Borrowing money for home repairs and other projects this spring can be very expensive. For example, if you take on debt via a 24-month personal loan, you can expect to pay an average interest rate of 12.49%, according to the Federal Reserve. Credit cards charge even higher rates at an average of 21.47% currently.
One way to borrow money at a typically lower rate than credit cards or personal loans is to tap into your home equity with a home equity loan or home equity line of credit (HELOC). However, there are pros and cons to borrowing against your home equity to finance spring repairs, and you might find that certain situations make this financing more feasible than others.
Learn more about the best home equity loan rates you could qualify for here.
When to use home equity for spring repairs, according to experts
Tapping into your home equity can provide several benefits, like saving money on interest charges in the long run and improving your home. Some specific situations to consider using home equity for spring repairs include:
Lowering your taxes
If you can find a way to borrow against your home equity in a way that lowers your total tax liability more than the cost of borrowing, that could be worth it. Through 2025, interest on home equity loans and HELOCs may be deductible if used for making substantial improvements to your home, provided that you meet other stipulations.
“Whether you’re boosting potential resale value or enhancing your home, using home equity for repairs is a great choice, capitalizing on lower interest rates in comparison to unsecured consumer loans, and potential tax deductions,” says Kelly Miskunas, head of capital markets at Better.
That said, tax considerations are not one-size-fits-all.
“Remember to seek personalized tax advice tailored to your financial circumstances,” says Miskunas.
Compare today’s best home equity borrowing options online now.
Improving energy efficiency
Home equity funds could also be beneficial when put toward making energy-efficient upgrades to your home. Doing so could help you lower monthly utility bills, says Karl Jacob, CEO at LoanSnap.
Also, energy efficiency upgrades like adding solar panels and batteries “have substantial tax rebates,” says Jacob. “It’s definitely worth checking the federal and state rules on this.”
Doing important maintenance
Your home equity can also be useful for affording maintenance issues that save you money or boost your home’s value overall.
“Ignoring items that need repair can turn a small repair into a major, costly project,” says Michael Micheletti, chief communications officer at Unlock Technologies.
Home equity financing can also help you afford the required maintenance.
“Taking care of needed repairs also is part of most homeowners’ association regulations; many will impose fees if repairs are not attended to in a timely manner,” says Michaeletti.
When to not use home equity for spring repairs, according to experts
While using home equity for spring repairs is often helpful, not every homeowner benefits from this borrowing. Consider alternatives when:
You don’t have a clear repayment plan
Tapping into your home equity might help you afford the upfront cost of home renovations, but if you don’t have a clear repayment plan, you’re risking a lot.
“When you get a home equity loan or HELOC, it’s important to remember that the loan you’re obtaining is secured by your home as collateral. That means if you do not make timely payments on your loan, the lender has the right to foreclose,” says Miskunas.
So, make sure you know what you’re getting into ahead of time.
“If you don’t have a plan to repay the loan, don’t take the loan,” says Jacob.
You have significant high-interest debt
If you have a lot of existing high-interest debt, you might be better off taking care of that first, before making repairs or upgrades to your home. Rather, you might use home equity financing for debt consolidation instead, which could lower your monthly payments.
“If you have a lot of high-interest debt, like credit cards, use the loan to pay those off before you consider home improvements. We generally advise that you first reduce your debt payments as much as possible since you can then use the extra cash to make the improvements and save money for the long run,” says Jacob.
You’re planning to move soon
If you’re not going to keep your home for a while, it might not be worth going through the cost and effort of taking out a home equity loan and living through home improvement projects. Instead, you might let the next buyer deal with repairs.
“For most repairs, the price can be negotiated into the sale of the home,” notes Micheletti.
The bottom line
Tapping into your home equity can be a great way for many homeowners to afford home improvements this spring, and there are several ways to go about this borrowing. While home equity loans and HELOCs are popular options, some homeowners find that a cash-out refinance works best, such as if you have the ability to lower your overall mortgage rate. Also, some seniors might prefer taking out a reverse mortgage instead so they don’t have to pay back the loan while living in the home.
That said, borrowing against your home equity isn’t without risk. You want to make sure you can afford repayments or understand that it can affect your proceeds if selling your home — or if you move out, in the case of reverse mortgages.
In the realm of real estate, every detail counts. From the layout of the rooms to the curb appeal, every aspect of a property plays a role in influencing potential buyers. Among these factors, the psychology of color holds significant sway. Colors have the power to evoke emotions, set moods, and even influence decision-making. In the world of real estate, understanding the psychology of color can be the key to creating a compelling and inviting space that resonates with buyers. Let’s delve into how different hues impact potential homebuyers:
Enjoying our content? Subscribe to our free weekly newsletter to get real estate market insights, news, and reports straight to your inbox.
The Warm Welcome of Yellow
Yellow is often associated with warmth, happiness, and positivity. It’s a color that can evoke feelings of joy and optimism, making it an excellent choice for entryways and living spaces. A splash of yellow in the form of accent walls, décor, or even front doors can create a welcoming atmosphere that draws buyers in.
Tranquillity in Blue
Blue is renowned for its calming and serene qualities. It’s often linked with feelings of peace, trust, and stability. In real estate, incorporating shades of blue can be particularly effective in bedrooms and bathrooms, where relaxation and tranquillity are paramount. Whether it’s through soft furnishings, wall colors, or décor accents, blue can help create a soothing retreat for potential buyers.
Energizing with Red
Red is a color that commands attention. It’s associated with passion, energy, and excitement. While using red in large doses can be overwhelming, strategic touches of this vibrant hue can add a sense of urgency and vitality to a space. Consider incorporating red accents in areas where you want to create a sense of excitement or where you want to draw attention, such as the dining room or kitchen.
Balancing Act with Green
Green symbolizes nature, growth, and harmony. It’s a versatile color that can evoke feelings of freshness and balance. In real estate, green is often used to create a sense of connection with the outdoors, making it an ideal choice for spaces like the living room or patio. Whether it’s through indoor plants, accent walls, or natural décor elements, green can help bring a sense of vitality and balance to a property.
Sophistication in Neutrals
Neutrals such as white, beige, and grey may seem subdued, but they play a crucial role in real estate. These colors provide a blank canvas for buyers, allowing them to envision their own style and preferences in the space. Neutrals also create a sense of sophistication and timelessness, making them an excellent choice for walls, floors, and larger furniture pieces.
Inviting with Warm Tones
Warm tones like orange, terracotta, and earthy browns can create a cozy and inviting atmosphere. These colors are often associated with comfort, security, and hospitality. Incorporating warm tones into common areas like the living room or dining room can help create a sense of intimacy and homeliness that resonates with buyers.
Are you looking for a new home this spring? Give us a call today! Our experienced real estate agents are here to answer all your questions!
Your home is your sanctuary, but it’s also one of your biggest budget items. And after you retire, it may feel like more house than you need. But in this housing market, when a smaller home with upgraded features may be about as expensive as the one you’re selling, is it still smart to downsize?
In some cases, downsizing is appropriate, but not necessarily money-saving. You may be able to sell your house and buy something cheaper, but it might also make sense to downsize to move closer to family or have less house to clean.
It’s important to be clear on what you want. “Goals are so crucial,” says Juan HernandezAriano, a certified financial planner in Houston. “There are multiple pathways people can take.”
Here are some situations that may match up with a “For Sale” sign.
You’re in a cash flow bind
In retirement, you might find that rising prices combined with a fixed income make you feel a little squeezed.
HernandezAriano notes that his clients in southeast Texas are bothered by high home insurance premiums due to severe weather events, plus high property taxes. “A lot of insurance companies are dropping coverage on the southeast side of Texas,” he says.
If downsizing is a question of money, consider all your housing costs. Weigh the mortgage, property taxes and insurance, plus basic bills like electricity and water services for your current and future homes.
One client in Houston did the math and moved 90 minutes away, where they got a cheaper home and dropped their homeowners insurance by 60%. “Property taxes also went down since they weren’t in a highly competitive school district,” HernandezAriano says. “They still spent more on gas and water and had to pay for relocation expenses, but overall, they saved monthly.”
You’re in a pricey area
If you live in an expensive city, you have a better chance of selling your home and finding something cheaper. “When you’re in a lower-cost area, it’s going to be difficult to find something even [more] lower cost,” says David Demming, a CFP in Aurora, Ohio.
Just do some looking before you leap. Inventory is low in many places, and competition is steep for a smaller home with upgrades.
To save money overall, the value of the home you’re purchasing should be at least 20% less than the house that you’re selling, says Diane Pearson, a CFP in Wexford, Pennsylvania.
You can’t live there safely anymore
Your health may require you to find a new home with fewer stairs, a first-floor primary bedroom or an accessible bathroom.
Michael Maye, a CFP in Gillette, New Jersey, notes that his clients who’ve seen parents go through long-term care or health issues are more likely to consider future mobility when planning their retirement. “Recently, I proactively worked with a couple and they knew that they didn’t want to age in place, because they have a bigger house,” he says.
They wanted to buy into a continuing care retirement community, where they could take advantage of graduated levels of care as they needed it. “They could stay in their house, but they don’t plan to,” Maye says.
You want to be closer to family
While being closer to children or aging parents is a good reason to downsize, don’t count on this being the cheaper option, especially if you’re moving into a hotter market.
Consider one of Demming’s clients, who moved from one part of Ohio to another part of the state. “It cost her $150,000 more to move there, to get a house that was acceptable to her,” Demming said.
Even with the higher cost, Demming says, it was worth it to be closer to her children and grandchildren — and her new city is booming. “There is no looking back,” Demming says. “Her new home has appreciated quite a bit since moving.”
You’re prepared to create a new support network
If downsizing means a new city, keep in mind that you may have to rebuild your community. Even if you’re moving to be near family, you shouldn’t count on them to be your activities hub. “Are you a social person who’s going to be able to get out and about and make your own way?” Maye says.
You’ll need to make new friends, find new medical professionals, find a new gym. “Those are the trade-offs,” Maye says. “None of them are deal breakers, but I think people should really think about all these other things.”
This article was written by NerdWallet and was originally published by The Associated Press.
In the realm of real estate, the value of a property is often perceived through a myriad of lenses: location, size, amenities, and more. However, there’s one often overlooked aspect that plays a significant role in determining property value: the presence of trees and shrubs. Beyond mere aesthetics, these green assets can wield a considerable impact on the market worth of a property. Let’s explore how trees and shrubs can become invaluable assets for homeowners and investors alike.
Enjoying our content? Subscribe to our free weekly newsletter to get real estate market insights, news, and reports straight to your inbox.
Enhanced Curb Appeal
First impressions matter, especially in real estate. Trees and shrubs can dramatically enhance the curb appeal of a property, making it more attractive to potential buyers or renters. A well-manicured landscape with mature trees and lush shrubbery creates an inviting atmosphere, signaling to visitors that this is a cared-for and desirable property. This initial appeal can significantly increase the perceived value of a home and set it apart in a competitive market.
Environmental Benefits
Beyond their visual appeal, trees and shrubs offer a host of environmental benefits that can positively impact property values. They act as natural air purifiers, absorbing harmful pollutants and releasing oxygen, thereby improving air quality. Additionally, trees provide shade, which can reduce the need for air conditioning during hot summer months, leading to lower energy costs for homeowners. Moreover, trees help mitigate soil erosion, filter water runoff, and provide habitat for wildlife, creating a healthier and more sustainable living environment.
Increased Privacy and Tranquility
In an increasingly urbanized world, privacy and tranquillity are prized commodities. Trees and shrubs serve as natural barriers, providing privacy from neighboring properties and buffering against noise pollution. A well-planned landscape can create secluded outdoor spaces where homeowners can relax and unwind, away from the hustle and bustle of the outside world. This sense of tranquillity and seclusion can significantly enhance the livability of a property and, consequently, its market value.
Climate Resilience and Energy Efficiency
With climate change becoming an ever-pressing concern, properties that are resilient to extreme weather events are gaining favor among buyers and investors. Trees and shrubs play a vital role in climate resilience by providing natural cooling and windbreaks. Strategically planted trees can help reduce the risk of property damage from storms and high winds, thus making a home more attractive to potential buyers. Moreover, by shading buildings in the summer and allowing sunlight through in the winter, trees can contribute to energy efficiency, leading to lower utility bills and increased savings for homeowners.
Long-Term Investment
Investing in trees and shrubs is not just about immediate aesthetic appeal; it’s also a savvy long-term investment. Unlike many home improvements that depreciate over time, mature trees and well-established shrubs increase in value as they grow. According to the Council of Tree and Landscape Appraisers, a mature tree can add thousands of dollars to the value of a property. As trees mature, they become increasingly rare and valuable assets, making properties with established landscapes more desirable and commanding higher resale prices.
Are you looking for a new home this spring? Give us a call today! Our real estate agents are here to answer any of your questions!
In the intricate dance of buying or selling a home, few steps are as crucial—or as anxiety-inducing—as the home inspection. It’s the moment when the house gets put under a magnifying glass, revealing its flaws and imperfections. But are home inspections truly deal killers, or are they just an essential part of the process? Let’s delve into this often-debated topic.
Enjoying our content? Subscribe to our free weekly newsletter to get real estate market insights, news, and reports straight to your inbox
The Power of the Home Inspection
A home inspection is like a thorough health check-up for a property. A licensed inspector examines the home’s major systems, structure, and components, looking for issues that could pose safety concerns or costly repairs down the line. From the foundation to the roof, no stone is left unturned.
Deal Breaker or Deal Maker?
The Case for Deal Breakers:
Unforeseen Issues: Home inspections sometimes uncover problems that neither the buyer nor the seller were aware of, such as hidden water damage, faulty wiring, or structural issues. These discoveries can spook buyers, leading them to renegotiate the price or even walk away from the deal.
Negotiation Leverage: Armed with the inspection report, buyers may demand repairs or concessions from the seller. If the seller refuses to address significant issues, the deal could fall apart.
Financing Hurdles: Lenders may require certain repairs to be completed before approving a mortgage. If the seller is unwilling or unable to make these repairs, the buyer’s financing could be in jeopardy.
The Case for Deal Makers:
Transparency and Trust: A thorough inspection report provides transparency about the condition of the property, giving both parties a clear understanding of what they’re getting into. This transparency can build trust and facilitate smoother negotiations.
Opportunity for Renegotiation: While inspection issues can be daunting, they also present an opportunity for renegotiation. Buyers and sellers can work together to find solutions that satisfy both parties, such as adjusting the purchase price or splitting repair costs.
Peace of Mind: For buyers, a clean inspection report offers peace of mind, confirming that the home is in good condition and worth the investment. For sellers, it validates the value of their property and reduces the risk of last-minute surprises derailing the sale.
The Bottom Line
So, are home inspections real estate deal killers? The answer is: it depends. While inspection issues can certainly derail a deal, they can also pave the way for a successful transaction if approached with transparency, flexibility, and open communication.
For buyers, a thorough inspection is essential for protecting their investment and ensuring they’re not buying a lemon. For sellers, addressing potential issues upfront can help streamline the selling process and minimize surprises.
In the end, a home inspection is not about killing deals—it’s about empowering buyers and sellers to make informed decisions and navigate the complex world of real estate with confidence. So, embrace the process, and remember that with the right mindset and approach, even the most challenging inspection issues can be resolved.
Are you looking to buy or sell this spring? Give us a call today! Our experienced real estate agents are here to help you find the perfect home!
It’s entirely possible to sell a house with a mortgage. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.
With the help of your lender and real estate agent, you can move ahead and sell a house with a mortgage. Yes, there’s a bit of paperwork involved, but settling your mortgage at the closing table shouldn’t prove too challenging.
Here’s everything you need to know about selling a home with a mortgage.
What Happens to Your Mortgage When You Sell Your Home?
When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.
A Typical Sale
In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.
A Short Sale
A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).
In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction can be lengthy (up to 120 days) and involves a lot of paperwork. It’s not common in areas where values are falling or at times when the real estate market is dropping.
When You Buy Another House
There are several roads you can take when you buy another house before selling your own. You may have the option of:
• Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.
• Including a home sale contingency in your real estate contract. The home sale contingency states that the purchase of the new home depends upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.
• Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.
Selling a House With a Mortgage: Step by Step
Here are the steps to take to sell a home that still has a mortgage.
Get a Payoff Quote
To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance shown on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.
The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.
Determine Your Home Equity
Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on the existing mortgage is $250,000, your equity is $150,000.
When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.
Secure a Real Estate Agent
A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.
Set a Price
With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.
Accept a Bid and Open Escrow
After an open house and showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage preapproval?
You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.
Review Your Settlement Statement
You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.
Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction and pinpoints how much money you’ll net by selling your home. 💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
Selling a House With a Negative Equity
Negative equity means that the value of an asset (such as a home) is less than the balance due on the loan against it. Say you purchased a property for $400,000 with a $380,000 loan, but then the real estate market took a nosedive. Your property is now worth $350,000, less than the amount of the mortgage.
If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.
In this scenario (an alternative to a short sale), you pay the difference between the amount left on your mortgage note and the purchase offer at closing. So in the example above, if you sold the house for $350,000, at the closing, you would need to pay the loan holder an additional $30,000 to clear the debt.
The Takeaway
Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your remaining mortgage, your closing costs, and any second mortgage. The rest is your profit.
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
Who is responsible for the mortgage on the house during the sale?
The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.
What happens if you sell a house with a HELOC?
When you sell a home that has a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.
What happens to escrow money when you sell your house?
Your mortgage escrow account will be closed, and any money left will be refunded to you.
Can I make a profit on a house I still owe on?
Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.
Can I have two mortgages at once?
Yes, you can have two mortgages at once if the lender approves it.
Photo credit: iStock/Beton studio
*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.
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 for more information.
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.
You finally own your home free and clear. And now, you want to put that ownership stake to use. Is this even possible?
Fortunately, the answer is yes. You can take equity out of your home even after your mortgage is paid off. One of the easier ways to do so is to sell your home, but there are also financial products that allow you to extract equity from your paid-off home quickly without having to pick up and move.
Each has its pluses and minuses. So let’s look at the options.
Can you take equity out of a paid-off house?
“It is definitely possible to take equity out of your home after you’ve paid off a previous mortgage,” says Jeffrey Brown, branch manager with Axia Home Loans in Bellevue, Wash. “Assuming you qualify, you can access that equity at any time.”
Actually, those means of access are pretty much the same for a paid-off house as for one that still has a mortgage on it. You can take equity out of your home using one of these tools:
home equity loan
home equity line of credit (HELOC)
reverse mortgage
cash-out refinance
shared equity investment
When should you tap equity on a paid-off house?
Why would anyone pursue fresh financing after finally paying off a mortgage? Well, why not? Your home is an asset, and you can make it work for you. And when you own it free and clear, its tappable potential is at its greatest (see Pros, below).
Viable reasons abound for borrowing against your ownership stake, from funding a major home improvement project to investing in a business to purchasing more property. Or, frankly, for whatever you need. However, since your home will serve as the collateral for the debt, you should be judicious in how you tap it. Two good rules to follow: Use your equity in ways that improve your finances or work as an investment and don’t take out more than you can afford to lose.
How to get equity out of a paid-off house
Cash-out refinance on a paid-off home
Let’s say you were still paying off your mortgage, had adequate equity and needed cash. You’d likely do a cash-out refinance, which typically has a relatively lower interest rate compared to other types of loans.
You can do the same now, even though you’ve paid off your mortgage. You’ll simply take out a new mortgage and pocket the equity in the form of cash at closing. As with any refinance, however, you’ll be on the hook for closing costs, which can run 2 percent to 5 percent of the amount you’re borrowing and any escrow payments.
“A cash-out refinance generally results in the lowest interest rate and offers the highest loan amounts you can borrow,” says Matt Hackett, operations manager for Equity Now, a mortgage lender headquartered in Mamaroneck, New York. “It can be a fixed- or adjustable-rate loan, and it is fairly straightforward to apply and qualify for.”
Home equity loan on a paid-off home
Alternatively, you could apply for a house-paid-off home equity loan.
Like a cash-out refinance, a home equity loan is secured by your property (the collateral for the loan) and enables you to extract a large amount of equity because you have no other debt attached to the residence. You’ll also likely need to pay closing costs, and as with any mortgage, you risk losing your home if you can’t pay it back.
The upsides: Home equity loans typically come with fixed interest rates, which are usually much lower than personal loan rates. Plus, if you use the money on home improvements, you can deduct the interest on your taxes.
HELOC on a paid-off home
Many homeowners like the flexibility of a home equity line of credit (HELOC), which works more like a credit card you can use when you need it.
“HELOCs come with adjustable interest rates, often based on the prime rate,” says Hackett. “They offer the opportunity to draw funds and pay back funds during the initial draw period, which is more flexible than a standard first mortgage.”
What’s more, you’re only responsible for repaying the amount you use versus the fixed obligation of a cash-out refinance or home equity loan, says Vikram Gupta, executive vice president and head of home equity for PNC Bank.
Do read the fine print of your agreement, though. “Additionally, some HELOCs may have various fees associated with them such as annual fees, early closure fees, and origination fees, so borrowers should pay close attention to these when evaluating their total financing costs,” says Gupta.
On the downside: HELOCs aren’t as easily attainable — you need a strong credit score — and, given their fluctuating interest rates, can mean variable monthly repayments.
Reverse mortgage on a paid-off home
If you’re 62 or older, you could be eligible for a reverse mortgage. This financing vehicle gets you regular payments from a mortgage lender in exchange for your home’s equity.
“A reverse mortgage can be a great way for seniors to access the equity in their homes to pay for monthly living expenses and keep them living independently, especially if they don’t have monthly income in retirement,” says Brown.
Reverse mortgages have pros and cons, though. You’ll still need to keep up with homeowners insurance, property tax and HOA dues payments to avoid foreclosure, and there’s a limit to how much money you can get. You can’t let the home fall into disrepair either — you’ll still be responsible for maintenance.
Most of all: “It’s important for the borrower’s survivors to understand that the entire [reverse mortgage] balance, plus interest and fees, is due if the borrower passes away,” says Gupta. “The borrower’s house may need to be sold if their estate cannot repay the reverse mortgage loan.”
Shared equity agreement on a paid-off home
With a shared equity agreement — a relatively new method of liquidating equity — you’ll sell a portion of your future home equity in exchange for a one-time cash payment.
“The details on how this works and what it costs will vary from investor to investor,” says Andrew Latham, CFP, CPFC, content director and managing editor for SuperMoney.com. “Let’s say you have a property worth $600,000 with $200,000 in equity built up. A home equity investor might offer you $100,000 for a 25 percent share in the appreciation of your home.”
If your home’s value increases to $1 million after 10 years — the typical term for a home equity investment — you’d have to return the $100,000 investment plus 25 percent of the appreciation, which in this case would be $100,000. You’d also need to return the investment plus the share of appreciation if you sell the home.
“The advantage here is that you can tap into your home’s equity without getting into debt,” says Latham, “and there are no monthly payments, which is a great plus for homeowners struggling with cash flow.”
In effect, you’ll have a silent partner in your home, so you’ll need to be comfortable with that and the rights that partner has to protect their investment.
Pros of tapping equity on a paid-off house
Easier to get approved
On the plus side, it can be relatively easy to qualify for a home equity loan on a paid-off house since you already have a solid track record of paying off your first mortgage, which likely means you’re older and have good credit and possibly a higher income. This ups your creditworthiness as a borrower, making you a preferred candidate to lenders and lowering the interest rate you’ll pay.
You also won’t have to worry about the size of your ownership stake or loan-to-value ratio — two other criteria that lenders look at, and that affect how much you’re able to borrow.
No-strings money
Furthermore, you can use your equity for any reason. Most lenders won’t care, for instance, if the money will be put toward funding retirement, seeding a new business or making a down payment on an investment property.
“Many seek to pay for their children’s educational expenses, fund their retirement or pay for an unexpected medical emergency like cancer care for a loved one,” says Kelly McCann, an attorney specializing in construction and real estate with Burnside Law Group in Portland, Ore.
Avoid capital gains taxes
In addition to being able to use the money for nearly any purpose and being more likely to qualify, tapping into your home equity also has the potential to save you money on your income tax.
“It may be smarter to tap into your equity than selling your home and downsizing,” says McCann. “If you have capital gains on your home of more than $250,000 (or more than $500,000 if you are a married couple) you must pay taxes on that gain after the sale of your home. However, if you borrow against your home by, for example, taking out a home equity loan, you don’t have to pay taxes on the loan proceeds — you get the money tax-free.”
Cons of tapping equity on a paid-off house
Risk of losing your home
Of course, if you choose a form of financing wherein your home is used as collateral, like a cash-out refinance or home equity loan, there’s always the risk that you could lose your home if you can’t repay.
Upfront expenses
While they often carry lower interest rates than unsecured loans, home equity products aren’t free. Most have upfront expenses and many of those good old closing costs that you remember all-too-well from your first mortgage. You’ll have to come up with the funds to pay for expenses like origination fees and a home appraisal, to name a few. The whole process could be paperwork-heavy and time-consuming, too.
Being frivolous with funds
You’ve got a tempting chunk of change there in your home. But you’ve worked long and hard to acquire this asset, so don’t blow it on one-time, discretionary expenses. Buying a car (a depreciating asset), paying for a wedding or taking a vacation — these are not-so-good reasons to deplete your equity stake.
How much equity am I able to cash out of my home if it’s fully paid off?
Even if your home mortgage has been paid in full, which means you have 100 percent equity, you cannot borrow all of that money. Generally, lenders allow for borrowing up to 80 to 85 percent of a home’s appraised value. That means if your home is worth $500,000 you may be able to access as much as $425,000 of that equity. However, the specific limit also varies by lender.
Bottom line on getting equity out of a paid-off home
Determining whether it makes sense to pull equity out of a house you’ve already paid off really comes down to your unique circumstances and financial picture, as well as your short- and long-term goals. It’s also important to consider whether you’d be able to make the payments on the loan if your financial circumstances were to change unexpectedly.
“Homeowners should ask themselves: ‘What is the purpose of the funds needed?’ They also need to assess their individual financial situations to ensure they have the cash flow to pay off the loan in the future, particularly as they approach retirement,” says Gupta.
If you decide to proceed, make sure to practice the due diligence you would apply to any other financial transaction—shop around with several lenders and find the best terms for your needs.
FAQs
A home equity line of credit, or HELOC, is typically the most inexpensive way to tap into your home’s equity. When opening a HELOC, you only pay interest on the money you actually use. As an added bonus, when using a HELOC, you won’t pay all the closing costs that come with a home equity loan or a cash-out refinance on a paid off home.
Lenders typically look for credit scores of at least 620 on home equity loan applications. You’ll qualify for an even better rate with a score of 700 or above.
Are you planning to buy or sell a property? Partnering with the right real estate agent can make all the difference in your experience. Whether you’re a first-time homebuyer or a seasoned investor, asking the right questions during your agent interviews ensures you find someone who understands your needs and has the expertise to guide you through the process. Here are ten essential questions to ask when interviewing real estate agents:
Enjoying our content? Subscribe to our free weekly newsletter to get real estate market insights, news, and reports straight to your inbox.
How long have you been in the real estate business?
Experience matters in real estate. An agent who has been in the industry for several years likely has a deeper understanding of market trends, negotiation strategies, and potential pitfalls.
What is your area of expertise?
Real estate is diverse, with different specialties like residential, commercial, luxury properties, or investment properties. Finding an agent with expertise in the type of property you’re interested in can be invaluable.
Can you provide references or client testimonials?
Asking for references allows you to hear directly from past clients about their experiences working with the agent. Positive testimonials can instill confidence in their abilities, but negative ones may turn you away.
How do you plan to market my property (if selling) or help me find a property (if buying)?
Marketing strategies vary among agents. Whether you’re selling or buying, understanding how the agent plans to market your property or find suitable listings is crucial for success.
What sets you apart from other real estate agents?
This question allows the agent to highlight their unique skills, strengths, and qualities that differentiate them from their competitors. This allows you to understand why you should choose one over the other.
How do you communicate with your clients?
Clear and effective communication is key to a successful real estate transaction. Determine the agent’s preferred methods of communication and how often you can expect updates.
What is your negotiation style?
A skilled negotiator can make a significant difference in the outcome of a real estate deal. Understanding the agent’s approach to negotiation can help you gauge their effectiveness in getting you the best possible deal.
Do you have a team or work solo?
Some agents work independently, while others have a team to support them. Knowing whether the agent works solo or has a team can give you insight into their availability and resources.
How familiar are you with the local market?
Local market knowledge is essential for pricing properties accurately, identifying market trends, and understanding neighbourhood dynamics. An agent familiar with your target area can provide valuable insights.
What is your commission rate and contract terms?
Discussing commission rates and contract terms upfront ensures clarity and transparency in your working relationship. Be sure to understand the agent’s fees and any contractual obligations before committing.
If you are looking to buy or sell your home give one of our agents a call today! The highly skilled and experienced agents at Zoocasa are more than happy to answer your questions!
In a standard home purchase scenario, prospective homebuyers apply with a lender to obtain conventional financing to get the new home on their wishlist.
Did you know, however, that there may be another financing option that could possibly benefit both the buyer and the seller under the right circumstances? We’re talking about the Assumable Mortgage.
What Is an Assumable Mortgage?
An assumable mortgage is a special type of home financing that allows a homebuyer to take over (or, assume) the seller’s existing mortgage and all of the terms that come with it, such as the interest rate, current balance, and repayment period. In cases where interest rates have gone up significantly since the seller originally bought and financed the home, this can present a savings opportunity that includes the low interest rate on the mortgage as part of the purchase of the home.
Which Types of Mortgages Are Assumable?
The loans that most often qualify for assumption are VA and FHA loans, which are backed by the federal government. Under certain circumstances conventional mortgages can also be assumable, but the majority of those loans contain a due-on-sale clause requiring the full balance of the loan to be paid upon transfer of property ownership, which makes the loan ineligible for assumption.
How Do Assumable Mortgages Work?
If you’re selling your home and the mortgage on the home is eligible for assumption, you can allow a qualified interested buyer to take over your mortgage as part of the sale of your home.
With the approval of your lender, the buyer would take over all of the responsibilities of your existing mortgage along with the home itself — including the interest rate and monthly payment — which can be significantly lower than the current rates and terms available for new mortgages. All of the terms of the loan would stay as is and simply be transferred over in the buyer’s name. You’ll want to be sure to get a written release of liability signed by both you (the original loan holder) and the lender to remove yourself from any further responsibility on the loan.
In the right circumstances, your buyer could save tens of thousands of dollars on an assumed mortgage since they’re effectively grandfathered in on what could be more favorable terms secured when the original loan was obtained. Given this unique benefit, you could potentially leverage that savings to justify a higher asking price for your home.
To illustrate the savings and benefits of this unique transaction, let’s explore an example scenario below from the buyer’s perspective.
Saving Money With an Assumable Mortgage
Let’s say you’re buying a home and you’d like to assume the mortgage on the home, appraised at $230,769 with a current remaining principal loan balance of $203,249. This means you would take over the payments on the remaining $203,249 and enjoy the original terms allotted to the assumed mortgage.
That still leaves $27,520 that must be paid in cash to the seller, which you can settle during the loan assumption transaction, much like a traditional down payment. If you cannot produce that entire cash amount to assume the loan, you may possibly be able to secure an additional personal loan to cover a portion of the difference. Keep in mind, however, that in most cases lenders who provide secondary financing will typically want to make sure that no more than 85 to 90 percent of the total appraised value of the home is being financed.
Here is an example comparison of a standard new FHA mortgage on a home selling for $230,769, versus an assumed FHA mortgage on the same home, with a lower fixed interest rate and five years already paid on the term.
New FHA Mortgage: A new 30-year FHA loan for a home priced and appraised at $230,769, with a principal loan balance of $222,692 (after the buyer put a minimum of 3.5% down, or approximately $8,077) with a fixed interest rate of 6.25%, will result in monthly payments of $1,371.15 (principal and interest only, excluding property taxes and insurance) totaling $493,615.06 over the life of the mortgage.
Assumable Mortgage: The assumption of a 30-year FHA loan with 25 years left on the term for a home selling for $230,769 with a remaining principal balance of $203,249 at the original interest rate of 2.5% results in a monthly payment of $911.81 and an approximate total loan cost of $273,543.07 (paid over 25 years).
New 30-Year FHA Mortgage
Assumable FHA Mortgage
Savings
Principal Loan Balance
$222,692
$203,249
N/A
Interest Rate
6.25%
2.5%
N/A
Down Payment
$8,077
$27,520
N/A
Monthly Payment(s)
$1,371.15
$911.81
$459.34
Total Loan Cost (principal +interest)
$493,615.06
$273,543.07
$220,071.99
Note: The example above does not include mortgage insurance. Mortgage Insurance (MI) may change depending on the LTV. Ask your loan officer for more information.
As illustrated above, if you are able to assume an eligible loan with an interest rate significantly lower than what is available on the market and have the ability to put down the additional cash to cover the equity owned by the seller (or obtain secondary financing), your savings could be substantial.
In the example scenario, your monthly mortgage payments for the 25 years remaining on the assumed loan would be $911.81. Compared to a new FHA loan with a higher market rate, this would result in a monthly savings of $459.34 and $220,071.99 saved over the entire life of your mortgage.
It is also worth noting that the less equity a seller has in their home, the more attractive an assumable mortgage may be to a buyer. For example, if that same assumable loan had an unpaid principal balance of $215,000, you’d only be responsible for a $15,769 difference instead of $27,520.
FHA Assumable Mortgage Requirements
Federal Housing Authority (FHA) loans qualify for assumption because they are free from the restrictions of due-on-sale clauses that are common in conventional mortgages.
Buyers wishing to assume an FHA mortgage must have a minimum credit score of 620, although buyers with scores above 580 may be eligible with additional restrictions. Similar to a conventional loan, your debt-to-income ratio including the assumed loan’s payment, cannot exceed 43% (although in special circumstances it can go as high as 50%).
VA Assumable Mortgage Requirements
The United States Department of Veterans Affairs (VA) has long offered one of the best home loan programs available for qualifying veterans, active military and their dependents.
A few important facts about VA loan assumptions:
As long as the buyer is VA-eligible, the seller’s VA entitlement remains intact.
If a buyer who is not VA-eligible assumes a VA loan, the seller loses their VA entitlement, as it will be tied to that original loan.
Buyers must meet all VA standards for creditworthiness and income, and the assumption must be approved by both the VA and the lender.
All mortgage obligations are assumed by the buyer, up to and including the obligation to repay the VA should the buyer default on the loan.
A “VA funding fee” equal to 0.5% of the current loan balance (only the principal amount) will be charged.
Want to know more about VA mortgages and whether you or a family member qualifies? Discover the special rates and benefits of VA home loans.
All mortgage payments must be current at the time of closing. You should plan to provide funds necessary to clear any outstanding payments before you can assume the loan. Either the buyer or seller can bring the loan to good standing.
Special Circumstances for Assuming a Mortgage
There are several special circumstances in which a buyer or inheritor must assume a mortgage in order to take possession of a home.
May I Assume the Mortgage of an Inherited Home?
Yes. In the unfortunate circumstance of a loved one passing, assuming the mortgage of the home that’s been willed to you would be useful if you wish to keep it in the family or live in it.
Federal law requires lenders to allow heirs to assume the mortgage of an inherited home, regardless of any due-on-sale clause included on the loan. It’s best to seek the advice of an estate attorney to ensure all bases are covered under these circumstances. As you figure out your options, be sure to continue making the regular monthly payments on the mortgage to prevent foreclosure of the property.
Assuming the Mortgage in Case of a Divorce
In the event of a divorce, one party or the other may have been awarded the family home.
If you’re the one keeping the home with a mortgage, you’ll need to qualify with the lender to assume the mortgage under your individual income and credit score, or by showing six months of timely payments you’ve made on your own without the help of your spouse.
Once the awarded party assumes the mortgage, the person who will no longer reside in the home should be released from all liability with the proper signed paperwork, as required by the lender.
May I Assume the Mortgage of a Home in Foreclosure?
Yes. Facing foreclosure is difficult, and a homeowner may want to do anything to prevent it. Allowing another party to assume the mortgage may be a good option.
In this type of purchase scenario, the buyer will need to pay off the entire past due amount before the assumption can occur. Buyers may accomplish this with cash or through a separate loan.
If it’s a Fannie Mae loan in question, Fannie Mae will review the prospective borrower’s financial packet to determine if they can afford the payments on the mortgage. Each investor or insurer will have specific requirements around what is required to complete the assumption.
If you’re set on the property as your ideal home, the default amount isn’t unreasonable, and the interest rate you’re assuming is favorable, then it can be worth the extra cost and effort to secure the loan.
From Applying to Signing on the Dotted Line: Important Facts
If you apply to assume a mortgage, expect to provide all the standard financial information normally required from a lender for a home loan application. This can include pay stubs, bank statements, W2s, and any other means to prove your ability to take over the mortgage.
While many may appreciate that an appraisal isn’t typically required, it might be beneficial to request one. That way you can ensure that the asking price for the home is fair in the current market.
Make sure a title check is performed as well to clear up any possibility of outstanding liens or encumbrances on the property before signing on the dotted line.
While closing costs can be lower with an assumed mortgage, an assumption fee may be charged.
FHA assumption closing costs are typically between 2 and 6 percent of the sale price of the home.
The VA charges a funding fee of 0.5% of the principal loan balance.
If you’re assuming the loan of an inherited property, it may be within your rights to avoid an assumption fee. Be sure to consult with an estate attorney if questions arise.
If you end up borrowing from more than one lender to complete the mortgage assumption, be sure that each lender is informed of all loan activity for the home. Each lender may require slightly different information, so prepare ahead of time for varying requests during the financial evaluation process.
Key Takeaways For Assumable Mortgages
Under the right circumstances, an assumable mortgage can mean thousands in savings for a qualified buyer.
A seller can leverage those savings to attract buyers and increase the asking price for the home.
The lender is the party with the final say over whether a buyer can assume a seller’s current mortgage.
The amount of equity in the home owned by the seller can be a key factor in whether assuming a loan is the right route for a buyer to take.
VA-eligible home sellers should take extra precaution when considering an assumption to protect their VA entitlement.
Is a Mortgage Assumption the Right Move?
The advantages for both sellers and buyers in this type of transaction is clear, as long as the interest rate on the mortgage is lower than what is available on the current market, the equity owned by the seller isn’t too great, and the lender approves of the assumption along with a release of liability to the original borrower on the loan.
If you’re selling your home that you have an FHA or VA mortgage for and the interest rate is lower than what the current market offers, you may want to connect your prospective buyers with your lender to see if an assumption is possible.
Questions about your existing mortgage or looking to buy a home soon? We’re here for you. Connect with a Pennymac Loan Expert to explore your home loan options or get started on a BuyerReady Certification today.
Your first home has served you well, but now you’re ready to move on. What can you expect as a second-time homebuyer? Whether it’s been years or decades since you bought your home, you’ll find some aspects of the home buying process similar and others quite different.
With this guide, you’ll dive into the world of second-time home buying so you can feel confident taking the next step in your homeownership journey.
Defining a Second-Time Homebuyer
So, who exactly is a second-time homebuyer? A second-time homebuyer is someone who has previously owned a home and is purchasing another one. They may be moving with the desire to upsize, downsize, relocate or enhance their lifestyle. Or they may be interested in buying an investment property or vacation home.
Benefits of Being a Second-Time Homebuyer
Second-time homebuyers enjoy several advantages, including the following:
They may have a clearer understanding of the home buying process.
The sale of their current home may provide a source of down payment funds on their second home.
They may have a more established financial situation and credit history, potentially increasing their loan options.
When Are You Considered a First-Time Homebuyer Again?
It’s important to note that not all previous homeowners are considered second-time homebuyers. If you’re applying for a conventional loan, you could qualify as a first-time homebuyer if you meet the following criteria:
You have not owned a principal residence in the last 3 years.
You have not owned a home jointly as a married couple within the last 3 years (if you owned a home but your spouse hasn’t, you can still qualify).
You’re a single parent who has only owned a house with a former spouse while married.
You have only owned property prior to applying that didn’t comply with building codes.
You have only owned property that didn’t have a permanent foundation.
First-time homebuyer status could give you access to certain programs that offer closing cost aid, down payment assistance, tax benefits and other types of support.
If you currently have a Federal Housing Administration (FHA) loan, you may be able to take out another FHA loan for a new primary residence.
The Mortgage Process
The mortgage process for a second-time homebuyer generally follows the same steps as a first-time homebuyer. As with your first mortgage, a lender will evaluate the following during the underwriting process:
Credit score
Liquid reserves
Available funds for down payment
Proof of income
However, if you haven’t applied for a mortgage within the last 15 years, you may notice some differences:
Depending on the loan program, the credit score requirements may be more stringent.
More documentation may be required.
There may be more rigorous underwriting practices to evaluate a borrower’s creditworthiness, financial stability and ability to repay the loan.
Much of the application process can be conveniently conducted entirely online.
Potential for No Down Payment
While most mortgages require a down payment, you may qualify for a zero-down payment VA loan if you’re a veteran, service member or military family. With a VA loan, there are:
No down payment on home purchase loans*
Lower closing cost limits
Lower interest rates
Relaxed credit requirements
No monthly mortgage insurance premiums
Already have a VA loan for your first home? As long as your new home will be your primary residence, you may be eligible for another VA purchase loan.
Keep in mind that the less you put down, the greater your monthly mortgage payment will be, and you’ll be paying more in interest over the long term.
Selling Your Current Home and Buying a New One
While it is common to sell your current home and buy your new one simultaneously, you may choose to do one transaction before the other.
Selling Before Buying Pros and Cons
Most people choose to sell before buying, which offers the following benefits:
You can access the equity and any profits from your current home to buy your next home, without having to include a contingency clause.
A contingency clause in the purchase contract allows you to back out of a contract if the sale of your current home doesn’t go through within a specified timeframe.
Coordinating this can be tricky, however. If your home fails to sell, your new home closing may be affected.
You won’t be responsible for paying two mortgages at once.
You can take your time negotiating with prospective homebuyers.
There are a few drawbacks to be aware of, including:
You’ll require temporary housing and storage.
Interest rates could rise as you search for your new perfect place.
You’ll need to pay for moving costs twice, once to your temporary home and storage, and again to the new home.
Buying Before Selling
If you choose to buy your new home before selling your current one, you will:
Avoid paying for temporary housing or an expensive storage unit
Usually have up to 60 days after closing to move in, so you can take your time furnishing and remodeling
Be able to act fast when you find your ideal home
Some of the disadvantages of taking this route include:
If your current home doesn’t sell quickly, you run the risk of having to carry two mortgages at the same time.
Purchasing a new home while carrying your current loan without selling makes it extremely difficult to qualify for a mortgage. Since you are carrying two mortgages, your debt-to-income ratio can be very high.
Other home expenses, such as property taxes, utilities, homeowners insurance and often costly homeowners association (HOA) dues, will also continue until you sell.
You won’t be able to use your home’s sale proceeds for your purchase and may need other financing, such as a bridge loan or home equity loan.
Best Practices on How to Sell Your House
Whether you sell or buy first, you’ll need to get your current home market-ready. Here are some best practices and tips for home-selling success.
Research the housing market. The housing market plays a significant role in the home-selling process. It impacts your pricing strategy, potential time on the market, competition and negotiating power.
For example, in a buyer’s market, homes tend to remain listed for longer and may sell at a lower price. This is great for you as a buyer but not as a seller. You’ll want to price your house competitively, make necessary repairs and stage your home to attract buyers. You may also need to offer buyer incentives, such as paying for some closing costs.
On the other hand, during a seller’s market, strong demand for homes can create bidding-war conditions. You may attract eager buyers willing to pay a premium for your home. Plus, you may sell quickly, providing the down payment funds to purchase your new home soon.
Find a reputable and licensed real estate agent. While you may have used a real estate agent to find your first home, hiring one to sell your current house is a good idea. Selling a home involves many moving parts, and a real estate agent can guide you through the process. They are knowledgeable about market conditions, marketing, negotiating and the steps required to achieve a positive outcome.
Locate a lender. Secure an experienced lender that can help you with your mortgage once you’re ready to purchase a new home. You’ll want to find one that offers a range of loans and competitive rates, as well as a written commitment to lend you a specific amount of money, subject to certain conditions. This type of certification, such as a Pennymac BuyerReady Certification,* demonstrates that you are a serious buyer and can give you the confidence that you’ll be able to obtain the funding you need.
Deep clean, declutter and stage your home. Present your home in its best light by deep cleaning, decluttering and staging. These three steps enhance the visual appeal of your home, create a welcoming atmosphere and allow buyers to envision their belongings in the space.
Make repairs and updates. Potential buyers will be looking for a home in good condition. Make sure your exterior and landscaping are well maintained. Fix broken fixtures, give walls a fresh coat of paint and verify your plumbing, HVAC and electrical systems are all working properly. Consider getting a home inspection before putting your home on the market to identify priority projects. Your real estate agent is also an excellent resource for determining which repairs and updates you should focus on.
The Home Buying Process the Second Time Around
The second-time home buying and mortgage process is similar to that of a first-time homebuyer. You’ll need to:
Prepare financially
Search and find a property
Make an offer and negotiate
Get a home inspection
Finalize the mortgage
Close and move in
But while the process is basically the same, some other factors, such as those below, may have changed and will influence your next home purchase.
Financial Aspects to Consider
As you navigate the second-time buying process, take into account the following financial considerations:
Shifted market conditions. The real estate market might have changed dramatically since your first home purchase. For example, if you purchased your current home in a buyer’s market, you perhaps had a lot of options and negotiating power. If it’s a seller’s market now, you might encounter tight inventory. Listed homes will sell rapidly, and you may need to be prepared to pay more and forego contingencies to get the home you want.
Your financial situation. How has your financial status evolved over the years? Has your income increased? What expenses do you have now that you didn’t have when you bought your home? Your current financial health will play a role in what loans you will qualify for.
Mortgage underwriting changes. Over the past 15 years, mortgage qualifications have become more stringent and interest rates may have changed significantly. However, if your financial circumstances have improved, you may have increased financing opportunities.
Down Payments and Benefits
As a second-time homebuyer, you can take advantage of all that equity you have built over the years and put it toward your new home. After closing, you’ll receive the proceeds from your home sale minus any outstanding mortgage balances and transaction costs. You can use those proceeds, as well as any additional savings, for a down payment.
Exploring Second-Time Homebuyer Programs
While there are many programs to help first-time homebuyers, there are some that assist individuals in purchasing their second home. Visit the U.S. Department of Housing and Urban Development (HUD) or a local government website to explore options in your area. And remember, if you meet first-time homebuyer criteria, don’t rule out first-time homebuyer programs.
In terms of mortgages, second-time homebuyers have numerous options, including conventional, FHA and VA loans. A Pennymac Loan Expert can help you compare loans and work with you to find the one that best fits your needs.
Key Differences Between First and Second-Time Buying
The main differences between first-time and second-time home buying are typically related to mortgage considerations, market conditions and experience.
The Requirements and Challenges
As a second-time homebuyer, you will not be eligible for grants and other initiatives that aim to assist first-time buyers in obtaining down payment funds. This means that you will likely need some down payment. If you are selling your home, you can use the sale proceeds for your down payment.
Today’s stricter underwriting practices, including more stringent credit standards, are aimed at protecting consumers and the housing market. However, individuals with credit challenges may find it more difficult to qualify for a favorable home loan.
Experience Factors
You can leverage your prior experience as a second-time homebuyer. You’ve been through the home buying and mortgage process and may be familiar with the documentation required and the timeline involved. And while the process and market have evolved over the years, your knowledge can equip you with valuable insights and confidence throughout the journey.
Frequently Asked Questions (FAQs)
Check out these FAQs for answers to some of the most common questions that second-time homebuyers have about mortgages.
Can a Second-Time Home Buyer Get an FHA Loan?
Yes, Federal Housing Administration (FHA) loans are available to qualified homebuyers who wish to put less than 20% down on their home purchase. Income, debt and credit history requirements are more flexible than conventional mortgages.
FHA loans are also a great option for borrowers who may want to put more than 20% down. They allow for a 580 credit score, whereas conventional loan pricing gets expensive the lower the credit score is.
What Are the Common Requirements for Second-Time Buyers?
Common requirements for second-time homebuyers depend on the type of loan, but a lender will consider your credit score, income, debt and down payment when evaluating your mortgage application.
Are There Specific Programs or Grants Available for Second-Time Buyers?
Yes, Federal Housing Administration (FHA) loans and VA loans are available to second-time buyers. States and local governments may also offer programs to help second-time homebuyers. Check the U.S. Department of Housing and Urban Development website or your local government website to explore available options in your area.
Make the Move to Your Next Home With Confidence
Moving to your next home is exciting, but being prepared before diving into the home-selling and buying process is essential. Reach out to a Pennymac Loan Expert who will help guide you through the mortgage process, answer your questions and discuss a variety of competitive rates and loan options.
*As long as the sales price does not exceed the appraised home value.
**Customers with a Pennymac BuyerReady Certification prior to locking any Pennymac purchase loan get $1,000 applied as a discount off total closing costs and/or principal curtailment, subject to investor guidelines. Excludes Jumbo, refinance, third-party and in-process loans. Offer subject to change or cancellation without notice.