When lenders ask borrowers to list their assets during the mortgage application process, they’re looking primarily for cash and “cash equivalents” (assets that can be quickly converted to cash). But that doesn’t mean you can’t or shouldn’t include other types of assets on your application.
The assets you choose to include could help determine the type of mortgage you can get and the interest rate you’re offered. So it’s important to be prepared with a well-thought-out list of assets for your lender.
What Is Considered a Financial Asset?
When you apply for a loan, you can expect your lender to ask about your income, the debts you owe, and the assets you own. What’s an asset? In the broadest sense, a financial asset is anything you own that has monetary value and can be turned into cash. But all assets are not created equal when it comes to borrowing money.
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prequalify for a SoFi mortgage loan,
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Types of Financial Assets
Some assets can take longer to liquidate than others, and the value of some assets may change over time. So it can be helpful to break down your assets into different categories, including:
Cash and Cash Equivalents
This category includes cash you have on hand (in a home safe, for example); the accounts you use to hold your cash (checking, savings, and money market accounts); and assets that can be quickly converted to cash (CDs, money market funds).
Physical Assets
A physical or tangible asset is something you own that can be touched and that would have some value if you had to sell it to qualify for your loan or to make your loan payments. (If you need to use this type of asset to qualify for a mortgage, the lender may ask you to sell it before you close.) Some examples of physical assets include homes, cars, boats, jewelry, or artwork.
Nonphysical Assets
Nonphysical or nontangible assets aren’t as liquid as physical assets, and you can’t actually put your hands on them — but they still have value. This category includes workplace pensions and retirement plans (401(k)s, 403(b)s, etc.), and IRAs. You may be able to withdraw money from your account in certain circumstances, or borrowing from your 401(k) might be an option, but it can take time as well as careful planning to avoid tax and other consequences.
Liquid Assets
This category includes nonphysical assets that you can easily convert to cash if necessary. For example, a stock or bond that isn’t part of your retirement account would be considered a liquid asset.
Fixed Assets
Fixed assets are items you own that could be sold for cash, but it may take a while to find a buyer — and the value may have changed (up or down) since you made the initial purchase. You would list a valuable piece of furniture, an antique, or a real estate property as a fixed asset using the item’s current value — not its original purchase price.
Equity Assets
This category includes any ownership interest you may have in a company, such as a stock, mutual fund, or holdings in a retirement account.
Fixed Income Assets
Investment money lent in exchange for interest, such as a government bond, may be categorized as a fixed-income asset. (Yes, there can be some confusing overlap in how assets may be designated. Don’t let that hang you up: The goal is simply to keep your mind open to anything you own that might be helpful when listed as an asset on your application.)
Financial Assets to List on Your Mortgage Application
You may have heard or read that lenders tend to prioritize a borrower’s liquid net worth (the total amount of cash and cash equivalents you own minus any outstanding debt) over total net worth (everything you own minus everything you owe).
That’s partly because lenders want to be clear on where the money for your down payment and closing costs is coming from. When you apply for a home mortgage loan, a lender will want to determine if you’re a good financial risk, able to comfortably manage monthly mortgage payments — even if you suddenly have a bunch of medical bills to pay or experience a job layoff. So it can help your application if you have a healthy savings account, certificates of deposit (CDs), or other assets you can quickly liquidate in a pinch.
That doesn’t mean, though, that your lender won’t also note other assets you own when gauging your financial stability. Listing physical assets that can be quickly converted to cash may show your lender that you have options if you need more money for your down payment or to keep in cash reserves. And the assets you have in other categories could help bolster your application if you’re a candidate for a certain type of mortgage loan or a better interest rate.
Does Reporting More Assets Help With Mortgage Approval?
As you go through the mortgage preapproval process, you can ask your lender to help you determine which assets will help make your application stronger. You also could meet with your accountant in advance to go over what you have. If in doubt, you may want to list everything of value on your application — especially if you’re concerned about qualifying for the loan amount you want. Just be sure everything is accurate, because the lender will verify the information you provide. Bear in mind the lender will also be looking at whether you have the credit score needed to buy a house. Your debt-to-income ratio will also be important.
How Mortgage Lenders Verify Assets
Your lender will want to be sure all the information on your application is correct, so you should be prepared to provide asset statements to support everything you’ve listed. Documents you may be asked for include:
Bank Statements
Lenders generally will ask to see two or three of the most recent monthly statements from your checking, savings, and other bank accounts. You can send copies of paper statements (if you still do paper) or you can download copies online. If you have cash deposits on your statements, you should be ready to answer questions about the source (or sources) of that money. Your lender will want to be sure you have enough money on your own to make your down payment and monthly payments.
Keep in mind that when you turn over your bank statements, your lender will look for clues to the stability of your financial health. If you have a history of overdrafts or other problems, your application could be denied, even if your current balances are sufficient to qualify for a mortgage.
Gift Letters
Some lenders and loan programs allow borrowers to accept a large monetary gift from a family member to help with their down payment. But you’ll likely have to ask your benefactor to sign a document stating you won’t have to repay the money, and the lender also may ask to see a copy of that person’s bank statements to verify he or she was the source of the money.
Retirement and Investment Account Statements
If you need more money to make your down payment or help cover closing costs, and you plan to withdraw or borrow money from a retirement or brokerage account, you should be ready to provide two to three months’ worth of statements from those accounts.
Appraisal and Insurance Paperwork
If you’re listing a physical or fixed asset, you may have to produce an appraisal report or insurance document that states the item’s current value and that it belongs to you.
The Takeaway
Making a list of your assets, and gathering up documents to verify ownership and value, may seem like a tedious exercise. But being prepared to provide a complete accounting of your assets — along with the other documentation you’ll need — could help you find and get the mortgage you want.
Need help? SoFi’s Mortgage Loan Officers can provide one-on-one assistance as you work your way through the mortgage application process, so you can know what’s expected at each step. And SoFi’s online application makes it easy to get started.
Check out the flexible terms and competitive rates on a SoFi Home Loan today.
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Most people know that paying bills on time is an important task. But it can also be tedious, time-consuming, and something you may want to put off till…later.
Regularly getting those bills paid on schedule can help you avoid doling out money on interest and fees.
It can also help maintain a solid credit score, which is something that could pay off in the future. It might help you snag the best interest rates when qualifying for loans or getting a credit card.
Figuring out how to organize those bills can have another benefit: I can reduce the time you spend on this to-do and also perhaps lower the stress of wondering if you’re on time with your payments or late.
Fortunately, organizing your bills isn’t hard. You might use an old-school accordion folder and a calculator to manage the process. Or you might decide to handle the whole process digitally.
Here are some smart ideas for how to organize those bills.
1. Setting Up a Bill-Paying Station
Do you have a convenient spot where you can open, organize, and pay your bills?
Consider setting up a dedicated desk or area, or (if space is tight) a box or roll-away cart. The goal is simply to keep everything in one place, instead of scattered around in your car, briefcase, purse, or on the kitchen counter.
It’s a good idea to stock your station with all the items you’ll need to get the job done. Depending on how you pay your bills, this might include: envelopes, stamps, pens, your checkbook, a calendar, a filing system for sorting paper bills as they arrive, and storing those you’ve paid.
Or, if you receive bills and account statements via email as many do today, consider setting up a separate virtual bill paying space. You might, for instance, set up an email account just for bills. This will ensure that you don’t overlook an electronic bill in the midst of the other emails you receive.
Or, you might use your current email and create a folder, with subfolders, for anything related to your finances. That way, you’ll know exactly where to look if you need to check on a bill or other financial correspondence.
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2. Making a Master List of Monthly Bills
Creating a list of every single bill you pay can be another way to help ensure that nothing falls through the cracks. It can also help you see where your money goes and how much money you have left after paying bills (if any).
You can do this with pen and paper, type it up in a document, or create a spreadsheet that includes a column for each month (allowing you to simply check off each bill as it gets paid).
You might be able to list some things from memory, like your rent and car payments, car insurance, or phone. But you also may want to check your bank and credit card statements for bills you pay less frequently (annual subscriptions, quarterly membership fees, tax bills, etc.), and anything that’s on autopay.
For each bill, consider including: the vendor/service provider/lender, the account number, contact information, the bill’s due date, the date you think you should send/make the payment so it’s always on time.
For loan/credit card bills, you may want to also include the balance owed, and the minimum monthly payment.
You can use this list to make decisions about which bills you might want to set up by automating your finances and which you’ll pay manually.
And once it’s done, you can keep a copy on your bulletin board and/or in your files to use as a checklist.
Looking for other ideas on how to organize bills? There are two basic automatic bill payment options.
• One is setting up automatic debit payments with a merchant or service, which involves giving them your checking account or debit card number and authorizing them to withdraw money on a recurring basis to pay a bill.
• Another way is to authorize your bank or credit union’s bill pay service to send recurring payments to a company.
Either way you set it up, there are both pros and cons to using automatic payments, or autopay.
Here are the pros:
• Autopay can help simplify your finances, since you don’t have to write out checks or log on to various websites to pay online every month.
• It also ensures that it happens. The money is whisked out of your account before you have a chance to think about it or forget to think about it. Automating this process can help you save on interest and fees.
Here are the cons, because that out-of-sight-out-of-mind factor has a downside.
• Autopay can make it easier to forget that you’re still paying for a subscription service you don’t use anymore, for example, or you might not notice when a bill’s amount is incorrect.
• If you don’t have enough money in your account when an autopay bill goes through, you could end up overdrafting your account, which can lead to overdraft or NSF fees.
If you generally have plenty of money in your account and you regularly check your bank and credit card statements to make sure the charges are accurate, autopay might be a good fit.
But if your account balance fluctuates, or you’re likely to forget about small or infrequent charges if they’re paid automatically, you may want to use a different payment method (or at least for certain bills).
One other point: If many of your bills hit on the same day of the month, you might talk to some of your payees about whether you can change your bill due date. That could help you spread out payments over the month is a way that eases your financial pressure.
4. Putting a Bill Paying System in Place
Once you’ve decided which (if any) bills you’ll manage with automatic payments, you can move on to choosing a strategy for paying all your other bills, as well as keeping track of autopayments.
You can go as full-on techie as you like, or handle it with classic pencil and paper. The key is simply having a system.
Some options to think about:
Paying Bills Right Away
There’s no reason you have to wait for a specific day of the week or month to pay your bills. With this method, you would just open and pay bills as they arrive in the mail or online.
Setting up Reminders
Another option is to set up reminders for when you need to pay each bill. You can write the due dates down in a traditional planner/datebook or use a digital calendar that will send you email reminders or text alerts.
There are also bill reminder phone apps that will alert you when a bill needs to get paid.
In addition, some companies and service providers allow you to sign up for bill reminder emails or texts.
Paying Bills on a Specific Day
If you don’t want to (or can’t always) sit down immediately to write a check or get online to pay, you could make it a weekly, biweekly or monthly routine.
With this method, you would file any bills that arrive in a “to pay” folder or in-box. You might also consider opening them and organizing them by the due date.
If the due dates are all over the place or difficult to manage, you may be able to get the dates adjusted simply by calling or emailing the company or service provider. (For example, you could try to time bigger bills so they’re due just after your paydays.)
On whatever day you designate for paying bills, you may want to set aside 30 minutes to an hour to go through your folder or stack of bills, as well as open any bills that came by email.
It’s also a good idea to go through autopay notices to make sure you agree with the amounts charged.
Choosing the Best Way to Pay Manually
Many service providers and lenders offer customers several different methods for paying their bills.
Besides autopay, you might be able to use an app, a website, an automated phone system, deliver a payment in person, or send it in the mail.
No matter which option you choose, try to remember to always keep some sort of record of the payment in your files.
5. Keeping Good Records
In addition to checking off each paid bill on your master list, you may also want to create a system for managing your records after you’ve made your payments.
One option is to file paper copies of all your bills, noting on each how much you paid, when you paid, and how you paid (including any confirmation numbers for online or phone payments or check numbers for payments you mailed).
You might file these all together in a folder labeled for that month, or create separate folders for each account, with the most recently paid bill filed on top.
If any of these bills are needed for tax purposes, you may want to make a copy and file it with your yearly tax documents.
Another option is to scan each bill and file them digitally on your computer’s hard drive or in the cloud, using a folder for the year that has subfolders for each month.
You may also want to create a real or digital file with all your credit and debit card receipts until you have a chance to reconcile them with your statements. (It’s a good idea to hold onto any receipt, bill, or statement until you’re absolutely sure you won’t need it for taxes or some other purpose, such as an insurance claim.)
6. Designating a Family Bookkeeper
Here’s another way to go about organizing your bills. If one spouse or partner has a knack for organization and bookkeeping and the other is less inclined, you might want to have the “numbers” person take the lead on the household’s bill-paying duties. (Have you ever missed a payment because you each thought the other would take care of it?)
Another option is to sit down together to work through the bills. Or, you might decide to alternate from month to month.
No matter which approach you choose, consider setting up a regular time to sit down together and review the household budget, see how you stand, and make sure you both have access to account information, including passwords.
You also may want to consider setting up a separate account for paying household bills.
7. Using Budgeting Tools/Apps
Technology can step in and help you manage your bills, too. There are an array of ways to track your spending and paying. Your financial institution may offer digital tools for this, or you can download apps for this purpose, whether free or paid options.
You’ll likely find a variety of methods, from spreadsheets to virtual pen and paper or envelopes. You might want to experiment with a few and see which suits you best.
8. Using the Cash Envelope Method
There are a variety of budget techniques you might use. One popular one is the envelope method, which involves setting key budget categories, writing the name of each on an envelope, and putting the designated amount of cash for the month ahead into it.
Then you pay the bills from the appropriate envelope as needed. Once the money from an envelope is gone, it’s gone. You either have to forego spending in that category or else borrow from another envelope.
For those who prefer not to use cash, this program can be adapted to involve debit card payments or checks.
The Takeaway
Setting up a simple bill organization system can save you time, stress, as well as money, and can also make it easy to access records you need come tax time.
Smart ways to organize your bills include creating a master list of all your monthly bills, deciding when autopay makes sense (and when it might not), and creating a virtual or actual filing system to track and streamline the bill paying process.
The best way to manage your bills is with a system that makes sense for you. And you might have to try a few different methods to figure out what works best for your situation.
Another move that might help you get your finances organized is signing up for a Checking and Savings account with SoFi.
SoFi Checking and Savings lets you spend and save in one convenient place, and offers a feature called Vaults. With SoFi Vaults, you can easily separate your spending from your savings while still helping your money grow.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.
FAQ
What bills are most important to pay?
While all bills are important to pay, basic living expenses (the things that keep you up and running, such as rent, utilities, and healthcare) and debt (student loan payments, for instance) can be priorities.
How do I organize my monthly expenses?
There are many ways to organize your monthly expenses, depending on your personal preferences and financial style. You might use an app or pencil and paper; you could try the envelope budgeting method or set up autopay. Many people try a couple of techniques before they land on one that suits them best.
How do you simplify bill payments?
Many people find that either using an app or automating their bills makes payment simpler. Your bank might offer a good app, or you can download one. And automating bill payments is something that vendors may set up for you or you can set up with your financial institution.
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If you’re scrolling through home listings and dreaming of a place to call your own, you probably know that mortgage lenders traditionally have wanted to see borrowers put down 20% of a home’s purchase price. But what are the benefits and challenges of a down payment that’s less than 20%? And can you purchase a home with a lot less money down (even nothing) in today’s economy?
Learn the answers to these questions and more here. This insight could help you qualify for a mortgage, and ultimately turn your dream house into a reality.
A down payment is an initial, upfront cash payment for some portion of the cost of the home you are purchasing. It is usually paid at the closing, with the remainder of the balance on the home paid in the form of a home mortgage loan. What portion of the home’s cost a buyer pays as a down payment can have a big impact on the mortgage loan amount, rate, and terms.
What is the Typical Down Payment on a House?
Conventional wisdom says you should buy a house with a 20% down payment. But the national average down payment on a house is actually less than 20% and it is even possible to buy a home with no money down or considerably less than 20%, as you’ll see below. First-time homebuyers are especially likely to put down less than 20%.
How Much Do I Need to Put Down on a House?
Mortgage programs that will finance your purchase with as little as 3% down can make homeownership possible even for those with smaller nest eggs. Mortgages like these can be either government-backed or offered by commercial lenders. You may also find offers that require 5% or 10% down.
When accessing these loans, it’s typically a requirement that you use the home as a primary residence. You may also encounter minimum credit score requirements to qualify; one in the 500s might qualify you for one program, while a score of 680 or higher could open other opportunities.
Of course, keep in mind that the more you pay upfront toward the cost of your home, the lower your monthly costs will likely be.
Consider Your Budget
The question of how much should you put down on a house is really a subset of a bigger home-buying question: how much house can you afford?
Many house hunters use a popular formula to determine how much to spend. They take their household gross annual income (before taxes) and multiply it by 2.5. They could also use a home affordability calculator to get a more precise estimation.
So, if your household income is $150,000, the maximum purchase price, using this formula, would be $375,000. Note that this isn’t a formula used by a lender; it’s a general rule of thumb.
Household Gross Income (before taxes)
Home Price They Can Afford
$150,000
$375,000
*Based on formula: Gross household income * 2.5
A lender often wants your total housing expense — monthly principal, interest, property taxes, and insurance, plus any homeowners association fee or private mortgage insurance — to be, at most, 28% of your gross monthly income.
So, using the figure of $150,000, that would equal a maximum housing expense of $3,500 per month ($150,000/12 x 28%).
Household Gross Income (before taxes)
Max Housing Expense
$150,000
$3,500 per month
*Based on formula: Gross household income * 28%
Your estimated housing payment will depend on how much of a down payment you make. Let’s say the house you want costs $329,000. If you wanted to put down 20%, you would need $65,800, plus closing costs, to swing the deal. So the first question is whether you have or can get those funds easily enough.
Home Price
Percent Down
Estimated Down Payment
$329,000
20%
$65,800
What if you don’t have that kind of cash for the down payment? If you could afford a smaller down payment plus closing costs and still meet the income requirements, your next step would be to see which lenders offer home loans for less than 20% down.
Understand How Your Down Payment Impacts Your Mortgage Payment
Making a down payment of less than 20% can affect your monthly mortgage costs. Private lenders that provide conventional loans to homebuyers who put down less than 20% almost always require the purchase of private mortgage insurance (PMI).
PMI, which insures the lender, adds a fee to the monthly mortgage payment.
Borrowers usually choose to pay PMI monthly, and it is included in the monthly mortgage payment. Expect to pay about $30 to $70 per month for every $100,000 borrowed, Freddie Mac says.
Once you have accumulated 20% equity in your home, you may be able to get rid of PMI as long as you have a good payment record, the property has held its value, and there are no liens on the property. This applies to borrower-paid mortgage insurance. You can’t cancel lender-paid mortgage insurance because it is built into the loan.
Estimate Your Monthly House Payment
The amount of your down payment also affects how much money you borrow to fund the total cost of a house. Plus, with a lower mortgage amount, you’ll pay back less interest over the life of the loan. Use the calculator below to test different down payment amounts and see how they would change the estimated mortgage payment.
Do I Have to Put 20% Down on a Home?
By now you’ve probably realized that you don’t have to have a 20% deposit on hand in order to buy a home. But what are the minimum down payment requirements? That depends on the type of loan you have. For those who need a boost to enter the ranks of homeownership or have an opportunity to get a dream house before they have saved 20%, lower down-payment options can be invaluable.
Conventional Loans
A conventional, fixed-rate home mortgage loan is accessible with a down payment as low as 3% – 5% for certain homebuyers. These loans typically have a term of 10, 15, 20, or 30 years.
Adjustable-Rate Mortgages (ARMs)
An adjustable-rate mortgage, combined with a down payment of 5% or more, can make homeownership possible for those with more limited savings and incomes, but it is important to plan for future cost increases. How it works: The ARM typically has a lower initial interest rate than a comparable fixed-rate mortgage. After anywhere from 3 to 10 years, the rate “resets” up (or down) based on current market rates, with caps dictating how much the rate can change in any adjustment.
Because borrowers may see their rate rise, they need to be sure they can afford the larger payments that come after the introductory years if they don’t plan to sell their house, pay off the loan, or refinance the loan.
Can You Buy a House With No Money Down?
The truth is, it is possible to become a homeowner with zero or very little money down. If you want to get a mortgage with no money down, a government-backed loan is likely your best bet.
These loans are insured by the federal government, so your lender doesn’t assume the risk of loaning money to someone who might default. They know Uncle Sam is standing behind the loan. These mortgages can be a win-win. They encourage citizens to become homeowners even if they don’t have a down payment, and they make banks more likely to lend under these no-down-payment conditions.
Another home loan option is a Federal Housing Administration (FHA) loan. The FHA doesn’t directly make mortgage loans. Instead, certain lenders offer FHA loans that are backed by a government guarantee. Because of this guarantee, lenders will typically offer more flexible guidelines for mortgage approvals, including lower down payments.
In general, if you have a credit score of 500 to 579, the minimum down payment required for FHA loans is 10%. If your credit score is 580 or above, the minimum down payment is 3.5%.
FHA loans require an annual mortgage insurance premium (MIP) and an upfront MIP of 1.75% of the base loan amount. You can estimate the upfront and ongoing MIP with an FHA Mortgage Calculator.
VA Loans: 0% Down
If you’re a military veteran, active service member, or, in some cases, a surviving military spouse, you may qualify for a U.S Department of Veterans Affairs (VA) mortgage loan without any down payment required.
This program was created by the U.S. government in 1944 to help people returning from military service purchase homes.
Monthly mortgage insurance is not required, but some borrowers pay a one-time funding fee. For a first VA-backed purchase or construction loan, the fee is 2.3% of the total loan amount if you put less than 5% down. It’s 1.65% of the loan amount if you put 5% to 10% down.
What is the Minimum Down Payment on a House?
The average down payment falls below 20%, so if you can’t cough up 20%, you’re in good company. Use this handy reference to see which opportunity might be a good fit for your budget and lifestyle.
Mortgage Type
Minimum Down Payment
Conventional fixed-rate loan
3 – 5%
Adjustable-rate mortgage
5%
FHA loan
3.5 – 10%
VA loan
0%
In general, it makes sense to put down as much as you can comfortably afford. The more you put down, the less you’ll be borrowing, which translates into more equity in the house and lower monthly payments.
On the other hand, it doesn’t always make sense to empty the bank in order to put down the largest down payment possible. That’s because you’ll likely have moving expenses, plus you’ll need to pay closing costs, which can vary by purchase price, state in which the property is located, interest rate chosen, lender processing fees, and more.
Furthermore, the home you’re moving into may need cosmetic repairs, or you may want to redecorate, add new landscaping, and so forth. Plus, you’ll probably want to keep an emergency fund to pay for unexpected costs.
If this doesn’t all seem doable, you may want to look for a more affordable house for now and save up for your dream house. Or, if you can wait a while before buying, then you can create a savings plan to build up a down payment.
Tips to Help You Save for a Down Payment
For 47% of recent buyers, their down payment came from savings (a fortunate 22% of first-time buyers used a gift or loan from a friend or relative toward the down payment), according to a 2022 National Association of Realtors® report.
Saving can be difficult, especially for first-time homebuyers. But if you are ready to be a homeowner, now is the time to get serious about saving for a down payment on your first home.
Here are steps to consider taking:
1. Track your spending, including fixed expenses (rent, utilities, student loan and car payments, and so forth) and variable ones (like dining out, clothes shopping, and hobbies). Add expenses that you pay annually or semiannually, breaking those down into monthly amounts.
2. Make a budget that helps you to trim unnecessary expenses. (As you do this, you might consider if it makes sense to refinance student loans or consolidate credit card debt into a personal loan.)
3. Brainstorm ways to boost your income. Asking for a raise may be an option, or you might start a side hustle to bring in additional cash.
If you can manage a down payment but it’s south of 20%, know that you’re in good company. Finding a mortgage with less than 20% down is often doable, though fees usually come along for the ride.
Still, if you’d like to hear the jingle of house keys instead of apartment keys in your pocket, give SoFi Mortgage Loans a look.
SoFi offers a range of mortgage loans with as little as 3% to 5% down. And you can get prequalified with no obligation.
Ready to get started? It’s easy to check your rate.
FAQs
Is 10% down payment on a house enough?
For some buyers, especially first-time buyers, a 10% down payment is adequate to purchase a home. The amount a buyer pays upfront does affect their mortgage amount, rate, and fees.
Do I have to put 20% down on a house?
Many buyers purchase a home without putting down 20% of the cost upfront.
Does the down payment reduce the loan amount?
Yes, the more money you put toward a down payment, the less you need to borrow.
What is the optimal down payment for a house?
The optimal down payment for a house depends on your personal finances, the location where you are buying, and what mortgage programs you qualify for. A mortgage calculator can help you see how different down payment amounts affect a mortgage.
How would a 20% down payment affect a home loan?
Putting down 20% will help you avoid the added expense of private mortgage insurance, and, of course, the less you borrow to fund your purchase, the lower your monthly payments will be.
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When you refinance student loans, you pay off your existing loans with a new loan with new terms from a private lender. The primary benefit of refinancing is that you can save money over the life of the loan if you’re able to lower your interest rate.
While certain lenders will refinance federal and private loans together, you’ll lose access to federal benefits and protections if you refinance a federal loan, so it only makes sense if you don’t plan to use any federal programs.
So can you refinance student loans? Here’s what to know about who is eligible for refinancing, types of student loans that can be refinanced, and more.
Who Is Eligible for Student Loan Refinancing?
A borrower generally needs to meet specific credit score, income, and degree requirements to qualify for a student loan refinance. Ideally, a borrower will qualify at better terms than their existing loans, such as at a lower interest rate. As mentioned, the main goal of refinancing is to lower your interest rate so you can save money over the life of the loan.
The process of refinancing student loans involves shopping around for a lower interest rate and then filling out an application for a refinance. Once a refinance is approved, your new lender pays off your old lender. After you receive the new loan, you make payments to your new lender. Here are some of the common requirements to qualify for a student loan refinance.
Credit Score Requirement
Your credit score is a three-digit number that summarizes how well you pay back debt. For refinancing student loans, you’ll typically need to have a credit score in the high 600s to qualify.
You may need to raise your credit score before you apply for student loan refinancing. You may be able to raise your credit score by doing the following:
• Pay your bills on time
• Dispute errors on your credit report
• Keep your credit utilization rate — the amount you use on your revolving accounts such as credit cards — low compared to your total available credit
• Increase your credit limits
• Remove negative entries to your credit report (if old collection accounts show up on your credit report, request that they be removed)
Student loan lenders often require you to show proof of a certain level of income in order to qualify for a student loan refinance. They want to make sure you can repay your new loan.
They will want to know how your income compares against the amount of debt you have and they’ll calculate your debt-to-income (DTI) ratio to find out if you qualify. A DTI ratio compares the amount you owe each month to the amount of income you bring in—it’s your total monthly debt payments divided by your gross monthly income. It’s a good idea to shoot for a debt-to-income (DTI) of under 50%, though a lower DTI (such as under 35%) is even better.
Wondering “Can I refinance my student loans if I don’t have a high enough DTI ratio?”
To improve your DTI ratio, consider making more payments toward your debt, avoid taking on more debt, increase your income, and postpone making large purchases so you’re not using as much of your credit.
Degree Requirements
In most cases, you’ll have to have a degree or leave college in order to qualify for a refinance. Some lenders won’t allow a refinance if you attended a school that didn’t allow students to accept federal aid dollars.
What Types of Student Loans Can Be Refinanced?
Can you refinance private student loans? Can you refinance federal student loans? Yes, if you choose a lender that refinances both, but note that you can only refinance with a private lender — you cannot refinance federal loans and private student loans into a new federal loan. (When you combine several federal student loans into a single loan through the federal government, that’s federal student loan consolidation, which is different from refinancing and generally doesn’t save you money.)
Private Student Loans
Private student loans are issued by a credit union, bank, or online lender, not the federal government. They typically carry a higher interest rate compared to the interest rate on federal student loans.
You may be able to get a lower interest rate on your existing private student loans if you refinance. You may want to consider prequalifying for a loan, which means that a lender will do a soft credit check. Checking with several lenders can help you compare the interest rates among lenders. It might be a good idea to consider refinancing private student loans if you know you’ll get a lower interest rate. A student loan refinance calculator tool for comparing refinance rates can help.
Federal Student Loans
Federal student loans come directly from the federal government and specifically, from the U.S. Department of Education. Can you refinance federal student loans? Yes, but refinancing your federal student loans turns your student loans into private student loans—and you’ll lose access to federal benefits and protections.
When you refinance federal student loans, you lose access to federal loan programs like income-driven repayment, which sets your payments at an amount based on your family size and income. It could also mean that you might forgo loan forgiveness, which means you don’t have to pay back some or all of your loan. You should consider whether it makes sense for you to give up these federal loan programs before you refinance.
Why You Might Consider Refinancing Your Student Loans
If your main goal is finding a way to pay less on your student loans and you’re able to find a lower interest rate on your student loans, refinancing might make a lot of sense for you.
It can also be a good option if you’re interested in merging your student loans together to simplify your payments. And if you’re sure you won’t need to access federal benefits because you have a reliable income and job security, it may also be a better option than federal student loan consolidation, which usually doesn’t end up saving you money.
Despite the attraction of saving money with a possibly lower interest rate or merging several loans together, you might not want to lose out on federal student loan protections. You could lose out on temporary loan payment relief (deferment or forbearance) or loan forgiveness and discharge.
Losing out on federal student benefits may hurt you later on. Be sure to consider what you’ll do if you lose your job or have trouble making your student loan payments down the road.
Can You Refinance Student Loans While Still in School?
You may not be able to refinance your student loans while you’re still in school. However, your best bet is to ask your lender directly. Refinancing with a co-signer may help you improve your application and secure better terms.
If you decide you want to go for it, you can submit a formal application, which includes the lender looking into details like the ones listed above, like income degree requirements and personal details. At this point, a lender does a hard credit check. Once your old loan is closed, you’ll then make regular payments to your new lender.
Student Loan Refinancing With SoFi
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Can you refinance your student loans if you didn’t graduate?
Yes, you can refinance your student loans if you didn’t earn a degree, though it may be more difficult. Ask various lenders the same question: “Can I refinance my student loans?” and learn more about your refinancing options. If you have federal student loans, you can also look into other options to reduce your monthly repayment amount, such as extending your loan term (although you’ll end up paying more in interest over the life of the loan) or explore whether you might qualify for an income-driven repayment program or forgiveness. Contacting your loan servicer is a good place to start.
What credit score do you need to be able to refinance student loans?
Every lender is different and requires different requirements to be able to refinance. Your personal qualifications also matter. However, in general, it’s important to have a credit score in the high 600s in order to qualify for a refinance. Ask lenders for more information before you make a final decision. You may also want to use a calculator tool for comparing refinance rates.
Can both federal and private student loans be refinanced?
You’re asking good questions if you’re wondering, “Can I refinance federal student loans?” or “Can I refinance private student loans?” The quick answer is that yes, both federal and private student loans can be refinanced, but you must refinance both types into a private student loan, and you’ll lose access to federal benefits and protections if you refinance federal student loans.
Photo credit: iStock/Andrii Sedykh SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.
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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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
A covered call ETF is an exchange-traded fund that provides investors with additional income by writing options on the securities the ETF holds. These actively-managed ETFs offer investors the benefits of writing call options on stocks, without them having to participate in the options market directly.
The upside is that investors take on less risk and potentially earn income in the form of options contract premiums on top of dividends. The downside is that potential upside profits will be capped because the call options will have to be exercised once the underlying security reaches a certain strike price (one of many options trading terms to know), at which point the shares will be called away from the shareholder.
Basics of the Covered Call Strategy
Covered calls involve buying shares of a stock and then writing call options contracts on some of those shares. A covered call could also be referred to as “call writing” or “writing a call option” on a security.
Other investors can then purchase the call option contract. They pay a small fee to the call writer, known as a premium, for doing so. The contract gives a buyer of the option the right, but not the obligation, to buy shares at a specific price on or before a specified date.
In the case of call options, when the share price of the underlying security rises above the strike price, an option holder can choose to exercise the option, at which point the stock will be called away from the person who wrote the call option.
The option holder then receives shares at a cost lower than current market value. Their profits will equal the difference between the option strike price and where the stock is currently trading minus the premium paid. The higher the stock price rises before the expiry date, the greater the profit for the person holding the call option.
Because the call option writer receives income on the deal in the form of a premium, they want the stock price to either stay flat, fall, or rise only slightly. If the stock rises beyond the strike price of the option, then they’ll receive the premium, but their shares will be called away. The option writer will have a gain or loss depending on the difference of the exercise price and the purchase price of the stock and the premium received.
On the other hand, if the stock doesn’t reach the strike price of the option, then the writer keeps both the premium and the shares. They’re then free to repeat the process as many times as they wish.
💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.
What Is a Covered Call ETF?
A covered call ETF is an actively-managed exchange-traded fund (ETF) that buys a set of stocks and writes call options on them — engaging in the call-writing process as much as possible in order to maximize returns for investors.
By investing in a covered call ETF, investors have the opportunity to benefit from covered calls without directly participating in the options market on their own. The fund takes care of the covered calls for them.
The ETF covered call strategy usually involves writing short-term (under two-month expiry) calls that are out-of-the-money (OTM), meaning the security’s price is below a call option’s strike price. Using shorter-term options allows investors to take advantage of rapid time decay.
Options like these also serve to create a balance between earning high amounts of premium payments while increasing the odds that the contracts will expire OTM (which, for covered call writers, is a positive outcome).
Writing options OTM serves to make sure that investors can benefit from some amount of the upward price potential of the underlying securities.
When to Buy a Covered Call ETF
It may be a good time to buy a covered call ETF when most of the securities held by the ETF are expected to trade sideways or go down slightly for some time. Beyond that, any time is a good time for investors who find the strategy appealing, want to take the chance of gaining extra income for their portfolios, and don’t mind missing out on outsized gains if the market rips higher.
Covered call ETFs might also be attractive to people nearing retirement, people who are generally more risk-averse, or anyone looking to add some additional income to their portfolio without having to learn how to write and trade options.
If an investor were considering ETFs vs. index funds, they might choose an ETF for the reason that the fund might employ creative strategies like covered calls, whereas index funds merely try to track an index.
When Not to Buy a Covered Call ETF
The one time when it may be advisable not to buy a covered call ETF might be when stocks are generally rising and making new record highs on a regular basis. This is a scenario where covered call ETFs would underperform the rest of the market.
If the underlying securities rise only slightly, and do not exceed the strike prices set for the covered calls, then these ETFs should also perform well. It’s only when stocks rise to the point that the shares get called away from the fund that the fund will almost certainly underperform compared to holding shares directly.
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Pros and Cons of a Covered Call ETF
The main benefits that come from taking advantage of an ETF covered call strategy are reduced risk and increased income.
Pros of a Covered Call ETF
Overall, a covered call ETF has largely the same risk profile as holding the underlying securities would. But some investors see these ETFs as less risky than holding individual stocks because the ETF should, in theory, do as well or slightly better than the market in most situations. (The one exception would be during extended, strong bull markets.)
But while covered call ETFs reduce the risk associated with owning a lot of shares while also providing additional income, hedging against downside risk would best be accomplished by using put options.
Cons of a Covered Call ETF
Covered call ETFs are actively managed, which means they tend to have higher expense ratios than passively managed ETFs that track an index. But the extra income may potentially offset that cost.
The Takeaway
A covered call ETF is an actively managed exchange-traded fund that offers investors the benefits of writing call options on stocks, without them having to participate directly in the options market. For investors looking for a simpler approach, this may be beneficial. Covered call ETFs also have two primary benefits in reduced risk and increased income.
That’s not to say that they don’t have downsides, too. Notably, they tend to be actively-managed, which generally means they have higher associated fees. Again, all of this should be taken into consideration before folding any type of security into an investment strategy.
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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.
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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.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. Probability of Member receiving $1,000 is a probability of 0.028%.
