By Lauren Ward |
Credit, credit card |
Comments Off on Why Did My Credit Score Drop When I Was Added as an Authorized User?
While there are many benefits to being an authorized user on another person’s account, you risk damaging your credit score if the primary cardholder isn’t responsible with the account.
Let’s take a look at the pros and cons of being an authorized user and how to prevent a credit score drop after being added to someone else’s account.
What Does It Mean to Be an Authorized User?
An authorized user means you’ve been added to another person’s credit account and can use it to make purchases. You’ll also receive your own card, though you can’t see the primary cardholder’s charges nor will you receive a bill. The primary cardholder is responsible for any charges made on the card.
The move comes with several benefits. You can have immediate access to credit without the need for a credit inquiry. Plus, it’s an opportunity to establish a credit history or help repair or build your credit.
However, there are limitations worth noting. The biggest one is that the primary cardholder’s behavior reflects on you. If he or she routinely misses payment due dates or uses up most of their available credit, for instance, your credit score (and theirs) can take a hit. What’s more, you can’t make changes to the account or add other authorized users, and you won’t be able to ask for credit limit increases.
If you find yourself stretching your finances every month, consider using a budget. A spending app can help you create a budget and spot upcoming bills.
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How Being an Authorized User Affects Your Credit
When you’re added as an authorized user to an account, your credit could be impacted positively or negatively — or not at all.
For instance, if you’re added to an account with a record of timely payments, your credit score may improve. If you’re an authorized user on an account that’s not in good standing, your credit score could suffer. And if the credit card issuer doesn’t report authorized user activity to any of the three credit bureaus, your score won’t be impacted.
Credit score monitoring services can help you keep tabs on any changes in your credit score and see an overview of your debt balances.
Who Should You Ask to Add You as an Authorized User?
Oftentimes, being added as an authorized user on a credit card account can help you establish credit or increase your credit score. But keep in mind that the primary cardholder is responsible for making payments, and the card’s use will be reflected on both of your credit reports.
Trust is key, so only consider asking someone who has a positive payment history, good spending habits, and low credit utilization ratio.
How to Add an Authorized User to Your Account
The process of adding an authorized user to an account varies by credit card. But generally speaking, you should be able to handle it online or by calling the issuer directly.
When adding an authorized user, you will likely need to know their personal information, such as their address, phone number, and Social Security Number. Once you’ve submitted your request, your credit card company should mail a new card to the authorized user.
How to Remove an Authorized User From Your Account
The easiest way to remove an authorized user from your account is to contact your credit card company’s customer service department. However, depending on the card, you may be able to take care of this online. You’ll likely be asked to verify your account information.
Does Removing an Authorized User Hurt Your Credit Score?
Removing an authorized user from an account may not hurt your credit score, but it could impact theirs. If the card has a long record of on-time payments and low credit utilization, that positive history will be removed from the authorized user’s credit report. And if the account has been open for a long time, it could also decrease the average length of their credit history.
However, the authorized user may see a boost in their score if they’re removed from an account with a history of late or missing payments or high credit utilization.
Before you’re added as an authorized user, it can be helpful for you and the primary cardholder to understand the factors that affect your credit score. Here’s what goes into your FICO™ Score, which most lenders use.
• Payment history
• Amounts owed
• Length of credit history
• New credit
• Credit mix
Of those five factors, payment history and amounts owed have the biggest impact on your credit score. So ensure the primary cardholder makes on-time payments and avoid carrying a high balance, which can affect your credit utilization ratio.
Pro tip: You can often check your credit score for free through certain banks and credit cards. Many financial institutions will give regular credit score updates as a free service to their customers.
If yours doesn’t offer this service, you can sign up for a credit score monitoring service or use a tool like a money tracker app.
Difference Between Authorized User vs. Joint Account Holder on a Credit Card
Though both share an account with another person, there are some important differences between an authorized user and a joint account holder.
Most notably, a joint account holder is equally responsible for making payments on the account, while an authorized user is not. Also, when you apply for a card as a joint account holder, the credit card issuer will perform a hard inquiry, which could cause your credit score to drop temporarily. A hard inquiry is generally not required when adding an authorized user.
Pros and Cons of Being an Authorized User
Becoming an authorized user on an account comes with its share of benefits and drawbacks. Here are a few things to consider:
thumb_upPros:
• Immediate access to credit
• Could help you build or improve your credit
• No responsibility to pay the debt
thumb_downCons:
• May damage your credit score if the primary cardholder fails to make on-time payments or keep balances low
• Risk damaging your relationship with the primary account holder
• No control over account
The Takeaway
Being added as an authorized user can help you build or improve your credit, but in some cases you may notice a drop in your credit score. This often happens when the account is not in good standing, perhaps because of late or missed payments or a high balance. To help protect your (and the account holder’s) credit score, ensure bills are paid on time and keep credit utilization low.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
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FAQ
Will being added as an authorized user hurt my credit?
While becoming an authorized user can help your credit, there are times when it can have the opposite effect. For instance, if you’re added to an account that has a history of missed payments or the credit utilization ratio is too high, your credit score could fall.
How many points does your credit score go up as an authorized user?
There’s no set number of points you receive when you become an authorized user. However, if the account you’re associated with is in good standing, you may see an increase in your credit score.
How long does an authorized user show on a credit report?
Generally speaking, it takes a month or two after you’ve been added as an authorized user for the account to show up on your credit reports.
Photo credit: iStock/Milan Markovic
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
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 .
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
If you review your credit report and notice an unfamiliar item — or you receive an alert about an account from your credit monitoring service but don’t recognize it — start by contacting the lender or creditor. There is a chance that the listing is totally legitimate.
According to the Consumer Financial Protection Bureau, the item may be a third-party collection company a creditor has sold an account to, or it may simply be an inquiry resulting from a prescreened offer of credit. Contacting the creditor is the best way to get to the bottom of this.
However, it’s also possible that the creditor or credit bureau has made an error or, worse, that a criminal has opened a fraudulent account in your name.
Below, we’ll explore the impact an unfamiliar account can have on your credit score and the steps to take any time you notice potentially incorrect information on your credit report.
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How Errors Can Hurt Your Credit Score
If your credit report contains errors indicating missed or late payments, your credit score could suffer. The largest factor affecting your credit score, for instance, is payment history; it accounts for 35% of your FICO Score. That means even one or two errors regarding a missed or late payment could drag your score down.
A fraudster who opens a credit account in your name and racks up debt can do far worse damage. For starters, they’ll reduce your average age of credit by opening a new account, and if they max out that account, they’ll increase your credit utilization. Finally, a fraudster will not pay off the bills they’ve racked up in your name, meaning your credit report could soon show thousands upon thousands of dollars in missed payments.
To dispute an item on your credit report, you’ll need to contact the company who has reported the error and the credit bureau itself. Check your credit report from all three major credit bureaus, as you may need to correct the issue with more than one bureau.
You’ll likely need to start by filling out a dispute form and submitting it to the credit bureau(s) reporting the error. You’ll want to detail why the item on your report is incorrect. You should also include any paperwork that supports your claim. You can dispute errors online or over the phone:
• Equifax: 866-349-5191
• Experian: 888-397-3742
• Transunion: 800-916-8800
If you’re submitting by mail, pay for a return receipt so you know when the credit bureau has received your dispute. Use the address that appears on your credit report, or visit the credit bureau’s website to determine where to send the dispute.
Credit bureaus have 30 days to investigate your dispute. You should expect further contact from the bureau(s) regarding the status of your dispute and any next steps.
In addition to disputing with the credit bureau(s), you’ll also need to contact the creditor directly. Depending on the creditor, you may do this by mail, online, or over the phone.
Note that it’s possible for your credit score to drop after a dispute, rather than improve. For instance, your credit limit may be lower than what was previously reported, which could lead to a decrease in your credit score.
How to Escalate Matters
If you suspect fraudulent credit card transactions or other unauthorized credit accounts rather than a simple mistake, you’ll also need to report the fraud to the Federal Trade Commission (FTC). Here’s how to report identity theft if you notice fraudulent activity on your credit report.
Steps to Take for an Unfamiliar Creditor on Your Report
Notice an unfamiliar creditor on your report? Here are the steps to take:
• Do some quick research: Whether you use a money tracker app or a DIY method, go through your own past transactions and notices from your creditors to determine if the entry on your credit report is correct — and you’ve just forgotten about it.
• Contact the credit bureaus: If you’re certain the unfamiliar creditor is there by mistake (or due to fraud), you need to contact the credit bureaus to file a dispute.
• Freeze your credit reports: This is an important step so third-party lenders cannot review your credit report while it’s inaccurate. It’s also a good practice if you’re the victim of fraud.
• Contact the creditor who reported the error: You’ll also need to dispute the error with the company that initially reported it to the creditor.
• Escalate to the FTC: If the mistake is simply a data entry error, you don’t need to take any further steps. But if the issue on your credit report is the result of some type of fraud, you’ll need to report it to the FTC.
Disputing errors on your credit report is essential as soon as you notice them, but you can also take proactive steps to prevent errors and fraudulent activity altogether.
Credit Report Freezes
Freezing your credit reports prevents fraudsters from opening new credit accounts in your name. You’ll just need to temporarily unfreeze your credit reports whenever you’re applying for credit, whether that’s a new credit card or a mortgage.
Protect Your Financial Info
Your personal information, including your name, address, email, phone number, bank account number and routing number, and Social Security number, can be dangerous if they fall into the wrong hands. Always use secure passwords online, and never share your personal information unless you’re certain you’re speaking to a legitimate person and not a scammer.
It’s also a good idea to familiarize yourself with common online bank scams and ways to avoid them.
Credit Card Monitoring
Monitor your credit card activity closely. Real-time transaction alerts are a great way to spot credit card fraud the moment it happens. If you receive a notification for a transaction you did not authorize, you can often launch your bank’s mobile app to freeze the card and then contact your bank to discuss the charge.
Enroll in Identity Monitoring Services
In addition to credit score monitoring services, which allow you to check your credit score regularly, consider enrolling in identity monitoring services. These provide a larger array of protections, alerting you when other important information, such as your Social Security number, gets compromised. Identity theft protection services even include insurance to help cover costs associated with identity theft.
💡Quick Tip: Online tools make tracking your spending a breeze: You can easily set up budgets, then get instant updates on your progress, spot upcoming bills, analyze your spending habits, and more.
The Takeaway
If you notice an error or unfamiliar account on your credit report, it’s important to take action fast. Dispute the error with the credit bureau as well as the company that reported the incorrect item. If you suspect fraud, you should also contact the FTC. In the meantime, consider enlisting the help of a credit monitoring service to help you stay on top of your credit score and credit report.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
See exactly how your money comes and goes at a glance.
FAQ
What if I don’t recognize something on my credit report?
If you don’t recognize something on your credit report, it’s possible a creditor has simply prescreened you for credit approval. But it’s also possible that there’s an error on your report or, worse, that you’re the victim of fraud. Contact both the credit bureau and the creditor to dispute the error, and follow up with the FTC if you suspect fraud.
How do I dispute an unknown account on my credit report?
To dispute an unknown account on your credit report, file a dispute (via mail, online, or over the phone) with the credit bureau issuing the report. You’ll also need to contact the creditor that has made the erroneous report. If you confirm that the entry on your report is the result of fraud, consider freezing your credit reports and contacting the FTC.
What if my account is not on my credit report?
If you have a credit account that does not appear on your credit report, it’s possible the creditor does not report to the credit bureaus. Reach out to the creditor where you hold the account to understand which, if any, credit bureaus they report to.
Photo credit: iStock/izusek
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
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 .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
Social media makes it easy to stay in touch with friends and family, spot the latest trends, and follow the news while enjoying the occasional cat meme. But your social media habits could have a negative effect on your finances if you feel pressured to spend unnecessarily in order to maintain a lifestyle that you can’t really afford.
FOMO, or fear of missing out, is a well-documented phenomenon that can drive people to make decisions based on things they see other people doing on social media. When the concept of FOMO is applied to money, it can lead to overspending and dangerous financial behaviors, all for the sake of getting likes and clicks.
Understanding how social media can hurt your finances can help you break the FOMO cycle and make smarter decisions with your money. Read on to learn:
• The negative financial effects of social media.
• At worst, how social media can impact your finances.
• How to reduce the financial impact of social media.
Negative Financial Effects of Social Media
If you’re busy checking your favorite influencers, you may not realize how social media can actually keep you poor. After all, these people might be making a living on social media, so how can it possibly be bad?
The reality is that social media can influence how you manage your money, along with the balance in your bank account, in a number of ways. If you’re wondering how Twitter or Facebook can impact your finances or whether Instagram and Snapchat are contributing to your lack of cash, here are some of the potentially dangerous side effects to consider.
Overspending
Social media can contribute to impulsive or compulsive spending if you’re constantly trying to keep up with trend-setters or you’re buying “stuff” to satisfy your emotional needs. For example, you might see your favorite beauty influencer touting a new $50 lipstick or $500 dress and decide that you need to buy it too to feel beautiful.
What you might not know is that the influencer is likely being paid to advertise these items on their social media accounts and they didn’t purchase it themselves. In that sense, social media can be a trap for overspending because it’s easy to adopt the mindset that since everyone else seems to be doing it, you should too.
Distractions Causing Less Time for Budgeting and Managing Finances
Social media can also keep you poor if you’re spending so much time online that you’re not staying on top of your financial situation and making sure you’re sticking to your budget. Whether you use an envelope system or the 50/30/20 budget rule, a budget is at its core a personal plan for spending the money that you earn each month. Without a budget, it’s much easier to lose track of expenses and give in to FOMO spending.
You might also turn a blind eye to how much debt you might be racking up as a result of social media-driven spending. By the time you get around to taking a break from social media, you could have a stack of credit card bills to deal with.
Trying to Keep Up With Your Friends
The types of people you surround yourself with can have an impact on how you manage your money. If your social media feeds are full of friends who are going off on expensive vacations, driving flashy cars, or buying big homes, it can be very tempting to try to match those behaviors in your own life.
The problem is that unless your friends are being open about their finances, you don’t really know how they’re able to afford those things. They could be living in a beautiful home, for example, but struggling to make the mortgage payments each month. Or they might drive a luxury vehicle with a four-figure car payment. Or perhaps their family is wealthy and helps them with their bills.
If you try to replicate their lifestyle, it’s possible that you could quickly find yourself struggling financially. On the other hand, developing financial discipline can make it easier to live a lifestyle that you enjoy, without causing yourself unnecessary stress.
Buying Trendy Items
Ever bought something just because you saw it advertised on your social media feeds? That’s one tricky way that social media platforms keep you broke.
You might buy something because the ad makes the item seem as if it will dramatically improve your life. Or perhaps it’s something that everyone else is buying and you want to feel like you’re part of the trend. The trouble is that once the trend eventually dies, you’re stuck with that item and you’re out the money you paid for it.
That’s not just limited to clothes, bags, or accessories either. Many young people turn to “finfluencers” to get their financial, and even investment, advice. This exposes them to potentially bad advice, as well as outright fraud.
Dealing With Constant Advertisements
Ever been searching for something on Google, then you open up social media and see an ad for it? If you’re trying to wrap your head around how Snapchat or Facebook can impact your finances, targeted advertising could be the answer.
The average person can see thousands of ads per day and quite a few of them are concentrated on social media outlets and search engines. And once you see an ad, it’s hard to unsee it. The flashier the ad, the more you might be tempted to click and make a purchase. If you’re trying to quit spending money, ads can be the biggest roadblock to your success.
Falling Into the Trap of an Influencer’s Fantasy Life
At first glance, influencers seem to have it made. They’re living in nice homes and wearing the latest designer clothes, they look perfect, and they’re rich. Or at least, that’s the way it seems.
Following influencers can be harmful to your mental and financial wellbeing if you feel like you need to try to emulate their lifestyle. Once again, you don’t know what their life is like behind the scenes or how they’re financing it. For every big influencer making six or seven figures, there are scores of micro-influencers who are making much less. And in some cases, they may be dressing up their lifestyle for the camera to hide the fact that they’re not truly wealthy. Or they may just be showing off swag that they got for free or are being paid to promote. Try to keep up, and you could see your financial wellness spiral downward.
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Helpful Tips to Reduce the Financial Impact of Social Media
What happens if you fall into any of the traps above? High credit card debt, empty bank accounts, and increased stress can all be signs that social media may be negatively affecting your money management.
Fortunately, there are some things you can do to reduce the negative impacts social media might be having on your financial life.
Unfollowing Brands and Influencers
Hitting the “unfollow” button on brands and influencers can remove those accounts from your social media feeds. And it can be a major, positive moment in your financial self-care. When you can’t see what an influencer is up to or what a brand is advertising, there’s much less temptation to spend. You can instead focus on following accounts that add to your quality of life in some way (perhaps with money-saving hacks).
Focusing on Yourself and Managing Finances
Turning your attention to mastering personal finance basics is another way to break the cycle of allowing social media to influence your money decisions.
For example, if you don’t have a budget in place yet, you can block off an afternoon or evening to sit down and make one. Or you could spend time researching the benefits of an emergency fund and the best place to open a checking account.
Replacing social media time with these kinds of tasks can help you to improve your financial situation little by little. And the more you learn about personal finance, the more motivated you might become to save more while spending less.
Improving Your Money Mindset by Removing FOMO
Taking the FOMO out of your financial decision-making can go a long way toward bettering your money situation. Instead of automatically allowing yourself to spend, ask yourself why you feel tempted to do so. For example, if you see an influencer sporting a new $500 bag that you’d like to buy, take time to analyze what that bag is really going to cost you.
How many hours of work will you need to do to make the $500 after taxes needed to pay for it? And how often will you use the bag? What will it add to your life? Asking these kinds of questions can help you to decide if a purchase that’s FOMO-driven is truly worth it.
Budgeting for Any Purchases You Make
A budget is a simple but powerful tool for controlling spending. You can use a budget to minimize the negative impacts of social media by committing to only spend money on planned purchases. That means no impulse buys or unanticipated spending.
True financial emergencies can be the exception to this rule. If you’re building an emergency fund, you can use that money to pay for any unexpected expenses that might come along. Otherwise, if it’s not in the budget, you don’t spend it.
Setting a Waiting Period Before Making a Purchase
Applying a temporary 30-day rule can help to curb FOMO. The 30-day rule advocates delaying impulse buys for 30 days to decide whether you really want to spend money on them or not. Taking time to let the idea of the purchase cool off can give you perspective on whether you should spend the money.
At the end of the 30 days, you might decide that the purchase isn’t that necessary after all. Using the 30-day rule can keep you from wasting money on things you don’t need or won’t use.
Setting a Screen Time Limit on Your Phone
The average person spends two and a half hours on social media per day. If you’ve never kept track of how much time you spend scrolling each day, you might be surprised by what it adds up to.
A simple fix is setting limits on screen time. So, for example, you might allow yourself 10 minutes to check social media on your lunch break and another 20 to 30 minutes in the evening. Spending less time on social media can free you up for other things, like managing your finances or developing healthy, inexpensive hobbies.
Deleting Social Media
If you continue to feel like social media is negatively impacting your finances, you could simply delete it altogether. Removing social media apps from your phone means you can’t just scroll mindlessly and find yourself in a sea of ads and promotions.
This action can also make it easier to set limits on screen time if you’re having to open up your laptop to check social media. Yes, you still have your accounts; removing the apps alone won’t delete them.
If you want to take your social media purge to the next level, you can delete your accounts and profiles altogether.
If you don’t want to abandon social media entirely, you could try curating your feeds instead. Social media algorithms are designed to show you more of the things you’re already searching for or suggest things based on your search history. By focusing your searches on things that provide you with real value and inspiration, you may be able to weed out influencers or excessive ads that could lead you to overspend.
Removing Payment Apps From Your Phone
Mobile payment and mobile wallet apps can make buying things online or in stores convenient. Instead of fishing out your debit or credit card and typing in all those digits, you can pay with a click or a tap at checkout.
The problem is that mobile payment apps can make it all too easy to make purchases without thinking. Removing those apps from your mobile device (typically, just by holding your finger on the app till the x appears), unlinking your cards, or deleting your accounts altogether can make it easier to avoid situations where you might spend without thinking. Having to take the extra time to break out your plastic and type in the digits might provide much-needed time to think over the urge to buy.
Improving Financial Accountability
Being accountable to yourself about what you spend can act as a motivator to limit unnecessary or frivolous spending. If you’re having a hard time staying accountable and sticking to your budget, you might enlist the help of a friend or family member to reinforce positive financial behaviors.
For example, if you’re about to spend money on the latest accessory or electronic gadget, you can call up your accountability partner and ask for advice. They can talk you through whether the purchase is a good idea or not and help you put into perspective why you should — or shouldn’t — spend the money.
Being aware of how social media can hurt your finances can help you take steps to counteract its negative impacts. For example, streamlining your financial accounts can make it easier to keep tabs on your money.
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FAQ
Are there positive financial impacts of social media?
Social media can have a positive impact on your finances if you’re following accounts that genuinely help people manage their money better. For example, you might learn about new budgeting techniques, pick up savings hacks, or get tips on how to reduce expenses by following reliable financial accounts on social media.
Does social media lead to debt problems?
Social media can lead to debt problems if you’re charging more than you can pay off on your credit cards or taking out loans to finance a lifestyle that you can’t realistically afford. You might get into a situation where you can’t afford to pay your bills.
What are good financial accounts to follow on social media?
When deciding who to follow on social media for financial tips or advice, do your research. Look at their follower count, but also consider the quality of the advice they’re offering. You can look at their credentials to see if they have any financial certifications, are affiliated with respected financial institutions, or have personal experience dealing with the type of advice they’re offering. And be wary of any influencer whose only goal seems to be to sell something to you.
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
If you have a low income and sometimes struggle to make ends meet, you are hardly alone. According to a February 2024 MarketWatch Guides survey, as many as 66.2% of Americans currently feel like they’re living paycheck to paycheck, meaning roughly two out of every three people are feeling somewhat strapped.
Factors that can make saving money challenging include inflation (the cost of living has risen sharply in recent years) and heavy debt loads, with the average person carrying $6,000+ on their credit cards. These two forces can quickly eat away income, making it feel impossible to save.
Thankfully, there’s a way forward. What follows are 14 smart tips for how to save money on a low income. They can help boost your financial wellness.
Smart Ways to Save Money with Low Income
1. Finding a Budget Method That Suits You
A budget is a way for you to track your income, help you make good financial decisions, and plan towards goals. It paints a picture of how much money you have coming in and going out and how you are allocating funds, which you can use to identify areas for improvement. A budget can also help you see what resources you have available to cover your living expenses. With it, you can see how to make money stretch further.
There are a wide range of budget methods to choose from. A traditional approach is building a line item budget, which involves tracking your expenses in a spreadsheet. You can build a spreadsheet from scratch, or use a template.
Google Sheets has a free template that’s great for beginners, and you can also create a budget in Excel. If you prefer to simplify the process, you might want to download a budgeting app that can categorize and track your spending for you.
Whatever budgeting style you choose, it’s a good idea to automate the saving process. Once you see how much you can realistically set aside each month, consider setting up an automated recurring transfer from your checking account into a savings account (ideally a high-yield savings account).
2. Watching Money Spent on Food and Drink
If you’re thinking about how to save money with a low income, one wise move can be dining in. That may mean opting for pasta at home instead of the cute Italian place nearby.
Making meals at home is typically cheaper than eating out. And the gap has widened: In recent years, restaurant prices have risen faster than general inflation. Just keep in mind that cooking at home can cut costs as long as your grocery bill is sensible. Look for budget-friendly recipes that are simple and use all the ingredients in your pantry. Search online for affordable recipes, including “recipes under $10.” You’ll likely find many options.
Another way to save money on groceries is to choose more affordable proteins like eggs, beans, chicken, fish, and quinoa over beef and lamb. Also consider saving alcoholic beverages for weekends or special occasions only, and reach for lower-cost drink options like home-made iced tea, flavored seltzers, or good old tap water on the weekdays.
3. Getting Rid of Debt One Step at a Time
Studies show that debt can cause stress and negatively impact mental and even physical health. Paying off debt can be a major motivation to save money. It’s one less bill to pay at the end of the month, and the freedom is empowering.
How to approach debt reduction? Always be sure to pay at least the minimum amount due. Then consider these two techniques that can help you become more financially stable with a low income:
• In the snowball method, you use extra funds to pay off the smallest debt first, giving you a sense of accomplishment for wiping out a balance. Then you move on to the next smallest debt.
• In the avalanche method, you use extra funds to pay off high-interest accounts first, regardless of the balance. That can be a wise move since this is the kind of debt that often keeps people owing money for a long period of time. Credit card debt is a common example of high-interest debt.
You also can combine your debts into one account with a debt consolidation loan. These personal loans typically have a lower annual percentage rate (APR), which can save you considerable money in the long run.
4. Finding Ways to Get Rid of Nonessentials
When creating a budget, it’s a good idea to create two main spending categories — essential and nonessential expenses.
Essential expenses will include housing, groceries, transportation, utility bills, and more. An example of transportation costs might be car payments, car insurance, gas, monthly train passes, and so forth.
Nonessentials usually include wants vs. needs (such as items like clothing you like but don’t require and entertainment). If you’re a sneakerhead or handbag collector, it may be time to pause shopping. But if you need fresh clothes and shoes for work, set a target amount you can afford to spend that month. Make your dollars stretch with sales racks at stores or second-hand steals.
5. Changing to a Cheaper Entertainment Subscription Model
Can’t live without Netflix? What about HBO, Disney, and Hulu? Combined, those streaming services can debit a fair amount of money out of your checking account each month (or, depending on how you pay, year).
While it’s important to unwind, sometimes cutting entertainment is worth the savings. Consider free entertainment on your TV or computer. There are plenty of apps that offer free on-demand and live streaming services. You can also get classic TV antennas that pick up the major networks for free.
Finally, try the library. Most carry more than just books — movies too. You just need a library card.
6. Cutting Back on Larger Expenses
Looking for other ways to save money on a low income? You may also be able to cut some of your large monthly bills. Your biggest expense is likely housing, so you might start there. Several factors affect rent or mortgages, like location and amenities. Consider living in a cheaper neighborhood temporarily. Also, a home with fewer amenities like a patio or pool are typically cheaper.
Other options include getting roommates or, if it’s feasible, even going rent-free. If you have family nearby, it might be worth asking to live with them for a low fee or even rent-free, provided you have a plan to get on your feet or can contribute to the household (say, by cooking or cleaning).
Transportation is another large cost. If your job is a safe and reasonable distance to bike to, try it out. Bikes are generally inexpensive to maintain, plus offer the benefit of staying fit and going green.
It’s also a good idea to cut smaller costs that, due to frequency or habit, tend to add up. An $8 fancy coffee once a week costs $416 a year. On a smaller income, that can eat away your earnings. If you can save $5 or $10 a week by making one or two minor changes — that’s a good start. It’s better than saving zero dollars. And even small savings can add up to a significant sum over time.
Earn up to 4.20% APY with a high-yield savings account from SoFi.
No account or monthly fees. No minimum balance.
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8. Separating Money for Yourself From Other Expenses
One simple way to make sure you save is to pay yourself first. That means that before you pay your other bills, you take out a set amount of money and put it into savings as soon as you get paid. Whatever is left over is the money you can spend on everything else. Once the money you set aside for yourself (and your goals) is out of your checking account, you won’t be tempted to spend it.
9. Turning On Alerts for Bill Payments
Setting up reminders for your bills can help you avoid late fees, which can eat up your funds. You can set up alerts using the calendar on your phone, or you can use a budgeting or payment app to keep you on top of upcoming payment due dates.
Even better: Consider setting up autopay for all of your regular bills. This can help ensure you never miss a payment. Just keep in mind that you will need to make sure you have sufficient funds in your account before payments are pulled.
10. Spending Less on Your Car
A car can be expensive. Some tips to make it more affordable:
• Buy a car — don’t lease. You generally get more value paying off a car compared to leasing a car.
• Buy used. Used cars are typically cheaper than new cars. And, because they’re used, the insurance tends to be cheaper as well. Buying a pre-owned car also means it won’t lose value as quickly as a new car. Some estimates say that a new car loses 20% of its value in the first year.
• Aim to get a car that gets great gas mileage. An SUV or truck can easily cost $100 for a full tank. If you’re paying for a gas guzzler, it might be worth downsizing to a car that gets better gas mileage.
Instead of booking concert tickets for your favorite band, consider listening to their tunes on free apps (YouTube, for instance). Also check listings and see which local bands are playing; that could be a good way to discover some new favorites.
If you enjoy a good show, check out free TV streaming apps like Tubi or Pluto TV. Both have a great selection of movies and shows on demand or live.
Do you buy groceries at the gourmet deli instead of a cheaper supermarket? Do you tend to eat out because you didn’t pack a lunch? Do you leave the AC running in your apartment while you’re out all day?
These are all costly habits you can change. Find a cheaper grocery store. You’ll find your dollar can stretch a lot further with cheaper prices. Try meal prepping on weekends so you can pack lunches for work each week. Lastly, run electricity only when you need it — and compare bills. You’ll likely see a difference.
13. Committing to a Month of No Spending
A no-spend challenge can be a fun way to save.
A no spend-challenge means that you avoid discretionary spending altogether for a set period of time, such as 30 days. During that time you only spend on necessities like rent and groceries, and don’t spend money on movie theater tickets, clothes, or even chocolate. You might want to let your friends know you are doing the challenge so they don’t tempt you into spending. They might even join you.
At the end of the challenge, you’ll have likely saved a significant sum of cash. You may also find that you didn’t miss some of the things you stopped spending on and decide to cut them out of your budget or reduce how much you spend on them.
14. Getting Help if You Need It
If you find yourself still living paycheck to paycheck, there’s help.
If you have substantial debt, consider reaching out to the nonprofit National Foundation for Credit Counseling (NFCC)). They offer free and low-cost debt and credit counseling, along with other services.
Also, cities, states, and the federal government provide help in the form of subsidized housing, discounted healthcare, and free groceries. Simply call the 211 network 24/7 to share your situation and get connected to the right people.
You can also use the government’s benefit finder that can match you with the right programs.
As mentioned above, one way to simplify saving is to try automating transfers, a feature many banks offer that moves money from your checking account to your savings account on a certain date. For example, if you’re paid every Friday, you can set up an automatic transfer of the desired amount to your savings or investment accounts.
If you put away $50 each week, you’ll have $2,600 at the end of the year.
Why Saving Money With a Low Income Is Possible
No matter what your income, it’s tempting to live like a rock star or just try to keep up with your higher-earning friends. Or you might feel like your smaller earnings are not worth saving, and you’ll wait till you make more. But it’s possible to save more than you think even on a lower income.
If you make savings a priority and adjust your lifestyle to your income, it can pay off and help you increase your financial well-being. Simple changes like learning to budget, choosing lower-cost groceries, swapping out driving for cheaper (and greener) forms of transportation, and buying second hand can all help you take control. These moves can also help you pay down any debt you may have, build your rainy-day savings, and achieve longer-term financial goals.
The Takeaway
Whether you earn a lot or a little, living within your means always pays off.
Budgeting is the first step to getting your finances organized. It’ll help you see how much money you have to cover your monthly expenses and how much you have leftover for savings. You’ll also see a clearer picture of your spending habits.
Once you have a sense of your spending habits, you can find ways to spend smarter. That means finding cheaper options for necessities and cutting nonessential spending.
Finally, be sure to set attainable savings goals and put your cash away in a high-yield account to help it grow faster.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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
Why is saving money so hard?
Saving can often be hard because of our mindset. We don’t focus on creating and sticking to a budget and instead spend feely, in the moment. If you are following a budget but find it hard to free up cash to save, you might take on a side hustle to help bring in more income.
What happens if you don’t save money?
Having money in savings is a safety net for unexpected expenses like a medical bill or job loss. Without one, you may find yourself unable to pay for bills, which could cause you to take on high-interest debt and/or pull you closer towards poverty. It’s wise to have at least three to six months’ worth of living expenses stored away in case of emergency.
How do I get the motivation to save when I do not make much?
With social media in today’s culture, it might seem like everyone has what they want (except you). So it’s important to put on blinders, and focus on your journey. Delete apps that encourage you to overspend, and ask trusted friends or mentors to navigate this territory together. Save whatever amount you can: Don’t get discouraged by comparing yourself to others’ savings plans.
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Not counting the reams of time you probably will spend looking for a house, both virtually and IRL, it takes and average of 30 to 60 days to get from an accepted offer on a house to the closing if you’re financing the purchase.
Here’s the scoop on how long it takes to buy a house and get the keys in your hand.
How Long Does It Take to Buy a House In 2024?
Once you’ve homed in on a home you love, the mortgage process — from application to closing — takes an average of 30 to 60 days.
So yes, a life-changing event can happen within a month or two.
But closing times vary. A cash buyer might be able to close on a house within days. An applicant with an iffy credit history and unpredictable income may need 90 days or longer.
Before You Start Looking for Your Next Home
It’s a good idea to get your head in the game before the hunt begins.
Organize Your Finances
If you’re asking yourself “How much of a mortgage can I afford?” you can get an estimate easily.
A home affordability calculator will give you a feel for a home price limit and monthly payments. Getting prequalified will also give you a quick ballpark estimate.
Pulling a down payment together to buy a house in many parts of the country isn’t as hard as many people think. The average down payment on a house is less than 20% (though putting less than 20% down on a conventional loan usually triggers mortgage insurance).
Conventional loans may call for just 3% down for first-time homebuyers; FHA loans, as little as 3.5% down; and VA and USDA loans, nothing down. (With government loans, mortgage insurance or fees come along for the ride.)
Low- and moderate-income borrowers can sometimes get down payment assistance through a state or local agency.
Figure Out Where You Want to Live
You might know exactly what neighborhood, school zone, and vibe you want. Then your search can zero in on that area.
And narrowing things down, you might want to check out market trends by city and neighborhood.
Gain home-buying insights
with the latest housing
market trends.
Determine Your Must-Haves
Do you want to buy a house that has been completely updated, or will a dowdy abode or fixer-upper do? The cost of any renovations or repairs must be factored in, of course, and may be funded with a home improvement loan.
If only new construction will do, that can mean a tract home, spec home, or custom home.
What size range can you live with? Maybe you need more space, or maybe you’re financially downsizing.
Is a low-maintenance condo or townhouse more your style, or do you need a single-family home with room for a swimming pool or garden?
Five Steps to Buy a House
Ready? This timeline assumes you’re about to start seriously shopping for a house.
Step 1: Get Mortgage Preapproval (Minutes to Days)
Unlike prequalification, mortgage preapproval means one or more lenders have vetted your finances, usually with a hard credit inquiry. Once your offer on a home is accepted, if your chosen lender is one of these, it has a big head start on your final approval.
An online application might take about 20 minutes to complete if you have all of the documentation in hand, including two years of W-2s and/or 1099s, two years of tax returns, recent pay stubs, a list of fixed debts, and two months’ worth of account statements.
Lenders will look at your credit scores and credit history.
They will look at income, debts (including student loans), assets, proof of employment, rental history, divorce, bankruptcy, and gift funds for a down payment.
Depending on the lender, preapproval could be nearly instantaneous or it could take days.
If you’re shopping for a mortgage, know that multiple credit inquiries by lenders are counted as a single inquiry for 14 days and sometimes more, so try to put in your preapproval requests with various lenders within the same week.
What Is a Pre-approval Letter?
A preapproval letter from a lender states that you’ve been tentatively approved to borrow up to a specific amount. It lets sellers know that you are likely to be able to get financing. The letter will have an expiration date of 30 to 90 days.
What Is a Verified Approval Letter?
This is the term used by some lenders for a preapproval letter, to make clear the difference between prequalification and preapproval. A hard credit inquiry will have been performed, and an underwriter will have examined your preapproval application and additional documents.
Step 2: Make an Offer on a House (a Day to a Few Days)
Once you find a house you want to call your own, it might take up to five days to make an offer and come to an agreement with the seller on price and contingencies in the purchase contract. A closing date will be in the purchase agreement.
Usually when you make an offer, you will provide an earnest money deposit to the escrow company, typically 1% to 2% of the purchase price.
Step 3: Secure the Mortgage (30 to 60 Days on Average)
Now you can make a full mortgage application with as many lenders as you wish, and not just lenders that preapproved you.
You’ll need to choose a mortgage term as well. Thirty years is the most common.
Once you apply, you will receive official loan estimates, allowing you to compare mortgage APRs (annual percentage rates) and more. Choose a lender. Check at the top of Page 1 of the loan estimate to see whether your rate is locked, and until when.
Step 4: Prepare for Closing
Appraisal and Title Search
Your lender will order an appraisal of the home. A property valuation that comes back lower than the purchase price could hinder loan approval.
The appraisal may be performed from 14 to 45 days before closing.
Your lender is required to send you a closing disclosure at least three business days before the closing. It should match your loan estimate or come close.
You’ll need to send a wire transfer for cash to close one to two business days before closing. The closing disclosure will tell you how much money you need to wire. If you don’t wire the money, you’ll need to prepare to take a certified check or cashier’s check to the closing table.
Cash to close is closing costs (unless you chose a no-closing-cost mortgage) plus your down payment minus your earnest money deposit and any seller credits.
An option: Prepare to take a certified check or cashier’s check to the closing table.
Final Walk-Through
Your real estate agent will schedule a final walk-through within 24 hours of closing. This is a chance to be sure the home is in the condition you agreed to under the purchase terms.
Step 5: Close on Your Loan (an Hour or Two)
The lender will send your closing documents to the closing attorney or title company.
You’ll sign a river of documents in person or remotely.
The deed will be recorded with the appropriate county to transfer title to the new owner, you. Then you’ll receive the house keys.
The Takeaway
How long does it take to buy a house? An uncomplicated mortgage and closing process could take about 30 to 60 days from the time your offer is accepted. That’s a quick close on a new beginning.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
How many months does it take to buy a house?
If you are financing your purchase with a home loan, and you have a steady income and good credit, you could get from an accepted offer to the closing table in one to two months. If you have a complex financial profile, or if negotiations with the seller become complicated, expect to add time to the process.
How long does it take to get preapproved for a mortgage?
The evaluation process for a mortgage preapproval can take around 10 days. If your financial picture is clearly documented and in good shape, it could take less time. You’ll need to fill out an application with your chosen lender and agree to a credit check, plus provide information about your income and assets.
How fast can you buy a house?
A cash buyer could purchase a home in a matter of days. If you require a home loan, expect the homebuying process to take one to two months from the point that you have an accepted offer.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This article is not intended to be legal advice. Please consult an attorney for advice.
