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If you want to sell your home fast and for the highest possible price, you may find that it helps to thoughtfully stage it with potential buyers in mind.

Even in a hot real estate market, staging can be a useful tool. First impressions can be critical as buyers must decide quickly how much to offer or whether to make an offer at all.

A 2023 report from the National Association of Realtors® (NAR) found that 81% of buyers’ agents said staging made it easier for their buyers to visualize a property as their future home.

What Is Home Staging?

Staging your home to sell typically involves cleaning, decluttering, and rearranging furniture — or even replacing your current decor with rented or borrowed pieces that can better showcase the home.

It’s all about making your home as appealing as possible to attract buyers, minimize the amount of time it takes to sell, and maximize your return — goals that can be especially important if you’re trying to buy and sell simultaneously.

How Home Staging Can Affect Time and Price

It’s hard to predict exactly how staging will affect any particular home sale, but here are some factors to consider.

Research Shows Benefits for Sellers

Twenty percent of the buyers’ and sellers’ agents who responded to the NAR survey said staging increased the dollar value offered between 1% and 5% compared with similar nonstaged homes on the market. And 27% reported that staging a home for sale slightly decreased the amount of time the home was on the market.

You Have Competition

As soon as you list your home for sale — whether you’re selling traditionally or with owner financing — you start competing with every other house in the neighborhood and the surrounding area. Depending on that competition, as well as your goals for getting the house sold and locking in a new home loan and buying a new home, staging could be a worthwhile strategy for making your home stand out.

Recommended: 2024 Home Loans Education Portal

Expectations Can Be High

Decor in TV shows may set high expectations among some buyers for what your house should look like. Ten percent of the NAR 2023 Profile of Home Staging respondents said buyers were disappointed by how homes they looked at compared with homes they saw on TV.

Should You Hire a Professional Stager?

While some parts of the home staging process may be easy to DIY (paring down the number of personal photos and knickknacks, for example), it may help to hire a professional.

An experienced home stager will likely have more insight into what buyers in your area are looking for and what the current home trends are. A professional also may have access to furniture, art, and other décor items that could transform your home for a quick and/or more lucrative sale. And the amount you get for your current home could directly affect how much you can spend on your next one.

Here are some things to consider when deciding whether or not to hire a home stager.

Cost

Professional home staging can cost hundreds or even thousands of dollars, depending on how much work the stager does, how big your house is, whether you decide to rent staging furniture, and how long the house is on the market. There are ways you might be able to cut the expense, however, including:

•  Meeting with the pro to do a walk-through and consultation on how to stage your home to sell, but then doing the work yourself.

•  Asking the stager to work with your furniture instead of using rented items. (This could also save on storage costs.)

•  Focusing on a few important spaces, such as the entryway, the living room, and the master bedroom, instead of reworking your entire home.

Recommended: Home Mortgage Calculator

Fresh Eyes and Objectivity

Of course, you love your family photos, the tchotchkes you’ve collected through the years, and the paint colors you’ve chosen for every room. Buyers, however, might not.

An experienced stager can walk through and objectively point to the things that might need to be put away, cleaned, moved around, or refreshed before the house is photographed for the listing or has its first showing. A professional also may have home-staging tips to help you market to the types of buyers most often found in your area, whether that’s growing families who are upsizing or baby boomers who are downsizing their home.

Living With Someone Else’s ‘Look’

Stagers are trained to give the homes they work on the kind of polished, cohesive look buyers are used to seeing on HGTV. But living in a home that’s been styled for others may be a bit nerve-wracking. And if the furniture is not your own, you may have to keep kids, pets, and glasses of red wine away to avoid any damage.

Exposing Bigger Problems

Moving furniture around to create a more open look could also create some problems, if, for example, those changes expose a crack in the wall or a stain on the carpet. Making those fixes may delay getting your home on the market.

Pros and Cons of Hiring a Professional Home Stager

Pros	Cons
Marketing focus, objectivity	Cost
Eye for detail	Reworking décor could expose bigger issues
Camera-worthy polish	Feeling displaced

12 Tips for Home Staging Success

Whether you decide to hire a helper or do the work yourself, here’s a list of home staging ideas to keep in mind.

1. Clear the Clutter

Clutter is distracting and it takes up space. As soon as you hire a real estate agent, they’ll likely nudge you to sell, donate, or throw away anything you no longer use. Things you want to keep but won’t need for a while (seasonal clothing and sports equipment, photo albums and keepsakes, or books you hope to read someday), can be boxed up and stored until you move. But remember: Buyers will want to assess your closet space, so you may want to move those boxes to the basement or rent a storage space.

2. Depersonalize

Framed family photos, souvenirs, your kids’ artwork, and other personal items can get in the way when buyers try to envision themselves living in your home. Even the day-to-day stuff can divert attention from the illusion you’re trying to create. That means no shoes by the front door, no wet towels in the hamper, and trying to keep bathroom counters clear of everything but hand soap and guest towels.

3. Deep Clean

Neat and tidy is good, but crisp and gleaming is better. A clean house sends a message to buyers that you take good care of your home and have likely also been on top of house maintenance. If your place isn’t new, you still can try to make it look as new as possible. Shine up all the appliances. Scrub the sinks, tubs, floors, and toilets. Check the corners for cobwebs and the baseboards for dog hair. And don’t forget to dust the ceiling fans and bathroom exhaust fans. If you don’t have the time or energy to do it yourself, you may want to hire a cleaning service — or double up on the service you already have.

4. Repair All Damage

You know all those little dings, stains, and scuff marks you’ve become blind to? They can be a big turnoff for buyers — who will definitely see them. Why not do a thorough walk-through and make a list of required touch-ups and repairs (and repair costs)? Then you can head to the home improvement store, get what you need to make the fixes, and get to work. And if something is beyond your skillset (a running toilet, broken appliance, or finicky fireplace), you can address it before buyers come through. Find all the help you need in a list of homeownership resources.

5. Focus on Essential Rooms

If you have a limited staging budget, you may want to focus on the rooms buyers tend to prioritize. Respondents to the NAR survey said staging the living room was most important to homebuyers, followed by the primary bedroom and kitchen. And home offices may be gaining importance as more people are working from home: 46% of the survey’s respondents said they had staged a home office.

6. Neutralize the Decor

Decorating with neutrals — think 50 shades of gray — can be another big step toward depersonalizing your home. Your favorite colors may be bright and bold, but that might be a bit much for some buyers. (Their agent probably will tell them it’s an “easy fix.” But if they can’t get past the chartreuse kitchen or the green-striped wallpaper in the dining room, buyers may not be able to see their family using those spaces.)

To break up all the beige, gray, or white, touches that evoke a feeling of comfort can be used sparingly. For example, you can give your bathroom that spa vibe simply by adding a basket filled with crisp white towels. A bowl of lemons, potted orchids, or a vase filled with fresh flowers can add a pop of cheer and color in the foyer or kitchen.

7. Let There Be Light

Put your home in the best light by letting in as much sunshine as possible during the day and turning on all the lights for night showings. (No need to make buyers fumble for switches.) Open the curtains and blinds (unless the view is a drawback). Keep pathways and porches well lit when the sun goes down. Replace burned-out bulbs. And think about bouncing a little light around rooms with well-placed mirrors, which can make a room appear larger.

8. Curb Appeal Matters

Why do all that work to fix up your home’s interior if there is a chance buyers won’t even get out of the car? First impressions are lasting, so put out the welcome mat (literally, make sure a clean doormat is outside the door) and use other ideas for amping up your home’s curb appeal.

Consider power-washing the walkway, and updating (or at least clean) outdoor light fixtures. In the winter, clear the snow. If you need a pop of color, you can do it with plants. And if the front door is dated or just dingy, think about fixing it up. If buyers have to wait a minute for you or an agent to let them in, they’re likely to notice if the door looks great … or doesn’t.

9. Look Beyond the Porch

Depending on the weather, buyers may spend time outside checking the exterior of the house — front and back. If weather permits, you may want to sweep the leaves off the roof, try to get rid of any mold or mildew on the house or fences, clean the patio or pool deck, and wash the windows inside and out. The goal here is to make your home more appealing but also to help buyers focus on the fabulous features of your home instead of potential maintenance.

10. Create Space

To get a more open look, consider removing any oversized or extra pieces of furniture. A small bedroom may look bigger, for example, with just a dresser instead of a dresser and chest, or if you remove a bed’s oversized headboard or footboard. In the living room, smaller pieces may be preferable to an overstuffed sectional that seats 10. Remember, the living room is a key room for buyers, so it may be worth renting furniture that shows off its size and other details, such as built-in bookshelves or a fireplace.

11. Clear the Air

If you have pets, or if there’s a smoker in your home, it may require some extra steps to keep buyers from sniffing them out. You may want to have the rugs cleaned, and if you haven’t done it in a while, it may help to have the ductwork cleaned as well. Mildew may be another odor issue. If odors linger, open the windows if possible, but be sparing with sprays and plug-in air fresheners — some buyers may be sensitive to certain smells. If a quick cover-up is necessary, consider baking some cookies.

12. Define Rooms

Give each room a purpose, even if you don’t use the space that way yourself. Could a spare bedroom be turned into a craft room or office? Would your attic be a great space for a teen hangout room? Could your basement be transformed into a home theater by moving a TV downstairs and adding a popcorn machine? Get buyers excited about the possibilities.

The Takeaway

Any competitive edge a home seller can find is worth considering. Home staging could boost the timeline and bottom line of the deal. And at the very least you’ll want to tidy up and spruce up your home so you can get the deal done and move on to your next home as swiftly as possible.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is the 3 and 5 rule in home staging?

The 3 or 5 rule states that a well-staged room should look good both from a slight distance (5 feet away) and up close (the one-foot rule). This means keeping areas free of clutter and also sparkling clean, and including some decor items that are larger and look good from a distance and others that are smaller details seen only up close.

What is the 1/5 rule in home staging?

The ⅕ rule in home staging is a decluttering strategy that states that rooms, cabinets, and storage areas should be only one-fifth full when a home is being staged for sale.

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Photo credit: iStock/FollowTheFlow

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

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

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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

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

SOHL-Q424-119

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How does a home equity loan work? First, it’s important to understand that the term home equity loan is simply a catchall for the different ways the equity in your home can be used to access cash. The most common types of home equity loans are fixed-rate home equity loans, home equity lines of credit (HELOCs), and cash-out refinancing.

What Are the Main Types of Home Equity Loans?

When folks think of home equity loans, they typically think of either a fixed-rate home equity loan or a home equity line of credit (HELOC). There is a third way to use home equity to access cash, and that’s through a cash-out refinance.

With fixed-rate home equity loans or HELOCs, the primary benefit is that the borrower may qualify for a better interest rate using their home as collateral than by using an unsecured loan — one that is not backed by collateral. Some people with high-interest credit card debt may choose to use a lower-rate home equity loan to pay off those credit card balances, for instance.

This does not come without risks, of course. Borrowing against a home could leave it vulnerable to foreclosure if the borrower is unable to pay back the loan. A personal loan may be a better fit if the borrower doesn’t want to put their home up as collateral.

How much a homeowner can borrow is typically based on the combined loan-to-value ratio (CLTV ratio) of the first mortgage plus the home equity loan. For many lenders, this figure cannot exceed 85% CLTV. To calculate the CLTV, divide the combined value of the two loans by the appraised value of the home. In addition, utilizing a home equity loan calculator can help you understand how much you might be able to borrow using a home equity loan. It’s similar to the home affordability calculator you may have used during the homebuying process.

Of course, qualifying for a home equity loan or HELOC is typically contingent on several factors, such as the credit score and financial standing of the borrower.

Fixed-Rate Home Equity Loan

Fixed-rate loans are pretty straightforward: The lender provides one lump-sum payment to the borrower, which is to be repaid over a period of time with a set interest rate. Both the monthly payment and interest rate remain the same over the life of the loan. Fixed-rate home equity loans typically have terms that run from five to 30 years, and they must be paid back in full if the home is sold.

With a fixed-rate home equity loan, the amount of closing costs is usually similar to the costs of closing on a home mortgage. When shopping around for rates, ask about the lender’s closing costs and all other third-party costs (such as the cost of the appraisal if that will be passed on to you). These costs vary from bank to bank.

This loan type may be best for borrowers with a one-time or straightforward cash need. For example, let’s say a borrower wants to build a $20,000 garage addition and pay off a $4,000 medical bill. A $24,000 lump-sum loan would be made to the borrower, who would then simply pay back the loan with interest. This option could also make sense for borrowers who already have a mortgage with a low interest rate and may not want to refinance that loan.

Recommended: What Is a Fixed-Rate Mortgage?

Home Equity Line of Credit (HELOC)

A HELOC is revolving debt, which means that as the balance borrowed is paid down, it can be borrowed again during the draw period (whereas a home equity loan provides one lump sum and that’s it). As an example, let’s say a borrower is approved for a $10,000 HELOC. They first borrow $7,000 against the line of credit, leaving a balance of $3,000 that they can draw against. The borrower then pays $5,000 toward the principal, which gives them $8,000 in available credit.

Unlike with a fixed-rate loan, a HELOC’s interest rate is variable and will fluctuate with market rates, which means that rates could increase throughout the duration of the credit line. The monthly payments will vary because they’re dependent on the amount borrowed and the current interest rate.

HELOCs have two periods of time that are important for borrowers to be aware of: the draw period and the repayment period.

•   The draw period is the amount of time the borrower is allowed to use, or draw, funds against the line of credit, commonly 10 years. After this amount of time, the borrower can no longer draw against the funds available.

•   The repayment period is the amount of time the borrower has to repay the balance in full. The repayment period lasts for a certain number of years after the draw period ends.

So, for instance, a 30-year HELOC might have a draw period of 10 years and a repayment period of 20 years. Some buyers only pay interest during the draw period, with principal payments added during the repayment period. A HELOC interest-only calculator can help you understand what interest-only payments vs. balance repayments might look like.

A HELOC may be best for people who want the flexibility to pay as they go. For an ongoing project that will need the money portioned out over longer periods of time, a HELOC might be the best option. While home improvement projects might be the most common reason for considering a HELOC, other uses might be for wedding costs or business start-up costs.

Home Equity Loan Fees

Generally, under federal law, fees should be disclosed by the lender. However, there are some fees that are not required to be disclosed. Borrowers certainly have the right to ask what those undisclosed fees are, though.

Fees that require disclosure include application fees, points, annual account fees, and transaction fees, to name a few. Lenders are not required to disclose fees for things like photocopying related to the loan, returned check or stop payment fees, and others. The Consumer Finance Protection Bureau provides a loan estimate explainer that will help you compare different estimates and their fees.

Home Equity Loan Tax Deductibility

Since enactment of the Tax Cuts and Jobs Act of 2017, interest on home equity loans and HELOCs is only deductible if the funds are used to substantially improve a home. Checking with a tax professional to understand how a home equity loan or HELOC might affect a certain financial situation is recommended.

Cash-Out Refinance

Mortgage refinancing is the process of paying off an existing mortgage loan with a new loan from either the current lender or a new lender. Common reasons for refinancing a mortgage include securing a lower interest rate, or either increasing or decreasing the term of the mortgage. Depending on the new loan’s interest rate and term, the borrower may be able to save money in the long term. Increasing the term of the loan may not save money on interest, even if the borrower receives a lower interest rate, but it could lower the monthly payments.

With a cash-out refinance, a borrower may be able to refinance their current mortgage for more than they currently owe and then take the difference in cash. For example, let’s say a borrower owns a home with an appraised value of $400,000 and owes $200,000 on their mortgage. They would like to make $30,000 worth of repairs to their home, so they refinance with a $230,000 mortgage, taking the difference in cash.

As with home equity loans, there typically are some costs associated with a cash-out refinance. Generally, a refinance will have higher closing costs than a home equity loan.

This loan type may be best for people who would prefer to have one consolidated loan and who need a large lump sum. But before pursuing a cash-out refi you’ll want to look at whether interest rates will work in your favor. If refinancing will result in a significantly higher interest rate than the one you have on your current loan, consider a home equity loan or HELOC instead.

The Takeaway

There are three main types of home equity loans: a fixed-rate home equity loan, a home equity line of credit (HELOC), and a cash-out refinance. Just as with a first mortgage, the process will involve a bank or other creditor lending money to the borrower, using real property as collateral, and require a review of the borrower’s financial situation. Keep in mind that cash-out refinancing is effectively getting a new mortgage, whereas a fixed-rate home equity loan and a HELOC involve another loan, which is why they’re referred to as “second mortgages.”

While each can allow you to tap your home’s equity, what’s unique about a HELOC is that it offers the flexibility to draw only what you need and to pay as you go. This can make it well-suited to those who need money over a longer period of time, such as for an ongoing home improvement project.

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

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

FAQ

What is the downside of a home equity loan?

The primary downside of a home equity loan is that the collateral for the loan is your home, so if you found yourself in financial trouble and couldn’t make your home equity loan payment, you risk foreclosure. A second consideration is that a home equity loan provides you with a lump sum. If you are unsure about how much you need to borrow, consider a home equity line of credit (HELOC) as well.

How much does a $50,000 home equity loan cost?

The exact cost of a $50,000 home equity loan depends on the interest rate and loan term. But if you borrowed $50,000 with a 7.50% rate and a 10-year term, your monthly payment would be $594 and you would pay a total of $21,221 in interest over the life of the loan.

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

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

SOHL-Q424-138

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If you own a home, you may be interested in tapping into your available home equity. One popular way to do that is with a home equity line of credit. This is different from a home equity loan, and can help you finance a major renovation or many other expenses.

Homeowners sitting on at least 20% equity — the home’s market value minus what is owed — may be able to secure a HELOC.Let’s take a look at what is a HELOC, how it works, the pros and cons and what alternatives to HELOC might be.

How Does a HELOC Work?

The purpose of a HELOC is to tap your home equity to get some cash to use on a variety of expenses. Home equity lines of credit offer what’s known as a revolving line of credit, similar to a credit card, and usually have low or no closing costs. The interest rate is likely to be variable (more on that in a minute), and the amount available is typically up to 85% of your home’s value, minus whatever you may still owe on your mortgage.

Once you secure a HELOC with a lender, you can draw against your approved credit line as needed until your draw period ends, which is usually 10 years. You then repay the balance over another 10 or 20 years, or refinance to a new loan. Worth noting: Payments may be low during the draw period; you might be paying interest only. You would then face steeper monthly payments during the repayment phase. Carefully review the details when apply

Here’s a look at possible HELOC uses:

•   HELOCs can be used for anything but are commonly used to cover big home expenses, like a home remodeling costs or building an addition. The average spend on a bath remodel in 2023 topped $9,000 according to the American Housing Survey, while a kitchen remodel was, on average, almost $17,000.

•   Personal spending: If, for example, you are laid off, you could tap your HELOC for cash to pay bills. Or you might dip into the line of credit to pay for a wedding (you only pay interest on the funds you are using, not the approved limit).

•   A HELOC can also be used to consolidate high-interest debt. Whatever homeowners use a home equity credit line or home equity loan for — investing in a new business, taking a dream vacation, funding a college education — they need to remember that they are using their home as collateral. That means if they can’t keep up with payments, the lender may force the sale of the home to satisfy the debt.

HELOC Options

Most HELOCs offer a variable interest rate, but you may have a choice. Here are the two main options:

•   Fixed Rate With a fixed-rate home equity line of credit, the interest rate is set and does not change. That means your monthly payments won’t vary either. You can use a HELOC interest calculator to see what your payments would look like based on your interest rate, how much of the credit line you use, and the repayment term.

•   Variable Rate Most HELOCs have a variable rate, which is frequently tied to the prime rate, a benchmark index that closely follows the economy. Even if your rate starts out low, it could go up (or down). A margin is added to the index to determine the interest you are charged. In some cases, you may be able to lock a variable-rate HELOC into a fixed rate.

•   Hybrid fixed-rate HELOCs are not the norm but have gained attention. They allow a borrower to withdraw money from the credit line and convert it to a fixed rate.

Note: SoFi does not offer hybrid fixed-rate HELOCs at this time.

HELOC Requirements

Now that you know what a HELOC is, think about what is involved in getting one. If you do decide to apply for a home equity line of credit, you will likely be evaluated on the basis of these criteria:

•   Home equity percentage: Lenders typically look for at least 15% or more commonly 20%.

•   A good credit score: Usually, a score of 680 will help you qualify, though many lenders prefer 700+. If you have a credit score between 621 and 679, you may be approved by some lenders.

•   Low debt-to-income (DTI) ratio: Here, a lender will see how your total housing costs and other debt (say, student loans) compare to your income. The lower your DTI percentage, the better you look to a lender. Your DTI will be calculated by your total debt divided by your monthly gross income. A lender might look for a figure in which debt accounts for anywhere between 36% to 50% of your total monthly income.

Other angles that lenders may look for is a specific income level that makes them feel comfortable that you can repay the debt, as well as a solid, dependable payment history. These are aspects of the factors mentioned above, but some lenders look more closely at these as independent factors.

Example of a HELOC

Here’s an example of how a HELOC might work. Let’s say your home is worth $300,000 and you currently have a mortgage of $200,000. If you seek a HELOC, the lender might allow you to borrow up to 80% of your home’s value:

   $300,000 x 0.8 = $240,000

Next, you would subtract the amount you owe on your mortgage ($200,000) from the qualifying amount noted above ($240,000) to find how big a HELOC you qualify for:

   $240,000 – $200,000 = $40,000.

One other aspect to note is a HELOC will be repaid in two distinct phases:

•   The first part is the draw period, which typically lasts 10 years. At this time, you can borrow money from your line of credit. Your minimum payment may be interest-only, though you can pay down the principal as well, if you like.

•   The next part of the HELOC is known as the repayment period, which is often also 10 years, but may vary. At this point, you will no longer be able to draw funds from the line of credit, and you will likely have monthly payments due that include both principal and interest. For this reason, the amount you pay is likely to rise considerably.

Difference Between a HELOC and a Home Equity Loan

Here’s a comparison of a home equity line of credit and a home equity loan.

•   A HELOC is a revolving line of credit that lets you borrow money as needed, up to your approved credit limit, pay back all or part of the balance, and then borrow up to the limit again through your draw period, typically 10 years.

   The interest rate is usually variable. You pay interest only on the amount of credit you actually use. It can be good for people who want flexibility in terms of how much they borrow and how they use it.

•   A home equity loan is a lump sum with a fixed rate on the loan. This can be a good option when you have a clear use for the funds in mind and you want to lock in a fixed rate that won’t vary.

Borrowing limits and repayment terms may also differ, but both use your home as collateral. That means if you were unable to make payments, you could lose your home.

Recommended: What are the Different Types of Home Equity Loans?

What Is the Process of Applying for a HELOC?

If you’re ready to apply for a home equity line of credit, follow these steps:

•   First, it’s wise to shop around with different lenders to reveal minimum credit score ranges required for HELOC approval. You can also check and compare terms, such as periodic and lifetime rate caps. You might also look into which index is used to determine rates and how much and how often it can change.

•   Then, you can get specific offers from a few lenders to see the best option for you. Banks (online and traditional) as well as credit unions often offer HELOCs.

•   When you’ve selected the offer you want to go with, you can submit your application. This usually is similar to a mortgage application. It will involve gathering documentation that reflects your home’s value, your income, your assets, and your credit score. You may or may not need a home appraisal.

•   Lastly, you’ll hopefully hear that you are approved from your lender. After that, it can take approximately 30 to 60 days for the funds to become available. Usually, the money will be accessible via a credit card or a checkbook.

How Much Can You Borrow With a HELOC?

Depending on your creditworthiness and debt-to-income ratio, you may be able to borrow up to 90% of the value of your home (or, in some cases, even more), less the amount owed on your first mortgage.

Thought of another way, most lenders require your combined loan-to-value ratio (CLTV) to be 90% or less for a home equity line of credit.

Here’s an example. Say your home is worth $500,000, you owe $300,000 on your mortgage, and you hope to tap $120,000 of home equity.

Combined loan balance (mortgage plus HELOC, $420,000) ÷ current appraised value (500,000) = CLTV (0.84)

Convert this to a percentage, and you arrive at 84%, just under many lenders’ CLTV threshold for approval.

In this example, the liens on your home would be a first mortgage with its existing terms at $300,000 and a second mortgage (the HELOC) with its own terms at $120,000.

How Do Payments On a HELOC Work?

During the first stage of your HELOC (what is called the draw period), you may be required to make minimum payments. These are often interest-only payments.

Once the draw period ends, your regular HELOC repayment period begins, when payments must be made toward both the interest and the principal.

Remember that if you have a variable-rate HELOC, your monthly payment could fluctuate over time. And it’s important to check the terms so you know whether you’ll be expected to make one final balloon payment at the end of the repayment period.

Pros of Taking Out a HELOC

Here are some of the benefits of a HELOC:

Initial Interest Rate and Acquisition Cost

A HELOC, secured by your home, may have a lower interest rate than unsecured loans and lines of credit. What is the interest rate on a HELOC? The average HELOC rate in mid-November of 2024 was 8.61%.

Lenders often offer a low introductory rate, or teaser rate. After that period ends, your rate (and payments) increase to the true market level (the index plus the margin). Lenders normally place periodic and lifetime rate caps on HELOCs.

The closing costs may be lower than those of a home equity loan. Some lenders waive HELOC closing costs entirely if you meet a minimum credit line and keep the line open for a few years.

Taking Out Money as You Need It

Instead of receiving a lump-sum loan, a HELOC gives you the option to draw on the money over time as needed. That way, you don’t borrow more than you actually use, and you don’t have to go back to the lender to apply for more loans if you end up requiring additional money.

Only Paying Interest on the Amount You’ve Withdrawn

Paying interest only on the amount plucked from the credit line is beneficial when you are not sure how much will be needed for a project or if you need to pay in intervals.

Also, you can pay the line off and let it sit open at a zero balance during the draw period in case you need to pull from it again later.

Cons of Taking Out a HELOC

Now, here are some downsides of HELOCs to consider:

Variable Interest Rate

Even though your initial interest rate may be low, if it’s variable and tied to the prime rate, it will likely go up and down with the federal funds rate. This means that over time, your monthly payment may fluctuate and become less (or more!) affordable.

Variable-rate HELOCs come with annual and lifetime rate caps, so check the details to know just how high your interest rate might go.

Potential Cost

Taking out a HELOC is placing a second mortgage lien on your home. You may have to deal with closing costs on the loan amount, though some HELOCs come with low or zero fees. Sometimes loans with no or low fees have an early closure fee.

Your Home Is on the Line

If you aren’t able to make payments and go into loan default, the lender could foreclose on your home. And if the HELOC is in second lien position, the lender could work with the first lienholder on your property to recover the borrowed money.

Adjustable-rate loans like HELOCs can be riskier than others because fluctuating rates can change your expected repayment amount.

It Could Affect Your Ability to Take On Other Debt

Just like other liabilities, adding on to your debt with a HELOC could affect your ability to take out other loans in the future. That’s because lenders consider your existing debt load before agreeing to offer you more.

Lenders will qualify borrowers based on the full line of credit draw even if the line has a zero balance. This may be something to consider if you expect to take on another home mortgage loan, a car loan, or other debts in the near future.

What Are Some Alternatives to HELOCs

If you’re looking to access cash, here are HELOC alternatives.

Cash-Out Refi

With a cash-out refinance, you replace your existing mortgage with a new mortgage given your home’s current value, with a goal of a lower interest rate, and cash out some of the equity that you have in the home. So if your current mortgage is $150,000 on a $250,000 value home, you might aim for a cash-out refinance that is $175,000 and use the $25,000 additional funds as needed.

Lenders typically require you to maintain at least 20% equity in your home (although there are exceptions). Be prepared to pay closing costs.

Generally, cash-out refinance guidelines may require more equity in the home vs. a HELOC.

Recommended: Cash Out Refi vs. Home Equity Line of Credit: Key Differences to Know

Home Equity Loan

What is a home equity loan again? It’s a lump-sum loan secured by your home. These loans almost always come with a fixed interest rate, which allows for consistent monthly payments.

Personal Loan

If you’re looking to finance a big-but-not-that-big project for personal reasons and you have a good estimate of how much money you’ll need, a low-rate personal loan that is not secured by your home could be a better fit.

With possibly few to zero upfront costs and minimal paperwork, a fixed-rate personal loan could be a quick way to access the money you need. Just know that an unsecured loan usually has a higher interest rate than a secured loan.

A personal loan might also be a better alternative to a HELOC if you bought your home recently and don’t have much equity built up yet.

The Takeaway

If you are looking to tap the equity of your home, a HELOC can give you money as needed, up to an approved limit, during a typical 10-year draw period. The rate is usually variable. Sometimes closing costs are waived. It can be an affordable way to get cash to use on anything from a home renovation to college costs.

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

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

FAQ

What can you use a HELOC for?

It’s up to you what you want to use the cash from a HELOC for. You could use it for a home renovation or addition, or for other expenses, such as college costs or a wedding.

How can you find out how much you can borrow?

Lenders typically require 20% equity in your home and then offer up to 90% or even more of your home’s value, minus the amount owed on your mortgage. There are online tools you can use to determine the exact amount, or contact your bank or credit union.

How long do you have to pay back a HELOC?

Typically, home equity lines of credit have 20-year terms. The first 10 years are considered the draw period and the second 10 years are the repayment phase.

How much does a HELOC cost?

When evaluating HELOC offers, check interest rates, the interest-rate cap, closing costs (which may or may not be billed), and other fees to see just how much you would be paying.

Can you sell your house if you have a HELOC?

Yes, you can sell a house if you have a HELOC. The home equity line of credit balance will typically be repaid from the proceeds of the sales when you close, along with your mortgage.

Does a HELOC hurt your credit?

A HELOC can hurt your credit score for a short period of time. Applying for a home equity line can temporarily lower your credit score because a hard credit pull is part of the process when you seek funding. This typically takes your score down a bit.

How do you apply for a HELOC?

First, you’ll shop around and collect a few offers. Once you select the one that suits you best, applying for a HELOC involves sharing much of the same information as you did when you applied for a mortgage. You need to pull together information on your income and assets. You will also need documentation of your home’s value and possibly an appraisal.

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

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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

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If you’re planning a winter open house, you might think there’s not much you can do to boost your curb appeal. In summer, you can clean up the lawn, add new plants, and set out an Adirondack chair in a cool color. But in the depths of winter, it may feel hopeless. However, there’s actually a lot you can do to boost your curb appeal for a winter open house.

How to Prepare for an Open House

No matter the season, there are some things that hold true: You always want your home to give off a great first impression. Whether it’s raining, snowing, or sunny, that means cleaning up the lawn, tidying the driveway, and doing other basic maintenance.
In winter, you may face some additional challenges. Let’s look at 15 things you can do that help with a winter open house, so you can sell your current abode, free up funds for your next home purchase, secure a mortgage loan, and get moving!

1. Start at the Front Door

No matter what the weather is doing, you can always spruce up your front door. There are still plenty of people buying a home in the winter, and you can give those folks a stunning first impression of your house. It will greet potential buyers before they ever step inside. A fresh welcome mat and a charming wreath or decorative array of pine cones can go a long way in this regard. You can also do some basic cleaning no matter what the season. Tidiness can give you more of an edge than you might imagine, and it’s a truly affordable way to improve your home — it doesn’t take a home equity line of credit to pay a local teenager to help you clean out the garage!

2. Find Plants that Work in Winter

You might think you can only refresh the garden in summer and spring, but there are several plants that thrive in colder weather, depending on where you live. Holly is a popular choice that adds color all winter. Another idea is to grab some pots of mums from your local supermarket or garden center to bring some greenery to the front door area on the day of your open house.

3. Don’t Forget the Birds

It isn’t just plants that are surprisingly hardy in winter. If you have birds in spring and summer, they may be around in winter, too. Hanging a bird feeder can entice them to flit about your yard, which will charm visitors. If you already have bird feeders for the warmer months, prepare for the open house by adding seeds.

Recommended: Mortgage Calculator with Taxes and Insurance

4. Know the Trends

You don’t have to go it alone when trying to figure out how to prepare for an open house. Look up the current housing market trends by city. This can show you not only what’s selling, but perhaps why it’s selling. See what other sellers are doing to improve their curb appeal. Take a look at the listings and let them inspire you.

5. Turn on the Lights

You can use outdoor lighting to not only make your home more attractive, but also safer. You don’t want prospective buyers stumbling through the late-afternoon dark or approaching nervously because they are unsure if the house is open. Add more lighting if you can. You can line a pathway with lights, for example, for both safety and aesthetics.

6. Check the Gutters

In winter, the gutters can take a beating. Make sure you clean out snow, leaves, and other debris that tends to build up during bad weather. Overstuffed gutters just aren’t a good look.

7. Clean the Walkways

A winter open house shouldn’t require snow shoes. Make sure the walkways to and from the house are clean and clear. Shoveling snow isn’t fun, but it will make a much better impression when buyers pull up in front of your house.

8. Don’t Hide Those String Lights

You might think that you have to prepare for an open house by hiding all the holiday lighting, but string lights can add a stylish touch to your home. Don’t go overboard like something out of “National Lampoon’s Christmas Vacation,” but do think about having some in the front of your house, whether around the front door or on some shrubs by the entryway.

9. Put on a Fresh Coat of Paint

There’s no wrong season for a fresh coat of paint. If you get the opportunity and have the budget, try painting your entry area — or your entire home if you’re in a warm part of the country. It can make your home look crisp and well cared for.

10. Paint Your Front Door a Bright Color

Don’t have the time or budget to repaint the whole house? Even just painting the front door can add a fresh splash of color that boosts your home’s curb appeal. Some colors to consider: bright red, like the color of an English double-decker bus, or sunny yellow. (Don’t forget to track your costs if you do more than routine maintenance, as they may help offset capital gains tax on the sale of your home.)

11. Make Sure the House Number Is Visible

When it comes to curb appeal, you also have to think about the literal curb. Is your house number visible from the street? If not, consider updating those numbers to make them visible and chic.

12. Spruce Up the Mailbox

While you’re looking at your house numbers, why not reconsider your mailbox as well? Perhaps you get a brand-new one, or give your current one a fresh coat of paint, so it pops.

13. Do a Quick Roof Fix-Up

Maybe you’ve lived with a few broken or missing roof shingles or tiles for so long, you hardly notice them. Sorry to say, prospective buyers may well zero in on them the second they walk up your front path. After all, a new roof is among the more costly repairs a buyer will encounter. It’s wise to get those repaired before you welcome your home shoppers.

Recommended: What Are the Most Common Home Repair Costs?

14. Refresh Your Landscaping

Applying a layer of mulch (after the first few hard frosts) can help protect plants from winter’s chill and make your landscaping look tidy and clean.

15. Use Fake Plants

You don’t have to be 100% authentic with your decorations. Topiaries shaped like trees or grapevine balls can make your porch more appealing. And they’ll likely stand up to any weather winter can throw at them. And when winter is over, simply store them away.

The Takeaway

You might feel discouraged at first when wondering how to maximize curb appeal for an open house in winter. But it’s a lot easier than it seems. There’s no point trying to fake spring or summer flowers, so opt for cleaning up, some greenery (real or artificial), some lighting, and perhaps a pop of color. Then sit back and wait for the buyers to come, so you can move on to a new home of your own.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is the best day of the week to host an open house?

Saturday open houses often conflict with family activities, such as sports games, but Sunday may conflict with religious observation. Which of these is the lesser problem depends on the property you are selling, the community you live in, and the type of house you are selling. A real estate agent experienced in your local market will likely have the best advice on whether Saturday or Sunday is a better day for your specific property.

Is winter a bad time to sell a house?

Winter is traditionally considered a slow season for home sales, but if you are ready to put your home on the market, don’t let the time of year hold you back. You may find there is less competition from other properties, and that real estate agents have more time and attention for your property. If the market is less busy, you may also be able to close on the sale faster.

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Photo credit: iStock/Korisbo

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.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

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

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For many homeowners who need cash in short order, a second mortgage in the form of a home equity loan or home equity line of credit is a go-to answer. A second mortgage can help you fund everything from home improvements to credit card debt payoff, and for some, a HELOC serves as a security blanket.

You can probably think of many things you could use a home equity loan or HELOC for, especially when the rate and terms may be more attractive than those of a cash-out refinance or personal loan.

Just know that you’ll need to have sufficient equity in your home to pull off a second mortgage.

What Is a Second Mortgage?

A second mortgage is one typically taken out after your first mortgage. Less commonly, a first and second mortgage may be taken out at the same time in the form of a “piggyback loan.”

Your house serves as collateral.

An “open-end” second mortgage is a revolving line of credit that allows you to withdraw money and pay it back as needed, up to an approved limit, over time.

A “closed-end” second mortgage is a loan disbursed in a lump sum.

It’s not called a second mortgage just because you probably took it out in that order. The term also refers to the fact that if you can’t make your mortgage payments and your home is sold as a result, the proceeds will go toward paying off your first home mortgage loan and then toward any second mortgage and other liens (if anything is left).

How Does a Second Mortgage Work?

A home equity line of credit (HELOC) and a home equity loan, the two main types of second mortgages, work differently but have a shared purpose: to allow homeowners to borrow against their home equity without having to refinance their first mortgage.

Rates

HELOCs may have lower starting interest rates than home equity loans, although HELOC rates are usually variable — fluctuating over time.

Home equity loans have fixed interest rates.

In general, the choice between a fixed- vs variable-rate loan has no one universal winner.

Costs

Home equity loans and HELOCs come with closing costs and fees of about 2% to 5% of the loan amount, but if you do your research, you may be able to find a lender that will waive some or all of the closing costs.

Some lenders offer a “no-closing-cost HELOC,” but it will usually come with a higher interest rate.

Example of a Second Mortgage

Let’s say you buy a house for $400,000. You make a 20% down payment of $80,000 and borrow $320,000. Over time you whittle the balance to $250,000.

You apply for a second mortgage. A new appraisal puts the value of the home at $525,000.

The current market value of your home, minus anything owed, is your home equity. In this case, it’s $275,000.

So how much home equity can you tap? Often 85%, although some lenders allow more.

Assuming borrowing 85% of your equity, that could give you a home equity loan or credit line of nearly $234,000.

After closing on your loan, the lender will file a lien against your property. This second mortgage will have separate monthly payments.

Types of Second Mortgages

To qualify for a second mortgage, in addition to seeing if you meet a certain home equity threshold, lenders may review your credit score, credit history, employment history, and debt-to-income ratio when determining your rate and loan amount.

Here are details about the two main forms of a second mortgage.

Home Equity Loan

A home equity loan is issued in a lump sum with a fixed interest rate.

Terms may range from five to 30 years.

Recommended: Exploring the Different Types of Home Equity Loans

Home Equity Line of Credit

A HELOC is a revolving line of credit with a maximum borrowing limit.

You can borrow against the credit limit as many times as you want during the draw period, which is often 10 years. The repayment period is usually 20.

Most HELOCs have a variable interest rate. They typically come with yearly and lifetime rate caps.

Second Mortgage vs Refinance: What’s the Difference?

A mortgage refinance involves taking out a home loan that replaces your existing mortgage. Equity-rich homeowners may choose a cash-out refinance, taking out a mortgage for a larger amount than the existing mortgage and receiving the difference in cash.

Taking on a second mortgage leaves your first mortgage intact. It is a separate loan.

To determine your eligibility for refinancing, lenders look at the loan-to-value ratio, in part. Most lenders favor an LTV of 80% or less. (Current loan balance / current appraised value x 100 = LTV)

Even though the rate for a refinance might be lower than that of a home equity loan or HELOC, refinancing means you’re taking out a new loan, so you face mortgage refinancing costs of 2% to 5% of the new loan amount on average.

Homeowners who have a low mortgage rate will not benefit from a mortgage refinance when the going interest rate exceeds theirs.

Pros and Cons of a Second Mortgage

Taking out a second mortgage is a big decision, and it can be helpful to know the advantages and potential downsides before diving in.

Pros of a Second Mortgage

Relatively low interest rate. A second mortgage may come with a lower interest rate than debt not secured by collateral, such as credit cards and personal loans. And if rates are on the rise, a cash-out refinance becomes less appetizing.

Access to money for a big expense. People may take out a second mortgage to get the cash needed to pay for a major expense, from home renovations to medical bills.

Mortgage insurance avoidance via piggyback. A homebuyer may take out a first and second mortgage simultaneously to avoid having to pay private mortgage insurance (PMI).

People generally have to pay PMI when they buy a home and make a down payment on a conventional loan of less than 20% of the home’s value.

A piggyback loan, or second mortgage, can be issued at the same time as the initial home loan and allow a buyer to meet the 20% threshold and avoid paying PMI.

Cons of a Second Mortgage

Potential closing costs and fees. Closing costs come with a home equity loan or HELOC, but some lenders will reduce or waive them if you meet certain conditions. With a HELOC, for example, some lenders will skip closing costs if you keep the credit line open for three years. It’s a good idea to scrutinize lender offers for fees and penalties and compare the APR vs. interest rate.

Rates. Second mortgages may have higher interest rates than first mortgage loans. And the adjustable interest rate of a HELOC means the rate you start out with can increase — or decrease — over time, making payments unpredictable and possibly difficult to afford.

Risk. If your monthly payments become unaffordable, there’s a lot on the line with a second mortgage: You could lose your home.

Must qualify. Taking out a second mortgage isn’t a breeze just because you already have a mortgage. You’ll probably have to jump through similar qualifying hoops in terms of home appraisal and documentation.

Common Reasons to Get a Second Mortgage

Typical uses of second mortgages include the following:

•   Paying off high-interest credit card debt

•   Financing home improvements

•   Making a down payment on a vacation home or investment property

•   As a security measure in uncertain times

•   Funding a blow-out wedding or other big event

•   Covering college costs

Can you use the proceeds for anything? In general, yes, but each lender gets to set its own guidelines. Some lenders, for example, don’t allow second mortgage funds to be used to start a business.

The Takeaway

What’s the point of a second mortgage? A HELOC or home equity loan can provide qualifying homeowners with cash fairly quickly and at a relatively decent rate. If you prefer not to have a second mortgage, you may want to explore a cash-out refinance, which is another way to put some of your home equity to use.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Does a second mortgage hurt your credit?

Shopping for a second mortgage can cause a small dip in an applicant’s credit score, but the score will probably rebound within a year if you make on-time mortgage payments.

How much can you borrow on a second mortgage?

Most lenders will allow you to take about 85% of your home’s equity in a second mortgage. Some allow more.

How long does it take to get a second mortgage?

Applying for and obtaining a HELOC or home equity loan takes an average of two to six weeks.

What are alternatives to getting a second mortgage?

A personal loan is one alternative to a second mortgage. A cash-out refinance is another.

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

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

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

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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