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The cost to replace a chimney ranges from $1,000 to $15,000, depending on the type and size of the chimney. You can install a smaller or prefabricated chimney for $1,000 to $5,000, but a full masonry chimney replacement cost can reach $15,000.

Below, we’ll explain new chimney cost factors, break down labor and materials expenses, discuss financing options, and help you determine if you might be able to replace the chimney yourself.

Chimney Replacement Costs: An Overview

How much does a chimney replacement cost? Anywhere from $1,000 to $15,000. A full chimney replacement is on the higher end of that range while a partial replacement — or a basic prefab chimney installation — is on the lower end.

In some cases, it might be possible to repair the chimney instead of replacing it. Chimney repair costs typically range between $1,000 and $3,000, though it varies depending on the extent of the damage.

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Full Chimney Replacement

A full chimney replacement costs between $5,000 and $10,000 — or up to $15,000 in some cases. Prefabricated chimneys are the lowest-cost option. You’ll pay moderate prices for a metal chimney and the highest prices for a brick chimney.

Partial Chimney Replacement (Rebuild)

You may only need to replace part of a chimney, like the stack, which extends above the roof. In other cases, you may need to pay for the repair of specific elements, like collapsing mortar, a damaged chimney crown, or a cracked flue.

Partial chimney replacement costs may top out at $5,000 while repair typically ranges between $1,000 and $3,000 per job.

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Chimney Installation Labor Cost

Labor makes up a large portion of the cost to replace a chimney. Depending on your geographic location, if you can reach the chimney by ladder or you need scaffolding, and the type of chimney being installed, labor rates may range from $50 to $150 an hour for an experienced mason.

You will usually need to hire a structural engineer before the mason can begin their work, which adds to your overall labor costs. Depending on where you live, that can cost around $500.

Chimney Installation Material Costs

Material costs vary depending on the type of chimney being replaced, rebuilt, or repaired. Prefab chimneys have lower material costs while masonry chimneys require more expensive materials like bricks and mortar.

Chimney Installation Cost Financing

Paying for a new chimney — or even a more basic chimney repair — can be difficult on a tight budget. If you don’t have the money in emergency savings, you can explore other options like:

•  A payment plan with the contractor: Ask the contractor if they can set you up with a payment plan over a set number of months, rather than requiring the full payment all at once. Costs may be higher if you go this route.

•  A credit card: Some contractors will let you pay with a credit card but be careful. Your credit card may have a high APR, and if you can’t afford to pay the full bill at the end of the month, you could end up paying a lot of interest, which will make the new chimney even more expensive.

•  A home improvement loan: Home improvement loans are a low-cost option for homeowners. These personal loans typically have a lower interest rate than your credit card, and you can choose repayment terms — often three to five years — that make sense for your budget. A personal loan can be a cost-effective way to pay for common home repair costs.

•  Home equity loans: Homeowners can also tap into their home equity with a home equity loan or home equity line of credit (HELOC).

Before you decide on the best financing option, you will want to compare the difference between home equity loans vs. home improvement loans.

Can I Replace the Chimney Myself?

A chimney replacement requires special skills and training. A lot can go wrong if you install or repair a chimney incorrectly. It could become a fire hazard or potentially collapse. No matter your DIY skills, we highly recommend hiring a qualified mason to tackle all repairs and replacements.

Recommended: How to Keep Inflation From Blowing Your Home Reno Budget

What Factors Impact a Chimney Replacement Price?

Several factors can impact your overall chimney replacement cost, including:

•  Permits needed: You’ll almost always need to get a permit for larger chimney replacement projects. Permit costs vary depending on your state and municipality.

•  Level of work required: Wholesale chimney replacements cost significantly more than minor work. For example, chimneys may just require some repointing or tuckpointing to keep them in good shape, or you may need to replace the crown or cap or only rebuild the stack. If you have to replace the whole chimney, it may require demolition, which can be expensive. Talk with your contractor about the extent of the work to get a better idea of the total chimney installation cost.

•  Type of chimney: Prefab chimneys are the most affordable to install. You’ll spend more to replace a metal chimney, but the most expensive type of chimney to replace is a brick one.

•  Size and location: Larger chimneys will cost more to replace than small ones. Chimneys that are easy to access (by ladder, for example) are also more affordable to repair or replace. If the positioning of the chimney makes it harder for the contractor to access, labor costs will be higher.

Signs Your Chimney Needs to Be Replaced

How do you know when it’s time to replace your chimney? Here are a few signs to watch for:

1.   Crumbling brick: If the brick is visibly crumbling or deteriorating, call a mason quickly to determine the extent of the damage and begin the repair or replacement work.

2.   Leaks: If your chimney is the source of leaks (look for water damage to the surrounding walls and ceiling), it’s time to call a contractor to look at it.

3.   Cracks: It’s good practice to have your chimney inspected each year. During the inspection, the contractor will look for large cracks. These could be a sign that it’s time to repair or replace the chimney.

The Takeaway

Chimney replacement costs can range from $1,000 to $15,000 — it’s not a cheap project, but luckily, it’s also not a common one. Get your chimney inspected every year, and keep up with regular maintenance and cleaning. Unless there’s unexpected storm damage or the chimney is old, you may not have to replace the chimney the entire time you live in your home.

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.

FAQ

How long does it take to replace a chimney?

Basic chimney repairs can be quick: A professional should be able to repair a partially damaged chimney in one to four days. Significant damage may lead to longer timelines — in some cases, it might take weeks or even months to repair and rebuild a chimney.

Can I replace my chimney myself, or do I need to hire a professional?

Replacing and repairing a chimney requires specialized knowledge, skills, and equipment, not to mention physical strength. If you make even a small mistake when replacing your chimney, you might accidentally cause a leak, inadvertently create a fire hazard, or build a structurally unsound chimney that could collapse. Always hire a professional for this work.

What qualifications should I look for in a chimney replacement contractor?

When looking for a contractor to work on your chimney, always confirm that they are licensed and insured. You should also verify that they’re certified by the Chimney Safety Institute of America.

Ask the contractors if they offer warranties or guarantees for their work and read reviews online to make sure they provide quality services. You can also ask them for references.

How do I compare quotes from different chimney replacement contractors?

Before getting quotes from any chimney replacement contractors, read online reviews and ask the contractors about their licenses, insurance, and certifications. Only get quotes from qualified contractors.

When comparing quotes, look not just at the overall cost but also the timeline to ensure they can replace your chimney quickly, if needed. Also verify what is and isn’t covered in the quote. For example, has the contractor included the necessary permits, or is that a separate cost not part of the estimate?

You’ll also want to ask about their payment schedule and how they prefer to be paid (cash, check, or credit card, for example).

Are there permits or inspections required for chimney replacement, and how much do they cost?

When replacing a chimney, you almost always will need to get a permit and an inspection. The costs will vary depending on where you live, but you might pay up to $500 for an inspection by a structural engineer, and permits can reach $150.

How often should I replace my chimney, and what factors affect its lifespan?

A well-built chimney should last several generations of homeowners. In theory, you may never need to replace your chimney (but regular inspections are a good idea). If you do replace your chimney, you likely won’t need to replace it again as long as you’re in that house.

That said, certain elements may need to be repaired or replaced more frequently. Chimney liners, for instance, last 15 to 20 years, and mortar lasts 25 to 30 years.

Extreme weather, like high and low temperatures, hail, and earthquakes, may shorten a chimney’s lifespan, as can exposure to water. As your home settles over time, it may also lead to premature cracks in your chimney.

What are the risks of not replacing a chimney that is in disrepair?

If you ignore the signs that it’s time to replace or repair your chimney, you’re exposing your home to a lot of risk. Water could more easily get into your home, leading to mold and mildew. Walls, ceilings, and floors could deteriorate over time, and the inner workings of your chimney would be exposed to rust. Eventually, your chimney might collapse, leading to much more expensive and extensive structural damage to your home.

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

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If you’re like many Americans, you may have student loans, and you may also hope to own your home at some point. You may worry that carrying student debt and buying your own place are mutually exclusive, but that’s not necessarily the case.

Yes, it can be true those with higher student loan balances may be less likely to be homeowners than peers with lower amounts of debt. However, understanding your debt-to-income ratio and other aspects of your financial profile can be vital. This insight can both inform how much room there is in your budget for a home loan payment and highlight how to improve your odds of being approved for a mortgage.

With this guide, you’ll learn the ropes, such as:

•   Understanding how mortgage lenders evaluate your finances

•   How your student loans impact your profile

•   Steps you can take that may boost your chances of getting a home loan application approved when you have student debt.

Getting a Mortgage When You Have Student Loans

Student loans are a familiar financial burden. Currently, Americans hold in excess of $1.7 trillion in student loan debt. A significant 70% of undergraduates finish school with an average sum of $37,000 or more in student loans.

You may wonder how having student loans can impact your eligibility for a mortgage. Here’s what you should know: When a lender is considering offering you a home loan, they want to feel confident that you will pay them back on time. A key factor is whether they think you can afford the mortgage payment with everything else on your plate. To assess this, a lender will consider your debt-to-income (or DTI) ratio, or how high your total monthly debt payments are relative to your income.

For the debt component, the institution will look at all your liabilities. These can include:

•   Car loans

•   Credit card payments

•   Student loans.

In the case of student loans (other than those forgiven by Biden administration), banks know that you’re likely to be responsible for that debt. It usually can’t be discharged in a bankruptcy and it’s not secured to an asset that a lender can recover.

Many industry professionals say that your debt-to-income ratio should ideally be below 36%, with 43% the maximum. If you have a high student loan payment or a relatively low income, that can affect your debt-to-income ratio and your chances of qualifying for a mortgage.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Can You Get a Mortgage With Student Loan Debts?

Are you wondering, “How much house can I afford with student loans?” Here are some important facts. Having student loan debt doesn’t disqualify you from getting a mortgage, but it can make it harder. So here’s how student loans are calculated for a mortgage: That student loan debt will increase your DTI ratio, which can make it harder to qualify for funds from lenders.

For example, here’s a hypothetical situation: Say you earn an annual salary of $60,000, making your gross monthly income $5,000. Say you owe $650 per month on a car loan and have a credit card balance with a $500 monthly minimum payment.

And let’s say you have student loans with a minimum payment of $650 a month. All your debt payments add up to $1,800 a month. So your debt-to-income ratio is $1,800/$5,000 = 0.36, or 36%. That’s right at the limit that some conventional lenders allow. So you can see how having a high student loan payment can affect your ability to qualify for a mortgage.

Another way that student loans can affect your chances of buying a home is if you have a history of missed payments. If you don’t make your minimum student loan payments each month, that gets recorded in your credit history.

When you fail to make payments consistently, your loans can become delinquent or go into default. Skipping payments is a red flag to your potential mortgage lender: Since you haven’t met your obligations on other loans in the past, they may fear you’re at risk of failing to pay a new one as well.

That said, if you have an acceptable DTI ratio and a history of on-time payments on your student loans, you likely have a good shot at being approved for a mortgage. It’s not a matter of having to make a choice between paying off student loans or buying a house.

Estimate How Much House You Can Afford

Taking into account the debt-to-income ratio you just learned about, use this home affordability calculator to get a general idea of how much you can afford. This tool is one you can use to help estimate the cost of purchasing a home and the monthly payment.

How Student Loan Debt Affects Your DTI Ratio

As mentioned above, student loan debt can increase your DTI ratio. How much it will increase your DTI number will depend on how big your loan debt is. Currently, the average federal student loan debt is $37,338 per borrower. The figure for private student loan debt is $54,921.

Obviously, to get that average figure, many different amounts are factored in. Consider these two scenarios:

•   Person A earns $120,000 and has $80,000 in student loan debt, plus a car payment, plus $15,00 in credit card debt.

•   Person B earns $80,000, and has $10,000 in student loan debt, no car payment, and $3,000 in credit card debt.

It’s likely that Person B will have an easier time qualifying for a home loan than Person A. It boils down to one having a higher DTI ratio.

Recommended: Strategies to Pay Off Student Debt

Improving Your Chances of Qualifying for a Mortgage

Are you wondering how to buy a house with student debt? Your student loan debt is just one part of the picture when you go shopping for a home loan. Lenders look at many other aspects of your financial situation to assess your trustworthiness as a borrower. By focusing on improving these factors, you may be able to increase your chances of getting a mortgage.

•   Credit score: One of the most important things to address is your credit score, since this is a key measure lenders use to evaluate how risky it would be to lend to you. Your credit score is determined by many factors, including whether you’ve missed payments on bills in the past, how much debt you have relative to your credit limits, the length of your credit history, and whether you’ve declared bankruptcy.

If your credit score is below 650 or 700, you may want to work on building it. Starting by consistently making your payments on time, paying off debt, or responsibly opening a new credit line may help.

•   Automate your payments. If keeping up with payments has been challenging in the past, setting up automatic payments to your credit card. You might also establish automatic payments to, say, your utilities through your providers or your bank to help you stay on track without having to memorize due dates. In the case of a bankruptcy, you’ll typically have to wait 10 years for it to disappear from your record.

•   Strengthen your work history. Your employment matters to a lender because, if you’re at risk of losing your job, your ability to pay back the loan could change as well. Gaps in employment, frequent job changes, or lack of work experience can all be red flags for a financial institution.

If employment history is a weakness in your application, perhaps you can focus on finding a more stable role than you’ve had in the past as you are saving for a house. This could also be a matter of waiting until you’ve been in a new job for a couple of years before applying for a mortgage.

•   Save up for a bigger down payment. Another way to improve your prospects is to save more money for your down payment. If you have enough to put at least 20% down on a home, your student loans may become less of a factor for the lender.

You can save for a down payment by putting funds in an interest-bearing savings account or CD, asking wedding guests (if you’re getting hitched) to contribute to a “house fund,” earning more income, or even asking a family member for a gift or loan.

•   Focus on your DTI ratio. Another key area you could focus on is your debt-to-income ratio. Tackling some of your debts — whether student loans, credit card balances, or a car loan — could help lower that ratio. Another strategy is to increase your income, perhaps by asking for a raise, getting a new job, or taking on a side hustle. This can help you pay down debt and improve your DTI ratio.

How Student Loan Refinancing May Help

If you’re buying a home with student loans, another way to potentially improve your debt-to-income ratio is to look into student loan refinancing. When you refinance your student loans with a private lender, you replace your existing loans — whether federal, private, or a mix of the two — with a new one that comes with fresh terms.

Refinancing can help borrowers obtain a lower interest rate than they previously had, which may translate to meaningful savings over the life of the loan. You may also be able to lower your monthly payments through refinancing, which can reduce your debt-to-income ratio.

Refinancing isn’t for everyone, since you can lose benefits associated with federal loans, such as access to deferment, forbearance, loan forgiveness, and income-based repayment plans.

But for many borrowers, especially those with a solid credit and employment history, it can be an effective way to reduce debt more quickly and improve the chances of getting a mortgage.


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

Don’t Let Student Loans Hold You Back

With many Americans holding student loan debt, it’s understandable that this financial burden could pose a hurdle for some would-be homeowners. But can you get a mortgage with student loans? Yes, student loans and a mortgage aren’t mutually exclusive. Paying for your education doesn’t have to cost you your dream of owning a home.

If you’ve been making payments on time and your debt is manageable relative to your income, your loans might not be an issue at all. If your student loans do become a factor, you can take steps to get them under control, potentially improving your chances of qualifying for a mortgage. One option could be refinancing those loans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Can I refinance student loans to improve my mortgage eligibility?

Refinancing student loans might improve your mortgage eligibility. If you obtain a lower rate, you could potentially pay down your student loans more quickly, which could lower your debt-to-income (DTI) ratio. However, refinancing federal loans can mean you are no longer eligible for loan forgiveness and other programs.

Can a cosigner help if I have student loans and want to buy a house?

Having a cosigner on your student loans could help with your mortgage qualification if you are “on the bubble” in terms of qualifying. A cosigner with a strong financial profile and credit history could help tip you into the approval zone.

Will a history of on-time student loan payments positively impact my mortgage application?

A history of on-time loan payments is an asset. It can help build your credit score, which is one of the factors lenders use to assess whether to approve your mortgage application.

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.

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Rent-to-own homes are properties rented by individuals who intend to buy the property at the end of their lease term. Typically, the renter and the property owner sign a rent-to-own agreement that states the agreed selling price and includes an upfront option-to-buy fee.

Both parties can benefit from this type of agreement. The seller continues to receive rental income until the home is sold, and the buyer has time to save for a down payment, build their credit score if necessary, and shop for a mortgage. But there are potential downsides as well, such as the tenant losing their fee or the seller dealing with a renter who tries to renege on their arrangement.

In this guide, you’ll learn such information as:

•   How does rent-to-own work?

•   What are the two types of rent-to-own contracts?

•   How does a rent-to-own contract benefit the seller?

•   What should sellers know about entering into a rent-to-own contract?

What Are Rent-to-Own Homes?

Rent-to-own homes are properties that a renter plans to buy from their landlord after a set period, often between one to three years. This type of arrangement benefits potential buyers who otherwise may not be able to follow the traditional home-buying process. Perhaps they have a low credit score or can’t afford a down payment right away. If so, this type of arrangement gives the buyer time to improve their financial situation and save for a down payment. For instance, it might be a wise move for some first-time homebuyers.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you throughout the process.

How Do Rent-to-Own Homes Work?

So how does rent-to-own work? Here is how this kind of an agreement might unfold:

•   First, know that there are two kinds of rent-to-own arrangements. With a lease option, you usually have the choice of buying the home at the end of the lease or walking away. With a lease purchase, you are entering into an obligation to buy the property at the end of the rental term. (You’ll learn more about the differences between these deals in a minute.)

•   The monthly rental price may be higher than the market rate determined by the cost of living in your state or area. The reason why: The amount paid will often include rent credits. What are rent credits? This is money put toward the downpayment on the home when the lease is up and the renter moves forward with buying it. Discuss and read any agreement carefully before signing to understand any rent credit provision.

•   If you are entering into a deal with rent credits, here’s how the math might look. Say the price of the home is $100,000. A tenant-buyer might put $5,000 toward a down payment. This could be paid as an additional $416.67 per month above the standard rental price over the course of a year-long lease.

In this rent credit example, the tenant-buyer would only need to borrow $95,000 since they have paid the homeowner $5,000 already. For people committed to renting to own, this is a way to build equity sooner. However, if you walk away from the property at the end of the lease in a lease-option arrangement, that rent credit money may not be refunded.

•   The renter may also pay a nonrefundable upfront fee. This is called an “option fee” and gives the renter the option to buy the house when the lease ends. Option fees are typically between 1% to 5% of the home’s value. If the renter chooses not to buy the house, they likely lose the money.

The Process for Selling a Rent-to-Own Home

A renter typically has one to three years to exercise an option to buy a home. The process for the seller generally includes the following:

1. Prepare the necessary legal documents that detail the agreement — lease-option or lease-purchase. A lawyer may consult to draw up this paperwork. Rent-to-own agreement terms vary, and it is a good idea for tenants to also consult a lawyer to make sure their agreement suits their situation.

2. Collect a nonrefundable deposit and option fee (typically, this is 1% to 5% of the purchase price). The deposit will go toward the down payment for the house.

3. Collect monthly rent for one to three years. A portion of the rent may go toward the eventual purchase of the home and lower the amount paid at the end of the lease term.

4. If the two parties signed a lease-option agreement, the renter has the option to buy the home after the agreed amount of time. If the renter decides not to buy, the seller usually keeps the down payment money collected.

5. If the renter signed a lease-purchase agreement, the renter must purchase the home after the agreed amount of time and at the agreed-upon price. If they don’t do so, the tenant will usually lose the money paid for fees and the rent credits. In addition, the seller can sue them for breach of contract.

💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.

Pros and Cons of Selling a Rent-to-Own Home

The biggest pro for sellers regarding a rent-to-own home is that they stand to make more money. The biggest downside to selling a rent-to-own home is that there is no guarantee a renter will close the deal.

The Advantages of Selling a Rent-to-Own Home

The list that follows highlights some of the key pros of selling via a rent-to-own arrangement.

•   The seller can earn rental income while preparing to sell the property.

•   This is useful if they have to move, buy another home, and pay two mortgages.

•   Sellers often earn additional rent by offering rental credits on a property, which provides an income stream.

•   Sellers keep the upfront option fee paid by the renter should the renter decide not to buy the property. They may also keep the rent credits.

•   Sellers will likely sell the home for a better price than the market price because there are typically no real estate commissions paid out.

•   A renter who plans to buy the home may be more motivated to pay on time and more inclined to take care of the property, lowering the seller’s maintenance costs.

The Disadvantages of Selling a Rent-to-Own Home

Next, consider the cons of entering into a rent-to-own arrangement.

•   There is no guarantee that a renter will buy the home at the end of the lease. They may not be able to qualify after shopping around for a mortgage or have enough for a downpayment despite making payments toward it.

•   The renter may fall delinquent with payments and refuse to vacate the property when the lease is up.

•   The renter may not take care of the property if they decide not to buy it.

•   The seller may be responsible for the upkeep of the property for the rent-to-own lease period.

•   The seller is responsible for any unpaid utility bills the tenant falls behind on bill payments.

•   The seller could wind up having to take legal action if a renter agrees to buy the home at the end of the lease but then refuses to do so.

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When Rent-to-Own Works

These rent-to-buy arrangements can have their benefits. Here’s how rent-to-own can work for the seller and the buyer.

•   A rent-to-own agreement can benefit a potential buyer by giving them time to build their credit score and save for a down payment while learning about the mortgage loan process.

•   The seller benefits because they still receive rental income during that time rather than leaving the home vacant while they try to sell it. In addition, the seller may receive above-market rent as the tenant accrues their down payment. They may also save on some of the expenses of selling a home.

When Rent-to-Own Doesn’t Work

While rent-to-own homes can work, this arrangement may not be the right choice for all sellers. Some points to consider:

•   It can take time, perhaps years, before the renter is financially equipped to buy the home. So if the seller needs money now, this is probably not a good option.

•   Also, if home prices are dropping, the seller may want to sell the home sooner rather than later. Or, since the home price is often determined in advance, the tenant might look for a price adjustment to reflect market conditions.

•   Conversely, if home prices rise and the property’s selling price was previously set, the seller might feel as if they are missing out on the opportunity to reap a higher figure for the property.

•   Lastly, a seller might regret entering into a rent-to-own agreement if the tenant finds problems with the home and demands a lower purchase price.

Recommended: Should You Buy an Investment Property While Renting?

Types of Rent-to-Own Contracts

As mentioned briefly above, there are two main types of rent-to-own agreements: lease option and lease purchase. Both types of arrangements allow the renter to buy the home at the end of what is typically a one- to three-year term, but there are some key differences to the agreement requirements.

Lease-Option Agreement

With a lease-option contract, the renter pays an option fee when they sign, which is typically around 1% to 5% of the purchase price of the home. Built into the rental payments are usually rent credits, which is extra money set aside for a down payment from the renter. The purchase price of the home is probably decided in advance, though sometimes it is only set when the lease agreement expires. If the latter, the price will be based on a home appraisal.

The renter can still decide not to buy the home at the end of a lease-option contract, but they will lose the rent credit amount they have paid and forfeit the option fee.

Lease-Purchase Agreement

With a lease-purchase agreement, the renter still rents the home for usually one to three years, and a percentage of the rent goes toward the down payment. In addition, the purchase price is typically determined upfront.

The difference with this type of agreement is that the renter is obliged to buy the home when the lease is up.

If the renter cannot buy the home at the end of the lease (say, they decide to move to another area or they can’t qualify for a mortgage), they lose their claim to the home and the money put toward the down payment. In addition, the seller may sue them for breach of contract.

How to Sell a Rent-to-Own Home

If you are selling a home as a rent-to-own property, heed this advice:

•   It’s a good idea for sellers to first establish a rental agreement with the renter before entering into a lease-purchase or lease-option agreement. That way, the seller can claim a deposit for the property in case the renters do not take care of it or they drop out of the contract.

•   The option-to-buy agreement will likely stipulate the price of the home, the option-to-buy fee, and the rent credits that will go toward the purchase price.

•   The option-to-buy agreement can provide the owner/seller with the document they need if they have to evict the renter. This could occur if the tenant refuses to buy the home or to leave at the end of the lease term.

•   With a lease-purchase agreement, the document drawn up will be legally binding and specify the arrangement for the tenant to buy the home at the end of the rental term. If the tenant should fail to buy the property at the end of the lease, the seller could sue.

•   In both of these scenarios, it can be wise to have legal counsel to advise and to draw up documents.

Ask the Right Questions Before You Sign the Contract to Sell

First, manage your expectations. There is no guarantee that tenants who sign a rent-to-own agreement will ultimately buy the home. Many don’t.

However, two aspects are under your control:

•   Consult with a skilled real estate lawyer who can structure the paperwork to protect your interests. Their expertise can help you avoid feeling as if you are losing money if your tenant leaves at the end of the lease.

•   Also, property owners can maximize the likelihood of a sale if they choose their tenants wisely. You can ask for references from previous landlords and look into a potential renter’s employment history to assess their ability to pay rent and ultimately qualify for a mortgage.

The Takeaway

Rent-to-own contracts can be beneficial for both buyers and sellers. For buyers who cannot qualify for a mortgage because they have poor credit or do not have enough for a downpayment, renting to own can give them time to save for a down payment and build their credit score.

For sellers in this scenario, they continue to collect rental income until the home is sold rather than leaving the property vacant until they find a buyer. This is particularly valuable if they are buying another home and taking on two mortgages. The seller can also save money on real estate commissions and other aspects of selling a home.

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

FAQ

What are two benefits of owning a home vs. renting one?

Buying a home is an investment. Over time, the value of the home can increase, and, as the owner pays down the mortgage, they build equity and wealth. Another advantage of homeownership: potential tax deductions. The home mortgage interest deduction can allow homeowners to deduct the mortgage interest from their taxable income, thereby reducing their tax burden.

Can you rent-to-own a house in California?

Yes, you can rent-to-own a house in California. However, as with rent-to-own agreements in any area, each party should be aware of the pros and cons of the arrangement. There are financial and legal implications to consider for both the tenant and the seller.

What is the meaning of lease-to-own?

Lease-to-own, or rent-to-own, usually means that the tenant pays rent on a property for a number of years and has an option to purchase it at the end of the lease. In some cases, at the beginning of the rental period, the tenant commits to buying the home at a specific price in the future.

Photo credit: iStock/recep-bg

*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 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.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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.

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 .

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An FHA loan is a type of government home loan program that the Federal Housing Administration insures. It’s a popular mortgage choice, especially for first-time homebuyers, because an FHA loan has lower down payment requirements than conventional loans.

But there are extra costs related to these loans that you might not be aware of. You can use an FHA loan calculator. to help figure out what your monthly mortgage payment and total cost might be.

Why Use a FHA Loan Mortgage Calculator Table

An FHA loan mortgage calculator table has several benefits for homebuyers. These include:

•   Cost estimations: The calculator table can provide estimates of monthly mortgage payments. It helps borrowers plan their budget by showing the expenses involved in buying a home.

•   Time-saving: Mortgage calculations can be confusing and complicated for first-time homebuyers. The calculator table helps simplify and speed up this process.

•   Comparison tool: Buyers can compare options by entering different scenarios into the calculator table. A different interest rate or purchase price will change the monthly payment amounts. A buyer can compare homes and even different types of mortgage loans to help decide which property and loan to move forward with.

•   Informed decision-making: An aspiring homebuyer can use the table to determine the various costs involved in an FHA loan. They can plug in different numbers, such as a lower or higher down payment or a different loan term to see how that might change their monthly payments.

•   Financial planning: Overall, the calculator could help borrowers figure out what they can afford now and how to plan for future payments.

💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

How to Calculate Your FHA Loan Mortgage Costs

Calculating a government home loan like an FHA loan mortgage involves several steps. These include:

1.    Determining the loan’s principal amount and interest. The principal is the amount of money the homebuyer borrows from the lender. The interest is the cost of borrowing the money.

2.    Adding property taxes and homeowners insurance. Homebuyers typically pay state and local property taxes. And you’ll also need homeowner’s insurance to insure the house against theft, damage, or loss, among other things.

3.    Including the Mortgage Insurance Premium (MIP). The MIP protects lenders in case the borrower defaults on their mortgage payments. Borrowers pay an upfront MIP of 1.75% of the loan amount, and then they pay an annual MIP that’s typically charged in monthly installments as part of the mortgage payment.

4.    Adding the loan term. This is the length of the loan, which is usually 15 to 30 years for an FHA loan.

5.    Finally, plugging all the information listed above into an FHA mortgage loan calculator table to estimate the total monthly mortgage cost.

This is what the table for a mortgage calculator for an FHA loan might look like. You can use the table as a template or starting point to fill in the information, adjusting as needed, and then make your calculations.

Recommended: How do FHA 203(k) Home Loans Work?

Examples of FHA Loan Mortgage Calculations

Here are two examples of FHA loan calculations to give you an idea of how the process works. Keep in mind that there might be additional costs to consider, such as closing costs.

Example #1

•   Loan amount: $200,000

•   Interest rate: 3.5%

•   Loan term: 30 years

•   Annual property taxes: $2,500

•   Annual homeowners insurance: $800

•   Mortgage Insurance Premium (MIP) rate: 0.85%

First, calculate the monthly interest rate:
Monthly Interest Rate = 3.5% / 12 = 0.0029167

Next, calculate the monthly principal and interest:
Monthly Payment = ($200,000 * 0.0029167) / (1 – (1 + 0.0029167)^(-360)) Monthly Payment = $898.09

Then, calculate the annual and monthly Mortgage Insurance Premium (MIP):
Annual MIP = $200,000 * 0.0085 = $1,700. Monthly MIP = $1,700 / 12 = $141.67

Add property taxes and homeowners insurance:
Monthly Property Taxes = $2,500 / 12 = $208.33
Monthly Homeowners Insurance = $800 / 12 = $66.67

Calculate the total monthly mortgage costs:
Total Monthly Mortgage Costs = $898.09 (Principal & Interest) + $141.67 (MIP) + $208.33 (Property Taxes) + $66.67 (Homeowners Insurance) = $1,314.76


The total monthly mortgage cost per month is $1,314.76.

Example #2

•   Loan amount: $150,000

•   Interest rate: 4.0%

•   Loan term: 15 years

•   Annual property taxes: $3,000

•   Annual homeowners insurance: $900

•   Mortgage Insurance Premium (MIP) rate: 0.75%

First, calculate the monthly interest rate:
Monthly Interest Rate = 4.0% / 12 = 0.0033333

Next, calculate the monthly principal and interest:
Monthly Payment = ($150,000 * 0.0033333) / (1 – (1 + 0.0033333)^(-180)) Monthly Payment = $1,081.03

Then, calculate the annual and monthly Mortgage Insurance Premium (MIP):
Annual MIP = $150,000 * 0.0075 = $1,125. Monthly MIP = $1,125 / 12 = $93.75

Add property taxes and homeowners insurance:
Monthly Property Taxes = $3,000 / 12 = $250
Monthly Homeowners Insurance = $900 / 12 = $75

Calculate the total monthly mortgage costs:
Total Monthly Mortgage Costs = $1,081.03 (Principal & Interest) + $93.75 (MIP) + $250 (Property Taxes) + $75 (Homeowners Insurance) = $1,500.78


The total monthly mortgage cost per month is $1,500.78.

💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is just 3.5%.

Reasons to Calculate Your FHA Loan Mortgage First

There are a number of reasons why it makes sense to calculate an FHA mortgage before you move forward with such a mortgage. Here are five ways calculating your mortgage can be helpful.

•   Determining what’s affordable: Determining the cost of the mortgage can help borrowers search for a home within their price range.

•   Financial preparation: Buyers can see how much money they should plan to spend each month. They can then create a budget and financial plan in order to be prepared to meet the monthly payments.

•   Comparing loan options: Buyers can look at different loan options to choose the one that works best for them. They can also see how a different interest rate, home price, or down payment amount will affect their monthly cost.

•   Preventing surprises: Using the calculator helps borrowers understand what the loan costs will be so they don’t get hit with expenses they weren’t expecting.

•   Helping with negotiation: The more informed a buyer is about the various costs associated with the loan and the terms, the better they may be at negotiating the best terms.

Recommended: Home Loan Help Center

Tips on How to Save on Your FHA Loan Mortgage

If you’re interested in getting an FHA mortgage, there are a few things you can do to help get the best deal for your situation.

Build your credit score. This is one of the tips to qualify for a mortgage that it’s good to know. Strengthening your credit may help you get better interest rate terms. Pay off your debts if you can, and pay your bills on time to help build your score.

Shop around for the best interest rate. Different lenders offer varying interest rates for FHA loans. See what you may qualify for. A higher credit score may help you get a better rate.

Consider making a higher down payment. This could potentially help make your overall mortgage amount and monthly payments lower.

Negotiate closing costs. Closing costs are typically 4% to 5% of the home’s purchase price. You may be able to negotiate with the lender to try to lower some of those costs.

Take advantage of down payment assistance programs. Many states and cities offer down payment assistance programs for first-time homebuyers.

Consider mortgage refinance when interest rates drop. If you get a lower rate when you refinance, you can typically reduce your monthly mortgage monthly payments.

The Takeaway

If you’re interested in an FHA loan, an FHA loan calculator can help you figure out the total costs of your loan and your monthly loan payments, which in turn can help you budget and plan for them. For instance, you’ll factor in such costs as homeowner’s insurance and Mortgage Insurance Premium.

Shopping around for the best interest rate and comparing different loan options may also help you save money on an FHA loan.

SoFi offers a wide range of FHA loan options that are easier to qualify for and may have a lower interest rate than a conventional mortgage. You can down as little as 3.5%. Plus, the Biden-Harris Administration has reduced monthly mortgage insurance premiums for new homebuyers to help offset higher interest rates.

Another perk: FHA loans are assumable mortgages!

FAQ

What are the new FHA limits for 2023?

The FHA’s nationwide limit “floor” and “ceiling” for a one-unit property in 2023 are $472,030 and $1,089,300, respectively.

What is the minimum credit score for FHA in 2023?

For an FHA loan, a minimum credit score of 580 and a down payment of 3.5 percent are required. You can still qualify with a credit score as low as 500 if you can increase your down payment to at least 10%.

How is an FHA loan amount calculated?

The FHA loan amount is calculated by determining the maximum loan size that a borrower qualifies for, which is typically based on the borrower’s income, creditworthiness, and the specific FHA loan program’s guidelines. The loan amount is further influenced by factors such as the property’s appraised value and the FHA’s required loan-to-value ratio.

Photo credit: iStock/ridvan_celik

^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.
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.

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.

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.

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.

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Lenders who provide VA home loans often offer better terms than a borrower might get with a conventional mortgage. Private mortgage insurance (PMI) isn’t required, interest rates may be lower than with other types of mortgages, and most VA-backed loans (90%) are made with no down payment.

Still, when you’re shopping for any type of mortgage, it can be helpful to have a good idea of where you stand and what your monthly payments might be. And that’s why a VA loan calculator table can be instrumental. By plugging in a few key numbers, you can feel better informed, whether you’re planning to buy a home or considering refinancing your current mortgage.

Why Use a VA Home Loan Mortgage Calculator Table?

If you’re a veteran, service member, or eligible survivor interested in learning about a VA loan — which is one of the different types of mortgage loans available — a VA home loan calculator can help you estimate what your monthly payments might be based on data you provide.

You can see how a 15-year mortgage might differ from a 30-year mortgage, for example, or what different interest rates might mean for your monthly payments. You also can get an idea of how much you might pay in interest over the life of your VA home loan.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you throughout the process.

How to Calculate Your VA Home Mortgage Loan Payment

To calculate your monthly VA mortgage payment with a VA loan calculator table, you’ll need to gather up a few key pieces of information, including:

Home Purchase Price

This can be the actual cost of a home you hope to buy, or what you’ve budgeted for your home purchase.

Down Payment Amount

For most eligible veterans and service members, this amount will be $0.

Loan Term

This is the expected length of your loan, usually 15 or 30 years.

Interest Rate

You won’t know your exact interest rate until you lock it in with your lender, so this will be an estimate. Lenders base their rates on current market rates, a borrower’s credit profile, and other factors.)

Property Tax Rate

If you have a particular home in mind to purchase, the tax rate may appear on the listing. You also can look for property tax rates on county websites.

The formula used to calculate a mortgage payment can be complicated, so it may be easier to use a VA home loan calculator to check how changing various numbers might affect your loan. Our VA Loan Mortgage Calculator Table, with averages used below in various fields, also can help you see what your payments might look like.

*Property tax exemptions and special tax districts may apply

Examples from the VA Home Mortgage Calculator Table

Because VA-backed loans don’t require mortgage insurance, and most don’t require a down payment, the main factors that will influence your monthly mortgage payment are the amount of the loan, the interest rate you pay, and the length of the loan.

As you can see from the VA loan affordability calculator table above, borrowers can get a smaller, more manageable monthly payment if they opt for a longer loan term. But they’ll pay more in interest than they would if they had a shorter term. Using the Tampa home as an example, the estimated monthly payment would be $2,854 with a 30-year term, vs. $3,730 with a 15-year loan. But the total amount of interest paid for the 30-year loan could end up being more than twice as much: $523,162 vs. $231,709.

And, of course, the cost of the home you choose to buy can also be an important factor. As shown in the table, even with a much higher interest rate, both the monthly payment and total interest paid for the home in St. Louis would be lower than for the home in Los Angeles — simply because the cost of living in California is high and the St. Louis home is less expensive.

It can be helpful to check the cost of living by state if you’re deliberating between two different locations for your next home.


💡 Quick Tip: Active duty service members who have served for at least 90 consecutive days are eligible for a VA loan. But so are many veterans, surviving spouses, and National Guard and Reserves members. It’s worth exploring with an online VA loan application because the low interest rates and other advantages of this loan can’t be beat.†

Other Costs to Consider

Most VA loan mortgage calculators stick to the basics, but there are other costs you may want to consider when you’re trying to determine the monthly loan payment you can afford, including:

VA Funding Fee

Though borrowers don’t pay mortgage insurance on a VA loan, most will pay a one-time funding fee. (Some borrowers are exempt.) The fee, which can be paid upfront or rolled into the loan, is a percentage of the loan, and is based on the type of loan and other factors.

Homeowners Insurance

Homeowners insurance can help protect your home and property in case of expensive damage and other potential costs. Your lender will likely require that you buy homeowners insurance before you close on your home purchase.

HOA Fees

If the home you purchase is part of a homeowner’s association (HOA), you may have to pay a monthly or annual fee. The HOA may use this money to cover maintenance costs and amenities.

VA Home Loan Limits

Typically, the VA guarantees that it will repay the lender up to 25% of your loan amount if you should fail to make your payments. But if you’re still paying off another VA loan, your VA guarantee may be limited, and the lender may ask you for a down payment to make up the difference. Your lender can help you determine how VA home loan limits might affect your new loan.

Recommended: 2024 Home Loan Help Center

Reasons to Calculate Your VA Home Mortgage Loan First

You may want to calculate the monthly payment and interest costs for your VA loan first, then compare those numbers to other types of loans – especially if you’re a first-time buyer who’s struggling to come up with a down payment. Your VA loan may come with a lower interest rate, and you won’t have to pay private mortgage insurance, which can keep your payments lower. Your lender also may accept a lower credit score if you’re applying for a VA loan vs. a conventional loan.

Still, it can be a good idea to compare all the different types of mortgage loans for which you might be eligible. If you can afford to make a 20% down payment on a conventional loan, for example, you can avoid the VA funding fee, and you’ll have some equity in your home right away. It doesn’t hurt to keep your options open, whether you’re buying a home or refinancing your mortgage.

Tips on How to Save on Your VA Home Mortgage Loan

To get the best VA loan payment, these are a few strategies that could help you save money.

Work on Your Credit

There isn’t a required minimum credit score for VA loans. Instead, the VA asks approved lenders to review the borrower’s “entire loan profile,” which could include your credit history, debt-to-income (DTI) ratio, employment history, and assets.

Individual lenders also may have their own approval criteria you should be aware of when you’re ready to apply for a loan. The more you can do to improve your financial health, the better the chances that you’ll get the loan terms you want.

Consider Making a Down Payment

Most borrowers don’t have to make a down payment on their VA home loan, but that doesn’t mean you can’t. Putting a down payment on your loan could show the lender that you’re a serious buyer, which may help you get a lower interest rate or reduce the VA funding fee on your loan.

Roll Your VA Funding Fee into Your Loan

If you’re a first-time homebuyer or low on cash for closing, the VA’s one-time funding fee may seem like a daunting amount. But you don’t have to pay the entire fee upfront. You can ask your lender to include that amount in your loan, and it will be added to your monthly payments. Your payments will be a bit more, but it may make the difference in being able to buy a home of your own.

Recommended: Tips to Qualify for a Mortgage

The Takeaway

Because VA home loans have some different requirements and benefits than other mortgages, it can be helpful to get an idea of what those differences might mean for your monthly payment and overall loan by using a VA loan calculator table.

If you’re preparing to buy or refinance a home, a VA mortgage loan calculator table can give you a useful estimate of what your new loan might look like, depending on your loan amount, length, interest rate and other factors.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

Our Mortgage Loan Officers are ready to guide you through the process step by step.

FAQ

Will VA home loan limits increase in 2023?

Yes, VA home loan limits increased significantly in 2023. The baseline limit for VA loans in 2023 is $726,200, compared to $647,200 in 2022.

How much do I need to make to buy a $300,000 house with a VA loan?

Your income is only one factor that goes into deciding how much you can afford to borrow. Lenders also will look at your debt-to-income (DTI) ratio, which is the amount of your monthly debt payments compared to your monthly gross income. The VA doesn’t have a required DTI ratio for borrowers, but a maximum DTI of 41% is preferred.

What is the VA benefit increase for 2023?

Military retirees and disabled veterans got an 8.7% increase in their monthly checks in 2023, thanks to the annual adjustment to the federal cost of living allowance.

Photo credit: iStock/joel-t

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.

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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.

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 .

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