When to count your home equity as part of your net worth


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Your home may be your largest asset, but should you include it in your net worth calculations? In some situations, it’s a good idea, and in others, not so much.

Some say you should list all assets as part of your net worth, including your home. Others contend that you have to live somewhere, and any money you have tied up in your home is essentially earmarked for that purpose. Generally, though, when using tools to tap your home equity, you may want to include your house as part of your net worth. But when calculating retirement savings, it’s a no-go.


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Related: Should I pay off debt before buying a house?

How to calculate net worth

At its most basic, net worth is everything you own minus everything you owe.

To calculate your net worth, tally the value of all or your assets, including bank accounts, investments, and perhaps the value of your home or vacation home. Then subtract all or your debts, including any mortgage, student loans, car loans and credit card balances. If the resulting figure is negative, it means that your debts outweigh your assets. If positive, the opposite is true.

There is no one net worth figure that everyone should be aiming for. Your net worth, though, can be a personal benchmark against which you can measure your financial progress. For example, if your net worth continues to move into negative territory, you know that it is time to tackle debts. Hopefully, you’ll see your net worth grow, which can give you some idea that your savings plan is working or your assets are increasing in value.

Your home may, strangely, function as both an asset and a liability. Your home equity — the part of the home you actually own — can be an asset. But your lender may still own part of your home. In that case, mortgage debt is a liability.

As you track your home value and other assets to take your financial pulse, you may find that your home is simultaneously your biggest asset and biggest liability.

What is net worth and why should you know yours?

Know thyself. This classic maxim from ancient Greece is as much true for knowing about your personality and quirks as it is for knowing about yourself financially. And one of the best ways to understand yourself financially, in a holistic sense, is to calculate your net worth.

Sure, you may hear the phrase “net worth” most frequently bandied about in reference to people like Bill Gates ($96 billion), Mark Zuckerberg ($62 billion) or Jay-Z (a measly $1 billion). Despite being a financial term you most often associate with people who are out of your tax bracket, it’s true that you have a net worth, too.

Whether that net worth is negative (which is fairly common among those earlier in their careers) or more than you imagined, the number is out there if you look for it.

So, how do you find out what that net worth is? What does your net worth even mean? Why do you even need to know this number at all?

Let’s investigate. Because no matter what your net worth is, you’re worth it.

Related: 6 real questions about investing— answered

Wikimedia Commons / Anthony Quintano

Your net worth is, much like something you learned in your 10th grade math class, a simple formula that just seems a lot more daunting than it really is.

The formula is as follows:

Assets – Liabilities = Net Worth

Simple, right? Just like E = MC². Or A² + B² = C². Or whatever the quadratic formula is (Does anyone remember it? Anyone?). 

But just like these classics, the hardest part often comes not with knowing the formula but with knowing what figures to plug in. And once you know these figures, what will this leave you with? 

Well, your net worth, which is another way of assessing what you own vs what you owe.

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You’re more than the sum of your parts. You’re also funny, cool and smart. But your current financial health assessment can come from this above equation.

It’s important to remember that the so-called “money in the bank” is not the actual amount of your finances. There’s so much more that goes into it.

Confused? Let’s unpack.


Assets basically boil down to what you own, namely your money and your things. There are a couple of different kinds of assets.

The obvious ones:

  • Financial Assets: Money in your savings accounts, checking accounts or even cash hidden under the mattress or in the floorboards all count toward your assets. Money in your 401k account is also included in this bucket.
  • Tangible Assets: Your stuff. Namely, anything you own that is of value and that you can physically touch and see. Your home, your car, the espresso machine for the coffee shop you own, the espresso machine in your own kitchen. Your grandmother’s jewelry. Your boat. Your original Picasso painting (dream big!). Even a designer dress could be considered part of your assets if it’s of considerable and saleable value.

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Calculating the value of your home can be a task in itself. It’s always important to research the value of the homes around you, the size of your home, any deferred maintenance on the home, property or things like appliances are, and additional benefits (parking spots, backyard space, room counts, etc.).

There are also a number of home value calculators online. The house price index calculator is approved by the Federal Housing Finance Agency. 

Other options include a comparative market analysis, or a CMA. This is a consultation provided by a market professional, usually a real estate agent. Thus, it lands closer to an estimate but is still more reliable than an online estimate or your own best guess.

The real estate agent will usually perform a walk-through of the home to note any upgrades or deferred maintenance and take this into consideration for market value.

It is not unusual for people to call the real estate agent that helped them purchase the home to perform this market assessment. The most reliable way to find the value of your home is through a valuation by a licensed appraiser, can vary by home size and other factors.


Then, we have the more conceptual assets:

  • Liquid Assets: Items like stocks, bonds, mutual funds or ETFs that are easy to sell quickly and whose sale will not greatly affect their price. If you’ve ever heard the term “liquidate your assets,” this is what they were talking about.
  • Fixed Assets: These are items that would take a longer time to convert to cash. These assets are often deposited for extended periods of time in exchange for high-interest accrual and thus cannot be cashed before their agreed-upon time frame is up. An example would be tangible items that can take a longer time to sell. This could potentially include your home, land or other property, a designer wedding dress, or high-value jewelry.
  • Equity Assets: You know that girl from college who became so-called “Employee Number Eight” at Start-Up X? This is why she’s rich now. Equity assets include your shares in a company. Employee Number Eight got in early, and now her stocks are valued high.

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Intangible assets, such as brand recognition for a company or any other intellectual property like patents, trademarks or even goodwill, do not factor into your net worth due to the complexity of measuring their value. We’re sure Coca-Cola would hardly sell as much without their brand name and logo. But how much? Who could know?

Now, to discover the first number of your equation, all you have to do is add up all those assets. You’re halfway done with your formula!

The Coca-Cola Company

AKA, your debts. This part is definitely less fun, but don’t be so hard on yourself! Almost 87%  of American families (ages 36-44) have debt.

The following categories are what most often make up your liabilities:

  • Loans: Auto loans, student loans, personal loans, business loans, etc.
  • Credit card balances: This only counts as a liability if your balance is not paid off in a timely fashion at the end of the month.
  • Mortgages: Mortgages function as a home loan although the loan comes from someone or some organization that holds a lien (a claim) on your property for the amount of the outstanding mortgage.

While liabilities are on the (literal) negative side of the net worth equation, it doesn’t have to say something bad about your finances. For example, student loans or home loans may be seen as necessary—and even respectable.

Credit card debts from spending outside your means on items that won’t add to your wealth (repeat: stay away from the mall) aren’t great. However, they are also easily fixable with the right plan and discipline.

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So, how do you stack up? You may not be George Clooney (estimated net worth: $500 million) or an Olsen twin (estimated net worth: $300 million), but these individuals are a far cry from the rest of our society.

According to a 2017 Federal Reserve report, the average net worth of households in the United States from 2013-2016 was $692,100.

Sound like a lot? Let’s take it back to math class. Remember that an average can be significantly weighted by an extremely high (or low) number at either end.

The average is weighted by, you guessed it, the extreme upper class. Not exactly the Joneses next door that you’ve been trying to keep up with.

Thus, sometimes the median number can be more telling than the average. In the case of net worth, this rings true. The median household in the United States has a net worth closer to $97,000. For Americans between the ages of 35 and 44, that number is even lower at $59,800 and even just $11,000 for those under 35.

Some experts have said that millennials have concerningly low net worths compared to their parents and other earlier generations, clocking in at 36% lower than the same demographic just over ten years ago in 1996, according to a recent study by Deloitte. However, according to this study, the millennial generation will experience the fastest growth rate of net wealth.


Your net worth, whether on par with these median or average numbers or even in the negatives, is no reason to completely freak out.

Your net worth is, of course, never set in stone. Rather, it is a snapshot of where you currently stand financially. For younger earners (anyone under 40 these days), this simply means you have yet to earn or invest enough to balance out your liabilities and borrowing, which is totally fine. Those elders have been earning for decades, how could we keep up?

As we enter new life stages, economic eras, and settle our early life fluctuations in job, lifestyle, and location (which can be major debt creators), our finances will be redistributed both within our own accounts and throughout American families. All this not to mention the delights of compound interest!

It’s important to keep abreast of your net worth because, while this number may fluctuate depending on factors such as stock values, interest rates, and other tides of the financial world, it’s important to have an idea of overall trends so you can generally understand your financial health and have an idea of your true wealth.

Rather than focusing on the particular number, it’s a good idea to focus on your gains year over year rather than the number you get at the end of the equation.

True wealth can be an important factor in knowing when you might expect to retire (and you may want to start planning now).

Finally, knowing your net worth is a great barometer for knowing how you can make it grow. It can be a good tool to leverage your debts and then work to pay them off in order to increase that net worth surely and steadily. It can also help lead you to paths and investments that can work to create steady gains.

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When to include your home in net worth

Generally speaking, you may want to include your home as part of your total assets and net worth when you want to leverage the value of the equity you have stored there.

You can tap the equity in your home with a number of financial products. Here’s a look:

1. Home equity loan

A home equity loan allows you to borrow money that is secured by your home. You may be able to borrow up to 85% of the equity you have built up. For example, if you have $100,000 in home equity, you may have access to an $85,000 loan. The actual amount you are offered will also be based on factors such as income, credit score, and the home’s market value. You repay the lump-sum loan with fixed monthly payments over a fixed term.

As with home improvement loans, which are personal loans not secured by the property, you can use a home equity loan to pay for home renovations. Or you can use a home equity loan for goals unrelated to your house, like paying for a child’s college education or consolidating higher-interest debt. Just remember that if you fail to repay the loan, the lender can foreclose on your home to recoup its money.

2. Home equity line of credit

home equity line of credit (HELOC) is not a loan but rather a revolving line of credit. You may be able to open a credit line for up to 85% of your home equity. You can borrow as much as you need from your HELOC at any time. Accounts will often have checks or credit cards you can use to take out money. You make payments based on the amount you actually borrow, and you cannot exceed your credit limit.

HELOCs use your home as collateral. If you make late payments or fail to pay at all, your lender may seize your home.

3. Traditional refinance

A traditional mortgage refinance replaces your old mortgage with a new loan. People typically choose this path to lower their interest rate or monthly payments. They may also want to pay off their mortgage faster by changing their 30-year mortgage to a 15-year mortgage, for example, reducing the amount of interest they pay over the life of the loan.

How do net worth and home equity come into play? One important metric lenders use when deciding whether you qualify for a mortgage refinance is your loan-to-value ratio (LTV), how much you owe on your current mortgage divided by the value of your home. The more equity you have built in your home, the lower your LTV, which can help you secure a refinanced loan and influences the rate of the loan.

4. Cash-out refinance

A cash-out refinance replaces your mortgage with a new loan for more than the amount of money you still owe on your house. The difference between what you owe and the new loan amount is given to you in cash, which you can use to pursue a number of financial needs like paying off debt or making home renovations.

Your cash-out amount will typically be limited to 80% to 90% of your home equity, and interest rates are typically a little bit higher thanks to the higher loan amount.

5. Reverse mortgage

A home equity conversion mortgage, the most common kind of reverse mortgage, allows homeowners 62 and older to take out a loan secured by their home.

Borrowers do not make monthly payments. Interest and fees are added to the loan each month, and the loan is repaid when the homeowner no longer lives there, usually when the homeowner sells the house or dies, at which point the loan must be paid off by the person’s estate.

How to refinance a mortgage (and know if it’s right for you)

Over the past decade, mortgage refinancing has grown in popularity. Not that big of a surprise, considering we’ve seen a sizable drop in mortgage rates during this time. At the height of the housing crisis in 2008, rates averaged about 6% for a 30-year fixed-rate mortgage for a 30-year fixed-rate mortgage.

Currently, the average rate for a 30-year fixed mortgage is about 3.26% , which gives some folks the opportunity to save some serious moola by lowering their interest payments. If you signed on for a higher rate years ago or your financial situation has improved, refinancing is worth considering.

While refinancing might not be right for every homeowner, but starting to look at rates and terms could be the first step to being able to save for other financial goals. Here’s everything you need to know about refinancing a mortgage from how to start the process, to figuring out if it’s right for you.

Related: How Much Does
it Cost to Remodel a House?


Since you’re essentially applying for a new loan, there will most likely be fees if you choose to refinance. Because of this, it’s important to consider those costs compared to the potential savings. A good rule of thumb is to be certain you can recoup the cost of the refinance in two to three years—which means you shouldn’t have immediate plans to move.

Refinancing will generally cost from 3% to 6% of your loan’s principal value, though you should be sure to shop around to make sure you’re getting the best deal.

There are helpful online calculators for determining approximate costs for a mortgage refinance. Of course, this is only an estimate and all lenders are different. The lender will provide final closing cost information alongside a quote for your new mortgage rate.

When you refinance, you also have to consider closing costs. Some lenders may not have origination fees, but instead charge the borrower a higher interest rate.

Chainarong Prasertthai // istockphoto

The first (and arguably most important) step is to determine what you want to get out of your mortgage loan refinance. There are several mortgage loan types, but “rate and term” and “cash out” are the two most common.

Just as the name implies, a “rate and term” refinance updates the interest rate, the term (or duration) of the loan, or both. You can also switch from an adjustable rate to a fixed rate and vice versa.

It is important to understand that not every refinance will save you money on interest. For example, if you extend the loan terms, you may end up paying more money over the course of your loan.

With a “cash out” refinance, you are using increased equity in your home to take out additional money on your mortgage; This is usually done to fund home repairs or pay off other, higher-interest debt. This is an excellent tool if you use it wisely, but as with all loans, it’s rarely advisable to take out more than you absolutely need.

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Once you determine your goal, your primary focus will be determining whether the fees are worth what you’ll gain by refinancing. Here are the steps you’ll need to take to refinance:


Your credit score is an important factor in determining whether you get a better rate. Make sure you take time to clear up anything that’s been reported erroneously, and if possible take steps to boost your credit score.


Check comparable sale prices—not just listing prices—in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this will be helpful in securing the best refinancing rate.


 Don’t forget to ask about all costs involved. Most financial institutions should be able to give you an estimate, but the accuracy can depend on how well you know your credit score and LTV ratio.


The process will move faster if you have your pay stubs, bank statements, tax filings, and other pertinent financial information ready to go.

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You may have to pay some up-front costs, like property taxes and insurance.

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They will send an appraiser for a home inspection. After the loan documentation and appraisal are submitted, loan officers determine the interest rate and create the loan closing documents. The closing is then scheduled with the refinancing company, mortgage broker, and real estate attorney.


The process can take anywhere from 30 to 90 days, depending on your diligence, the complexity of the loan, and the efficiency of the lender or broker.

If you want the process to move fast, look for mortgage lenders who are looking to disrupt the traditional mortgage process by offering a more streamlined service and a better customer experience.

If you’re like most people, you’ve got a life to live and don’t want your mortgage refinance to drag on for months. Keep this in mind while looking for a lender to refinance with.

Learn More:

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When not to include your home in net worth

There are a few instances when it doesn’t make sense to include your home in your net worth, or you aren’t allowed to:

1. Retirement savings

If you’re using your net worth to get a sense of your retirement savings, it may not make sense to include your home, especially if you plan to live there when you retire.

Your retirement savings represent potential income you will draw on to cover your living expenses. Your home does not produce a stream of income on its own, unless you tap your equity using one of the methods above.

2. Applying for student aid

A family’s net worth can have an impact on eligibility for federal student aid. The more assets a family has, the more that need-based aid may be reduced. However, the equity in a family’s primary residence is a nonreportable asset on the Free Application for Federal Student Aid (FAFSA). Most colleges use only the FAFSA to decide aid.

Several hundred colleges, usually selective private ones, use a form called the CSS Profile, which does ask applicants to report home equity, though a number of schools, such as Stanford, Harvard, Princeton and MIT, have moved to exclude home equity from their considerations for aid.

3. When becoming an accredited investor

An accredited investor may participate in certain securities offerings that the average investor may not, such as private equity or hedge funds. Accredited investors are seen to be financially sophisticated enough, or wealthy enough, to shoulder the risk involved with such investments.

To become an accredited investor, you must have earned more than $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, or you have a net worth over $1 million. However, you cannot include the value of your primary residence in your net worth.

How are student loans disbursed?

A college education almost always costs more than families initially think it will, when everything is accounted for, so most students take out loans. The loan money is sent to the attending college, placed in the student’s account and applied to various costs.

Fortunately, there are plenty of options available. But students are often left with questions like How are federal student loans disbursed? How are private student loans disbursed?

Stay tuned for clarification and guidance on federal and private student loans.

Related: A guide to private student loans

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Student loans are designed to help college students absorb the many costs of postsecondary education.

The average price of tuition and fees for the 2020-21 school year was $10,600 for an in-state student at a public college and nearly $37,700 for a private college student. The total annual cost of attendance ranged from nearly $27,000 at public colleges (in-state rate) to $55,000 at private colleges on average.

So borrowing becomes the normal route. Student loans are most often used to cover:

  • Tuition and fees
  • Housing
  • Meals
  • Transportation
  • Books and supplies
  • Computers


Loan amounts can be excessive and give students the idea that they have a surplus of cash to spend. A rule of thumb suggests that only required materials and needs can be paid for with a loan.

For example, student loans may cover a campus meal plan but not food purchased from local fast-food joints. Bus fare or ride-share fees may be covered but not the purchase of a new car.

When in doubt about whether an item can be purchased with student loan funding or not, it’s best to speak directly to the loan provider or college financial aid department.

Got leftover money? Before going on a shopping spree, remember that that’s borrowed money and will have to be repaid, with interest.


There are two main types of student loans: federal loans and private loans. Federal loans are provided by, you guessed it, the U.S. government, while private loans are issued by financial institutions. Each type of loan has advantages and potential caveats students should be aware of.

Financial advisors almost always recommend exploring federal options first. Applications are quickly processed, and these types of loans tend to have lower interest rates than private options. Interest rates are almost always fixed, meaning students won’t have to worry about fluctuating payments.

Another advantage is that students don’t typically have to begin making payments on federal loans until after graduation or dropping below half-time enrollment, according to the Federal Student Aid office. (Holders of parent PLUS loans for undergraduates are expected to begin making payments after the loan is fully disbursed, unless the parent requests deferment.)


Federal financial aid programs also offer more flexible repayment plans based on income, may be subsidized, and offer loan forgiveness to qualified students, the Federal Student Aid office notes.

But the benefits of federal loans don’t mean private student loan options shouldn’t be considered. For some students, like those who are denied federal funding, those for whom federal loans come up short, and those who are approved but never receive their full loan amount, private loans can be a financial lifesaver.

With a bit of grit and a co-signer with a healthy credit score, students can obtain private loans with low and fixed interest rates comparable to federal loans.

One common downside of private loans is that repayment tends to start immediately. But in some cases, private loans can offer larger sums of money upfront, allowing students to pay for nearly every expense with one loan and make only one payment a month.

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So now that you know that there are two main types of student loans, federal and private, it’s important to know the variations of each type. These include:

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Also known as a Stafford Loan, this option is often touted as the best type of federal loan available to applicants. That’s because a loan applicant will receive a subsidy upon graduation matching the amount of interest the loan has accrued.

In other words, a Direct Subsidized Loan will always be paid back at its original amount, despite years of accruing interest. Because it’s hard to match the benefit of an interest-free loan, it’s recommended to always accept these types of loans if approved.


Unlike the subsidized version, a Direct Unsubsidized Loan will accrue interest, which will be included in the final repayment amount.

Before accepting this type of loan, explore and calculate interest rates and the potential accrued interest to have a better understanding of potential future payments.

Africa Studio/shutterstock

This type of federal loan is only available to graduate students or parents of undergraduates. The interest rate is higher than subsidized and unsubsidized federal loans, and a credit check is required.

This type of loan can’t be refinanced, so applicants will need a great credit score to avoid an inflated interest rate. The good news is that the interest rate is always fixed.

Marcos Mesa Sam Wordley/shutterstock

For students with several federal loans, it’s possible to consolidate them into one account with one monthly payment with a Direct Consolidated Loan. 

There is no fee to apply for this kind of loan, but all accrued interest will be rolled into the total principal balance. This leads to faster-accruing interest for students who can pay only the monthly minimum.

While it’s certainly more convenient to consolidate multiple loans, consider the additional length of the loan and additional interest paid over time before committing.


It’s no secret that interest rates vary widely with private loans. But students may find that the overall amount they qualify for is often higher than federal loan limits allow. There are also loan fees to consider, but not all lenders apply these.

Federal loans often have more protections for students, but they rarely cover all of the costs that come with a college education, which is why many students find themselves with a combination of federal and private loans.


Whether a student chooses to accept multiple federal loans, a private loan, or a combination of the two, the money is often distributed the same way. The loan amount is sent directly to the attending school, where it is kept in the student’s account and then applied to covered costs, including tuition, fees, room and board.

When there is leftover money in a student’s account, the excess is paid directly to the student to be used for additional expenses. These payouts tend to take place once per term and vary by school. If students receive leftover funding, they can use it as they see fit or even begin to pay back the loan early.

Keep in mind that all universities have their own policies on loans and disbursement. Questions about how a specific school handles student loans should be directed to the financial aid office.

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Overage funds tend to be awarded to the holder of the loan. If a student’s parents hold a loan with overage, they’re more likely to receive the leftover money.

Also, disbursements may be held for 30 days after the first day of enrollment, especially if the student is a freshman and first-time borrower, according to the Federal Student Aid office.

Entrance counseling may be required before taking out federal loans or receiving leftover money.

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Student loans are often a necessary step in the college journey. The world of loans can be intimidating at first, but it’s not impossible to learn how to navigate the financial waters of a postsecondary education. These final tips may help.

  • Compare all options. It’s better to have too many loan options and turn some down than face uncertainty about how to pay for everything.
  • Apply early to ensure that there’s time to make corrections if necessary. There are rules and requirements unique to all types of loans.
  • Avoid overborrowing. Try to calculate overall expenses and keep loan amounts as close as possible to the estimate. Being approved for a large loan doesn’t mean the total amount has to be accepted.
  • Get a part-time job, if necessary, to alleviate the stress that loan payments can add.

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The takeaway

Whether or not you include your home in your net worth will depend largely on what you’re trying to accomplish. If you plan to tap your equity, then it is an important figure to include. But it’s not always included when it comes to things like student aid or retirement income.

While your mind is on home equity, maybe you’ve thought about a cash-out refinance, or maybe it’s time to sell and buy anew.

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SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.

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