Jan
06
2023
Guide to Biotech Investing: All About Biotech Stocks
Biotech investing can be an exciting world or established players and many startups. Here’s a look at what you need to know before investing.
Read more
SoFi
Student Loan Consolidation and Refinancing
Jan
06
2023
Crypto Tax Guide 2023: How to Report Crypto on Your Taxes
Make no mistake: You need to report your crypto activity on your tax return. Cryptocurrency has become very popular in recent years, and that hasn’t gone unnoticed by the IRS. If you were active in the crypto markets over the past year, you’ll need to report it on your tax return, or risk being penalized.
Because of this, it’s important that investors know the basics regarding filing and paying taxes on their cryptocurrency investments, which includes reporting their trading activity and income.
Table of Contents
How Cryptocurrency Taxes Work
One of the most important things investors need to know before investing in cryptocurrency is how crypto taxes work. Additionally, investors should be aware that classification of cryptocurrencies varies depending on the federal government agency overseeing the investment activity.
The IRS defines cryptocurrencies as digital assets, and that includes non-fungible tokens (NFTs), and stablecoins, too. Despite the fact that crypto is often thought of as a currency, they are not considered currency for federal tax purposes.
Instead, transactions of cryptocurrencies are treated as property, like stocks, bonds, and other capital assets. So, when someone uses, sells, or is paid in a cryptocurrency, they are generally required to pay taxes on their realized gains.
Note, though, that even as the IRS treats cryptocurrencies as property for tax purposes, this categorization is not consistent across all federal government agencies.
The Commodity Futures Trading Commission (CFTC), for example, classifies cryptocurrencies as a commodity when regulating a variety of crypto-related trading markets. The CFTC oversees cryptocurrencies when they are “used in a derivatives contract, or if there is fraud or manipulation involving a virtual currency traded in interstate commerce.”
In contrast, the U.S. Securities and Exchange Commission (SEC) attempts to regulate different cryptocurrencies as securities and investors can be subject to securities laws.
In all, there’s something of a turf war happening in Washington D.C. over crypto regulation. But for taxpayers, the most important thing to know is that crypto is considered “property” by the IRS, and investors will need to report it as such on their tax returns.
Do You Have to Pay Taxes on Crypto?
Investors are required to pay capital gain taxes on cryptocurrency when selling, trading, or disposing of their holdings. Additionally, cryptocurrencies can be taxed as income if an individual receives the crypto as a gift, from mining, or for services rendered. There are different types of income, and crypto income is among them.
So, there are two types of taxes potentially at play.
However, not all crypto transactions result in a tax liability. These nontaxable events include buying crypto with cash and holding it, donating it to a qualified charity or non-profit, or transferring crypto to yourself between wallets or accounts. In effect, investors need to realize a gain or loss.
Situations When You’ll Need to Pay Taxes on Crypto
• Cryptocurrency is sold for cash: When an investor sells cryptocurrency for government-backed currency (fiat currency) and makes a profit, the investor will have to pay capital gains taxes on the proceeds, just as they would on the sale of a share of stock.
• Cryptocurrency is used to purchase a good or service: If an individual uses their cryptocurrency to buy a new car or pay for a haircut, they will likely owe capital gains taxes on the purchase. To the IRS, using crypto to buy something is the same as selling it for cash, because the crypto needs to be sold for dollars before it can be used to exchange for a good or service. This creates a “realized” gain.
• Exchanging cryptocurrencies: Converting or exchanging one crypto for another is comparable to selling the one to purchase the other. As a result, the investor may have to pay capital gains tax on the sale of the first crypto, if it was sold for a profit.
• Being paid in cryptocurrency: If an individual decides to be paid in cryptocurrency, they will need to pay income taxes on that income (just as if they were being paid in dollars) which will depend on their individual tax bracket.
• Mining cryptocurrency: The proceeds from mining Bitcoin and other cryptocurrencies are typically taxed as income. It’s also possible for the proceeds of some miners to be taxed as business income.
• Crypto is acquired via an “airdrop” or “hard fork”: In the event of a crypto airdrop or hard fork that results in new coins, those new coins are taxed as income.
Is Crypto Investing Taxed as Income?
Crypto investing is taxed more or less the same way that investing in stocks, ETFs, or other securities is taxed. That is, tax liabilities are generated when an investor disposes of their holdings by selling or exchanging them. Only then do they have both a purchase price (cost basis) and a disposal price, which can be positive or negative ( a gain or a loss).
From there, capital gains taxes can be calculated, similar to how things work with traditional investment tax rules.
Crypto is taxed as income under a few select circumstances, as discussed. So, no, crypto investing itself isn’t taxed as income, but that doesn’t mean that crypto itself is never taxed as income.
How Much Do I Owe in Crypto Taxes?
The amount of crypto taxes owed varies depending on an investor’s income, tax filing status, and the length of time that an investor owned a crypto asset before selling it. Additionally, the type of crypto transaction affects what tax rate an individual will be charged. As mentioned above, some situations result in a capital gains tax liability, and others an income tax liability.
Long-Term Capital Gains Crypto Tax Rates for 2023
If an investor owned a cryptocurrency for more than 365 days before selling or using it, the proceeds of the transaction are taxed at the long-term capital gains tax rate. Here are the cryptocurrency capital gains rates on long-term gains for the 2022 tax year (taxes filed in 2023):
| Long-Term Capital Gains Tax Rates for 2022 | ||||
|---|---|---|---|---|
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 0% | $0-$41,675 | $0-$83,350 | $0-$41,675 | $0-$55,800 |
| 15% | $41,675-$459,750 | $83,350-$517,200 | $41,675-$258,600 | $54,101-$488,500 |
| 20% | >$459,750 | >$517,200 | >$258,600 | >$488,500 |
|
Source: Internal Revenue Service |
||||
Short-Term Capital Gains Crypto Tax Rates for 2023
If an investor owned a cryptocurrency for less than a year before selling it or using it, the gains are taxed as ordinary income. Additionally, if an individual was paid in crypto, mined crypto, or received crypto via an airdrop, they are taxed as ordinary income. Here are the income tax brackets for the 2022 tax year (taxes filed in 2023):
| Short-Term Capital Gains and Income Tax Rates for 2022 | ||||
|---|---|---|---|---|
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 10% | $0-$10,275 | $0-$20,550 | $0-$10,275 | $0-$14,650 |
| 12% | $10,275-$41,775 | $20,550-$83,550 | $10,275-$41,775 | $14,650-$55,900 |
| 22% | $41,775-$89,075 | $83,550-$178,150 | $41,775-$89,075 | $55,900-$89,050 |
| 24% | $89,075-$170,050 | $178,150-$340,100 | $89,075-$170,050 | $89,050-$170,050 |
| 32% | $170,050-$215,950 | $340,100-$431,900 | $170,050-$215,950 | $170,050-$215,950 |
| 35% | $215,950-$539,900 | $431,900-$647,850 | $215,950-$539,900 | $215,950-$539,900 |
| 37% | >$539,900 | >$647,850 | >$539,900 | >$539,900 |
|
Source: Internal Revenue Service |
||||
How to File Taxes on Cryptocurrencies
The most important thing for investors to understand is that they are required to report crypto holdings, gains, and losses to the IRS when filing their tax returns. If a cryptocurrency return is generated — positive or negative — or some type of income is realized from holdings, your crypto activity will need to be reported to the IRS. This is why it’s important to keep track of any and all crypto transactions.
Here are the basic steps to take when filing taxes on cryptocurrencies.
• Determine what, if anything, is owed. If an investor completed a crypto transaction (selling, exchanging, or using to purchase a good or service), it is likely that it generated a tax liability.
• Record and report transactions. All cryptocurrency transactions will need to be reported on your tax return. Like with stocks and other investments, the IRS requires a paper trail to ensure an individual reports their full tax liability. In some cases, crypto exchange will provide the transaction history for the investor via a 1099 form, or something similar.
• File the correct forms with your tax return. The IRS requires specific forms depending on the activity an individual has conducted with their crypto. That could include making calculations on Form 8949 , and then reporting the results on Schedule D of Form 1040 , which outlines and summarizes capital gains or losses
Filing Crypto Taxes on Your Own
It is possible to figure out your crypto tax liabilities, and file on your own. But know that many experts may recommend against this, especially if you’re a particularly active crypto investor or trader. That’s because there can simply be so much information that needs to be reported, that it can be overwhelming for the typical person, and thus, hard to keep track of.
There are services that can help you keep track of your transactions, but if you’re using multiple exchanges or brokerages, and even some decentralized exchanges, you may miss a portion of your activity that needs to be reported.
If you only have a handful of crypto transactions to account for, you may be able to file your crypto taxes yourself. But it may be best to reach out to professionals for help.
How to Lower Crypto Tax Liability
If an investor is looking to lower their crypto tax liability (who isn’t looking for ways to reduce income taxes, and other taxes?), there are several options. Many of the same strategies that are used for traditional investments, like stocks, apply to crypto holdings. Here are a few examples:
Buy and Hold
The buy-and-hold strategy can help investors take advantage of the long-term capital gains tax rate, which is lower than the short-term capital gains tax rate as noted above. When an investor holds on to their crypto for at least one year, their tax rate for the crypto will be lower than if they sold within the first year.
Tax-Loss Harvesting
If a loss is realized on a crypto transaction, it can be used to offset the gains made on other holdings. This is called “tax-loss harvesting,” and is a common tactic used to lower tax liabilities on other investments. However, if an investor’s crypto is somehow stolen or lost, they are out of luck and won’t be able to apply the loss against their gains to lower their liability.
Investors can use tax-loss harvesting for their crypto holdings to offset as much as $3,000 in non-investment income. If they’ve incurred losses beyond that limit, they can carry forward those losses to use in future years.
Also, investors who are concerned about triggering wash sale rules in regards to their crypto sales have no reason to fear. Under current rules, wash sales do not apply to cryptocurrencies. (Though it’s generally expected that this will change at some point in the future.)
Charitable Donations
The IRS classifies crypto as property, and property donations are tax-deductible, and not subject to capital gains taxes.
Here’s how this might work in an investor’s favor: If an investor bought a Bitcoin for $10,000 more than a year ago, and it now has a value of $35,000, they would owe capital gains taxes on that $25,000 gain if they cashed out. But by donating it, they can avoid those capital gains taxes and also take a deduction “generally equal to the fair market value of the virtual currency at the time of the donation if you have held the virtual currency for more than one year,” according to the IRS .
Buy and Sell Cryptocurrency in 401(k) or IRA
Some tax-advantaged retirement accounts like a 401(k) or an IRA allow investors to add cryptocurrencies into their portfolios. In these accounts, no annual taxes are assessed on the transactions, since they enjoy tax-free growth. Investors can therefore take advantage of these benefits to trade within the accounts and not be taxed on every transaction.
However, depending on the type of account used, an investor may face taxes upon withdrawal. For instance, if you were to withdraw money from an IRA account prior to reaching age 59.5, you’d be subject to a 10% penalty.
Recommended: Guide to Bitcoin IRA: Pros, Cons, and What to Know
The Takeaway
Investors need to report their crypto activity to the IRS, and pay applicable tax liabilities. Most crypto activity is subject to capital gains taxes, but depending on the circumstances outlined above, cryptocurrency transactions and investments may be taxed as property, like stocks, or as income.
Investors should keep this in mind, remembering that cryptocurrency tax situations are nuanced and complicated. For that reason, it may be best to reach out to a tax professional for help when filing your taxes. But by keeping track of your crypto holdings and transactions, managing your cryptocurrency tax liabilities shouldn’t be too difficult.
FAQ
How much are crypto taxes?
The amount an investor owes in crypto taxes depends on several factors, including how much trading they did, and how much they profited from those trades. Income taxes may also be applicable, too.
When do your taxes for crypto investments need to be filed?
Investors need to report and pay applicable crypto taxes at the same time that they file their tax return. Generally, that’s due by mid-April, on Tax Day. Investors can ask for an extension, or even sign up for an installment plan if they can’t afford to pay their crypto taxes.
What happens if you don’t pay your crypto taxes?
If you don’t pay your crypto taxes (or fail to report your crypto activity to the IRS), you could incur financial penalties, or even jail time. If caught, you could be facing audits of several years’ of tax returns, and even face serious charges, such as tax evasion.
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.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.
First Trade Amount
Bonus Payout
Low
High
$50
$99.99
$10
$100
$499.99
$15
$500
$4,999.99
$50
$5,000+
$100
SOIN1222001
Jan
06
2023
What Is a Modular Home? Should You Consider Owning One?
Modular homes are often misunderstood, but these homes are built to the standards of their site-built brethren, are typically more affordable, and go up faster.
Just like other homes, they may appreciate in value.
Read on to learn whether or not a modular home might tick all your boxes.
Characteristics of a Modular Home
Remember the Sears mail-order kit homes? The catalog, debuting in 1908, offered all the materials and blueprints to build a house. Sears is estimated to have sold around 75,000 kit houses by the time the catalog was discontinued in 1940.
They were prefabricated homes, meaning some or all of the home was built in a factory. The term applies to modular, panelized, and manufactured homes. (Kit homes are still sold, and appeal to DIYers who don’t need a general contractor to handle everything.)
Modular homes are born almost entirely in a factory. Boxlike modules — complete with walls, floor, ceiling, wiring, light fixtures, cabinets, and HVAC system — are trucked to the homesite, lifted by crane, and put together.
Manufactured homes, formerly called mobile homes, also are built in a factory and meet a federal code, but modular homes must meet the same state and local building codes as stick-built homes. They’re permanently attached to a standard foundation and are real property.
Modular houses come in a huge variety of designs and styles, from accessory dwelling units, or ADUs, to three-bedroom homes with sleek, contemporary designs. Many companies offer a menu of layout options, or buyers may be able to customize the features.
Recommended: Guide to Buying, Selling, and Updating Your Home
Pros and Cons of a Modular Home
Here are some upsides and downsides of modular construction.
Pros
Speed: A modular home or apartment building can go up within half the time of site-built residential buildings, whose construction averages 7.6 months, according to the U.S. Census Bureau’s most recent data. Or faster than that: Some modular home factories can finish a home in a few weeks. The foundation is being prepared while the modules are being built offsite. Weather delays are far less of a concern.
Cost: Modular homes are typically cheaper than stick-built homes. The climate-controlled factories are specialized, and production processes are streamlined.
Greener: Modular construction results in fewer carbon emissions than traditional building methods: It requires less transport of workers and materials and fewer carbon-intensive products like concrete and steel. Producing buildings in a factory setting promotes recycling and reuse. In addition, modular buildings can be designed to achieve LEED certification.
Homes may well appreciate: A well-built modular home, like any stick-built home, will tend to appreciate. The value holds up better in communities where modular homes are not uncommon.
Seen as a way to ease the housing crisis: Urban cities are looking at prefab housing to mitigate the U.S. housing shortage, and many prefab-housing startups have sprouted. MiTek, a startup owned by Warren Buffett’s Berkshire Hathaway is, it says, “making modular mainstream.” It plans to ship kits of manufactured building parts to be assembled by general contractors. President Joe Biden announced a plan in May 2022 to increase the housing supply over five years. That included modular housing.
And a smarter way of doing business: PulteGroup, the country’s third-largest home construction company, is investing in offsite manufacturing of parts for most of the homes the company builds each year. A lack of labor has been contractors’ biggest challenge. Modular construction can help a company do more with fewer workers.
Recommended: Home Affordability Calculator
Now for the not-so-great news.
Cons
Zoning hurdles: Modular builders face pushback from many cities, as offsite construction isn’t mainstream and each city has its own zoning laws.
Financing: If modular-home buyers can’t pay cash, many will have to finance the build with a construction-only or construction-to-permanent loan (aka one-time-close loan). The down payment on land and the home for a construction loan will often be 20% or more, unless it’s one of the government-backed loans described below. A modular-home buyer who already owns the land can use the land as equity and may be able to borrow all of the construction cost if they meet the criteria for the loan.
You and the contractor usually need to be approved for the loan. Money is disbursed based on a draw schedule. Payments are typically interest only and start out small.
With the construction-to-permanent loan, some lenders, for a fee, will let you lock in a fixed rate with a “float down” option if rates have fallen. If you chose a variable rate, you’ll pay the current rate when the mortgage converts.
A two-time-close loan is composed of a short-term loan for the construction phase and a permanent mortgage for the completed home. You’re essentially refinancing when your home is complete; you’ll need to be approved and pay closing costs again, but the rate could be better. In most cases you can compare other lenders’ offers to get the best rate and terms on the permanent mortgage.
An FHA One-Time Close Loan is a government-backed home loan program that applies for modular homes and the land. The minimum down payment is 3.5%.
A VA One-Time Close Loan allows eligible service members to finance modular construction, lot purchase, and permanent mortgage with no money down.
A personal loan, sometimes for up to $100,000, could fund part of the modular construction or the purchase of the land. Keep in mind that unsecured loan rates are higher than rates on secured loans.
Qualified homeowners may be able to use a home equity line of credit (HELOC), home equity loan, or cash-out refinance to give rise to their modular aspirations.
HOA blockage: Some homeowners associations may not allow modular construction in the neighborhood.
Still need a contractor: You still have to find a contractor and a piece of land, if you don’t own the land already.
All the extras: Among the disadvantages of modular homes is the difficulty determining the total price. Buyers pay not only for the home but also the land, foundation prep, and transportation.
Possibly a big upfront payment: A builder may want payment in full before construction begins.
First-time homebuyers can
prequalify for a SoFi Mortgage Loan,
with as little as 3% down.
Finding a Modular Home
You may want to search for “modular home companies by state” or “prefab homes by state.” Of course there are Facebook and Reddit modular discussions. Word of mouth is another avenue to find a modular home builder.
Some modular home manufacturers sell directly to homeowners, and others work through a network of retailers.
At least one modular company has developed factory relationships across the United States.
Keep in mind that this style of construction is still pretty rare, in this country at least. In 2021, only 24,000 U.S. homes were built offsite. That’s about 2% of all homes completed that year.
Who Should Get a Modular Home?
People who want a new home up and ready more quickly and less expensively than a stick-built home might be smart to think modular.
Environmentally conscious buyers might find modular construction a breath of fresh air. Folks who want a modern ADU or primary or vacation home might want to go modular.
People who appreciate efficiency and innovation might be drawn to modular construction.
It helps to already own the land. If not, and this will not be a cash deal, it’s important to understand the pros and cons of construction loans and other financing options.
The Takeaway
Modular homes are faster to complete and less expensive than site-built homes, but perceptions and financing can be challenges. If you do plan to build even an ADU out back, check your local zoning, compare modular vs. stick-built construction, and know your terms (manufactured vs. modular, real property vs. personal property). It all can be confusing.
SoFi can lend a hand. Do you plan to use a construction-only loan and need a permanent mortgage after the build is done? SoFi offers mortgages with competitive rates and a variety of repayment terms.
SoFi also offers personal loans of $5,000 to $100,000, which could fund the land or more, and brokers a HELOC that may allow you to access up to 95% of your home equity to fund your modular vision.
Tap your home equity or find a mortgage to build something out of the old-school box.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility 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.
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.
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.
SOHL1221089
Jan
06
2023
How to Read a Preliminary Title Report
When you’ve decided on a house to buy and entered into escrow, you can expect to receive a preliminary title report. The report will verify ownership and reveal any lurking issues that will not be covered under a subsequent title insurance policy.
This is an important step: When you’re buying a home, the preliminary title report gives you the chance to remove or eliminate problems before you close on the property. This can help you avoid any legal headaches that arise from those issues.
Here’s a look at how to read these documents and what kind of information you can expect to find in them, including:
• What is a preliminary title report
• How to read a preliminary title report
• How to get a title report for a property
• What is a title report vs. title insurance
• What are the limitations of a preliminary title report.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Title Insurance 101
First, you’ll need to understand what title insurance is. A title is the set of legal rights you have to a property once you buy it. A clear title is the goal, meaning you want the property to be free of liens and other ownership claims.
Title insurance protects both buyers and lenders against any problems with a title when ownership of a property transfers from one person to another.
During or after a sale, if there is a title dispute, the insurance company may be responsible for paying certain legal damages. If you don’t have title insurance, you could be responsible for any issues that crop up.
There may be two forms of title insurance involved in a sale. If you are borrowing money to buy a home, you may purchase lender’s title insurance, which protects the lender. Owner’s title insurance, less common, is usually purchased by the seller to protect the buyer.
Recommended: How to Qualify for a Mortgage
Reading a Preliminary Title Report
When you receive the preliminary title report, look for the following information:
Owner of Record
The preliminary title report will start with the name of the owner of record. If you’re buying a home, this should be the seller’s name. If it isn’t, that’s a major red flag, and you should let your escrow or title officer know.
Statement of Vesting
Next, the report will lay out the extent of the current owner’s interest in the property. The fullest type of ownership, and the most common, is known as “fee simple” or “fee.” This means a person wholly owns a piece of land and all the real estate on it.
There may be other types of ownership that will show up in this section. For example, you might see a leasehold estate, which gives a tenant exclusive rights to use a property owned by someone else for a set period of time.
Legal Description
The legal description details the property location, lot size, boundaries, and any easements or encroachments.
For condominiums and planned unit developments, the legal description might include common areas, parking, storage, and easements that convey.
A plot map, which shows how land is divided into plots, may be included as well to show the general location of a property.
Exceptions
Exceptions will be listed numerically and are matters that your title insurance policy will not cover. They may include:
• General tax issues. Are there unpaid taxes? Property taxes will show up as the primary “lien” and as due or paid in full. Property taxes must be paid for the property sale to go through. And tax classifications could affect the new owner. For instance, if land is classified as agricultural, there could be penalties for withdrawing from that classification.
• Assessments. Are there delinquent water or sewer bills owed to the city that need to be paid before closing?
• Encumbrances. These might include liens from creditors or lenders, or liens for the payment of federal taxes or assessments. They might also include liens against a property because of back-due child support or spousal support. Are there loans against the property you weren’t aware of, such as additional mortgages?
• Covenants, conditions and restrictions, also known as CC&Rs. These are rules that homeowners must follow in a planned community or common interest development. They might determine whether you are allowed to park on the street, what kind of fence you can put up, or what color you can paint your house.
• Easements. An easement is the right another party has to the property you’re interested in buying. For example, neighbors may have a right of way that allows them to access their property through yours. Or a utility company might have the right to install, access, or maintain equipment on the property, such as power lines or cable.
• Other issues. There are other matters that may appear on the preliminary title report, such as bankruptcies or notices of action, which are court proceedings that are underway and involve the property.
The transfer of property is subject to these exceptions unless they are dealt with by the seller before the sale.
If any liens or encumbrances crop on your preliminary title report, you have the chance to clear them before the sale goes through. Together with your real estate agent you can work with the sellers and their agent to clear the title before you take it on.
If you have any questions about your preliminary report, you can contact your real estate agent, an attorney, or your escrow or title officer.
Standard Exceptions and Exclusions
In addition to the list of exceptions that are particular to the home you want to buy, there are standard exceptions and exclusions that a title insurance policy won’t cover.
Building codes and restrictions are exempt from title insurance coverage, as are zoning restrictions or other regulations for how land can be used in certain areas.
Sometimes a building is subject to zoning restrictions. For example, it may be in a historical district that restricts how a buyer can develop the property.
Recommended: How to Make an Offer on a House
How to Get a Title Report for a Property
As part of the home-buying process, your lender will likely require a preliminary title report and title insurance.
In many cases, the seller will request the title report from a title company once an escrow account is opened. The seller includes this information as part of their disclosure package.
Recommended: Mortgage Pre-Qualification vs. Pre-Approval: The Differences
Title Report vs. Title Insurance
As mentioned above, once you open escrow, an order is placed with the title company to produce your preliminary title report. The company will assemble and review records having to do with the property you want to buy. The title report will give you insights into whether the property has, say, any liens on it or other issues.
Title insurance, on the other hand, is indemnity insurance. It protects both lenders and homebuyers from enduring financial loss if there were any defects in a property’s title.
Recommended: What’s the Difference Between Homeowners Insurance and Title Insurance?
Limitations of the Preliminary Title Report
Be aware that the preliminary title report only shows the matters that the title company will exclude from coverage when and if a title insurance policy is issued.
It is not a complete picture of the condition of the property. And it may not even list all of the liens and other encumbrances that may affect the title of the property.
The Takeaway
Think of a preliminary title report like a background check on a home, revealing tax, lien, or ownership poltergeists lurking. Knowing how to read a preliminary title report helps prevent spooky surprises.
Speaking of clean titles and clean starts, if you’re shopping for a home or investment property and need a mortgage loan, SoFi’s home loan options are worth a look. With competitive rates, a quick and easy application process, and low fees, they can offer a smart, affordable path to homeownership.
Check out SoFi’s competitive rates today.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility 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.
SOHL0822021
Jan
05
2023
Going Back To School for a Master’s Degree During a Recession: Good or Bad Idea?
With all the talk of a possible recession, you may be thinking this is a good time to get an advanced degree. You can wait out the tough times and unpredictable job market while learning new skills that put you in a better position in the future.
You’re not alone. Historically, times of economic turmoil have seen big upticks in graduate school enrollment. But is this the right move for you now?
We hope the following information will help you decide whether the cost of earning a master’s will pay off in greater career opportunities — and higher salary — down the line.
Why People Go Back To School During Recessions
Periods of decline in economic activity (aka recessions) are commonly accompanied by corporate layoffs, rising unemployment, and dwindling wage growth. Because there are fewer employment opportunities, job hunting and career advancement become more competitive. Many workers decide a return to school, often to earn a master’s degree, makes sense in a tough employment market.
Earning an advanced degree can boost your earning power in your chosen field (more on that below) or provide an opportunity to change fields. Career changers may gravitate to growing, “recession-proof” industries and fields that they are passionate about.
Who Should Get a Master’s Degree?
The answer depends on your professional and academic goals. The first level of graduate study, a master’s degree indicates a high level of knowledge in a profession or research area. It takes anywhere from one to three years of full-time study to complete a master’s. A bachelor’s degree is required to apply for a master’s program.
For academics, a master’s is usually a stepping stone to a Ph.D. or other doctoral degree. Professional master’s degrees can also be the first step toward advanced degrees required for doctors, pharmacists, and lawyers, and are a necessary part of education for those careers.
Master’s degrees can also be required or particularly helpful in education, social service, healthcare, business, and STEM fields (science, technology, engineering and mathematics).
Recommended: What Should I Do After My Master’s Degree?
Pros of Getting a Master’s Degree in a Recession
For many people, a recession is a good time to go back to school, either full- or part-time. Here’s why.
Potential Salary Boost
In many careers, a master’s degree will command a higher salary and increase job security. According to the Bureau of Labor Statistics (BLS), workers with graduate degrees (master’s, professional, and doctoral) have the highest earnings.
The median weekly earnings for full-time workers over 25 with a master’s degree is $1,574, compared to $1,334 for employees with a bachelor’s degree only.
Increased Job Security
Workers with graduate degrees also experience lower levels of unemployment, according to BLS data. The unemployment rate in 2021 for people with a master’s was 2.6%, compared to 3.5% for workers with bachelor’s degrees.
People who have been negatively affected by a recession — either laid off or unemployed for an extended period — often find that an advanced degree can lead to more job security and advancement. As mentioned above, recessions can also be a good time for workers in hard-hit industries to gain skills and knowledge through a master’s in a fast-growing field.
Many grad school students find that networking with other students, faculty, and alumni helps them find new opportunities, especially in a competitive job market.
Easy Access To High Quality Programs
Hundreds of high-quality MBA, MSW, engineering, and other in-demand graduate degree programs are now available online from prestigious colleges and universities. Remote learning makes these programs accessible to students anywhere in the country. Online programs often cost less than in-person learning and can offer more flexibility for students who need to continue working full- or part-time.
Cons of Getting a Master’s Degree in a Recession
Grad school isn’t right for everyone, and making this move demands careful consideration.
Costs and Potential Debt
The average cost of a master’s degree is $66,340, according to a 2021 report from the Education Data Initiative. That does not include living expenses or lost wages from taking time off work. And people with a master’s degree carry an average of $46,798 in student loan debt.
Determining whether taking on federal or private student loan debt is worth the increased earning potential or career satisfaction is an important step in your decision-making process.
Increased Competition for Admissions
You’re not the only one debating whether to ride out tough economic times by going back to grad school. That can mean increased competition for the best programs. If a degree from a particular college or university is part of your career plan, carefully consider your timing.
Missed Work Experience
If you’re considering leaving a job to attend grad school, keep in mind that you may miss valuable work experience that can put you in a better position when the recession ends. Working part-time can help pay for grad school and sometimes alleviates missed work experience, but not always. That’s because part-time employees don’t always encounter the same opportunities to gain valuable experience as full-time staffers.
Recommended: Undergraduate vs. Graduate Student Loans: How They Differ
How Much Does a Master’s Degree Cost?
Depending on the field of study and institution, master’s programs range from $12,000 to $75,000. Unlike many doctorate programs that waive tuition and fees and even offer a stipend, master’s degrees are not fully funded.
Ways To Pay for a Master’s Degree
Most students rely on a combination of savings, scholarships, grants, federal loans, private loans, and help from employers to pay for graduate school.
Federal Grants
Federal grant programs include the Pell Grant, which is generally available only to undergrads who demonstrate exceptional financial need. However, it may be possible to receive some grant funding to help you pay for graduate school. Remember, this time around you’re an independent student, and you won’t be tied to your family’s income to determine need.
Another federal grant that may be available to graduate students is the Teacher Education Assistance for College and Higher Education, or TEACH grant. This grant has relatively stringent requirements and is available for students pursuing a teaching career who are willing to fulfill a service obligation after graduation.
Filling out the Federal Application for Student Aid (FAFSA) is the first step to determine whether you’re eligible for federal grants.
Scholarships
The FAFSA also gives you access to many scholarships. There are scholarships offered in every field imaginable. Start your search with these online tools:
• Graduate School Scholarship Search at Sallie Mae
• Scholarship Search Engine at CollegeScholarship.org
• SoFi’s State Scholarship Search
Recommended: Finding and Applying to Scholarships for Grad School
Federal Student Loans
Grad students may be offered loans as part of their financial aid offer. A loan is money you borrow and must pay back with interest. Loans made by the federal government, called federal student loans, usually have more benefits than loans from banks or other private sources.
The lifetime limit for Direct Subsidized and Unsubsidized student loans is $138,500 for graduate or professional students. Of this amount, no more than $65,500 can be in subsidized loans. This includes student loans borrowed during undergraduate study.
Private Student Loans
Many students also rely on private student loans to help pay for graduate school. The maximum amount that students can borrow with a private student loan varies by lender, but can’t exceed the cost of attendance.
The “cost of attendance” is the combined total of tuition and fees, books and supplies, living expenses, transportation, and miscellaneous expenses. This estimate may also include dependent care, study-abroad, and costs related to disabilities.
The Takeaway
Pursuing a master’s degree can be a great way to enhance your skills and career opportunities. Taking advantage of a slow or troubled economic time to do so can help ensure your job security in the future. That said, it’s important to consider the tuition costs associated with a graduate degree, the potential for taking on debt, and the effects of missed earnings and opportunities if you take time off work to go back to school.
SoFi can help students manage the cost of tuition with its private student loans for grad students. SoFi private student loans offer competitive interest rates for qualified borrowers, flexible repayment plans, and no fees. SoFi makes it fast and easy to pay for a grad degree – and now, even a grad-level certificate — so you can focus on what matters the most: your education.
FAQ
Is grad school a good place to ride out a recession?
It can be. Recessions are usually accompanied by high unemployment and layoffs. For many people, gaining new skills and expertise in a graduate program can be a good way to make yourself recession-proof in the future.
Do more people head for grad school during a recession?
Yes, historically more people apply to and attend graduate school during a recession. The Great Recession starting in 2008 is a good example of that trend.
What are worthwhile master’s degrees to get during a recession?
Master’s degrees that give you the credentials and skills to move forward in your career can be well worth the cost through future salary increases and advancement opportunities. But pursuing a passion that will give you career satisfaction for years to come can be just as worthwhile.
Photo credit: iStock/izusek
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