Financial Goals Archives

April 11, 2023April 11, 2023

How the Inflation Reduction Act is Helping Homeowners Go Solar

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law. This act includes both new and revised tax incentives, like a solar tax credit, for clean energy projects, which have been growing significantly in popularity in recent years.

Here are the most important things to know about the act — and how you might be able to leverage it to lower your tax bill.

The Basics of Solar Tax and Clean Energy Incentives

A tax credit is a dollar-for-dollar reduction in your federal income taxes. In order to be eligible for the solar tax credit, you have to meet some basic criteria:

Your system must be installed and deemed operational by a city inspector in any tax year from 2022–2032.
Your project must fall under the umbrella of solar, geothermal, or fuel cell energy.

The solar credit amount under Section 25D, previously known as the Residential Clean Energy Credit, is dependent on the year in which the system installation was completed. It has increased from 26% to 30% for installations completed after December 31, 2021, and this credit will continue until December 31, 2032. In 2033, the credit will drop back down to 26%, then to 22% in 2034, and is set to be eliminated beginning in 2035.

If you’ve purchased and moved into a new home with a solar system and own the system outright, you’re eligible for the inflation tax credit the year you moved into the house. However, if you’re leasing the system or purchasing it through a power purchase system (PPA), the company that owns the system is eligible for the ITC instead.

To claim the credit, you’ll need to file IRS Form 5695 along with your tax return. On Part I, you’ll calculate the credit, and input the result on your 1040.

Why Homeowners Are Going Solar Now More Than Ever

In the second quarter of 2022, residential solar set its fifth consecutive quarterly growth record. Why are more homeowners than ever investing in solar? Industry experts point to a few reasons.

“There are two primary concerns driving growth: increasing electricity cost and decreasing grid reliability,” explains Matt Bramson, Elevation Executive Vice President of Marketing and Sales.

Bramson went on to explain that unless multiple batteries and associated load-handling equipment is installed, a battery cannot backup an entire home or even an HVAC system for long in a power outage. Additionally, the rate that utilities pay homeowners to buy back excess solar power is often so low that homeowners are finding it makes more financial sense to store that power in a battery during the day and consume it at night versus selling it back to the utility.

The rise in Electric Vehicles (EV) also plays a major factor in the purchase of batteries to allow for vehicles to charge overnight.

There’s one more often-overlooked factor driving solar purchases for homeowners: eliminating wasted energy.

“We like to remind homeowners that the cheapest and cleanest energy of all is that which you never consume,” said Bramson. “Most homes waste 10-20% of the energy they consume as a result of inadequate insulation, leaky HVAC ducts, and drafty doors and windows. Another 8-12% is wasted through suboptimal resident and appliance behavior — leaving lights and fans on, running wasteful appliances like small space heaters, and maintaining older appliances that lack energy efficiency. Solar providers like Elevation offer services that help eliminate home and resident energy inefficiency.”

Frequently Asked Questions About the Inflation Reduction Act

Do I qualify for the Inflation Reduction Act?

There are a couple of requirements you must meet in order to qualify for the Inflation Reduction Act. First, you must own the solar or battery system by purchasing it using cash, a solar loan, or a home equity investment, as you cannot use a lease or PPA financing to claim the tax credit. You’re also required to have an income tax liability, as this incentive was introduced to reduce it.

How long does a solar panel system take to install?

Most systems can be installed in a day or two, but you should factor in some extra time for the entire process, as you first need to be approved for financing and utilities, get the proper permits, etc.

How does the solar tax credit work?

In addition to meeting the stated criteria to qualify for the credit, you’ll need to file IRS Form 5695 along with your tax return to claim it. You’ll calculate the credit on Part 1 of the form, and input the result on your 1040.

In terms of financing, there are a handful of different ways to fund solar purchases — including designated solar loans that are widely available. However, they vary quite a bit in terms of fees, APRs, and timelines, so you’ll want to explore your different options. Home equity loans are also a popular choice, but since you’re taking out another loan on top of your mortgage, you’ll want to make sure you can handle additional monthly payments.

You can also access your home equity with a home equity line of credit (HELOC), which gives you flexibility in terms of amount and frequency of access. However, due to variable interest rates, monthly payments may fluctuate and be unpredictable, and your lender can freeze your HELOC at any time if your credit score drops too drastically.

Finally, a home equity investment (HEI) can give you access to your equity in cash relatively quickly in exchange for a share of your home’s future value. What separates a home equity investment from a loan or line of credit is that it isn’t a loan, and there’s no interest and no monthly payment. You can use the money for virtually anything you’d like. At the end of the effective period (or anytime before then), you buy out the investment with savings, a refinance, or the sale of your home.

With recent record highs in home equity and the revised tax credit, it might be the perfect time to make solar investments in your home.

Do you know how much equity is in your home today? Our free Home Equity Dashboard can help!

YOU SHOULD KNOW…
We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

February 27, 2023February 27, 2023

How to Choose a Home Security System for Your House

A break-in occurs every 26 seconds in the United States — and homes without security systems are 300% more likely to be targeted than those with them. Everyone deserves to feel safe and protected in their home, and a security system can help give you that peace of mind. However, there are so many different options that it can be overwhelming to decide on the best one for you and your family. Here are some factors to consider in order to make a smart and informed choice.

Why Get a Home Security System?

Perhaps the biggest benefit of a home security system is that its mere presence has been proven to actually prevent burglaries: studies show that 83% of potential burglars check for an alarm system before attempting a break-in. Beyond the clear and tangible safety benefits of both deterrence and faster emergency response, a security system can offer some level of psychological comfort for your family as well. Not to mention, there are even some unintentional benefits that can come along with a security system beyond guarding against break-ins, like carbon monoxide detection, temperature detection, and leak sensors.

Features and Fees

There are several characteristics you’ll want to look at when choosing a security system, but cost is probably toward the top of your list. The average price of a home security system is $700, though they range from $280 to $1,150.

It’s important to note that this is just for the system, and doesn’t include ongoing monitoring fees. While you can usually customize the level of monitoring you receive, these services require a landline, broadband, or cellular connection and have monthly or annual charges attached.

You’ll also have the choice between a wired or wireless system, with the major difference being that the former links the system’s sensors to a control panel through wires in your walls and floors, while the latter connects the sensors and control panels with radio frequency technology. While these days, a completely wired system is uncommon, some do still have plug-in control panels. Many modern systems are also smart-device compatible and have various levels of interactivity that you can adjust to meet your specific needs.

Another consideration is installation — while you can do it yourself in some cases, it may be worth arranging for a professional to handle it. And since each security company knows the ins and outs of their equipment, paying a little extra for one of their professionals to install the system can prevent any issues that could arise from DIY efforts.

Though the features and equipment that are included vary by specific system, here are some of the standard characteristics of a complete package:

Control panels
Door/window sensors
Floodlights
Doorbell cameras

Finally, most security system companies require that customers sign a contract for a specific term length — these range from 12 to 60 months, but the average is 36.

Frequently Asked Questions About Home Security Systems

Is it worth it to have a security system?

While the decision to have a security system in your home completely depends on your own priorities, concerns, and budget, it can often be worth it for the protection and peace of mind it brings.

How important is a home security system?

A home security system can be important for many different reasons. In addition to helping you feel more protected, they have the potential to actually deter burglars (more on that below), and can accelerate emergency response in case of a break-in.

Is it better to have a home security system or cameras?

Both cameras and a full system can be beneficial. For those that aren’t interested in a full-scale system — or at least not at first — installing a camera or two is often a good way to see what works for you and your family before making a more involved and expensive commitment.

Do burglars avoid homes with security systems?

They often do. Research shows that 83% of potential burglars check for the presence of an alarm system before attempting a break-in. So a security system can not only assist you during an in-progress burglary, but it might even help thwart one.

What questions should I ask before buying a home security system?

Above all, you want the security system you choose to provide you and your family with a level of safety that makes sense for you. In addition to finding out about the features and costs attached to the system(s) you’re considering, here are some smart questions to ask:

Can I use my smartphone and/or devices to control the system?

As we mentioned above, one big decision to make is whether or not you want to have interactivity with your phone or tablet, or just keep control of the system to the central control panel. If you have a smart device already, you’ll want to check if your home security system is compatible with the device.

Does your security system qualify me for a homeowners insurance discount?

Often, insurance companies will give homeowners a discount on their premium if they have a security system installed, which can put some money back into your pocket. Check with your homeowners insurance provider to see if they offer a discount.

What happens to the system if I move?

While many security system providers will allow you to move your entire security system to your new home — and even uninstall and reinstall it for you! — it’s worth checking into any moving fees, contract stipulations, or notice requirements just in case.

Which is better, a wireless or wired alarm system for my house?

Neither system is “better,” per se — again, it all goes back to what you prioritize and value for your home. Though wired systems generally have signals that are more reliable, wireless systems can often be installed in more areas than wired ones. And in fact, the majority of modern systems are fully wireless except for the control panel. However, some companies still offer limited options for completely wired systems.

How much should I spend on a security system?

The amount you spend on a security system all depends on your own budget and security goals, but most home security systems range from $280 to $1,150, with the average at $700.

Choosing the Right System

There are a few tips that can work for all homeowners when it comes to deciding on the right system.

Prioritize the features you need

One size doesn’t fit all in terms of security systems, and you might be able to “mix and match” depending on what’s most important to you. For example, in addition to standard security or doorbell cameras, there are a variety of sensors that detect everything from motion or floods/leaks to broken glass. Some providers like SimpliSafe offer starter kits and more elaborate kits to match your needs.

Set a budget and compare security systems

Sitting down and running the numbers as you weigh your options not only makes it easier to determine a ballpark cost for a security system, but will also highlight the most affordable options by quickly eliminating the ones that are out of your price range.

December 21, 2022December 21, 2022

HEIs: A Student Loan Forgiveness Alternative?

With the average cost of a college education at $10,740 and $38,070 per year for public and private institutions respectively, and rising by the year, it’s no surprise that the typical student loan borrower owes $28,950, and more than half of all students from public institutions (55%) have student loans. Currently, national student debt totals $1.75 trillion, with individuals ages 25–34 saddled with the brunt of it; this group owes a collective $500 billion in debt.

Today, the federal student loan program consists of direct subsidized loans, which provide up to $5,500 to undergraduate students in need. For loans that were disbursed on or after July 1, 2022 and before July 1, 2023, the interest rate is 4.99%. There are also direct unsubsidized loans that don’t require financial need and provide undergraduate, graduate, and professional degree students with up to $20,500 in funding. Like the subsidized loans, the interest rate is 4.99% for undergraduate students, but is higher for graduate and professional degree students at 6.54%. In March 2020, the federal government paused student loan payments. That pause has been extended until at least January 2023.

Student Loan Forgiveness Proposed — And Blocked

On August 24, 2022, President Biden announced a planned student loan forgiveness program that cancels up to $20,000 in debt for Pell Grant recipients, which includes those with direct student loans as well as select Perkins and FFEL loans, and up to $10,000 for non-Pell Grant recipients.

There were some established criteria applicants needed to meet in order to qualify for this program, including an adjusted gross income (AGI) of less than $125,000 for individuals, and $250,000 for married couples and head-of-household. This income cap could be based on either 2020 or 2021 federal tax returns. Those who had private student loans would be ineligible. However, only 8% of student loans are private, allowing the vast majority of loan recipients to potentially take advantage of the forgiveness program as long as they met the income requirements.

In mid-October, the Department of Education published the student loan forgiveness application, which was fairly short and didn’t require any additional documents or a Federal Student Aid (FSA) ID, prompting millions of individuals with loans to apply.

However, on November 10, 2022, a federal judge in Texas struck down Biden’s forgiveness program, stating that it was illegal. This was after another legal challenge had also stopped the program in its tracks. While the Justice Department plans to appeal this ruling and hopes to provide the 16 million previously approved borrowers with expedited relief if and when the ruling is overturned, those who are in need of quicker financial assistance might be seeking ways to begin making progress toward eliminating student debt in the meantime — and even after receiving loan forgiveness if they owe more than the $10–20,000. There are also those who don’t meet the income requirements that are still in search of solutions to eliminate their student debt.

An Alternative Option to Pay Down Student Loans

If you’re a homeowner, a home equity investment (HEI) can be an ideal way to get rid of student debt depending on your personal goals and situation. Not only is it a good way to potentially take advantage of the recent record high amounts of home equity, but because there isn’t any interest or monthly payments, you can potentially pay off your own or your child’s loans more quickly than with other options. If the loan forgiveness program pushes through and you still have an outstanding balance beyond the maximum relief cap, a HEI could help pay it off. And there aren’t any restrictions on how the funds are used, so you can accomplish other financial goals like paying off credit card debt or making home repairs.

Plus, the effective period of a Hometap Investment is 10 years, giving you time to handle bigger financial priorities before beginning to pay off loans, or vice versa.

Take our five-minute quiz to see if a Hometap Investment might be a good way for you to begin eliminating student loan debt.

YOU SHOULD KNOW…

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

October 27, 2022October 27, 2022

9 Home Renovations and Repairs to Do Now Before Retiring

With the extra free time you may find yourself with in retirement, you may see it as a good opportunity to tackle some long-desired home improvements — especially if you’re eventually planning to put your home on the market and relocate. However, there are some repairs and renovations that can be more beneficial to complete before you retire for a couple of different reasons. First, you’ll want your home to fit your lifestyle as you age. Second, it can pay off to make the renovations that can help your home sell before you’re on a fixed income.

Here are some of the most valuable changes you can make to your home before you retire.

Move Bedrooms to the Main Floor

While transitioning to one-floor living isn’t always easy, it can pay off in the long run to do it sooner than later if you want to remain in your home after retirement. If you already live on one level, turning one of the bedrooms into a primary bedroom can help sell your home and potentially add an average of $85,672 to its value. This may include adding an ensuite bathroom, walk-in closet, or dressing room.

Add a Full Bathroom to the Main Floor

Similar to bedrooms, whether you’re planning to stay in your home or planning to sell, having a full bathroom on the main floor of the house tends to be an asset. Not only can it be helpful as you age if you’re remaining in the house, but a guest bathroom can boost the resale value considerably. If you already have a bathroom on the main floor, it may be worth considering making your tub or shower more accessible; this can be as simple as adding a railing or seat.

Replace Your Lawn Areas with Hardscape

Less grass means less lawn maintenance. Save time, money, and effort by taking a look at your lawn and (thoughtfully) eliminating portions that you can fill in with pavement, stone, wood, or concrete. Oftentimes, these changes can boost curb appeal in addition to removing the need for mowing and grass upkeep.

Repair (or Fully Remodel) Your Kitchen

It’s no secret that kitchens sell homes — so if you don’t intend to stay in your home, your kitchen is the first room you should tackle, even if you’re only making relatively minor fixes like installing a new oven. Of course, you’ll likely boost the resale value of your home considerably if you do need to undertake a top-to-bottom refresh: even a mid-range minor kitchen remodel, which averages $26,214, can add an average of $18,927 to your home’s value.

Enhance Curb Appeal

The first impression of your home can be a lasting one, so a little exterior work can go a long way — especially if you’re planning to put your home on the market. Take a look at the siding and see if it could use a refresh; while the typical cost of siding replacement is just under $20,000, it can boost your home’s resale value by more than $13,000.

Make Garage Repairs

Another fairly easy and inexpensive step that both enhances safety and boosts curb appeal is replacing your garage doors, especially if they’re outdated or especially old. You’ll get almost as much back as you put into the replacement, as the average cost of garage door replacement is $3,907 and it can increase your resale value by $3,663.

Replace Your Roof

Roof repairs and replacements can be costly — $10,850 on average for a new metal roof — but not only will many potential buyers typically be curious to know the age of the roof before they purchase a home, ensuring that the top of your house is in tip-top shape can ease your mind and give you less to worry about if you’re staying put.

Check on Essential Systems and Appliances

Along with checking on the roof, doing a full inspection of oil burners, heating systems, and any other key parts of your home’s energy components is smart not only for health and safety reasons, but can save time if you sell your house down the road since potential buyers will be alerted any issues during an inspection.

Fix Any Hazardous Floor Issues

Minimizing the safety risks in your home is always a good idea, but especially so as you age. Taking care of cracks and loose boards in your floor, ensuring that your stairs are secured and railings are properly attached to them, and securing or removing loose carpeting are all relatively quick and cost-effective repairs.

If you’re looking for ways to fund your home repairs and renovations without taking out a loan or otherwise creating debt, a home equity investment could help. Take the fit quiz to learn if a Hometap Investment may be able to help you fund the repairs and renovations you need to live more comfortably in retirement.

October 18, 2022October 18, 2022

3 Ways a Home Equity Investment Makes Moving Homes Smoother

Traditionally, homeowners only had a few financial options to pick from when it came to moving from one home to another. These included temporarily juggling two mortgages with a bridge or other loan (and taking on debt), or selling their home prematurely to gain access to their equity and finding short-term accommodations at hotels, rental properties, or family members’ homes until moving into the new home. Some homeowners have even gone as far as dipping into emergency savings or their retirement fund to cover the cost of two mortgages.

Timing the transition between houses can be tricky, but planning ahead to ensure everything goes smoothly and according to schedule is essential. Home equity investments are a fairly new option that can alleviate some of the pain points that come along with moving between homes in a few different ways while potentially saving you money as well.

A home equity investment is a loan alternative that allows you, the homeowner, to access a portion of your home’s equity in exchange for a percent of its future value. Unlike a loan, you receive the cash upfront, with no monthly payments and no interest. Here are some of the ways homeowners can leverage a home equity investment when buying and selling.

Fund Renovations and Repairs on Your Current (or Future) Home

If you need to renovate your home prior to putting it on the market — something as small as making several minor repairs or remodeling your entire kitchen to add value — a home equity investment can allow you to tap into your equity to make the necessary updates without taking out a traditional home equity loan or adding debt. Then, when you sell, the investor receives a previously agreed-upon percentage of the sale price.

Similarly, if the home you’re purchasing needs work before you move in, you can also use the equity from your first residence to cover those improvements before you sell it, all without dealing with interest or monthly payments.

It’s important to note that while you can receive a home equity investment for your new property, you’ll typically need at least 25% equity in the home before you can qualify.

Pay for Moving Expenses and Closing Costs

Beyond the purchase price (which can end up being significantly higher than the listing price in today’s competitive market), buying and moving into a new home certainly isn’t cheap. There are the costs of transporting your furniture and housewares, plus the costs and fees that you’ll encounter at closing time. A home equity investment can help you pull cash from your first residence — before it sells — to put toward these expenses without paying out of pocket.

Maintain Two Mortgages, Debt Free

Finally and perhaps most importantly, a home equity investment can help you manage the mortgages of both your first home and your next one without taking on debt in the process. Often, homeowners use home equity investments as a bridge loan alternative when they need to gather enough money for a down payment to secure the property but haven’t sold their first home yet.

While the best option for you always depends on your personal financial situation and goals, a home equity investment can be a better choice than a bridge loan for several reasons. While bridge loan approval is relatively easy and funding is quite quick if you’re in a pinch — typically three to five days — that convenience usually comes with high interest rates and fees. And, of course, the loan still needs to be paid back on top of your existing mortgage(s), potentially adding more stress to an already tense time.

Most home equity investment companies don’t have prepayment penalties, making it more convenient to settle the investment whenever it makes the most sense for you.

It only takes five minutes to see if a home equity investment from Hometap might be a good way for you to handle the transition between homes. Take the quiz now.

October 13, 2022October 18, 2022

Beginners’ Guide to BRRRR Real Estate Investing

tools in foreground, man nailing wall in background

It may be easy to confuse with a sound you make when the temperatures drop outside, but this slightly strange acronym has nothing to do with winter weather. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This method has gained quite a bit of traction and popularity in the real estate community in recent years, and can be a smart way to earn passive income or build an extensive investment portfolio.

While the BRRRR approach has several steps and has been refined over the years, the principles behind it — to buy a property at a low price and boost its value to build equity and increase cash flow — is nothing new. However, you’ll want to consider each step and understand the drawbacks of this approach before you dive in and commit to it.

Pros and Cons of BRRRR

Like any income stream, there are advantages and disadvantages to be aware of with the BRRRR method.

Pros:

Potential to make a significant amount of money

Provided that you’re able to buy a property at a low enough price and that the value of the home increases after you rent it out, you can make back much more than you put into it.

Ongoing, passive income source

The primary appeal of the BRRRR approach is that it can be a relatively passive source of income; aside from your responsibilities as a landlord (or outsourcing these duties to a property manager), you have the opportunity to bring in consistent monthly rental income for low effort.

Cons:

The risk of miscalculating ARV

When determining the after-repair value (ARV), make sure you’re taking into account the quality of the upgrades you’re making — it’s not uncommon for individuals to cut corners on bathroom or kitchen finishes because it will be a rental property, only to have the appraisal come in less than expected due to this.

Investing in a rental property can be more expensive than a primary residence

Rental property financing (and refinancing) often involves a larger down payment requirement and higher interest rates than an owner-occupied home.

The time necessary to build up enough equity for a refinance

Growing equity takes time, and depending on current market conditions, it may take longer than you would like for the property to accrue enough to refinance it.

Responsibilities as a landlord

Unless you’re willing to hire and pay a property manager, you’ll need to handle any tenant issues that pop up yourself once you rent out the residence. If you plan to accrue many rental properties, outsourcing property management may make sense, but many landlords choose to manage the first few properties themselves to start.

The BRRRR Method, Step by Step

Buying

For your first property, you’ll want to familiarize yourself with the characteristics that generally make for a good investment. Ultimately, you’ll want to seek out a property you can purchase at or below market value — as this will increase your likelihood of making money. But you’ll also want to make sure that you’re making a wise investment that makes sense in terms of the amount of work the property requires.

There are a number of ways that you as a potential buyer can increase your odds of securing a home for as low of a price as possible.

These include:

Learning about any specific motivational factors the seller has in addition to price
Offering cash (if you need it, you can get a short-term, “hard-money” loan), then take out a loan after rehabbing the property
Renting the house back to the seller, which is common with the BRRRR method
Write a genuine letter to the buyer that explains your vision and goals for the property
Waiving contingencies and buying the home “as is” for a faster closing
Get creative with your offer (for example, requesting to buy the furniture with the property)

Rehabbing

Before purchasing a home and rehabbing it, you should do some rough estimations of how much you’ll need to spend on the improvements — including a breakdown of what you can DIY versus what you’ll need to outsource. Make sure to consider whether this rehab will justify a higher monthly rent and whether the value added will exceed the cost of the project.

Fortunately, there are some models that can help you calculate some of the expenses involved to make a more informed decision.

You can determine the ARV of the home by combining the purchase price with the estimated value added through rehab. One important thing to note is that the estimated value is not the same as the cost of repairs; it’s the value that you believe the repairs will add to the home overall. If you purchase a home for $150,000 and estimate that repairs will add approximately $50,000 in value, the ARV would be $200,000.

Once you land on the ARV, the next step is to determine the MAO (Maximum Allowable Offer).

This equation is slightly more complicated:

MAO = (ARV x 70%) – cost of repairs

So, using the above example, if the After Repair Value of the home is $200,000 and the cost of repairs is estimated at $35,000, the MAO would be $105,000.

It’s worth nothing that there are certain renovations and updates, like landscaping, kitchen and bathroom remodels, deck additions, and basement finishing, that quickly add more value to a home than other fixes.

Renting

There are two important components when it comes to turning your investment property into a rental: determining fair market rent and securing suitable tenants. Websites like Zillow Rental Manager and Rentometer can help you set an appropriate rental amount. It’s also important to do due diligence when it comes to finding tenants. In addition to Zillow Rental Manager, Zumper and Avail can provide screening tools to help you vet potential applicants and perform background checks.

Refinancing

Once the property gains enough equity, you’ll apply for a refinance. Keep in mind that while specific requirements depend on the lender, most will request a good credit score, a tenant who has lived in the unit for at least six months, and at least 25% equity left over after the refinance in order for you to get the most favorable rates and terms.

Repeating

This part is pretty simple — once you pull out the cash from one property for a refinance, you can use it to put a down payment on your next investment property, while the refinanced home continues to bring in rental income.

Explore Real Estate Investing Resources

There are a number of resources that can help you learn more about and get started with the BRRRR method. For example, BiggerPockets provides valuable content and forums where you can connect with others in the financial and real estate spaces who are successfully using this approach. There is also a wealth of information on YouTube.

Funding Your First Investment Property

If you’ve decided to pursue the BRRRR method for passive income, there are a handful of ways you can access the money you need for a down payment to purchase the property.

As a homeowner, you can take out a home equity loan to get a lump sum of cash. However, you’ll need to pay the loan back on top of your existing mortgage payment(s) and the application and approval process can be rigorous. A home equity line of credit (HELOC) provides a bit more flexibility, but monthly payments can fluctuate each month due to variable interest rates, and your lender can freeze your account at any time if your credit score drops too low. A cash-out refinance, which is part of the BRRRR process, is another possibility to access equity from your primary residence — and can allow you to lock in a lower interest rate. But since you’re taking out a new mortgage, you’ll have to pay closing costs and possibly an appraisal fee.

Finally, if you’ve built up equity in your home and need cash to cover the down payment or necessary renovations, a home equity investment may be a good solution. There’s no interest and no monthly payments, and you can use the money for anything you’d like without any restrictions. You can receive up to 30% of your home value in cash, and don’t have to make any payments for the life of the investment (10 years with a Hometap Investment).

It only takes five minutes to find out if a Hometap Investment might be a good fit for you and your BRRRR goals — take the quiz today.

YOU SHOULD KNOW…

September 16, 2022

5 Ways to Fund Your Vacation Home Down Payment

Long gone are the days when having a second home was an impossible dream. In recent months, especially in the wake of COVID-19, purchasing another property is more appealing — and more popular — than ever. In fact, a recent Redfin report found that demand for vacation homes surged 87% from pre-pandemic levels to January of 2022, and according to a Bloomberg survey, more than 33% of respondents said that they were more likely to buy a second home as a result of the pandemic. Beyond having a reliable vacation home to escape to every year, buying a second property has additional benefits — and there are a number of ways you can use the equity in your primary home to fund a down payment.

Advantages of a Vacation Home

Investing in real estate can be a great way to diversify your portfolio; in addition to stocks, bonds, and mutual funds, owning property can help you have a more well-rounded and less volatile collection of assets. There’s also the potential for gaining long-term earnings in addition to those from your primary residence through appreciation over time.

You can enjoy tax benefits as well. If you use the second property for most of the year rather than simply renting it out, you’re able to deduct both property taxes up to $10,000 and up to $750,000 of mortgage interest on your first and second homes. In order to take advantage of these benefits, however, you’ll first want to make sure you’re eligible, since there are some stipulations if you rent out the property for even a short amount of time during the year.

Thinking ahead to retirement, if you have your heart set on a particular destination in which to spend your golden years, you may be able to secure a spot at a relatively low price and interest rate and reap the benefits of appreciation rather than waiting until you’re ready to retire to purchase a property.

And, of course, there are the priceless emotional benefits of having a place in which you can make lasting memories with your family and friends.

How to Fund Your Vacation Home Down Payment

1. Home Equity Loan

One of the most common options is a home equity loan, which usually has the advantage of a fixed interest rate, so your payments will be consistent every month. You’ll also receive the funding in a lump sum, which can be helpful in terms of getting a down payment together quickly. However, you’ll need to be prepared to foot the bill for the loan installments on top of your existing monthly mortgage payments, which can add up.

2. Home Equity Line of Credit (HELOC)

Another method is a home equity line of credit (HELOC). On the plus side, you have quite a bit of flexibility — both in terms of how much money you can access and how often you can access it. However, the variable interest rates attached to HELOCs can mean that monthly payments can fluctuate significantly from month to month. You’ll also want to keep an eye on your credit score, since the lender can freeze your HELOC if it drops too low.

3. Cash-out Refinance

A cash-out refinance lets you access your equity through a new mortgage on your home that has a balance larger than your current one, giving you the difference in cash to pocket and put toward your expenses. However, keep in mind that you’ll have to pay the same fees on this mortgage as the original one, including those for closing costs and potentially an appraisal.

4. Home Equity Investment

Finally, a home equity investment provides you with cash in exchange for a share of your home’s future value. There aren’t any interest or monthly payments to worry about, nor any restrictions on how you use the funds — so you can use the cash toward a down payment on a second home, or even to pay off debt in order to get your finances into better shape before buying another property. With a Hometap Investment, you have 10 years to settle with savings, a refinance, or through the sale of your home.

5. Alternative Sources

Beyond your equity, you can also use savings, investment sources (IRAs, 401(k)s), additional income streams from a side hustle — or a combination of these — to pull together the money for a down payment.

If you’re a homeowner who is seeking funding for a second home or investment property, take our five-minute quiz to find out if a Hometap Investment might be a good fit to get the money you need.

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September 8, 2022January 13, 2023

The Pros, Cons, and Alternatives to HERO Loans

The average American homeowner spends about $2,000 per year on energy. Small efficiency upgrades like sealing windows and doors can put a dent in those costs, and larger renovations like solar installations can offer greater savings. But like so many things, you’ve got to spend money upfront to save money in the long term. That’s where solutions like the HERO loan can come in handy.

You may have heard the term before, but what is a HERO loan, exactly? Simply put, a Home Energy Renovation Opportunity (HERO) loan is a form of financing that helps eligible homeowners cover energy-efficient improvements like window and door installation, solar panels, roofing, and landscaping. It originated from the Property Assessed Clean Energy (PACE) program, which finances these kinds of upgrades for residential, commercial, and industrial properties.

The HERO home improvement program, sometimes referred to as the HERO solar program for solar panel financing, is specifically geared toward residential buildings and lets qualified homeowners borrow up to 15% of their home’s value. It’s important to note that the HERO loan program also differs from the VA home loan program known as “Hero Loans,” which are designed to provide home financing assistance to veterans and their families.

Advantages and Disadvantages of HERO Financing

Like any home financing option, there are pros and cons to using HERO loans. On the plus side, if a borrower is eligible for one of these loans, they receive 100% of the cost of qualified improvements (again, not to exceed 15% of the home’s value). The loans typically have terms of 5–25 years, and homeowners can get started through contacting their local government’s PACE program sponsors. Approval criteria tends not to be as restrictive as traditional financing choices, since it is based on the equity in your home rather than your credit score. The loan may also be able to be transferred if the homeowner sells their home before paying off the loan, provided that the buyer and their lender are amenable to it.

However, HERO loan payments are added onto your property taxes, and since they’re classified as a tax lien, they take precedence over any other loans on the home in case the homeowner defaults. For this reason, lenders can be averse to backing HERO loans. In addition, the payments frequently appear on the second property tax bill instead of the first, which can put many homeowners in a particularly precarious financial position if they’re left scrambling to find the money to cover the extra expenses. And while it depends on the lender, this issue can also come into play when the homeowner is trying to resell the home, as the lenders of prospective buyers often don’t want to play second fiddle to the HERO loan.

For example, California homeowner Elizabeth B., who paid off her HERO loan with a Hometap Investment, ran into issues trying to refinance: “It is harder to refinance because of the lien they have on your home,” she said.

HERO Program Qualifications

The 2017 tax reform bill also put a $10,000 cap on property taxes, so if your bill is particularly high, you may not be able to write off your loan payments. In terms of cost, HERO loans come with a one-time fee of 6.95%, and interest rates can be quite high, up to 9%. Finally, it’s important to note that HERO loans are currently only available to homeowners in California, Florida, and Missouri, so eligibility criteria is quite narrow.

Frequently Asked Questions About HERO Loans

Is HERO financing a good deal?

While any home financing option depends on your own situation and personal goals, a HERO loan can be a good fit for homeowners in eligible states who are seeking funding specifically for energy-efficient home improvements. If approved, they can receive 100% of the cost of these projects.

How do I get out of a HERO loan?

Before deciding on a HERO loan, it’s important to make sure you consider your options, as the inability to pay it off can put you in a tough spot. However, if you sell your home before paying back the loan, and your lender and the buyer are amenable to it, you may be able to transfer the loan.

Learn how Elizabeth B. used a home equity investment to pay off her HERO loan >>

What credit score is needed for a HERO loan?

Since HERO loans are based on your home equity rather than your credit score, this requirement is typically quite lenient compared to other financing solutions.

What are the terms of a HERO loan?

While the terms can vary by the specific loan, HERO loans usually allow eligible homeowners to borrow up to 15% of their home’s value and have a term of 5–25 years.

Is a HERO loan a lien?

Yes, a hero loan is considered a tax lien. As a result, it takes precedence over any other loans on the home if you default.

How are HERO loans paid back?

HERO loans are paid back along with a homeowner’s property taxes, with the loan balance usually appearing on the second tax bill. It’s also important to note that in addition to the loan balance, there is a one-time fee of 6.95% attached to HERO loan, in addition to ongoing interest.

HERO Loan Alternatives

If you are planning to make energy-efficient improvements to your home but don’t live in a participating state, there are a few other options. Many states have programs sponsored by gas and electric companies that provide free energy-saving services, such as Mass Save, Efficiency Maine, and NH Saves, to name a few.

You can also tap into your home equity with a home equity loan, which provides a fixed interest rate and a lump sum payment. However, it can be challenging to meet the often restrictive approval requirements, and you’ll be responsible for the loan payments on top of your regular mortgage installments.

There is also a home equity line of credit (HELOC) that gives you flexibility in terms of how much and how often you can borrow money, but it too has downsides — a variable interest rate means that your monthly payments can fluctuate unexpectedly, and your lender can freeze your HELOC at any time if your credit score dips too low.

A cash-out refinance can also get you some extra funds and help you secure a lower interest rate on your mortgage. But since you’re taking out another loan on your home, you’ll have to pay the fees you dealt with the first time around when taking out your mortgage.

Another way you may be able to finance eco-friendly or energy-efficient upgrades is a home equity investment. You can receive cash in exchange for a share of your home’s future value to use for energy-efficient upgrades and replacements, all without monthly payments or interest.

Take our five-minute quiz to see if a Hometap Investment might be a fit for you as an alternative to a HERO loan.

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August 25, 2022August 25, 2022

Why Women Need to Play Active Role in Retirement Planning

When it comes to retirement planning for women, some of the current stats may surprise you. Nearly one third of adult women (29%) don’t have a retirement strategy in place. The figures around what percentage of women invest in their retirement are similar: the Teachers Insurance and Annuity Association (TIAA) recently found that just 31% of those surveyed are saving for retirement, as opposed to 44% of men. This information is especially concerning, considering that women live longer than men on average, typically earn less than men during the span of their career, and receive fewer retirement benefits on the whole than men as well.

As a result, they may be able to invest less overall than men, regardless of when they begin putting aside money. They tend to retire earlier, too; the average retirement age for women is 62.3, whereas for men it’s 64.6.

But If you’re a woman who has yet to start saving for retirement, it’s not too late. While it can seem overwhelming to know where to start, taking it step by step can make the process much more manageable and less stressful.

Enlist the Help of a Financial Planner

Experts recommend first meeting with a financial advisor. If your employer provides a retirement plan like a 401(k), you can likely connect with that company, and they can refer you to an in-house planner who can begin working with you to establish retirement goals and help you make strides toward reaching them.

Decide on Your Approach

There are a few different schools of thought when it comes to determining the amount of money you’ll need to retire. Here are the most common ones:

Strategy #1: The End Result

This approach holds that you should save 10 to 12 times your annual income by retirement age. While this is wise, you’ll want to make sure you have some more granular milestones in place to keep yourself on track (see below).

Strategy #2: Pace Yourself

A pacing plan takes the above idea a little further, advising that your savings should be equivalent to a multiple of your annual income as you age. For example, by age 30, you should have set aside as much as you’re making per year. By age 40, your retirement fund should be equal to three times your salary, six times by age 50, and so on — leading to 10–12 times your salary by age 67.

Strategy #3: Percentage Plan

Similar to strategy #1, this approach advises that you should have saved enough money to replace 60–100% of your pre-retirement annual income by the time you retire.

Strategy #4: Who Wants to Be a Millionaire?

This is probably the most basic rule, that generally suggests aspiring retirees should have a million dollars in the bank before they stop working. Yet, these days, this thinking is a bit outdated — as a million dollars certainly doesn’t go as far as it did 20 or 30 years ago. While it may be a good initial goal for some, you’ll want to take a look at your own current and desired lifestyle to roughly estimate your ideal savings amount in order to live most comfortably.

Retirement Tips for Women

Regardless of what plan you choose, the earlier you begin putting money away for retirement, the better. An easy way to get started, even prior to meeting with a financial advisor, is to automate your 401(k), 403(b), or IRA contributions; whatever you can afford to contribute to begin with helps.

In addition, as you approach retirement age, it can also be valuable to look at the ways in which you can optimize social security and maximize your benefits, as social security benefits represent 30% of retirement income for elderly individuals. However, the amount you’re eligible for depends on when you choose to collect your benefits, as well as factors like Medicare deductions and your spouse.

Finally, it’s important to consider your lifestyle goals for retirement. For example, if your plan is to downsize and live pretty frugally, you can aim for a lower savings target. On the other hand, if you want to travel far and wide or treat yourself to luxury vacations, consider ballparking what that might look like for you cost-wise and plan accordingly.

Explore Retirement Resources

Fortunately, there are a number of resources centered around women and retirement savings that are designed for those looking to begin their investing journey, including Ellevest, a wealth management app designed by women, and Female Invest.

If you need to pay down debt or take care of other financial obligations so you can begin saving for retirement, a home equity investment might be able to help you access the cash you need, all without interest or monthly payments.

Take our five-minute quiz to see if a Hometap Investment might make sense for you as you plan for retirement.

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August 17, 2022August 22, 2022

Pay Off Debt or Build Savings? Prioritizing Your Financial Goals

Deciding whether to save or pay off debt is a very personal choice — and one that depends on many different factors. However, there are a number of ways to weigh your options in order to pick the best one for you. Below, we’ll cover the pros and cons of each route so you can more confidently answer the question: should I pay off debt or save?

Option 1: Pay Off Debt

Advantages to paying off debt include reducing the amount of interest you’re paying over time, improving your credit score, and lessening the stress and psychological burden that comes along with having the cloud of unpaid financial obligations hanging over your head. It also might make more sense to focus on getting rid of debt if it can help you accomplish some long-held financial goals.

In terms of choosing whether to pay off debt or invest, it may help to know that experts generally advise that if the total interest rate on your debt is greater than 6%, you should pay it down first before focusing on savings or investing.

When it comes to how to pay off debt, there are a couple of different approaches you can take. They’re grouped into what’s known as the avalanche and snowball methods.

With the avalanche method, you make minimum payments on all of your debts, and then use any remaining funds to pay off the debt with the highest interest rate. This plan for paying off debt can make the most sense if you’re working toward a long-term goal rather than a short-term financial need.

The snowball method, on the other hand, means that while you make minimum payments on your debts, you then address the smallest debts before taking care of the larger ones. If you’re someone who is inspired to work toward goals by seeing smaller signs of progress along the way, this route might be more appealing to you.

To get a quick idea of which debts may make the most sense to prioritize, a calculator for debt payoff can help. You can plug your current debts, including interest rate and remaining balance, into our Cost of Debt Calculator and get a better idea of how much your obligations are setting you back — as well as how long it will take you to pay them off at your current rate. This tool is also helpful for figuring out which debts to pay off first.

Should I pay off my credit card in full? When should I pay off my credit card?

It’s typically best to keep your credit card paid off for a couple of different reasons. Not only will it help save you money you would be paying in mounting interest payments that add up each month, but unpaid credit card debt can also negatively affect your credit score. If you already have an outstanding balance that you’re able to pay off, it’s a good idea to start here as a first step.

Option 2: Build Your Savings

Choosing to save also has its benefits, however. You may be able to take advantage of compounding interest — the more time your money is in savings, the more your money grows.

You also have better control over your timeline this way, as you don’t have to wait until your debts are repaid to begin getting closer to your bigger goals.

You’ll want to consider what you’re saving up for and whether right now is the best time to pursue it. If it’s your first home, other factors like the current market conditions and the cost of a mortgage versus renting come into play as well, and it may make sense to hold off and handle debts right away.

In any case, setting a target savings goal works toward either a debt payoff or savings strategy, so it often makes sense to begin here no matter what your ultimate objective is — and creating a savings account or emergency fund is a sound decision to avoid debt in the future.

One fairly quick and painless way to begin building your savings is to set up a direct deposit account that automatically puts a percentage of your paycheck into a designated account. If you’re able to afford it, even if it’s a small percentage of your paycheck to start, this can be a smart move.

Another way to save that might seem a bit counterintuitive is to spend money on home improvements that will improve your energy efficiency and cut costs down the road. Even if you don’t make full-scale updates, taking a look at your daily habits with respect to heating and cooling (for example, turning your thermostat down a few degrees or keeping the air conditioner off unless absolutely necessary) can slash ongoing bills and make a difference.

Should I pay off student loans or save?

It can be especially tricky to decide whether to prioritize student loan payments or begin saving, but the most important thing to consider is whether you currently have a comfortably padded emergency fund that will provide a safety net in case of an emergency, or even just a solid cushion in place to handle any major upcoming life events like a move, wedding, or higher education. You should also look at the current interest rates on your loans. If they’re pretty low, you can feel more comfortable starting to save and place your focus back on loans at a later time.

Should I use savings to pay off debt?

Again, it depends. While it can be tempting to dip into your savings to pay off debt, it’s recommended that you maintain a certain amount of emergency funds first before using savings towards debts. Otherwise, you might find yourself unprepared and without enough money to cover an unexpected or emergency situation that arises.

If you decide that paying off debt could help you take steps toward financial freedom, there’s an alternative option to traditional solutions, a home equity investment, that may be a fit. You’ll receive cash in exchange for a share of your home’s future value, and unlike loans for paying off debt, there’s no interest or monthly payments to worry about, so you can start eliminating it more quickly.

Are you a homeowner who could use some extra money to begin chipping away at debt or even add to your savings? Take our five-minute quiz to see if a Hometap Investment might be a good fit for you.

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