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If you’re into real estate investing, and you’re thinking about expanding your portfolio to include multiple rental properties, you may have seen the acronym BRRRR and wondered what it means.

BRRRR — which stands for Buy, Rehab, Rent, Refinance, Repeat — is kind of like house flipping, but on steroids. Instead of reselling a newly rehabbed home for a one-time profit, a BRRRR investor keeps the property and rents it with the goal of generating income while also building equity to make another purchase, and another, and so on.

Read on to learn more about this complicated investing strategy, how it works, and some pros and cons.

Understanding the BRRRR Method

Don’t let the “cool” and easy-to-remember acronym fool you: Successfully executing each step of the BRRRR method can require time and effort, and knowledge about how to invest in real estate, especially in your local market. Here are some BRRRR real estate basics:

BRRRR Meaning

BRRRR is a strategy real estate investors use to keep adding rental homes to their property portfolio. Each of the five letters stands for a step in the process:

•  B – Buy a property that you expect to gain significant value but that may need a substantial amount of work.

•  R – Rehab that property to gain equity and make it appealing to renters.

•  R – Rent the property to provide an income source.

•  R – Refinance the property with a cash-out refinance to provide money for your next investment property.

•  R – Repeat the process with another property that needs help and keep building your portfolio.

Origin and Evolution of the Strategy

Investors have been following these steps for years in an effort to maximize the profits from their rental properties. But podcaster and blogger Brandon Turner of BiggerPockets.com gets credit for the catchy BRRRR acronym, which is now a common term in the real estate lexicon.

Breaking Down the BRRRR Method

Each step in the BRRRR process presents its own challenges, which may become easier as you develop your own systems and go-to sources. Here’s a look at what to expect.

Buy

Finding the right property to purchase is critical to making the whole strategy work. Many experienced BRRRR investors recommend buying a distressed property that’s in need of renovations, so you can get in cheap and secure the biggest return on your investment. If you have the wherewithal to manage this type of project without getting in over your head, you may be able to quickly add to your equity. And if the property is in a sought-after area, you may find you can charge more for rent.

Rehab

A distressed property may be a good buy, but major repair costs can cut into your profit. And unless you plan to do the work yourself, you’ll need a reliable contractor to help you renovate. Budgeting is a big factor at this stage. It can help to know the market, so you don’t over- or under-improve the property. And since you may be the person who gets the calls when things need to be repaired or replaced, you’ll want to make sure everything is solid and safe.

Rent

Finding the right renter can be difficult — so you may want to hire a trusted property management service to take on this step of the BRRRR strategy. You’ll likely want to check on each applicant’s employment, review their credit score, and perhaps do a criminal background check. Having a reliable renter can cut your overall costs (the place won’t sit empty, you’ll get paid, and you won’t have to worry about damages). And you may need to have a signed lease when you go to do your cash-out refinance. It’s also critical to factor in all your costs and current rent prices for comparable homes in the area when deciding how much to charge.

Refinance

Once you begin collecting rent, you can use it to pay off some of your current costs and prepare for your next purchase. Then, as soon as you have enough equity in the property, you can start the ball rolling on your cash-out refinance. The goal here is to swap your original mortgage for a new loan, preferably with better terms, and to come away with a portion of your equity in cash to put toward your next project. Lenders may have different rules regarding how long you have to own the property, or how much equity you must have to qualify, so it can be helpful to build a relationship with a reliable lender who becomes your go-to source for this step.

Repeat

With the cash from your refinance in hand, it’ll be time to start another property search — or, better yet, to move on a property you’ve already found. If the strategy works, an investor could potentially purchase multiple rental properties and continue making money through rent and equity.

Benefits of the BRRRR Method

As with any investment, there are benefits and risks associated with the BRRRR method. Some of the pros include:

•  You can build equity. If you buy multiple properties, renovate them, hold on to them, and maintain them so they keep their value, you can expect to keep building equity.

•  You can generate a reliable flow of cash. If you buy multiple properties, renovate them, hold on to them, and maintain them so they keep their value, you can expect to keep building equity.

•  You can diversify your investment portfolio Adding real estate investments that provide passive income can further diversify your portfolio, which can help protect you during market fluctuations.

•  You can take advantage of certain tax breaks. As a property owner who earns rental income, you may be able to deduct some of your expenses (mortgage interest, property taxes, repair and management costs, etc.) on your tax return each year.

Challenges and Risks

Some of the drawbacks to the BRRRR strategy can include:

•  You may experience market fluctuations. Although property values and rent prices always seem to be going up, there’s the chance they could slip and (at least temporarily) affect your profit. And if you can’t make your payments, you could lose the property.

•  You may run into renovation overruns. If you’ve ever watched a home renovation show, you know how easy it can be to go over budget. Solid planning, a thorough home inspection, and a contingency fund are must-haves for the rehab stage of this strategy.

•  You may lose rental income if there’s vacancy. Finding reliable tenants can be challenging — and unreliable tenants can mean lost income and/or added costs.

•  You may have trouble refinancing. Depending on the market, lender criteria, and your own creditworthiness, it may be harder than you expected to get a loan, or to get the terms you hoped for when buying or refinancing.

Financial Considerations

Before jumping on the BRRRR bandwagon, there are several financial considerations to keep in mind, including:

Initial Capital Requirements

Unless you’ve saved up a pile of cash to buy your first property, you’ll need to find financing. That could mean:

•  Taking out a mortgage — which can require coming up with a down payment and closing costs.

•  Borrowing against the equity in your own home — which can put your home at risk of foreclosure if your BRRRR business isn’t profitable.

•  Taking out a hard money loan — which is common for this type of real estate investing, but typically comes with high interest rates and short repayment terms — can be risky. Hard money loans are generally offered by individual investors and investment firms that can provide fast funding and usually care more about the value of the asset than the borrower’s creditworthiness.

Rehab Costs

When looking at investment properties — particularly distressed properties — it’s important to calculate the estimated value of the home after renovations and repairs. This is known as the after-repair value (ARV = current property value + value added from renovations). For the BRRRR method, it can be useful to consider how improvements will affect the value of the home for equity and rental income. A common BRRRR rule of thumb is that you should avoid paying more than 70% of the ARV when purchasing the property. So, for example, if a home’s ARV is $400,000, you wouldn’t pay more than $280,000 for the home.

It can also be helpful to carefully prioritize the renovations you plan to make. Making the home safe is critical, but your costs will also include improvements that add value, such as updating appliances, installing new windows, and adding curb appeal.

Cash-Out Refinancing

Cash-out refinancing is a critical part of the BRRRR strategy, since you’ll use the money to buy another property to rehab and rent. You may want to spend a little time researching and comparing lenders to get the best interest rate and other loan terms for your needs and goals. Be prepared: Qualifying for a cash-out refinance and the mortgage refinancing costs (loan fees and other closing costs) can be similar to a home purchase.

Return on Investment Calculations

Calculating return on investment (ROI) can help you make smarter decisions about the properties you own and those you hope to add to your real estate portfolio. Some things to consider when estimating your ROI include:

•  Purchase price and financing terms. If you pay too much for a property or the loan, your returns are likely to disappoint. Negotiating a good deal is a key to making the BRRRR strategy work.

•  Profitable and reliable rental income. Finding the sweet spot between charging competitive rental prices and keeping vacancies low is also essential.

•  Operating expenses. Keeping your property running smoothly can lower your operating costs in the long term. But things like maintenance costs, property management fees, insurance premiums, and the property taxes included in mortgage payments can all directly impact ROI. Again, finding the right balance between efficiency (getting things done) and economy (keeping things affordable) can help you maximize your profit.

•  Property appreciation. Speaking of the long term, a property’s potential to increase in value can also be an important factor when determining ROI.

•  Tax advantages. Investors can reduce their taxable income each year by claiming depreciation, mortgage interest deductions, and other tax benefits related to their rental properties.

Recommended: Mortgage Calculator with Taxes

BRRRR vs Traditional Real Estate Investing

Risk vs. reward is a common theme in all types of investing — and it’s definitely something to look at when comparing the BRRRR method to traditional real estate investing.

While investors using the BRRRR method have the potential to expand their portfolio — and grow their wealth — at a faster clip than traditional real estate investors, they’re also taking on more risk. Which is why choosing between the two approaches can boil down to knowing yourself: How much time and effort do you want to put in? How much do you really know about real estate, renovating, rentals, and the market where you would purchase the home? What is your tolerance for risk (emotionally and financially)?

If you’re relatively new to real estate investing, you may want to seek out some advice from someone who’s a BRRRR veteran. It may make sense to hone your skills and get to know your market better before diving in. Or you may decide that taking a more hands-off approach with REIT investing (investing in a real estate investment trust) is a better fit for you.

Recommended: Real Estate vs. Stocks: Pros and Cons

Tips for Successful BRRRR Implementation

Think you may be ready to tackle the BRRRR method? Here are some planning tips:

•  Use your contacts. If you’ve been investing in real estate for a while, it’s likely you have a go-to group of pros you work with on a regular basis. Tap those folks — real estate professionals, contractors, workers — for advice and assistance as you search for a property to purchase and rehab.

•  Stick to a budget. The key to BRRRR is to keep costs manageable all through the process. That means figuring out your costs before you buy, and sticking to a budget as you renovate, rent, and maintain the property.

•  Be picky about tenants. Choosing good tenants can help you avoid problems with vacancies, missed rent payments, maintenance problems, and other issues. Paying a professional service to vet potential renters could end up saving you money later on.

•  Don’t forget the importance of refinancing. Finding the right lender and home mortgage loan terms as you prepare for your cash-out refinance can help you confidently move on to the next property.

•  Learn from your wins and losses. When you hit the “repeat” stage of the BRRRR method, you can use what you learned along the way to keep improving your process and the team of people you work with.

The Takeaway

The BRRRR method of real estate investing can be profitable: Investors who make it work can enjoy passive income from their rentals and build equity in a portfolio of properties. But BRRRR also can be time-consuming and risky. Newer investors may want to wait until they have more experience with traditional real estate investing before they jump into this strategy.

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

FAQ

How long does a typical BRRRR cycle take?

A BRRRR cycle can vary based on several factors (property selection and closing, renovation schedule, cash-out refinance timeline), but it generally takes a few months to a year.

What types of properties work best for the BRRRR method?

BRRRR investors typically look for distressed properties that can be purchased for a low price. This allows them to add value faster, and to turn their equity into cash to use for their next purchase.

How does BRRRR affect taxes and depreciation?

BRRRR investors can reduce their taxable income over the long term by claiming mortgage interest deductions as well as deductions for property taxes, operating expenses, repairs and depreciation on their rental properties.

Can BRRRR be used in any real estate market?

Yes, the BRRRR method can be used in any real estate market. But it requires finding the right property at the right price, as well as having a manageable rehab budget and reasonable financing and refinancing terms to make it a success.

Photo credit: iStock/Rockaa

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

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

SOHL-Q424-010

If you own one or more rental properties and you’re considering selling this year, it’s important to think about the impact capital gains tax on rental property could have on your profit — and on your future goals for that money.

Planning ahead is key to minimizing the hit to your bottom line. So read on for some capital gains tax basics and a few strategies that can help rental property owners lower the tax burden when they decide to sell.

Capital Gains in Real Estate

When you invest in real estate, the expectation (or hope, at least) is usually that when you sell it, you’ll make a nice profit on the deal. It’s one reason so many people have been investing in single-family rental homes in recent years.

You may already have a plan for how you’ll use that profit — to make another investment, for example, or to put toward your retirement. But if the value of the property has increased substantially during the time you’ve owned it, you should also be prepared to hand over some of your gains to the IRS to cover the capital gains tax.

What Is a Capital Gain?

When you determine how much a house is worth, find a buyer, and sell a capital asset for more than you paid for it, the increase in value is referred to as a capital gain.

Capital gains taxes are the taxes you pay on the profit you made because of that increase in value. The tax isn’t applied while you own the asset — in this case a rental property. It hits only when you profit from the sale.

Short-Term vs. Long-Term Capital Gains

The length of time you owned the property before selling it determines whether your profit is a short-term or long-term capital gain. This distinction can make a significant difference in how, and how much, your gains are taxed.

•  Short-term capital gains: If you sell the property after owning it for a year or less, the profit is considered a short-term capital gain, and you’ll be taxed at your ordinary income tax rate for the year you made the sale. Tax rates are always subject to change, but the maximum you could pay for short-term capital gains on a rental property in 2024 is 37%.

•  Long-term capital gains: If you sell after holding the property for more than a year, the profit is considered a long-term capital gain, which makes it subject to preferential capital gains tax rates. Long-term capital gains tax rates are set at 0%, 15%, and 20%, based on your filing status and income.

How Capital Gains Tax Works on Rental Properties

If you’ve ever sold a home, you’re probably familiar with the “home sale exclusion” that eligible home sellers can use to avoid or reduce the capital gains tax on the sale of their primary residence.

Unfortunately, this exclusion typically doesn’t apply to a property used as a rental. (Though there may be an exception if you lived in the property during part of the time you owned it and rented it part of the time.)

Factors Affecting the Capital Gains Tax You May Pay

Without the home sale exclusion, the primary factors that will go into deciding how much you ultimately could be taxed on your gains include:

•   How long have you owned the property?

•   How much did you pay for the property?

•   How much did you spend on improvements to the property?

•   How much did you claim in depreciation?

•   How much did you sell the property for?

•   What was your filing status and taxable income in the year you made the sale?

Recommended: What Is a Home Inspection?

Calculating Capital Gains on Rental Property Sales

These steps can help you estimate the gain on the sale of a rental property:

1.    Start by determining your cost basis (or adjusted cost basis if you made major improvements). This is the price you originally paid for the property, plus money you spent on major improvements (such as additions and upgrades), minus the amount you claimed for depreciation over the years and/or casualty and theft losses.

2.   Next, calculate the capital gain. To do this, subtract your adjusted cost basis from the net proceeds of the sale. (Net proceeds is the amount the seller walks away with after all the closing costs are paid and any home loan balance is paid off.)

Strategies to Minimize Capital Gains Tax on Sale of Rental Property

There are several strategies that can help sellers avoid paying capital gains tax on real estate, either by legally deferring or minimizing their gains.

1031 Exchange

A 1031 exchange is an effective but complicated strategy that allows the owner of an investment property to defer paying capital gains taxes if the sale’s proceeds are reinvested into a replacement or “like-kind” property.
The IRS has several rules regarding the type of property that can be used in the exchange, the timeline, and other details, so you may want to consult with a tax professional if this strategy appeals to you.

Tax-Loss Harvesting

With tax-loss harvesting, you can sell long-term positions in your investment portfolio that have produced capital losses, replace them with similar (but not identical) investments, and then use the loss to offset the gains from the sale of your rental property.

If your losses exceed your gains, you can even use the excess to offset up to $3,000 of ordinary income that year, with any remaining losses carried forward to future years. But again, you’ll likely need some professional help to make sure you’re getting the most out of your investments and that you’re following IRS rules.

Installment Payments

If you prefer to spread out your capital gains tax liability over a period of several years, you may want to look at the benefits of receiving installment payments from the buyer instead of a lump sum. With this method, you would pay capital gains tax only on the portion of the gain you receive each year until the property is paid off.

Convert the Rental Property to Your Primary Residence

If you move into the rental property and make it your primary residence before the sale, you may be able to use the home sale exclusion to reduce your capital gains.

Of course there are IRS rules: To qualify, you must own and occupy the property as a principal residence for two of the five years immediately before the sale. But the ownership and occupancy don’t have to be concurrent, so if you’ve lived in the property as your primary residence for at least 24 of the last 60 months, the gains may qualify for the tax exemption.

Reporting Capital Gains on Rental Properties

The IRS has specific rules for reporting the capital gains on a rental property.

You can start by making sure you get a copy of Form 1099-S. Typically, the person who closes the transaction (real estate attorney, lender, real estate broker title company, etc.) is required to file this form in order to report the sale of a business property. Copies go to the seller and the IRS.

You’ll use Form 1099-S along with other records and receipts to report the capital gains from the sale on your tax return. It’s important to have the original closing documents from your purchase, the real estate purchase contract and closing documents from the sale, receipts related to major improvements, records of any depreciation claimed, and any other relevant paperwork related to the property. This way you (or your tax professional) can more accurately complete the appropriate tax forms and schedules when it’s time to file your tax return.

Filling out these forms can be challenging, especially if it’s your first time selling a rental property and dealing with capital gains. You may want to tap a tax attorney or other professional for the job to ensure that you’re fully compliant with IRS rules.

State-Specific Capital Gains Taxes

Depending on where you reside, you also may have to pay taxes on your capital gains to your state. Most states have a capital gains tax rate between 2.9% and 13.3%, although some states (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming) don’t charge any capital gains tax.

Impact of Capital Gains on Investment Strategy

Smart planning can help investors manage and mitigate the impact of capital gains. Some things to consider include:

•  Timing: If you can put off selling an asset until you’ve held it for at least a year, you can qualify for the lower long-term capital gains tax rate. Delaying also may make sense if you decide to wait until you have investment losses that can offset the profit from the sale of your rental property. Or you could wait for a year when your income is lower so that you’re taxed at a lower rate.

•  Reinvestment opportunities: Reinvesting the profit from your sale into another investment could open up new opportunities to grow your money — and possibly reduce or defer your tax liability (if, for example, you choose to do a 1031 exchange). A financial advisor can help you figure out your next move and what might be a good fit for your goals.

•  Think holistically: How does selling or not selling the rental property fit into your overall investment plan? It might be better to sell for a profit now and pay the taxes than to wait and end up losing money on the sale.

Recommended: Small Business Loans for Rental Property

Common Mistakes to Avoid with Capital Gains Taxes

Ultimately, it’s your responsibility as the seller to make sure your capital gains tax is accurately calculated and paid on time. Getting the amount wrong or failing to pay could result in IRS penalties. Some common mistakes to avoid include:

•  Failing to report capital gains. It’s important to report all capital gains, whether you think you’ll owe taxes on the amount or not.

•  Miscalculating the cost basis. This number is key to determining your gains (or losses) and, therefore, what you’ll owe the IRS.

•  Record keeping errors. Keeping good records can make calculating your capital gains tax easier, and you may need to provide those records and receipts if the IRS asks for documentation.

Working with Tax Professionals

You may have noticed that the word “professional” comes up repeatedly in this guide. That’s because selling a rental property, and the variables that can go into calculating and reporting the gain on your tax return, will be a little different for every seller. There’s no one-size-fits-all process for DIYers to replicate.

And let’s face it, it can be pretty darn difficult to decode the tax code if it isn’t your line of work. If your goal is to legally maximize your tax breaks, it can be helpful to seek out a tax attorney or an experienced tax professional who specializes in real estate issues.

The Takeaway

Understanding how to avoid capital gains on the sale of a rental property, and doing some proactive planning, could make a big difference to your bottom line. And the more money you can keep from the sale, the more you’ll have to put toward your other financial goals — whether they’re personal, for your business, or both.

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

FAQ

What are short-term capital gains?

Short-term capital gains are profits from the sale of an asset held for one year or less. (Long-term gains, as you might imagine, are the profits from an asset held longer than a year.)

Can I avoid paying capital gains tax on the sale of a home?

If the home is your primary residence, the IRS allows you to exclude a portion of the capital gain from its sale (up to $250,000, or $500,000 if married filing jointly).

Photo credit: iStock/everydayplus

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

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

SOHL-Q424-009

If you purchased your home with a VA loan but are ready to move on, you may be able to benefit from VA loan assumption. VA loan assumption allows someone else to take over your existing VA loan mortgage — and unlike when you originated your VA loan, the new borrower doesn’t necessarily have to be a military servicemember, veteran, or surviving spouse to qualify. However, your eligibility for this program depends on a few factors, including when you took out your VA loan, and has a few caveats to understand. We’ll explain below.

What Is VA Loan Assumption?

VA loan assumption is a process in which a new borrower can “assume,” or take over, an existing VA mortgage loan. As mentioned above, you don’t have to be eligible to take out a VA loan to be eligible to assume one.

In other words, using VA loan assumption, the homebuyer could take over the existing VA loan rather than securing a brand-new mortgage to buy the home (or buying it in cash). A VA loan has some benefits vs. a conventional loan, and assuming the loan may offer the buyer a lower interest rate (as VA loans often have competitive rates). On the seller side, loan assumption could attract more buyers and help a home sell more quickly.

Eligibility for VA Loan Assumption

Even when a new buyer is taking over a VA assumable loan, the original lender will still want to see proof of the new borrower’s creditworthiness. (After all, repayment of the remainder of the balance will now fall to the new borrower.) Here’s what you need to know about eligibility requirements for VA loan assumption:

For the Assumer

The person taking over the loan still needs to prove their creditworthiness to the lender or VA. The VA doesn’t specify a minimum credit score, but most lenders want to see a score of at least 620.

The assumer’s debt-to-income ratio (DTI) also matters, and should be no higher than 41%. They’ll also need to have sufficient income and be able to pay the VA loan assumption fee, which is 0.5% of the total loan balance — and the difference, if any, between the home’s sale price and the existing loan balance.

For the Seller

Those who took out a VA loan to purchase their home anytime after March 1, 1988, are eligible to sell their home via loan assumption. Be sure to triple-check that your lender will release you from the liability of the loan — otherwise, if the new borrower fails to repay or makes late payments, it could hit your credit score. And once the deal goes through, recheck to be sure your lender has finalized the release. (If you don’t yet have a VA loan but are wondering what is a VA loan and could I get one, briefly: You may be eligible for a VA loan if you are a member of the military, veteran, Reserve or National Guard member, or surviving spouse. You’ll need to get a Certificate of Eligibility from the VA in order to apply for a VA loan.)

Recommended: VA Loan Calculator

Benefits of VA Loan Assumption

As mentioned above, VA loan assumption has benefits on both sides of the table.

For buyers, taking advantage of a VA assumable loan could be very attractive if current mortgage rates are generally higher than the rate on the existing loan. Although creditworthiness still needs to be proven to the lender, if you’re wondering how long does it take to assume a VA loan, rest assured that the underwriting process may be faster since the mortgage is already written.

For sellers, having an assumable loan could expand your pool of potential buyers and help the house sell faster. Transferring a loan may also take less time than going through the process of waiting for the buyer’s new mortgage to pay off your debt.

Risks and Considerations

While there are benefits that can make VA loan assumption worth considering, there are risks and drawbacks to consider, too.

For one thing, while the new borrower doesn’t need to be eligible for a VA loan to take one over, you won’t be able to take out a new VA loan until the loan that’s being assumed is fully paid off. (Normally, you can use a VA loan multiple times to buy a house.) Additionally, you must check with your mortgage lender to ensure you can obtain release of liability for the loan to avoid impacts to your credit score after managing the loan is out of your hands.

On the buyer’s side, assuming a loan may offer better interest rates — but require more cash up front to pay the owner for the equity they’ve stored in the home. Depending on how long the loan has been in place, that total may be higher or lower than a traditional down payment.

VA Loan Assumption Process

If you want to put your home on the market with the option to assume your VA loan, you’ll need to take these steps.

1.    First, reach out to your lender and let them know your intentions. You can also use this opportunity to ask about the release of liability once the loan has been transferred.

2.    In your home sale listing, market the fact that an assumable loan option is available. This may be attractive to many buyers and increase the speed of your sale.

3.    Once you have a prospective buyer, you’ll need to offer full disclosure about the terms of the loan. (If the buyer turns out to be a service member, veteran, or surviving spouse, inquire about a “substitution of entitlement,” which is used when one person who is VA-loan eligible takes over a loan from another.)

4.    At the time of sale, you’ll need to wait for the borrower to be qualified by your lender or the VA to ensure they’re deemed creditworthy enough to take over the loan. Closing will also involve the cash payment to make up the difference to the agreed-upon purchase price.

5.    Once the loan is transferred, ensure you have documentation of your release of liability from the VA or your lender.

VA Funding Fee for Loan Assumption

While VA loans are generally low-cost ways to buy a home, they do come with a funding fee — and assumed loans have one too. However, the fee is only 0.5% in the case of assumed VA loans, which is far lower than the 1.25%-3.3% it might cost to take out such a loan in the first place.

Recommended: VA Loan Buyers Guide

Release of Liability

We’ve said it before, but it bears repeating: As the seller, you’ll want to make sure you have a document stating your liability for the loan has been released once the loan transfer is completed. Otherwise, you may see impacts on your credit score for financial behaviors you have no control over.

Comparison: VA Loan Assumption vs. New VA Loan

Here’s how VA loan assumption vs. new VA loans compare, at a glance.

The Takeaway

Assuming a VA loan can be a valuable way for borrowers to save money on interest (and enjoy a shorter repayment period) while also allowing veterans to market their home for sale in an attractive way.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

FAQ

Who can assume a VA loan?

Anyone who can prove their creditworthiness to the lender and afford to pay the difference can assume an available VA loan. However, if that party would not be qualified to take out their own VA loan in the first place, the original lender will not be able to take out a new VA loan until the existing one is paid off by the new borrower.

Does the assumer need to be a veteran?

The assumer of a VA loan does not need to be a veteran. However, if they are not a veteran, the original VA loan borrower will not be able to take out a new VA loan for themselves until the original loan has been paid off.

Can any VA loan be assumed?

Any VA loan issued after March 1, 1988 is eligible for assumption.

Photo credit: iStock/SethCortright

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

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

SOHL-Q424-001

If you feel like your electricity bills get a little higher every summer, it’s not your imagination. For the June-through-September period of 2024, the average U.S. electric bill is projected to be $719, a nearly 8% increase year over year and the highest average in 10 years.

Fortunately, there are some simple things you can do to shrink your bills back down to size. Better yet, they don’t involve sacrificing comfort. While some measures require a small upfront investment, others are completely free. Read on for some of the most effective ways to save on your electric bill this summer.

Review Your Summer Electric Usage

If high electric bills are impacting your bank account this summer, a good first step is to review your electricity use patterns. Many utilities offer dashboards where you can view your daily and monthly usage to learn when you use the most energy. Some utilities even offer a mobile app that allows you to see your electricity usage in monthly, daily, and 15-minute time intervals to help you manage your energy consumption.

Knowing when you tend to use the most electricity — and how this is impacting your bill — can help you become more mindful of your energy usage. It can also give you motivation to make some changes.

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Optimizing Your Air Conditioning System

Air conditioning accounts for about 19% of electricity consumption in U.S. homes, according to the U.S. Energy Information Administration’s most recent statistics. So one of the best ways to save on utility bills is to maximize the efficiency of your air conditioning system.

If you have central air, it’s a good idea to have a professional HVAC specialist perform annual maintenance on your equipment. This can go a long way in ensuring your air conditioner runs at peak efficiency. There are also some simple things you can do yourself to optimize the performance of your air conditioning system:

•  Vacuum air intake vents regularly. This will remove any dust buildup and allow the unit to function at a higher efficiency.

•  Regularly clean or replace air filters. Dirty air filters can restrict airflow, causing air conditioners to work harder and less efficiently.

•  Keep outdoor units clean. If you have a central unit outside, you can optimize performance by keeping your outdoor unit clear of debris and plant growth. The outdoor unit needs space to release heat, so make sure it has at least two feet of clearance on all sides.

•  Use fans to your advantage: Utilizing ceiling fans to circulate air can help you maintain a comfortable temperature while reducing the load on your air conditioner. For the most cooling effect, be sure the fan is turning counterclockwise (if it’s going the other way, you can typically change it by flipping a switch on the fan body).

•  Click up the thermostat: While the most energy efficient temperature is 78°F, that may not be cool enough to keep you comfortable. However, any uptick in your thermostat is helpful. In fact, you’ll save about 3% on your utility bill for every degree you raise the set temperature for your central air.

•  Install a smart thermostat. A smart thermostat can learn your schedule and adjust temperature automatically, ensuring energy is not wasted.

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Energy-Efficient Cooling Alternatives

While air conditioning is effective, it is not the only way to keep your home cool. Consider these energy-efficient cooling alternatives to reduce your reliance on AC and lower your electric bill.

Attic Fan

Air from a hot attic can seep into your house and make your air conditioner work harder and more often. Not only does that increase your electricity bill, but it can also shorten the life of your AC system. An attic fan can help by circulating air and pushing stuffy, warmer air out of the house. This, in turn, can keep the entire house cooler. On days when it’s not too hot, it could be all you need.

Geothermal Heating/Cooling

Geothermal systems rely on stable underground temperatures for heating and cooling. They work by circulating liquid through buried tubes, exchanging heat between your home and the ground. It’s an efficient process that uses 25% to 50% less electricity than traditional HVAC systems, according to the Department of Energy. This can lead to a significant savings on utility bills over time.
On the downside, installing a geothermal system involves substantial digging to bury the pipes, which can be costly. Despite the initial expense, however, the long-term energy savings can make it a worthwhile investment.

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Evaporative Coolers

In dry climates, evaporative coolers (also known as swamp coolers) can be an efficient, cost-effective cooling option. These units work by using a fan to blow air through a water-soaked pad, cooling the air before it enters your home. By cracking windows, hot air can escape, and cool air circulates effectively.

These coolers use less energy and water compared to traditional air conditioning, leading to lower utility bills. However, they are generally only effective in low-humidity climates.

Reducing Heat Gain in Your Home

One of the best ways to use less air conditioning is to reduce the overall heat that comes into your home. If you stop heat from coming inside in the first place, then you don’t have to pay to cool it. This can be one way to lower your energy bill when you’re working from home or if you’re home a lot during the day.

Some strategies include:

•  Ensure you have adequate insulation in the attic and walls. This greatly reduces the flow of heat into your home in the summer.

•  Seal up any cracks. Adding weatherstripping or caulk around doors and windows can help seal up any openings. This prevents the warm exterior air from leaking into your home.

•  Close windows and doors. Whenever it’s warmer outside than inside, it’s wise to close all windows and doors and latch them tightly to reduce heat gain.

•  Cover the windows. Another way to keep the heat outside is to cover windows with shades, blinds, or curtains during the day to block out the sunlight.

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Smart Appliance Usage and Vampire Energy

Vampire energy refers to electricity that devices consume while not actively in use but in “standby mode.” Common offenders include TVs, desktop computers, printers, device chargers, and kitchen appliances. While each device uses a small amount of power, when added all together, it can make up a significant source of your home’s electricity use.

The simplest way to cut standby power consumption in the summer (and year round) is to unplug devices, or turn off the power strips they are plugged into, when you’re not using them. Another option is to get some smart power strips. These strips help reduce energy waste by automatically turning off power to connected electronics when they are not in use.

When it comes time to replace an old appliance, consider purchasing an Energy Star-certified device. These appliances are designed to minimize phantom loads and improve your home’s efficiency.

The Takeaway

If you’re seeing significantly higher electric bills this summer, know that there are several steps you can take to save on the cost of electricity, even during the hottest months of the year. Some strategies — like cleaning your AC unit or reducing heat gain in your home — require just a small upfront cost, if any. Others (like replacing your heating/cooling system) call for a more significant investment, but can pay off over time by cutting your electricity bills both in the summer and year round.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What temperature should I set my thermostat to save money?

To save energy, as well as money, the U.S. Department of Energy recommends setting the thermostat to between 68°F and 70°F while you’re awake, and then making it a higher temperature (or, if it’s winter, a lower temperature) while you’re sleeping or away from home.

Are ceiling fans effective in lowering electric bills?

Yes, ceiling fans enhance air circulation and create a cooling effect, allowing you to raise the thermostat by about 4°F without sacrificing comfort.

During the summer, be sure your ceiling fan is turning counterclockwise — this creates a downward draft and circulates the cool air around you. If your fan blades are turning clockwise, you can typically reverse it by turning off the fan and flipping the switch on the fan body. You may also be able to do this using your ceiling fan’s remote.

How much can LED bulbs reduce my summer electric costs?

Lighting accounts for around 15% of an average home’s electricity use, so switching out your incandescent bulbs with more energy-efficient LED bulbs can lead to significant savings over time. According to the U.S. Department of Energy, the average household can save about $225 in energy costs per year by using LED lighting.

Photo credit: iStock/pinstock

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

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