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A short-term bridge loan allows homeowners to use the equity in their existing home to help pay for the home they’re ready to purchase.

But there are pros and cons to using this type of financing. A bridge loan can prove expensive.

Is a bridge loan easy to get? Not necessarily. You’ll need sufficient equity in your current home and stable finances.

Read on to learn how to bridge the gap between addresses with a bridge loan or alternatives.

What Is a Bridge Loan?

A bridge loan, also known as a swing loan or gap financing, is a temporary loan that can help if you’re buying and selling a house at the same time.

Just like a mortgage, home equity loan, or home equity line of credit (HELOC), a bridge loan is secured by the borrower’s current home (meaning a lender could force the sale of the home if the borrower were to default).

Most bridge loans are set up to be repaid within a year.

Note: SoFi does not offer bridge loans at this time. However, SoFi does offer HELOC options.

How Does a Bridge Loan Work?

Typically lenders only issue bridge loans to borrowers who will be using the same financial institution to finance the mortgage on their new home.

Even if you prequalified for a new mortgage with that lender, you may not automatically get a bridge loan.

What are the criteria for a bridge loan? You can expect your financial institution to scrutinize several factors — including your credit history and debt-to-income ratio — to determine if you’re a good risk to carry that additional debt.

You’ll also have to have enough home equity (usually 20%, but some lenders might require at least 50%) in your current home to qualify for this type of interim financing.
Lenders typically issue bridge loans in one of these two ways:

•   One large loan. Borrowers get enough to pay off their current mortgage plus a down payment for the new home. When they sell their home, they can pay off the bridge loan.

•   Second mortgage. Borrowers obtain a second mortgage to make the down payment on the new home. They keep the first mortgage on their old home in place until they sell it and can pay off both loans.

It’s important to have an exit strategy. Buyers usually use the money from the sale of their current home to pay off the bridge loan. But if the old home doesn’t sell within the designated bridge loan term, they could end up having to make payments on multiple loans.

Bridge Loan Costs

A bridge loan may seem like a good option for people who need to buy and sell a house at the same time, but the convenience can be costly.

Because these are short-term loans, lenders tend to charge more upfront to make bridge lending worth their while. You can expect to pay:

•   1.5% to 3% of the loan amount in closing costs

•   An origination fee, which can be as much as 3% of the loan value

Interest rates for bridge loans are generally higher than conventional loan rates.

Repaying a Bridge Loan

Many bridge loans require interest-only monthly payments and a balloon payment at the end, when the full amount is due.

Others call for a lump-sum interest payment that is taken from the total loan amount at closing.

A fully amortized bridge loan requires monthly payments that include both principal and interest.

How Long Does It Take to Get Approved for a Bridge Loan?

Bridge loans from conventional lenders can be approved within a few days, and loans can often close within three weeks.

A bridge loan for investment property from a hard money lender can be approved and funded within a few days.

Examples of When to Use a Bridge Loan

Most homebuyers probably would prefer to quickly sell the home they’re in, pay off their current mortgage, and bank the down payment for their next purchase long before they reach their new home’s closing date. They could then go about getting a mortgage on their new home using the down payment they have stashed away.

Unfortunately, the buying and selling process doesn’t always go as planned, and it sometimes becomes necessary to obtain interim funding.

Common scenarios when homebuyers might consider a bridge loan include the following.

You’re Moving for a New Job, or Downsizing

You can’t always wait for your home to sell before you relocate for work. If the move has to go quickly, you might end up buying a new home before you tie up all the loose ends on the old home.

Or maybe you’ve fallen in love with a smaller home that just hit the market, decided that downsizing your home is the way to go, and you must act quickly.

Your Closing Dates Don’t Line Up as Hoped

Even if you’ve accepted and offer on your current home, the new-home closing might be weeks or even months away. To avoid losing the contract on the new home, you might decide to get interim funding.

You Need Money for a Down Payment

If you need the money you’ll get from selling your current home to make a down payment on your next home, a bridge loan may make that possible.

Bridge Loan Benefits and Disadvantages

As with any financial transaction, there are advantages and disadvantages to taking out a bridge loan. Here are some pros and cons borrowers might want to consider.

Benefits

The main benefit of a bridge loan is the ability to buy a new home without having to wait until you sell your current home. This added flexibility could be a game-changer if you’re in a time crunch.

Another bonus for buyers in a hurry: The application and closing process for a bridge loan is usually faster than for some other types of loans.

Disadvantages

Bridge loans aren’t always easy to get. The standards for qualifying tend to be high because the lender is taking on more risk.

Borrowers can expect to pay a higher interest rate, as well as several fees.

Borrowers who don’t have enough equity in their current home may not be eligible for a bridge loan.

If you buy a new home and then are unable to sell your old home, you could end up having to make payments on more than one loan.

Worst-case scenario, if you can’t make the payments, your lender might be able to foreclose on the home you used to secure the bridge loan.

Alternatives to Bridge Loans

If the downsides of taking out a bridge loan make you uneasy, there are options that might suit your needs.

Home Equity Line of Credit (HELOC)

Rather than the lump sum of a home equity loan, a home equity line of credit lets you borrow, as needed, up to an approved limit, from the equity you have in your house.

The monthly payments are based on how much you actually withdraw. The interest rate is usually variable.

You can expect to pay a lower rate on a HELOC than a bridge loan, but there still will be closing costs. And there may be a prepayment fee, which could cut into your profits if your home sells quickly. (Because your old home will serve as collateral, you’ll be expected to pay off your HELOC when you sell that home.)

Many lenders won’t open a HELOC for a home that is on the market, so it may require advance planning to use this strategy.

Home Equity Loan

A home equity loan is another way to tap your equity to cover the down payment on your future home.

Because home equity loans are typically long term (up to 20 years), the interest rates available, usually fixed, may be lower than they are for a bridge loan. And you’ll have a little more breathing room if it takes a while to sell the old home.

You can expect to pay some closing costs on a home equity loan, though, and there could be a prepayment penalty.

Keep in mind, too, that you’ll be using your home as collateral to get a home equity loan. And until you sell your original home, unless it’s owned free and clear, you’ll be carrying more than one loan.

401(k) Loan or Withdrawal

If you’re a first-time homebuyer and your employer plan allows it, you can use your 401(k) to help purchase a house. But most financial experts advise against withdrawing or borrowing money from your 401(k).

Besides missing out on the potential investment growth, there can be other drawbacks to tapping those retirement funds.

Personal Loan

If you have a decent credit history and a solid income, typical personal loan requirements, you may be able to find a personal loan with a competitive fixed interest rate and other terms that are a good fit for your needs.

Other benefits:

•   You can sometimes find a personal loan without the origination fees and other costs of a bridge loan.

•   A personal loan might be suitable rather than a home equity loan or HELOC if you don’t have much equity built up in your home.

•   You may be able to avoid a prepayment penalty, so if your home sells quickly, you can pay off the loan without losing any of your profit.

•   Personal loans are usually unsecured, so you wouldn’t have to use your home as collateral.

The Takeaway

A bridge loan can help homebuyers when they haven’t yet sold their current home and wish to purchase a new one. But a bridge loan can be expensive, and not all that easy to get. Only buyers with sufficient equity and strong financials are candidates.

If you find yourself looking to bridge the gap between homes, you might also consider a personal loan or a HELOC, a home equity loan, or a personal loan among other alternatives. With a little due diligence and some paperwork, you’ll soon be financially prepared to purchase your next home.

FAQ

What are the cons of a bridge loan?

It can be harder to qualify for a bridge loan than for a standard home loan, and both costs and interest rate may be higher as well. And taking out a bridge loan means you may have to make payments on two loans if your first property doesn’t sell.

Why would someone get a bridge loan?

A homebuyer who has found their perfect next property but who is in a short-term cash crunch might opt for a bridge loan if they feel very confident that they can sell their current home quickly. This might be especially true in a hot market, where there is lots of competition for homes and the buyer wants to move quickly.

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.

Does staring at your outdated stairs make you want to climb the walls? You may be considering a staircase remodel or replacement.

A light staircase remodel could cost less than $1,000, while a total makeover could cost upwards of $6,000, according to the home services site Angi. But the average homeowner spends around $2,054.

How Do You Remodel Stairs?

That’s the million-dollar question, really (and no, that’s not a budget estimate). Staircases are the sum of their parts, and each part is an opportunity to increase visual appeal, the value of your home, and your home equity.

Not surprisingly, there’s no shortage of remodeling options. Cosmetic changes, like painting the vertical spindles, restaining treads or risers, or adding a bold carpet runner, can pack a punch without walloping your budget.

For an entirely new look, you may want to consider changing the bones of the staircase — think replacing handrails, spindles, or treads — or relocating the stairs. Those projects may require finding a contractor. That’s especially the case if you want your staircase to meet current building codes (important for safety and when you’re selling the house).

Understanding the project scope from the outset can help ensure that the staircase remodeling costs make sense. As you’re weighing your options, consider factors like:

•   Budget

•   Space

•   Lifestyle

•   Preferred materials and design

•   Building codes in your area

•   Whether you want to do the project yourself or hire a professional

Recommended: Home Renovation Cost Calculator

Staircase Elements and Materials

Being familiar with basic staircase anatomy and common materials can help you refine project goals and have productive conversations if estimates for the job are required.

The focus here will be on interior stairs.

Treads

The stair tread is the part of the stairway that is stepped on. Treads are often made of wood, although they may have another layer on top, such as tile or carpet.

Risers

Stair risers are the vertical pieces that connect the treads: the piece of the staircase in front of your toes as you’re walking up. Risers might be made of wood or an engineered wood product.

Spindles (aka Balusters)

Spindles, or balusters, provide vertical support for the stair railing. Traditional staircases might have wooden spindles, while a more modern stairway might have metal balusters.

Handrails

Also called a banister, this part is simply the rail where you put your hands. Wood, composite, and metal are all standard, although there is room for creativity.

Newel Posts and Caps

The heftier vertical posts that go in line with the spindles and create endings to the railing are the newel posts, and the cap is the decorative element that tops the newel.

Handrails start and end at the newel posts. Materials mirror those of the spindles.

Guardrails

Guardrails must be installed at open spaces on stairs or landings.

Landing

A landing is a horizontal platform that begins or ends a staircase or serves as a transition between changes in stair direction.

Popular Materials Used in Staircase Renovations

The material you use to renovate a staircase can have a big impact on your budget. Let’s look at four common options:

•   Wood. A popular choice for good reason, wood stairs tend to be easy to clean and maintain, though costs can vary based on the type you use.

•   Metal. Want a sleek, modern-looking staircase? Think metal. It’s durable and fire resistant, though you may need to give it some extra maintenance to prevent rust.

•   Glass. Airy and surprisingly sturdy, glass is another top choice for stairwells, particularly the railings. Clean-up is a breeze — just wipe down the surface. However, the material may be prone to scratches.

•   Concrete. Concrete is easy to maintain and customize and can stand up to lots of foot traffic. But the material can be expensive. According to Angi, wooden steps run around $100 to $200 per step; concrete steps cost $200 to $600 per step.

Estimating the Project Scope and Cost

Before you embark on a stair remodeling project, it’s important to gauge what it will involve and how much it will cost. To do that, consider the changes you’ll be making, the materials you’re planning to use, potential labor costs, and the cost of fees, permits, etc. It’s also smart to make a budget and include a little extra to cover any unforeseen expenses.

These stair makeover ideas will give you a good starting point. Minor upgrades can likely be done yourself. Others will require a licensed professional, who can provide you with a quote.

You may also need to take out a personal loan to finance the job, unless you’re paying cash.

Painting the Stairs

Using paint made to withstand wear and tear is essential for the paint job to last. Look for floor, deck, or heavy-duty paint. Water-based, not oil-based, paints will prevent discoloration, especially on light colors.

Painting stairs requires proper preparation (cleaning and sanding), protecting neighboring surfaces, and possibly priming so the paint will adhere correctly. Count on an average of $400 to paint the stairway, handrails, and balusters.

If this is a DIY job, a gallon of latex paint will average $20 to $60. Polyurethane to help protect the new paint finish might start at $50 per gallon. Sandpaper, paint rollers or brushes, tape, and drop cloths could add up to $80 or so.

A new paint job, perhaps using light and dark colors on different parts of the staircase, will go a long way toward making it more inviting. Painting just the risers a bold hue can add interest, and some people even create a painted runner for their staircase renovation.

Refinishing Stairs

Refinishing stairs is a much more daunting task than painting. This involves stripping the current finish with solvents and sanding, which is easier to do on flat stair treads than turned spindles or vertical risers.

You’ll want to check for lead paint before you start stripping the paint.

You’ll need paint stripper ($70 per gallon and up), a premium heat gun (as low as $45), a power sander and sandpaper ($60 to $100), heavy-duty rubber gloves and a respirator mask ($50), and a scraper (as low as $8) to strip the original finish. Oh, and lots of time and patience.

If you’re getting bids to refinish hardwood stairs, the width and length of every step, along with the rise of each, will factor in. The price to refinish hardwood stairs and railings ranges from $4.50 to $8 per square foot for materials and labor.

Replacing Staircase Components

Swapping elements like spindles, newels, caps, and handrails for a different style can dramatically change the overall look of a staircase.

If the staircase has historic elements, getting spindles or other pieces to match other elements in the home might require custom work if replacements can’t be found through architectural reuse or salvage sources.

Replacing carpet-covered treads with wood treads can rectify an outdated look, but realize that you may have to contend with lots of nails and staples under the carpet. A contractor might charge $2 to $20 per stair to remove the carpet.

The balusters will have to be replaced if you’re replacing the treads.

Here are some average replacement and installation costs, according to HomeAdvisor:

•   Handrail: $900

•   Newel post: $35 to $550

•   Balusters: $1,200 to $1,600

•   Treads and risers: $1,800 to $2,500

•   Carpet runner: $500 to $2,000

Expect to pay from $50 to $100 per hour on labor, and factor in any necessary permits, HomeAdvisor says.

Another source puts the cost of replacing the treads and risers at $3,000 to $4,000, including the work of master carpenters. Yes, you’ll see a range of estimates out there. If you’re getting bids, a lot depends on where you live, your choice of materials, and the size of the project.

Total Replacement

Completely replacing a staircase is logistically and financially complex, but a millennial homebuyer, for example, might want floating stairs with open risers rather than a chunkier look.

Consulting a building or remodeling professional, such as a licensed construction engineer or residential architect, about safety and fire codes and potential structural implications for the home is a good step to take.

The cost to install a main staircase averages $2,400 to $4,000, according to Angi. But the site gives a range of $8,000 to $12,000 or more to put in a floating staircase, so only bids will narrow the true cost of replacing a staircase or installing a new one.

Competent staircase installers may cost as much as the staircase itself.

Recommended: Common Uses for Personal Loans

The Takeaway

Improving your main staircase can have a major impact on the look, feel, and function of your home. Stair makeover ideas include the fairly simple (think a fresh coat of paint or staining the treads) and the wow-worthy (custom balusters and floating stairs).

Whether you’re sprucing up your existing steps or installing a brand-new staircase, you’ll want to consider your space, budget, lifestyle, and whether you’ll do the work yourself or hire a pro. The cost of a staircase remodel ranges from a few hundred dollars to tens of thousands. Installing a new staircase will typically require several professionals. If a staircase remodel or new staircase install is on your mind, one way to get quick cash is with a personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How much does it cost to redesign a staircase?

An architect and contractor may be required to structurally redesign a staircase. A staircase remodel, if done by the homeowner, could cost less than $1,000.

How do I modernize my stairs?

Consider changing out dated handrails. Paint can take years off.

Add a punch to the risers with eye-catching paint, tile, or even wallpaper. Consider a bold-colored or -patterned stair runner that allows the stair treads to be exposed at the edges.

A dramatic light fixture at the top of the stairway will offer both illumination and arty interest. And stair cladding — covering the treads and risers with wooden floor planks — will create a big transformation.

How do you renovate stairs on a budget?

Making less expensive changes, like adding a coat of fresh paint, replacing spindles, or adding a runner, can completely change the feel of a staircase — and the living space that surrounds it, making a house feel like a home.

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.

Loans have become an integral part of American financial life. We need a mortgage to buy our first home, and an auto loan to purchase a car. More recently, people are turning to personal loans to cover surprise bills and avoid high-interest credit card debt. But just because you need a loan doesn’t mean a lender is going to give you the loan — and interest rate — you want.

If you’re struggling to qualify for a loan, a friend or family member may be able to help by becoming a co-borrower. By leveraging their income, credit score, and financial history, you may qualify for better loan terms. Let’s dive into the details.

Understanding Co-Borrowers

As you’re considering your options, a natural first question may be, what is a co-borrower? Essentially, a loan co-borrower takes on the loan with you, and their name will be on the loan with yours. They will be equally responsible for paying the loan back and will have part ownership of whatever the loan buys. When you take out a mortgage with someone, the co-borrower will own half the home.

Spouses often co-borrow when buying property, and when taking out a personal loan for a home improvement or remodeling project. In other circumstances, two parties become co-borrowers in order to qualify for a larger loan or better loan terms than if they were to take out a loan solo.

Having a co-borrower can help two people who both want to achieve a financial goal — like first-time homeownership or buying a new car — put in a stronger application than they might have on their own. The lender will have double the financial history to consider, and two borrowers to rely on when it comes to repayment. Therefore, the loan is a less risky prospect, which may translate to more favorable terms.

Recommended: All About Variable Interest Rate Loans

Qualifying as a Co-Borrower

If you’re planning to have a co-borrower on your personal loan application, it helps to understand what criteria you both must meet in order to be accepted by the lender. Let’s take a closer look at common factors lenders consider.

Credit Score

A credit score can have a significant impact on whether your loan application is approved and what terms you’re offered. There’s no magic number, but generally speaking, lenders prefer to see a score of 670 or higher. You and your co-borrower may want to check your credit scores for free before you apply.

Proof of Income and Employment

To help them determine whether co-borrowers can afford loan payments, a lender will likely want to see proof of a stable income and employment. You both may be asked to provide recent pay stubs, tax returns, and bank statements. You might also be asked to show a letter from your employers verifying your employment status, how long you’ve both been employed, and your salaries.

Debt-to-Income Ratio

Debt-to-income ratio, or DTI ratio, is a comparison of your monthly debts to your gross monthly income (before taxes). Lenders use this information to help determine how risky it would be to loan money to a borrower. It can affect your ability to borrow money and the interest rate you’ll receive. Generally, lenders like to see a DTI that’s no higher than 36%, though there may be some wiggle room.

In addition to the above, lenders also usually consider:

•   Financial history. This includes recent bankruptcies, judgments, and liens.

•   Age. Many lenders have a minimum age for co-borrowers, typically 21 to 25 years of age.

•   Citizenship. Co-borrowers generally must be either citizens or permanent residents of the U.S.

Co-Borrower Process

Applying for a loan with a co-borrower? The application process is fairly similar to the one you’d follow if you were applying alone.

A good first step is to reach out to your lender and start the prequalification process. If your co-borrower has a strong credit profile, that could improve your odds of qualifying for better rates and terms.

Next, you and your co-borrower will need to complete the loan application. You’ll also both undergo credit checks, and the lender will evaluate your finances. You may be asked to provide documentation like pay stubs, bank statements, or tax forms.

Within a few days or so, you’ll find out if you’re approved and what your loan terms are. Once you agree to the terms, your loan funds will be disbursed, usually within a week. Your lender will also share details about how to make monthly payments.

Co-Borrower vs. Cosigner

A cosigner plays a slightly different role than a co-borrower. A cosigner’s income and financial history are still factored into the loan decision, and their positive credit standing benefits the primary applicant’s loan application. But a cosigner does not share ownership of any property the loan is used to purchase. And a cosigner will help make loan payments only if the primary borrower is unable to make them.

Cosigning helps assure lenders that someone will pay back the loan. Typically, a cosigner has a stronger financial history than the primary borrower. This can help someone get approved for a loan they might not qualify for on their own, or secure better terms.

No matter which route you choose, there are potential credit implications to keep in mind. For example, when you apply for a loan, the lender will likely do a hard credit pull. This may cause credit scores to temporarily dip for you and your cosigner or co-borrower.

Both parties may also see a drop in their credit score if monthly payments are late or missed altogether. (And remember, cosigners will be on the hook for making loan payments if the main account holder can’t.) On the flip side, on-time payments can help boost or build credit scores.

When should you choose a cosigner vs. a co-borrower? The answer depends on your situation and goals. If you intend on sharing ownership of whatever you buy with the loan, then a co-borrower may be a good choice. If you simply need someone with a strong credit history to bolster your loan application, then consider using a cosigner.

Recommended: What Is Revolving Credit?

The Takeaway

Taking out a loan is a big decision, and doing so with a co-borrower carries additional risks. A co-borrower is a partner in the loan and any property the loan is used to purchase. If one borrower cannot make their payments, the co-borrower will be on the hook for the full amount. But if both parties can come to an agreement about how they’ll handle any financial hardships, co-borrowing can have major benefits. By pooling their income and debt, they may lower their debt-to-income ratio and qualify for a mortgage or personal loan with a lower interest rate and better terms.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

Photo credit: Stocksy

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.

SOPL1222002

Maybe you’ve spent a serious amount of time watching HGTV and now have visions of turning your kitchen into a chef’s paradise. Or perhaps you have an entire Pinterest board full of super-deep soaking tubs that you’re dreaming about.

Either way, the home improvement bug has bitten you, and you’re hardly alone. In the U.S. $827 billion was spent on home improvement from 2021 to 2023, according to the U.S. Census Bureau American Housing Survey. For a bit more context, consider that the average American spent more than $9,542 on home improvement projects in 2023 — with spending up 12% over 2022. That’s a lot more than just buying a new bathroom sink.

While your home might be begging for some updates and improvements, not all of us have close to $10,000 stashed away in a savings account. For many people, realizing their home improvement goals means borrowing money. But how exactly?

Read on to learn about some of your options, including a home equity loan, a home equity line of credit (HELOC), and a home improvement loan. We’ll share the situations in which home equity loans, HELOCs, and home improvement loans work best so you can figure out which home improvement loan option is right for you.

What’s the Difference Between Home Equity Loans, HELOCs, and Home Improvement Loans?

If you’ve figured out how much a home renovation will cost and now need to fund the project, the options can sound a bit confusing because they all involve the word “home.”

What’s more, you may hear the term “home equity loan” loosely applied to any funds borrowed to do home improvement work. However, there are actually different kinds of home equity loans to know about, plus one that doesn’t involve home equity at all.

So, before digging into home improvement loans vs. home improvement loans vs. HELOCs, consider the basics for each:

•   A home equity loan is a lump-sum payment that a lender gives you using the equity in your home to secure the loan. These loans often have a higher limit, lower interest rate, and longer repayment term than a home improvement loan.

•   A home equity line of credit, or HELOC, is a revolving line of credit that is backed by your equity in your home. It operates similarly to a credit card in that the amount you access is not set, though you will have a limit on how much you can access.

•   A home improvement loan is a kind of lump-sum personal loan, and it is not backed by the equity you have in your home. It may have a higher interest rate and shorter repayment term than a home equity loan. What’s more, it may have a lower limit, making it well suited for smaller projects.

Worth noting: If you use your home as collateral to borrow funds, you could lose your property if you don’t make payments on time. That’s a significant risk to your financial security and one to take seriously.

Next, here’s a look at how key loan features line up for these options.

How Much Can I Borrow?

The sky isn’t the limit when borrowing funds. This is how much you will likely be able to access:

•   For a home equity loan, you can typically borrow up to 85% of your home’s value, minus what’s owed on your mortgage. So if your home’s value is $300,000, 85% of that is $255,000. If you have a mortgage for $200,000, then $255,000 minus $200,000 leaves you with a potential loan of $55,000. You can do the math quickly with a home equity loan calculator.

•   For a HELOC, you can often access up to 90% of the equity you have in your home, though some lenders may go even higher. In that case, you are likely to pay a higher interest rate. In the scenario above, with a home valued at $300,000 and a mortgage of $200,000, that means you have $100,000 equity in your home. A loan for 90% of $100,000 would be $90,000. As with other lines of credit, your credit score and employment history will likely factor into the approval decision. To figure out what payments might be on a HELOC, you can use a HELOC repayment calculator.

•   For a home improvement loan, the amount you can borrow will depend on a variety of factors, including your credit score, but the typical range is between $3,000 and $50,000 or sometimes even more.

What Can the Funds Be Used for?

Interestingly, some of these funds can be used for purposes other than home improvement costs. Here’s how they stack up:

•   For a home equity loan, you can certainly use the funds for an amazing new kitchen with a professional-grade range, but you can also use the money for, say, debt consolidation or college tuition.

•   For a HELOC, as with a home equity loan, you can use the money as you see fit. Redoing your patio? Sure. But you can also apply the cash to open a business, pay for grad school, or knock out credit card debt.

•   For a home improvement loan, there is often the requirement that you use the funds for, as the name suggests, a home improvement project, such as adding a hot tub to your property. In some cases, you may be able to use the funds for non-home purposes. Your lender can tell you more.

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

How Will I Receive the Funds? How Long Will It Take to Get the Money?

Consider the different ways and timing you may encounter when getting money from these loan options:

•   With a home equity loan, you receive a lump sum payment of the funds borrowed. The timeline for getting your funds can be anywhere from two weeks to two months, depending on a variety of factors, including the lender’s pace.

•   With a HELOC, you open a line of credit, similar to a credit card. For what is known as the draw period (typically 10 years), you can withdraw funds via a special credit card or checkbook up to your limit. It typically takes between two and six weeks to get the initial approval, but some lenders may be faster.

•   With a home improvement personal loan, you receive a lump sum of cash. These tend to be the quickest way to get cash: It may only take a day or so after approval to have the funds available.

How Much Interest Will I Pay?

How much you pay to access funds for your project will vary. Take a closer look:

•   For a home equity loan, you typically get a lower interest rate than some other loan types, since you are using your home equity as collateral. These are typically fixed-rate loans, so you’ll know how much you are paying every month. At the end of 2024, the average rate of a fixed, 15-year home equity loan was 8.49%.

•   For a HELOC, the line of credit will typically have a rate that varies with the prime rate, though some lenders offer fixed-rate options. HELOCs may have lower interest rates than personal and home equity loans, but you will need a high credit score to snag the lowest possible rate.

•   For home improvement loans, which are a kind of personal loan, rates vary widely. Currently, you might find anything from 6.99% to 36% depending on the lender and your qualifications, such as your credit score. These loans are typically fixed rate.

How Long Will I Have to Repay the Funds?

Repayment terms differ among these three options:

•   For home equity loans, you will agree to a term with your lender. Terms typically range from five to 20 years, but 30 years may be available as well.

•   With a HELOC, you usually have a draw period of 10 years, during which you may pay interest only. Then, you may no longer withdraw funds, and move into the principal-plus-interest repayment period, which is often 20 years.

•   With a home improvement personal loan, your repayment terms are typically shorter than with the other options and will vary with the lender. You may find terms of anywhere from one to seven years or possibly longer.

Here’s how these features compare in chart form:

Which Home Improvement Loan Option Is Better?

Now that you’ve learned about the features of these loan options, here’s some guidance on which one is likely to be best for your needs.

When Home Equity Loans Make Sense

Here are some scenarios in which a home equity loan may be a good choice:

•   If you have significant home equity and are looking to borrow a large amount, a home equity loan could be the right move to access a lump sum of cash.

•   If you want to have a long repayment period, the possibility of a 30-year term could be a good fit.

•   When you are seeking to keep costs as low as possible, these loans may offer lower interest rates.

•   A home equity loan can be a wise move when you need cash for other purposes, such as debt consolidation or educational expenses.

•   Some interest payments may be tax-deductible, depending on how you use the funds, which could be a benefit of this kind of loan.

When HELOCs Make Sense

A HELOC may be your best bet in the following situations:

•   You aren’t sure how much money you need and like the flexibility of a line of credit.

•   You want to keep your payments as low as possible in the near future. HELOCs can usually be an interest-only loan during the first 10-year draw period of the arrangement.

•   A HELOC can be a good fit for people who are doing a renovation in stages, and want to draw funds as needed versus all upfront.

•   You need cash for something other than just home renovation, such as to pay down credit card debt or fund tuition.

•   Depending on what you put the money toward, interest payments may be tax-deductible to a degree.

When Home Improvement Personal Loans Make Sense

Consider these upsides:

•   These personal loans tend to have a straightforward, fast application process, and often have fewer fees, such as no origination fees.

•   Home improvement loans are usually approved more quickly than other kinds of home loans.

•   These loans can be a good way to borrow a small sum, such as $3,000 or $5,000 for a project you need to complete quickly (say, a bathroom without a functional shower).

•   Home improvement loans can be a good option for new homeowners, who haven’t yet built up much equity in their home but need funds for renovation.

•   For those who are uncomfortable using their home as collateral, this kind of loan can be a smart move.

The Takeaway

Home improvement is a popular pursuit and can not only make daily life more enjoyable, it can also boost the value of what is likely your biggest asset. If you are ready to take on a renovation (or need to pay off the bills for the reno you already did), you’ll have options in terms of how to access funds.

Depending on your needs and personal situation, you might prefer a home equity loan, a home equity line of credit (HELOC), or a home improvement personal loan. Why not start by looking into a HELOC? A line of credit is a super-flexible way to borrow.

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

FAQ

Can a HELOC only be used for repairs or renovations?

You can use the funds you draw from a home equity line of credit (HELOC) for pretty much anything you can think of. But if you are hoping to take advantage of a tax deduction for the interest you pay on your HELOC, it will need to be used to buy, build, or substantially improve a home.

Is a HELOC a second mortgage?

Yes, if you are still paying off the mortgage on your home, a home equity line of credit (HELOC) that is secured by that property would be considered a second mortgage. The same is true of a home equity loan.

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One thing you should always look out for — regardless of the type of loan you’re applying for — is a loan origination fee. Many lenders charge origination fees for new loans to help cover costs on their end. What these fees are called and what they amount to, however, can vary quite a bit from lender to lender.

Knowing these things about origination fees before you settle on a lender can help you make the best borrowing decision for your financial situation.

What Is a Loan Origination Fee?

An origination fee is a cost the lender charges for a new loan. It’s a one-time expense you are generally asked to pay at the time the loan closes. The fee covers the costs the lender incurs for processing and closing the loan.

How Are Origination Fees Determined?

Loan origination fees depend on a number of factors. They include:

•   Loan type

•   Amount of loan

•   Credit score

•   Inclusion of a cosigner

•   Your financial situation, including assets, liabilities, and total income

Do I Have to Pay Origination Fees?

You don’t necessarily have to pay origination fees — while most lenders charge this fee, not all do. Additionally, origination fees may be negotiable. If you ask, a lender could simply lower the fee, or they could offer a credit to offset at least a portion of it. Or, they might agree to lower the fees if you pay a higher interest rate.

To minimize the sting of loan origination fees, research your loan options. Compare how much you’d pay overall for different loan offers, factoring in the term of the loan, the interest rate, and any fees.

One way to effectively compare and contrast different loan options is to check each loan’s annual percentage rate (APR), an important mortgage basic to understand. A loan’s APR provides a more comprehensive look at the cost you’ll incur over the life of the loan. This is because the APR factors in the fees and costs associated with the loan, in addition to the loan’s interest rate.

The Truth in Lending Act requires lenders to disclose an APR for all types of loans. Along with the APR, you’ll also see any fees that a lender may charge listed, including prepayment penalties.

How Much Are Loan Origination Fees?

How much a lender charges — and what the fee is called — varies based on the type of loan and the lender.

A traditional origination fee is usually calculated based on a percentage of the loan amount — and that percentage depends on the type of loan. For a mortgage, for instance, an origination fee is generally 0.50% to 1%. Origination fees for personal loans, on the other hand, can range from 1% to 8% of the loan amount, depending on a borrower’s credit score as well as the length, amount, and sometimes intended use of the loan.

There are a variety of other origination fees that lenders may charge, and these can be flat charges rather than percentages of loan amounts. Other fees that lenders may charge to originate a loan could be called processing, underwriting, administration, or document preparation fees.

Can Loan Origination Fees Affect Your Taxes?

Loan origination fees, categorized by the IRS as points, may be deductible as home mortgage interest. This can be the case even if the seller pays them. Borrowers who can deduct all of the interest on their mortgage may even be able to deduct all of the points, or loan origination fees, paid on their mortgage.

To claim this deduction, borrowers must meet certain conditions laid out by the IRS. They’ll then need to itemize deductions on Schedule A (Form 1040), Itemized Deductions.

The Takeaway

Loan origination fees are important to consider when shopping for a loan during the home-buying process. These fees are charged by lenders to help cover their costs of processing and closing a new loan application. While many lenders charge origination fees, not all do, and some may be willing to negotiate.

Origination fees are just one reason it’s important to shop around and compare home loans. With a SoFi Home Loan, for instance, qualified first-time homebuyers can make a down payment as low as 3%.

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

SoFi Mortgages
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.

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