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The increase in online lending since the 2000s has made unsecured personal loans more accessible to people seeking funding for things like home improvements, debt consolidation, or vacations, just to name a few.

Online lenders have been embraced particularly by Millennials and GenZers, generations that are no strangers to technology — financial technology in this case — and disrupting traditional industries. For prospective borrowers of any age group, the convenience of applying for a personal loan online can be an advantage over a more traditional process.

Read on to learn some of the key advantages of getting a personal loan from an online lender, as well as when a traditional bank might be a better option.

Convenience

The convenience factor is one of the biggest advantages of getting an online personal loan. Younger generations of consumers might be drawn to a process that incorporates the technology they’ve grown up with and are comfortable using. But online lenders often have a streamlined application process that might appeal to people of any generation who are comfortable with technology.

Online loan applications can be completed from anywhere a prospective borrower has an internet connection, preferably secure. In addition, online lending websites often have thorough lists of Frequently Asked Questions (FAQs) to give consumers as much information as possible without the need to travel to a brick-and-mortar bank branch.


💡 Quick Tip: SoFi lets you apply for a personal loan online in 60 seconds, without affecting your credit score.

Competitive Rates

The lack of brick-and-mortar locations is a reason that online lenders can often offer competitive rates on personal loans. Without physical bank branches to maintain, their overhead is likely to be less than a traditional bank’s.

Some online lenders, however, may try to generate profits by charging fees. When shopping around for personal loan rates, you’ll want to be sure to compare annual percentage rates (APRs), which includes any fees. This allows you to compare loans apples to apples.

Recommended: APY vs Interest Rate

Quick Turnaround

Some online lenders are able to offer preapproval to prospective borrowers with just a soft inquiry on their credit report that won’t affect their credit score. One benefit of knowing quickly what rate might be offered is being able to compare rates among multiple lenders to find the one that will be the best fit.

After the application and loan approval, some online lenders distribute loan funds in as quickly as a few days. For people who need access to funds quickly, this could be the determining factor in choosing a lender.

Recommended: What to Know Before You Borrow Money Online

Differing Criteria

Someone who has not built a credit history might have difficulty being approved for a personal loan. Some online lenders, however, are willing to look at factors other than credit score in determining approval for a personal loan and may have more flexible qualification criteria than a traditional bank.

There are also some online lenders that cater specifically to underserved populations.

Recommended: Typical Personal Loan Requirements Needed for Approval

What About Traditional Banks?

Even though online lenders are well established in the financial world, traditional banks still make sense for some people or some financial needs.

For people who prefer working with a lender in person, a traditional bank or a credit union can be a good choice. If there is already a relationship in place with a particular financial institution, it may be advantageous to build on that and get a personal loan rate quote from that lender.

In some situations, a personal line of credit (LOC) might be a better option than a personal loan. Though online lenders are beginning to offer LOCs, they are more likely to be offered by banks or credit unions.


💡 Quick Tip: Choosing a personal loan with a fixed interest rate makes payments easy to track and gives you a target payoff date to work toward.

From Disrupting to Redefining

Online lenders and traditional financial institutions are realizing that they can meet the needs of more consumers if they work together.

Today’s modes of banking may be less about disrupting the status quo of lending and more about finding a new definition of banking as a whole. Those same Millennials and GenZers who might have started a disruption in the financial industry may also be the ones to usher in new ways of doing business.

The Takeaway

If you’re thinking about taking out a personal loan, the great news is that you have plenty of lenders to choose from, including traditional banks, credit unions, and online lenders.

Online personal loans come with certain advantages — they make it easy to rate shop, and typically offer a fast and convenient application process. Online lenders also tend to be faster to fund than traditional institutions. However, you may want to go with a local bank or credit union if you have an existing relationship there, or you want to have the option of in-person customer service.

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 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.

SOPL0623064

Whether relocating down the block or across the country, there is a lot of work and planning that goes into moving. For current homeowners, there may be more logistics when simultaneously buying and selling houses.

If you’re figuring out how to sell and buy a house at the same time, there are some options to choose from based on your own budget, situation, and tolerance for risk.

Although this situation can be complex, it is not uncommon. In fact, 74% of home buyers owned their previous residence.

To help you navigate this juggling act, this guide will go over potential challenges and outline some alternative options and tips to close on both deals.

Evaluating the Local Housing Market

Taking stock of the local housing market can help inform how to sell and buy a house at the same time. Not only does the market influence home prices, it can also impact the length of closing on a sale or purchase.

You may be faced with a housing market that favors buyers over sellers or vice-versa. Researching your local housing market ahead of time can help guide your efforts in finding a new house.

When It’s a Buyer’s Market

A buyer’s market has more houses for sale than people actively looking to purchase a home. Generally, finding a new house in areas with a higher concentration of sellers can be easier than selling. At the same time, an accurate listing price and contingencies can factor into the equation.

Since there is less competition in the market, buyers can consider requesting an extended closing to allow time to sell their own house or include other contingencies in their offer. For instance, a home sale contingency can be included in a contract to coordinate a purchase with the sale of the buyer’s house.

A home sale contingency asks for the patience of a seller depending on their situation. Complications may arise in the event that all parties involved are simultaneously buying and selling homes.

On the flipside, sellers in a buyer’s market could benefit from setting a competitive asking price and getting ahead of inspection by buttoning up any lingering home maintenance issues.

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

When It’s a Seller’s Market

If there are more buyers in the housing market than there are homes for sale, it’s considered a seller’s market. Often, selling a house where there’s a high percentage of homebuyers takes less time and can fetch a higher price.

Sellers may be able to take advantage of the housing scarcity and go with a more ambitious asking price. If this pays off, the extra cash could be especially useful if you are shopping for houses in a seller’s market yourself. Making a competitive offer may be helpful if you are trying to beat out other bids and quickly secure a home.

It’s also not uncommon for houses to receive multiple offers in a seller’s market. If this is the case, sellers may have more success negotiating favorable terms that suit their sell and buy situation.

For example, a rent-back agreement allows sellers to lease their former house from the new owners for a set period of time. This gives them more time to find their new home, but may not be an acceptable condition for every prospective buyer.

Recommended: How Does Housing Inventory Affect Buyers & Sellers?

Calculating Home Equity

Getting your finances in order to buy and sell a home isn’t just about counting savings and building budgets. Home equity is another important consideration.

To calculate home equity, subtract the money owed on a mortgage loan from the current market value of a house. For example, if your home is worth $250,000 and you still owe $150,000 on your mortgage loan, you have $100,000 of equity in your home.

Depending on your financial situation, home equity may be necessary to buy a new home. Keep in mind that equity does not become available until the closing is complete. Typically, lenders will limit borrowers to 80% to 90% of their available equity, depending on factors such as credit history and income, among others.

Unless you’re selling a home shortly after buying it, the market value of a home could likely differ from the initial purchase price. These changes could either increase or decrease your home equity.

Generally speaking, the average home sale price in the United States increases year-to-year, barring notable exceptions like the 2008 financial crisis and subsequent recession. Yet, these trends don’t account for regional housing booms and busts.

Getting an official valuation from a real estate appraiser, which typically costs between $300 and $400, is one way to get a more accurate idea of your home equity and a feasible sale price. Researching comparable homes that recently sold in your community can give you a ballpark estimate, too.

💡 Quick Tip: You can use money you get with a cash-out refi for any purpose, including home renovations, consolidating other high-interest debts, funding a child’s education, or buying another property.

Prequalification vs Preapproval

Being aware of your own financial situation is useful for a variety of reasons, especially when buying a house. But if you’re among the majority of buyers who finance their home purchase, your mortgage lender will consider factors besides your own number crunching and goals when deciding their loan total.

For many prospective homebuyers, prequalifying is the first step to getting an estimate of how large a loan they would likely qualify for. Lenders generally evaluate factors like a buyer’s debt, assets, and income, which may take just a matter of days.

Becoming prequalified does not lock buyers into a set mortgage rate. Rather, it gives buyers a more accurate picture of their financing options and what houses are in their price range. Before making an offer, it is generally advisable that buyers are prequalified, which can be demonstrated with a letter from your lender. This can signal to the sellers that you are a serious buyer.

To ultimately obtain a mortgage loan, buyers still need to go through preapproval. In doing so, lenders perform a more thorough credit and financial background check to arrive at a specified preapproved loan amount.

Sellers may consider offers from preapproved buyers to be more favorable than those with just prequalification since there is less concern about a rejected mortgage application pending a deal. It may also get you to the closing table faster, which can be a big plus if you’re in a competitive market.

Selling Before Buying

Whether by intention or pure circumstance, you could face a choice of selling your house before buying your next home.

Selling first can potentially be beneficial for qualifying for a mortgage loan. After the sale closes, you may be able to use that money to finance a down payment on a new home, as well as having a lower debt-to-income ratio.

Yet, selling before buying may create complications for finding a place to stay until you purchase a new home. If the new buyers are not willing or able to do a rent-back agreement, you may end up having to find temporary housing in the meantime.

Apartments and rental properties may require signing up to a 12-month lease. For prospective homebuyers, a lengthy rental commitment with penalties for leaving early may be costly. Instead, finding a month-to-month rental option can grant more flexibility and sync up with a storage unit lease, if needed.

Buying Before Selling

When you find your dream home, you may want to pull the trigger and make an offer right away. But what does that mean if your house hasn’t sold yet?

If your budget allows you to buy a home with cash vs. a mortgage, you may be in a position to move forward with the offer.

For some, making a down payment or home purchase before selling with savings alone is not feasible. In other cases, your debt-to-income ratio and credit may prevent you from getting a second mortgage.

There are several options available if this is the case. A Home Equity Line of Credit (HELOC) can let prospective buyers borrow against the equity of their current home. A buyer’s credit and existing home equity are taken into account to qualify for a HELOC.

If approved, buyers can use the HELOC to access money for a down payment, which could then be paid off when their house sells. Take note of the repayment terms and interest rate on the HELOC, as these can vary from lender to lender.

Taking out a bridge loan is another possibility. These short-term loans are usually structured to cover a down payment and become due after several months. Bridge loans generally have high interest rates and may require an origination fee. Sellers who cannot unload their house in time may need to request an extension or begin repaying the loan while still paying their mortgage.

Choosing a Real Estate Agent

A savvy real estate agent can help reduce the stress and uncertainty of selling and buying a house at the same time. Their expertise can come in handy for setting an accurate listing price, scheduling showings, and staging a home.

If you had a positive experience with the agent you worked with to buy your home, their familiarity with your property could help expedite the process and give you peace of mind in case you have to move out of the area before selling.

There are benefits to using the same agent for buying and selling when geography allows. For instance, they can simplify the lines of communication and more easily coordinate the closing of both homes with your ideal timeline.

Sometimes it may not be possible to use the same realtor. The obvious case is when you’re moving a significant distance to a new area.

The need to use two realtors could arise if you’ve chosen a reputable realtor who exclusively works with buyers or sellers alone. If you decide to hire such a realtor, they may be able to recommend a trusted colleague in their agency to handle your other deal.

Timing Your Closing Dates

There is a lot to consider when selling and buying a house at the same time. The timing of both deals can impact financing options, having to find temporary housing, and figuring out how to store or move your belongings.

Setting a closing date is part of the negotiating process for any real estate deal, and coordinating closings for the same date can streamline the process.

Still, closings can be delayed due to reasons outside your control. Having a back-up plan, such as a rent-back agreement, can keep you in your home while you find a new house. Putting additional contingencies in a contract can help with rescheduling closings as needed or even walking away without much financial loss.

Obtaining a Mortgage

Buying and selling houses at once may not always be easy, but it is doable.

If you cannot purchase a house with cash or home equity, you’ll need to figure out how much you can borrow.

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.

*Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 90 calendar days at the time of pre-approval subject to payment on 60th day of the fee below. If you submit a fully executed purchase contract within 30 days of the initial rate lock, SoFi will reduce the interest rate by an additional 0.125% at no cost. If current market pricing has improved by .75 percentage points or more from the original locked rate, you may qualify for an additional rate reduction. If you have not submitted a fully executed purchase contract within 60 days of your initial rate lock, you will be charged $250 to maintain the rate lock through the 90-day period. The $250 fee will be credited back to you at the time of closing. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.
*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.

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

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

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

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.

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.

SOHL0623039

Homeownership comes with plenty of perks, But one important financial benefit is the opportunity to build home equity, which is considered a common way to generate wealth over time.

Read on to learn how homeowners can help build equity and increase the value of their home.

What Is Home Equity?

In order to understand how building home equity works, it’s important to understand exactly what it is.

Equity is the amount of your home you actually own. More specifically, it’s the difference between how much you owe your lender and how much your home is worth.

To calculate home equity, simply subtract the amount of the outstanding mortgage loan from the price paid for the home. So if a home is worth $350,000, and the homeowner owes $250,000 on their mortgage, they have $100,000 of equity built up in their house. Their mortgage lender still has an interest in the home to the tune of $250,000 and will continue to have an interest in the home until the mortgage is paid off.

7 Smart Ways to Build Your Home Equity

1. Making a Big Down Payment

Homeowners can get a jump on building home equity when they’re buying a home by making a large down payment.

Typically, homebuyers using a conventional loan will put down at least 20% as a down payment to avoid having to pay mortgage insurance. That means that right off the bat, the homeowner has a 20% interest in their home. They can increase this amount by putting even more down. A down payment of 30%, for instance, will increase equity and potentially give the homebuyer more favorable mortgage payments and terms.

If making a large down payment means having less in emergency savings, however, the home buyer may want to use other methods to build equity.

2. Prioritizing Mortgage Payments

Each mortgage payment a homeowner makes increases the amount of equity they have in their home. Making mortgage payments on time will avoid potential late fees.

Keep in mind that a portion of each mortgage payment goes toward interest and sometimes escrow. You’ll want to take these amounts into account when calculating how much equity is accruing.

3. Making Extra Payments

Extra payments chip away at a loan’s principal, help build equity faster, and potentially save thousands of dollars in interest payments. Even if it’s only a little bit each month, paying more than your regular mortgage payment amount can help you increase how much home equity you build.

If adding some extra cash each month isn’t feasible, perhaps making one-time payments whenever possible — when you get a bonus at work, for instance — would be an option.

To ensure those payments are applied correctly, be sure to notify the lender that any extra or lump-sum payments should be put toward the loan’s principal.

Beware that some lenders may charge a prepayment penalty to borrowers who make significantly large payments or completely pay off their mortgage before the end of the term. Before making extra payments, consider asking the lender about a prepayment clause.

4. Refinancing to a Shorter Term

You may also consider refinancing with a loan that offers a shorter term. For example, a homeowner could refinance their 30-year mortgage to a 20-year mortgage, shaving off up to a decade of mortgage payments. However, doing so means they will also be increasing the amount they pay each month.

Still, shorter-terms loans may have the added benefit of lower interest rates, which could soften the blow of higher monthly payments.

Mortgage refinancing is not necessarily a simple process, nor is it guaranteed that a lender will offer a new loan. Homeowners can increase their chances of securing a refinanced mortgage by maintaining healthy credit and a low debt-to-income ratio. It may also help to have equity built up in the home already.

5. Renovating Your Home

Making home improvements typically increases the value of a home, which will likely increase equity. Renovating a home’s interior can be a good place to start.

Minor renovations like updating light fixtures and repainting can add some value to a home. Larger projects such as updating the kitchen, adding bathrooms or finishing the basement may yield good returns on the investment.

Weighing present cost against potential future gain may be a good thing to do before tackling a big project. The idea is that making these improvements now, and then being able to sell at a premium will mean recouping your expenses and then some. An online home improvement project calculator can help you estimate the cost of projects and how much value they could potentially add.

6. Sprucing Up the Outside

Similarly, adding to a home’s curb appeal may also increase its value. A fresh coat of paint, a well-maintained lawn, and tasteful landscaping could help increase a home’s desirability and the amount that buyers are willing to pay.

Mature trees, for example, can potentially add thousands of dollars to a home’s resale value. If you’re thinking of selling in a decade or more, planting a tree now could have a big effect on sale price later.

Increasing usable outdoor space by adding a deck or patio and installing good outdoor lighting may increase the value of your home.

7. Waiting for Home Values to Rise

The real estate market is always evolving, and sometimes, playing the waiting game could help you build equity. For instance, if your neighborhood becomes more popular, home prices could start to rise. If that happens, it may be worth keeping a home there longer to take advantage of the trend. Of course, the flip side is that housing prices may drop over time, which could mean a loss in equity.

Why Build Home Equity?

Building home equity is important because it gives the homeowner the opportunity to convert that equity into cash when the need arises. This is commonly done when a home is sold. But the equity in a home can also be important when taking out a home equity loan, which could allow the homeowner to use the value of their home while still living there.

For a home equity loan, a lender provides a lump-sum payment to the borrower. The amount must be repaid over a fixed time period with a set interest rate. As with a personal loan, home equity loans can be used for a variety of purposes. The loan is backed by the value of the home and typically must be repaid in full if the home is sold.

A home equity line of credit, or HELOC, is a revolving line of credit that uses the value of the home as collateral. Unlike lump-sum loans, a HELOC allows the homeowner to borrow money as needed up to an approved credit limit. That amount is paid back and can be drawn on again throughout the course of the loan’s draw period. While a person’s home is likely to be their most valuable asset, it’s also valuable purely because of its provision of shelter.

Researching and understanding all of the risks involved with loans that use a home as collateral, including that it could be lost if the loan is not paid back, is important before considering this option.

The Takeaway

There are many ways to build equity in a home. Different strategies include making a large down payment or extra monthly mortgage payments, refinancing to a shorter term, renovating your home, or waiting for home values in your area to rise. Whatever your strategy, home equity can provide you with a valuable resource that can be used when a financial need arises. Often this resource is tapped into by means of a loan that is secured by the home. However, this means if the loan is not repaid, a homeowner could lose their home.

If you want to avoid using a home as collateral for a loan, consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. And checking your rate takes just a minute.

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 Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Whether you’re planning to renovate your kitchen, add a room to your home, or upgrade your backyard, home improvement projects typically require a sizable financial investment. While you might be able to pay cash for small-scale repairs and upgrades, a more substantial project could require funding. That’s where home improvement loans come in.

A home improvement loan is typically a personal loan used to pay for home repairs and renovation projects. These loans aren’t backed by the equity you have in your home, and are generally one of the quickest ways to get funding for a home improvement project. However, they may have higher interest rates and offer lower amounts than other options, such as a home equity loan.

Read on to learn how home improvement loans work, their pros and cons, and how they compare to other home remodel financing options.

What Is a Home Improvement Loan?

Typically, a “home improvement loan” refers to a personal loan that is designed to be used to pay for home upgrades and renovations.

These are unsecured loans — meaning your home isn’t used as collateral to secure the loan. In fact, lenders typically don’t ask for any information about your home with this type of financing. Instead, a lender decides how much to lend to you and at what rate based on your financial credentials, such as your credit score, income, and how much other debt you have.

With a home improvement personal loan, you receive a lump sum of cash up front you can then use to cover the costs of your project. You repay the loan (plus interest) in regular installments over the term of the loan, which is often five or seven years.

One of the advantages of a home improvement loan is that it allows you to access a significant amount of money upfront quickly, often within a day or two. You also don’t need to have built up any equity in your home, or risk losing your home should you default on the loan.

However, personal loans for home improvement tend to be shorter-term and offer smaller loan amounts than other home loan options, making them best suited for small to midsize projects, say renovating a bathroom or repainting the exterior of your home.

Recommended: Can I Pay off a Personal Loan Early?

Alternatives to a Personal Loan

While personal loans can be a quick and convenient way to fund home improvement projects, they aren’t your own option. Here are some alternatives you may also want to consider.

Home Equity Loan

Home equity is the portion of your home that you actually own. More specifically, it is the difference between what your home is currently worth and what you owe your lender. So, for example, if you took out a mortgage for $200,000 and have paid down $50,000 of that loan, you owe the lender $150,000. If your home gets appraised for $250,000, you have $100,000 in equity.

A home equity loan is a loan that utilizes the equity you have built in your home as collateral. Home equity loans often have fixed interest rates and terms that typically range from five to 30 years. These loans provide homeowners with a lump sum of money that can be used for various purposes, including home improvements. As you repay a home equity loan, your payments get added back to your principal, allowing you to build your equity back up.

With a home equity loan, you can often borrow up to 85% of the equity you have in your home.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is similar to a home equity loan, except that the funds are not distributed in a lump sum. The amount of money you can borrow is still tied to the amount of equity you have in your home, but you are given access to a line of credit that you can borrow from as needed.

HELOCs have a draw period, usually 10 years, when you can use some or all of the funds you’re approved to borrow. During that time you typically make interest-only payments on the amount you draw. You then repay the principal later, during the repayment period.

Like a home equity loan, a HELOC is essentially a second mortgage, so you’re using your house as collateral. Unlike a home equity loan, HELOCs have variable rates, which means your annual percentage rate (APR) could go up or down in the future.

One key advantage to a HELOC is its flexibility. This type of financing can be particularly useful for projects you’re doing in stages, or when you don’t know exactly how much the renovation will cost.

Cash-out Refinance

A cash-out refinance involves refinancing your existing mortgage for a higher amount than what you currently owe. The difference between the new loan amount and your current mortgage balance is paid out to you in cash, which you can use for home improvements.

Because cash-out refinancing involves revising your mortgage, it can be a good move if rates have dropped since you financed your home, or you’re in a better financial situation than when you originally took out your mortgage. Lenders typically look at an applicant’s financial history, as well as the appraised value of the home and how long the existing mortgage has been in place.

You’ll want to keep in mind, however, that closing costs can be 2% to 6% of the new mortgage amount, which could potentially be more than you plan to spend on the improvement project.

Construction Loan

If you’re planning significant renovations or an extensive home improvement project, a construction loan may be worth exploring. Construction loans are specifically designed for large-scale projects, such as significant structural changes or additions to a property. These loans usually have variable interest rates and short terms, often just one year.

Unlike mortgages and personal loans that make a lump-sum payment, the lender pays out the money for a construction loan in stages as work on the home progresses. Generally, you make interest-only payments during the construction stage. Once construction finishes, the construction loan needs to be repaid or converted into a mortgage.

Applying for a Home Improvement Loan

Before choosing any type of home improvement loan, it’s a good idea to shop around and compare interest rates, terms, and fees from different lenders to ensure you’re getting the best possible deal.

When applying for a home improvement loan, you’ll need to gather all the necessary documentation to support your application. Lenders typically require proof of income, proof of residence, and information about the project you plan to undertake. Some lenders may also ask for estimates or contractor bids to assess the cost of the project.

Your current debts, housing payment, credit history, and total income will all play a role in what rates and terms you qualify for. If possible, take advantage of lenders that offer a prequalification process. This gives you a sense of your approval odds, predicted interest rate, and the total cost of your home improvement loan. Plus, prequalifying doesn’t require a hard credit check, so you won’t have to worry about it impacting your credit score.

Bringing It Home

Home improvement loans allow you to finance a repair or remodeling project for your home. You may be able to get an unsecured personal loan designed to be used for home improvement or, if you’ve built up equity in your home, use a home equity loan, HELOC, or a cash-out refinance, to fund an upgrade. For a substantial structural change, you might consider a construction loan.

The best financing choice for your project will depend on how much money you need, how quickly you want to start work, how much equity you have in your home, your credit profile, and whether or not you want to use your home as collateral for the loan.

Ideally, a home improvement loan should pay for itself over time by increasing the value of your home and improving your overall quality of life.

If you think a personal loan might work well for your home improvement project, SoFi can help. SoFi’s home improvement loans range from $5K-$100K and offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

FAQ

Why are home improvement loans so expensive?

Home improvement loans may have higher interest rates compared to traditional mortgages for a few reasons. One is that these loans are often unsecured, meaning you don’t have to use your home as collateral to get the loan, which poses more risk to the lender. Another is that these loans typically have shorter repayment terms compared to mortgages, resulting in higher monthly payments. Also keep in mind that interest rates can vary based on the borrower’s creditworthiness and prevailing market conditions.

Is a home improvement loan the same as a mortgage?

No. A mortgage is a loan used to purchase a property, while a home improvement loan is specifically used to fund renovations or improvements on an existing property. Home improvement loans are typically smaller in amount and have different terms and repayment options compared to mortgages.

How much debt to income do I need for a home improvement loan?

The specific debt-to-income (DTI) ratio required for a home improvement loan can vary depending on the lender and other factors. Generally, a DTI ratio below 43% is considered favorable for loan approval. This means that your total monthly debt payments, including the new loan, should not exceed 43% of your gross monthly income. However, different lenders may have different criteria, so it’s essential to check with the lender you’re considering for their specific DTI requirements.

What is the average length of a home improvement loan?

The average length or term of a home improvement loan will depend on the type of loan you choose. Personal loan terms can range from five or seven years. Loans based on the equity in your home (such as a home equity loan or line of credit) can have terms up to 30 years.

What is the downside to a home equity loan?

While home equity loans can be a useful option for funding home improvements, there are some potential downsides to consider. One is that these loans use your home as collateral, which means you risk foreclosure if you’re unable to repay the loan. Another is that, should your property value decline, you may owe more on the loan than the home is worth, which is known as being “underwater.” Finally, keep in mind that home equity loans typically come with closing costs and fees, similar to a mortgage, which will add to the cost of your remodel.

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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.

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.

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It may come as no surprise that many Americans are stressed about medical debt and the rise of healthcare costs. The average family health insurance premium has increased 43% in the past 10 years, according to a 2022 survey conducted by the Kaiser Family Foundation (KFF). What’s more, one-third of insured Americans are concerned about being able to afford their monthly premiums, and about four in 10 adults (41%) carry some form of medical debt.

Fortunately, there may be some options for those struggling with medical debt.

How Much Do Americans Spend on Healthcare Each Year?

Many people receive health insurance through an employer. And even though employers generally help pay for a portion of the costs, the financial burden can still be significant. A typical household spends $431 per month — or $5,177 per year — on healthcare expenses, according to the U.S. Bureau of Labor Statistics Consumer Expenditure Survey. This includes routine things such as health insurance costs, doctor’s visits, medications, and medical supplies.

At the same time, the U.S. tends to outspend other countries when it comes to healthcare. In 2021, healthcare spending topped $4.3 trillion, or $12,914 per person, according to the latest figures available from the Centers for Medicare & Medicaid Services. That figure represents 18.3% of the country’s Gross Domestic Product.

How Many Americans Struggle With Medical Debt?

Despite employer-sponsored health plans covering some of the costs, some Americans struggle to pay their medical bills.

In fact, nearly 1 in 10 adults — or around 23 million people — owe at least $250 in medical bills, a 2022 KFF analysis found. Of that, 11 million people owe more than $2,000, and 3 million people owe more than $10,000.
Certain groups of people appeared to be more impacted than others. For instance, people aged 35-49 and 50-64 are more likely than other adults to report medical debt. The same goes for people in poor health and those living with a disability. And among racial and ethnic groups, a larger share of Black adults (16%) report having medical debt compared to White (9%), Hispanic (9%), and Asian American (4%) adults.

What Happens If Medical Debt Is Not Paid?

Even if you’re facing an overwhelming amount of medical debt, the worst thing to do is ignore it. Depending on the state where you live, a medical provider might charge you a late fee for bills not paid on time and may even charge interest if payments aren’t made at all.

After a few months, if medical bills go unpaid, the provider might choose to pass the debt over to a debt collection agency.

If the medical provider does decide to give the debt to a debt collection agency, the debt might immediately appear on the debtor’s credit report and affect their credit score. The debt collector will take steps to collect the bill. If the debt is not collected, the provider may take it even further and take legal action.

While U.S. laws don’t allow debtors to be imprisoned for unpaid debts, they could face another consequence, such as wage garnishment. If the case goes to court and a judge rules in favor of the medical service provider, there’s a chance the debtor’s wages could be garnished. In simple terms, this means that payment will be taken out of their paycheck and sent to the provider.

Recommended: Tips for Paying Off Outstanding Debt

4 Medical Debt Relief Options

While there are no one-size-fits-all solutions to help ease the financial burden of medical debt, the following ideas may be worth considering. It’s also a smart move to contact a professional before taking any action.

1. Medical Debt Payment Plans

Because healthcare services are often costly, contacting medical providers to ask if they offer payment plans might be one plan of action to consider. Some medical providers may offer payment plans to pay off debt in installments instead of paying it off all at once, which might make the debt more manageable.

2. Negotiating Medical Debt

It may feel counterintuitive or inappropriate to negotiate medical bills, but some providers actually expect it. While it may seem awkward at first, negotiating medical bills can help make them more manageable. Additionally, negotiating may even help avoid a credit score ding, or worse, getting sued.

For starters, reaching out to the provider’s billing department directly to see if negotiation is possible might be an option. Many providers have financial departments that can determine if patients qualify for discounts or reductions. Remember, when negotiating, try to be as polite as possible. But it can be helpful to be persistent, too.

Another point to remember is that providers may favor cash. So those who can afford to make a lump sum payment might consider asking if the provider offers a discount for a cash payment.

Recommended: What Is Considered a Bad Credit Score?

3. Working With a Nonprofit Advocate

If the medical bills keep piling up, it may be worthwhile to consider finding a nonprofit advocate or reputable credit counseling organization that offers assistance with managing money and debts, creating a budget, and providing resources to help consumers pay off the debt that’s dogging them.

Certified counselors that have been trained to help individuals create a plan to solve financial concerns can be found through the U.S. Department of Justice. These organizations offer counseling and debt management plans and services.

One solution credit counselors may suggest is a debt management plan. These plans may help the borrowers get their debt under control.

With one type of debt management plan, the borrower makes a lump sum payment to the credit organization, and then the organization pays the creditor in installment payments. If you decide to go this route, make sure not to confuse a credit counseling nonprofit organization with a debt settlement company.

In contrast to credit counseling nonprofits, debt settlement companies are profit-driven. They negotiate with creditors to reduce the debt owed and accept a settlement — a lump sum — that’s less than the original debt. However, these companies can charge a 15% to 25% fee on top of the debt settled. While some of these companies are legitimate, consumers are cautioned to be wary of scams.

Some deceptive practices include guarantees that all of a person’s debts will be settled for a small amount of money, that debtors should stop paying their debts without explaining the consequences of such actions, or collection of fees for services before reviewing a person’s financial situation. Researching a company’s reputation can be done through the state attorney general’s office or the state consumer protection agency.

4. Using a Personal Loan

Using a credit card to pay off medical bills doesn’t help anything when you’re trying to reduce your overall debt. Taking out a personal loan could be a way to streamline multiple bills into one monthly payment.

Consolidating medical debt might include a number of benefits, but it’s important to note that it isn’t a cure-all. A loan will not erase your debt, but it could help you get a fixed monthly payment and, potentially, reduced interest rates.

It’s important to compare rates and understand how a new loan could pay off in the long run. If your monthly payment is lower because the loan term is longer, for example, it might not be a good strategy, because it means you may be making more interest payments and therefore paying more over the life of the loan.

Taking the Next Steps

If you’re steeped in medical bills, you’re hardly alone. One in 10 adults owe medical debt, with 3 million people saying they owe more than $10,000, according a 2022 analysis from the Kaiser Family Foundation. While dealing with the debt may not be pleasant, it’s a task you shouldn’t ignore. You may end up having to pay a late fee or interest rate on unpaid bills, or the provider could choose to pass the debt to a collections agency. This could negatively impact your credit score.

Fortunately, there are some debt relief options you may want to consider. Examples include exploring debt payment plans, negotiating the debt with your provider, enlisting the help of a nonprofit advocate, or taking out a personal loan to help pay off the bills.

If you are thinking about taking out a loan to consolidate your debt, a SoFi personal loan may be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

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.

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.

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

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

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

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