Financial Topics Archives | Page 399 of 816

Apr

2024

Net Asset Value (NAV): What It Means, Formula, Example

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Net asset value (NAV) is an important metric for knowing how much each share of an investment fund, like a mutual fund or ETF, is worth. However, NAV alone cannot tell investors everything they need to know about potential investments.

Calculating NAV is helpful for fund valuation and pricing. Still, there are times when it is more beneficial to look at other aspects of a fund, like total return, to determine investment opportunities. Nonetheless, investors need to know how to calculate NAV, when it makes sense to use it, and why.

What Is Net Asset Value (NAV)?

Net asset value, or NAV, represents the value of an investment fund. NAV, most simply, is calculated by adding up what a fund owns (the assets) and subtracting what it owes (the liabilities).

NAV is typically used to represent the value of the fund per share, however, so the total above is usually divided by the number of outstanding shares. This makes it easier for investors to value and price the shares of a fund. Mutual funds, for example, use per-share NAV to determine their share price.

The NAV will also change daily because an investment fund’s assets and liabilities change daily based on market prices.The assets of an investment fund include the daily market value of the fund’s holdings, which are usually securities like stocks and bonds. The liabilities of a fund are usually debts owed to financial institutions and expenses, like salaries, operating costs, and other fees.

The Securities and Exchange Commission (SEC) requires that mutual funds calculate their NAV at least once each business day. Most mutual funds perform their calculations after the major U.S. securities exchanges close for the day.

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NAV Formula

Net asset value, as mentioned above, is calculated by taking a company or investment fund’s total assets and subtracting its liabilities. This figure is usually divided by the fund’s number of outstanding shares because NAV is generally represented on a per-share basis. The formula looks like this:

NAV = (Total Value of Assets – Total Value of Liabilities) / Number of Shares Outstanding

How NAV Is Used for Investments

NAV can be used for investments, and by investors, in a number of ways, often depending on the specific type of asset an investor is analyzing. It can give investors insight into a fund’s performance, but doesn’t necessarily tell the whole story.

Mutual Funds

Mutual funds are usually open-ended funds, meaning that investors buy and sell shares of the fund from the fund directly and not on an exchange like a stock. Because these funds don’t trade on an exchange for market prices, NAV is used to price the fund’s shares.

Mutual funds calculate their NAV per share daily, usually at the end of the business day, and that is the price an investor will pay to buy or sell shares in the fund. Every mutual fund company has its own cut-off time for buying and selling shares. After that time, investors buying or selling shares will get the fund’s NAV for the day after their transaction order is received.

💡 Recommended: Understanding the Different Types of Mutual Funds

ETFs

Exchange-traded funds (ETFs) and closed-end funds are similar to traditional mutual funds, but one big difference is that investors can buy and sell ETFs throughout the trading day for a market price and not the NAV per share. Investors can make buy and sell orders for traditional mutual funds once per day and only at their published NAVs.

ETFs are still required to calculate the fund’s NAV once per day, like a mutual fund. Additionally, an ETF’s NAV is calculated approximately every 15 seconds over each trading day and published on various financial websites.

Because ETFs tend to trade at a premium or a discount to their NAV, traders often compare market prices and NAV to take advantage of the differences and make investment decisions.

Example of Calculating Mutual Fund NAV

As an example of calculating mutual fund NAV, imagine that mutual fund XYZ has $100 million worth of investments in different securities, based on the day’s closing prices for each security, and $10 million in liabilities and expenses. The NAV for this fund would be $90 million. If the fund has 5 million shares outstanding, the NAV per share for mutual fund XYZ would be $18.

The NAV for mutual fund XYZ can be calculated using the above formula:

NAV = ($100,000,000 – $10,000,000) / 5,000,000 = $18

How to Interpret NAV Results

A fund’s NAV alone doesn’t tell investors much; a high NAV for one fund is not necessarily better than a low NAV in another fund. Similar to stock prices, a high stock price doesn’t necessarily mean the stock is a better investment than a stock with a lower price.

Looking at a fund’s NAV and comparing it to another fund does not provide investors insight into which fund is the better investment. It’s more important for investors to look at NAV alongside other factors, like the fund’s past performance, the allocation of securities within each fund, and how it performs compared to benchmark indices like the S&P 500 Index.

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Why Do NAVs Change?

A mutual fund’s NAV will likely change every trading day because the prices of securities in which the fund invests are likely to change every trading day, affecting the total assets in the fund. It’s also because the number of outstanding shares held by investors often changes daily, as new investors buy shares and existing investors sell.

Other factors can also impact a fund’s NAV. For example, the fund’s management fee and additional fees that add up to the fund’s total expense ratio will come out of the fund’s total assets, thus affecting NAV. In addition to management fees, expenses can include costs related to the administrative, compliance, distribution, management, marketing, shareholder services, and record-keeping of the fund. It’s common practice for mutual funds to assess this debit on the fund’s assets every trading day.

When NAV Isn’t Everything

If a mutual fund invests in dividend-paying stocks or fixed-income assets, these securities’ dividends and interest payments go to the investor. Additionally, a mutual fund may distribute realized capital gains to shareholders. These payouts reduce the fund’s assets and result in a lower NAV. Because these benefits lower a fund’s NAV, it shows that NAV may not be the only figure to pay attention to when analyzing the performance of a fund.

When analyzing the performance of mutual funds, it can make sense to look at metrics other than NAV alone, like investment yield and the funds’ total return. The total return considers capital gains and losses from all of the securities the fund invests in, as well as the dividends and interest earned by the fund, minus the fund’s expenses.

The Takeaway

Net asset value, or NAV, is a daily calculation that can track the value of a mutual fund, ETF, or money market fund. But while this figure can be helpful to gauge a fund’s performance, it isn’t the only metric that investors should consider. Total return, yield, and fees are also important figures when making mutual fund investing decisions.

Remember that NAV itself doesn’t tell an investor everything that they need to know, but is just one metric or data point that can be used along with an array of others to analyze funds.

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FAQ

Is net asset value the same as price?

NAV and share price are two different things. Net asset value is the value of the investments within a fund, or the value of a portion of the fund. The share price of a fund, though it may be related, is different from that value.

Why is net asset value important?

Net asset value is important for investors because it describes the total equity or value of a fund. It can help determine the value a share of a fund has, and can help investors evaluate the overall value of an investment.

Is high NAV good or bad?

NAV on its own doesn’t tell investors a whole lot, so whether NAV is high may not be good or bad. What’s more important is how high a fund’s NAV is relative to other metrics, which may include its market price.

Is it good to invest when NAV is down?

If a fund’s NAV is down, that could be a sign that the fund’s performance is suffering. But it doesn’t necessarily mean that it’s a good time to invest in that fund, or a bad time to do so – other metrics must be considered along with NAV, at any given time, to determine whether an investor wants to alter their position.

What is an example of a NAV?

An example of NAV could be $18, and that would be calculated looking at a fund’s underlying securities. You’d need to rope in assets and liabilities, and calculate accordingly to find NAV. Again, $18 is just an example, as NAV could be any dollar figure as it relates to the fund’s assets and liabilities.

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Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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Apr

2024

Having a Savings Accounts on Social Security Disability

Are You Allowed to Have a Savings Account While on Social Security Disability?

By Jacqueline DeMarco | Budgeting & Goals, Family Finances, money | Comments Off

If someone is applying for disability benefits, they may be relieved to learn that, yes, you can have a savings account while on Social Security disability. While there are certain financial factors that can disqualify someone from Social Security eligibility, having a savings account is not one of those factors.

But of course, there are some subtleties to be aware of with any benefits matter, so it’s important to take a closer look. Among the points to learn are the difference between SSDI (Social Security Disability Insurance) and SSI (Supplemental Security Income), who is eligible for Social Security disability benefits, and what the guidelines are for having a savings account while receiving benefits.

What Is Social Security?

There’s a reason the Social Security program is so well known: It has been providing financial support to Americans for many decades. Social Security benefits are designed to help maintain the basic well-being and protection of the American people. These benefits have been around since the 1930’s in response to the economic crisis caused by the Great Depression.

Today, one in five Americans currently receive some form of Social Security benefits — one third of those are disabled, dependents, or survivors of deceased workers. More than 10 million Americans are either disabled workers or their dependents.

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Can I Get Social Security Disability Insurance or Supplemental Security Income with a Savings Account?

You may be thinking you can’t have that kind of asset if you want to qualify for Social Security Disability funds. However, it is indeed possible to receive Social Security Disability Insurance (SSDI) or supplemental security income if you have a checking or a savings account.

Even better, it doesn’t matter how much money is held in that account. There are other program requirements that must be met to qualify for SSDI, but how much money someone has or doesn’t have in the bank isn’t one of them.

Eligibility for SSDI

In order to be eligible for SSDI benefits, the individual must have worked in a job or jobs that were covered by Social Security and have a current medical condition that meets Social Security’s definition of disability. Generally, this program can benefit those who are unable to work for a year or more due to a disability.

It provides monthly benefits until the individual is able to work again on a regular basis. If someone reaches full retirement age while receiving SSDI benefits, those benefits will automatically convert to retirement benefits maintaining the same amount of financial support.

Eligibility for SSI

If you receive Supplemental Security Income (SSI), however, there is a limit on how much you can have in savings. SSI is a federal support program that receives funding from the type of taxes known as general tax revenue, not Social Security taxes.

This program provides financial support to help recipients cover basic needs such as clothing, shelter, and food. It provides aid to those who are aged (65 or older), blind, and disabled people who have little or no income (or limited resources). To qualify, participants must be a U.S. citizen or national, or qualify as one of certain categories of noncitizens.

What You Have to Tell SS about Your Assets if You Want Benefits

There are certain assets (in this case, they’re known as resources) that must be disclosed in order to qualify for benefits through the SSI program. Typically, to receive benefits, one can’t own more than $2,000 as an individual or $3,000 as a couple in what the SSA deems “countable resources.” However, there aren’t any such limits in place for the SSDI program.

The value of someone’s resources (aka their financial assets) can help determine if they are eligible for Social Security benefits. If a recipient has more resources than allowed by the limit at the beginning of the month (when resources are counted), they won’t receive benefits for that month. They can be eligible again the next month if they use up or sell enough resources to fall below the limit.

Eligible resources can include:

• Cash

• Bank accounts (checking account, regular savings account, growth savings account; whatever you have)

• Stocks, mutual funds, and U.S. savings bonds

• Land

• Life insurance

• Personal property

• Vehicles

• Anything that can be changed to cash (and can be used for food and shelter)

• Deemed resources

The term “deemed resources” refers to the resources of a spouse, parent, parent’s spouse, sponsor of a noncitizen, or sponsor’s spouse of the Social Security benefits applicant.

A certain amount of these deemed resources are subtracted from the overall limit. For example, if a child under 18 lives with only one parent, $2,000 worth of deemed resources won’t count towards the limit. If they live with two parents, that amount rises to $3,000.

How Much Can I Have in My Savings Account and Receive SSI or SSDI?

For the SSI program, the total resource limit (which includes what’s in a checking account) can not be more than $2,000 for an individual or $3,000 for a couple. Again, there are no asset limits when it comes to the SSDI program. If someone is applying for the SSDI program, they can surpass that $3,000 limit, and it won’t matter as it doesn’t apply to them.

SSA Exceptions and Programs

Not every asset someone owns will count towards the SSI resource limit (remember, there is no such limit for the SSDI program). For the SSI program, there are some exceptions regarding what counts as a resource. The following assets aren’t taken into consideration:

• The home the applicant lives in and the land they live on

• One vehicle—regardless of value—if the applicant or a member of their household use it for transportation

• Household goods and personal effects

• Life insurance policies (with a combined face value of $1,500 or less)

• Burial spaces for them or their immediate family

• Burial funds for them and their spouse (each valued at $1,500 or less)

• Property they or their spouse use in a trade or business or to do their job

• If blind or disabled, any money they set aside under a Plan to Achieve Self-Support

• Up to $100,000 of funds in an Achieving a Better Life Experience account established through a State ABLE program

The Takeaway

When applying for Social Security benefits, having a savings account may or may not impact your eligibility. It depends on which program you are applying for. It is possible to have a savings account while receiving SSDI benefits. It’s also possible to have a savings account while receiving SSI, but there are limits regarding how much the value of the applicant’s assets (including what’s in their savings accounts) can be worth to qualify for support.

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FAQ

How much money can I have in a savings account while on Social Security?

Personal assets aren’t taken into account, including savings, when applying for the SSDI program. For SSI, however, countable resources (including savings accounts) are capped at $2,000 for individuals and $3,000 for couples.

Does Social Security look at your bank account?

That depends. If someone is applying for Supplemental Social Security Income (SSI) benefits, their personal assets are taken into consideration when it comes to eligibility. With Social Security Disability Insurance (SSDI), applicant assets aren’t taken into consideration.

What happens if you have more than $2,000 in the bank on SSI?

If you have more than $2,000 in the bank and are on SSI as an individual (more than $3,000 if you are part of a couple), you will not receive benefits for that month. Your finances will be evaluated the following month to see if your assets have fallen and you therefore qualify.

Does Social Security check your bank account every month?

Money in the bank doesn’t affect Social Security disability benefits. However, there is a $2,000 to $3,000 limit (varies by household) for the SSI program.

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

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

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Apr

2024

How Many People Have Student Loans in the United States?

How Many Americans Have Student Loan Debt?

By Jennifer Calonia | Building Your Career, Student Loans, student_loan | Comments Off

According to the latest figures from the Federal Reserve, 30% of U.S. adults had student loan debt upon leaving school.

Student loan debt is a significant financial burden for many Americans, impacting their ability to save, invest, and achieve financial milestones. As higher education costs continue to rise, more students and families rely on loans to fund their education.

Understanding the scope and scale of student loan debt in the United States is crucial for grasping its economic and social implications. Keep reading to learn how many Americans have student loan debt, the average amount borrowed, student loan debt by demographics, and more.

How Many People in the USA Have Student Loans?

The total student loan debt crisis amounts to $1.74 trillion in unpaid student loans as of the second quarter of 2024. This outstanding balance is spread among 43.2 million U.S. borrowers.

Federal student loans account for 91.2% of all U.S. student loan debt, according to the Education Data Initiative. However, U.S. adults are also burdened by private student loans.

As of Q3 2023, Americans have amassed a total of $130.28 billion in private student loans — accounting for 7.5% of outstanding student loans in the country.

Who Is the Typical Borrower?

The College Board’s Trends in College Pricing and Student Aid 2023 report found that the average four-year, public bachelor’s degree graduate left school with $27,400 in student debt. Bachelor’s recipients from private nonprofit institutions left school with an average of $33,600 in student debt.

Student Loan Debt by Age

U.S. adults ages 35 to 49 have a total aggregated balance of $635.7 billion in federal loans across 14.7 million borrowers. On average, a borrower in this age group has a student debt balance of $43,200, according to College Board.

Age	Total Balance	Average Balance per Borrower
Up to age 24	$103.4 billion	$14,600
25 to 34	$497.5 billion	$32,900
35 to 49	$635.7 billion	$43,200
50 to 61	$297.4 billion	$45,700
62 and older	$112.8 billion	$41,600

The next-highest total balance, at $497.5 billion, falls on borrowers ages 25 to 34. The 15.1 million borrowers in this age group have an average loan balance of $32,900.

Borrowers with the highest average balance ($45,700) are those who are 50 to 61 years — this group accounts for 6.5 million borrowers in the U.S.

Student Loan Debt by Race and Gender

According to the Education Data Initiative, 64% of the total U.S. student loan debt is held by women.

Men borrow an average of $29,862 in student loans. By contrast, each woman carries an average of over $30,000 in student debt.

Race/Ethnicity (Women)	Cumulative Debt
Asian	$25,252
Black or African American	$37,558
Hispanic or Latina	$27,029
White	$31,346

Black women face the greatest hurdle when it comes to student loan debt. According to AAUW, Black or African American women carry the highest cumulative student debt by race and ethnicity at $37,558. This figure includes the principal amount and student loan interest rate charges.

Student Loan Borrowers by Debt Size

According to the U.S. Department of Education, most student loan borrowers (9.9 million as of 2023) owe between $20,000 and $40,000. Close to half of all borrowers (42%) owe between $10,000 and $40,000, and only one million borrowers have student debt totaling $200,000 or more.

How Many People Have Student Loans by Demographic?

According to the Education Data Initiative, middle-income students are most likely to take out student loans. For students living on campus, 63.6% used federal student loans, compared to 39.7% of students who lived with their parents.

Among married undergraduates, 52% accepted federal loans. 54.1% of independent undergraduate students relied on federal student loans to help fund their education.

What Percentage of College Students Take Out Student Loans?

The percentage of students who borrow student loans vary based on factors like degree type and institution.

According to the Education Data Initiative, 31.5% of undergraduate students accepted student loans from the federal student loan program.

About 52% of bachelor-seeking students attending a private nonprofit received federal student loans, while 49% of bachelor’s students enrolled at a public college received federal loan aid.

Among master’s degree students, 53.6% who attended a private nonprofit school received federal aid, compared to 52.5% who attended a public institution.

Finally, 79.5% of students pursuing a professional doctorate degree at a private nonprofit received student loans. Of those who attended a public college, 31% of doctoral candidates have student loan debt.

Recommended: How to Pay for College

Total Owed by Americans on Student Loans?

Collectively, Americans have an outstanding student loan balance of $1.74 trillion in total. Private student loans makeup $130.28 billion of that, and the rest is federal student loans.

The Takeaway

Americans are carrying a significant student debt burden after leaving school. New and currently enrolled college students will likely see continued rising education costs.

Despite these figures, one of the benefits of student loans is that they can provide access to college for students who might otherwise not be able to finance their education. To pay for college, students can turn to cash savings, scholarships, grants, and federal and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Who holds the majority of student debt?

According to the College Board, borrowers ages 35 to 49 hold the majority of outstanding federal student debt at $635.7 billion, with an average balance of $43,200 per borrower.

What is the average student debt in the U.S.?

According to the Education Data Initiative, the average federal student loan debt as of 2024 is $37,843 per borrower. Counting private student loans, that number is $40,681 per borrower.

What is the total amount of student debt owed by Americans?

Americans owe $1.74 trillion in federal and private student loans as of 2024.

How do you get rid of student loan debt?

To get rid of student loan debt, you can make consistent payments, consider refinancing for better rates, apply for income-driven repayment plans, or seek loan forgiveness programs if eligible. Strategies like budgeting and making extra payments can help accelerate debt repayment and reduce the total interest paid.

What happens to student loan debt when you die?

When a borrower dies, federal student loan debt is typically discharged and does not need to be repaid. For private student loans, policies vary by lender; some may discharge the debt, while others may require repayment from the borrower’s estate or a cosigner if one exists.

How does student loan debt affect the economy?

Student loan debt affects the economy by reducing borrowers’ purchasing power, delaying homeownership, and impacting savings and retirement plans. High debt levels can limit consumer spending and hinder economic growth. Additionally, it may discourage potential students from pursuing higher education, affecting workforce skills and overall economic productivity.

Photo credit: iStock/Prostock-Studio

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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.

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.

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.

SOISL-Q324-057

Apr

2024

How to Buy a Single-Family Home: Step-by-Step Guide

By Emma Diehl | Home Ownership, mortgage | Comments Off

It’s no secret that the price tags of single-family homes — the ideal dwelling in terms of space, independence, and resale value — have spiked, and many current homeowners have been reluctant to let go, but a buyer whose heart is set on a single-family home may be able to follow a playbook to find their prize.

Buying a single-family home isn’t dramatically different from purchasing another type of property, but the process has a few variations. Here are some guidelines.

What Is a Single-Family Home?

The definition would seem easy enough, but it does vary according to real estate experts and government sources. The U.S. Census Bureau says single-family homes include fully detached and semi-detached homes, row houses, duplexes, quadruplexes, and townhouses. Each unit has a separate heating system and meter for public utilities, and has no units above or below.

According to other definitions of a single-family home, the building has no shared walls; it stands alone on its own parcel of land. In some places, the number of kitchens the home has informs the definition.

Unlike a multi-family property, a single-family home is meant for one person or household. Among the types of houses out there, including condos, co-ops, townhouses, and manufactured homes, the single-family home remains the holy grail for many Americans.

💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.

Benefits of Purchasing a Single-Family Home

While condos and townhouses may come with shared amenities and lower maintenance, traditional detached single-family homes come with different perks. When people buy a single-family home, they’re looking for benefits specific to this property type.

Spacious, Quiet, and Intimate

A single-family home is typically larger than a condo or townhome. Moreover, since the property is often on its own lot without shared walls, a single-family home offers more space and more privacy inside and outside the home.

Possibly No HOA

A co-op association or a condo or townhouse homeowners association sets and enforces rules and collects fees to pay for shared amenities. Anyone who buys into an HOA community must live by the CC&Rs: the covenants, conditions, and restrictions. They can be lengthy, and the ongoing fees can constantly rise.

You may be able to buy a detached single-family home with no HOA and paint your mailbox, or house, pink or purple — unless you live in a city like Palm Coast, Florida, that allows only earth tones and light or pastel hues but no colors that are deemed “loud, clashing, or garish.”

Then again, HOAs are becoming more common for detached single-family homes in planned communities. In fact, about 65% of single-family homes built in 2020 were in an HOA, Census Bureau data shows.

Single-Family Home Appreciation

Generally, single-family homes are in higher demand than multi-family or other properties. Because of both the building and demand, when a person buys a single-family home, the value may increase faster.

Possibilities for Renovation and Expansion

When people buy single-family homes, they’re buying into the potential to expand or renovate extensively. If the lot is big enough, single-family homeowners could put an addition on the property.

Single-family homes can be an attractive buy simply because of the option to expand in the future, unlike properties with shared lots or walls.

💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

How to Buy a Single-Family Home

Ready to buy a single-family home? Anyone from a first-time buyer to a seasoned investor may find appeal in a single-family home.

Recommended: First-Time Homebuyers Guide

1. Draw Up Your Financial Priorities

First, it’s important to look at finances. Your credit scores can have a significant impact on getting approved for a mortgage. To get a clear read on credit, but not scores, buyers can request free credit reports from the three major credit bureaus.

Additionally, it can be helpful for a qualified first-time homebuyer — who can be anyone who has not owned a principal residence in three years, some single parents, and others — to look into specialty mortgages to see if they qualify for them.

A loan from the Federal Housing Administration (FHA) may allow a down payment as low as 3.5%. A USDA loan (from the United States Department of Agriculture) requires nothing down, and a VA loan (from the Department of Veterans Affairs) also usually requires nothing down. Some conventional lenders allow qualifying first-time buyers to put just 3% down.

It’s important to know, though, that all FHA loans require an upfront and annual mortgage insurance premium, regardless of the down payment size. VA loans require a one-time “funding fee.” And borrowers with conventional conforming loans who put down less than 20% will pay private mortgage insurance until their loan-to-value ratio drops to 80% and they request removal, or to 78%, when it falls off.

2. Decide on Your Preferred Type of Housing

No two houses are alike, just as no two homebuyers are. Everyone has different tastes and priorities about where they want to call home.

Before hitting every open house in town, consider deciding on must-haves for a single-family detached home, including privacy, proximity to businesses, size, and style. This could help determine if a single-family home is the right fit.

3. Arrive at Your Price Point

Armed with an understanding of the type of house, it’s time to think about the price point. In addition to thinking about the down payment, buyers will want to calculate a monthly mortgage payment and total loan costs.

Figuring out a price point before looking at homes can take the emotion out of the process. That way, buyers have a budget in mind and a “do not exceed” amount before they fall for a home.

4. Search for a Good Real Estate Agent

Buying a single-family home can be fun, stressful, and fast-paced. Working with a trusted real estate agent can make the process a little easier.

To find a real estate agent, you might consider:

• Reaching out to friends for referrals

• Checking out local real estate association websites

• Using an agent selling homes in the area you want to buy in

You might want to interview more than one agent, asking about their experience, availability, and philosophy. The choice of agent will likely come down to a combination of personality match and experience.

5. Find Your Neighborhood

Armed with an agent and budget, it’s time to dive deeper into neighborhoods. Once again, the choice of where to search will come down to the buyer; there’s no one “right” place to buy a single-family home.

As buyers explore neighborhoods, they might prioritize the following:

• School district

• Walkability

• Proximity to workplace

• Community resources

• Budget

An experienced agent can help buyers distill their priorities and even point them in the right direction. Typically, buyers will have to balance the above elements, as it might not be possible to check all the boxes in a single neighborhood.

6. Tour Homes With Your Agent

Once buyers decide what neighborhoods they want to buy a single-family home in, it’s time to start touring properties.

When touring a single-family home with an agent, try to allot between half an hour to an hour. In the case of open houses, prospective buyers can walk in at any time, but private home tours require a buyer’s agent to gain access to the property.

When buying a single-family home, everyone will have their own checklist of what they want, which might include:

• Listing price

• Number of bedrooms and bathrooms

• Storage space

• Floorplan

• Plot of land

• Deck and porch

• Garage and driveway

It could help to take photos or notes while touring a home to refer to them long after you’ve left the property.

7. Choose a House and Bid

Found a place and ready to make an offer? Time to get a home loan in order. Luckily, buyers will have a good idea of what they can offer on a property based on their finances with the upfront legwork.

Your agent can help with negotiating a house price.

How to make an offer? It pays to understand comps and the temperature of the market, and then:

• Figure out the offer price

• Determine fees

• Budget for an earnest money deposit

• Craft contingencies

With an offer drawn up, it’s time to submit it to the seller and wait for the next steps.

8. Review the Process and Get Ready to Move

Buying a single-family home isn’t a done deal once an offer is submitted. Typically there will be a back and forth, perhaps over offer price or contingencies.

Once everything is agreed on, and the inspection is resolved, it’s time to tally moving expenses and pack up.

9. Head to Closing and Move Into Your New Property

The final part of buying a single-family home is closing day. During closing, the buyer and seller meet with their agents to go over paperwork, and settle any outstanding costs, and formally turn over property ownership.

Next, it’s just moving everything in and settling in. Even after closing, homeownership may feel overwhelming, but there are plenty of resources to make it easier.

Ready to Buy a Home Quiz

The Takeaway

Ready to buy a single-family home? The process before you may seem daunting, especially if it’s your first home purchase. But if you break it down to small steps and keep your budget and dream-house priorities top of mind, home sweet home may be closer than you think.

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

How much does it cost to buy a single-family home?

Zillow put the typical value of a single-family home at $354,000 in April 2024. New construction costs more. The median sales price of new houses sold in February 2024 was $400,500, according to the U.S. Census Bureau.

Can you buy a single-family home with no money down?

If a buyer qualifies for a mortgage backed by the Department of Veterans Affairs or Department of Agriculture, or one issued directly by those agencies, they may be able to purchase a home with no down payment.

What are the most important things to consider when buying a house?

Location (including property tax rate, quality of schools, walkability, crime rate, access to green space, and the general vibe), your ability to cover all the costs, duration of your stay, and square footage may be important.

How much should you have in savings to buy a single-family house?

You’ll need to have enough to cover a down payment, closing costs, and moving fees while ideally preserving an emergency fund.

Photo credit: iStock/jhorrocks

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.

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.

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.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SOHL-Q224-1842723-V1

Apr

2024

How to Buy a Multifamily Property and What to Look For

By Alene Laney | Growing Wealth, Home Ownership, mortgage | Comments Off

Multifamily property has the power to generate cash flow and build wealth. Yet it also has the power to drain you of your free time and become the biggest money pit of your life.

If you’re looking to buy a multifamily property and avoid common headaches, you have your research cut out for you.

What Is a Multifamily Property?

Multifamily property consists of multiple units in a single building. This includes duplexes, triplexes, fourplexes, condominium buildings, student housing, apartment complexes, age-restricted communities, low-income housing, and townhomes. The units in a full multifamily housing property must have separate entrances, kitchens, bathrooms, and utility meters.

Multifamily property investing has declined in the year ending November 2023, due in part to concerns about interest rates, but multifamily properties are still a popular investment vehicle. There’s a reason that individual investors gravitate toward two- to four-unit properties, other than ease of management. Residential loans of 30 years with a fixed rate are available for properties with one to four dwelling units. FHA, VA, and USDA loans are available for those properties if they are owner-occupied.

For five or more units, a commercial loan is required. Commercial loans usually come with a higher down payment requirement, higher interest rate, and a shorter term, meaning significantly higher mortgage payments.

💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.

Why Buy a Multifamily Property?

Buying a multifamily home can jump-start your own real estate portfolio and investment portfolio. Here’s how.

Recommended: First-Time Homebuyer Guide

Income From Flipping

Multifamily homes can be improved and then resold for a profit, or ”flipped.” Buying a multifamily property, remodeling, and then reselling can be even more profitable than flipping single-family homes because as you remodel, you can increase rents.

Once you increase rents, the property becomes more valuable, both in terms of monthly income, cash flow and overall worth.

The ‘BRRRR’ Method

BRRRR stands for buy, rehab, rent, refinance, repeat. An investor buys a property, renovates it, and rents out the newly refurbished units for more money. After that, they can refinance the property to take out extra cash to buy a new property to renovate.

This method works well with larger multifamily properties because the rehabbing of multiple units can be done while other units that are not being renovated can still bring in some income.

Cash Flow

Multifamily homes were designed for cash flow. Space and amenities are optimized to bring in money for the investor. On the other hand, single-family homes are designed for comfort. The added space of a single-family home may not bring as high of a return as a multifamily property.

Quick Portfolio Expansion

Buying multifamily properties allows investors to acquire multiple units with one transaction, so they may have a favorite in the single-family vs. multifamily comparison. Additionally, investing in multifamily properties can allow an investor to quickly generate income, which could be enough to acquire more properties.

Reduced Risk

A multifamily property lessens risk exposure. When you have single-family homes, vacancies have a bigger effect on your monthly cash flow. With one or more multifamily properties, the risk is spread across a number of properties. In other words, there are units still rented that can help cover the costs of the units that are vacant.

Analyzing the Investment Potential of a Multifamily Property

Investors can use a number of methods to determine if it makes sense to buy a multifamily property or not. Here are some of the most common calculations you can use to make that determination for yourself.

Cash Flow

In real estate investing, cash flow is money that’s generated by the property and money spent on the property. Positive cash flow means income exceeds expenses. You could also call it profit.

Investors have differing amounts that they consider acceptable. Some real estate investors bank on the appreciation of the property instead of the amount of cash flow.

The 1% Rule

The 1% rule states that the gross rents should be 1% or more of the purchase price. The 1% rule is hard to apply in high-income areas where the purchase price of a property is high relative to the rents it generates.

Gross Rent Multiplier

The gross rent multiplier (GRM) is a ratio: the fair market value of a property divided by its gross annual rents. It doesn’t take expenses into consideration and is meant to be a simple calculation to determine if a property is worth exploring further. If you’re comparing two properties for purchase, the one with the lower GRM may be the better investment.

Cash on Cash Return

The cash on cash return is the annual amount earned compared with the amount of cash invested. It’s expressed as a formula: annual net cash flow divided by cash investment. This is helpful for investors who want to know how much cash is brought in by their cash investment each year.

Capitalization Rate

The capitalization rate, or cap rate, is the amount of net operating income divided by the purchase price. This number indicates how long it will take to get back all your money in an investment.

Internal Rate of Return

The IRR measures the rate of return over an amount of time. It takes into account both cash flow and expected appreciation.

Recommended: Mortgage Payment Calculator

How to Buy a Multifamily Property

You may be able to use 75% of documented rental income to help finance mortgage interest on your loan. And again, multifamily homes with four or fewer units can be financed more traditionally, while five or more units require a commercial mortgage.

Getting preapproved for a mortgage for your multifamily investment property is one of the best things you can do to get started. After a mortgage officer has examined your finances and greenlighted an amount, you can go shopping for your multifamily investment properties.

Find a Multifamily Home

To narrow your search for a new multifamily property here, you’ll want to decide what it is you’re looking for. Keep a few of these factors in mind:

• Location: Do you have an area that you have expertise in? Are you going to manage the property yourself? These are some questions you’ll want to ask yourself to determine if you can buy a multifamily property near or far.

• Price range: After you’ve looked at where you want to potentially invest, you’ll get a good sense of what properties will cost by looking at real estate listings. Keep in mind that you can count 75% of documented rents toward the purchase price for many loan types, so the price you’ll be looking at will be much different than if you were looking for a single-family home.

• Type of property: Are you looking for a fourplex or an apartment complex? Duplex or 55+ community? There are a lot of choices to make between different property types and whether or not they’ll bring you a profit.

• Profit potential: Are you looking to invest for appreciation or cash flow? Many properties with a lower price tag in the Midwest may be better for cash flow, while properties on the West Coast may appreciate more. Take a look at both and decide on your investment strategy.

• Condition: Do you have the resources and team in place to take on a multifamily property that needs a lot of work? Or would you rather have something turnkey? You’ll want to be sure you know what resources you can commit to the project before you get in over your head.

Choose a Loan

The type of rental property used may determine what type of loan you’re able to get. If this is your first rental, you may want to consider living in one of the units so you can qualify for owner-occupied financing, which usually comes with lower rates and down payment requirements.

Choose a lender that can answer your questions about mortgages.

Make an Offer and Close

Working with a real estate agent, you’ll submit a competitive offer for the property you’ve chosen. Some buyers use cash to make the most competitive offer, while others need financing.

Renovate and Get Ready for Your Tenants

No matter what class of property you buy, the rental units will almost always require some work. Whether it’s a simple clean or a major renovation, these things are both tax-deductible and will improve the value, not to mention rentability, of your property.

Create a Management Plan

To make sure you’re running a business, and it’s not running you, you need to have a solid plan in place for how the rentals will be managed. How are repairs going to be taken care of? What’s your process when a rental turns over? How are you going to keep up with laws and ordinances?

Having a plan helps. Even so, you’ll learn as you go and will need to adjust this plan.

💡 Quick Tip: One answer to rising house prices is a jumbo loan. Apply for a jumbo loan online with SoFi, and you could finance up to $2.5 million with as little as 10% down. Get preapproved and you’ll be prepared to compete in a hot market.

The Takeaway

How to buy a multifamily property? Do your research and choose a property that you’ll have the ability to finance and manage. Investing in rental properties and multifamily investing is not easy, but it can generate cash flow and create family wealth.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is buying a multifamily property a good investment?

Finding a multifamily property that is a good investment will depend on the investor’s analysis of the property. This can include the price, condition, gross rent multiplier, capitalization rate, and a number of other factors that will make renting the units successful.

What are the different kinds of multifamily properties?

• Duplexes, triplexes, fourplexes

• Townhouses

• Apartment buildings

• Condominiums

• Bungalow courts

• Mixed-use buildings

• Student housing

• Age-restricted housing units

• Low-income housing units

What is the best way to finance a multifamily home?

Some would argue that an FHA loan with 3.5% down is one of the best ways to finance a home with up to four units. The owner must live in one of the units to qualify for this type of financing.

Photo credit: iStock/Andrey Sayfutdinov

SOHL-Q224-1842833-V1

Net Asset Value (NAV): What It Means, Formula, Example

What Is Net Asset Value (NAV)?

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Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

NAV Formula

How NAV Is Used for Investments

Mutual Funds

ETFs

Example of Calculating Mutual Fund NAV

How to Interpret NAV Results

Why Do NAVs Change?

When NAV Isn’t Everything

The Takeaway

FAQ

Is net asset value the same as price?

Why is net asset value important?

Is high NAV good or bad?

Is it good to invest when NAV is down?

What is an example of a NAV?

Are You Allowed to Have a Savings Account While on Social Security Disability?

What Is Social Security?

Can I Get Social Security Disability Insurance or Supplemental Security Income with a Savings Account?

Get up to $300 when you bank with SoFi.

Eligibility for SSDI

Eligibility for SSI

What You Have to Tell SS about Your Assets if You Want Benefits

How Much Can I Have in My Savings Account and Receive SSI or SSDI?

SSA Exceptions and Programs

The Takeaway

FAQ

How much money can I have in a savings account while on Social Security?

Does Social Security look at your bank account?

What happens if you have more than $2,000 in the bank on SSI?

Does Social Security check your bank account every month?

How Many Americans Have Student Loan Debt?

How Many People in the USA Have Student Loans?

Who Is the Typical Borrower?

Student Loan Debt by Age

Student Loan Debt by Race and Gender

Student Loan Borrowers by Debt Size

How Many People Have Student Loans by Demographic?

What Percentage of College Students Take Out Student Loans?

Total Owed by Americans on Student Loans?

The Takeaway

FAQ

Who holds the majority of student debt?

What is the average student debt in the U.S.?

What is the total amount of student debt owed by Americans?

How do you get rid of student loan debt?

What happens to student loan debt when you die?

How does student loan debt affect the economy?

How to Buy a Single-Family Home: Step-by-Step Guide

What Is a Single-Family Home?

First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.

Benefits of Purchasing a Single-Family Home

Spacious, Quiet, and Intimate

Possibly No HOA

Single-Family Home Appreciation

Possibilities for Renovation and Expansion

How to Buy a Single-Family Home

1. Draw Up Your Financial Priorities

2. Decide on Your Preferred Type of Housing

3. Arrive at Your Price Point

4. Search for a Good Real Estate Agent

5. Find Your Neighborhood

6. Tour Homes With Your Agent

7. Choose a House and Bid

8. Review the Process and Get Ready to Move

9. Head to Closing and Move Into Your New Property

Ready to Buy a Home Quiz

The Takeaway

FAQ

How much does it cost to buy a single-family home?

Can you buy a single-family home with no money down?

What are the most important things to consider when buying a house?

How much should you have in savings to buy a single-family house?

How to Buy a Multifamily Property and What to Look For

What Is a Multifamily Property?

First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.

Why Buy a Multifamily Property?

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

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Refinancing

Personal
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