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While you may think of your credit card as what tends to break a budget, it’s actually possible to budget with a credit card to spend smarter. In fact, there are a number of advantages of budgeting with a credit card. If you spend only what you can afford to pay off each month, you can enjoy earning rewards, building your credit score, and accessing other perks without accruing interest.

It isn’t always easy to set — and then stick to — a budget though, and a credit card budget is no different. Read on for tips on budgeting with a credit card.

Why Use Credit Cards?

Although credit cards can have downsides — especially when someone tends to overspend — they also offer benefits that you can’t get when you pay with other methods. This includes:

•   Fraud protection: It can be easier to dispute charges and fraudulent activity on a credit card as opposed to a debit card or cash.

•   Opportunity to improve your credit score: When a credit card is used responsibly, it can build a person’s credit score.

•   Credit card rewards: Credit cards often come with perks like travel points or cash back.

•   Travel insurance: Some credit cards offer specialty protection benefits like travel insurance.

While you may think of your credit card as what tends to break a budget, it’s actually possible to budget with a credit card to spend smarter. In fact, there are a number of advantages of budgeting with a credit card. If you spend only what you can afford to pay off each month, you can enjoy earning rewards, building your credit score, and accessing other perks without accruing interest.

It isn’t always easy to set — and then stick to — a budget though, and a credit card budget is no different. Read on for tips on budgeting with a credit card.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Why Is Budgeting Important?

Whether using a bank account or credit card, a monthly budget is an essential part of financial wellness. Budgeting can:

•   Help to reach financial goals, such as establishing an emergency fund or saving for a downpayment for a home.

•   Alleviate financial anxiety that can come from uncertainties around finance.

•   Improve credit history through a record of on-time payments and responsible spending.

At first glance, budgeting may seem like a limiting factor, but it actually allows you to spend guilt-free. When budgeters know how much they can spend on certain categories each month and adhere to those guidelines, they don’t have to worry about overspending.

Specific Budgeting Methods You Can Work With

There’s no one-size-fits-all budgeting method. However, here are some popular methods that you might consider trying if you’re interested in creating a personal budget.

The Zero-Sum Budget

In a zero-sum budget, every dollar has a job. However, that doesn’t mean an account should be $0 at the end of the month. Instead, it means that every dollar earned should be allocated to a specific category, with no money left unassigned by the end of the month.

Each time an after-tax paycheck comes in, a zero-dollar budget will assign it to a category, starting with necessities like rent, food, student loan payments, and insurance. The rest goes toward discretionary spending or saving.

Zero-sum budgeting means taking a critical look at each dollar entering a bank account, which can feel frustrating for some but helpful for others. Depending on your preferences, this could be the right type of budget for you.

The Spreadsheet Budget

A spreadsheet or line-item budget groups spending and purchases into categories balanced against monthly post-tax income. In its most basic form, the spreadsheet budget is a list of expenses, shown line by line and grouped by type. Income covers expenses, with surpluses going toward additional savings or debt payoff.

The Online Budget

Apps and other digital tools make budgeting as easy as creating a log-in and connecting existing accounts to track spending. You can also set up budgets for upcoming purchases.

An online tool can be helpful for those who feel intimidated by budgeting prep or prefer a more passive look at spending.

11 Tips for Budgeting With a Credit Card

Using a credit card to budget isn’t so different from a traditional budget. Keep these 11 tips in mind when building a credit card budget.

1. Determine Your Monthly Income

To figure out take-home pay each month, budgeters can consult their bank account or look at paystubs from their employer (typically through an online portal). If your income varies each month, take the average income over the past year to get a rough ballpark figure.

2. Pick a Budgeting Method

A person can’t budget with a credit card if they don’t have a budgeting method in mind. Consider one of the aforementioned methods or an alternative like the 50/30/20 budget, where you allocate 50% of your budget to needs, 30% to wants, and the remaining 20% to savings.

3. Track Your Spending

Some budgeting methods are specific about how spending should be tracked. However, you can easily track your spending with pen and paper, a spreadsheet, or a spending app. No matter the method, it’s important to track each purchase.

4. Categorize Your Spending

When it comes to how to budget credit card payments, it helps to look back at your spending first. Gather financial statements from credit cards and bank accounts for the past month. Break each transaction into a category, such as needs, wants, savings, or something more specific.

With an idea of historical spending, now’s time to put a plan into place moving forward.

5. Create a Plan

Armed with a structure and an understanding of your past spending, now comes the time to plan for the future. When creating a plan, consider:

•   Recurring expenses

•   Savings goals

•   Debt repayment goals

•   Annual subscription costs

•   Emergency savings needs

6. Pay Yourself First

A top priority when budgeting with a credit card should be paying yourself first. That means that when money hits a bank account, it should go toward personal savings goals, an emergency fund, or an accelerated debt repayment plan.

It’s important to prioritize paying yourself first, as many try to budget with the reverse in mind, only setting aside what’s left over at the end of the month. This approach can lead to falling short on savings goals.

7. Calculate Your Expenses

After setting aside money for savings, it’s time to break down the remaining income into monthly expenses. This includes necessities like rent or mortgage payments and wants like dining out or entertainment.

If monthly income can’t cover all of the anticipated expenses, it may be time to cut back on spending. Is there slack in the budget from underused subscriptions? Or can grocery spending go down?

Figuring this out before you swipe can help you to avoid overspending on credit cards.

8. Plan for Debts

The difference between credit card budgeting and traditional budgeting comes when the credit card bill is due. If someone has been primarily spending on a credit card, it’s unlikely they’ll see their bank account change most of the month. However, that changes when the bill comes due.

With each transaction on the card, the budgeter should have enough money in their check or savings to cover the cost. Planning for this debt means avoiding the scramble that sometimes comes with a credit card due date.

9. Simplify Your Billing Schedule

Missing a credit card bill can harm a credit score and add financial stress to a person’s budget. Mark credit card due dates on the calendar each month, and consider paying the bill early or breaking it into multiple payments throughout the month.

10. Use Rewards as a Bonus

The benefit of budgeting with a credit card comes from the various credit card rewards you can earn. Remember to cash in on cash back perks every few months for a discounted bill or redeem the travel miles you’ve earned for an upcoming trip.

11. Avoid Carrying a Balance

Carrying a balance on a credit card could indicate an imbalanced budget due to how credit cards work. When a credit card bill isn’t paid in full, the remaining balance can accrue interest, leading to a ballooning balance that becomes harder to pay.

That’s why upfront planning is essential to budgeting with a credit card. Without a plan in place, there’s a bigger risk of overspending, which can snowball into credit card debt. If you’re using a credit card, it’s important to stick to one of the most important credit card rules of always trying to pay off your balance in full.

Recommended: How to Avoid Interest On a Credit Card

Pros and Cons of Budgeting With a Credit Card

There are benefits and drawbacks to credit card budgeting, including:

The Takeaway

There are advantages of budgeting with a credit card, such as earning rewards, gaining access to credit card perks like travel insurance, and building your credit score if you use your card responsibly. By setting up a credit card budget, you can better prevent yourself from spending more than you can afford and ending up owing interest when you can’t pay off your statement balance in full.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How can I manage my budget with credit cards?

Budgeting with a credit card isn’t different from budgeting without one. The key to budgeting credit cards is not to spend more on a credit card than you can afford to pay off at the end of the month.

Should I budget with a credit card?

If someone can stick to a traditional budget, then budgeting with a credit card might make sense. The difference is remembering to stay up to date with payments, as missing a credit card payment can negatively impact a credit score.

How much of a hold does the budget put on your credit card?

Budget should have a pretty serious hold on a credit card. When people can’t pay their credit card bill in full, they’ll incur interest charges, which can cause them to fall into debt over time and potentially drag down their credit score.

How do credit cards affect my personal budget?

If a budgeter isn’t paying attention when using a credit card, it’s easy to overspend. This can result in putting more on a credit card than you have available in cash to pay it off. As a result, you may end up paying more than the sticker price for your purchases due to interest, leaving you less money leftover for your other needs and savings goals.

Photo credit: iStock/Mirel Kipioro

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 .

SOCC-Q224-1909388-V1

If you finance a home, the lender will have you sign either a deed of trust or a mortgage. A mortgage is an agreement between you and the lender, but a deed of trust adds a neutral third party that holds title to the real estate.

Many states allow either choice. Thanks to an easier foreclosure process, many lenders prefer a deed of trust to a mortgage, so it is important for borrowers to grasp the nuances of these documents.

Mortgage Loans 101

To understand the difference between a deed of trust and a mortgage, it helps to first know some mortgage basics. A mortgage is a loan that’s used to purchase a piece of real estate. First, the borrower applies for a loan from among the different mortgage types. Once approved, they sign a mortgage note, promising to pay the lender back over a specified time with agreed-upon terms. The real estate serves as collateral for the loan.

Note: SoFi does not offer a Deed of Trust at this time.

You may hear a mortgage note referred to as a promissory note. In any case, it’s a legally binding document.

Mortgage Transfer

A mortgage transfer takes place when a borrower assigns what is typically an assumable mortgage to another person. Most mortgage loans are non-transferable. That said, in the case of marital separation, divorce, death, or other unusual circumstance, a mortgage transfer is sometimes permitted.

FHA, VA, and USDA loans, insured by the government and issued by private lenders, are assumable if the buyer qualifies.

Mortgage Foreclosure

When a borrower defaults on making mortgage loan payments as agreed upon, the lender may start legal proceedings to take ownership of the property and resell it to recover funds owed to the financial institution.

A mortgage foreclosure can take place when a borrower doesn’t meet other terms of the agreement, but failing to make payments is the most common reason. A variety of mortgage relief programs help borrowers stave off foreclosure.

What Is a Deed of Trust?

Some states incorporate a deed of trust into their home loan process, while financial institutions in other states can choose to do so or not. A deed of trust is an agreement that’s signed at a home’s closing that states how a neutral third party — typically the title company — will hold legal title to the home until the borrower pays the loan off. (It is not the same thing as the deed to the house.)

Terms to know include the following:

•   Trustor: the borrower

•   Beneficiary: the financial institution loaning the money

•   Trustee: a third party that will legally hold the title until the loan is paid off

Deed of Trust Transfer

If the borrower pays off the mortgage loan, the third-party trustee dissolves the trust involved and transfers the title of the real estate to the borrower.

If the borrower sells the home before the balance owed is paid in full, the trustee takes the sales proceeds and pays the lender what is still owed and gives the borrower/trustor the rest of the money.

Deed of Trust Foreclosure

As with a mortgage, there are clauses in the deed of trust agreement that will trigger foreclosure proceedings. In this case, the trustee will sell the property and distribute the funds appropriately.

Similarities Between a Mortgage and a Deed of Trust

Both a mortgage and a deed of trust are used when someone buys a home and takes out a loan to complete the purchase. Under each structure, the lender has the option to foreclose on the home if terms and conditions agreed upon by the buyer are not met.

In states where either option is allowed, the lender will decide which one to use.

Key Differences Between a Mortgage and a Deed of Trust

Here’s the big one: ease of foreclosure by a private trust company when a deed of trust is in place. But let’s look at how all the differences line up, below.

How to Determine If You Have a Mortgage or a Deed of Trust

Although deed of trust versus mortgage differences may seem reasonably small, it can make sense to be clear about which one you have. Look at a mortgage statement to find your loan servicer and ask.

A longer route: Mortgages and deeds of trust are publicly filed documents, so you could seek out the local government agency that manages these kinds of records and get a copy.

The Takeaway

A deed of trust and a mortgage are the two main systems for securing home loans. One key difference is the presence of a neutral third party in deeds of trust. The trustee holds legal rights over the real estate securing the loan. It’s easy to get lost in the forest of mortgage matters. A mortgage help center can lend a hand.

FAQ

Who can be listed on a deed of trust or mortgage?

On a deed of trust, all three parties are listed: the trustor (borrower), beneficiary (lender), and trustee (third party that holds the title until the loan is paid in full). With a mortgage, there is no third party involved.

How are mortgages and deeds of trust recorded in public records?

A deed of trust will be filed and recorded in public records in the county where the house exists. A similar process takes place for mortgage deed recordings. The recorded documents could be located at a county clerk’s office, a public recorder’s office, or an office of public records.

Is your title separate from deed of trust and mortgage?

Yes. A title is a concept rather than a physical document like a deed of trust or a mortgage note, and it refers to a person’s legal ownership of a home or other property. When a property is sold, the title is transferred from the current owner to the buyer.

Does a mortgage involve a trustee like a deed of trust?

No. Deeds of trust require a trustee, but a mortgage does not.

Photo credit: iStock/zimmytws

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

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

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

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

^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.
^†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.

SOHL-Q224-1903200-V1

No matter what you do, it generally costs you money to borrow money. In the case of credit cards, you’ll pay interest on any balance remaining after your statement due date, and you may also be subject to numerous other fees.

Understanding how much a credit card costs is important, as it can help you compare cards and choose one that’s right for you at the right price. Read on to learn more about the potential costs of a credit card.

How Much Does It Cost to Get a Credit Card?

The application process for a credit card is free. The process starts by choosing a card that offers the right terms, interest rates, and rewards, if applicable. For example, you may want a card that offers cash back on certain purchases, or if you travel frequently, you may want to choose a credit that offers airline miles.

Once you’ve decided on a card, the application will typically ask you for the following:

•   Name: Credit card companies will need your full legal name.

•   Address: Most credit card companies will require you to have a U.S. address.

•   Social Security number: The credit card company will use this to make a “hard pull” inquiry on your credit report, which will help them determine how risky it is to extend credit to you.

•   Employment status and income: This will help the credit card company determine how big a line of credit you can afford.

•   Country of citizenship and residence: Not all companies will offer cards to noncitizens.

•   Financial assets and liabilities: The credit card company will want to know what other debts you are currently paying off.

Though applying for credit doesn’t cost anything, that doesn’t mean that credit cards are free. Once approved, you do have to pay for having a credit card in certain circumstances.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

Cost of a Credit Card: What to Consider When Choosing a Credit Card

The costs associated with maintaining a credit card are some of the most important points of comparison when choosing between different cards. Here’s how they can stack up:

Interest Rates

Credit cards work by charging you an interest rate, also known as annual percentage rate (APR) on credit cards. Interest applies when you carry a balance from month to month. If you pay off your balance each month, you won’t owe interest.

The average commercial bank interest rate on credit card plans for all accounts is currently 21.59%, according to data released by the St. Louis Federal Reserve. However, interest rates tend to vary from applicant to applicant, largely depending on their credit score.

The better your credit score, the lower the interest rate you may be offered. Banks tend to see individuals with lower scores as at greater risk of defaulting on their loans, so they tend to offer the applicants higher interest rates to offset some of that risk.

Balance Transfer Fees

A balance transfer credit card allows you to transfer the balance on your existing card to another card with a lower interest rate or no interest for a period of time. Most balance transfer cards will charge a fee from as low as 3% to as much as 5% in order to do so.

If you’re transferring a large balance, this fee can quickly add up to a hefty sum, so be sure to carefully compare the cost of the balance transfer to the amount you’d be saving on interest by switching to the new card.

Recommended: What Is the Average Credit Card Limit

Extra Charges When Spending Overseas

Foreign transactions fees are a surcharge that credit card companies tack on to purchases you make overseas that require the processing of foreign currencies or that are routed through foreign banks. These fees are typically around 3%, and if you’re a frequent traveler, they can start to add up.

Check the fine print in the terms and conditions before signing up for a card to see how much you’ll be charged. In some cases, your card may not charge anything.

Late Payment and Credit Limit Fees

Though you can carry a balance on your credit card, there is still a monthly credit card minimum payment that you’ll have to make. Do everything you can to make this payment on time. Not only can missed payments hurt your credit score, but your credit card company may also charge a fee. Miss another payment and that fee could go up. For example, while the late payment charge on your first missed payment could be $28, the second could jump up to $39. Typically, the late fee cannot be more than the minimum amount due on the account.

Another potentially painful side effect of missing a payment: Your credit card company could increase your interest rate, increasing the cost of your unpaid balance and making future borrowing more expensive.

Annual Fees

Annual fees help credit card companies cover the costs of whatever perks and rewards they offer their customers. The more perks a card comes with, the higher the annual fee may be. This fee is typically charged as a lump sum once per year, usually in the same month in which you opened your card, and you’ll pay it off as part of your regular credit card bill.

Convenience Fees

Sometimes you’re charged fees for using your credit by businesses that are not your credit card company. For example, a credit card convenience fee is a fee that’s charged by a merchant and added to the cost of a transaction.

Recommended: How Do Credit Card Payments Work?

Tips for Using Your Credit Card Responsibly

Credit cards are what’s known as revolving credit. They allow you to carry a balance from month to month, making only the minimum payment, and that balance can increase as interest gets added. The bigger your balance, the more money you’ll owe in interest, and your debt can quickly grow out of control. That’s why it is important to use your credit card responsibly.

Here are a couple credit card rules to consider in order to do so:

•   Always aim to pay off your credit card balance in full each month. For most cards, you will not owe any interest on purchases if you do, eliminating one of the biggest costs of having a credit card.

•   Avoid making purchases you won’t be able to pay off each month. Sometimes these expenses are unavoidable, especially in an emergency. If you can’t pay off your debt within a month, aim to do so as quickly as possible.

•   Make a point to review your credit card statement. While it might seem like a slog, reviewing your credit card statement can offer helpful insight into your spending habits. It can also ensure you notice any unauthorized credit card usage or a billing error, in which case you may be able to request a credit card chargeback.

The Takeaway

Maintaining a credit card typically comes with a variety of costs. In some cases, you can avoid credit card fees and interest, such as by paying off your balance in full and on time each month. Also be aware that interest rates and fees are often negotiable. If you’re a longstanding customer or have a particularly good credit, you may have a chance at having a few fees waived or at least lowered.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Do you have to pay for a credit card?

Credit card companies may charge a variety of fees including annual fees and late payment fees. You will also have to pay interest on whatever balance you carry from month to month.

How much are credit card fees monthly?

Credit card fees are typically not charged on a monthly basis. For example, the annual fee is usually charged as a lump sum once each year. You may incur other fees, like late payment fees, only when you miss a payment.

Can I use a credit card for free?

If you pay off your balance each month, you may not owe any interest to your credit card company. However, you may still be on the hook for whatever fees your card may charge, such as an annual fee.

Photo credit: iStock/Meranna

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.

SOCC-Q224-1908475-V1

You’ll likely hear the terms home loan and mortgage used interchangeably, but the phrase “home loan” is an umbrella term that covers a variety of mortgages, home refinances, and home equity loans.

It’s helpful to understand the difference between a typical mortgage, used to buy a home, and home equity loans, which are used to tap the equity you’ve gained.

What Is a Mortgage?

Mortgages are loans used when buying a home or other real estate. When you take out a mortgage, your lender is loaning you the money you need to buy a home in exchange for charging you interest. You’ll repay the loan and interest in monthly installments.

Mortgages are secured loans, meaning the property is used as collateral. If you fail to make mortgage payments, your lender can foreclose on the home to recoup its money.

In order to take out a mortgage, you’ll typically need to make a down payment equal to a percentage of the purchase price. Your down payment is the portion of the cost of the home that you aren’t financing and provides immediate equity in the property.

Buyers may put down 20% on conventional mortgages to avoid private mortgage insurance (PMI), but many buyers put down much less. In fact, the median down payment for all homebuyers was 14.7% in 2023, according to a National Association of Realtors® report. A mortgage calculator can help you determine what effect the size of your down payment will have on your monthly payments.

When shopping for a home, you can seek mortgage preapproval. After investigating your financial history, your lender will provide you with a letter stating how much money you can likely borrow and at what interest rate.

Types of Mortgages

There are several types of mortgages available. Mortgage insurance, in the form of PMI or mortgage insurance premiums (MIP), may be part of the deal. It’s good to understand PMI vs MIP.

•   Conventional mortgages are funded by private lenders like banks and credit unions. They are not backed by a government agency. You’ll typically need to pay PMI if you don’t make a 20% down payment; mortgage insurance is canceled when 22% equity is reached. Conventional conforming loans adhere to lending limits set each year by the Federal Housing Finance Agency.

•   Jumbo loans are mortgages that exceed the lending limits set for conventional loans. So a jumbo loan is a “nonconforming” loan. Conventional lenders issue jumbo loans, and the U.S. Department of Veterans Affairs guarantees a VA jumbo loan, possibly with no down payment.

•   FHA loans are made by private lenders and guaranteed by the Federal Housing Administration. You may qualify to make a down payment of as little as 3.5%. Upfront and annual MIPs are required, usually for the life of the loan.

•   USDA loans are backed by the U.S. Department of Agriculture and help low- to moderate-income households buy property in designated rural and suburban areas. No down payment is required. An upfront and annual guarantee fee are required.

•   VA loans are designed for active-duty and veteran military service members and some surviving spouses. VA loans don’t require a minimum down payment in most cases. There’s no MIP; there is a one-time funding fee.

What Is a Home Equity Loan?

A home equity loan is frequently known as a second mortgage. Home equity loans allow homeowners to borrow against the portion of their home they own outright. As with typical mortgages, home equity loans are secured using the home as collateral.

The amount you’re able to borrow will be determined by a few factors, including your credit history and how much equity you’ve built — in other words, the current value of your house less any outstanding debt. The borrower may pay closing costs based on the loan amount.

It’s common for lenders to allow you to borrow up to 80% of the equity you’ve established. The loan arrives in a lump sum. You repay the home equity loan with interest over a set period of time. If you miss payments, your lender can foreclose on the house. (A home equity loan is not to be confused with a home equity line of credit, or HELOC. In the latter, your home equity is collateral, but rather than receiving a lump sum, you have a revolving line of credit and can borrow and repay the debt repeatedly as needed during a given time period — typically a decade.)

Another way to tap home equity is with a cash-out refinance, when you take out a new loan to pay off your old one and free up equity.

Similarities Between a Home Equity Loan and a Mortgage

When you apply for a mortgage as part of the homebuying process, or when you seek a home equity loan as a homeowner, lenders will look into your financial history to help them establish terms and the interest rate for the loan. For example, they will examine your credit reports, often awarding more favorable terms and interest rates to those with higher scores. Mortgages and home equity loans are both secured loans.

Differences Between a Home Equity Loan and a Mortgage

A mortgage must be used to purchase a specific property. There are fewer limitations on the money received from a home equity loan.

Mortgage interest can be deducted if you itemize your deductions. However, you can only deduct interest on a home equity loan if you use the loan to buy, build, or substantially improve your main or second home. So if you want to buy a boat, that deduction won’t hold water.

When You Should Consider a Mortgage

If you don’t have the cash to buy a home outright, you will have to finance the purchase with a mortgage. However, there are some considerations you may want to take into account. For example, the larger your down payment, the more equity you will have in your home and the smaller your monthly mortgage payments will be.

Because you have more equity in the home, the lender will see you as less risky. As a result, larger down payments also tend to translate into lower interest rates. So, consider putting down as much as you can afford to.

Also, even if you have the cash to pay for a home in full, you may consider a mortgage anyway. You may not want to tie up cash that could be used for other purposes, such as in an emergency. You may be able to invest that money and earn a return that’s higher than the interest rate you’d pay on the loan.

When You Should Consider a Home Loan

Many people choose to take out home equity loans to make home improvements. That can increase the value of your home, putting you ahead if you ever choose to sell.

You may also consider a home equity loan when consolidating other debt, including high-interest credit card debt. The average interest rate for a home equity loan remains significantly lower than the average credit card rate. As a result, it can make financial sense to pay off the more expensive debt with a new, cheaper loan.

The Takeaway

Home equity loan vs. mortgage? One uses a home as collateral on a loan; the other gets a buyer into a home. If you’re looking for a home equity loan, a mortgage, or a refinance, it’s a good idea to compare rates and terms.

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

Is a home loan the same as a mortgage?

Yes. “Home loan” is an umbrella term that covers a wide variety of mortgages, home equity loans, and home refinances.

Why is a home loan called a mortgage?

“Mortgage” comes from the old French mort gage, meaning a death pledge — a morbid origin for the pledge you make to a lender to pay back the money you borrow.

Is a mortgage cheaper than a home loan?

Mortgages are a type of home loan. Your interest rate will depend on the type and size of your loan, your down payment, and your financial history, such as your credit score.

Photo credit: iStock/Brandon Ruckman

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

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

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

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

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

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

^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.
^†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.
^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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When you want to sell your house quickly, you need to get it right the first time around. Those with more time to leave their home on the market can enjoy a period of trial and error, but if you’re looking for a quick payout, it’s smart to have a plan, and even a checklist in place. Here are 10 tips that can help increase the appeal of your home, impress buyers and help get your property sold in record time.

1. Clean and declutter

One of the first and most fundamental steps to complete if you want to sell your house fast is to clean and declutter your home. This sounds simple, but it can make a huge difference to prospective buyers. If necessary, you may want to rent a storage unit so you can set aside any belongings that you don’t absolutely need for a showing. A tidy home looks bigger and more appealing, so investing some time and money in a deep clean and even a home staging can help to ensure buyers get a great first impression.

2. Pick a selling strategy

Different buyers will have different needs. For instance, a first-time homebuyer might be ready to purchase, but may not know exactly what they want until they see it. That’s why it’s smart to make sure your selling strategy targets your ideal buyer so you can sell your home quickly. Here are three strategies to consider:

Sell FSBO

Selling your home yourself can be a great way to sell a house fast. The “For Sale By Owner” approach may require a little extra work on your part, but it also lets you avoid agent or broker fees, meaning you can sell the home at a lower price and keep the same profits.

Hire an agent

Of course, going it alone isn’t for everyone. If you don’t fully understand the ins and outs of the market, need a little assistance, or would just prefer for a professional to handle the heavy lifting, hiring a real estate agent may be the better route for you. You may incur some additional fees but having a professional on board can help give you some piece of mind during what can be a very complex and stressful process. An agent can also help you time your sales strategy and planning process if you’re buying and selling a house at the same time.

Try the unconventional

There isn’t any one right way to sell a home. These days, some people harness the power of social media to try to sell a home quickly. Others allow potential buyers to spend a night to see if they fall in love with the home. Virtual tours that allow buyers to “walk through” without ever setting foot in the home are now the norm.

3. Price to sell

A mortgage loan is a major expense so it’s often at the forefront of your potential buyers’ minds. That’s why you may want to think carefully when setting a price point for your home. Setting your sale price higher than other properties in your neighborhood could keep your home on the market longer than you’d like. Choosing to set your sale price lower than those in your neighborhood can help set you apart from the pack and may help speed up the selling process.

Set a timeline for a price reduction

It’s perfectly fine to dream big, but it’s smart to have a plan in place if no one bites at your initial price. Setting a date by which you’ll reduce the price can help to generate renewed interest in your property. Even a small price reduction can entice buyers to give your home a second look.

Consider sales incentives

You may also want to consider other sales incentives. Perhaps the buyer wants a new fence installed or an AC unit replaced. New carpentry and modern appliances can be highly appealing for buyers. Also, offering to partially or fully cover closing costs is another tactic that can entice potential buyers.

4. Handle any quick repairs

Speaking of incentives, it’s wise to make sure you do repairs before buyers see the home. Many of those small things we overlook while living in a house can be a big deal to buyers. Repair scratched floors and damaged walls, tighten up that leaky faucet and pull out the touch up paint. All of these quick repairs can make a huge difference in selling your home quickly.

Recommended: What Are the Most Common Home Repair Costs?

5. Pack up and hire a stager

First thing’s first: Most buyers consider how their own belongings will fit in your home as they walk through, and getting some of your things out of the way can aid in that visualization. If you think your belongings are outdated or detract from the overall appeal of the home, you can research home staging tips or even consider hiring a stager who will know exactly how to make your home look its absolute best. A well-staged home can sell more quickly.

6. Create curb appeal

Thinking about what people see when they first arrive at your house is a smart move when it comes to selling your home quickly. The front lawn, the door, or even a driveway can influence a buyer’s overall impressions. Drive past your home and look at it from a buyer’s perspective to see where your eyes land first. Whatever catches your eye is probably worth investing some time and money into. Also, mowing the lawn and power washing the front of your home can help make it look more inviting.

Recommended: 5 Curb Appeal Ideas for Your House

7. Hire a professional photographer

Pictures, virtual walk-throughs and social media are huge in real estate these days. And professional photographers make it all much more appealing. If you have stunning professional photographs to show prospective buyers, you’re likely to be more competitive when it comes to getting those buyers into your house.

8. Write a great listing description

A listing price and photographs are helpful, but you also need a listing description. Real estate agents are often great at this, but if you need to do it on your own, you may want to start by considering your home’s best features. Also it’s smart to consider keywords that might help your home rank higher. Since you’re trying to sell a house fast, it’s perfectly fine to convey that in the listing. It might also attract buyers who want to buy quickly.

Where to post your listing

Where to list your home for sale often depends on how you’re selling it. If you are selling on your own, you can use sites like Zillow to list the house yourself. If you are working with an agent, however, they will probably prefer to list the house for you on the local Multiple Listing Service (MLS). Of course you can always use your personal social accounts, email, or other means to advertise regardless of whether you have an agent or not.

9. Time your sale right

Timing can play a huge role in how quickly your home sells. However, this can vary widely depending on where you’re located. You may want to start by researching when homes sell best in your area and aim to hit that time frame if you can.

10. Be flexible with showings

Within your ideal time frame, you’ll probably want to be as flexible as possible. Homebuyers can be busy, and if you can accommodate them, they’ll be more likely to view your home. If you can’t, they may look elsewhere.

Hold an open house

An open house is an excellent way to let people see your house. The best part about open houses is that they’re very flexible. People can come and go as they please on their own schedules. Of course, things like cleaning, making repairs and staging will be extra important prior to an open house. If you have an interested buyer but have scheduled an open house, it’s OK to run the open house anyway. Even a home in contingency can still fall through; it doesn’t hurt to have backup offers or other interested buyers in waiting.

The Takeaway

Whether pricing your home below market rate or just adding a fresh coat of paint, when it comes to selling your home quickly there really are no guarantees. Doing your research and knowing your market are the best ways to position yourself for a sale, and incorporating these tips can help speed up that process.

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.

Photo credit: iStock/OlekStock

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

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

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

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

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

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

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