands.

Countertops and Cabinets

Costs of countertops and cabinets can range from $100 to $1,230 per linear foot depending on materials, quality, and finish.

Expect to pay up for premium options like granite countertops and kitchen islands when compared with basic materials like wood, concrete, and composite. You’ll also typically pay more for custom products than you will for stock items.

Appliances

Appliances like cooking ranges, refrigerators, and washing machines/dryers can cost $3,000 to $15,000-plus total depending on the features you want for each machine.

Just a refrigerator can cost as little as $500 for a basic unit to upwards to $12,000 for a commercial-grade model designed for residential homes. The installation of these machines is fairly straightforward, so expect most of the costs to be for the appliances themselves.

Recommended: Are Home Warranties Worth It?

Landscaping

Landscaping work for a brand-new home costs an average of $8,200.

These costs will need to be paid if you don’t want your property to sit on top of a dirt patch. Ground will need to be moved and your lawn will need to be properly seeded to ensure that it comes in green and even in the spring. These costs can be higher still if you want to add flower beds, new trees, or hedgerows.

If you want the help of a landscape architect to create an outdoor space with curb appeal, expect to pay $70 to $150 per hour.

Driveway

Putting in a new driveway can cost about $4,400. This expense can vary, however, depending on the size of your driveway and whether you opt for gravel or paved. A gravel driveway may cost one-third of what a fully paved driveway costs.

Other Factors That Can Affect the Cost of Building a House

There are a number of additional factors you’ll want to keep in mind when building a home, as they may influence your input costs and long-term home value. They include your chosen area, the size of the house, and market temperature and trends.

Real Estate Trends

These are market-driven trends that you have little to no control over as a homebuyer. They include mortgage rates, the balance between home supply and demand in your area, and the general direction of home prices near you.

Overall, rising mortgage rates tend to hurt demand, as higher rates increase borrowing costs for prospective homebuyers. Your borrowing costs could rise as well if your home building project gets delayed.

Demand and home prices in your area will affect land values as well as the potential growth in your home’s value after you complete construction. Rising home values may drive up the expense of your home building project, and indirectly drive up land costs in your area.


💡 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.

Living Expenses and Emergency Costs

According to the U.S. Census Bureau, an owner-built home can take nearly 12 months to complete. While you’ll likely have budgeted your home building costs over that period, make sure to factor in your living expenses as well.

You’ll need to ensure you’ve budgeted enough to feed and house your family for months, with money to spare, should the build be delayed. Construction projects can be delayed for any number of reasons; uncooperative weather is a common one.

In some instances, things like spikes in fuel costs and construction materials can cause unexpected budget increases, particularly if you’re planning on building in a particularly remote area. Getting work crews and building materials out there can cost time and money; expect to be billed for that time.

If you’re hoping to buy and sell at the same time, that takes strategy and timing.

Explore SoFi’s Home Financing Options

Building a home is the ultimate way to get what you want in a dream home. SoFi does not issue construction loans but does offer construction to permanent financing when the property is complete.

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

Is it cheaper to build or buy a house?

It depends on where you live. Building from scratch can be cheaper in areas where home prices have remained stubbornly high. In some regions, however, buying is more affordable than building.

The states where you can save by building tend to be the West and South Atlantic. In the Midwest, on the other hand, you may be better off buying an existing home than building from scratch.

What’s the lowest possible amount I can use to build a house?

This depends on the location you choose and the cost of labor and materials in your area. You might be able to build a simple tiny house or repurposed shipping container for under $50,000. Keep in mind, though, that you’ll need land to build on, which can cost more than that, as well as all building permits (which can cost up to $3,000).

Is it possible to get a loan to build a house?

Yes, some mortgage lenders offer construction loans to build a house from scratch. With this type of loan, money is usually advanced incrementally during construction, as the home-building project progresses. Typically, you only pay interest during the construction period. Once the construction is over, the loan amount becomes due, and it is converted into a regular mortgage.

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Photo credit: iStock/Bouillante

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.

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If you’re shopping for a home loan, you may be wondering if using mortgage points to “buy down” your interest rate is a good move for you.

The answer is … it’s complicated.

Whether you’re buying or refinancing your home, purchasing mortgage points from your lender can lower your monthly payment and reduce the overall amount of interest you’ll pay on your loan. And that’s certainly an appealing prospect.

But it’s important to understand how points work — how much they can cost and how much they might save you over the life of your loan — before you decide to hand over that extra cash up front at your closing.

What Are Mortgage Points?

Mortgage points, also known as discount points, may be used by a borrower to prepay some of the interest on a home loan in exchange for a lower mortgage rate. The borrower pays more up front (the points are paid as a fee at closing) but can end up saving money over time because the interest rate is then reduced for the life of the loan.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

How Do Mortgage Points Work?

Lenders typically base their interest rate offers on several factors, including a borrower’s credit profile and current market rates. But once you receive that initial offer, your lender also may give you the opportunity to buy down your rate through the use of mortgage points. (If the lender doesn’t bring it up, you can ask.)

Every point purchased reduces the interest rate a borrower pays by a predetermined percentage, which can vary from one lender to the next. But let’s say your lender offers you an initial rate of 3.25% and provides a 0.25% rate reduction if you purchase one discount point. If you decide to buy the point, your rate would then be 3%.

Each point you buy typically costs 1% of the amount you’re borrowing, and that money is due up front. So, for example, if your loan is for $200,000, a point will cost $2,000 at closing. If that seems too steep, you may be able to purchase a fraction of a point. A half-point in this scenario would cost $1,000, or three-quarters of a point would be $1,500.

How Do Points Affect Your Mortgage?

Here’s a hypothetical example to illustrate how buying one point could reduce the cost of a 30-year, fixed-rate $200,000 mortgage. (This is a bare-bones example, so the payment amount includes principal and interest only.)

Discount points purchased	None	1 point ($2,000)
Loan principal	$200,000	$200,000
Interest rate	3.25%	3%
Monthly payment	$870	$843
Total interest paid over life of the loan	$113,348	$103,555
Total saved over life of the loan	None	$9,793

Keep in mind that the borrower in this scenario would have to stay with the loan for the entire 30-year term to get the full savings — and that can be rare these days. Homeowners only stay in a home for an average of eight years, and many refinance their home loans.

That’s why it’s important to factor in your “break-even point” — when the savings from the lower mortgage cost offset what you paid for the discount points — before you make your decision.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

What Is the Break-Even Point?

Paying points on a mortgage can lower your monthly payment and save you thousands of dollars — if you keep the same loan long enough to recover the money you paid up front. If you plan to move or refinance before you reach and pass that threshold, paying points may not make sense.

To calculate the approximate point at which you would get back what you spent on prepaid interest, you can divide the amount you paid for any points by the amount you’ll save each month on your payment. For example, as noted in the chart above, if you purchased one point for $2,000 at closing, you’ll save $27 each month. Divide $2,000 by $27 and you’ll see you can expect to break even in 74 months — or about six years. If you plan to stay in your home much longer than that, buying down your rate could be worth considering.

Can You Buy Points for an ARM?

You can buy points if you decide to go with an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. But it may not be worth it if the points apply only to the ARM’s initial interest rate, which typically lasts for three, five, seven, or maybe ten years. If the rate goes up after that and you decide to refinance, you could lose out on the savings you hoped to get when you paid for the points.

Recommended: How an Interest-Only Mortgage Works

Are Mortgage Points Tax Deductible?

Discount points, which are considered prepaid interest, may be deducted as home mortgage interest if you itemize deductions on Schedule A of your Form 1040. But you’ll need to meet certain criteria in order to deduct mortgage points and you may not be able to deduct all of the mortgage interest and points in the year you paid them.

It’s important to note that only discount points, which represent prepaid interest, are tax deductible. “Origination points,” which also may be referred to as mortgage points, are not tax deductible. These points, which you’ll also pay at closing, refer to the various fees lenders may charge in preparing your mortgage (such as processing, underwriting, administration, or document preparation costs).

Your accountant or tax preparer should be able to answer your questions if you aren’t clear about the amount you can deduct on your annual return.

Is There a Limit on the Points You Can Buy?

The maximum number of points you can purchase to reduce your interest rate may differ based on factors like the financial institution, type of loan you choose, or how much you need to borrow. According to a survey of lenders performed weekly by Freddie Mac, the average number of points reported on 30-year, fixed-rate conventional loans in 2022 was 0.9.

Benefits and Risks of Mortgage Points

Here are some things to consider when you’re deciding if buying points makes financial sense for you.

How Long Do You Plan to Stay in the Home?

If you run the numbers and think you’ll keep your loan past your break-even point, it could be worth paying extra up front. But if it’s a starter home, or you expect to relocate for your career, buying points may not be prudent.

Do You Have Plenty of Money Saved?

Homeownership can be expensive. Are you certain you have enough saved to make a decent down payment, pay for points as well as other closing costs, and still have funds in reserve for the inevitable expenses related to homeownership? If not, you may want to reconsider the benefits of buying down your interest rate.

Did the Seller Agree to Pay Some Closing Costs?

If the seller agreed to pay some or all of your closing costs, you may be able to negotiate discount points as part of that offer.

Do You Plan to Make Extra Payments?

Paying for points could be a smart strategy if you expect to hold on to the same loan for a long time. However, if your goal is to pay off your mortgage early — perhaps by paying more toward the loan principal whenever possible — points may not offer the savings you expected.

Would the Money Be Better Spent on Your Down Payment?

If you have plenty of money saved and you’re trying to decide between increasing your down payment or buying points, you may want to run the numbers to determine which choice will give you a better return on your investment.

If your time horizon is short, you may save more by making a bigger down payment. If you plan to stick around for several years at least, you may choose to put your money toward discount points.

Remember, depending on the type of loan you have, if you make a down payment that’s less than 20%, your lender probably will require that you purchase private mortgage insurance. PMI could add about 0.3% to 1.5% to the cost of your mortgage. And you’ll likely have to pay it every year until your equity in the home reaches 20%.

Pros and Cons of Mortgage Points

Pros	Cons
You can lower your monthly mortgage payment	High up-front costs can make closing even more expensive
You may be able to save on interest over the life of your loan	Could deplete cash needed for furniture, renovations, moving, etc.
Discount points may be tax deductible for those who itemize	Could lose money if you sell or refinance before breaking even

Ready to Go Rate Shopping?

Make sure when you shop rates, you’re comparing apples to apples. Some lenders may offer an interest rate that appears lower than others but has a fraction of a point or a point tied to it. If two lenders are offering a 3% interest rate on a 30-year, fixed-rate loan, but one is charging a point to get that rate and one isn’t, the one that isn’t charging the point is offering you a more affordable deal.

Be cautious when comparing mortgage rates: If it isn’t clear how much you’ll pay to borrow, you can ask a loan officer to walk you through your loan estimate and/or to calculate your costs based on different time frames. Lenders are required to disclose information about their products in a way that allows borrowers to make meaningful comparisons.

The Takeaway

What’s the point of mortgage points? They allow homebuyers to reduce their loan’s interest rate by paying some of the interest up front. Buying discount points can save you money on interest over time, but only if you keep the loan long enough to recover the upfront cost.

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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Photo credit: iStock/Prostock-Studio

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.

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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.

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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