Key takeaways
- When you owe more on your mortgage than your house is worth, the loan is referred to as ‘underwater,’ or in a state of negative equity.
- Having an underwater mortgage makes it harder to sell the home or refinance.
- If you have an underwater mortgage, your options include staying put and waiting for the home to appreciate, trying to get a new loan or requesting a short sale.
What is an underwater mortgage?
“Being underwater or upside-down on a home, car or any other asset means that you owe more than the current value,” explains Greg McBride, chief financial analyst at Bankrate. That is: The asset is worth less than the amount you borrowed to buy it, or the amount of the debt you still have to repay.
For example, if you buy a house when prices are high and the real estate market then retreats, your home’s value can depreciate, or shrink – and, as a result, you could wind up with a mortgage balance that outstrips that value. When that happens, you’re considered underwater on your mortgage. It’s also known as having negative equity.
For example, say Jane bought her home for $300,000, made a $30,000 down payment and borrowed $270,000. Two years later, a recession hits her city and Jane becomes unemployed, but has an excellent job opportunity in another state. She needs to sell her house and move, but she learns that home values in her area have declined and her house now has a market value of $250,000 — and, she still owes $258,400 on her mortgage. She is now underwater, or upside-down, on the mortgage.
How does an underwater mortgage happen?
Underwater mortgages usually occur during an economic downturn in which home values fall, says Jackie Boies, senior director of Partner Relations for Money Management International, a Sugar Land, Texas-based nonprofit debt counseling organization. During the 2007-8 subprime mortgage crisis, for example, the housing market collapsed, and many borrowers were saddled with homes worth far less than they paid.
Housing values can also decrease as a result of rising interest rates, high numbers of foreclosures or natural disasters.
In addition to declining home prices, homeowners can find themselves in this financial situation when they buy homes with little or no money down, says McBride: “Even a stagnant home price can leave you upside-down if you wish to sell the home soon after, because the transaction costs of selling could more than offset what little equity you have.”
Another way to become upside-down would be to take out a second mortgage that depletes most or all of your ownership stake; borrowing more than 100 percent of the value of the home, or taking out a mortgage that would result in negative amortization over the life of the loan, says Holly Lott, a senior branch manager at Atlanta-based Silverton Mortgage.
Signs that your mortgage is underwater
Finding out if you’re underwater requires an assessment of your home’s current value. You can use a home value estimator tool to get a ballpark idea, but to know for certain, get a home appraisal. Once you know the value, you can use your mortgage statements to determine whether your loan is upside-down.
Why an underwater mortgage can be risky
Scary as it can seem, being underwater doesn’t have to affect your day-to-day life, especially if you’re planning on staying put. Most borrowers can keep making their payments and “over time can get right-side up by paying down some of the principal balance and/or seeing some appreciation in the price of the home,” says McBride.
Still, there are some times when a homeowner should be concerned about being upside down on their mortgage. These times of risk include:
- Refinancing: People who find themselves in hardship might find it nearly impossible to refinance, unless they qualify for a government program or certain types of mortgages, says Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based nonprofit organization.
- Selling: If you’re underwater, you will also have a hard time selling. If you can’t make enough from the sale to cover your mortgage balance, you’ll be responsible for making up the difference. Alternatively, you’ll need to apply for a short sale with your lender, in which the bank agrees to accept less than the total remaining mortgage balance out of the sale proceeds. This sort of transactionharms your credit score.
- Losing the home: When a home is underwater, you are at a higher risk of foreclosure if the payments become too much for you.
What to do if you’re underwater on your mortgage
If you find yourself underwater on your mortgage, you’ve got several options to consider.
1. Stay in the home and build equity
In an upside-down mortgage situation, you can choose to stay in your home and continue to make payments to reduce the principal balance on the loan.
“Essentially, you’re riding out the market until values take a turn and go higher,” says Lott. “During this time it would be beneficial to make extra payments on the principal balance of the loan while waiting for home values to rise.”
2. Explore new financing
You have fewer refinancing options if your loan is underwater, but you might not be totally out of luck. Talk to a few mortgage refinance lenders to see what, if anything, you can do to refi your upside-down mortgage. If your original loan is an FHA loan, you might be able to qualify for a streamline refinance.
Unfortunately, Home Affordable Refinancing Program (HARP) loans were sunset in 2018, and Fannie Mae’s High Loan-to-Value (LTV) program has been suspended.
3. Consider a short sale
You might also take the short-sale route to avoid foreclosure and move to a more affordable housing situation, says McClary.
In a short sale, the lender must agree to accept less than the amount owed on the mortgage, making it a loss for them, says Lott. Lenders will only consider a short sale as a final option before foreclosure.
4. Walk away from your mortgage
Another option is to simply walk away from the mortgage — a move called a “strategic default” — but, like a short sale or foreclosure, doing so can be damaging to your future homeownership prospects and credit score. In short, this option also puts you in a precarious financial situation. If you walk away, your lender could even hold you liable for repaying the debt.
Homeowners should obtain advice from a HUD-approved nonprofit housing counseling agency in these situations to “help identify solutions specific to your circumstances and community,” says McClary. There might be a way to resolve your situation besides walking away, which is really a last resort.
5. Let the lender foreclose
Finally, you could allow your home to go into foreclosure. During this process, the lender regains the home and the homeowner walks away with their debt wiped clean, but a credit score that is rather tarnished. Many people in foreclosure also file for bankruptcy to eliminate other debts.
There are long-lasting repercussions for these options, says Lott. A bankruptcy and foreclosure can stay on your credit report for 10 years, and, like the other options, limit your ability to buy another home for several years.
Learn how to avoid foreclosure to find another way out of your situation. You could qualify for underwater loan relief and be able to keep your home.
Underwater mortgage FAQ
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You can help avoid an underwater mortgage by paying close or as close to the home’s appraised value as possible, and by making a higher down payment so you don’t have to take out as big of a loan. You should also plan to buy a home that you intend to stay in for several years. Sometimes, mortgages become underwater due to a widespread decline in property values, which you can’t prevent or avoid.
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Simply being underwater on your mortgage won’t impact your credit score. However, if you walk away from the loan (that is, stop paying), short-sell or accept foreclosure, your credit score will take a major hit.
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If you decide to stay in your home, you might have to wait a few months or many years for the market to improve. If the underwater mortgage eventually leads to foreclosure, those negative marks on your credit report can last for up to 10 years. (A short sale also hurts your credit, but not as much as a foreclosure does.)
Additional reporting by Taylor Freitas
The Federal Reserve has once again hit the pause button in its war on inflation. After raising rates 11 times in 2022 and 2023, the central bank has been standing pat. Following the Fed’s March 20 meeting, its second of 2024, Chairman Jerome Powell held steady again, announcing no change in interest rates for the time being.
The Federal Reserve and the housing market
Earlier in the inflationary cycle, the Fed had enacted increases of as much as three-quarters of a point. Now that inflation is down to 3.2 percent — not too far off from its official target of 2 percent — that round of tightening appears to be over. Housing economists are now looking to when the anticipated rate cuts will begin.
“Additional rate hikes no longer appear to be part of the conversation — it is all about the pace of cuts from here,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association. “This is good news for the housing and mortgage markets. We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market.”
In an effort to rein in inflation, the Fed boosted interest rates aggressively in 2022 and 2023, including a single jump of three-quarters of a percentage point. The hikes aimed to cool an economy that was on fire after rebounding from the coronavirus recession of 2020. That dramatic recovery has included a red-hot housing market characterized by record-high home prices and microscopic levels of inventory.
However, for months now the housing market has shown signs of cooling. Home sales have dropped sharply, and appreciation slowed nationally. Home prices are not driven solely by interest rates but by a complicated mix of factors — so it’s hard to predict exactly how the Fed’s efforts will affect the housing market.
Higher rates are challenging for both homebuyers, who have to cope with steeper monthly payments, and sellers, who experience less demand and lower offers for their homes. After hitting 8 percent last fall, mortgage rates have dipped back down a bit. As of March 20, the average 30-year rate stood at 7.07 percent, according to Bankrate’s national survey of lenders — certainly a welcome turnaround.
How the Fed affects mortgage rates
The Federal Reserve does not set mortgage rates, and the central bank’s decisions don’t move mortgages as directly as they do other products, such as savings accounts and CD rates. Instead, mortgage rates tend to move in lockstep with 10-year Treasury yields.
A slowing economy and an easing of inflation pressures are the prerequisites for lower mortgage rates.
— Greg McBride, Bankrate Chief Financial Analyst
“Mortgage rates don’t take direct cues from the Fed and will instead respond to the outlook for the economy and inflation,” says Bankrate chief financial analyst Greg McBride. “A slowing economy and an easing of inflation pressures are the prerequisites for lower mortgage rates.”
Still, the Fed’s policies set the overall tone for mortgage rates. Lenders and investors closely watch the central bank, and the mortgage market’s attempts to interpret the Fed’s actions affect how much you pay for your home loan. The Fed bumped rates seven times in 2022, a year that saw mortgage rates jump from 3.4 percent in January all the way to 7.12 percent in October. “Such increases diminish purchase affordability, making it even harder for lower-income and first-time buyers to purchase a home,” says Clare Losey, an economist at the Austin Board of Realtors in Texas.
What will happen to the housing market if interest rates rise?
There’s no doubt that record-low mortgage rates helped fuel the housing boom of 2020 and 2021. Some think it was the single most important factor in pushing the residential real estate market into overdrive.
When mortgage rates surged higher than they had been in two decades, the housing market slowed dramatically. And now, while sales volume remains slow, prices are volatile: Home prices declined for seven straight months through January 2023, then rose for nine straight months before finally starting to tick back down again in November, according to the Case-Shiller U.S. National Home Price NSA Index. They’re now rising again: the nationwide median existing-home price for January, normally a very slow month for real estate, was $379,100, according to the National Association of Realtors — up more than 5 percent year-over-year and surprisingly close to NAR’s all-time-high median price of $413,800.
Yet, in the long term, home prices and home sales tend to be resilient to rising mortgage rates, housing economists say. That’s because individual life events that prompt a home purchase — the birth of a child, marriage, a job change — don’t always correspond conveniently with mortgage rate cycles.
History bears this out. In the 1980s, mortgage rates soared as high as 18 percent, yet Americans still bought homes. In the 1990s, rates of 8 percent to 9 percent were common, and Americans continued snapping up homes. During the housing bubble of 2004 to 2007, mortgage rates were high, yet prices soared.
So the current slowdown may be more of an overheated market’s return to normalcy rather than the signal of an incipient housing crash. “The combination of elevated mortgage rates and steep home-price growth over the past few years has greatly reduced affordability,” Fratantoni says.
But if mortgage rates keep pulling back, affordability will become less of a factor. For instance, borrowing $320,000 at the mid-March rate of 6.84 percent translates to a monthly principal-and-interest payment of $2,094, according to Bankrate’s mortgage calculator. Borrowing the same amount at 8 percent translates to a monthly payment of $2,348. That’s a difference of more than $250 per month, or just over $3,000 a year.
A continued decline in mortgage rates could create a new challenge, though: It will likely draw new buyers into the market, a surge that could further intensify the ongoing shortage of homes for sale.
Next steps for borrowers
Here are some pro tips for dealing with elevated mortgage rates:
- Shop around for a mortgage. Savvy shopping can help you find a better-than-average rate. With the refinance boom considerably slowed, lenders are eager for your business. “Conducting an online search can save thousands of dollars by finding lenders offering a lower rate and more competitive fees,” McBride says.
- Be cautious about ARMs. Adjustable-rate mortgages may look tempting, but McBride says borrowers should steer clear. “Don’t fall into the trap of using an adjustable-rate mortgage as a crutch of affordability,” he says. “There is little in the way of up-front savings, an average of just one-half percentage point for the first five years, but the risk of higher rates in future years looms large. New adjustable mortgage products are structured to change every six months rather than every 12 months, which had previously been the norm.”
- Consider a home equity loan or HELOC. While mortgage refinancing is on the wane, many homeowners are turning to home equity lines of credit (HELOCs) to tap into their home equity. The rationale is simple: If you need $50,000 for a kitchen renovation and you have a mortgage for $300,000 at 3 percent, you probably don’t want to take out a new loan at 7 percent. Better to keep the 3 percent rate on the mortgage and take a HELOC — even if it costs 10 percent.
The hottest ticket in Las Vegas for the past few years has been real estate. The pandemic motivated many people to relocate, and plenty of them have landed in Clark County looking for low-cost living in the Southwest sun. Median home-sale prices rose by 11.1 percent between December 2022 and December 2023, according to Redfin data — however, while homes today sit on the market for far less time than they used to, it can still take a while to sell. Before you list your property, read on for everything you need to know about how to sell a house fast in Las Vegas.
How fast can you sell your house in Las Vegas?
Despite its year-round desert climate, Redfin data shows that the Las Vegas housing market follows the same seasonality as the rest of the country: Homes sell faster in the traditional spring/summer homebuying season and slower in winter.
The median number of days Las Vegas homes lingered on the market before selling in December 2023 was 48 — that’s more than a month just to go into contract, not counting the additional time it takes between contract and closing. And if that seems like a long time, consider that in December of 2022 it was a much longer 69 days. But it’s likely to speed up once spring and summer hit.
Need to sell faster?
If you don’t have time to wait that long — for example, if you need the proceeds from the sale immediately, or if you need to relocate ASAP for work reasons — there are ways to speed up the home-sale process. Consider these options:
- iBuyers: iBuying can be a good option for those in a rush to sell. These online companies make quick cash offers and can close the entire deal in just a few weeks — but you’re not likely to get as much money for the sale as you would in a traditional market transaction. Offerpad and Opendoor, the two biggest names in the industry, both buy properties in Las Vegas.
- Cash-homebuying companies: Companies that buy houses for cash move with similar speed. These real estate investment firms are very active in the Vegas area. In fact, nearly 30 percent of home sales in December 2023 were cash transactions, according to data from Las Vegas Realtors.
- Work with a local agent: A real estate agent with local expertise can help you to leverage the unique qualities of your home. They can market your home for speed and help connect you with motivated buyers who are looking to move quickly.
- Sell as-is: An as-is sale tells potential buyers that there will be no negotiations over repairs or other details. This speeds things along by avoiding lengthy back-and-forth conversations.
- Be flexible: A need for speed means remaining open to seller concessions or other compromises that can help to expedite the sale process. This includes pricing your home to sell — an agent can help you set an asking price that’s fair but competitive enough to catch buyers’ eyes and inspire them to bid quickly.
Selling your home fast for fair market value
Working with a trusted real estate agent may mean the transaction moves a bit slower, but it’s the best option if you want to sell for top dollar and capitalize on your home’s market value. Before listing your home, consider these topics with your agent.
Is it worth upgrading your home?
Most major renovation projects will delay your listing — hiring and scheduling a contractor could extend your timeline by weeks or even months. And they typically do not recoup their cost when you sell. But that doesn’t mean you shouldn’t invest in any home improvements at all. For example, a broken air conditioner in the Las Vegas heat definitely needs fixing before you list. Consult your agent to decide what’s a must-do and what’s a don’t bother.
Should you hire a professional stager?
Staging your home can make your property more appealing to prospective buyers, especially if it’s cluttered with years worth of personal items (or completely empty because you’ve already moved out). A buyer wants to be able to visualize themselves living there — if your agent thinks staging could help, it might be worth the price.
How should you price your listing?
This is the most crucial question to discuss with your agent. Their local expertise can help you determine a list price that is appropriate for your house and current market conditions, and if you want to move quickly they can take that into consideration in the price. A price point that’s low enough to appeal to buyers may help set your property apart and drive a quicker sale.
What do you need to disclose to the buyer?
Home sellers in Nevada are legally required to fill out the state’s “seller’s real property disclosure form.” This is standard in most states and details any known defects or issues with the property. In addition, if you’re part of a homeowners association, you’ll need to disclose all the HOA’s financial info and bylaws for the buyer as well.
Closing day
After you accept an offer, stay focused on fast communication with your attorney and your agent. The buyer’s attorney and agent will likely be making contract revisions and requesting additional information, so responding promptly will help you avoid further delay. Expect to pay some closing costs and related expenses before the transaction is complete. Here are some common closing costs for sellers in Nevada:
- Realtor fees: This represents the biggest chunk of cash that eats into your profit as the seller. Agents’ commission fees typically total between 5 and 6 percent of the home’s sale price. The median sale price in Vegas was $422,000 in December, per Redfin — 5 percent of that comes to more than $20,000.
- Transfer taxes: Clark County, where Vegas is located, charges a transfer tax of $2.55 for every $500 of value. So, if you sell your home for $400,000, the transfer taxes add up to $2,040. However, you might be able to negotiate to split this fee with the buyer.
- Title insurance: Sellers typically pay for the owner’s title insurance policy here, although this too can be up for negotiation. This protects against any potential problems with the home’s title.
- Capital gains taxes: If you stand to make a large profit on the sale, you may owe capital gains tax to the IRS. How much you owe will depend on a few factors, including your marital status and how long you’ve owned the home.
- Attorney fees: While you aren’t required to hire a real estate attorney in Las Vegas, it’s a smart investment. Selling a house involves lengthy contracts, large sums of money and potential liabilities, so a lawyer can make sure you’re protected in the deal.
Find a real estate agent to help you sell your home fast
Working with an experienced local real estate agent can help you maximize your home’s sale price while also moving quickly. If time is of the essence, interview multiple agents to find one who can work on your timeline.
FAQs
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Selling to an iBuyer or cash-homebuying outfit will likely be the fastest method of selling your home in Las Vegas. These companies can close a deal from start to finish in just a few weeks, as opposed to waiting more than a month for your home to go into contract, and then another several weeks (or more) until closing.
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Yes, an agent with expertise in your specific area in Las Vegas can help you price your home competitively based on local market conditions, and make strategic marketing decisions to help the home stand out. However, since you’ll likely have to wait for your buyer’s financing to be approved before you can close, selling directly to an iBuyer or cash-homebuyer will be faster.
Have a home to sell in the Los Angeles area? Good news: Real estate prices here are high and rising, according to recent sales data, so you’re sitting on a valuable asset. However, the pace of sales is slowing, and high mortgage interest rates are keeping many potential buyers on the sidelines. Is it possible to not only find a qualified buyer, but speed up the usual process so that you can sell your house in Los Angeles fast as well as turning a nice profit? Read on for all the details on selling in a hurry in L.A.
How fast can you sell your house in Los Angeles?
To figure out how fast you might be able to sell, it helps to first understand a bit about the California housing market, and the sprawling L.A. region specifically.
The Golden State boasts one of the country’s priciest real estate markets, which for you as a seller is both good (larger profits) and bad (fewer buyers who can afford it). According to Redfin data for December 2023, the median sale price in L.A. was $957,000 — higher than the statewide median of $756,800, and much, much higher than the nationwide median of $382,600.
Sky-high prices might explain why it takes a while to sell a home in L.A. The median days on market, or amount of time a home takes to go into contract, is a long 49 days here, per Redfin. That means it’s around a month-and-a-half to secure a buyer, after which you typically have to wait for the buyer’s financing to be approved before you can close.
Given that spring is typically the best time of the year to sell a house, that time frame may speed up as winter fades. But in a place with year-round nice weather like L.A., seasonality may not count for as much as it does in colder-climate cities.
Need to sell faster?
If expediting the sale of your house is a priority — for example, if you need the cash quick, or if you need to relocate in a hurry for work — consider these methods to speed up the process:
- Sell as-is: An as-is listing tells the buyer that they will be acquiring the property in its current state; what they see is what they get. This can save considerable time in back-and-forth negotiations over what needs fixing, and who will pay.
- Sell to a homebuying company: Consider selling your home to a fix-and-flip company that specializes in purchasing properties in less-than-perfect condition, renovating them and then selling them for a profit. Local “we buy houses” companies pay cash and close remarkably quickly, typically in just a few weeks. But in exchange for this speed, you’ll likely earn less on the sale than you would on the open market.
- Sell to an iBuyer: Similarly, iBuyers offer a near-instant cash offer and a swift closing. However, also similarly, you’ll receive a lower offer than you likely would with a traditional sale. Opendoor, one of the biggest players in the industry, buys homes throughout the L.A. area.
Find a trusted real estate agent
If you choose the traditional selling route, having a local real estate agent by your side will enhance your chances of securing a sale at or near the top of the market. A skilled agent plays a pivotal role in connecting you with potential buyers and takes on vital responsibilities such as marketing your home and negotiating for the best deal on your behalf. Look for someone with extensive experience in your specific neighborhood of L.A. and a proven track record of successful sales. And if speed is of the essence, be sure to let them know that upfront so they can plan accordingly.
Sell your home fast for fair market value
If you want to sell the traditional way, with an agent’s help, there’s a lot to consider before listing your home on the market. Discuss these five issues together to get started:
How should you price your listing?
First things first: How much is your house worth? To expedite a prompt sale, be prepared to establish an appropriate asking price based on local market conditions. Online home-value estimators can be a useful starting point, but it’s best to have your agent research local comps — nearby homes that are similar, or comparable, to yours — to determine a fair market value. Striking the right balance is crucial: You want to price fairly, but avoid overpricing to prevent turning buyers off.
Is it worth upgrading your home before selling?
The answer here, for large renovations like a full kitchen remodel at least, is usually no. Most major projects will not recoup their full cost at resale — and they’ll also delay your sale while you wait for contractors to finish the job. Instead, consider cost-effective solutions to boost your property’s value, like enhancing the curb appeal with some refreshed landscaping, a new coat of paint on the front door and perhaps a pressure-washed driveway or front walk.
What repairs should be tackled before selling?
Obvious issues, like broken window panes or dripping faucets, will turn off buyers right away. Small things like that should be fixed, in service of making a good impression. But you don’t have to fix it all. Your agent can guide you in what issues need addressing and what not to bother with.
Should you pay to stage your home?
How inviting would your home look to a stranger? Overstuffed rooms make buyers notice the stuff cluttering up the space, rather than the space itself. If your home doesn’t allow buyers to easily envision themselves living there, investing in professional home staging can help. Services range from simple reorganization to improve the flow to a full furniture rental for an empty home you’ve already moved out of. Again, your agent can help you decide whether staging is worthwhile.
What information must you disclose to the buyer?
For most California home sellers, completing the state’s lengthy property disclosure form is mandatory. This involves providing information on any known defects that could impact the home’s value or safety. Transparently communicating issues such as past roof damage, leaks, termite damage, electrical problems and more is essential. Additionally, for properties under a homeowners association’s jurisdiction, you’ll need to gather all relevant documents, including bylaws, recent meeting minutes and financial documentation.
Closing day
On closing day, you’ll finally conclude your transaction and receive your proceeds from the sale. But not before you settle all your closing costs, which for a seller will include a hefty agent commission fee. Here are some typical closing costs for California home sellers:
- Commission fees: The commission fees for both your agent and your buyer’s agent will typically come out of your sale proceeds. This usually totals somewhere between 5 and 6 percent of a home’s sale price. For a median-priced $957,000 Los Angeles home, 5.5 percent is a very significant $52,635.
- Title insurance: Title insurance protects in case ownership issues are found with the home’s title. In many states this is paid for by the seller, or split, but California sellers are in luck: Here, it’s customary for the buyer to cover the expenses associated with title insurance.
- Transfer taxes: However, you won’t be able to skip the real estate transfer tax, or charge for transferring the property’s ownership. In Los Angeles, this involves a base tax rate of $2.25 per $500 for homes priced up to $5 million. On a median-priced home, this works out to $4,307.
- Attorney fees: Hiring a real-estate attorney is not mandatory, but having a legal professional review complex contracts provides reassurance and peace of mind, especially when there’s this much money on the line.
- Seller concessions: Any concessions you may have agreed to during negotiations, such as paying for a repair or covering a portion of the buyer’s their closing costs, will be due at closing as well.
FAQs
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Selling to an iBuyer or a cash-homebuying company is by far the fastest way to sell a home in L.A. These companies can close a deal in a matter of a few weeks or less, whereas the typical open-market listing takes 49 days just to go into contract, per Redfin. However, you will not be offered as high a price from these companies as you’re likely to get with a traditional market listing.
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Yes. If you let your agent know from the get-go that a speedy sale is your top priority, they can list and market your home with that in mind. However, even the most skillful agent likely won’t be able to close a deal as quickly as an iBuyer or cash-homebuying outfit could.
The decision to sell your home is a big one. Even in a seller’s market, it can be stressful — especially if you’re still living there while it’s being shown. How do you prepare for a parade of strangers, all potential buyers, traipsing through your home while you’re still holed up there? And stay sane in the process? Read on for tips on how to sell your home while still living in it.
Declutter, deep clean and depersonalize
Before hosting your first showing, take the time to make it ready for the spotlight. There are several steps you can take to make your home more appealing to prospective buyers. Home shoppers want to be able to visualize themselves in your space, so start by depersonalizing it. That means removing family photos, kids’ toys, vacation souvenirs and more. The goal is to make your home look neutral so that buyers can imagine how they would use and occupy the space.
First appearances are also critical when selling your home, so you may also want to freshen up the landscaping. Not all updates and repairs are worth making when you list your house, but sprucing up its curb appeal doesn’t have to be expensive — just a few potted flowers and fresh paint on the front door can go a long way toward making house-hunters feel welcome.
Of course, the interior matters, too. Having your home professionally cleaned will help it look its best to buyers. And it’s tough while you’re still living there, but try to maintain that cleanliness throughout the selling process. You want to keep the home photo-worthy for as long as possible, even after you’ve had those professional photos taken for the listing.
Storage options for items you need to stash away
Don’t approach this part of your home-selling process as drudgery. Think of it as a bonus round of advance packing — a gift to the future you, who just sold your home and is ready to pack up and move out. Box up as much as you can while you’re prepping your home to be viewed by potential buyers, and make a plan for where you can keep the boxes for a while. Storage units and friends’ and relatives’ basements or attics are all good options. The main thing is to get the boxes out of your own house, if at all possible.
Prepping your home to sell while living in it
We all know the principles of home staging, even if we don’t know the specific term. Thanks to Marie Kondo and HGTV, the idea that a clean, clutter-free space translates into peace of mind is entrenched in our cultural psyche. Super-size this concept with some broadly appealing styling, and you’ve got the marketing tool known as home staging. Employed effectively, it can make a property sell faster, and for a higher price.
But that’s in vacant properties. What if you are still living there? What can stay, what should be hidden away and what absolutely must go?
What you can keep on display
To give your home the best shot for a top-dollar sale, it needs to be picture perfect — literally. Before potential buyers visit your home, they’ll evaluate it based on online photos. So, before listing photos are taken, pare everything down to your essentials.
It’s OK to keep furniture and artwork in place, so long as they don’t feel dated or quirky. But be sure to hide away items that are clearly personal. “Potential buyers want to be able to see themselves living in the space, not you,” says Birgit Anich, CEO and creative director of Connecticut-based BA Staging & Interiors. Anich recommends ditching small accessories and tchotchkes, too. “Bigger objects read so much better in a photograph,” she says. “Little things distract the eye, so the brain is not focusing on the most important components of the room.”
Of course, it’s not possible to pack away absolutely everything. Some rooms, like the kitchen, still need to function in an everyday way. Anich suggests choosing one or two appliances that you truly use on a daily basis to stay out on the counter — a coffee maker and a toaster, for example. And they should be sparkling clean. “Every object tells a story,” she says. “If the toaster looks banged-up and old, that will make a negative impression on potential buyers. They may think to themselves, ‘If the seller isn’t taking care of the toaster, what else isn’t being taken care of?’”
What you should hide away for safekeeping
With lots of people coming in and out, you likely have some items that you’ll want to not just stash away but lock away. Think things that have special value, whether sentimental or monetary, and that pertain to privacy and safety: jewelry, documents with identifiable info, prescriptions and more.
Another item that should be locked up: your kitchen knife block. It may seem extreme, but for the safety of the real estate agent showing your home, it’s an easy precaution to take. “I always say, ‘Out of sight, out of mind,’” says Anich.
What you should never, ever have in the house
Apologies to all the animal lovers, but the top thing to never have in your house while it’s being shown is a pet. Many potential buyers do not love Rover the way that you do. And they won’t love any signs of him, either: Make sure that food and water bowls, litter boxes and any pet-related things are well out of sight before buyers visit your home. And vacuum well to get rid of any pet hair. “You want to minimize any touchpoints that might remind potential buyers that pets live on the premises,” says Anich.
Other things to never have in your house while you’re selling it include objects with any religious or political affiliations. However strong your convictions, buyers may not share them, and these items may prevent them from being able to see the space as theirs.
Likewise, remove anything that might make it seem as if you’re concealing a problem. Multiple scented candles or air fresheners, for example, could be construed as red flags, making buyers wonder what odor they are covering up.
Reducing stress while showing your home
Try not to think about the showing process as people invading your space. Consider the house a product for sale rather than your home. Packing and storing a lot of your stuff is actually a good thing — it’s hugely helpful to adopt the mentality that, essentially, you’ve already moved out.
During this transitional period, be vigilant about having minimal impact on a room when you use it, and clean up after yourself as you go. Get family members on board, too, if possible.
It helps immensely to have a pro guiding you through the showing and selling process. Work closely with an experienced local real estate agent: Agents don’t just understand the housing market’s ins and outs, they also understand the ins and outs of how to make your home look its best and appeal to prospective buyers. And they can coordinate with your schedule to make the showings as non-disruptive to your daily life as possible.
FAQs
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There are some advantages to private showings. Open houses often attract people who are just curious but have no interest in buying, whereas someone who takes the time to schedule a one-on-one showing of your home is more likely to be a serious buyer. An open house can still be useful for getting the word out, however, especially if there hasn’t been a great deal of traffic for private showings.
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One important final step to take before house-hunters arrive is to make sure window shades are open to let in as much natural light as possible. It’s also a good idea to ensure all trash has been emptied and surfaces have been cleared, including kitchen countertops. Wipe down bathroom sinks, close toilet lids and remove any pet food bowls as well. Ask your Realtor if there’s anything you feel unsure about.
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No, clearing out is the best approach. Buyers generally don’t feel as comfortable viewing a home when its owner is there, and they may feel guarded in what they can say or ask in your presence. In addition, staying during showings raises the risk that you could inadvertently say something that may negatively influence prospective buyers.
Key takeaways
- Typically, the longer you hold on to your home, the better you will fare financially when it comes time to sell.
- Five years is generally considered a good rule of thumb in the industry, but it’s not mandatory.
- It’s important to consider the broader economy, as well as tax implications and closing costs, when deciding whether to sell.
When you bought your home, you probably paid loads of money to make it happen. But now, for whatever reason, it feels like time to move on. Naturally, you want to make a profit on the sale — or not lose money, at the very least. So, is there an optimal amount of time you should keep living there before you list it? How long do you have to own a house before selling?
There’s no simple answer. To figure out what works in your case, you first need to crunch some numbers. Estimating the costs to close a sale and to move, analyzing local real estate market conditions and — most of all — figuring the amount of equity you have in your current home are all important factors to consider before selling your house.
Reasons you may need to sell your home
According to research from the National Association of Realtors, the most common reason that people sell their homes is because they want to be closer to friends and family — a great motivation to move. Here are some other common factors that can lead a homeowner to sell:
- Your finances have changed: People often opt to move for financial reasons. Perhaps you’ve lost your job, your income has dwindled or you’ve experienced a divorce or change in your living situation. Of course, there can be happier reasons too. Maybe your income has grown significantly, or you’ve gotten married and now have a bigger shared budget to start fresh together with a new property.
- You need more space: The second most-common reason for selling a home, according to the NAR study, is because it’s too small. Whether you’re expanding your family, need a dedicated home office for remote work or simply longing for a bigger backyard, selling for more square footage is totally understandable.
- You need less space: On the opposite end, perhaps you’re an empty-nester and a four-bedroom property is simply too much to take care of now. Downsizing can make life more manageable.
- It’s a seller’s market: While you should think of your home as a home first and an investment second, sometimes the housing market seems so advantageous for sellers that you can’t resist the opportunity to make a big profit. This is especially true if your property’s value has appreciated significantly since you purchased it.
How long should you own a house before selling it?
There is no hard-and-fast answer to the “how soon can I sell?” question. But on the whole, the longer you hold on to your home, the better you fare financially when it is time to sell. This relates to the concept of building equity in your home.
Home equity is, on a basic level, the difference between your home’s market value and the amount you still owe on your mortgage. So, if you put a 20 percent down payment on a $300,000 house when you buy it, your initial equity stake is 20 percent of that, or $60,000. With each payment made toward the principal, you increase your equity a little bit, which adds up over time. The longer you wait to sell, the less you’ll owe on your mortgage, which means you’ll be able to hold on to more of the profits from the sale.
The dollar amount of your equity also increases as your home’s value increases. That’s another reason why it behooves you to wait: Home prices tend to rise over time, and the recent pandemic-fueled housing craze made them rise even faster: Between January 2020 and August 2023, the typical home in the U.S. gained 19 percent in value, adjusting for inflation, according to data from the Federal Reserve Bank of Chicago. That equates to an appreciation rate of about 5 percent per year.
The five-year rule
When it comes to timing, the real estate industry refers to the “five-year rule” as a good rule of thumb when deciding how soon to sell your home. This has to do with the amount of equity the average homeowner has built in their home after five years of possession, and it also takes into account the costs associated with selling a home (and, if applicable, with purchasing a new one).
“Five years is a good, comfortable mark,” says Lawrence Yun, chief economist at NAR. “If the price of your home appreciates considerably, then even three years would be fine.”
It’s also important to think about what the broader economy looks like whenever the five-year mark arrives. For example, if you bought your home in 2019, the average 30-year mortgage rate was around 4.13 percent. At the beginning of 2024, average rates have hovered near the 7 percent mark, which means that if you need to buy a new house after you sell, you’ll pay a significantly larger amount of interest.
What to consider before selling
Initial costs
Your net proceeds are not the same as your home’s purchase price, even if a buyer pays above ask. For one thing, you have to take into consideration how much you paid for the property in the first place, and how much you owe if you are still paying off a mortgage. Beyond that, there are all sorts of expenses associated with selling your home. All this needs to be figured into whether it makes financial sense for you to sell now — crunch the numbers to see if you will walk away from the sale with enough profit to make it worth your while.
Closing costs
A seller’s closing costs generally come out of the home’s purchase price (they aren’t usually paid out of pocket). The amount will vary depending on many factors — your property’s final sale price, what state you’re located in, local property tax rates, whether you hire a real estate attorney and more.
Real estate commission fees are also traditionally paid for by the seller and typically range between 5 and 6 percent of the sale price. This can be a significant chunk of change: On a $300,000 sale, 5.5 percent comes to $16,500 taken out of your proceeds.
Capital gains taxes
If you stand to make a large profit on your home sale, you’ll want to think about one more thing before you sell: capital gains taxes. Residential real estate counts as a taxable asset, just like a stock. However, there’s a loophole, so to speak: The IRS generally allows homeowners a profit of up to $250,000, or $500,000 if married and filing jointly, before the capital gains tax kicks in.
But there are two big conditions: You have to have owned the property for at least two years, and it has to be your primary residence for at least two out of the five years immediately preceding the sale. So if property values in your area have skyrocketed and you want to cash in, two years is the amount of time you’ll want to wait to avoid paying the IRS.
Find a local real estate agent
Choosing a real estate agent is one of the most important stages of the home-selling process. You want someone who is well-versed in your local market. This person will be responsible for helping you set your listing price, hosting open houses, scheduling showings, negotiating with buyers and ushering you through the closing process. It’s a lot, and it’s much easier if you’re doing it with someone experienced, knowledgeable, trustworthy and pleasant to work with.
FAQs
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Generally, yes. Even if your home has appreciated speedily, you likely stand to lose money if you sell before the one-year mark. You aren’t likely to have built up enough equity after such a short time to make up for the closing costs you paid when you bought it, as well as the closing costs and commissions you’ll have to pay when you sell. In addition, capital gains tax is high on assets owned so short a time.
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Yes. You can buy another house while you’re selling your old one, and many people do. However, this does complicate your financing. You may wish to consider a mortgage contingency as a part of your real estate contract on the newer home. You might also consider back-to-back escrow, which facilitates the simultaneous selling and buying of properties.
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Once you have lived in a home for two years as your primary residence, the IRS will allow you to realize a profit of $250,000 before applying the capital gains tax to your earnings.
If you’re thinking of selling your house in Dallas, you’re sitting on a valuable asset. Some neighborhoods in the Dallas–Fort Worth metro area have seen home values increase by 270 percent over the past decade as more people look to plant permanent roots in North Texas. And while high mortgage rates are creating headwinds for the housing market, Redfin data shows that median home prices in Dallas are still rising sharply — up by 19.7 percent compared to last December.
While that’s all great news for sellers, there is bad news, too: Homes may eventually sell for a good price, but it takes a long time to get there. Homes here spend a median of 41 days on the market before going into contract, per Redfin, and that’s not including the time it takes to close after that. If you’re anxious to move a bit more quickly, you do have options though. Read on for everything you need to know about how to sell a house fast in Dallas.
How fast can you sell a house in Dallas?
If you’re in a rush to relocate, keep in mind that a traditional home sale takes longer than you might think. According to data from the MetroTex Association of Realtors, homes in Dallas County spent 44 days on the market in December 2023, with an additional 30 days after that before the transaction closed. That’s 74 days total, about two-and-a-half months from start to finish.
If you need to sell your house faster — for example, if you need the cash quick or you need to relocate for work immediately — the quickest route is probably selling to a cash homebuyer. There are many national, local and iBuying outfits to choose from in the Dallas area. These companies offer a remarkably fast and hassle-free deal, often closing in a matter of just a couple weeks and even buying in as-is condition, so you don’t have to make any repairs or upgrades to the home. But there’s a big downside: You’ll make less money on the sale than you would on the open market. If you have the time, you’re much more likely to make a better profit using an agent.
Things to consider when selling your house in Dallas
If you choose to sell the traditional way, with a local real estate agent, here are a few key questions to consider before you list your home:
How should you price your home?
Your agent will be the best source of advice when it comes to the biggest question in the selling process: How should you price your home? You can get a very basic idea of how much your house is worth online, but an agent will help you review similar properties that have recently sold, and can prepare a detailed comparative market analysis. Understanding what other buyers have been willing to pay for homes similar to yours will provide a good baseline for your own listing. Remember that the market is constantly shifting, and you may not be able to get the same price your neighbor got, or the same price that you might have gotten last year.
What kind of shape is your home in?
Selling a home is like going on a first date: You want to make a great first impression. A professional home staging service can deliver a love-at-first-sight look for your home. You could pay just a few hundred bucks for light decluttering and organizing, or more for a bigger project, such as long-term furniture rental. However, it can pay off in a big way by helping buyers envision themselves in the space.
In addition, many sellers are tempted to make big upgrades before listing, with the assumption that a new kitchen or a revamped home office will inspire a buyer to hand over a bigger check. That’s not usually the case. Most major remodeling projects fail to recoup their costs at resale, so you’re better off considering cheaper and easier ways to boost your property value, like upping the curb appeal or repainting.
It’s also important to think about repairs. Some things should be brought up to speed before you hit the market, but not everything needs to be fixed. For example, buyers won’t want to inherit an air conditioner on its last legs before another hot Dallas summer. However, they might be OK with scuffed hardwood floors or a dishwasher that has seen better days. Your real estate agent can help you gauge what projects are worth taking on.
What’s the market like in your neighborhood?
When you’re selling a house in Dallas, it’s important to think about where specifically in this sprawling metro area your home is located. Buying activity in your specific neighborhood is more relevant than overall Dallas–Fort Worth statistics. The time it takes to sell, and the amount you’ll sell for, can look very different depending on your location, so it’s important to work with an agent who knows your specific neck of the woods well.
What will you need to disclose to buyers?
Texas state law requires that you fill out a seller’s disclosure notice, which includes knowledge of any defects that could impact the property value or the safety of anyone living there. And if your home is part of a homeowners association, make sure you request documentation about the financial health of the association and its bylaws in advance. You’ll need to provide that information to buyers as well.
How much will all this cost?
Before you start tallying up your potential profit from the sale, don’t forget to think about how much it costs to sell a house. While you’ll benefit from the fact that there are no real estate transfer taxes in Texas, there are still some closing costs and fees for Dallas sellers to consider. A few common examples:
- Realtor fees: This represents the biggest chunk of cash that eats into your profit potential. Home sellers are responsible for paying their own agent’s commission fee as well as their buyer’s agent’s. These usually total somewhere between 5 and 6 percent of the home’s sale price. On a median-priced Dallas home, which is $407,000 per Redfin, 5.5 percent comes to more than $22,000.
- Title insurance: Sellers are usually on the hook for paying for the owner’s title insurance policy in the Lone Star State, although you might be able to negotiate splitting it with the buyer. If you do pay for it, budget somewhere between 0.6 percent and 0.9 percent of the sale price.
- Unpaid property taxes: Any outstanding property taxes up until closing day will need to be paid before you can finalize the deal. The same goes for HOA fees, if you’re part of a homeowners association.
- Attorney fees: You aren’t required to hire a real estate attorney in Texas, but you should anyway. It’s wise to invest in legal expertise to navigate the complexities of a real estate contract — there is a lot of money on the line, after all.
- Concessions: As buyers get a bit more bargaining power in today’s real estate market, and seller concessions — or offering to cover a portion of the buyer’s closing costs in order to sweeten or speed along the deal — are not unusual.
Closing day
Once you sign your name on the dotted line of a purchase agreement, you still have a few responsibilities on your shoulders. Time is of the essence, so respond to questions from your agent and your attorney as quickly as possible. You’ll also have to make sure the home is ready for the new owner. Be sure to schedule movers well in advance of the buyer’s final walk-through, and consider hiring a cleaner to make sure it’s in pristine shape. Review the closing statement to verify all the costs you’re slated to pay are correct. Once all the funds are transferred and the paperwork is signed, the deal is done. Whether you’re moving to a new neighborhood in Dallas or relocating to a new part of the world, you’re ready for your next adventure.
A home equity line of credit (HELOC) on an investment property is a loan taken out against a piece of real estate that you use to earn income or a financial return. So, instead of taking out a HELOC on the property where you actually reside, a HELOC on an investment property leverages a place where you do not live as collateral to borrow money.
While many borrowers have been interested in HELOCs over the past two years, HELOCs on investment properties aren’t nearly as common — or as easy to get. The vast majority of HELOCs are taken out against primary residences; lenders are more comfortable with a loan against the actual roof over your head because they know you’ll prioritize repaying that loan.
However, some lenders do offer HELOCs on investment properties. Here’s how they work, and how to decide if they’re a good strategy for your financing needs.
How do you get a HELOC on an investment property?
Getting a HELOC is similar to getting a mortgage (in fact, HELOCs are a type of second mortgage). Here’s how the application process works.
1. Know your finances.
Before you apply for a home equity line of credit, you’re going to want to estimate how much equity you have. Property values have continued rising this year – albeit more slowly than they had been during the peak of the pandemic – so you’ll want to get a sense of what your property is worth versus how much, if any, you have left to pay on the first mortgage. The difference between how much you owe and the investment property’s fair market value equals, roughly, the amount of your equity stake. In ascertaining the value, you might want to consult a real estate professional who specializes in similar properties to issue a broker price opinion on yours.
2. Shop around to find the best deal.
Shopping around for a HELOC on an investment property is going to be more limited than for the regular, residence-based variety: There simply aren’t as many lenders that offer these lines of credit. Still, there are always choices, and it’s always important to compare. Try to find at least three lenders, and try to suss out how practiced they are in this sort of HELOC. Look at the APR that each lender offers, and be sure to scrutinize the fine print to understand whether there are additional fees such as a penalty for closing the line of credit early.
3. Apply.
When you’re ready to officially apply for a HELOC, be prepared for the kind of complete under-the-hood type of financial scrutiny you would receive with any type of request to borrow a sizable chunk of money. A lender will look at your credit score, your debt load, your cash flow, your cash reserves and every other detail about your finances to determine a) whether they will loan you the cash and b) how much they’re going to charge you to borrow it. The lender will also probably do an appraisal of your property, which sets the official value on it. In determining its worth, they’ll look at its condition and also the amount and sort of income it generates.
4. Close.
Closing on a HELOC is typically a much faster process than closing on a traditional mortgage. Some lenders will close in as little as three days, and you can access the cash within a week.
What are the pros and cons of getting a HELOC on an investment property?
Pros
- Cheaper than many other forms of borrowing: The interest rates on HELOCs are often lower compared to other forms of financing like credit cards and personal loans. (You’ll likely pay a bit more because it’s tied to an investment property, however — more on that below.) A HELOC might also be simpler and cheaper to obtain than a business or commercial property loan.
- Less risk for you: Taking out a HELOC on an investment property might feel a bit safer than a HELOC on your primary residence. If you default on the line of credit, at least the home you live in won’t be subject to foreclosure.
- A flexible way to access cash: You can continually draw from the HELOC during the initial draw period, so it’s often a good fit for fluctuating or longer-term expenses like renovation projects.
- Cheap initial payments: With most HELOCs, you only need to pay interest during the draw period. Paying back the principal starts during the repayment period.
Cons
- Limited availability: Not many lenders offer HELOCs on investment properties.
- Higher rates: An investment property is inherently riskier than a primary residence: You don’t live in it, which means you aren’t as impacted if you lose it. That means that lenders charge higher rates for any type of financing attached to one, including a HELOC. For example, at this writing,TD Bank’s lowest available APR on HELOCs for investment properties is more than 1 percentage point higher than a HELOC on a primary or secondary home.
- Extra fees: Most HELOCs come with an annual fee and an early cancellation or termination fee if you close the line within the first two or three years.
- Negative equity concerns: Real estate doesn’t always appreciate, and if your property loses value, you could wind up underwater (owing more on a property than it’s worth).
HELOC requirements for investment properties vs. primary residences
Investment properties | Primary residences | |
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Credit score minimum | Generally 700 | 650-680 |
Debt-to-income (DTI) maximum | 43% (can depend on anticipated rental income) | 43% to 50% |
Loan-to-value (LTV) maximum | 80% | 85% |
When is it a good idea to use a HELOC on an investment property?
Using a HELOC on an investment property can be an easy way to access cash that will generate a return. For example, you might use the funds from the HELOC to buy another property that can act as an additional investment, without depleting your savings. Or you might use the funds to upgrade or expand your property, making it more attractive to prospective tenants and enhancing its revenue stream. HELOCs are an especially good idea when you want to use the funds on the real estate itself — especially because there are tax benefits (see below).
Are you able to deduct a HELOC on your taxes?
Tax advantages are one of the pluses of HELOCs. You might be able to deduct the interest paid on a HELOC, including a HELOC on an investment property, so long as the funds were used to build, improve or repair the real estate backing the loan in some way. Remodeling the premises, upgrading the HVAC system, constructing a new wing, or even buying an adjacent lot could all count as tax-deductible improvements.
You can’t deduct all of the interest, however. With HELOCs, you can only deduct the interest actually accrued on withdrawn funds (not on your total line of credit). Depending on your filing status, overall you can deduct up to $750,000 (if married filing jointly) or $375,000 (single or filing separately) of interest on combined debt, including any mortgages on your primary residence. You must also itemize deductions on your tax return.
What are the alternatives to using a HELOC on an investment property?
- Cash-out refinance: With a cash-out refinance, you’ll refinance the loan on your investment property to a higher amount — provided you have enough equity — and take the difference in cash. Some savvy real estate investors use this method to continuously add new properties to their portfolio mix. However, this strategy might not work as well today, with mortgage interest rates having gone up.
- HELOC on your home: If you can’t find a lender willing to extend a line of credit on your investment property, you might want to consider taking out a HELOC on your primary residence. This means your home is on the line, however, if you can’t repay what you borrow. You might not be able to get as sizable a loan, however, and you won’t be able to deduct any interest (because the loan’s backed by your home, not the investment property).
- Personal loan: Depending on your debt load, you might be able to take out an unsecured personal loan as a lump sum. The interest rates on these can be much higher if your credit isn’t the best, however, and you’ll need to start repaying what you borrowed right away.
- Small business loan: If you have set up a company to own/operate your investment property, consider comparing small business loans or line of credit to access the funds you need. The interest rates on these loans will likely be higher than that of a personal HELOC, and you’ll have to start full repayments right away or make more frequent payments (in the case of the line of credit). But if you have a solid business plan you can show to a lender that documents your strategy for expanding your real estate investment portfolio, this can be another viable option.
The bottom line on using a HELOC on an investment property
Opening a HELOC on an investment property can be a savvy financial move, particularly if your need for funds is real estate–related. You can leverage the property to improve the property — and its income-generating or appreciation potential. Plus, you may be able to score some tax benefits.
However, a HELOC on an investment property isn’t all upside: Rates are higher than some other types of financing — including residential-property HELOCs — and you need to have pretty solid financials. Also, the availability is limited to a small number of lenders.