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Do you have kitchen envy, daydreaming about Shaker cabinets, farmhouse sinks, or sleek marble countertops? Join the club: Kitchen remodeling is one of the most popular kinds of home renovation projects, with the typical “small” kitchen redo costing upwards of $28,000. These kinds of upgrades can be worthwhile, with more than 70% of the cost being recouped when the home is sold.

Perhaps you’re planning a kitchen refresh. If so, one of the first steps is likely to figure out what your dream kitchen will look like. Once you know that, you can begin to delve into what exactly you want to do and buy and then how to finance it.

So, first things first: To help you get in touch with your inner kitchen designer, consider the three broad categories of styles: traditional, contemporary, and transitional. Which one is for you?

Read on to:

•   Learn more about kitchen styles

•   Take a kitchen personality quiz to zero in on the best fit for your taste

•   Understand how to afford the kitchen you crave

Traditional Kitchen Style

Even when other styles rise in popularity, the traditional kitchen continues to hold its own, remaining among the most popular. At the core of traditional kitchens is a time-honored approach to design that refers to the styles of the past.

Among the signature touches:

•   Raised-panel or glass-front cabinets

•   Warm wood tones

•   An earthy, rustic color palette

•   Classic sinks, faucets, and knobs, such as a farmhouse style in porcelain or marble

•   Molding, whether at ceiling, along the top of cabinetry, or elsewhere

•   Country or European touches often find a place in traditional kitchens, whether that means floral backsplash tiles or lace curtains.

Contemporary Kitchen Style

At the other end of the design spectrum is contemporary kitchen style. Just as the name suggests, these spaces tend to be clean-lined and sleek. Among the typical features are:

•   Cabinets are often slab-style (meaning without knobs) or otherwise minimalist.

•   Typically, these kitchens use sleek materials, whether wood, steel, or lacquer.

•   Color schemes tend to be neutral, from all white and futuristic to grays and beiges to moody black. However, some people like to mix in pops of color.

•   Appliances are typically disguised as cabinetry (you may hear this called paneled appliances) to keep the clean-lined look going.

•   Decorative accessories are discouraged. If you like showing off your teapot collection, this look probably isn’t for you.

Recommended: Cost to Repair a Plumbing Leak

Transitional Kitchen Style

If you find that you appreciate some elements of traditional style and some of contemporary, then a transitional style kitchen may be just right for you. This style combines elements of both styles in a unique way.

For example:

•   Transitional kitchens might include classic, simple Shaker-style cabinets but in bold shade, like teal, which makes them look more modern.

•   Countertops are often quartz or quartzite, which can have the warmth of natural tones but sleek edges.

•   Appliances are often built-in or stainless steel.

•   Pendant lighting, with its clean lines, is a signature of the transitional style.

•   Wood plank flooring, with its traditional warmth, is often incorporated in these kitchens.

•   If you think you’ll be selling your home, then going transitional can be a safe bet to make your home appealing to a broad swath of potential buyers.

Kitchen Style Quiz

Now that you have a basic grounding in these three looks, take the kitchen style quiz.

Now that you have insight onto the kitchen look you gravitate towards, learn more about what remodeling involves.

Remodeling Your Kitchen

A kitchen remodel can be a good way to boost the value of your home, with possibilities ranging from fairly inexpensive — new paint, new faucets, and new cabinet pulls, for example — to a full-scale remodel that could cost you more than $100,000. A few smart strategies:

•   When remodeling, it makes sense to prioritize your spending in a way that creates a kitchen that works well for your lifestyle.

For example, if you and your partner love to cook gourmet meals and experiment with new recipes, it makes sense to allocate your budget to be a true chef’s kitchen, perhaps with a commercial-style range. If, on the other hand, you’re envisioning a kitchen where all the neighborhood kids will gather for pizza and homework, consider that in your design and perhaps budget for a cushy, built-in banquette.

•   It can also be wise to create a budget and keep an eye on which options can wind up being very pricey maneuvers. The cost of rewiring and moving plumbing lines, for instance, can be quite steep. Have a couple of well-recommended tradespeople pitch your job (don’t skimp on checking references) before picking one.

•   Build in contingencies for your project to go over budget and past the deadline. It happens, and being prepared for that kind of wiggle room can help you avoid a lot of stress. For instance, inflation’s impact on kitchen remodeling can be significant so it’s wise to plan ahead on that front.

•   Also stay aware of what changes require a permit (you may be surprised at how often one is needed) and prepare for how that will impact your timeline.

Financing Your Remodel

Once you’ve decided how you want to update your kitchen and have considered the average cost of a kitchen remodel, then one of the next considerations is how to pay for it. If you need to finance the project, you may have such options as:

•   You could do a cash-out refinance if you have equity in your home. This involves refinancing your current mortgage for its remaining balance plus the amount needed to do your remodel.

•   A home equity line of credit might also make sense if you have equity. This involves using your home as collateral and opening a line of credit (like a credit card) to tap as work is done on your kitchen. You then repay the debt over time.

•   Another secured option is a home equity loan, which gives you a set amount of money to use towards your renovation.

•   It can make sense to consider an unsecured home improvement loan to help you get the remodel done, too.

Because this is a kind of personal loan, this means you don’t need to have home equity nor put your home on the line as collateral.

Like all loan products, there are pros and cons to personal loans. What matters most when financing your kitchen remodel is finding the option that suits your financial and personal needs best.

Recommended: Can I Pay Off a Personal Loan Early?

All Your Finances. All in One App.

At SoFi, applying for an online home improvement loan is quick and easy. Approved loans can be funded in as little as one day, which means you can get started on your remodel more quickly. Plus, SoFi Personal Loans offer fixed rate payments, which can help you budget and keep your project on schedule.

SoFi: We make home improvement loans simple and speedy.

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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.

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

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

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For many people, purchasing a home is the very definition of living their best life and achieving the American dream. But it’s not the right choice for everyone or might not be the right move to make at a given moment.

Owning a home may be the biggest financial commitment you’ll ever make, so it makes sense to carefully consider the upsides and downsides of buying vs. renting. Sometimes, the flexibility and affordability possible with renting can be a good fit.

Read on for advice that will help you answer, “Should I rent or buy a house?”

•   Learn the pros and cons of buying vs. renting a home

•   Take a quiz to help you decide if you should buy or rent a home

•   Find out the steps to take when you’re ready to start hitting the open houses

Rent or Buy a Home: Pros and Cons

Deciding whether to rent vs. buy is a very individual decision. There’s no rule about which is better; much will depend on your personal goals and your financial situation.

Here, take a closer look at whether it is better to buy or rent a house.

Advantages of Renting

Here, the upside of being a renter:

•   Low-maintenance lifestyle. Your landlord is typically responsible for repairs and maintenance, so your time and money can be spent elsewhere.

•   Potentially lower monthly expenses. Your landlord may also pay some of your monthly utilities, and you aren’t responsible for paying property taxes.

•   Flexibility. When your lease is up, you can renegotiate or move…across the street or across the country. If you aren’t ready to lock into a location for at least a few years, renting can be a smart step.

•   Low investment. You don’t need to make a big investment (like the down payment and closing costs associated with home buying) when you move into a rental. You might have to put down a security deposit, but that will typically be much less costly.

Disadvantages of Renting

Now, consider the downside of being a renter vs. a homeowner.

•   Rules to follow. Your landlord may have restrictions that you don’t like, such as no pets or no remodeling.

•   Not building wealth. The rent you pay each month doesn’t give you any equity in a property. It just goes to the owner, unless you set up a rent-to-own agreement.

•   Lack of control over your monthly charges. Your rent could spike due to inflation, the housing market heating up in your area, and other factors.

•   Uncertainty. If the owners decide to sell the building you live in, you may need to move unexpectedly and quickly, which can also get expensive.

Advantages of Buying

If you decide to buy vs. rent, here are some of the benefits you may enjoy.

•   Building wealth. As you make mortgage payments, you are usually building home equity.

•   Tax advantages. Homeowners may be able to deduct both mortgage interest and their property tax payments (plus possibly other related expenses) from their federal income taxes if they choose to itemize their deductions.

•   Freedom. You have far fewer restrictions involving remodeling, pet ownership, and so forth. Want to paint a bathroom purple, rip out a wall, or adopt five rescue dogs? Go for it.

•   Stability. You can put down roots in a community and school district. When you decide to move, it’s your decision.

•   Affordability. Sometimes a mortgage payment can be cheaper than rent, especially if you get a good mortgage rate.

Looking at the price-to-rent ratio of a city helps gauge whether it makes more sense to buy or pay a landlord. The housing market dynamics of your location may determine this aspect of whether to buy or rent a house.

Disadvantages of Buying

Now that you know the potential upsides of owning your own home, take a look at the potential drawbacks.

•   High costs. The price of homeownership may be painful in a hot market.

What’s more, accumulating the cash to make a down payment can be challenging and take years of saving. Plus, the closing costs when securing a home can be considerable.

•   Credit score. You typically need to qualify for a mortgage, and your credit score will be a factor. Those with excellent credit scores will get better rates; those with lesser scores may want to wait to build their rating before buying.

•   Maintenance. You’re generally responsible for all repairs, maintenance, and utilities, plus homeowners insurance, property taxes, and any homeowner association (HOA) dues. These can not only impact your finances but also your lifestyle. Taking care of a home and property can require an investment of time and energy.

•   Locked in place. You probably can’t pick up and move on a whim. If you decide to move, until your home is sold, you’re still responsible for mortgage payments and the expenses attached to your new place.

Take the Rent or Buy Quiz

Are You Really Ready to Buy?

When deciding between renting vs. buying a house, the answer may already be clear to you. If you’ve decided to buy, it might make sense to take the following steps.

•   Make sure you’re ready for a long-term commitment. If you’ve saved enough for a down payment and know how much house you can afford, those are good signs. Otherwise, create a home-buying budget and saving plan to get started.

•   Consider if your line of work allows for job continuity with steady income. Have you had this type of income for the past two years or more? That kind of stability can be important to lenders.

•   If your debt-to-income ratio (DTI) appears too high for a loan program you would like to apply for, you may need to consider paying down some debt. To calculate your DTI ratio, divide your monthly debt payments by your monthly gross (pretax) income. The federal Consumer Financial Protection Bureau advises renters to consider keeping a DTI ratio of 15% to 20% or less (rent is not included in this ratio). However, mortgage lenders usually like to see a DTI ratio of no more than 36%, though that is not necessarily the maximum.

•   Save money for a down payment, closing costs, and other fees, plus some funds for moving expenses and any remodeling/repairs.

•   Check if your credit score is good enough to buy a house, and, if yours falls short, work on building it.

•   Do a gut check to see if you’re really ready to be your own landlord, meaning being responsible for your own home maintenance, inside and out.

•   Get pre-qualified or pre-approved for a mortgage by providing a few financial details to lenders, who usually will do a soft credit check and estimate how much you may be able to borrow and the terms. A pre-qualification or even a pre-approval can also help give you a leg up when you start home shopping.

The Takeaway

Should you buy or rent a home? That will be a personal decision, reflecting your finances, the housing market’s dynamics, your willingness to take on the responsibilities of homeownership, and your inclination to put down roots in a certain location. Both owning and renting have pros and cons, and making the right decision will likely require deep thinking and thorough planning.

If you’re ready to become a bona fide homeowner, getting pre-qualified for a mortgage loan with SoFi is quick and convenient. SoFi offers competitive rates and may require as little as 3% down for qualifying first-time homebuyers.

SoFi: The smart and simple way to find your home mortgage rate.

FAQ

Is it better to rent or buy a home?

There isn’t a simple yes/no answer to whether it is better to rent or buy a home. Each has its advantages and disadvantages and may or may not suit a person’s needs at a given moment. For instance, owning a home can allow you to build equity and personal wealth, but the maintenance responsibilities and expenses may offset that. Renting may be cheaper, but you may not be able to personalize your space the way you’d like or perhaps own pets.

Is renting cheaper than owning a home?

Renting can be cheaper than owning a home, though that can depend upon housing market conditions in a given area and the particulars of the home in question. In general, people who rent don’t have to pay property taxes and they may not be responsible for the cost of improvements and repairs, which can make things more affordable.

Is homeownership a good investment?

Buying a home can be a good investment. It allows you to build equity and may offer tax deduction opportunities. However, if property taxes rise steeply or major home repairs loom (like a new roof), home ownership could prove financially challenging.

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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.

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.

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 .

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

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Buying a house can be the single largest financial move you’ll ever make. What’s more, once purchased, your home is likely to be your biggest asset and possibly a path to building wealth.

So this rite of passage probably isn’t something to be done without a lot of preparation. For instance, you usually have to focus on such factors as:

•   Saving for a down payment

•   Optimizing your credit score

•   Understanding what your monthly expenses will be

•   Considering the dynamics of the real-estate market

•   Researching where you want to live

•   Making sure you’re ready for the responsibilities of homeownership.

You’ll learn more about these factors in a minute, but first, take this quiz to get a read on just how ready you are to dive into house-buying. While it won’t answer the question, “Am I ready to buy a house?” definitively, it can help you gauge where you stand.

Then, read on to learn more about how to make snagging your dream house become a reality.

Now that you’ve taken the quiz, here’s more intel on how to get ready to buy a house.

Recommended: First-Time Home Buyer Guide

Financial Factors

Home ownership can be quite expensive, especially recently. As you may know, housing prices soared during the pandemic, rising over 40% in some areas. In an effort to stem that, as well as other aspects of inflation, the Fed has been raising interest rates, so it’s become more expensive to borrow money, too, further squeezing potential homebuyers.

But don’t let that discourage you: Homeownership is still a goal you can realize, especially if you prepare for the following:

•   Down payment: Ideally, lenders like to see a 20% down payment (although SoFi offers flexible down payment options). Plus, you’ll need to have enough money left over for closing costs, moving costs, and any renovation costs involved.

•   Private mortgage insurance: If you are putting down less than 20% on your home purchase, you may have to pay private mortgage insurance (PMI). This helps protect your lender as you may look like a less well-qualified home purchaser. This cost is typically charged along with your monthly interest payment by the lender. It’s wise to include this amount in your calculations, if necessary, as you move toward buying a house.

•   Income: Knowing the answer to “When can I buy a house?” doesn’t depend on a particular salary. However, mortgage lenders do like to see two years of steady income, because both job continuity and consistent income are important.

•   Debt-to-income (DTI) ratio: You’ll need to see if your monthly income allows you to afford the mortgage payment you’d be taking on. This typically involves calculating your debt-to-income ratio or DTI.

Here’s an example: Say you make $6,000 a month, before taxes. You’re paying $1,500 a month in rent and, when you add in car payments, credit card debt, and student loan payments, that equals another $700. You’ve got monthly expenses, then, of $2,200; when you divide that by your monthly income ($2,200/$6,000), then your debt-to-income ratio is 36.7%, which is in the range of what many lenders like to see.

•   Credit score: It’s helpful to know your credit score before you go home shopping and, if it’s under 700 (meaning either at the low end of a good score or a fair credit score), work to build it. That can open you up to more mortgage offers and lower interest rates.

•   Mortgage options: Speaking of mortgages, connecting with lenders or mortgage brokers can help you gain a better understanding of how much house you can afford, what kinds of mortgages are available, and whether you can get prequalified or even preapproved before you shop in earnest. This can give you an edge in or possibly even be necessary in today’s tight housing market.

•   Homeownership costs: In addition to the mortgage payment and any PMI, you’ll need to budget for property taxes, heating costs, and other regular expenses. Make sure to factor those in as you develop a budget for your life as a homeowner.

Recommended: How to Qualify for a Mortgage

Housing Market Conditions

When determining if you’re ready to buy a house, also consider housing market conditions. Among the key factors:

•   Location: Of course, you’ll want your home to be in a desirable location, however you define “desirable.” It could mean being in the heart of a busy city — or in a peaceful place along a river. If you have or plan to have a family, quality schools are likely important, and so forth.

It’s likely going to make your house hunt more manageable and productive if you narrow down where you want to live to a few towns or neighborhoods. Otherwise, you might spend a lot of time and effort driving all over and not being able to whittle down the choices.

•   Real-estate dynamics: In desirable locations, competition is fierce today, with homes often selling quickly after being put up for sale and bidding wars occurring. And, as demand has increased, available housing (especially for first-time homebuyers looking to purchase in affordable price ranges) has therefore decreased.

So, you’ll have to be prepared to compete in the current housing market conditions, which means having your financial situation in order so you can make a timely offer on a house of choice.

Lifestyle Considerations

Let’s say you’re confident that you have the financial resources to purchase a home in your neighborhood of choice. Before you move forward, here are a couple of lifestyle issues to consider:

•   Home maintenance: If you’re used to renting, your landlord has played a key role in home repairs and so forth. If you buy a home, you would now be your own landlord. That means dealing with broken boilers, leaky roofs, yard maintenance, and more. Be sure you budget for that financially and are also prepared for the responsibility.

•   Community: Think about whether you are ready to settle down in a particular community for at least a few years. If not, you may not break even when you sell the house you bought. Here’s why: It can take time to recoup closing costs and other expenses you covered when purchasing the home.

The Takeaway

Homeownership can be the foundation of the American dream for many people. It’s also a potential avenue to build wealth. But when you should buy a house depends on a variety of factors. Before you dive in, do your research, save for your down payment, and optimize your finances so you are ready to handle the responsibility.

When you decide it’s time to buy, SoFi can help. Compare mortgage options from SoFi: We offer competitive rates and features, such as qualifying first-time homebuyers putting down as little as 3%.

When you’ve scrolled through the perks, find your rate in a few clicks.

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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.

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 .

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 Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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Your house is much more than a home — it’s likely one of the biggest purchases you’ll ever make, with a value that makes up a significant proportion of most people’s net worth. As such, you’ve probably wondered from time to time what your home is worth.

Determining the answer is not as simple as referring back to your sales agreement or mortgage papers. What you paid for your house when you purchased it merely reflects what your house was worth to you — and the real estate market — at a specific point in time.

In reality, housing values are dynamic, and they fluctuate based on a number of factors. Some things, such as keeping your house in good repair, are within your control. Other external influences, such as the market, mortgage rates, and other considerations, can also affect the value of your home.

Here, we’ll take a close look at how this works, and answer questions like:

•   How much is my house worth?

•   What factors determine my home’s value?

•   How can I increase my home’s value?

First, take our “how much is my house worth” quiz to get an overview of what value your home holds.

Next, delve into the topic more deeply with these insights.

Estimating the Value of Your House

Knowing how much your house is worth can improve your money mindset by helping you understand where you are financially. There are a number of ways you can determine the estimated value of your house.

•   Online calculators. The easiest and fastest way to answer the question, “How much is my house worth?” is probably to use an online home valuation calculator. These tools provide a ballpark estimate of the value of your home based on your address. Such estimates typically use publicly available information, including average home sale prices in your area, property tax assessment information, market trends, and other data.

•   Market dynamics. Once you have a rough estimate of your property’s worth, you can use other cues about the housing market in your area to gain more insight. This might include such factors as sales and mortgage trends, which can give you a sense of whether your property value is likely to increase, decrease, or remain stable. For instance, during times of rising mortgage interest rates, consumer demand might wane as it becomes more expensive to borrow money.

•   Professional opinions. A professional appraiser or real estate agent can also help you get a more precise estimate of what your house is worth. An appraiser will consider both the local housing market and the unique characteristics of your property when creating your home appraisal.

Real estate agents, meanwhile, will typically conduct a comparative market analysis (also called a comp or CMA). This is an estimate based on actual data from recently sold homes that are most similar to yours.

If you are looking to sell, you may want to consider getting a comparative market analysis from several different real estate agents to help you assess their knowledge of and viewpoint on the local market before you commit to one. Understanding the various criteria real estate agents use to determine listing prices can also help you to get an accurate picture of what your house is worth.

Recommended: What Hurts a Home Appraisal?

A Home’s Worth: 3 Factors to Consider

Every house is unique — but the factors used to determine property value are fairly consistent.

1. Neighborhood: There’s a good reason why “location, location, location” is one of the most popular mantras in real estate. The same home, in the exact same condition, will fetch different prices depending on where it is. Proximity to desirable schools, shopping, public transportation, and other resources and infrastructure can increase the desirability of a neighborhood and thus the value of the home. Safety considerations, such as crime rates, sidewalks, and traffic signals, can also impact house values.
2. House specifications: Attributes such as the size of your lot, square footage, age of your home, number of bedrooms and bathrooms, parking space, and updated mechanical systems are among the criteria buyers will typically consider. Agents may factor these in while developing a comparative marketing analysis.

Also, the style of your house and the amenities can matter. Does it have a fabulous family room, a spa-style bathroom, skylights, or a pool? That can lift the value.

3. House condition: Well-maintained houses with high curb appeal can typically fetch better prices than run-down fixer-uppers. As such, your home’s condition is probably the most easily controlled aspect of its value.

To evaluate the condition of your home, take stock of any repairs, both major and superficial; any upgrades such as premium kitchen appliances; and any renovations you may have performed.

There are additional factors outside of your control that will affect the value of your home — though these may be less significant if you are not imminently considering selling.

For example, the state of the economy and mortgage rates may dictate others’ appetite for real estate purchases, as well as how much they are willing to spend. At press time, mortgage interest rates were rising in an effort to offset inflation’s impact on consumers. This can cause a softening of the housing market, or a lowering of prices, since it’s more expensive to borrow money.

Seasonal fluctuations such as holidays and weather can also affect home purchasing patterns. In addition, spring has often been looked at as the prime selling season, when families hope to find a new home and get settled before the start of the next school year.

Recommended: Should I Sell My House Now or Wait?

Increasing the Value of Your Home

Though there are some factors that may be out of your control (such as inflation and its impact), there are things you can do to increase the value of your home. If you are considering selling soon, staging your house or making small improvements, such as tidying your garden, can go a long way towards appealing to buyers — without a big financial investment.

But if you are considering investing in renovations and upgrades, it is helpful to know which will deliver the greatest returns. An online calculator can compare different projects to determine how various home improvements impact your home’s value. You might be able to finance such improvements with a home equity line of credit (or HELOC).

Recommended: Does Net Worth Include Home Equity?

Why Your Home Value Matters

If you are considering selling your house, “How much is my home worth?” is likely one of the first things you’ll wonder about. But even if a move isn’t something you are considering right now, there are other reasons why it might be important to know the actual value of your home.

•   Relocation plans. For those considering relocating, getting a reliable estimate of how much your house is worth will inform the amount you can afford to spend on your next home. As taxes, real estate agent commissions, and some other fees will be based on the actual sale price of your house, this valuation will also help you to estimate some of your moving costs.

•   Financial planning. Even if you aren’t planning to move, it can be wise to know your house’s value for another reason. As one of the greatest assets in many people’s financial portfolios, your home’s worth can play a helpful role in guiding long-term money planning, including retirement and estate planning.

If these things seem a long way off, there are immediate benefits to being informed about your home’s worth, too.

•   Property taxes. Your property tax bill is based on the market value of your house and may change from year to year, based on your municipality’s estimate of its worth as determined by a government assessor. A reliable estimate of how much your house is worth can help you to identify discrepancies in the assessed value. If you believe there is an error, you can file an appeal in an attempt to get your property tax bill reduced.

•   Homeowners insurance. Having an accurate estimate of the value of your home is also important for obtaining appropriate insurance coverage. If your estimate is too low relative to the actual value of your home, you run the risk of being underinsured in the event of a claim. Too high, and you’re paying for coverage you don’t need.

•   Equity considerations. Your home’s value can also help you to access money to pay for home improvements, a financial emergency, or other needs that may arise. If the current value of your home is more than it was at the time you purchased it, you may be able to tap into that increased value with, say, a HELOC or cash-out mortgage refinance.

Home Improvements and Your Mortgage

Even if you’re not looking to sell, adding value to your home may result in savings in the near term. This can be especially true for those who are paying private mortgage insurance (PMI).

•   Typically, buyers who purchase a home with less than 20% down are required to pay for PMI — a fee that is based on a percentage of your total mortgage.

•   The amount of equity in your home can be determined by subtracting what you owe on your house (or your mortgage principal) from the current total value of your home. If your property value has increased, you have more equity than when you purchased your home.

•   If the increase in your property value brings your equity over the 20% threshold, you can ask your mortgage loan servicer to cancel the PMI. That, in turn, will save your money every month.

The Takeaway

Understanding how much your house is worth is an important fact. Your house is a major investment, and knowing its current value can help you in a variety of ways, whether or not you are planning on selling it. Even if you are staying put, knowing its worth could help you make sure your insurance is keeping pace with its price, open the door to a home equity loan, or perhaps lower an assessment.

If you’re ready to find out your property’s value, SoFi’s money tracker app can help. Our property tracking tool can help you learn your home’s worth. It can help you know when more insurance is needed, how much renovations would cost and financing options, and what you might be able to save by refinancing your loan.

Stay on top of your home’s value with SoFi.

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

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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The Federal Home Loan Mortgage Corporation, or FHLMC, is known as Freddie Mac, the entity created by Congress for the purpose of buying mortgages from lenders to increase liquidity in the market. Freddie Mac was created in 1970 and expressly authorized to create mortgage-backed securities (MBS) to help manage interest-rate risk.

Because the FHLMC buys mortgages, lenders don’t have to keep loans they originate on their books. In turn, these lenders are able to originate more mortgages for new customers. The mortgage market is able to keep capital flowing and offer competitive financing terms to borrowers because of this system. In other words, the market runs more smoothly because of Freddie Mac and its sister company, Fannie Mae, the Federal National Mortgage Association (FNMA).

If you want to know more about how this government-sponsored enterprise works and how it affects your money, read on for details on:

•   What is the FHLMC and what are FHLMC loans?

•   What is the difference between Freddie Mac and Fannie Mae?

•   What are Freddie Mac mortgages?

•   How does the Federal Home Loan Mortgage Corporation work?

Freddie Mac and Fannie Mae

These organizations, with their friendly-sounding nicknames, serve a very important purpose. Freddie Mac and Fannie Mae were created for the purpose of stabilizing the mortgage market and improving housing affordability. These government-sponsored enterprises (GSEs) do this by increasing the liquidity (the free flow of money) in the market by buying mortgages from lenders. Mortgages are then pooled together into a mortgage-backed security (MBS) and sold to investors. The process created the secondary mortgage market, where lenders, homebuyers, and investors are connected in a single system.

In the past, Freddie Mac and Fannie Mae operated as private companies, though they were created by Congress. Fannie Mae came first in 1938, followed by Freddie Mac in 1970. Freddie Mac’s addition in 1970 resulted in the creation of the first mortgage-backed security.

The federal government took over operations at both companies following the financial crisis in 2008. According to the National Association of Realtors, without government support of Freddie Mac and Fannie Mae, there wouldn’t be very much money available to lend for mortgages.

The Federal Housing Finance Agency (FHFA) has oversight of Freddie Mac and Fannie Mae. On a yearly basis, they assess the financial soundness and risk management of Fannie Mae and Freddie Mac.

What Is the Purpose of the FHLMC?

As mentioned above, the FHLMC, or Freddie Mac, makes the housing market more affordable, stable, and liquid by buying mortgages on the secondary market. When they buy these loans, the retail lenders they buy them from are able to originate more mortgages to new customers and keep the mortgage market flowing smoothly.

There are many types of mortgage loans; the ones that Freddie Mac buys are known as conventional loans. The mortgage loan must meet certain standards (such as loan limits) for Freddie Mac to guarantee they will buy these loans.

In general, the process of successfully obtaining a mortgage usually looks something like this once the buyer has made an offer on a house that’s been accepted:

•   The consumer finds a lender, if they haven’t already done so, and will apply for a mortgage.

•   The lender collects documentation required by the loan type and submits it to underwriting.

•   The underwriter approves the loan.

•   The homebuyer closes on the loan, and mortgage servicing begins

•   The lender sells the loan on the secondary mortgage market to Freddie Mac (or Fannie Mae or Ginnie Mae, depending on what type of loan it is and from what type of lender it originated).

From a homebuyer standpoint, they will see the outward mortgage servicing, which is the entity to which they will send their monthly payment and who takes care of the escrow account. The mortgage servicer is the one who forwards the different parts of the mortgage payment to the appropriate parties.

Mortgage servicing can also be sold from servicer to servicer, but this is different from the sale of a mortgage to Fannie Mae or Freddie Mac.

Freddie Mac is also tasked with the responsibility of making housing affordable. There are specific mortgage programs guaranteed by Freddie Mac and offered by lenders.

•   HomeOne®. HomeOne is a mortgage program that offers low down payment options for first-time homebuyers. There are no income or geographic limits.

•   Home Possible®. Home Possible is a program for first-time homebuyers and low- to moderate-income homebuyers. It offers discounted fees and low down payment options.

•   Construction Conversion and Renovation Mortgage. This type of loan combines the costs of purchasing, building, and remodeling into one loan.

•   Manufactured Home Mortgage. For qualified buyers, Freddie Mac can guarantee mortgages when buying manufactured homes that meet their criteria.

•   Relief Refinance/Home Affordable Refinance Program (HARP). For borrowers with a good repayment history but little equity, loans are available to refinance into a more affordable rate.

Recommended: What Is the Average Down Payment on a House?

Understanding Mortgage-Backed Securities

After a mortgage is acquired from a lender, Freddie Mac can do one of two things: either keep the mortgage on its books or pool it with other, similar loans and create a mortgage-backed security (MBS). These MBS are then sold to investors on the secondary mortgage market.

What’s attractive about a mortgage-backed security to an investor is how secure it is. Fannie Mae and Freddie Mac guarantee payment of principal and interest. Both Fannie Mae and Freddie Mac issue mortgage backed securities now.

Does the FHLMC offer Mortgage Loans?

Freddie Mac does not sell mortgages directly to consumers. You won’t see a Freddie Mac mortgage or an FHLMC loan advertised to consumers. Instead, the FHLMC buys mortgages from approved lenders that meet their standards.

Recommended: What Are the Conforming Loan Limits?

The Takeaway

The housing market in the United States arguably benefits from the role of the Federal Home Loan Mortgage Corporation. Lenders can essentially originate mortgages to as many borrowers as can qualify. The free flow of capital created by the FHLMC also means mortgages are less expensive for homebuyers all around. In short, the smooth operation of the housing market owes much of its success to Freddie Mac and Fannie Mae.

If you’re shopping for a home and looking for a lending partner, consider what SoFi has to offer. With dedicated loan officers, competitive interest rates, flexible terms, and low down payment options, SoFi Mortgage Loans can offer something for nearly every borrower.

SoFi Mortgage Loans: Simple, smart, flexible.

FAQs

What does FHLMC stand for?

FHLMC is an abbreviation of Federal Home Loan Mortgage Corporation. It is commonly referred to as Freddie Mac.

What type of loan is FHLMC?

Freddie Mac guarantees conventional loans that adhere to funding criteria, but it does not offer Freddie Mac mortgages directly to consumers.

What is the difference between FNMA and FHLMC?

Fannie Mae and Freddie Mac originated in different decades and initially had different purposes, but for the most part, they serve the same purpose today of helping to improve mortgage liquidity and availability.

Photo credit: iStock/Andrii Yalanskyi

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.

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

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

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