SoFi

It’s entirely possible to sell a house with a mortgage. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.

With the help of your lender and real estate agent, you can move ahead and sell a house with a mortgage. Yes, there’s a bit of paperwork involved, but settling your mortgage at the closing table shouldn’t prove too challenging. Here’s everything you need to know about selling a home with a mortgage.

What Happens to Your Mortgage When You Sell Your Home?

When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.

A Typical Sale

In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.

A Short Sale

A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).

In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction can be lengthy (up to 120 days) and involves a lot of paperwork. It’s not common in areas where values are falling or at times when the real estate market is dropping.

When You Buy Another House

There are several roads you can take when you buy another house before selling your own. You may have the option of:

•   Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.

•   Including a home sale contingency in your real estate contract. The home sale contingency states that the purchase of the new home depends upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.

•   Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.

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

Selling a House With a Mortgage: Step by Step

Here are the steps to take to sell a home that still has a mortgage.

Get a Payoff Quote

To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance shown on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.

The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.

Determine Your Home Equity

Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on the existing mortgage is $250,000, your equity is $150,000.

When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.

Secure a Real Estate Agent

A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.

Set a Price

With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.

Accept a Bid and Open Escrow

After an open house and showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage preapproval?

You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.

Review Your Settlement Statement

You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.

Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction and pinpoints how much money you’ll net by selling your home.

💡 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.

Selling a House With a Negative Equity

Negative equity means that the value of an asset (such as a home) is less than the balance due on the loan against it. Say you purchased a property for $400,000 with a $380,000 loan, but then the real estate market took a nosedive. Your property is now worth $350,000, less than the amount of the mortgage.

If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.

In this scenario (an alternative to a short sale), you pay the difference between the amount left on your mortgage note and the purchase offer at closing. So in the example above, if you sold the house for $350,000, at the closing, you would need to pay the loan holder an additional $30,000 to clear the debt.

The Takeaway

Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your remaining mortgage, your closing costs, and any second mortgage. The rest is your profit to spend however you like — perhaps on a new house.

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.

FAQ

Who is responsible for the mortgage on the house during the sale?

The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.

What happens if you sell a house with a HELOC?

When you sell a home that is used to secure a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.

What happens to escrow money when you sell your house?

Your mortgage escrow account will be closed, and any money left will be refunded to you.

Can I make a profit on a house I still owe on?

Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.

Can I have two mortgages at once?

Yes, you can have two mortgages at once if the lender approves it.

Photo credit: iStock/Beton 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-criteria for more information.

SOHL-Q425-193

A $200,000 mortgage might cost you more than twice that amount over the course of the loan’s lifetime. That’s thanks in part to the way banks amortize, or parse out the balance of interest to principal in each payment. Of course, how much your specific $200,000 mortgage will cost is a more complicated equation, since personal financial factors like your credit score and debt level will affect your interest rate. And your interest rate, in turn, will affect your total mortgage cost.

Let’s take a deeper dive into the mortgage payment on $200K, including sample amortization tables, how much your monthly payment might cost, where to find a loan, and more.

Here’s What a $200,000 Mortgage Costs

When you take out a loan of any kind, the lending institution — often a bank — charges you for the service of giving you the money you need up front. When you repay a loan, you’re repaying both principal (the money you borrowed) and interest (the money the loan servicer is charging you).

Interest is expressed as a rate in the form of a percentage. Higher interest means you’re paying more for the loan — and lower interest, of course, means you’ll pay less. The lowest interest rates are reserved for buyers with the best financial profiles, which may include factors like robust and steady income, a good or excellent credit score, and a low level of existing debt (another factor lenders express in the form of a percentage: DTI, or your debt-to-income ratio).

With all that said, let’s say you take out a $200,000 mortgage to pay for a house that costs $275,000. In this example, you’d have made a down payment of $75,000, or just over 27%. Over the course of a 30-year mortgage term, with a fixed interest rate of 6%, you’d pay almost $232,000 in interest — along with the principal repayment, of course, bringing your total amount paid to almost $432,000. You’ll notice that figure is more than double the original $200,000 you borrowed, and this example doesn’t even include additional fees like property tax or homeowners insurance.

However, interest rates are very powerful here, and even a small decrease in interest can have a big effect on the overall loan cost. For example, imagine everything we’ve just described above remains the same, but your interest rate is 4% rather than 6%. In that scenario, your total interest would be about $143,000, representing a savings of around $90,000. (Insert shocked emoji.)

As you can see, finding the most favorable interest rates possible is really worthwhile for homebuyers. If this is your first time in the home market, a home loan help center can educate you about the buying process.

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

How Much Are Monthly Payments for a $200,000 Mortgage?

Maybe you’re less concerned about how much your $200,000 mortgage will cost you over the long term but are curious about the monthly payment on a $200K mortgage. Again, interest rates have a big effect on monthly mortgage payments, as does the loan’s term (how long you have to repay it). Still, we can offer a few examples.

For a 30-year $200,000 mortgage at a fixed interest rate of 7%, your monthly payments would be about $1,330 (though this figure doesn’t include property taxes or homeowners insurance, which could push your payment hundreds of dollars upward).

For a 15-year $200,000 mortgage with the same interest rate, your monthly payments would be about $1,797 (again, without additional costs included).

You can get more specific figures customized to your circumstances using a mortgage calculator or home affordability calculator online.

Where You Can Get a $200,000 Mortgage

There are ways to get a $200,000 mortgage if you’re sure you’re ready for one. Private banks, credit unions, and lenders who specialize in mortgages are all available to meet your request. You can usually do most of the application online.

One caveat: As we’ve seen above, interest rates can make a huge difference when it comes to the cost of your mortgage over time. Although market factors have a big influence on interest rates, your personal markers also matter. Getting your financial ducks in a row as possible before applying could help you save money in the long run. (So can finding an affordable place to live in the first place.) Additionally, you may want to ask for prequalification quotes from a variety of lenders to see who can give you the best deal.

Recommended: Tips to Qualify for a Mortgage

What to Consider Before Getting a $200,000 Mortgage: Amortization

Remember how we were talking about amortization above? In most cases, lenders amortize loans in such a way that, toward the beginning of the loan, the bulk of your payments are going to cover interest. (Although your fixed monthly payments never change, the proportion of how much of that amount goes toward interest versus principal can.)

To understand how this can impact your ability to build equity, we’ve included the following sample amortization schedules for two different types of mortgage loans below. As you’ll see, the remaining principal balance goes down far more slowly than the amount you pay in. For example, in the chart below, although you’d pay a total of almost $16,000 toward your mortgage, the principal only reduces by about $2,000 because nearly $14,000 of your payments go toward interest.

Amortization Schedule, 30-year, 7% Fixed

As you can see, even 20 years into the loan’s 30-year lifespan, you’ll still be paying more toward interest than principal (though the proportion will be much closer to 50/50 than at the beginning of the term).

Next, let’s look at what happens when the home mortgage loan term is reduced to 15 years.

Amortization Schedule, 15-year, 7% Fixed

As this chart shows, a mortgage loan with a shorter term can help you build equity more quickly: Notice how principal and interest payments are much closer to equal just five years in, or a third of the way through the loan. Keep in mind that this ability comes at the cost of a higher monthly payment, though, so it may not be possible for all — especially first-time homebuyers who may struggle to meet higher mortgage payments.

💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

How Do I Get a $200,000 Mortgage?

Taking out a $200,000 mortgage is a fairly simple process these days. In most cases, your lender can prequalify you online or over the phone. While applying for your official approval will take a few more steps, including providing documentation like income verification and tax returns, you can still be approved in as little as a business day — and ready to take over the keys to your dream home.

To get started, reach out to the lender you’ve chosen to learn more about its process. The lender may make it simple to start your application online. Just don’t forget that interest adds up, and amortization can make it more difficult to build equity quickly. It’s worth checking in to ensure your lender doesn’t charge an early repayment penalty, and that it’s easy to pay additional principal if you’re able.

Recommended: The Cost of Living By State

The Takeaway

Because of interest, a $200,000 mortgage might cost more than $200,000 on top of the principal you borrow. It all depends on your loan term as well as your specific rate — which in turn depends on your financial standing.

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.

FAQ

How much does a $200K mortgage cost each month?

With a fixed rate of 6.25%, a 30-year $200,000 mortgage will cost about $1,231 per month before additional fees, and a 15-year $200,000 mortgage at the same rate will cost closer to $1,715. If your down payment is less than 20% you will likely have to pay for mortgage insurance as well, not to mention property taxes and insurance.

How much income is required to qualify for a $200,000 mortgage?

An income of around $65,000 is in the right ballpark to qualify for a $200,000 mortgage. Income is far from the only important factor lenders consider when qualifying you for a loan, however, and even those who make substantial income may not qualify if they have high levels of debt or other negative factors.

How much is the down payment for a $200,000 mortgage?

Down payment amounts can vary substantially. Some loans allow you to put down as little as 3.5%, which, for a $200,000 home would be $7,000. To avoid having to pay for mortgage insurance, you’d want to put down at least 20%, which is $40,000.

Can I afford a $200K house with a salary of $70K?

What you can and can’t afford is a complex calculation that depends on your lifestyle, where you live, and more. That said, a salary of $70,000 is within the feasible range to take out a $200,000 mortgage, particularly if you choose a longer loan term.

Photo credit: iStock/skynesher

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-criteria for more information.

SOHL-Q425-181

A $150,000 mortgage will cost a total of $341,318 over the lifetime of the loan, assuming an interest rate of 6.5% and a 30-year term. It might be tempting to think that a $150,000 mortgage will cost…well, $150,000. But lenders need to earn a living for their services and mortgage loans come with interest.

What’s the True Cost of a $150,000 Mortgage?

The specific price you will pay to borrow $150,000 depends on your interest rate — which, in turn, is based on a wide range of factors including your credit score, income stability, and much more. Here’s what you need to know to get an estimate of how much a $150,000 home mortgage loan might cost in your specific circumstances.

Where Do You Get a $150,000 Mortgage?

Good news: There are many banks and institutions that offer $150,000 mortgages. For 2026, the maximum amount for most conventional loans is $832,750, so the loan you’re considering is well within reach. To see how your salary, debts, and down payment savings affect how much home you can afford, use a home affordability calculator.

However, it’s important to understand that even a $150,000 mortgage may cost far more than the sticker price after interest and associated fees. For instance, let’s say you purchase a $200,000 home with a 25% down payment and a $150,000 mortgage. If your interest rate is 7% and your loan term is 30 years, the total amount you’d pay over that time is $359,263.35 — which means you’d actually pay more than the home price ($209,263.35) in interest alone. (And that’s before closing costs, home insurance, property taxes, or mortgage insurance.)

At prices like that, it may seem like taking out a mortgage at all is a bad deal. Fortunately, property has a tendency to increase in value (or appreciate) over time, which helps offset the overall cost of interest. (Of course, nothing is guaranteed.)

Keep in mind that you can potentially lower the interest rate you qualify for by lowering your debt-to-income (DTI) ratio, improving your credit score, or increasing your cash flow by getting a better-paying job. Even a small decrease in interest can have a big effect over the lifetime of a loan. In our example above, with all else being equal, you’d pay only $139,883.68 in interest if your rate were 5% instead of 7% — a savings of nearly $70,000!

Recommended: The Best Affordable Places to Live in the U.S.

Monthly Payments for a $150,000 Mortgage

When you take out a $150,000 mortgage, you’ll repay it over time in monthly installments — of a fixed amount, if you have a fixed mortgage, or amounts that can change if you take out a variable rate loan.

Your monthly $150K mortgage payment includes both principal (the amount you borrowed) and interest (the amount you’re being charged), and may also wrap in your property taxes, homeowners insurance, and mortgage insurance if applicable. (You’ll only need to pay mortgage insurance if your down payment is less than 20%.)

But there is another caveat here that some first-time homebuyers don’t know about. Even if your mortgage payments are fixed each month, the proportion of how much principal you’re paying to how much interest you’re paying does change over time — a process known as the amortization of the loan. It’s a big word, but its bottom line is simple: Earlier on in the loan’s life, you’re likely paying more interest than principal, which increases the amount of money the bank earns overall. Later on in the loan, you’ll usually pay more principal than interest.

What to Consider Before Applying for a $150,000 Mortgage

Amortization is important to understand because it can affect your future financial decisions. For example, if you’re not planning on staying in your house for many years, you may find you have less equity in your home than you originally imagined by the time you’re ready to sell — because the bulk of your mortgage payments thus far have been going toward interest. It might also affect when it makes sense to refinance your mortgage.

Most lenders make it easy to make larger payments or additional payments against the principal you owe so that you can chip away at your debt total faster, but be sure to double-check that your lender doesn’t have early repayment penalties.

Of course, there are different types of home loans. Here are some sample amortization schedules for two $150,000 home loans. (You can also build your own based on your specific details with a mortgage calculator or an amortization calculator online.)

Amortization Schedule, 30-year, 7% Fixed

Notice that, for more than the first half of the loan’s lifetime, you’ll pay substantially more interest than principal each year — even though your mortgage payments remain fixed in amount.

Amortization Schedule, 15-year, 7% Fixed

While a shorter loan term may help you build equity in your home more quickly, it comes at the cost of a higher monthly payment.

How to Get a $150,000 Mortgage

To apply for a $150,000 mortgage, you can search for providers online or go into a local brick-and-mortar bank or credit union you trust. You’ll need to provide a variety of information to qualify for the loan, including your employment history, income level, credit score, debt level, and more.

The higher your credit score, lower your debt, and more robust your cash flow, the more likely you are to qualify for a $150,000 mortgage — and, ideally, one at the lowest possible interest rate. That said, mortgage interest rates are also subject to market influences and fluctuations, and sometimes rates are simply higher than others overall.

💡 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.

The Takeaway

A $150,000 mortgage can actually cost far more than $150,000. Depending on your interest rate and your loan term, you may spend more than you borrowed in principal in the first place on interest, and you’ll likely pay a higher proportional amount of interest per monthly payment for about the first half of your loan’s lifetime.

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.

FAQ

How much is a $150K mortgage a month?

A 30-year, $150,000 mortgage at a 6.25% fixed interest rate will be about $924 per month (not including property taxes or mortgage interest), while a 15-year mortgage at the same rate would cost about $1,286 monthly. The exact monthly payment you owe on a $150,000 mortgage will vary depending on factors like your interest rate and what other fees, like mortgage insurance, are rolled into the bill.

How much income is required for a $150,000 mortgage?

Those who earn about $55,000 or more per year may be more likely to qualify for a $150,000 mortgage than those who earn less. Although your income is an important marker for lenders, it’s far from the only one — and even people who earn a lot of money may not qualify for a mortgage if they have a high debt total or a poor credit score. (Still, the best way to learn whether or not you qualify is to ask your lender.)

How much is a downpayment on a $150,000 mortgage?

To avoid paying mortgage insurance, you’d want to put down 20% of the home’s purchase price, which if you are borrowing $150,000 would be $37,600 for a home priced at $188,000. Some lenders allow you to put down as little as 3.5% of the home’s price. So if you had a $150,000 mortgage and put down 3.5%, your down payment and home price would be smaller. (Keep in mind these figures do not include closing costs.)

Can I afford a $150K house with a $70K salary?

Yes, as long as you don’t have a lot of other debt, you can probably afford a $150,000 home if you’re making $70,000 a year. There’s a basic rule of thumb to spend less than a third of your gross income on your housing. With an income of $70,000 per year, you’re making about $5,833.33 per month before taxes — and a third of that figure is $1,925. A $150,000 mortgage might have a monthly payment of as little as $998 per month, even with a 7% interest rate, so it should be affordable for you as long as you don’t have other substantial debts.

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-criteria for more information.

SOHL-Q425-180

Embarking on a home renovation to transform your living space is an exciting endeavor. Home improvements are also an investment that can significantly increase the value of your property, so it’s important to track expenses to be prepared for capital gains tax when you sell your home. Tracking home improvement costs can also help homeowners stick to a budget and ensure a greater return on investment.

Let’s take a closer look at how to track home improvement costs, which upgrades qualify for tax purposes, and options for financing a home renovation.

Why Track Home Improvement Costs?

Amid all the work and logistics that goes into renovations, tracking home improvement costs might not feel like a high priority. However, having documented home improvement costs can help reduce potential capital gains tax when it’s time to sell your home.

The IRS allows qualifying home improvement costs to be added to the original purchase price of the property, known as the cost basis, when calculating capital gains on a home sale. The basis is subtracted from the home sale price to determine if you’ve realized a gain and subsequently owe tax. But by adding home improvement expenses to your cost basis, the profit from the sale that’s subject to taxes decreases — lowering or even potentially exempting you from property gains tax.

Besides home improvements, other factors that affect property value, like location and the current housing market, could make a property sale subject to capital gains tax.

Here’s an example of how capital gains tax on a home sale works: A married couple who purchased a home for $200,000 in 2001 and sold it for $750,000 in 2025 would have a $550,000 realized gain. Assuming that the sellers made this home their main residence for two of the last five years, they’d be able to exclude $500,000 of the gain from taxes. The remaining $50,000 would be taxed at 0%, 15%, or 20% based on the sellers’ income and how long they owned the property.

However, the sellers spent $70,000 on home improvements during their 23 years of homeownership, so the capital gains calculation would be revised to: $750,000 – ($200,000 + $70,000) = $480,000. Tracking home improvement costs in this example exempted the sellers from needing to pay capital gains taxes.

Note that single filers may exclude only the first $250,000 of realized gains from the sale of their home. Eligibility for the exclusion also requires living in the home for at least two years out of the last five years leading up to the date of sale. Those who own vacation homes should note that the IRS has very specific rules about what constitutes a main residence.

💡 Quick Tip: A Home Equity Line of Credit (HELOC) brokered by SoFi lets you access up to $500,000 of your home’s equity (up to 90%) to pay for, well, just about anything. It could be a smart way to consolidate debts or find the funds for a big home project.

Qualifying vs. Nonqualifying Improvements

The IRS sets guidelines that determine what home improvements can be added to your cost basis for calculating capital gains tax. Thus, not every dollar spent on sprucing up your home’s curb appeal or living space needs to be tracked for tax purposes. Generally, tracking costs is a good idea for any home improvements that increase your home’s value and fall outside general repair and upkeep to maintain the property’s condition.

Qualifying Improvements

According to the IRS, improvements that add value to the home, prolong its useful life, or adapt it to new uses can qualify. This includes the following categories and home improvements:

•   Home additions: Bedroom, bathroom, deck, garage, porch, or patio

•   Home systems: HVAC systems, central humidifier, central vacuum, air/water filtration systems, wiring, security systems, law and sprinkler systems.

•   Lawn & grounds: Landscaping, driveway improvements, fencing, walkways, retaining walls, and pools

•   Exterior: Storm windows, roofing, doors, siding

•   Interior: Built-in appliances, kitchen upgrades, flooring, wall-to-wall carpeting, fireplaces

•   Insulation: Attic, walls, floors, pipes, and ductwork

•   Plumbing: Septic system, water heater, soft water system, filtration system

It’s also important to track any tax credits or subsidies received for energy-related home improvements, such as solar panels or a heat pump system, since these incentives must be subtracted from the cost basis.

Recommended: How to Find a Contractor for Home Renovations and Remodeling

Nonqualifying Expenses

Owning a home requires routine maintenance and occasional repairs — think fixing a leaky pipe or mowing the lawn. And the longer you own your home, the greater the chance you reapproach past home improvements with a fresh design or modern technologies. The IRS considers regular maintenance and any home improvement that’s been later replaced as nonqualifying costs.

For instance, a homeowner could have installed wall-to-wall carpet and later swapped it out for hardwood floors. In this case, the hardwood floors would qualify, but not the carpeting.

Recommended: The Costs of Owning a Home

How to Track Your Costs

Developing a system for tracking home improvement costs depends in part on where you are in the process. Here’s how to get track home improvement costs before, during, and after a renovation project.

Before You Renovate

The average cost to renovate a house can vary from $20,000 to $80,000 based on the size of the home and type of improvements. Given this range in cost expectations, it’s helpful to create an itemized budget that estimates the cost for each improvement. It’s hardly uncommon for renovations to take more time and money than expected, so consider budgeting an extra 10% to 20% for the unexpected. “One strategy to approaching home improvements is to create your dream list but have alternates in mind in case your budget or material availability creates a need to alter the project down the road. For example, you may love the look of marble flooring, but its price point might be higher than you initially estimated. Having a cost-efficient back-up plan can keep your budget in check,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

Your itemized budget can be leveraged for tracking home improvement costs once the project starts. Simply plug in the completion date, cost, and description for each improvement, and keep receipts, to itemize the expense as it’s incurred.

Recommended: How to Make a Budget in 5 Steps

Keep Detailed Records

Tracking home improvement costs goes beyond crunching the numbers. The IRS requires documentation to adjust the cost basis on a property. As improvements are made, catalog contractor and store receipts and take pictures before and after the work is done to document the improvements for your records. Store these records digitally in a secure and accessible location; the IRS recommends keeping records for three years after the tax return for the year in which you sell your home.

Catch Up After the Fact

Tracking home improvement costs after the work has been completed is doable, but it requires more effort. If your renovations required any building permits, your municipality should have records on file.

For other projects, start by searching your email for receipts and records. This can help you find a paper trail and track down documentation. Reach out to contractors you worked with for copies of missing receipts or invoices. If you paid with a check or credit card, you can browse through your previous statements or contact the bank for assistance.

Consult a Tax Pro

Taxes are complicated. If you have any doubts about what improvements qualify, consult a tax professional for assistance. Homeowners who used their property as a home office or rented it for any duration could especially benefit from a tax pro. Any property depreciation that was claimed in previous tax years may need to be recaptured if the home sale price exceeds the cost basis.

Home Improvement Financing Options

Renovations and upgrades to your home can be expensive. Many homeowners use a combination of savings and financing to pay for home improvements.

•   HELOC: A home equity line of credit lets homeowners tap into their existing equity to fund a variety of expenses, such as home improvements. With a HELOC, you can take out what you need as you need it, rather than the full amount you’re approved for, which could be up to 90% of your equity. You only pay interest on the amount you draw.

•   Cash-out refinance: Some owners take out a new home loan that allows them to pay off their old mortgage but also provides them with a lump sum of cash that they can use for home repairs (or other expenses). How much you might be able to borrow using this cash-out refi process will depend on the amount of equity you have in your home. (Your equity is the home’s market value minus whatever you owe on your home loan.)

•   Personal loan: An unsecured personal loan could be a good option for quick funding that doesn’t require using your home as collateral. The interest rate and whether you qualify are largely based on your credit score.

•   Credit card: Financing a home improvement with a credit card can help earn cash back or rewards on your investment. However, these perks should be weighed against the risk of higher interest rates. If using a 0% interest credit card, crunch the numbers to ensure you can pay off the balance before the introductory offer expires.

The Takeaway

Tracking home improvement costs from the start can help stick to your project budget and lead to significant tax savings when it comes time to sell your property. A HELOC is one way to fund home improvements, and may be especially useful to borrowers who aren’t sure how much money they will need for home projects. If you’re unsure whether a home improvement qualifies under the IRS rules around capital gains tax on home sales, consult a tax professional.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

Does the IRS require receipts for home improvements?

Although you aren’t required to provide receipts to the IRS when filing your taxes, you should have them as proof of the money you spent on home improvements in the event that you are audited. Keep all receipts for significant renovations for as long as you own the home and three years after the tax year in which you sell the property.

Will my property taxes increase if I remodel?

If your renovation requires pulling a building permit, there is a good chance your taxes will increase on your next home assessment because tax assessors can access building department records.

If I sell my home at a loss is the loss tax deductible?

Selling your home at a loss does not provide you with a tax deduction. In this instance, the IRS treats the loss differently than it does a loss resulting from an investment in, say, the stock market.

Photo credit: iStock/Cucurudza

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-criteria for more information.

SOHL-Q425-192

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®, in 2024, people who were selling homes had typically lived in the property for a decade. So it might be reasonable to expect that you’ll spend 10 years in the home unless you already know otherwise.

💡 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 one consistent 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. A mortgage calculator tool can show you 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 40-year loans with adjustable rates 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 basic quesitons: Will the rate change over time or not?

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.

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

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.

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

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.

FAQ

What is the 28% mortgage rule?

The 28% rule is a guideline commonly used by lenders that states that no more than 28% of a homebuyer’s gross income should go to cover their housing costs. In this equation, housing costs equals the homeowner’s mortgage payment, property taxes, and homeowners insurance.

Which mortgage term should I choose?

The mortgage term that’s best for you is a very individual decision. Use a mortgage calculator to see which monthly payment amount feels like the best fit in your current budget. Choose a term that yields a monthly payment amount that allows you to maintain an emergency fund and pay down any other higher-interest debt you may be facing. When in doubt, aim for the term that yields a payment within 28% of your gross monthly income when you factor in property taxes and home insurance.

Is an adjustable-rate mortgage a good idea right now?

ARMs tend to have a lower initial rate than fixed-rate loans. An ARM might be a good idea for you if you plan to sell your home in a fairly short period of time, such as five to seven years, before the rate begins to adjust. ARMs are often more popular when interest rates are forecast to decline in the future, or when home prices and interest rates are fairly high. Just be sure that you understand when the adjustable rate will start to adjust and that you know what the maximum payment might be according to the loan agreement. You’ll want to make sure you have a plan to make that larger payment if necessary.

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-criteria for more information.

SOHL-Q425-169