Jul
24
2023

Ways to Build Wealth at Any Age

By | Growing Wealth, Investing | No Comments

Whether you want a worry-free retirement or a custom-built home, your financial goals are worthy investments. And building wealth is likely a foundational goal for most people, as it can help them achieve most, if not all of their financial goals.

There are some tried and true ways to save money and build wealth at any age — whether you use those funds for immediate purchases, long-term goals such as retirement, or estate planning for after you’re gone. The key is to start as soon as possible, rather than wait until “the right time.”

Set Short- and Long-Term Goals

The first step in building wealth is to set short and long-term goals you can revisit throughout your journey.

Short-term goals focus on achieving more immediate results, such as funding next summer’s trip or buying a new car. In contrast, long-term goals might require several years or more of preparation. For example, you may want to collect enough to pay off your mortgage or send your kid to college expenses. Creating realistic goals at the start gives you direction, so make them as specific as possible.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Create a Budget

Once you know your goals, drafting a monthly budget becomes more manageable. Document up to three months’ worth of expenses and then break the list down into fixed costs, variable costs, necessary costs and discretionary costs. You probably can’t stop paying your utilities, but you will likely find places to save in your discretionary category (think restaurant meals, or entertainment expenses). Dedicate a portion of that discretionary spending to your goal’s fund regularly.

Taking stock of your financial situation gives you a clearer understanding of where you are, where you’re going to go, and how you’re going to get there.

Pay Off Debt

To dedicate more money toward building wealth and saving for your goals, you’ll likely need to pay off some debt first. You can use your discretionary income as a tool for minimizing your debt load. If you have multiple debts, consider using a debt repayment method, such as the avalanche method or the snowball method, to accelerate the process.

Debt Repayment: The Avalanche Method

The avalanche method prioritizes high-interest debts by ranking the interest rates from greatest to least. Then, regularly pay the minimum on each of your debts, and put any leftover funds towards the one with the highest interest rate. Once you pay that off, continue on to the second-highest debt. Follow that pattern to minimize the interest you’re paying as you become debt-free.

Debt Repayment: Snowball Method

Alternatively, the snowball method is another debt repayment strategy. It’s essentially the opposite of the avalanche approach. List your debts from smallest principal to largest, ignoring the interest rates. Then, regularly dedicate enough funds to each to avoid penalties, and put any extra money toward the smallest debt.

After the smallest debt is paid, redirect your attention to the next largest debt, and so on. As the number of individual debts shrink, you’ll have more money to apply towards the larger debts. You may still have interests to worry about but picking off the debts one by one can impart a sense of forward movement and accomplishment.

Start Investing

If you haven’t already, find out what if any employer-sponsored retirement savings plans are available to you, such as a 401(k). These qualified retirement plans offer tax advantages and typically allow you to direct a portion of your paycheck to your account, putting your savings on autopilot. If your workplace does not offer any retirement accounts, consider opening an IRA or a brokerage account to build an investment portfolio.

Generally, investing for retirement when you’re young means you can take on more risks. While a diversified portfolio is a standard strategy, younger investors might have a portfolio that’s heavier on equities early, since they may help you capitalize on long-term growth. As you get older and closer to retirement, your risk profile may change and your portfolio will need a rebalancing to incorporate more fixed-income investments.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

How to Increase Your Income and Save More

You might be getting by on your current income, but if you had the chance to boost it, wouldn’t you? With an extra-positive cash flow, you could tackle debt, save more, and achieve your goals sooner. Here are a few ways to make that happen.

Ask for a Raise

Asking for a salary increase is one solution for improving your cash flow. All it takes is one good conversation, a positive work record — and a bit of courage and confidence. Speak to your peers and read up on how to conduct yourself when asking. Going in with a plan will save you anxiety and help you get your points across clearly.

Seek Other Investment Opportunities

When investment opportunities pop up, take advantage of the ones that speak to you whenever possible. Some may be easier to break into, like real estate, one of the world’s largest asset classes. Other options include gold and silver, which you can invest in physically or through ETFs. For investors willing to take on a higher-risk opportunity, investing in startups may be appealing. It all comes down to what investment will best serve your personal short- and long-term goals.

Start a Side Gig

Additional work is also great to bulk up your resume and create new connections. It seems like everyone is starting up a side hustle these days. From online shops to freelancing, the opportunities are endless. All you have to do is determine your marketable skills and how to advertise them. There might be local opportunities, or you can create a profile online on side hustle-oriented websites.

Cut Expenses

Sometimes it’s not about finding new currents of money, but about creating a larger pool with the money already coming in. Take a second pass at your list of discretionary expenses to pinpoint a few more areas you could cut back on without feeling the impact in your day-to-day life.

One good example: Automatically renewed subscriptions for streaming services and local businesses, like gyms, are convenient. But think about how frequently you use the service. If the answer is “not often,” you’re not getting your money’s worth — and you may want to negotiate a lower fee, or cut the subscription altogether.

How to Build Wealth at Every Stage of Life

While it’s good to have a general strategy in place for building wealth and increasing cash flow, different stages in your life may require you to focus on different things. Taking advantage of the opportunities each decade brings you will help you financially adjust and build a stable lifestyle.

In Your 20s

You may be right out of school and trying to navigate the job market, but don’t wait to start working towards your long-term financial goals. The sooner you start, the sooner you’re likely to reach your goals.

Create an Emergency Fund

Generally, an emergency fund should include about three to six months’ worth of living expenses. Although that sounds like a lot, you’ll be grateful for the cushion if you should lose your job, or crash your car, or have a medical emergency. Unexpected things happen all the time, and an emergency fund will protect you while you get things back up and running. It will also keep you from having to touch other savings accounts, like a retirement account.

Eliminate High-Interest Debt

Your student loans aren’t going anywhere, so pay them off as soon as possible. The same goes for any other high-interest debt you might have incurred, such as with a credit card. Paying off growing interest rates will bog down your ability to save.

However, don’t be afraid to use your credit cards. Your 20s are the perfect time to build credit, which will be vital to certain goals, like purchasing a house. Use them strategically and pay them off immediately to build an upstanding credit history.

In Your 30s

Your 30s may bring some stability into your life, whether it’s regular work, a partner, and/or kids. However, the costs you’re facing are likely growing with you. Focus on money moves that will benefit you long-term.

Plan for College Expenses

If you have children, saving for their education is a big step. Use opportunities like a 529 account to help provide the funding. A 529 plan is a tax-advantaged savings plan you can use to pay for future tuition and related costs. That said, many people who’ve been there, and done that, may advise against prioritizing your kids’ education over your retirement.

Pad the Nest Egg

By some popular estimates, by age 30 you should have at least one year’s worth of your annual salary saved for your retirement — and twice that by 35. Incrementally increasing the amount you put towards your savings will help boost that number as well.

In Your 40s and Beyond

By 40, conventional wisdom holds that you should be well on your way to a growing nest egg with three times your annual salary saved up. At this stage, you may also have other assets to your name, such as property. If you have kids, they might be nearing college age, and retirement might not seem quite as far away as it once did.

Protect Your Wealth

It’s always smart to protect your assets and yourself. Make sure you have insurance covering both your estate and yourself (through health and life insurance). Insurance can take a burden off of your family’s shoulders in case anything happens to you.

Capitalize on Make-Up Contributions

A make-up, or catch-up, contribution, is an additional payment that anyone over age 50 can make to their 401(k) or IRAs retirement savings account. If you’re in a financial position to contribute these extra funds, it can help bulk up those savings to help prepare for retirement.

For 2023, the maximum allowable catch-up contribution to 401(k) plans is $7,500. The IRA annual contribution limit for 2023 is $6,500, with those 50 and above allowed to contribute another $1,000 a year. In total, anyone over 50 can put $7,500 into their IRA annually.

Wait to Take Social Security

Did you know you could receive a higher Social Security benefit if you wait to claim your benefits? Those who hold off collecting Social Security until age 67 get 108% of their benefits, and those who wait until the age of 70 can receive 132% of their monthly benefit. On the other hand, if you begin taking benefits early, at age 62, you’ll receive 25% less in monthly benefits.

Shift Your Asset Allocation

Investors should periodically revisit their portfolio and reassess their investments and risk level. As you get closer to retirement, you may decide to allocate a larger part of your portfolio to safer choices like bonds and other fixed-income.

The Takeaway

Building wealth at any age starts with a frank look at your current income and expenditures, a detailed list of short-term and long-range goals — and a little follow-through based on where you are in life.

Some ways to start building wealth are to take on a side gig or side hustle, find ways to cut expenses and increase savings rates, and to start investing. There are numerous ways to do any of these, and it may take some experimenting to see what works for you.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Jul
24
2023
Federal reserve building

What Is the Federal Reserve?

By | invest, Investing, Terminology | No Comments

The Federal Reserve is the U.S. central bank system. The Fed implements monetary policy in order to stabilize the economy, monitor interest rates, and keep unemployment low. It is the most powerful economic institution in the country, and one of the most important in the world.

You’ve probably heard a lot about the Fed thanks to higher-than-normal inflation in 2022 and 2023. Notably, the Fed raised interest rates rapidly in these two years, using a series of small increases designed to tamp down inflation.

The Federal Reserve System does far more than manage inflationary pressures, however. That’s just a start.

Why Was the Federal Reserve Created?

Throughout the 19th century, there was no central bank in the U.S., and the banking system was fraught with bank failures and “bank runs,” where depositors would rush to banks to withdraw all of their money. To create a safer and more stable bank system, President Woodrow Wilson signed the 1913 Federal Reserve Act.

The Fed is actually an intricate system that consists of several different parts. These are the three bodies of the Fed:

The Federal Reserve Board of Governors

There are seven Federal Reserve board members that oversee the Federal Reserve System. This includes the chairman and vice chairman. Jerome Powell has been chair of the Fed since 2018. Before him, the chairman of the Federal Reserve was Janet Yellen.

The Board of Governors, which is made up of seven governors, is based in D.C. and reports to Congress. Board members are appointed by the U.S. president and serve staggered 14-year terms (so the entire board isn’t replaced in a single year). The chairman and vice chairman serve four-year terms and may be reappointed at the end of their term.

Federal Reserve Branches

There are 12 Federal Reserve districts in major cities throughout the country that act as the operating arms of the Federal Reserve.

You wouldn’t walk into a Federal Reserve bank and open up a checking account, though. Rather, Federal Reserve banks work with other institutions, such as banks and credit unions, and the U.S. Treasury. They provide services like holding deposits for banks, processing payments, and issuing and redeeming government securities.

The Federal Open Market Committee (FOMC)

The committee comprises all members of the Board of Governors and five rotating Reserve Bank presidents. Although not all Reserve Bank presidents vote, all participate in policy discussions.

The FOMC meets eight times a year to review economic trends and vote on new monetary policy measures. During these meetings, the committee will set a federal funds rate. The FOMC may also take steps to control the money supply.

What Does the Federal Reserve Do?

The Federal Reserve has several primary functions:

Setting Monetary Policy

One of the primary roles of the FOMC is to set monetary policy. With monetary policy, there are typically two primary goals: Maximum employment and stable inflation.

Often, we hear about monetary policy in terms of the setting of the federal funds rate. This is the rate at which banks charge each other on an overnight basis.

A bank might need to borrow money from another bank in order to meet the Fed’s minimum reserve requirement, or how much cash the bank has available in its reserves.

Recommended: What Is Fractional Reserve Banking?

The federal funds rate as set by the FOMC may influence other interest rates. In this way, the federal funds rate can be used as a tool to encourage or restrict borrowing. For example, the Fed may attempt to fight inflation by raising the federal funds rate. Conversely, the Fed may lower that same rate in an attempt to ward off a recession.

But this isn’t the only monetary policy that the FOMC is engaged in. According to the Federal Reserve, its main tool for controlling the money supply is “open market operations,” which is the buying and selling of government securities, like treasury bills. They may do this in conjunction with a rate change or other strategies.

Regulating Banks

To ensure the safety and solvency of the nation’s banking and financial system, the Fed regulates banks and other financial services institutions. This is done not only for the protection of the consumer but to promote stability within the banking system.

The Board of Governors typically sets guidelines for member banks through policy regulation and supervision. The Reserve Banks then examine member banks to ensure that they comply with existing laws and regulations. Often, new guidelines are created because of legislation that has been passed through Congress.

Overseeing Payment Systems

The Fed provides financial services to the U.S. government, major financial institutions, and foreign official institutions. The Fed acts as the depository institution for the U.S. Treasury — essentially, the Treasury’s checking account.

The Fed also plays a major role in operating and overseeing the nation’s payment systems. In addition to making sure there is enough currency in circulation, the Fed clears millions of checks and processes electronic payments. Social Security checks and the payrolls of government institutions are processed by the Fed.

Limiting Risk

At the end of the day, the Federal Reserve wants to control risks to the economy and financial markets (such as the stock market) as best they can. They utilize a number of measures, including those discussed above, in order to best achieve this stability.

How Does the Federal Reserve Affect You?

Although you might not always feel it, the Federal Reserve enacts policies and makes decisions that affect the lives of everyday Americans.

Although the Fed does not set rates like mortgage rates and credit card interest rates, those rates can shift as the Fed Funds rate does.

An increase or decrease in interest rates can affect consumers in plenty of ways. If overall rates increase, then it becomes more expensive to be a borrower. Variable interest rates may rise, and any new debt will be issued at higher rates.

The rates at which money is flowing freely throughout an economy may also have rippling impacts. For example, when rates are low and access to money is cheap, businesses may borrow money in order to invest in development or expand operations. If there is too much money in circulation, inflation may increase. This could cause the prices of everyday goods, like groceries, to increase as well.

The Takeaway

One of the Fed’s goals is an economy with full employment. If they are not able to succeed using the tools at their disposal, people may lose jobs, and unemployment may increase. This could also have effects throughout the greater economy, such as decreased consumer spending and overall slowed economic growth.

Keeping an eye on what the Fed does and why they’re doing it can provide valuable information for investors. Issues like unemployment and inflation can affect the markets, which in turn can have an impact on your financial plans.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

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Jul
24
2023

Zombie Foreclosures: Understanding Abandoned Properties

By | Home Ownership, mortgage | Comments Off on Zombie Foreclosures: Understanding Abandoned Properties

We’ve all seen them: houses that look forlorn, decrepit, unlived in. Maybe the weeds are tall and the paint is peeling. These are signs of a zombie foreclosure: a homeowner essentially abandons the property, often after receiving a notice of impending foreclosure.

What Is a Zombie Foreclosure?

A zombie foreclosure typically occurs when a homeowner defaults on their mortgage and believes they must vacate the premises immediately. In other cases, the homeowner may leave for any number of other reasons.

Even if someone defaults on a mortgage, they are not absolved from all responsibilities until the lender completes the foreclosure process. Until then, the homeowner is usually still responsible for the mortgage, maintenance, homeowners association (HOA) fees, and other costs.

At last count, more than 8,000 zombie homes existed nationwide, with overall numbers increasing 5.4% from late 2022 to early 2023. The greatest number of zombie foreclosures is in New York, Florida, and Ohio. Although the number of zombie homes remains small, it will likely continue to increase as foreclosure rates increase.

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

Recommended: Cost of Living By State

How Does a Home Become a Zombie Foreclosure?

A zombie foreclosure can sound scary, but it’s best to be aware of how they happen to avoid the worst consequences. A home often becomes a zombie foreclosure after the homeowner defaults on the mortgage. When this happens, the homeowner typically receives a foreclosure notice from the mortgage lender. They might believe they must leave immediately, abandoning their home as a result.

But while they turn their back on a home they believe has “died,” the home lives on and still has a laundry list of responsibilities. This means mortgage payments, maintenance, HOA fees, property taxes, and more. The current homeowner still holds the title and is still responsible for all these items until the foreclosure process is complete.

Complicating the picture, lenders sometimes decide not to complete the foreclosure process. There can be many reasons for this, but the most common is that the lender determines that foreclosing on the home isn’t worth it. Foreclosed homes often need significant repairs, and there might be a large amount of back taxes to pay.

While zombie foreclosures only make up a small percentage of all foreclosures, they do happen. Just because someone receives a foreclosure notice doesn’t mean the home is no longer their responsibility. That’s why it’s wise to follow up with the mortgage lender and await official communication before leaving for good.

Consequences of a Zombie Foreclosure

A zombie foreclosure is not a good thing for anyone involved. There can be a range of issues for the owner and the home’s neighbors.

Impact on Homeowners

As mentioned earlier, you are still responsible for your home if you receive a foreclosure notice. If you abandon the property before the foreclosure process is complete, you might face some serious consequences:

•   Penalties and fees: If the foreclosure process drags on, it could result in the accrual of interest, penalties, and fees. These can increase the financial burden you were already experiencing.

•   Damage to your credit: A zombie foreclosure can seriously damage your credit because it may result in a home mortgage loan default. This can make it very difficult to obtain loans in the future, including new mortgages, auto loans, and personal loans.

•   Legal consequences: Not making your payments could result in a variety of lawsuits. For instance, the city might sue you over unpaid property taxes. Or the homeowners association might sue you to collect its fees.

As you can see, the consequences of a zombie foreclosure can be significant. Therefore, seeking legal advice to understand your rights and responsibilities in these situations is best. In addition, you should ensure all paperwork is complete before you leave the property for the last time.

Impact on Neighbors

The homeowner who abandons a property may not be the only one who suffers. There may also be consequences for neighbors:

•   Increase in crime: Squatting, vandalism, and theft are just a few of the types of crimes that might occur after a zombie foreclosure.

•   Public health issues: Foreclosed homes are often neglected, leading to overgrown yards. This can attract mosquitoes and other pests that can spread diseases.

•   Costs for the local government: Someone must take care of a neglected home, and that job often falls to the local government. This can then lead to higher taxes for people in the area.

Impact on the Housing Market

The broader housing market can also be impaired due to zombie foreclosures. However, some opportunistic investors may also take advantage of the situation. Here are some of the potential impacts on the local housing market:

•   Decrease in property values: A zombie foreclosure can cause a home to become an eyesore and a hazard to the local community. This can make the neighborhood less desirable as a whole, leading to a decrease in property values across the board.

•   Decrease in new construction: New builders may be hesitant to pursue projects where there are zombie foreclosures. They might believe they can’t compete with the low prices of foreclosed homes.

•   Opportunities for investors: While zombie foreclosures’ impacts are mostly negative, they can also lead to opportunity. Investors can purchase these homes at bargain-bin prices, renovate them, and either sell or rent them.

While they can create opportunities for investors, most zombie foreclosures’ impacts on the housing market are negative. As a whole, local communities generally suffer the consequences as a result. One way for owners to reduce the risk of a zombie foreclosure is to ensure a home is affordable for them from the outset.

Considerations If Purchasing a Zombie Foreclosure

While zombie foreclosures may have a discounted price tag, there is much to consider before moving forward. First, there can be legal complexities that complicate the process. For instance, the home may be in pre-foreclosure, the foreclosure may not have been properly completed, or there may be liens on the property. You must understand these complexities when purchasing a zombie foreclosure. Working with a real estate attorney with experience in this area is best.

You should also consider the condition of the property. Those that have been abandoned can have a range of issues, such as structural damage, mold, or vandalism. Some of these issues are more costly to fix than others. Thus, the home will need a thorough inspection to understand what repairs it may need.

Another important consideration is financing. Some lenders might be hesitant to finance homes in poor condition. You might need to explore alternative financing options, such as a renovation loan. Or you might even have to pay cash. Either way, more flexibility may be necessary when dealing with zombie foreclosures.

The Takeaway

Zombie foreclosures typically occur when a homeowner vacates the premises after receiving a foreclosure notice but before the foreclosure process is complete. Zombie foreclosures can hurt both homeowners and the local community. Therefore, homeowners may want to avoid this situation by remaining in their homes until they receive a notice to vacate and trying to stay current on mortgage payments, property taxes, and HOA fees.

Mortgages can be complicated, but SoFi Home Loans tries to make things simple.

Find out how to finance your home with SoFi’s competitive rates.

FAQ

What are zombie mortgages?

Zombie mortgages are outstanding home loans that borrowers have stopped making payments on, often because they thought the debt was forgiven or settled long ago. In some cases, these can be second mortgages that a borrower may not even be aware of. It is not always legal for lenders to try to collect on these debts.

What is the foreclosure rate in the United States?

The foreclosure rate is 1.3% in the United States, according to the second-quarter 2023 Vacant Property and Zombie Foreclosure Report from ATTOM Data Solutions. While an increasing number of homeowners have faced foreclosure since the nationwide foreclosure moratorium was lifted, foreclosure rates are historically low.

What city has the most foreclosures?

Among cities with a population of at least 200,000, the top three foreclosure rates for the first quarter of 2023 are in Fayetteville, North Carolina (one in every 526 housing units), Cleveland, Ohio (one in 582), and Atlantic City, New Jersey (one in 661), according to ATTOM Data Solutions.

Photo credit: iStock/Derek Broussard

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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Jul
24
2023

How Does Airbnb Work for Homeowners?

By | Home Ownership, mortgage | Comments Off on How Does Airbnb Work for Homeowners?

With more than 150 million users in 191 countries worldwide, Airbnb has the power to draw guests from all over and boost income for owners. The average Airbnb host earns over $13,800 per year, or $163 per night. However, if the rental is in a high-demand area, it could be much more.

It’s an interesting way to make money, but how does Airbnb work for owners? Let’s take a look at Airbnbs, how they work, and what’s involved in running one. Stick around and you’ll be able to decide if being an Airbnb host suits your style.

Key Points

•   Airbnb connects hosts with guests globally, facilitating bookings, payments, and customer service through its platform.

•   Hosts list properties on Airbnb, set rental conditions, and manage their listings independently.

•   The platform is popular for its diverse property types, from private rooms to unique accommodations like treehouses.

•   Hosts can earn significantly, influenced by location, property size, and uniqueness.

•   Listing on Airbnb is free, but hosts pay a 3% fee on bookings, while guests pay a 14% service fee.

What Is Airbnb?

Airbnb is a company that connects guests with hosts. Bookings, payments, and customer service issues can be handled through its platform.

Airbnb does not own any properties — it is simply a booking service. The real value of Airbnb is how ubiquitous it is. Guests looking for units with cooking facilities or unique stays will check Airbnb first. Potential hosts know Airbnb as an opportunity to make extra cash. Bringing these two groups of people together is the magic of Airbnb.

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

How Does Airbnb Work?

The concept behind Airbnb is pretty simple:

1.    A host lists a property on the platform.

2.    A guest finds the property and books through Airbnb.

3.    The host approves (or denies) the reservation.

4.    Payment is processed.

5.    The guest completes the stay.

6.    Hosts are paid about 24 hours after guests check-in.

How Airbnb works for owners is much like a hotel, where visitors change frequently. The average guest books a unit for four nights, though it is also common for hosts to see guests book longer stays. The short-term rental market is much different from the market a traditional landlord sees.

💡 Quick Tip: Traditionally, mortgage lenders like to see a 20% down payment. But some lenders, such as SoFi, allow home mortgage loans with as little as 3% down for qualifying first-time homebuyers.

Who Books on Airbnb?

The guests who book on Airbnb come from the company’s 150 million users. The site is widely known and easy to use.

One of the things to know when renting out an Airbnb is that hosts have a lot of control over who is able to book their Airbnb. Hosts can specify guest requirements in the booking settings. These requirements can include positive reviews from previous stays on the guest’s profile, agreement to house rules, and ID upon check-in.

How Does Airbnb Work for Hosts?

So, exactly how does Airbnb work for homeowners?

Hosts own and manage the properties on Airbnb. The hosts determine the conditions of the rental, such as:

•   Check-in and check-out times

•   The rental rate

•   Cleaning fees

•   How guests access the unit

•   What areas and amenities are available for guest use

•   House rules

•   Cancellation policy

Recommended: Is Investing in Single-Family Homes a Good Idea?

Hosts sign up for Airbnb so that their property is listed on the website. Guests can browse these listings and choose what property they think will work best for them.

When hosts sign up to receive guests, they provide details on the type of property, whether it’s shared or private, how many guests can stay, how many bedrooms there are, how many beds there are, if the bathrooms are shared or private, and so on.

Hosts will set the price. Airbnb has a suggested range for similar properties in your area, but you can set it to whatever you want. The next page asks if you want to offer any discounts. You can select from:

•   20% new listing discount off your first three bookings

•   10% weekly discount

•   20% monthly discount

Good photos of the property are essential. Hosts will also add a title and description of the property. They can open the reservation up to anyone or narrow it to an experienced Airbnb user who has good reviews.

They can also select what amenities are available. Basics include TV and Wi-Fi, a kitchen, air conditioning, and free or paid parking. But some properties advertise an indoor fireplace or outdoor grill, a fire pit, pool table, or lake or beach access. A piano or outdoor shower or the ability to ski in/out of the property might draw guests looking for these specific features.

As you finish, you’ll set up your calendar, select a cancellation policy, set house rules, choose how guests can book, and prepare for your first guest. You’ll also select the safety features in the home, such as a smoke alarm, carbon monoxide detector, fire extinguisher, and first-aid kit.

Recommended: First-Time Homebuyer Programs

How Much Can You Earn With Airbnb?

While the average host earns $13,800 per year, there are a lot of hosts who make much more, and some homeowners find income from Airbnb to be a viable way to make payments on their home mortgage loan. Several variables come into play when it comes to how you can earn with an Airbnb.

•   Location. Location matters when you’re hosting an Airbnb. If you’re near national parks or city centers, you may be able to charge more for your rental. If you’re in a suburban area that doesn’t receive many visitors, it may be a bit harder (but not impossible) to regularly rent out your unit.

•   Dates. If you’re renting out an Airbnb unit during peak season or a date near a concert or popular festival, you may be able to charge more than during a down season.

•   Number of beds and guests you can accommodate. Generally, the bigger your place, the more you can charge. Guests can justify spending more on a rental unit if they are able to split the cost with other guests.

•   Luxe digs. If your property is unique or incredibly luxurious, you may be able to rake in more money per night.


💡 Quick Tip: Apply for a cash-out refi for a home renovation, and you could rebuild the equity you’re taking out by improving your property. Plus, you may be able to deduct the additional interest payments on your taxes.

How Much Does It Cost to List on Airbnb?

It doesn’t cost you anything to list your property on Airbnb. The company only charges homeowners its fee once a property is booked by a guest.

How Much Does Airbnb Take From a Host?

Airbnb charges hosts 3% of the booking subtotal (the nightly charge plus the cleaning fee, which the host sets). But that’s not the only fee the company collects. When guests book, they pay a 14% service fee that goes directly to Airbnb.

Airbnb says these fees help the process run smoothly by covering customer support, marketing to guests, protection for hosts, and educational resources for hosts.

There are all kinds of Airbnbs that can make homeowners some extra money, from renting out extra rooms to hosting guests in a private villa. Guests can stay in a house, apartment, or in an individual bedroom within a home, which may or may not have a private entrance. If you’ve invested in a duplex, renting out one-half of the property on Airbnb could be an option.

Some hosts rent an RV parked on their property, or a houseboat, treehouse, tent, or yurt. (And if you happen to own a castle, cave, Moroccan riad, or windmill, you’re welcome to rent that out as well.)

The only requirement Airbnb has is that the space is used specifically for lodging, and that if it is a boat or mobile home, it will be semi-permanently attached to a set location and parked in a privately owned space. Bear in mind that your municipality, homeowners association, or condominium rules may also govern what you can do with your property.

Recommended: What is a Duplex?

How to Become an Airbnb Host

If you already have a property that can be converted to a short-term rental and a municipality that allows it, becoming an Airbnb host boils down to signing up for the service and adding pictures of your listing. You’ll start to earn money once bookings are complete.

If you don’t already have a property, you can work with a real estate agent to acquire one. You’ll want to look for a property in an area that is legal for short-term rental. You may want one that is in a high-demand area, commands a strong rental rate, has abundant support services (cleaning services, handyman services, etc.), and has the potential to rent out multiple rooms or beds.

The Takeaway

How does Airbnb work for homeowners? Property owners host guests who find their listing on the Airbnb platform. After check-in, hosts get paid, less a percentage of the nightly rental rate and cleaning fee. It’s a solid way to make extra cash if you’re willing to supervise bookings and cleaning. Some owners even purchase properties with Airbnb rentals in mind.

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 list on Airbnb?

There is no charge to list your property on Airbnb. Airbnb takes its fee — typically 3% — from the total booking fee a guest pays (usually a nightly charge plus a cleaning fee). Guests also pay a fee, usually 14% of the booking subtotal.

How much do homeowners make on Airbnb?

The average Airbnb host makes $13,800 per year, though the amount you make will vary based on your location, number of guests you can accommodate, and condition of the property.

How do I Airbnb my own house?

Any owner can create a listing on Airbnb for free. You’ll want to make sure your local government or homeowners association allows short-term rentals and you’ll need to set up your house with amenities and arrange for cleaning before and after each stay. Don’t forget to explore Airbnb’s insurance policy to make sure you’re comfortable with the coverage.

Do homeowners stay with you in Airbnb?

Some homeowners rent rooms within their own living space and might be present during a guest’s stay. Other homeowners rent their personal space but clear out during the guest’s visit. And some host guests in properties they own specifically for use as short-term rentals.

Photo credit: iStock/CreativaStudio

*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.

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

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

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.

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.

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Jul
24
2023

How Much Will a 600K Mortgage Cost per Month?

By | Home Ownership, mortgage | Comments Off on How Much Will a 600K Mortgage Cost per Month?

If you’re thinking of applying for a $600K mortgage, here’s the bottom line: The monthly payment on this mortgage at a 7% annual percentage rate (APR) for 30 years works out to be $3,991.81.

If you would rather finance with a 15-year mortgage, the monthly payment would be $5,392.97.

A higher monthly payment on a 15-year mortgage term does cost more every month, but the savings over the life of the loan are huge. Interest costs for a 30-year loan exceed $830,000, while the interest costs on a 15-year loan are closer to $370,000. That’s quite a difference.

And, of course, interest rates are not static. The rates you are offered when you apply for a loan will vary over time. Just a short while ago, many borrowers would have access to an interest rate approximately half the current 7% figure. A 3.5% APR with the same 600K mortgage over 30 years would result in a monthly payment of $2,694.27. That’s the power interest rates have on your mortgage and monthly payment.

Keep reading to learn about all the costs involved on a $600,000 mortgage and how they affect your monthly payment.

Key Points

•   A $600,000 mortgage will have a monthly cost that includes principal, interest, property taxes, and homeowners insurance.

•   The exact monthly cost will depend on factors such as interest rate, loan term, and location.

•   Using a mortgage calculator can help estimate the monthly cost of a $600,000 mortgage.

•   It’s important to consider other expenses, such as maintenance and utilities, when budgeting for homeownership.

•   Working with a lender and getting pre-approved can provide a clearer picture of the monthly cost of a $600,000 mortgage.

Total Cost of a 600K Mortgage

The cost of a 600K mortgage goes beyond the monthly payment. You’ll have upfront costs, like the down payment and closing costs, as well as the long-term interest costs.

Upfront Costs

When you acquire a mortgage, your upfront costs include your down payment and closing costs.

•   Closing costs: Closing costs, or settlement costs, are what you pay to obtain the mortgage and property title. It varies, but you’ll usually pay for an appraisal, origination fee, prepaids, tax service provider fees, government taxes, and title insurance. The average closing cost on a new home is somewhere between 3% and 6%. For a $600,000 mortgage, that’s between $18,000 and $36,000.

•   Down payment: According to the National Association of Realtors, the average down payment on a home is 13%. For a $600,000 home, that’s a $78,000 down payment. Other common down payments include:

•   3%: $18,000

•   3.5%: $21,000

•   5%: $30,000

•   20%: $120,000.

Recommended: Home Loan Help Center

Long-Term Costs

The long-term costs of a 600K mortgage are also important to consider. They’re considerable. If you pay on your 600K mortgage for all 30 years at that 7% APR, you’ll pay over $800,000 in interest costs alone, as mentioned above. For 15 years, that amount comes down to $370,000.

You can play around with our mortgage payment calculator if you’re interested in seeing the difference that APR and loan term make on a monthly payment.

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

Estimated Monthly Payments of a 600K Mortgage

The monthly payments on a 600K mortgage can vary widely. How much house can you afford depends not only on the down payment but also the monthly payment you’re able to make. Your interest rate and loan term are important factors to consider.

Monthly Payment Breakdown by APR and Term

It’s helpful to see what your monthly payment would be based on different interest rates and loan terms for a 600K mortgage loan.

This chart can help you understand how mortgage APR works and impacts your costs.

APR

 Monthly Payment on a 15-Year Loan

 Monthly Payment on a 30-Year Loan
3.5% $4,289.30 $2,694.27
4% $4,438.13 $2,864.49
4.5% $4,589.96 $3,040.11
5% $4,744.76 $3,220.93
5.5% $4,902.50 $3,406.73
6% $5,063.14 $3,597.30
6.5% $5,226.64 $3,792.41
7% $5,392.97 $3,991.81
7.5% $5,562.07 $4,195.29
8% $5,733.91 $4,402.59
8.5% $5,908.44 $4,613.48
9% $6,085.60 $4,827.74
9.5% $6,265.35 $5,045.13
10% $6,447.63 $5,265.43

How Much Interest Is Accrued on a 600K Mortgage?

There’s another factor to consider when choosing a mortgage term for a 600K mortgage: the interest that will accrue.

If you pay the exact amount of your monthly payment on a 600K mortgage for an entire 30-year term with a 7% APR, you will pay $837,053 in interest. Adding in your 600K mortgage brings the total amount you will pay to $1,437,053.

A 15 vs. 30 year mortgage tells a different story when it comes to how much interest you pay. A 15-year loan on a 600K mortgage with a 7% interest rate has a larger monthly payment at $5,392.97, but the interest cost is $370,734.53. Compare that with the $837,053 interest costs of a 30-year loan, or $3,991.81 per month. In terms of total costs, the 15-year loan will add up to $970,734.53, while the 30-year mortgage equals $1,437,053 for principal plus interest.

600K Mortgage Amortization Breakdown

We’ve already discussed how the total cost of a 600K mortgage is over 1.4 million dollars. When you look at how much of your monthly payment is applied to the principal loan amount (this is also called amortization), it’s easy to see how you end up paying so much in interest costs.

Amortization schedules are set so that more of your monthly payment goes toward interest than principal in the beginning. Toward the end of your loan, more of your monthly payment goes toward the principal amount of the loan.

Looking at the amortization schedule can help you see the full picture of what you’re paying on your 600K mortgage payment and perhaps choose which type of mortgage loan is best for you.

The amortization schedule below assumes a 7% interest rate over 30 years. The amount does not include insurance or taxes; it’s principal and interest for informational purposes only.

Year

 Mortgage Monthly Payment

 Beginning Balance

 Total Amount Paid for the Year

 Interest Paid During the Year

 Principal Paid During the Year

 Ending Balance
1 $3,991.81 $600,000.00 $47,901.72 $41,806.92 $6,094.80 $593,905.14
2 $3,991.81 $593,905.14 $47,901.72 $41,366.31 $6,535.41 $587,369.68
3 $3,991.81 $587,369.68 $47,901.72 $40,893.87 $7,007.85 $580,361.78
4 $3,991.81 $580,361.78 $47,901.72 $40,387.28 $7,514.44 $572,847.27
5 $3,991.81 $572,847.27 $47,901.72 $39,844.05 $8,057.67 $564,789.54
6 $3,991.81 $564,789.54 $47,901.72 $39,261.55 $8,640.17 $556,149.31
7 $3,991.81 $556,149.31 $47,901.72 $38,636.95 $9,264.77 $546,884.48
8 $3,991.81 $546,884.48 $47,901.72 $37,967.20 $9,934.52 $536,949.90
9 $3,991.81 $536,949.90 $47,901.72 $37,249.02 $10,652.70 $526,297.14
10 $3,991.81 $526,297.14 $47,901.72 $36,478.93 $11,422.79 $514,874.30
11 $3,991.81 $514,874.30 $47,901.72 $35,653.19 $12,248.53 $502,625.70
12 $3,991.81 $502,625.70 $47,901.72 $34,767.72 $13,134.00 $489,491.64
13 $3,991.81 $489,491.64 $47,901.72 $33,818.26 $14,083.46 $475,408.13
14 $3,991.81 $475,408.13 $47,901.72 $32,800.16 $15,101.56 $460,306.51
15 $3,991.81 $460,306.51 $47,901.72 $31,708.46 $16,193.26 $444,113.20
16 $3,991.81 $444,113.20 $47,901.72 $30,537.86 $17,363.86 $426,749.27
17 $3,991.81 $426,749.27 $47,901.72 $29,282.62 $18,619.10 $408,130.10
18 $3,991.81 $408,130.10 $47,901.72 $27,936.62 $19,965.10 $388,164.95
19 $3,991.81 $388,164.95 $47,901.72 $26,493.36 $21,408.36 $366,756.52
20 $3,991.81 $366,756.52 $47,901.72 $24,945.74 $22,955.98 $343,800.47
21 $3,991.81 $343,800.47 $47,901.72 $23,286.23 $24,615.49 $319,184.93
22 $3,991.81 $319,184.93 $47,901.72 $21,506.78 $26,394.94 $292,789.92
23 $3,991.81 $292,789.92 $47,901.72 $19,598.68 $28,303.04 $264,486.82
24 $3,991.81 $264,486.82 $47,901.72 $17,552.64 $30,349.08 $234,137.69
25 $3,991.81 $234,137.69 $47,901.72 $15,358.69 $32,543.03 $201,594.61
26 $3,991.81 $201,594.61 $47,901.72 $13,006.17 $34,895.55 $166,699.00
27 $3,991.81 $166,699.00 $47,901.72 $10,483.54 $37,418.18 $129,280.77
28 $3,991.81 $129,280.77 $47,901.72 $7,778.60 $40,123.12 $89,157.58
29 $3,991.81 $89,157.58 $47,901.72 $4,878.09 $43,023.63 $46,133.89
30 $3,991.81 $46,133.89 $47,901.72 $1,767.90 $46,133.82 $0

What Is Required to Get a 600K Mortgage?

You need to have an income sufficient to afford the monthly payments on a 600K mortgage.

Lenders generally look for your monthly payment to be no more than 28% of your gross income. For a 600K mortgage with a $3,991.81 payment, you would need to make $14,256 per month, or $171,077 per year (without any debt) to comfortably afford the mortgage payment.

Other factors, such as your credit score, will likely come into play as well in getting approved for a 600K mortgage.

How Much House Can You Afford Quiz

Recommended: First-Time Homebuyer Guide

The Takeaway

A 600k mortgage payment at 7% for 30 years would be $3992 per month. When you’re budgeting for a mortgage, it’s smart to consider all the costs, including the monthly payment and what a smaller monthly payment means for your long-term costs. Deciding whether to pay more each month and less over the life of the loan or vice versa can have a significant impact on your financial outlook and how you grow your personal wealth.

When you’re ready to take the next step toward a mortgage, consider what SoFi has to offer. With competitive interest rates, flexible loan terms, and a simple application process, your 600K mortgage could become a reality.

Check your home loan interest rate with SoFi today.

FAQ

How much would a $600,000 mortgage cost per month?

A monthly payment on a 600K mortgage at 7% APR would be $3,991.81. This is the amount of principal and interest and does not include the escrowed amounts.

What is the average monthly payment on a 500k mortgage?

A monthly payment on a 500K mortgage would be $3,326.51 on a 30-year term with a 7% APR.

How much do you need to make a year to afford a $500,000 home?

A 30-year $500,000 loan with a 7% APR boils down to a $3,326.51 monthly payment. For $3,326.51 to meet the 28% income guideline for lenders, you would need to make $11,880 a month, or about $142,560 per year. And this amount is only possible if you have no other debts.

Photo credit: iStock/FabioBalbi

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

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

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

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