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You want to flip a house, but you don’t have enough money for a down payment — and your credit isn’t where it needs to be for a personal loan. Or, maybe you’re a small business owner who wants to own a piece of commercial real estate. People who are investing in real estate beyond their primary residence may consider a hard money loan as an option, especially if a traditional mortgage isn’t.

A hard money loan is a short-term loan commonly used by investors, such as house flippers or developers who renovate properties to sell. The loan typically uses the property as collateral. Hard money loans are usually funded by private lenders, individuals, or investor groups, rather than banks.

A hard money loan may make sense on paper, but because it typically has a shorter term than other types of loans and interest rates can be high, paying back the loan can be challenging. Defaulting on a hard money loan could mean losing the property.

What Is a Hard Money Personal Loan?

A hard money personal loan is a type of personal loan that uses collateral. While a mortgage is also a type of loan that uses property as collateral, a hard money loan is very different.

First of all, a hard money loan doesn’t come from a bank. It comes from a private lender, which may be a company or an individual. The loan will likely have higher interest rates and a shorter payback period than a traditional mortgage.

It can also be a much shorter process to be approved for a hard money loan. While a mortgage may take weeks for approval, it’s not atypical to have cash in hand within a few days of a hard money loan application.

A hard money loan also may be more lenient in terms of credit scores or assets than a traditional loan. This can be beneficial for people who are wanting to flip a house or buy an additional piece of property, who may not have enough assets on paper to be approved for a traditional mortgage, or who need a larger down payment than they have.

How Do Hard Money Personal Loans Work?

Hard money personal loans are often advertised to — and used as a tool for — house flippers, but other people may pursue a hard money personal loan as well.

Let’s say someone wants to buy a house to flip, or a piece of land to use as a rental property. They may still be building their credit, or they may not have enough money for a down payment. They may have been turned down for a mortgage, or they may not want to apply for a mortgage, knowing that it’s a time-intensive process and their finances might not be as strong on paper as they know the bank would like.

In this case, the person might turn to a hard money personal loan. Individuals, groups of investors, or private companies may specialize in offering hard money loans. Terms vary but are often less than one year, compared to 20 or more years for a mortgage. But the one constant: If you can’t pay back the loan, then you lose the collateral, which would be the property.

Other things to be aware of regarding a hard money personal loan: Interest rates may be high and the loan term is much shorter than a mortgage. This comes with a fair amount of risk.

Pros and Cons of Hard Money Personal Loans

As with any personal loan, it’s important to consider the pros and cons of the loan. It can also be a good idea to consider what-ifs, and how you might pay back the money if the original plan doesn’t work. Here, some pros and cons to think about before applying for a hard money personal loan.

Personal Loans Versus Hard Money Loans

The primary difference between an unsecured personal loan and a hard money loan is that a hard money loan is secured. Both are personal loans, but using collateral for a personal loan means the loan is secured.

Collateral can be anything of value. But in the case of a hard money loan, it’s in the form of property. A personal loan typically does not require collateral. If you were unable to pay back a personal loan, the lender could not take away your house, for example. Both types of personal loans have specific terms and conditions, and both can provide cash relatively quickly. However, many personal loans are backed by a bank or other financial institution.

Is a Hard Money Personal Loan Right For You?

Hard money personal loans may be an option for certain financial needs. But, as with any personal loan, it’s important to weigh the pros and cons, and consider what-ifs. Questions to ask may include:

•   What other avenues can I follow to raise the money I need?

•   What happens if I don’t pursue this loan?

•   If I do get this loan and plan to do a specific thing with it, what happens if that specific thing doesn’t happen the way I anticipated?

•   Can I afford this loan, including interest?

•   Could I afford this loan if my financial circumstances changed?

These questions can help you assess worst-case scenarios. You also may want to ask your potential lender any questions you have as well.

Recommended: Personal Loan Alternatives and Options

Hard Money Personal Loan Alternatives

There are potential alternatives to hard money personal loans. Some may require collateral, and others, like a personal loan, may not. Each comes with pros and cons. Your financial situation may also determine which loans you might be eligible for. If you’re building your credit, you may not have access to certain loans.

Credit Cards

If you’re purchasing land or property, you likely need cash. But for other purchases, using a credit card could be an option. If you don’t need a lump sum of money, using the line of credit that a credit card offers may work well for making periodic purchases.

However, credit cards may have high, variable interest rates. Plus, the more of your available credit you use, the higher your credit utilization ratio, which could impact your credit score.

Recommended: What Is A Personal Line of Credit & How Do You Get One?

Personal Loans

Can you buy land with a personal loan? You could. Generally, once you’re approved for a personal loan, you receive money in your account and can then use it for virtually any purpose. Some people use personal loans to pay for renovations or other home improvement projects.

But it could be challenging to get mortgage approval if you were planning on using a personal loan for a down payment, for example. A personal loan may affect mortgage eligibility.

Recommended: Do Personal Loans Affect Getting a Mortgage?

HELOC

A home equity line of credit (HELOC) is a type of revolving debt. For example, if you apply for a HELOC and are approved for $10,000, you can draw up to $10,000. Once that money is paid back, you can draw from it again for the set period of time defined in the terms of the loan.

A HELOC is a popular option for people who are doing home improvement projects. They may not need a lump sum of cash but may have ongoing expenses. Generally, interest rates on a HELOC are variable, not fixed.

Since a HELOC is a loan secured by the borrower’s home, there is a risk of losing the home if the loan is not repaid.

Recommended: How Do Home Equity Lines of Credit Work?

The Takeaway

For some people, hard money personal loans can allow them to realize their real estate goals. But hard money loans typically have high interest rates and short payback periods, which can make them risky. It can be a good idea to carefully weigh the pros and cons of a hard money loan.

A SoFi Personal Loan may be an alternative to consider. Since unsecured personal loans from SoFi do not require collateral, they could be a good option for those just entering the real estate market. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

Photo credit: iStock/JLco – Julia Amaral

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOPL-Q224-1909503-V1

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

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

Should You Convert Your Attic Space?

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

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

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

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

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

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

Tips on Converting an Attic

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

Other steps to take before an attic remodel include:

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

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

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

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

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

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

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

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

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

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

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

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

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

Cost of Walls and Ceilings

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

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

Cost of Flooring

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

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

Recommended: Renovation vs. Remodel

Cost of Windows and Skylights

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

Recommended: How Much Does It Cost to Replace Windows?

Cost of Heating and Cooling

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

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

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

How Much Does It Cost to Finish an Attic Yourself?

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

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

Recommended: Four Ways to Upgrade Your Home

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

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

Cost of Finishing a Walk-Up Attic

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

Finishing an Attic as a Storage Space

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

Cost to Finish an Attic With a Dormer

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

Cost to Finish an Attic Above a Garage

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

Recommended: Garage Conversion Ideas Worth the Effort

What Factors Influence the Cost of Finishing an Attic?

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

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

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

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

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

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

The Takeaway

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

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

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

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

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

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

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

SOPL-Q224-1907800-V1

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

What Does Prequalified Mean?

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

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

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

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

What Does It Mean to Be Preapproved?

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

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

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

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

•   Social Security number and card

•   Photo ID

•   Recent pay stubs

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

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

•   Recent investment account statements

•   List of fixed debts

•   Residential addresses from the past two years

•   Down payment amount and a gift letter, if applicable

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

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

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

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

Calculate Your Potential Mortgage

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

Do Preapproval and Prequalification Affect Credit Scores?

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

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

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

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

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

Recommended: Guide to First-Time Home Buying

Are Prequalification and Preapproval the Same Thing?

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

Do I Need a Prequalification Letter to Buy a House?

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

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

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

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

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

The Takeaway

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

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

SoFi 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.

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

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

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

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

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

SOHL-Q224-1903316-V1

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

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

10 Steps to Building Your Own Home

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

1. Find a Location

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

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

2. Obtain Permits

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

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

3. Prep the Site and Your Finances

Site Prep

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

Size and Cost

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

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

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

Finance Options

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

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

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

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

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

Check out these additional resources for homeowners.

Choosing Materials

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

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

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

Building a Work Team

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

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

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

4. Pour the Foundation

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

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

5. Set Up Plumbing

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

6. Assemble the Frame, Walls, and Roof

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

7. Install Insulation, Complete Electric and Plumbing Installs

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

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

8. Hang Drywall and Install Interior Fixtures and Trim

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

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

9. Install Exterior Fixtures

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

10. Install the Flooring

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

Recommended: First-Time Homebuyer Guide

Is It Cheaper to Buy or Build a New House?

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

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

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

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

3 Home Loan Tips

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

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

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

The Takeaway

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

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

FAQ

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

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

How long will it take to build a home?

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

Is it dangerous to build a home yourself?

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

Are there safe financing options for self-build projects?

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

Photo credit: iStock/Giselleflissak

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

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

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

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

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

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

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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Whether shopping for a home or an investment property, buyers may come across multifamily homes.The first need-to-know, especially for financing’s sake, is that multifamily properties with two to four units are generally considered residential buildings, and those with five or more units, commercial.

Let’s look at whether multifamily homes are a good idea for homebuyers or investors.

What Is a Multifamily Home?

Put simply, a multifamily home is in a building that can accommodate more than one family in separate living spaces. Each unit usually has its own bathroom, kitchen, utility meter, entrance, and legal address.

Of the more than 100 million Americans who rent, around two-thirds live in multifamily homes.

Among the different house types are duplexes, which contain two dwelling units, while a triplex and quadruplex consist of three and four units, respectively. A high-rise apartment building is considered a multifamily property.

What about ADUs? A home with an accessory dwelling unit — a private living space within the home or on the same property — might be classified as a one-unit property with an accessory unit, not a two-family property, if the ADU does not have its own utilities and provides living space to a family member.

Multifamily Homes vs Single-Family Homes

On the surface, the differences in property types may seem as straightforward as the number of residential units. But there are other considerations to factor in when comparing single-family vs. multifamily homes as a homebuyer or investor.

Unless you plan to hire a manager, owning a property requires considerable time and work. With either type of property, it’s important to think about how much time you’re able to commit to handling repairs and dealing with tenants.

If you’re weighing your options, here’s what you need to know about single-family and multifamily homes.

Pros and Cons of Multifamily Homes

There are a number of reasons to buy a multifamily home: Rental income and portfolio expansion are two.

Buying real estate is one ticket to building generational wealth. But there are also downsides to be aware of, especially if you plan to purchase a multifamily home as your own residence.

So what are multifamily homes’ pros and cons? The benefits and drawbacks can depend on whether it’s an investment property or a personal residence.

As Investment

Investing in multifamily homes can come with challenges. Take financing.

A mortgage loan for an investment property tends to have a slightly higher interest rate, the qualification hurdles are higher, and a down payment of 20% or more is usually required, though there are ways to buy a multifamily property with no money down.

Government-backed residential loans don’t apply to non-owner-occupied property, but there is a commercial FHA (Federal Housing Administration) loan for the purchase or refinancing of apartment buildings with at least five units that do not need substantial rehabilitation. Another FHA loan program is for new construction or substantial rehabilitation of rental or cooperative housing of at least five units for moderate-income families, elderly people, and people with disabilities. Yet another FHA loan pertains to residential care facilities. Upfront and annual mortgage insurance premiums (MIP) apply.

Before adding a multifamily home to your real estate portfolio, take note of the pros and cons of this investment strategy.

As Residence

Buyers can choose to purchase a multifamily home as their own residence. They will live in one of the units in an owner-occupied multifamily home, while renting out the others.

Owners can use rental income to offset the cost of the mortgage, property taxes, and homeowners insurance while building wealth.

Another advantage is financing. With a multifamily home of two to four units, an owner-occupant may qualify for an FHA, VA (U.S. Department of Veterans Affairs), or conventional loan and put nothing down for a VA loan or little down for a conventional or FHA loan. (It isn’t all hearts and flowers, though. Most VA loans require a one-time funding fee. FHA loans always come with MIP. And putting less than 20% down on a conventional loan for an owner-occupied property, short of a piggyback loan or lender-paid mortgage insurance, means paying private mortgage insurance).

What are multifamily homes’ pros and cons as residences?

It’s worth noting that an owner-occupant can move to a new residence later on and keep the multifamily home as an investment property. This strategy can help lower the barrier to entry for real estate investing, but keep in mind that loan terms may require at least one year of continued occupancy.

Recommended: Tips to Qualify for a Mortgage

Who Are Multifamily Homes Right For?

There are a variety of reasons homebuyers and investors might want a multifamily home.

Multifamily homes can be helpful for entering the real estate investment business or diversifying a larger portfolio. It’s important to either have the time commitment to be a landlord or to pay for a property manager.

For homebuyers in high-priced urban locations, multifamily homes may be more affordable than single-family homes, given the potential for rental income. It might be helpful to crunch some numbers with a mortgage payment calculator.

Multigenerational families who want to live together but maintain some privacy may favor buying a duplex or other type of multifamily home.

What to Look for When Buying a Multifamily Home

There are certain characteristics to factor in when shopping for a multifamily home.

First off, assess what you can realistically earn in rental income from each unit in comparison to your estimated mortgage payment, taxes, and maintenance costs. Besides what the current owner reports in rent, you can look at comparable rental listings in the neighborhood.

When looking at properties, location matters. Proximity to amenities, school rankings, and transportation access can affect a multifamily home’s rental value.

The rental market saturation is another important consideration. Buying a multifamily home in a fast-growing rental market means there are plenty of renters to keep prices up and units filled.

The vacancy rate — the percentage of time units are unoccupied during a given year — at a property or neighborhood is an effective way to estimate rental housing demand.

Depending on your financing, the condition of a multifamily home may be critical. With a VA or FHA loan, for instance, chipped paint or a faulty roof could be a dealbreaker.

Read up on mortgage basics to learn about what home loans you might use for a multifamily home and their terms.

Finding Multifamily Homes

Like single-family homes, multifamily homes are featured on multiple listing services and real estate websites. Browsing rental listings during your multifamily home search can help gauge the market in terms of vacancy rates and rental pricing.

Working with a buyer’s agent who specializes in multifamily homes can help narrow your search and home in on in-demand neighborhoods.

Alternatively, you can look into buying a foreclosed home. This may help get a deal, but it’s not uncommon for foreclosed properties to require renovations and investment.

The Takeaway

Buying a multifamily home as a residence or investment property can provide rental income and build wealth. It’s also a major financial decision. Whether you’re planning to be an owner-occupant or not will affect your financing, so seriously consider this option and run the numbers to see if you stand to recoup your costs — and ideally make a profit — from the building’s rental income.

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.

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

FAQ

What is the difference between residential and multifamily?

Some multifamily homes — those with fewer than five units — are considered residential real estate. Larger properties with more than five units are commercial real estate.

Photo credit: iStock/krzysiek73

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.

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

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

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

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

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