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Nov

2024

Guide to Managing Debt in Retirement

By Rebecca Lake | Debt Payoff, invest, Investing, Preparing for Retirement | Comments Off

Investing for a comfortable retirement might be challenging if you’re also trying to pay down debt. Dedicating more of your budget to debt means you might have less to invest. You might consider paying off certain debts after retirement so that you can save more now, but that can have disadvantages as well.

If you expect to have debt in retirement, it’s important to know how to manage it.

Key Points

• Professional financial advice can aid in creating a debt repayment plan and optimizing retirement savings strategies.

• Using debt management methods like the debt snowball or avalanche can help individuals effectively repay debts.

• Debt consolidation options, such as loans or 0% APR balance transfers, can reduce interest costs and simplify payments.

• Using retirement funds to pay off debt is generally discouraged, as it can hinder financial growth and create tax liabilities.

• Planning for a debt-free retirement may lower living expenses and increase financial security.

Retiring With Debt

One of the first steps in retirement planning is determining how much money you’ll need to meet your expenses once you stop working. The numbers might be inflated if you’re paying off retirement debt on top of funding basic living expenses. Working out a realistic budget that includes debt repayment is critical for determining how much you’ll need to save and invest.

How Much Debt Is Common to Have in Retirement?

Having debt in retirement is fairly common among older Americans. In fact, roughly two-thirds of seniors between the ages of 65 and 74 carry some level of debt, and half of those over 75 do.
In terms of how much debt retirees have by age, here’s how the numbers break down.

Age Range	Median Debt	Mean Debt
55 to 64 years old	$71,290	$168,940
65 to 74 years old	$46,370	$122,010
75 and older	$33,620	$101,200

Source: Survey of Consumer Finances, 2019-2022.

The types of debt you might have at retirement may include:

• Mortgage loans

• Home equity loans or lines of credit

• Student loans, either for yourself or loans you’ve cosigned for your child

• Vehicle loans

• Credit card balances

• Medical bills

• Personal loans

• Business loans

A reverse mortgage is another form of debt, though it typically doesn’t have any repayment obligation. Reverse mortgages allow eligible seniors to tap into their home equity as a secondary income stream. The mortgage is typically repaid when the homeowner passes away and the home is sold.

Tips for Managing Debt in Retirement

If you have debt, retirement might feel a little more stressful, financially speaking. You might be torn between trying to manage retirement expenses while also making a dent in your debt balances.
Here are a some simple tips for managing debt in retirement:

• List out each debt you have, including the remaining balance owed, monthly minimum payment due, and the interest rate.

• Consider whether it makes sense to use the debt snowball or debt avalanche method to repay what’s owed.

• Consider contacting your credit card issuers to ask for an interest rate reduction.

• If no rate reduction is offered, look into 0% APR credit card balance transfers to save money on interest.

• Automate payments if possible to avoid late payments, which can trigger fees and potentially damage your credit score.

• Research debt consolidation loan options to see if you might be able to save money by combining multiple debts.

• Prioritize repaying debts that are secured by collateral, such as your mortgage or a car loan.

• Weigh the pros and cons of using a home equity loan or line of credit to consolidate unsecured debts.

• If you owe private student loans, consider shopping around for refinancing options which might help you to lower your interest rate.

• Avoid taking on new debt unnecessarily if possible.

If you’re truly struggling with debt in retirement, there are other things you might consider including a debt management plan, credit counseling, debt settlement, or even bankruptcy. Talking to a credit counselor or financial advisor can help you decide if any of those possibilities might be right for you.

And if you need to get started saving for retirement, you can look at your options to open an online IRA.

Using Retirement to Pay Off Debt

If you have retirement savings in a 401(k) or similar workplace plan, you might be tempted to withdraw some of the money to pay off debt. For example, you might decide to take a 401(k) loan to pay off credit cards or other debts. You’d then pay back the loan paying interest to yourself.

It sounds good on the surface, but using retirement savings to pay off debt can be problematic in more ways than one. For one thing, money you take out of your 401(k) or another retirement account doesn’t have the chance to continue growing through the power of compound interest. That could leave you with a sizable savings gap once you’re ready to retire.

You might be paying interest back to yourself with a 401(k) loan but the rate you’re earning might be much less than you could have gotten if you’d left the money in place. Additionally, your employer might not allow you to make new contributions to the plan until the loan is repaid in full.

More importantly, you could end up with a tax liability for a 401(k) loan. If you leave your employer with a loan balance in place, you’ll have to pay it all back at once. If you can’t do that, the IRS can treat the entire loan amount as a taxable distribution. For that reason, using a 401(k) loan to pay off debt is one of the most common retirement mistakes you’re usually better off avoiding.

Getting Out of Debt Before Retirement

If you’d like to retire debt-free or as close to it as possible, it’s better to start working on repaying what you owe sooner rather than later. How you approach paying off debt before you retire can depend on how much you owe, what types of debt you have, and how much money you have to work with in your budget.

Here are a few additional tips for paying down debt before retirement.

Paying Off Your School Loans

More than 2 million Americans over the age of 55 have outstanding student debt. So, it’s not out of the realm of possibility that you might be torn between saving for retirement or paying student loans. And it’s helpful to know what debt relief options you might have. If you have federal student loans, you might be able to:

• Enroll in an income-driven repayment plan, which might allow you to eventually have some of your debt forgiven.

• Qualify for Public Service Loan Forgiveness if you’re working or plan to work in a civil service job.

• Apply for other types of federal loan forgiveness, such as Nursing Corps Loan Repayment.

• Consolidate your loans to streamline your monthly payments.

If you have private student loans, you might look into refinancing them. Student loan refinancing allows you to take out a new loan, ideally at a lower interest rate, to pay off your existing loans. Depending on how the new loan is structured, you might save a significant amount of money on interest over the long term.

Paying Off Your House

Should retirees pay off their mortgage? Entering retirement with no mortgage debt could mean much lower living expenses. But if you’re trying to pay off your home before you retire, you might have to commit substantially more of your monthly income to the payments.

If you’re interested in paying off your home faster, there are a few hacks you might try, including:

• Paying biweekly, which allows you to make one additional full mortgage payment per year.

• Applying your extra paycheck during a three-paycheck month to your mortgage’s principal balance.

• Using tax refunds, bonuses, or other windfalls to pay down the principal.

You could also look into refinancing your mortgage to a shorter loan term. Doing so may raise your monthly payment, but you could get out of debt faster, potentially saving money on interest.

Paying Off Your Credit Cards

Credit cards are usually considered to be “bad” debt and you might want to get rid of them as quickly as possible, especially if they’re carrying high APRs. Transferring balances to a card with a lower or 0% rate can cut the amount of interest you pay so more of your monthly payment goes to the principal.

You could also consider a personal loan for debt consolidation, if the interest rate is lower than the combined average rate on your cards. Keep in mind that it pays to shop around to find the best loan option for your needs.

Paying Off Your Car

Car loans can come with sizable monthly payments, which may keep you from investing as much as you’d like for retirement. Refinancing may be an option, though whether you can get a new car loan may depend on the vehicle’s value and what you owe on the old loan.

Paying biweekly or applying tax refunds to your balance can help you get out of car loan debt faster if you’re not able to refinance. You could also try rounding up your card payments to the next $100 each month. So if your regular payment is $347.55, you could round it up to $400. That’s a simple hack for paying off car loan debt in less time.

Saving for Retirement

If you’re trying to save for retirement while paying down debt, it’s important to find the right balance in your budget. It’s also a good idea to know what your options are for saving and investing. That might include:

• 401(k) or 457(b) plans at work

• Traditional and Roth Individual Retirement Accounts

• SEP (Simplified Employee Pension) IRA, if you’re self-employed

• Solo 401(k), if you’re self-employed

You can also invest in a taxable brokerage account, though you won’t get the same tax breaks as qualified retirement plans. If you have a high deductible health plan, you may also have access to a Health Savings Account (HSA). While an HSA is not a retirement account, per se, you could still use it to save money on a tax-advantaged basis for your future health care needs.

If you’re not sure how much you can afford to save or need to save, using a retirement calculator can help. You can revisit your plan each year to see if you have room to increase the amount you’re saving, based on changes to your budget or income.

Seeking a Financial Advisor

Getting professional financial advice can be helpful if you’re not sure how to go about creating a debt repayment plan or preparing for retirement. A financial advisor can help you figure out:

• How much you’ll need to save to reach your target retirement goals.

• Which debts to prioritize and how to make them less expensive so you can pay them off faster.

• Where to focus your savings and investing efforts first (e.g., a 401(k) vs. an IRA).

• How to diversify your portfolio to achieve the rewards you’re looking for with an amount of risk you can tolerate.

The Takeaway

Debt doesn’t have to be an obstacle to your retirement goals. Creating a debt repayment strategy and actively avoiding unnecessary debt can make it easier for you to create a secure financial future.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help build your nest egg with a SoFi IRA.

FAQ

Is it wise to use retirement to pay off debt?

Using retirement funds to pay off debt is generally not recommended by financial experts as it may leave you playing catch up later. Better options for paying off debt before or during retirement can include a debt consolidation loan, home equity loan or line of credit, or 0% APR balance transfer offer.

How much debt is common to have at retirement?

Federal Reserve data suggests that the typical retiree between the ages of 55 and 74 has somewhere between $71,000 and $122,000 in debt. That includes mortgage debt, student loans, auto loans, and credit card balances.

What percent of Americans retire with debt?

According to Federal Reserve data, 77% of older Americans aged 55 to 64 have debt. Among Americans aged 65 to 74, 70% have some debt while 51% of those 75 and older have debt obligations.

Photo credit: iStock/bernardbodo

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Nov

2024

Guide to Rolling Over a Pension Into an IRA

By Rebecca Lake | invest, Investing, Preparing for Retirement | Comments Off

If you have a defined-benefit pension plan, you could opt for a lump-sum distribution when you retire or roll the money over to an individual retirement account (IRA). Rolling pension benefits to an IRA is something you might consider if you don’t necessarily need the money right away for retirement and you want to maintain those funds on a tax-advantaged basis.

Rolling a pension into an IRA isn’t a complicated process, though it’s important to understand how it works to avoid triggering an unexpected tax bill.

Key Points

• A traditional pension plan is offered and funded by employers, while an IRA is generally opened and funded by an individual.

• Rolling a pension over to an IRA involves opening an IRA, requesting a rollover, and choosing investment options, with direct rollovers typically being the simplest method.

• Rolling a pension into a Roth IRA may help individuals avoid required minimum distributions (RMDs).

• Rolling over a pension into an IRA may allow for more investment control and flexibility, but it’s important to understand investment risks.

• Understanding the implications of a rollover as well as tax differences between pensions and IRAs is crucial for making informed rollover decisions.

What Is a Pension Plan?

A pension plan is a type of benefit plan that employers can establish on behalf of their employees. Traditional pension plans are defined benefit plans that provide employees with retirement income based on their earnings, years of service, or a combination of the two. These plans are funded by the employer and may provide retiring employees with a lump-sum distribution or annuitized payments.

Defined benefit pension plans, along with defined contribution plans, are protected under the Employee Retirement Income Security Act (ERISA). Defined contribution plans are funded by employee contributions, with the option for employer matching. The most common example of a defined contribution plan is a 401(k).

What Is an IRA?

If you don’t know what an IRA is, it’s an Individual Retirement Arrangement, also referred to as an Individual Retirement Account. In simpler terms, an IRA is a tax-advantaged retirement savings account that is not offered through an employer. You can typically open an IRA at a brokerage or a bank and make contributions up to the annual limit.

Note, too, that IRAs are subject to required minimum distribution rules (RMDs), which means that owners must start making withdrawals from IRAs at age 73.

There are two main types of IRAs:

• Traditional IRAs, which allow for tax-deductible contributions and tax-qualified withdrawals as ordinary income.

• Roth IRAs, which do not offer a tax deduction for contributions but do allow for tax-free qualified distributions.

You must have taxable income to save in either type of plan. Your ability to contribute to a Roth IRA is determined by your tax filing status and adjusted gross income. There are also IRA tax deduction rules that determine how much of your traditional IRA contributions you can write off.

The maximum annual contribution for either type of IRA is $7,000 for 2024 and 2025. Both plans allow for catch-up contributions of $1,000 if you’re age 50 or older. Each type of IRA also allows you to roll funds into your account from another eligible retirement plan.

¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Can You Roll Over a Pension Into an IRA?

A rollover occurs when you withdraw funds from one eligible retirement plan and redeposit them to another eligible plan. The IRS allows you to roll funds from qualified plans, which includes defined benefit plans, into an IRA. Technically, if you have a pension plan that’s classified as a defined benefit plan, you could roll funds from it to any of the following:

• Traditional IRA

• Roth IRA

• SIMPLE IRA

• SEP IRA

• 457(b) plan

• 403(b) plan

• Designated Roth 401(k), 403(b), or 457(b)

The IRS allows for full or partial rollovers, though whether you’d be required to withdraw all of the money in your pension for a rollover may depend on the terms of the plan.

Rolling over pension funds may potentially help you to avoid tax penalties while preserving your savings so that it can continue to grow through the power of compounding returns. But it’s also important to remember that there can be increased risks of rolling pension funds into an IRA. It may be a good idea to parse through those risks, in your specific situation, with a financial advisor or professional.

Reasons You May Want to Roll Over a Pension

There are different scenarios where a rollover pension, and specifically a rollover to an IRA, could make sense. It’s a good idea to consider both your current financial situation and the timing when deciding whether to roll a pension into an IRA.

Reason #1: You Want More Control Over Your Investments

Rolling a pension to an IRA may offer more flexibility when it comes to how the money is invested. With an IRA, you might have a broader range of mutual funds, index funds, or exchange-traded funds (ETFs) to choose from. That could make it easier to build a diversified portfolio that aligns with your goals.

Reason #2: You’d Like to Avoid RMDs

As noted, most retirement plans are subject to required minimum distribution (RMD) rules. These rules require you to take a minimum amount from your retirement account each year, starting at age 73 (if you turn 72 after December 31, 2022). Rolling a pension over to a Roth IRA, however, would allow you to avoid RMDs and draw down your retirement assets at your own pace. Note that pensions are typically rolled over into traditional IRAs, so this may require utilizing a “backdoor Roth IRA” strategy.

Reason #3: Your Pension Is Small

Rolling a pension to a Roth IRA can trigger tax consequences, as you’ll need to pay income tax on the earnings at the time the rollover is completed. However, you might choose to go ahead with a pension rollover to a Roth account if the balance is small and your tax liability would not be that great.

Reason #4: You’re Worried About Losing Benefits

Though it’s not a common occurrence, there have been instances of employees losing pension benefits as a result of their employer filing bankruptcy or encountering other financial issues. If you’re concerned about seeing your pension go up in smoke, rolling it over to an IRA could eliminate that risk. You would, however, still be subject to the risk that always accompanies investing money.

Reason #5: You Want Convenient Access

Certain pension plans may allow for loans, though loans are more commonly associated with 401(k) plans. There may be some rules for private pensions around withdrawals, which may prevent you from making a withdrawal – it’ll depend on the specific pension.

But if you’d like to be able to withdraw money from retirement for emergencies or other purposes, an IRA could potentially allow you to do that more easily, or in a more straightforward manner. Keep in mind, however, that withdrawing money from an IRA before age 59 ½ may trigger a 10% tax penalty unless an exception or exclusion applies.

How Do You Roll a Pension Into an IRA?

Rolling a pension into an IRA typically isn’t difficult. There are only a few steps required to complete the process.

• Open an IRA. If you don’t have an IRA, you’ll need to open one – you can even open an IRA online.

• Request the rollover. Once your IRA is open, you can ask your pension plan administrator what’s required to initiate a rollover transaction. The simplest option is to request a direct rollover, which would allow funds to be transferred from your pension to your IRA without having to get a paper check and deposit it yourself.

• Choose your investment options. Once your pension funds have been rolled over to your IRA, you can decide how you’d like to invest it. You may also want to update your IRA beneficiary if you haven’t selected one.

If you can’t choose a direct rollover, or you’d rather roll over the funds yourself, you’d have to ask your plan administrator to send you a paper check for the amount you’re withdrawing. You’d then need to deposit the funds to your IRA within 60 days from the date you receive it. If you fail to do so, the entire amount becomes a taxable distribution.

Also know that there may be a mandatory income tax withholding of 20%. THough that generally doesn’t apply in a direct rollover to an IRA.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Pros and Cons of Rolling a Pension Into an IRA

Rolling a pension into an IRA or Roth IRA has some advantages and disadvantages, and it’s important to weigh both before making a decision.

On the pro side, a pension rollover to an IRA may give you greater control of how your retirement money is invested. You can make changes to your investments as needed. That assumes, however, that you’re comfortable with making your own investment decisions and with the risk that’s involved.

The pros and cons of rolling into an IRA will depend on the type of IRA you’re rolling funds into. For instance, pension rollovers to a Roth IRA could help you avoid RMD rules, and may allow for tax-free withdrawals, though again, there would be tax consequences at the time you roll the funds over. Additionally, you may face tax penalties if you roll money over to a Roth, then make a withdrawal prior to age 59 ½. Again, it may be helpful to discuss your specific options, and your specific situation, with a financial advisor to get an idea of what the best course of action is.

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Pros:

• Rolling a pension into an IRA may offer greater flexibility and freedom when making investment choices.

• Rolling a pension to a Roth IRA allows you to avoid RMDs.

• A direct rollover is fairly simple to complete and doesn’t require a lot of effort on your part.

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Cons:

• Making a change to your investments could increase your risk exposure if you’re not sure what you’re doing.

• You’ll may need to pay income tax on your pension when rolling it into a Roth IRA (but not a traditional IRA).

• Rolling pension funds to an IRA yourself could result in a sizable tax penalty if you don’t deposit the money on time.

Taxes on Pensions vs. IRAs

One of the most common questions about IRAs and pensions centers on taxes. Specifically, how much tax will you pay on pension or IRA distributions?

The answer can depend on which tax bracket you’re in when you take distributions and in the case of an IRA, whether you have a traditional or Roth account. Where you live can also play a part as there are a handful of states that don’t tax pensions.

If you’re receiving annuitized or periodic payments from a pension, then those distributions would be taxed at your ordinary income tax rate. The same rate would apply if you’re taking your pension in a lump sum, though you’d owe taxes on the entire amount all at once.

Taxable rollover distributions from employer-sponsored pension plans may also be subject to 20% withholding at the time the money is rolled over. That withholding may not apply in a direct rollover, however, if the rollover involves sending funds to another eligible retirement plan, such as an IRA. Any amounts that are withdrawn but not rolled over to an IRA may be subject to a 10% early withdrawal penalty if you’re under age 59 ½.

With a traditional IRA, you’ll pay ordinary income tax on distributions beginning at age 59 ½. Distributions taken before 59 ½ may incur a 10% early withdrawal penalty. Qualified withdrawals from a Roth IRA, and withdrawals of original contributions, are tax-free. Understanding what your tax picture might look like if you keep your money in a pension vs. rolling it to an IRA can help you decide if it’s the right option.

The Takeaway

Saving for retirement early and often can help you build financial security for the future. If you don’t have a pension plan or you have a retirement plan at work and you want to supplement your savings, you might consider opening an IRA.

SoFi offers both traditional and Roth IRAs and it’s easy to open one online. You can choose from automated or self-directed investing to build your portfolio. If you need help getting your retirement plan started, you can get a consultation at no additional cost with a financial professional as a perk of being a SoFi member.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help build your nest egg with a SoFi IRA.

FAQ

Can I roll my pension into an IRA?

Yes, you can roll a pension into an IRA. You might choose a traditional IRA or a Roth IRA rollover, depending on the amount you need to move and your expected tax situation in retirement. Keep in mind that you’ll need to pay taxes on a Roth IRA rollover at the time that you complete it.

Is a pension better than an IRA?

A pension can be attractive, since it’s funded by the employer and you don’t have to contribute any money to it yourself. On the other hand, an IRA can allow for more flexibility and you may be able to gain certain tax benefits from rolling your pension to a Roth IRA, such as avoiding required minimum distributions.

How much of your pension can you roll over to an IRA?

You can initiate a partial or full rollover of your pension money to a traditional or Roth IRA. If you’re considering a partial rollover, it’s helpful to understand what that might mean from a tax perspective and how you’ll be able to withdraw the amount that you don’t rollover.

Photo credit: iStock/Andrii Zastrozhnov

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

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Nov

2024

9 ESG Metrics Investors Should Know

By Kenny Zhu | Growing Wealth, invest, Investing | Comments Off

A number of investors are choosing to invest in securities with an environmental, social, and governance (ESG) focus that may align with their values and investment goals. Many see ESG companies as being potentially more sustainable long-term. But determining whether a company’s ESG strategies are having the desired impact requires the use of ESG metrics to measure progress and enable accountability.

In addition, these days many investors also want to know how well companies are managing the risks associated with climate-related changes — which also requires metrics that can show whether a company is meeting key standards.

These concerns aren’t new, but they have driven a number of new ESG-focused regulatory efforts here and abroad. As yet, however, there isn’t a universal set of ESG metrics used by all investors or financial firms to evaluate a company’s progress toward ESG goals, or better manage ESG risks. What’s more, the regulatory landscape in this sector is evolving, which, for the near future, may make it challenging to track certain metrics over time. That said, there are a number of frameworks that companies and governments have embraced that can inform investors’ choices.

Key Points

• With the growing appeal of ESG strategies, there is also a need for reliable ways to assess companies’ ESG performance and risk mitigation.

• ESG metrics are necessary for accurate company disclosures, which also support transparency and accountability.

• The use of ESG metrics and disclosures can also help investors compare companies within and across industries.

• A number of organizations are establishing mandatory standards and/or compliance rules, although some are in flux or facing legal opposition.

• At the moment, companies can choose from a range of ESG frameworks and standards.

What Is ESG Investing?

ESG stands for environmental, social, and governance standards that can help people assess whether companies are meeting certain criteria, as well as whether they are mitigating ESG-related risk factors that may impact performance.

• Environmental factors capture how well a company safeguards the physical environment (e.g., reducing emissions, pollutants).

• Social criteria refer to employee safety, fair labor practices, community investment, relationships with customers and vendors.

• Governance factors include issues of leadership, fraud prevention, transparency in accounting and reporting, and more.

ESG investing began in the 1970s, broadly speaking, although impact investing in various forms has been around for centuries.

At first, investing with the aim of creating positive change for society and the planet seemed anchored in a kind of “do-goodism” and less focused on financial outcomes. In the last 20 or 30 years, though, investors have become interested in socially responsible investing (SRI), as many funds in this category have shown themselves to offer returns that are comparable to traditional strategies, according to a report published in 2023 by Morningstar, a fund rating and research firm.

ESG Metrics Are Key to ESG Reporting

Thus, with the growing appeal of ESG investments to some investors, there is a commensurate need for reliable ways to assess companies’ ESG performance when choosing to invest online or through a traditional brokerage.

ESG frameworks help companies, as well as investors, assess an organization’s stated aims in terms of meeting ESG standards. In theory, relying on a common set of metrics should help encourage more efficient and transparent ESG reporting.

• ESG metrics establish a layer of transparency and accountability.

• Reliable ESG reporting helps build trust and a positive image with investors, communities, and other stakeholders.

• In addition, companies that adhere to ESG standards may be able to demonstrate better risk management.

What Are ESG Metrics?

Until now, ESG metrics and reporting standards have been largely proprietary or voluntary. But owing to widespread concerns about climate change and climate-related risk factors, thousands of companies around the world have adopted voluntary frameworks and metrics in recent years.

There are thousands of metrics in use, many are specific to certain industries. Common ESG metrics typically assess how well an organization is limiting pollutants and emissions, meeting renewable energy targets, upholding fair labor standards, adhering to transparency in accounting, corporate board selection, and more.

The Use of ESG Frameworks

Companies may be required to use certain metrics in their reporting and disclosures. Here too there is considerable variation.

For example, the Global Reporting Initiative (GRI), which has a voluntary governance structure, is a nonprofit organization that was established in 1999 to create a set of guidelines that help companies and governments disclose their efforts in light of climate change, human rights, and corruption.

More than three-quarters (78%) of the world’s largest corporations have adopted the GRI standards, making it the most common ESG framework at the moment.

In addition, there has been a rise in the number of organizations that are establishing mandatory standards and/or compliance rules that require standardized reporting and verifiable metrics regarding ESG performance.

For example, the Corporate Sustainability Reporting Directive (CSRD) began rolling out mandatory ESG reporting rules in January of 2024 in the European Union. The CSRD compliance rules impact non-E.U. companies, as well, about a third of which are based in the United States.

Similarly, some financial institutions have created screener tools that investors can use to evaluate certain securities, but these are typically proprietary and cannot be used to evaluate investments at a different institution.

SEC Climate-Disclosure Rules on Hold

Another widely watched set of reporting requirements was led by the Securities and Exchange Commission (SEC) over the last few years. The SEC adopted new rules in March of 2024, which established a higher bar for companies and required them to disclose ESG-related operational risks and expenses, as well as efforts to meet sustainability targets: e.g., emissions reduction.

But those rules were quickly challenged and remain on hold at the time of publication. Likewise, similar efforts in states like California and elsewhere have been stalled.

The Importance of ESG Metrics

Although the landscape of ESG frameworks and reporting standards is still evolving, and is largely in flux, ESG metrics are important because they help investors to gauge a firm’s impact on environmental issues, societal issues, and issues of corporate responsibility against a set of comparable peers.

Since many investors who are interested in ESG strategies are also committed to making an impact with their money, being able to benchmark outcomes is important.

The Limitations of ESG Metrics

However, it can be difficult to measure ESG policies across different industries, as no official regulations for standardized ESG reporting currently exist. For example, a financial institution might require different standards for energy efficiency vs. an agricultural company or an actual energy producer.

Finally, some of the existing standards are qualitative and may be prone to subjectivity, which can make the ESG evaluation process difficult to quantify. These can all present challenges when you’re trying to apply ESG principles to your investing strategy.

Having an awareness of some of the limitations around these metrics can help investors use the currently available criteria wisely.

9 Common ESG Metrics

Commonly employed ESG metrics consist of both qualitative and quantitative metrics across all three categories of environmental, social, and governance factors.

3 Common Environmental Metrics

Environmental metrics measure the long-term ecological sustainability of a firm’s actions. These can be related to emissions, finite natural resources, and the environment, among other things.

Many of these metrics can be tracked on an aggregate basis or relative to other operating metrics (per capita, per unit produced, etc.).

• Emissions: Quantifies how much a firm emits in greenhouse gasses, or whether it’s working to reduce carbon emissions through its operations.

• Waste: Measures how much waste a company generates or recycles in their operations. Can also reflect a company’s impact on its surrounding ecology: e.g., air or water pollution.

• Resource Usage: Tracks the efficiency and extent of a firm’s operations when it comes to using energy, water, or other key resources.

3 Common Social Metrics

Social metrics evaluate how a firm’s policies impact its workforce, the community, and society at large. Attempts to quantify these metrics have largely been implemented on a per-occurrence basis, or as a rate over time.

• Human resources: Evaluates how a company treats its employees, gender pay gaps, diversity, frequency/magnitude of any workplace litigation, and employee turnover.

• Labor safety: Tracks a firm’s commitment to safe labor practices via metrics like frequency of workplace accidents and lost productivity.

• Product development and safety: Examines a firm’s product quality and sustainability through metrics like number of recalls, complaints, or even frequency of litigation. Can also be linked to environmental standards when it comes to how product inputs are sourced.

3 Common Governance Metrics

Governance metrics pertain to issues relating to business ethics, mitigation of agency risks, and transparency in reporting. These can be measured in terms of how executives are compensated, board policies, and accounting choices, among others.

• Ownership structure: Reviews how faithful a firm is to its shareholders when it comes to metrics like the number of independent directors on the board, or how voting rights are distributed between management and shareholders.

• Executive compensation: Measures executive compensation relative to industry standards or company profitability. Can also be tied to social concerns when measuring how compensation structures vary for different genders/minorities.

• Financial reporting: Tracks a firm’s accounting policies and how comprehensive and accurate they are. Could involve reviewing a firm’s books for key disclosures or frequency of one-off exceptions.

How Do Firms Report ESG Metrics?

To some degree, how each firm reports its ESG metrics depends on its policies regarding disclosures. But now companies do have some standardization for reporting climate-related risk factors and mitigation efforts.

Keep in mind, the adoption of ESG frameworks can vary widely by firm and disclosure of these metrics is still largely voluntary. Additionally, certain metrics may be difficult to quantify and, in some cases, management, stakeholders, or shareholders may disagree on the impact of certain ESG factors.

As a result, professional money managers sometimes may solicit the assistance of third-party ESG consultants to obtain an independent assessment of how a company actually performs on ESG metrics.

How Can Investors Use ESG Metrics?

Investors want to be discerning when investing in specific firms or funds that offer an ESG approach.

Given the range of ESG frameworks and the inconsistency in how frameworks are applied, investors should be aware that some firms may cherry-pick which ESG metrics they use. Investment funds and ETFs that offer an ESG-based approach may use their own proprietary metrics when deciding how to allocate ESG investments; which may make them difficult to compare.

When using ESG metrics, you’ll want to examine a company’s ESG-related disclosures closely to ensure that there’s consistency in the data being reported. Depending on the metric you’re examining, you may wish to avoid making comparisons across disparate industries and focus on identifying “best-in-class” investments for a single industry.

The Takeaway

Broadly speaking, ESG metrics can offer investors a useful dimension for evaluating certain types of sustainable investment choices. Although a unified set of ESG standards and metrics is a work in progress, there has been a steady push among regulatory bodies to establish ESG reporting requirements, here and worldwide.

As with any investment strategy, investors will want to manage their expectations appropriately and employ ESG metrics as part of a larger toolbox for investment analysis.

Ready to start investing for your goals, but want some help? You might want to consider opening an automated investing account with SoFi. With SoFi Invest® automated investing, we provide a short questionnaire to learn about your goals and risk tolerance. Based on your replies, we then suggest a couple of portfolio options with a different mix of ETFs that might suit you.

Open an automated investing account and start investing for your future with as little as $1.

Photo credit: iStock/shapecharge

SoFi Invest®

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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.

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

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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SOIN-Q324-006

Nov

2024

18 Mortgage Questions for Your Lender

By Alene Laney | Financial Independence, Home Ownership, mortgage | Comments Off

Signing on a knowledgeable mortgage lender is one of the first steps you’ll take on your journey to homeownership. A good lender could help you make a sound decision about a major commitment.

If you want to know what questions to ask a mortgage lender, these can help you feel more confident choosing a lender to navigate the complex homebuying process with you.

Key Points

• Lenders offer down payments as low as 3% for first-time homebuyers, but a 20% down payment avoids mortgage insurance.

• Interest rates and APRs differ; APR includes additional fees and is usually higher.

• Fixed-rate mortgages have stable payments, while adjustable-rate mortgages may start lower but can increase.

• Preapproval is more thorough than prequalification and helps show sellers you’re a qualified buyer.

• Closing costs typically range from 2% to 5% of the purchase price and include various fees.

1. How Much Can You Borrow?

How much you can borrow is the question most buyers have on their minds when they start dreaming about real estate listings online. You may have come across a mortgage calculator tool that estimates how much a mortgage is going to cost.

But that’s just a starting point. A mortgage lender will evaluate the entire spectrum of a homebuyer’s financial situation and find the true amount they’ll be able to borrow. The lender may also make recommendations for programs or loans for each buyer’s unique situation.

When you get a loan, you’ll receive a mortgage note, a legal contract between the lender and you that provides all the details about the loan, including the amount you were approved to borrow.

2. How Much of a Down Payment Do You Need?

Another key question your lender can help answer for you is how much are down payments? You’ve probably heard about the ideal 20% down, but a lender may be able to help homebuyers get into a home with a much lower down payment, such as 3% or 5%. The lowest down payment option is often available only to first-time homebuyers. But anyone who hasn’t owned a primary residence in the last three years is often considered a first-timer.

A 20% down payment will enable you to forgo mortgage insurance on a conventional loan (one not insured by the federal government), but lower down payment amounts can help homebuyers obtain housing sooner. There are plenty of options to explore with your lender.

3. What Is the Interest Rate and APR?

Your mortgage lender may explain the difference between the interest rate and annual percentage rate.

• Interest rate. The interest rate is the cost to borrow money each year. It does not include any fees or mortgage insurance premiums.

• APR. The APR is a more comprehensive reflection of what you’ll pay for the mortgage, which will include the interest rate, points paid, mortgage lender fees, and other fees needed to acquire the mortgage. It’s usually higher than the interest rate.

The interest rate and APR must be disclosed to you in a loan estimate with the other terms and conditions the lender is offering. Pay particular attention to how the APR changes from loan to loan. When you’re looking at APR vs. interest rates for an FHA loan and a conventional mortgage, for instance, you’ll notice the numbers come out very different. (This is just a recent example.)

30-year term	Interest rate	APR
FHA	6.750%	7.660%
Conventional	6.875%	7.031%

In this case, the interest rate on a 30-year FHA loan is lower than on a conventional loan; however, when accounting an upfront mortgage premium for the FHA loan and other fees, the APR is higher on the FHA loan than on the conventional loan.

4. What Are the Differences Between Fixed- and Adjustable-Rate Mortgages?

The main difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) is whether or not the monthly payment will change over the life of the loan.

• Fixed-rate mortgages start with a little higher monthly payment than an ARM, but the rate is secure for the term.

• An adjustable-rate mortgage will start with a lower interest rate that may increase as the index of interest rates increases. This type of loan may be more appropriate for buyers who know they will not be keeping the mortgage for long.

Fixed-Rate Mortgages	ARMs
Interest rate is locked in for the term	Interest rate is variable
Monthly payment stays the same	Monthly payment is variable
Typically a longer-term mortgage, such as 15 or 30 years	Typically a shorter-term mortgage, such as five or seven years
Interest rate is determined when the rate is locked before closing the mortgage	When the index of interest rates goes up, the payment goes up

The key to an ARM is to know how it adjusts. How frequently will your rate adjust? How much could your interest and monthly payments increase with each adjustment? Is there a cap on how high your interest rate could go? A good mortgage lender will help you consider all these variables when selecting a fixed-rate or adjustable-rate mortgage.

5. How Many Points Does the Rate Include?

What are points on a mortgage? Mortgage points are fees paid to a lender for a lower interest rate. Asking your lender how many points are included in the rate can help you compare loan products accurately.

6. When Can the Interest Rate Be Locked In?

Rate lock policies differ from lender to lender. Check at the top of the first page of your loan estimate to see if your rate is locked, and for how long.

You’ll want to ensure that any rate lock agreement gives you enough time to close on your loan. Many lenders have fees for extending a rate lock.

7. How Much Are Estimated Closing Costs?

One of the most important documents you’ll receive from your lender is called a loan estimate. The loan estimate gives a detailed breakdown of the interest rate, monthly payment, fees, and closing costs on the loan you’re applying for. When you ask about closing costs, your lender can provide this document to you.

Common closing costs include:

• Appraisal fee

• Loan origination fee

• Title insurance

• Prepaid expenses such as homeowners insurance, property taxes, and interest until your first payment is due

Expect to see 2% to 5% of the purchase price in closing costs.

8. Are There Any Other Fees?

Lenders are required to disclose all costs in the loan estimate. They’re also required to use the same standard form so you can compare costs and fees among different lenders accurately. Be sure to ask lenders about other fees and watch for them on your loan estimate.

9. When Will the Closing Happen?

The time to close on a house will depend on your individual circumstances, but the national average is 43 days.

An experienced lender with a digitized process may be able to close a loan more quickly. The time it takes a lender to approve and process the loan are also factors to consider.

10. What Could Delay the Closing?

In the August 2024 National Association of Realtors® Confidence Index survey, 14% of real estate transactions had a delayed settlement. Previous surveys have shown that the main reasons for a delay included appraisal issues, financing issues, home inspection or environmental issues, deed or title issues, or contingencies stated in the contract.
An experienced lender may know how to bring a home to the closing table despite the challenges with financing and appraisals. Be sure to ask upfront how these challenges would be addressed.

11. What Will Fees and Payments Be?

The neat part about obtaining a mortgage since 2015 is that the information is included in a standard form, the loan estimate. The form is used by all lenders and allows borrowers the opportunity to compare costs among lenders quickly and accurately. All fees and payments are required to be clearly outlined in this form.

Recommended: Guide to Mortgage Statements

12. How Good Does Your Credit Need to Be?

You’ll typically need a FICO^® credit score of at least 620 to get a conventional mortgage, but lenders consider a credit score just one slice of the qualification pie.

With a lower credit score, a lender may steer you in the direction of an FHA loan, which requires a score of 580 or higher to qualify for a 3.5% down payment. Credit scores lower than 580 require a 10% down payment for an FHA loan.

Borrowers with credit scores above 740 may qualify for the best rates and terms a lender can offer.

13. Do You Need an Escrow Account?

Your lender can set up an escrow account to pay for expenses related to the property you’re purchasing. These may include homeowners insurance and taxes. An escrow account can take monthly deposits from the borrower, hold them, and then disburse them to the proper entities when yearly payments are due. In some locations and with certain lenders, escrow accounts are required.

14. Do You Offer Preapproval or Prequalification?

Lenders have different processes for qualifying mortgage applicants so it’s important to understand prequalification vs. preapproval. Preapproval is a much more in-depth analysis of a buyer’s finances than prequalification.

A preapproval letter provided by the lender specifies how much financing the lender is willing to extend to you, and helps to show sellers you’re a qualified buyer. Getting preapproved early in the homebuying process can also help you spot and remedy any potential problems in your credit report.

15. Is There a Prepayment Penalty?

A prepayment penalty is a fee for paying off all or part of your mortgage early. Avoiding prepayment penalties is easy if you choose a mortgage that doesn’t have any. Ask lenders if your desired loan carries a prepayment penalty. It will also be noted in the loan estimate.

16. When Is the First Payment Due?

A lender will be able to help you get your first payment in, which is typically on the first day of the month after a 30-day period after you close. For example, if you closed on Aug. 15, the first mortgage payment would be due on the 1st of the next month following a 30-day period (Oct. 1).

Each mortgage statement sent every billing cycle includes current information about the loan, including the payment breakdown, payment amount due, and principal balance.

17. Do You Need Mortgage Insurance?

Your mortgage lender will guide you through the process of acquiring private mortgage insurance, commonly called PMI, if you need it. Mortgage insurance is required for most conventional mortgages made with a down payment of less than 20%, as well as for FHA and USDA loans.

It’s not insurance for the buyer; instead, it protects the lender from risk. A good mortgage lender can also help advise borrowers on dropping PMI as soon as possible. A home loan help center can help you learn more about PMI or any mortgage question.

Recommended: What is PMI & How to Avoid It?

18. How Much Is the Lender Making Off of You?

Lenders are required to be clear and accurate when it comes to the costs of the loan. These should be fully disclosed on your loan estimate and closing documents. If you want to know how much the lender is charging for its services, you’ll find it under “origination fee.”

The Takeaway

If you’re shopping for a home loan or thinking about it, you might have mortgage questions — about down payments, APR, points, PMI, and more. Don’t worry about asking a lender too many, because many buyers need a guide throughout the homebuying journey. Asking questions is a great way to get to the lender and loan terms that make the most sense for your financial situation.

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

What should you not say to a mortgage lender?

The most important thing to remember when communicating with a prospective lender is that you should be truthful — about everything, but especially your finances.

What questions can a mortgage lender not ask?

Generally speaking, most of the topics that are off limits in a job interview are also off limits in a mortgage negotiation. A lender should not ask you about race, ethnicity, religion, or sexual orientation, for example. You also shouldn’t be asked your age (unless you are applying for an age-based loan), or about your family status (married vs. divorced, whether you are planning to have kids, etc.), or about your health.

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

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

*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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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.

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.

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 content is provided for informational and educational purposes only and should not be construed as financial advice.

SOHL-Q424-121

Nov

2024

What Is Tenants in Common?

By Janet Siroto | Home Ownership, mortgage | No Comments

Tenants in common is a way for two or more parties to buy a property or parcel of land. Buying real estate is expensive, and pooling your resources with others can be a great way to bring the price within reach and potentially lower your mortgage payment. Perhaps you are buying a house with relatives that you’ll live in and that they will stay in when they are in town. Or maybe you’re eyeing the purchase of several acres of land with some colleagues as an investment.
These are examples of why it may make sense for you to join forces with someone else (or multiple people) when acquiring a property. It can, however, open up a number of other questions and issues.

If you’re buying any kind of property with another person, even family, then you’ll need to consider how you want to co-own or take title to it. Tenants in common is one way to take title to a property.

Taking title as tenants in common first became popular in the 1980s in cities where the price of real estate had increased steeply. Acquiring properties in this manner has grown in popularity, especially in expensive urban areas, where merging money from different individuals became a way to increase purchasing power.

Read on to learn more about tenancy in common, including what is tenancy in common, how it works, and what are the pros and cons of tenancy in common.

Key Points

• Tenancy in common allows multiple people to jointly own property.

• Each tenant owns a percentage of the property, which can be unequal, and has rights to the entire property.

• Tenants can independently sell or transfer their share, potentially leading to co-ownership with unknown parties.

• The arrangement offers flexibility, such as adding new tenants or naming beneficiaries, but includes risks like shared mortgage liability.

• TIC differs from joint tenancy and it is important to understand the difference.

What Is Tenancy In Common (TIC)?

Tenancy in common, also known sometimes as “tenants in common,” is a way for multiple people (2 or more) to hold title to a property. Each person owns a percentage of the property, but they are not limited to a certain space on the property.

In other words, you might be tenants in common with one or more persons, each holding a percentage of ownership share (which does not have to be equal), but you have a right to the entire property. There’s no limit to how many people can be tenants in common.

Worth noting: Despite the use of the word “tenant,” tenants in common has nothing to do with renting.

Recommended: First-Time Homebuyer Guide

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

How Tenancy in Common (TIC) Works

Tenancy in common works by people pooling their resources and buying property together. Each tenant, or person who is part of this legal arrangement, may own a different percentage of the real estate, but that doesn’t limit you to, say, just one room of a house.

The TIC relationship can be updated, with new tenants being added. What’s more, each tenant can sell or get a mortgage against their share of the property as they see fit. Each tenant may also name a beneficiary (or beneficiaries) to inherit their share upon their death.

If a group of tenants in common decides to dissolve the TIC agreement, one or more of the tenants can buy out the other tenants. Or the property can be sold and the proceeds split per the ownership percentages.

Property Taxes With Tenancy in Common

You may be wondering how tenants pay taxes on TIC properties. In most cases, a single tax bill will turn up, regardless of how many co-owners are involved or how they have divvied up percentages of ownership. It is then up to the tenants to determine who pays how much.

Another facet of tenancy in common arrangements to consider: Tenants can deduct property taxes when filing with the IRS. A common tax strategy is for each member to pay property taxes equal to the percentage of their ownership and then to deduct what they pay.

Tenancy in Common vs Joint Tenancy

When it comes to shared ownership, tenancy in common isn’t the only option. Another way to handle a shared purchase is joint tenancy. Here are some points of comparison for a tenant in common vs. joint tenant:

• In TIC, the tenants can divide up ownership of property how they see fit. In a joint tenancy, the tenants hold equal shares of a single deed.

• With a TIC arrangement, when an owner dies, their portion of the property passes to their estate. With joint tenancy, however, the property’s title would go to the surviving owner(s).

Recommended: How to Choose a Mortgage Term

Marriage and Property Ownership

Tenancy in common and joint tenancy are often ways that property is held in marriage. This will vary depending on the state you live in. Some states consider TIC the default way to own property in marriage. Elsewhere, it may be joint tenancy.

There is one other option possible, known as tenants by entirety (TBE). In this case, it’s as if the property is owned by one entity (the married couple) in the eyes of the law. Each spouse is a full owner of the real estate.
As with most things in life, there are pros and cons to TIC arrangements. First, the benefits:

• With the high cost of real estate, especially in expensive markets, taking title as tenants in common can be one way to pool money and buy property you couldn’t otherwise own as an individual. It’s a way to bring home affordability into range.

• Because tenants in common also allows for flexibility in terms of how you work out the specifics of living arrangements, it lends itself well to situations where friends decide to go in together on a vacation home or property where they won’t all be occupying the property at the same time.

• You can transfer your share at any time without the consent or approval of the other tenants. You also have the right to mortgage, transfer, or assign your interest and so do your partners.

Now, for the disadvantages:

• Tenants can decide to sell or give away their ownership rights, without the consent of the others, which means you might end up co-owning a property with someone you don’t know or even like.

• In terms of real estate law, one of the main issues with a tenancy in common is that if you all signed the mortgage loan in order to purchase the property, you could end up being liable for someone else not paying their portion of the mortgage or for creditors forcing a sale or foreclosure of the entire property.

Increasingly, though, some banks and lenders are offering fractional loans for tenants in common on real estate that is easier to divide into separate units. This then allows each tenant to sign their own loan tied just to their percentage of the property. A mortgage calculator can help you figure out what your payments might look like.

Example of Tenancy in Common

Here’s an example of how tenancy in common might look in real life: Sam wants to buy a condo in Florida for $300,000 but can’t afford to do so; his limit is $200,000. His sister Emma loves Florida and says she would like to go in on the condo if she can spend a couple of months there in the winter. She adds her $100,000, and together, they can afford the condo. They pool their resources and make a down payment of 20% on the $300,000 property. After reading up on mortgage basics, they decide Sam will take out the mortgage. The mortgage principal on the purchase is $240,000.

Sam owns two-thirds and Emma owns one-third and Emma pays Sam for one-third of the cost of the mortgage, property taxes, and homeowners association dues. They both have the right to occupy the property. If Emma decides that she wants to get her own place in Florida, she could sell her share in the condo, while Sam retains his interest.

The Takeaway

Buying a house can seem overwhelming, but it doesn’t have to be. Tenancy in common presents one avenue to affordable ownership by allowing you to purchase property with others. Another way to manage costs is to get the best possible mortgage to suit your needs and budget.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can tenancy in common be dissolved?

A tenancy in common can be dissolved. A single or multiple tenants may agree to end the arrangement by buying out the others in the shared ownership. If there is a situation in which the tenants can not agree on a path forward, the courts can be involved.

What are the responsibilities of tenants in common?

In a tenancy in common relationship, each tenant must pay their share of the costs involved, which can involve the mortgage principal and interest, homeowners insurance, and property taxes. A tenant’s share of these costs will reflect how much of the property they own. In addition, you may need to manage a portion of the property (say, if you’ve divided a house up or own a plot of land with others). Lastly, a TIC agreement may involve rights of first refusal if any tenants want to sell their share.

What happens when a tenant dies?

When a tenant in a tenants in common agreement dies, their share of the property is passed along to their beneficiary or beneficiaries; it does not automatically go to the other tenants.

What are the disadvantages of tenants in common?

Typically, the most important disadvantages of a tenants in common agreement are: Each member can sell their share independently, meaning you could be stuck with a tenant you don’t know or like; the TIC could be dissolved by tenants buying out one another; and if the tenants cosigned a mortgage for the property and one or more don’t pay, the other tenant could be stuck with liability for additional costs.

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

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

SOHL-Q424-127

Guide to Managing Debt in Retirement

Retiring With Debt

How Much Debt Is Common to Have in Retirement?

Tips for Managing Debt in Retirement

Using Retirement to Pay Off Debt

Getting Out of Debt Before Retirement

Paying Off Your School Loans

Paying Off Your House

Paying Off Your Credit Cards

Paying Off Your Car

Saving for Retirement

Seeking a Financial Advisor

The Takeaway

FAQ

Is it wise to use retirement to pay off debt?

How much debt is common to have at retirement?

What percent of Americans retire with debt?

Guide to Rolling Over a Pension Into an IRA

What Is a Pension Plan?

What Is an IRA?

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

Can You Roll Over a Pension Into an IRA?

Reasons You May Want to Roll Over a Pension

Reason #1: You Want More Control Over Your Investments

Reason #2: You’d Like to Avoid RMDs

Reason #3: Your Pension Is Small

Reason #4: You’re Worried About Losing Benefits

Reason #5: You Want Convenient Access

How Do You Roll a Pension Into an IRA?

Pros and Cons of Rolling a Pension Into an IRA

Pros:

Cons:

Taxes on Pensions vs. IRAs

The Takeaway

FAQ

Can I roll my pension into an IRA?

Is a pension better than an IRA?

How much of your pension can you roll over to an IRA?

9 ESG Metrics Investors Should Know

What Is ESG Investing?

ESG Metrics Are Key to ESG Reporting

What Are ESG Metrics?

The Use of ESG Frameworks

SEC Climate-Disclosure Rules on Hold

The Importance of ESG Metrics

The Limitations of ESG Metrics

9 Common ESG Metrics

3 Common Environmental Metrics

3 Common Social Metrics

3 Common Governance Metrics

How Do Firms Report ESG Metrics?

How Can Investors Use ESG Metrics?

The Takeaway

18 Mortgage Questions for Your Lender

1. How Much Can You Borrow?

2. How Much of a Down Payment Do You Need?

3. What Is the Interest Rate and APR?

4. What Are the Differences Between Fixed- and Adjustable-Rate Mortgages?

5. How Many Points Does the Rate Include?

6. When Can the Interest Rate Be Locked In?

7. How Much Are Estimated Closing Costs?

8. Are There Any Other Fees?

9. When Will the Closing Happen?

10. What Could Delay the Closing?

11. What Will Fees and Payments Be?

12. How Good Does Your Credit Need to Be?

13. Do You Need an Escrow Account?

14. Do You Offer Preapproval or Prequalification?

15. Is There a Prepayment Penalty?

16. When Is the First Payment Due?

17. Do You Need Mortgage Insurance?

18. How Much Is the Lender Making Off of You?

The Takeaway

FAQ

What should you not say to a mortgage lender?

What questions can a mortgage lender not ask?

What Is Tenants in Common?

What Is Tenancy In Common (TIC)?

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

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

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

Student Loan
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