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If you don’t have a 20% down payment on a home, that’s OK. Most buyers don’t. But if you’re in that league and acquire a conventional mortgage, the lender will want extra assurance — insurance, actually — that you’ll pay the loan back. Private mortgage insurance (PMI) is usually the price to pay until you reach 20% equity or, as lenders say, 80% loan-to-value.

In an effort to help low- and middle-income borrowers, the Biden-Harris Administration reduced monthly mortgage insurance premiums for new FHA loans — that is, loans backed by the Federal Housing Administration. However, those cuts do not affect homebuyers with conventional loans and PMI.

Can you avoid PMI? It’s tough. Below, we’ll take a closer look at PMI, strategies to avoid it, and how to know when you can get rid of it.

What Is PMI?

Private mortgage insurance is charged by lenders of conventional home mortgage loans, which are loans not insured by a government agency. FHA, VA (Veterans Administration), and USDA (U.S. Department of Agriculture) loans are government-insured loans.

The 30-year conventional home loan is the most common mortgage, and 20% down is ideal. But…

You’ve seen home prices lately. Twenty percent down on a $250,000 or $400,000 or $750,000 home is just not doable for everyone. In 2024, the median down payment for buyers was 18%, but for first-time homebuyers, it was nine percent, according to the National Association of Realtors.®

PMI is meant to protect the lender from risk. The premiums help the lender recoup its losses if a borrower can’t make the mortgage payments and goes into default.

How Much Does PMI Cost?

PMI is often 0.5% to 1.5% of the total loan amount per year, but can range up to 2.25%.

The cost of PMI depends on the type of mortgage you get, how much your down payment is, your credit score, the type of property, the loan term, and the level of PMI coverage required by your lender.

If you’re shopping for a mortgage and you apply for one or more, the premium will be shown on your loan estimate. If you go forward with a home loan, the premium will be shown on the closing disclosure.

How to Pay PMI

Most borrowers pay PMI monthly as a premium added to the mortgage payment.

Another option is to pay PMI with a one-time upfront premium at closing.

Yet another is to pay a portion of PMI up front and the remainder monthly.

How to Avoid PMI Without 20% Down

One way to avoid PMI is to make use of a piggyback mortgage. Another is to seek out lender-paid mortgage insurance.

Piggyback Loan

With a piggyback loan, typically an 80/10/10 mortgage, you’d take out two loans at the same time, a first mortgage for 80% of the home price and a second mortgage for 10% of the home value, and put 10% down. Note: SoFi does not offer piggyback loans. SoFi does offer fixed-rate and adjustable-rate first mortgages, as well as VA and FHA loans.

The 80% loan is usually a 30-year fixed-rate mortgage, and the 10% loan is typically a home equity line of credit that “piggybacks” on the first mortgage.

A 75/15/10 piggyback loan is more commonly used for a condo purchase because mortgage rates for condos are higher when the loan-to-value ratio (LTV) exceeds 75%.

Both loans do not have to come from the same lender. Borrowers can tell their primary mortgage lender that they plan to use a piggyback loan and be referred to a second lender for the additional financing.

Because you’d be taking out two loans, your debt-to-income ratio (monthly debts / gross monthly income x 100) will fall under more scrutiny. Mortgage lenders typically want to see a DTI ratio of no more than 36%, but that is not necessarily the maximum.

Piggybackers will need to be prepared to make two mortgage payments. They will want to examine whether that secondary loan payment will be higher than PMI would be.

Lender-Paid Mortgage Insurance

In most cases with lender-paid mortgage insurance (LPMI), the lender pays the PMI on your behalf but bumps up your mortgage interest rate slightly. A 0.25% rate increase is common.

Monthly payments could be more affordable because the cost of the PMI is spread out over the whole loan term rather than bunched into the first several years. But the loan rate will never change unless you refinance.

Borrowers will want to look at how long they expect to hold the mortgage when comparing PMI and LPMI. If you need a short-term mortgage, plan to refinance in a few years, or want the lowest monthly payment possible, LPMI could be the way to go. Note: SoFi does not offer LPMI.

When PMI Is No Longer Required

Borrowers generally need to have 20% equity in their home to drop PMI.

The Homeowners Protection Act was put in place to protect consumers from paying more PMI than they are required to. Specifically for single-family principal mortgages closed on or after July 29, 1999, the law covers two scenarios: borrower-requested PMI termination and automatic PMI termination.

Once you’ve built 20% equity in your home, meaning you’re at an 80% LTV based on the home’s original value (the sales price or the original appraised value, whichever is lower), you can ask your mortgage loan servicer — in writing — to cancel your PMI if you’re current on all payments. Your monthly mortgage statement shows your loan servicer information.

The very date of this occurrence, barring no extra payments, should have been given to you in a PMI disclosure form when you received your mortgage. It’s based on your loan’s amortization schedule.

As long as you’re current on all payments, PMI will automatically terminate on the date when your principal mortgage balance reaches 78% of the original value of your home.

If that LTV ratio is not reached by the midpoint of the mortgage amortization period, PMI must end the month after that midpoint.

PMI vs. MIP vs. Funding Fees

The upside of PMI is that it unlocks the door to homeownership for many who otherwise would still be renting. The downside is, it adds up.

If you’re tempted to go with an FHA mortgage, realize that this type of loan requires up front and annual mortgage insurance premiums (MIP) that go on for the life of the loan if the down payment was less than 10%.

Mortgages insured by the Department of Veterans Affairs come with a sizable funding fee, with a few exceptions, and loans backed by the Department of Agriculture come with up front and annual guarantee fees.

Type of Loan	Upfront Fee	Annual Fee
Conventional	n/a	0.5% to 1.5%+
FHA	1.75%	0.15% to 0.75%
VA	1.25% to 3.3%	n/a
USDA	1%	0.35%

Recommended: PMI vs. MIP

Ways to Boost a Down Payment

A bigger down payment not only may allow a borrower to avoid PMI but usually will afford a better loan rate and provide more equity from the get-go, which translates to less total loan interest paid.

So how to afford a down payment? You could shake down Dad or Granny (just kidding; Grandma responds better to sweet talk than coercion). For a conventional loan, gift funds from a relative or from a domestic partner or fiance count toward a down payment. There’s no limit to the gift, but you may be expected to come up with part of the down payment. You’ll also need to present a formal gift letter to validate the funds given to you.

A gift of equity is a wonderful thing indeed. When a seller gives a portion of the home’s equity to the buyer, it is shown as a credit in the transaction and may be used to fund the down payment on principal or second homes.

You could look into down payment assistance from state, county, and city governments and nonprofit organizations, which usually cater to first-time homebuyers. And home listings on Zillow now include information about down payment assistance programs that might be available to buyers searching for homes on the platform.

Even if you can’t come up with 20%, it’s all good because PMI doesn’t last forever, and real estate is one of the key ways to build generational wealth.

The Takeaway

What is PMI? Private mortgage insurance typically goes along for the ride when a borrower puts less than 20% down on a conventional mortgage. A gift or other down payment assistance can fatten the down payment and help you avoid PMI. If you do end up paying, you can step away from PMI once your equity reaches 20%.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is it better to put down 20% or pay PMI?

It would be great to make a down payment of 20% and avoid private mortgage insurance (PMI) but not everyone can afford it. It’s particularly hard for first-time homebuyers, who often don’t have income from the sale of another residence to fund their next home. Use a home affordability calculator to look carefully at monthly mortgage payment amounts for different home prices and interest rates. Then put down what you feel you can afford without compromising your ability to cover other bills.

How long do I have to pay PMI?

If you are paying private mortgage insurance, you’ll need to pay until you have built up 20% equity in your home (based on the original sale price of the home). At this point, you can request in writing that your loan servicer cancel PMI if you are current on your payments.

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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.

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.

^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.
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‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.

Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.

SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.

If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.

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SOHL-Q125-041

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When looking for a property to buy, you might consider a single-family detached home, a townhouse, a condo, a co-op apartment, or something else.

Let’s look at the pros and cons of buying a townhouse vs. a condo.

What Is a Townhouse?

At first glance, a townhouse might look like a typical house, but a closer look will show that it’s attached to at least one similar unit.

Townhouses are often found in urban areas where space is at a premium. They often come with a front or back yard. Owners own the inside and outside of their unit and the land it sits on.

The townhome community may have a homeowners association (HOA) and maintenance fees. You’ll want to make sure you understand the costs of the HOA and its rules before signing a contract and getting a home mortgage loan.

Benefits of Buying a Townhouse

There are at least three upsides to purchasing a townhouse.

Owner Rights

Because people who buy a townhouse own the land it’s on, they have more freedom in how to use the yard. A yard or patio can open possibilities for a grilling spot or dog or child play area.

They also have at least some freedom of choice about the appearance of the inside and outside of the structure, although HOAs may have rules about all of the above.

Price

In communities with high home prices, townhouses may be an affordable alternative for first-time homebuyers.

House hunters from millennial homebuyers to empty-nesters may also find a townhouse a sweet spot between a condo and a traditional detached home with yard.

Plus, because lots tend to be smaller than ones with detached homes on them, property taxes are usually lower as well.

Low Maintenance

Smaller yards mean less yardwork, ideal for busy people and those who are downsizing their home and responsibilities.

The townhouse complex may be gated and have security, and some have pools, gyms, and other shared recreational spaces whose maintenance is covered by homeowner fees.

Disadvantages of Buying a Townhouse

When you think of townhouse living, keep in mind the close quarters with neighbors and possible HOA fees and rules.

HOA

Townhouse communities are less likely to have an HOA than condominiums are, but if they do, the resident-led board will collect ongoing fees to cover common areas and any community perks such as a pool. The HOA will also enforce community rules.

Lack of Privacy

Because of the shared walls, a townhouse provides less privacy than a detached home (although it may offer more privacy than many condo buildings, where you may have a unit above and below yours). Townhouse living may therefore create some challenges for families with young children.

What Is an Apartment?

An apartment is a room or set of rooms within a building. In major cities, some people refer to buying a condo or co-op shares as buying an apartment.

Condo owners own everything within their unit and have an interest in the common elements. “Buying a co-op apartment” really means holding shares in the housing cooperative that owns the property.

Then there are people and companies that buy a multifamily property like an apartment building and rent out the units. An owner could decide to live in one of the units and serve as an on-site landlord.

Benefits of Living in an Apartment

Let’s look at some benefits of buying a condo or a co-op.

Low Maintenance

You won’t typically need to make many repairs, mow the grass, or paint. That’s covered by the monthly or quarterly fees you’ll pay.

Low Utilities

First, condos tend to be smaller than single-family homes, which can reduce the cost of heating and cooling the space, and take less electricity to keep it well lit.

HOA

If the building has an HOA (which may be called a condo or co-op association), the association will take care of property maintenance and enforcement of rules.

Disadvantages of Living in an Apartment

Apartment life can come with disadvantages, too. Here are a few.

Parking

You may or may not have a parking space set aside for you, and street parking isn’t always a given in busy locales. Even if you have a parking spot, if people come to visit, they may not easily find anywhere to park.

Noisy or Nosy Neighbors

If you appreciate quiet calmness, you may not find all you’d like in condo living. Neighbors are nearby and they can be noisy. If you’re in a crowded city, surrounding events can contribute to the jostling and noise.

Limited Space

If you’re used to living in a house, you could find a more compact apartment to be challenging as you try to fit in your belongings. Plus, apartments often lack yard space or a patio, which further limits the amount of space you have to use and enjoy.

Differences Between a Townhouse and an Apartment

When comparing apartment or condo vs. townhouse, keep in mind these differences.

Townhouse	Apartment/Condo
Single-family unit that shares one or more walls with another home	Room or rooms within a building
May have a small yard or patio	May be less likely to have outdoor space
Gives owner some control over how to change the exterior and use yard	Any exterior space is often shared and cared for by HOA
Can be more affordable than traditional detached homes in markets with high prices	Can also be more affordable than traditional detached homes
If there’s an HOA, fees are usually lower because owners are responsible for much of their own upkeep	If an HOA is in place, it will collect fees to cover most maintenance and condo fees can be higher than those for townhouses.
May not provide as much privacy as a freestanding house	May not provide as much privacy as a freestanding house
Thanks to the land ownership, financing is similar to a traditional mortgage	It can be harder to finance a condo than a townhouse

The Takeaway

Buying a townhouse or an apartment can give you many of the pleasures of homeownership with less of the associated upkeep. But there are unique qualities to each and potential downsides, too. Make sure you understand the role a homeowner’s association might play in any property you purchase before you make an offer and nail down your financing.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Do townhomes appreciate as much as houses?

In general, townhomes do not appreciate as quickly as single-family detached homes, thanks to the amount of land that comes with traditional stand-alone homes.

Are townhouses a bad investment?

In some circumstances, a townhouse may be a good investment. The price, current market conditions, and location are factors.

Are fees higher for a townhouse or condo?

Condo HOA dues are typically a lot higher than townhouse fees (if the townhouse community even has an HOA). Condo communities usually have many more amenities to maintain.

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Photo credit: iStock/Auseklis

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.

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

SOHL-Q125-023

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Did you know you can use a home loan for renovations? Renovation home loans cover the cost of purchasing and renovating a home. If you’re familiar with construction loans, renovation loans are similar. Also called “one-close” loans or renovation mortgages, renovation loans can offer buyers simplified financing for transforming a fixer-upper into an attractive, modernized home.

We’ll explain how to add renovation costs to your home loan. We’ll also cover other ways you can fund your home project, including ways to use your existing home equity to help you pay for renovations.

What Is a Renovation Home Loan?

A renovation home loan combines the cost of a home purchase and money for renovations in one mortgage. There’s only one closing and one loan when buying a new home or refinancing an existing home. The lender has oversight of the renovation funds, including the budget, vetting of the contractor, and disbursement of funds for renovation work as it is completed.

The borrower, their property, and their lender must all meet criteria set out by the remodel home loan program to qualify, which can present a challenge. Qualifying lenders in particular can be hard to find. That’s because most lenders must maintain a custodial account for the renovations over the course of an entire year, which requires extra work and resources. However, if you can find a lender that can handle the process, renovation loans can be a convenient way to improve a promising fixer-upper.

Types of Home Loans That Can Include Renovations

Most mortgages will not include renovations in the loan amount. Renovation mortgages are niche products serviced by a fraction of lenders. Buyers and properties must also meet certain requirements, which we’ll outline below.

There are several different types of home loans you can apply for that are eligible for adding renovation costs to the mortgage.

1. FHA 203K

An FHA 203(k) is a mortgage serviced by the Federal Housing Authority in which the cost of repairs is combined with the mortgage amount. It’s different from a traditional FHA loan that does not include improvement expenses, but qualifications (credit score, down payment, etc.) are very similar.

Interest rates and terms are also similar to what you see in a standard FHA loan. However, you can expect additional lender fees to cover the extra oversight needed on a renovation loan.

The amount you can borrow is equal to either the value of the property plus the cost of renovations or 110% of the projected value of the property after rehabilitation. Borrowers must use an FHA-approved lender for this type of mortgage.

Eligible properties must be one to four units. Repairs can include those that enhance the property’s appearance and function, the elimination of health and safety hazards, landscape work, roofing, accessibility improvements, energy conservation, and more. A limited 203(k) is also available for repairs costing $35,000 or less.

2. Fannie Mae HomeStyle

The Homestyle Renovation loan from Fannie Mae takes into account the value of the property after renovations are complete. The amount of allowable renovation money can equal 75% of the value of the property after renovations are complete.

In the world of home loans, the loan-to-value ratio (LTV) is the percentage of your home’s value that is borrowed. Many lenders limit your LTV to 80% to 85%.

A HomeStyle loan allows an LTV of up to 97%. This means it’s possible to put as little as 3% down. Some investment properties are also eligible for this type of loan. Renovations are eligible as long as they are permanently affixed to the property. Work must be completed within 15 months from the closing date of the loan.

3. Freddie Mac CHOICERenovation

The Freddie Mac CHOICERenovation program is virtually identical to the Fannie Mae HomeStyle program. This renovation loan is for buyers who want a loan with more flexibility than an FHA renovation loan.

Like HomeStyle, renovations that are permanently affixed to the property are eligible in one- to four-unit residences, one-unit investment properties, second homes, and manufactured homes. The maximum allowable renovation amount is 75% of the “as-completed” appraised value of the home — meaning the appraised value of the home before renovations but accounting for all planned changes. The maximum loan-to-value (LTV) ratio is 95% (97% for HomePossible or HomeOne loans).

The Freddie Mac CHOICEReno eXPress Mortgage is an extension of the CHOICERenovation mortgage. The CHOICEReno eXPress mortgage is a streamlined mortgage for smaller-scale home renovations. Renovation amounts are limited to 10% or 15% of the “as-completed” appraised value of the home. Borrowers need to work with an approved lender to apply for one of these programs.

4. USDA Purchase with Rehabilitation and Repair Loan

A USDA Purchase with Rehabilitation and Repair Loan assists moderate- to very-low-income households in rural areas with repairs and improvements to their homes. Buyers can secure 100% financing with this loan.

For very low-income borrowers, there’s a separate loan you can qualify for with a subsidized, fixed interest rate set at 1% with a 20-year term. This makes borrowing incredibly affordable.

To apply, you must have a household income that qualifies as low to moderate in your county per USDA standards. The property must be your primary residence (no investments), and rehab funds cannot be used for luxury items, such as outdoor kitchens and fireplaces, swimming pools and hot tubs, and income-producing features. Manufactured homes, condos, and homes built within the last year are not eligible.

5. VA Alteration and Repair Loan

The VA allows qualified service members to bundle repairs and alterations with the purchase of a home. As with all VA loans, 100% financing is available on these low-interest loans.

Alterations must be those “ordinarily found” in comparable homes. Renovations are also required to bring the property up to the VA’s minimum property standards.

The loan amount can include the “as completed” value of the home as determined by a VA appraiser. Leftover money from the home loan after renovations are complete is applied to the principal.

Note: SoFi does not offer the five types of home renovation loans on this list, although it does offer other types of FHA loans and VA add loans.

Home Style Quiz

Other Options for Financing Home Renovations

While a renovation home loan is a great way to finance a renovation, it’s not your only option for borrowing money for home improvements. Nor is it the most flexible. Alternative loans — such as cash-out refis, home renovation personal loans, and home equity loans -– may provide more flexibility.

Cash-out Refinance

A cash-out refinance is useful for those who already own their home. You replace your old mortgage with a new mortgage, and the equity (here, the “cash”) is refunded to you. You will have closing costs with a refinance, but you won’t have separate financing costs for the money you’re using for renovations.

Personal Loan

Personal loans are often used for a home remodel or renovation. Because the funds are not secured by your property, you’ll likely have to pay a higher interest rate. The bright side of funding this way means you won’t lose your home if you have a financial setback and need to stop paying back the loan.

This type of loan comes with a shorter repayment period, higher monthly payment, and lower loan amount. You can find these loans through banks, credit unions, and online lenders.

Home Equity Loan

A home equity loan is a secured loan that uses your home as collateral. That means the lender can foreclose on the home if you stop paying the loan, and so interest rates are typically lower. A home equity loan also comes with a longer repayment period than a personal loan.

Home Equity Line of Credit (HELOC)

A HELOC is a line of credit that lets homeowners borrow money as needed, up to a predetermined limit. As the balance is paid back, homeowners can then borrow up to the limit again through the draw period, typically 10 years. The interest rate is usually variable, and the borrower pays interest only on the amount of credit they actually use.

After the draw period ends, borrowers can continue to repay the balance, typically over 20 years, or refinance to a new loan.

Recommended: A Personal Line of Credit vs. a HELOC

Private Loan

A private loan is a loan made without a financial institution. Loans made from a family member, friend, or peer-to-peer source are considered private loans. Qualification requirements will depend on the individual or group lending the money. There are some serious drawbacks to obtaining funding from a private source, but these loans can help some borrowers in buying a home.

Government or Nonprofit Program

It is possible to finance the cost of remodeling with the help of government programs. Federal programs like the U.S. Department of Housing and Urban Development (HUD) have financing options for renovations, as do some state and local government agencies.

Recommended: What Is HUD?

The Takeaway

Homeowners have a lot of options for financing renovations, especially in an era when home equity is higher than ever before. Renovation home loans allow borrowers to purchase and renovate a property with one loan, but that’s not the only way you can remodel a fixer-upper. Some alternatives to renovation home loans include home equity loans, HELOCs, and personal loans.

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

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

How do renovation mortgages work?

Home renovation loans are known for combining the cost of financing a renovation or remodel with the cost of purchasing the home into a single-closing transaction. Lenders calculate the amount to be borrowed based on the value of the home after renovations are complete.

Can you include renovation costs in a mortgage?

A home loan can include renovations, but you must work with your lender to be approved for specific renovation loan programs.

Can you add renovation costs to your mortgage?

You cannot add renovation costs to an existing mortgage, but you can refinance your mortgage with a cash-out refinance that provides you with funds you can use however you wish. You can also take out a home equity loan or open a home equity line of credit (HELOC) which would provide you with renovation money and would, technically, be a second mortgage.

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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.

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

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

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†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.
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On a salary of $45,000 per year, you can afford a house priced at around $120,000 with a monthly payment of $1,050 for a conventional home loan — that is, if you have no debt and can make a down payment. This number assumes a 6% interest rate.

These numbers change—sometimes dramatically—depending on a few factors, including:

•   How much debt you have

•   What your down payment is

•   How much you’re paying for taxes, insurance, and homeowners association dues, if anything

•   What interest rate is available to you

•   What type of loan you get

With the median home price in the U.S. topping $400,000, you might be wondering how everyone else affords a home in your neighborhood. We’ll cover every aspect of home affordability for a $45,000 salary to help you work toward getting the home you’ve always wanted.


💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

What Kind of House Can I Afford With $45K a Year?

The kind of home you can afford depends on more than your $45,000 salary. It’s also based on your debt-to-income (DTI) ratio, interest rate, down payment, type of home loan, and lender.

Understanding Debt-to-income Ratio

Your DTI ratio is a key factor in determining how much home you can afford. The more debt you have, the lower your housing payment needs to be. This directly translates into a lower priced home. So, what exactly is a DTI ratio? It is the proportion of monthly debt you need to repay in relation to your gross monthly income.

For example, if your total debt amounts are $2,000 each month and your income is $6,000 per month, your debt-to-income ratio would be 33%. This falls under the 36% threshold mortgage lenders look for with conventional home mortgage loans.

However, keep in mind that the $2,000 has to include your new mortgage payment. If your debts cost $500 each month, your monthly mortgage payment cannot be more than $1,500.

How to Factor in Your Down Payment

Your down payment also plays a significant factor in home affordability. Generally, the higher down payment you have, the more home you can afford. If you purchase a home far below what you can afford, your monthly payment will be much lower.

If you make a down payment of 20% or more, you’ll also be able to save on mortgage insurance premiums, which are typically required on most loan types for homes purchased with a down payment lower than 20%.

If you play around with a mortgage calculator, you can see how a larger down payment can affect your monthly payment and home price.

Factors That Affect Home Affordability

Beyond your debt, income, and down payment, there are a number of other factors that go into home affordability. These include:

•   Interest rates The interest rate you have on your home dramatically impacts how much home you can afford. When interest rates are high, your monthly payment is higher. When interest rates are down, you pay less interest on your loan, which means you can afford a more costly home. Remember that if rates drop significantly a mortgage refinance is always an option.

•   Credit history and score The interest rate that you’ll qualify for is dependent on your credit score and history. A better credit score will qualify you for the best interest rates, which means your monthly payment will be lower, which can increase your buying power.

•   Taxes and insurance Taxes and insurance factor into your home’s monthly payment. They will be calculated into the home’s PITI (payment, interest, taxes, insurance) and included as part of your monthly debts.

•   Loan type The type of loan you get affects home affordability. This is due to the different interest rates and down payment options available to specific loan types. VA loans from the U.S. Department of Veterans Affairs, for example, come with a lower interest rate and don’t require a down payment.

•   Lender Lenders may have discretion to increase the allowable debt-to-income ratio. Some can go as high as 50%.

•   Location Some areas are more affordable than others. Thinking about moving? Take a look at a list of the best affordable places to live in the U.S.

Recommended: The Cost of Living By State

How to Afford More House With Down Payment Assistance

One of the best tools for increasing home affordability is with down payment assistance programs. These programs provide funds for the down payment (and sometimes closing costs) to help make homes more affordable for buyers.

Some programs offer down payment assistance in the form of a grant that does not need to be repaid, while others finance a second mortgage which may need to be paid when the home is sold (but sometimes is forgiven earlier). In Colorado, for example, there’s the CHFA Colorado Down Payment Assistance Grant. Virginia offers the Virginia HOMEownership Down Payment and Closing Cost Assistance program (DPA)

Search your state, county, and city to see what programs are offered for your area. You may also want to read tips to qualify for a mortgage.

How to Calculate How Much House You Can Afford

Calculating how much house you can afford is smart, especially if you’re a first-time homebuyer and making early plans to buy a home. There are some guidelines lenders use to qualify borrowers for a mortgage, including:

The 28/36 Rule: This guideline states that no more than 28% of your income should go to your monthly housing payment and your debt-to-income ratio should be no more than 36% of your income

When calculating DTI (also known as the back-end ratio), your lender will add all of your debts (including the new mortgage payment) to make sure all debts will fall under 36% of your income amount. If your monthly income is $3,750 ($45,000/12 = $3,750), your debts (including the mortgage payment) should be no more than $1,350 ($3,750*.36).

Lenders will also calculate the front-end ratio, which should be no more than 28% or your income. With a monthly income of $3,750, this number works out to $1,050.

The 35/45 Rule: Some lenders may go by the 35/45 guideline, which allows for a housing payment up to 35% of income and 45% of total DTI ratio. This expanded allowance is up to the lender, but may allow for qualification of higher purchase amount and payment.

With a monthly income of $3,750, the housing allowance (35% of your income) increases to $1,312.50 and the total monthly debts (45% of your income) increases to $1,687.50. An easier way to calculate how much home you can afford is with a home affordability calculator.

Home Affordability Examples

Let’s take a look at two examples of homebuyers with $45,000 incomes in differing scenarios. All assume the same taxes ($2,500), insurance ($1,000), and APR (6%) for a 30-year loan term (just for illustrative purposes).

The $45,000 annual salary is divided by 12 to get a $3,750 monthly income and the maximum DTI ratio works out to be $1,350 ($3,750 * .36).

Example #1: $45,000 income but lots of debt
Monthly credit card debt: $300
Monthly car payment: $350
Student loan payment: $300
Total debt = $950 total debt payments

Down payment = $20,000
Maximum DTI ratio = $3,750 * .36 = $1,350
Maximum mortgage payment = $400 ($1,350 – $950)

Home budget = $38,069

Even with a $20,000 down payment, it could be hard to buy a home in this scenario.

Example #2: $45,000 income with little debt
Monthly credit card debt: $50
Monthly car payment: $0
Student loan payment: $0
Total debt = $50

Down payment: $20,000
Maximum DTI ratio = $3,750 * .36 = $1,350
Maximum mortgage payment = $1,300 ($1,350 – $50)

Home budget = $171,925

💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.1

How Your Monthly Payment Affects Your Price Range

The monthly payment you qualify for affects the total price you can pay for a home. If monthly debts are too high, for example, you’ll likely qualify for a lower-priced home. The monthly payment is also affected by interest rates. Because interest is amortized over 30 years (on a 30-year mortgage), the amount of interest you pay is significant, even if you manage to score a lower rate.

Recommended: Home Loan Help Center

Types of Home Loans Available to $45K Households

When you’re looking for home loans, you’ll see these different types of mortgage loans available:

•   FHA loans Loans backed by the Federal Housing Administration are geared toward buyers with low down payments, low credit scores, and other situations that require a lender to be more flexible.

•   USDA loans United States Department of Agriculture loans are for those who live in rural areas. They offer zero down payment options and low interest rates.

•   Conventional loans Conventional loans are loans that are not part of a government program, but they are backed by government-sponsored enterprises, Fannie Mae and Freddie Mac. They’re usually less expensive than FHA loans, but your application does need to meet certain guidelines to qualify for conventional financing.

•   VA loans VA loans offer zero down payment options, the lowest interest rates on the market, and flexible credit requirements. If you qualify for a VA loan, you’ll likely want to go with this option.

The Takeaway

There’s no way around it — affording a home in today’s housing market is tough. If your $45,000 salary is all you have access to, you’ll need to save, improve your credit, research down payment assistance programs, enlist a partner, move to a less expensive area, or find other creative ways to afford a home. But don’t give up. It can be done. Your hard work will pay off with a mortgage for a home of your own soon.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is $45K a good salary for a single person?

A $45,000 salary for a single person is a good start. How good it feels to earn $45,000 will depend on the cost of living where you live and the friends and neighbors you’re surrounded by.

What is a comfortable income for a single person?

A comfortable income for a single person depends on your lifestyle and habits. The median income for a single person is $56,929, according to data from the U.S. Census. A single person in Cobb County, Georgia, would be able to cover their expenses for about $40,000 per year while the same person in New York City would need $53,342.

What is a liveable wage in 2023?

The Massachusetts Institute of Technology’s Living Wage Calculator takes into account your area, working household members, and number of children. For example, a single living in San Francisco has a living wage of $26.63. A household with three children where only one spouse works in St. George, Utah has a living wage of $44.99 per hour.

What salary is considered rich for a single person?

To be in the top 5% of earners, you would need a salary north of $234,342.

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Photo credit: iStock/500

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.

^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.
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.

‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.

Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.

SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.

If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.

Reward is valid for 18 months from date of enrollment. After 18 months, you must re-enroll to be eligible for a reward.

SoFi loans subject to credit approval. Offer subject to change or cancellation without notice.

The trademarks, logos and names of other companies, products and services are the property of their respective owners.

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Marriage doesn’t directly affect your credit scores since you and your spouse will each still maintain separate credit histories. However, both of your credit histories can affect any shared accounts and future possibilities of taking out a loan together.

Or, if you live in a community property state and take out loans after getting married, both of you could be responsible for that debt. Here’s a closer look at what happens to your credit when you get married.

What if Your Spouse Has a Bad Credit Score?

First off, if your spouse has a bad credit score, your credit won’t directly be impacted once you get married, since your marital status doesn’t show up on your credit reports.

If either of you had loans before you got hitched, then they’ll simply remain on your respective credit reports. Same goes for any individual loans you take out after you’re married. One notable exception is if you were to apply for loans together, like a mortgage. In this case, the rates and terms you may qualify for could be less competitive because your spouse doesn’t have a good credit score.

Or, it could be that if you were to open a credit card with both your names on it (or an account where one person is the primary cardholder and the other is an authorized user on a credit card), both of your financial behaviors will affect your future credit score. Say your spouse has a history of late payments, which would have a major impact on their credit score. If they were to miss a payment on your joint account, then both your credit scores could be affected, since your name is also on the account.

If possible, it’s best to discuss the pros and cons of joint accounts and other financial matters with your spouse. This includes coming up with a plan to help them build their score before you apply for joint loans.

Tips for Building Your Credit Score With Aid from Your Spouse

If either you or your spouse wants to build credit, here are some best practices for doing so:

•   Review your credit report: Checking your credit history reports from all three major credit bureaus (Experian®, Equifax®, and TransUnion®) can give you some insight into what is affecting your score. That way, you can use those insights to change your financial behavior. Plus, if there are any errors that may affect your score, checking your credit report will help you spot and dispute them.

•   Continue to make on-time payments: Paying your credit card bills on time is a major factor that affects your score. Doing so consistently signals to lenders you’re being responsible with credit.

•   Hold off on opening new accounts: Each time you apply for a loan, a hard inquiry will occur, which could temporarily lower your score by several points. Too many hard inquiries within a short period of time could signal to lenders that you’re stretched thin financially and need to rely on credit. As such, be mindful about when and how often you’re applying for new accounts.

•   Request a credit limit increase on your credit cards: Credit utilization is another major factor affecting credit scores. It looks at the overall credit limit of your revolving accounts (like credit cards) compared to your overall balance. If you can increase your credit limit, it could lower your credit utilization, which is favorable for your credit score.

Will Changing Your Name Affect Your Credit?

Changing your name to your spouse’s after you’re married won’t affect your credit. However, it will result in an update to your credit report. The major credit bureaus should update your credit report automatically once lenders start reporting your credit activity using your new name. When this happens, your old name will remain on your credit history but as an alias.

To ensure your new name gets reported on your credit report, you’ll need to notify your lenders. It’s also a good idea to update your name with the Social Security Administration and any other relevant official entities.

Recommended: Breaking Down the Different Types of Credit Cards

How Cosigning a Credit Card With a Spouse Can Impact Your Score

Becoming a cosigner means you’re legally agreeing to be responsible for the other party’s debt. In other words, acting as a cosigner can affect your score positively or negatively, depending on your spouse’s financial behavior.

For example, if your spouse consistently makes on-time payments when credit card payments are due and keeps their credit utilization low, then your credit score could be positively affected.

However, if they make late payments or worse, the account gets sent to collections, your score and theirs could take a hit. Still, you might decide it’s worth the risk if you’re hoping to help your spouse establish credit.

Do You Share Debt When You Get Married?

Any debt that you or your spouse had before you got married will remain each of your own responsibilities. Once you’re married, however, any joint debts are shared. Whether debt that’s only taken out in one person’s name is considered shared debt will depend on what state you reside in.

If you live in any of the following community property states, both you and your spouse will be responsible for all debts acquired during the time you’re married — even if they’re not joint ones:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

In five other states, residents can opt into community property laws. These states are Alaska, Florida, Kentucky, South Dakota, and Tennessee.

If you’re unsure of what you and your spouses’ responsibilities are, or if you have any concerns related to marriage and credit scores, it’s best to seek the advice of a legal expert.

Should You Join Your Credit Accounts After Getting Married?

Merging your credit accounts is a decision that only you and your spouse can make, and it will require a discussion about your expectations and basic credit card rules. One of the main benefits of merging your accounts is the ability to simplify your finances. Doing so could make it easier to keep records and compile documentation for tax returns.

However, if you will both be responsible for debt, both of your credit scores could be affected if either one misses a payment, for example. You can consider keeping one credit account in each of your names in case of an emergency though, even if you do decide to merge your accounts. And whether you’re choosing a joint bank account or a joint credit card account, make sure to shop around and compare your options.

Recommended: Comparing Joint and Separate Bank Accounts in Marriage

Discussing Credit With Your Spouse Before Marriage

Communication is key in your relationship, even before you’re married. It’s crucial that you have a detailed conversation with your partner about both of your financial situations. This includes any debt incurred, as well as any behavior that could negatively affect your finances. After all, it’s “‘til death do us part” (and what happens to credit card debt when you die could impact your finances as well).

To help prepare for your financial future together, consider discussing plans you have that may involve the need to rely on your credit, such as buying a house. That way, if either of you doesn’t have an ideal credit score, you can come up with a plan to work on it together.

The Takeaway

Getting married doesn’t impact your credit score, but securing joint credit cards and loans could influence your scores, for better or for worse. It’s wise to understand each other’s credit positions and how your management of lines of credit and installment loans can contribute to both of your credit scores. For instance, you may decide to have separate credit cards in some situations.

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 lenders look at both spouses’ credit scores?

Lenders will look at both spouses’ credit scores if they’re applying for a loan jointly. Otherwise, if you only want one name on the account, the lender will only look at that person’s credit.

Can credit be denied based on marital status?

Credit issuers and lenders are not allowed to deny credit based on your marital status. This is due to protections offered by the Equal Credit Opportunity Act against discrimination when applying for credit.

What happens if I marry someone with low credit?

You won’t be directly affected, as your individual credit report is still yours. However, it could impact your score if you apply for credit jointly and your spouse doesn’t handle the shared account responsibly. It could also impact you in terms of what joint loans you may be able to qualify for, as well as what terms you receive.

Does my spouse’s debt merge with mine?

Any debt that you and your spouse have before marriage will remain separate. You’ll share debts if you have joint loans. In some community property states, both spouses are considered responsible for all debts acquired during the marriage, even if only one name is on them.

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Photo credit: iStock/LightFieldStudios

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

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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