Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.
Options are derivative financial instruments that give buyers the right (but not the obligation) to buy or sell an underlying security, such as a stock, at a predetermined price (the strike price) within a set time frame. The price of an option, known as the premium, is determined by factors like the underlying asset’s market price, intrinsic value, time until expiration, and volatility.
Understanding how options are priced can help investors decide when to enter or exit a trade, manage risk, or evaluate potential returns.
Key Points
• Option pricing may be based upon factors including market price, intrinsic value, time value, and volatility.
• The Black-Scholes model is used for European options, factoring in stock price, strike price, interest rates, time to expiration, and volatility.
• The binomial model suits U.S. options, valuing an option based on whether the underlying asset’s price moves up or down at each step before expiration.
• The trinomial model extends the binomial model by adding an unchanged price outcome, suitable for complex options.
• Options are high-risk investments that allow traders to seek profit from the price movements of stocks, or to hedge against potential losses.
How Is an Option Price Determined?
There are two main types of options: call options and put options. An investor who buys a call option acquires the right to buy the underlying asset at the strike price price, while, conversely, an investor who buys a put option acquires the right to sell the option’s underlying asset at the strike price.
Options traders analysts take many factors into account to determine the price, or premium, of call options and put options. The most widely known method for determining the value of an option is the Black-Scholes model. But other models — such as the binomial and trinomial options pricing models — are more commonly used to determine stock option prices.
All of those options pricing models are complex, but they all draw on a few primary factors that drive the investment value of an options contract:
• The market price of the stock that underlies the option
• The current intrinsic value of the option
• The time until the option expires
• Volatility
Market Price and Intrinsic Value
Market price first is easy to understand — it’s the price at which the underlying stock is trading. The second factor — the intrinsic value of the option — is the value of the option would be worth if sold at that moment. This only applies if the price of the underlying stock has moved to where the option is “in the money,” meaning the owner of the option would make a profit by exercising it.
The time until expiration is more complex. This so-called time value reflects the amount of time before expiration of a contract in options trading. It represents the possibility that an out-of-the-money option could eventually become profitable.
It’s the one part of an option’s value that only goes down — and which goes at an increasingly rapid rate as the options contract approaches expiration. As the expiration date approaches, larger price movements in the underlying stock are required to create significant changes in the option’s price.
Volatility
Time value reflects the potential for price movement from the underlying asset, influenced by factors such as volatility and market expectations of future price fluctuations. As a general rule, stocks with a history of high volatility underlie options with a higher likelihood to be in-the-money at the time of their expiration.
Volatility, in many pricing models, is represented by a measure of price fluctuations of the underlying asset. Beta, on the other hand, measures the asset’s volatility versus the volatility of the overall market. Options on stocks with higher historic or expected volatility typically cost more than options contracts on stocks that have little reputation for dramatic price swings.
There are several models that investors and day traders consider when figuring out how to price an option. Here’s a look at a few of the most common:
The Black-Scholes Merton (BSM) Model
The best-known options pricing method is the Black-Scholes model. The model consists of a mathematical formula that can be daunting for people without a math background. That’s why both institutional and retail investors employ online options calculators and analysis tools.
The economists who created the formula published their findings in 1973, and won the 1997 Nobel Prize in economics for this new method for arriving at the value of financial derivatives.
Also known as the Black-Scholes Merton (BSM) model, the Black-Scholes equation takes the following into account:
In its pure form, the Black-Scholes model only works for European options, which investors can not exercise until their expiration date. The model doesn’t work for U.S. options, because U.S. options can be exercised before their expiration date.
The Binomial Option Pricing Model
The binomial option pricing model is less well-known outside of financial circles, but it’s more widely used. One reason it’s more popular than the Black-Scholes Model is that it can work for U.S. options. Invented in 1979, the binomial is based on the assumption that, in any pricing scenario, an underlying asset’s price will move either up or down. As a method for calculating an option’s value, the binomial pricing model uses the same basic data inputs, such as the underlying asset’s price, strike price, time to expiration, the interest rate, and volatility, and its equation may be updated as new information emerges.
In comparison with other models, the binomial option pricing model is very simple at first, but it becomes more complex as investors take multiple time periods into account. For a U.S. option, which the owner can exercise at any point before it expires, traders often use the binomial model to decide when to exercise the option.
By using the binomial option pricing model with multiple periods of time, the trader has the advantage of being able to better visualize the change in the price of the underlying asset over time, and then evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements and emerging market news.
The trinomial option pricing model is similar to the binomial model but it allows for three possible outcomes for an option’s underlying asset within a given period. Its value can go up, go down, or stay the same. As they do with the binomial model, traders recalculate the trinomial pricing model over the course of an option’s life, as the factors that drive the option’s price change, and as new information comes to light.
Its simplicity and acknowledgement of a static price possibility makes it more widely used than the binomial option pricing model. When pricing exotic options, or any complex option with features that make it harder to calculate than the common calls and puts on an exchange, many investors favor the trinomial model as a more stable and accurate way of understanding what the price of the option should be.
The Takeaway
Options pricing isn’t just about a single number — it’s the result of multiple factors, from market price and volatility to the passage of time. Investors rely on models like Black-Scholes, binomial, and trinomial pricing to estimate an option’s value, each offering different insights depending on the type of contract.
Although these calculations can seem complex, the core idea remains the same: an option’s price reflects both current conditions and future possibilities. Understanding these mechanics can help traders make more informed decisions, whether they’re managing risk or seeking new opportunities in the market.
SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.
With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.
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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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.
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.
Freezing your credit involves contacting the credit bureaus online, by phone, or by mail to lock down your information for free.
Credit cards and personal information can (and do) get hacked or stolen. Because of this unfortunate reality, it’s important to know how to freeze your credit. A credit freeze can help prevent identity theft or obstruct bad actors from taking out new loans or accounts in a borrower’s name.
Once you know how to freeze (and unfreeze) your credit, it can be quite useful in the right situations.
Key Points
• A credit freeze restricts access to credit reports, helping prevent identity theft.
• Freezing and unfreezing credit is available at no cost through major credit bureaus.
• Individuals can still access their annual credit report even with a freeze in place.
• The freeze process involves contacting credit bureaus online, by phone, or mail.
• Unfreezing credit can be done quickly, typically within an hour.
What Is a Credit Freeze?
A credit freeze, also known as a security freeze, allows individuals to limit access to their individual credit report. By freezing their credit, the person makes it more difficult for an identity thief to open a new credit account or loan in their name. This is due to the fact that creditors generally review credit reports before okaying new lines of credit, known as a hard credit inquiry.
However, freezing one’s credit does not prevent a person from viewing their free annual credit report. Moreover, it won’t restrict a person from opening a new account in their own name. They’ll simply need to unfreeze their credit to do so (more on unfreezing later).
A credit freeze does not actually freeze all outstanding accounts, such as credit cards and loans. Instead, it simply limits others from viewing a person’s credit reports. Under a credit freeze, only a limited number of entities will still be able to view a person’s file, including creditors for accounts that individual already holds and certain government agencies.
This means that credit bureaus can’t give out personal information about a borrower with a frozen account to new lenders, landlords, hiring managers, or credit card companies. Typically, this halts the lending, renting, and hiring process — as well as anyone attempting to steal a person’s identity and open a new account in their name.
Freezing Credit: What’s the Process?
If a person wants to freeze their credit, they need to reach out to at least the three major credit bureaus:
Typically, the agencies will ask for a Social Security number, birth date, and other information confirming a person’s identity prior to freezing their account. The bureaus will then give the person a password, which they may use to unfreeze their account. Make sure to store this information in a safe place.
It costs nothing to freeze and unfreeze one’s credit. This is thanks to the Economic Growth, Regulatory Relief, and Consumer Protection Act, which mandates that credit bureaus must offer the service free of charge to everyone.
The credit bureaus must fulfill the request within one business day when a consumer requests a freeze through any method aside from mail. When consumers request to lift the freeze by phone or online, however, the credit bureaus must do so within one hour. This frees up the consumer to quickly do what they may need to do, whether that’s applying for a new apartment or one of the various types of personal loans.
Differences Between a Credit Lock and a Credit Freeze
A credit lock works in much the same way as a credit freeze, allowing consumers to protect their credit reports against bad actors and scammers. But, a credit lock can come with a bit more convenience, as borrowers can opt to open and close their locked credit via an app (rather than needing to reach out to each credit bureau with their password to unfreeze it).
While a credit freeze is complimentary thanks to the federal mandate, a credit lock may require paying a small fee. For example, Equifax offers credit locks for free, while Experian offers credit lock as part of a paid subscription.
Just as you’d crunch the savings numbers with a personal loan calculator, make sure to weigh the costs and benefits between these two options as well.
When to Consider a Credit Freeze
It’s really up to individual consumers and their own risk tolerance to decide when it’s time to freeze their credit report. That being said, if a person isn’t actively shopping for a personal loan or a new credit card, for instance, it may be a good idea to freeze their credit preemptively. This way, a consumer can feel a bit more confident that their credit information is in safe hands.
Another time to consider a credit freeze is when a borrower believes their personal data may have been breached, or if their Social Security number was recently disclosed, made public, or stolen.
How to Unfreeze Your Credit
Unfreezing credit is simple. All a consumer has to do is reach out to the credit bureaus by phone or online and plug in the password or PIN provided to them when they first froze their credit. Generally, it takes a few minutes for the account to become unfrozen.
A person can choose to unfreeze their report at one or all of the credit bureaus, but they will have to contact each individual credit bureau separately. They also need to go through the entire process again if they ever want to refreeze their credit down the road.
Individuals can ask to unfreeze their credit for a specific amount of time, such as if they are applying for and hoping to get approved for a personal loan or need someone else to access their account temporarily. Then, the freeze should return automatically when that period ends.
Alternatives to Freezing Credit
While not overly complex, freezing and unfreezing one’s credit can be time-consuming. Additional options are available to consumers.
Setting Up Credit Monitoring
Those who aren’t interested in freezing their accounts might instead consider signing up for a credit monitoring service. While these services charge a fee, they’ll alert users to any and all activity on their credit report. So, any time someone requests information, the person would find out and could then confirm or deny the authenticity of the request.
This could help stop any potential identity theft in its tracks. Still, it should be noted that this service cannot fully prevent theft, and the consumer may not know their identity was stolen until after the fact.
Requesting a Credit Report
For those interested in monitoring their credit for free, it’s possible to get a free copy of one’s credit report each year from all of the major credit bureaus, and possibly even more often. The consumer might then review the report, in detail, to ensure they recognize all of the activity and accounts described.
If the consumer spots anything out of line, they can then take steps to flag and fix it.
Consolidating Credit Card Debt
Another way that some consumers choose to keep track of their credit is by consolidating credit card debt with a personal loan from a private lender. Taking out an unsecured personal loan could help substantially lower the amount a person pays each month to different credit card companies.
By consolidating credit card debt into a single personal loan — one of the common uses for personal loans — a borrower may be able to take advantage of a single fixed-rate debt rather than juggling several high-interest rate cards. Additionally, having a single loan to repay each month can make it easier to monitor payment activity.
If you are considering freezing your credit, this can be done for free with the credit bureaus. This can help protect your credit from unauthorized access and identity theft. Typically, you can freeze your credit online, by phone, or by mail and unfreeze it as well, with your file being accessible within an hour. Freezing your credit can help if you are seeking to protect your personal data and better control your personal finances.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Is freezing your credit a good idea?
If you think your personal information or identity has been compromised (say, through a data breach), it could be wise to freeze your credit to protect you from unauthorized access to your credit report.
What is the easiest way to freeze my credit?
You can freeze (and then unfreeze) your credit report with each of the three major credit bureaus. You can do this online, by phone, or by mail. Of these options, online may be the fastest option.
How much does it cost to do a credit freeze?
It’s free to freeze your credit with the credit bureaus Equifax, Experian, and TransUnion.
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There are numerous different types of investments, ranging from stocks and bonds, to real estate and commodities. In tandem, these different types of investments can help investors build a diversified portfolio, and in effect, may help them reach their financial goals.
But having a solid understanding of the different types of investments is paramount, too, to creating and following through on an investment strategy. As such, you’ll want to at least have some baseline knowledge of each type — with that knowledge in-hand, you should hopefully be able to make financial decisions that align with your goals and strategy.
Key Points
• Investing in a variety of assets can help investors target financial goals and balance risk.
• Stocks, bonds, mutual funds, ETFs, annuities, derivatives, commodities, real estate, and private companies are common investment types.
• Each investment type offers unique benefits and drawbacks, such as stability or potentially higher returns in exchange for higher risk
• Diversification through different investments can protect against market volatility and enhance returns.
• Additional resources are available for in-depth learning about each investment type.
9 Common Types of Investments
Having different types of investments, as well as short-term vs. long-term investments can help you diversify your portfolio. All together, your portfolio should align with your financial or investment goals, and balance potential risks with potential returns — it isn’t easy, but it all starts with understanding what, exactly, you’re investing in. Here are some of the most common types of investments investors should know about.
1. Stocks
When you think of investing and investment types, you probably think of the stock market. A stock gives an investor fractional ownership of a public company in units known as shares.
• If the stock goes up, you can sell it for a profit.
• Some stocks pay dividends to investors.
• Stocks tend to offer higher potential returns than bonds.
• Stocks are considered liquid assets, so you can typically sell them quickly if necessary.
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Cons:
• There are no guaranteed returns. For instance, the market could suddenly go down.
• The stock market can be volatile. Returns can vary widely from year to year.
• You typically need to hang onto stocks for longer time periods to see potential returns.
• You can lose a lot of money or get in over your head if you don’t do your research before investing.
Why Invest in Stocks?
Only publicly-traded companies trade on the stock market; private companies are privately owned. They can sometimes still be invested in, though the process isn’t always as easy and open to as many investors.
Further, investors may want to invest in stocks as stock can potentially make money in two ways: It could pay dividends if the company decides to pay out part of its profits to its shareholders, or an investor could sell the stock for more than they paid for it.
Some investors are looking for steady streams of income and therefore pick stocks because of their dividend payments. Others may look at value or growth stocks, companies that are trading below their true worth or those that are experiencing revenue or earnings gains at a faster pace.
2. Bonds
Bonds are essentially loans you make to a company or a government — federal or local — for a fixed period of time. In return for loaning them money, they promise to pay it back to you in the future and pay you interest in the meantime. That stability is one reason many investors are interested in buying bonds, though it’s important to know they are not without risk.
Different Types of Bonds
Treasurys: These are bonds issued by the U.S. government. Treasurys (sometimes stylized as “Treasuries”) can have maturities that range from one-month to 30-years, but the 10-year note is considered a benchmark for the bond market as a whole.
Municipal bonds: Local governments or agencies can also issue their own bonds. For example, a school district or water agency might take out a bond to pay for improvements or construction and then pay it off, with interest, at whatever terms they’ve established.
Corporate bonds: Corporations also issue bonds. These are typically given a credit rating, with AAA being the highest. High-yield bonds, also known as junk bonds, tend to have higher yields but lower credit ratings.
Mortgage and asset-backed bonds: Sometimes financial institutions bundle mortgages or other assets, like student loans and car loans, and then issue bonds backed by those loans and pass on the interest.
Zero-coupon bonds: Zero-coupon bonds may be issued by the U.S. Treasury, corporations, and state and local government agencies. These bonds don’t pay interest. Instead, investors buy them at a great discount from their face value, and when a bond matures, the investor receives the face value of the bond.
Pros and Cons of Bond Investing
Here’s a rundown of the pros and cons of bond investments:
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Pros:
• Bonds offer regular interest payments.
• Bonds tend to be lower risk than stocks.
• Treasurys are generally considered to be safe investments.
• High-yield bonds tend to pay higher returns and they have more consistent rates.
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Cons:
• The rate of returns with bonds tends to be much lower than it is with stocks.
• Bond trading is not as fluid as stock trading. That means bonds may be more difficult to sell.
• Bonds can decrease in value during periods of high interest rates.
• High-yield bonds are riskier and have a higher risk of default, and investors could potentially lose all the money they’ve invested in them.
Why Invest in Bonds?
When it comes to bonds vs. stocks, the former are typically backed by large companies or the full faith and credit of the government. Because of this, they’re often considered lower risk than stocks.
However, the risk of investing in bonds varies, and bonds are rated for their quality and credit-worthiness. Because the U.S. government is less likely to go bankrupt than an individual company, Treasury bonds are considered to be some of the least risky investments. Note, though, that they also tend to have lower returns.
3. Mutual Funds
A mutual fund is an investment managed by a professional. Funds often focus on an asset class, industry or region, and investors pay fees to the fund manager to choose investments and buy and sell them at favorable prices.
Index Funds
While mutual funds offer certain advantages to investors, those interested in a more passive approach may prefer index funds. Index funds are a form of passive investment, which means they’re not actively-managed, and instead, aim to track a market index, or portion of the market, such as the S&P 500 or something similar.
Pros and Cons of Investing in Mutual Funds
Here are some of the pros and cons of investing in mutual funds:
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Pros:
• Mutual funds are easy and convenient to buy.
• Since they offer portfolio diversification, they may carry less risk than individual stocks.
• A professional manager chooses the investments for you.
• You earn money when the assets in the mutual fund rise in value.
• There is potential dividend reinvestment, meaning dividends can be used to buy additional shares in the fund, which could help your investment grow.
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Cons:
• There is typically a minimum investment you need to make.
• Mutual funds typically require an annual fee called an expense ratio and some funds may also have sales charges.
• Trades are executed only once per day at the close of the market, which means you can’t buy or sell mutual funds in real time.
• The management team could be poor or make bad decisions.
• You will generally owe taxes on distributions from the fund.
Why Invest in Mutual Funds?
Investors may be interested in mutual funds because they offer a sort of out-of-the-box diversification, with exposure to many different types of securities or assets in one package. They’re also managed by a professional, which some investors may find attractive. On the other hand, they may have higher fees, and it’s always important to remember that past performance isn’t indicative of future performance, either.
4. ETFs
Exchange traded funds, or ETFs, are in some ways similar to a mutual fund, but there are key differences. One of the main differences is that ETFs can be traded on a stock exchange, giving investors the flexibility to buy and sell throughout the day. In addition, ETFs tend to be passive investments that track an underlying index. They also come in a range of asset mixes.
Pros and Cons of ETFs
Here’s a quick breakdown of the pros and cons of investing in ETFs:
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Pros:
• ETFs are easy to buy and sell on the stock market.
• They often have lower annual expense ratios (annual fees) than mutual funds.
• ETFs can help diversify your portfolio.
• They are more liquid than mutual funds.
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Cons:
• The ease of trading ETFs might tempt an investor to sell an investment they should hold onto.
• A brokerage may charge commission for ETF trades.This could be in addition to fund management fees.
• May provide a lower yield on asset gains (as opposed to investing directly in the asset).
Why Invest in ETFs?
ETFs may be an attractive choice for some investors because they may offer built-in diversification, tons of choices, and typically have lower costs or associated fees than similar products, such as mutual funds. But they’re also subject to many of the same risks as other investments.
5. Annuities
An annuity is an insurance contract that an individual purchases upfront and, in turn, receives set payments. There are fixed annuities, which guarantee a set payment, and variable annuities, which put people’s payments into investment options and pay out down the road at set intervals. There are also immediate annuities that begin making regular payments to investors right away. (Note that SoFi Invest does not offer annuities to its members.)
Pros and Cons of Investing in Annuities
Here are some of the pros and cons of annuity investments:
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Pros:
• Annuities are generally low risk investments.
• They offer regular payments.
• Some types offer guaranteed rates of return.
• May provide a supplemental investment for retirement.
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Cons:
• Annuities typically offer lower returns compared to stocks and bonds.
• They typically have high fees.
• Annuities can be complex and difficult to understand.
• It can be challenging to get out of an annuities contract.
Why Invest in Annuities?
Investors may like that there are so many different types of annuities to invest in, and the fact that they can offer guaranteed and predictable payments, tax-deferred growth, and low-stress management. However, they do often have lower interest payments compared to bonds, there can be penalties for early withdrawals, and associated fees.
6. Derivatives
There are several types of derivatives, but two popular ones are futures and options. Futures contracts are agreements to buy or sell something (a security or a commodity) at a fixed price in the future.
Meanwhile, in options trading, buyers have the right, but not the obligation, to buy or sell an asset at a set price. A derivatives trading guide can be helpful to learn more about how these investments work.
Pros and Cons of Options Trading
Here are some of the pros and cons to derivative investments:
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Pros:
• Derivatives allow investors to lock in a price on a security or commodity.
• They can be helpful for mitigating risk with certain assets.
• They have the potential to provide returns when an investor sells them.
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Cons:
• Derivatives can be very risky and are best left to traders who have experience with them.
• Trading derivatives is very complex.
• Because they expire on a certain date, the timing might not work in your favor.
Why Investors Trade Options
Trading options is a fairly high-level investment activity — it’s not for everyone. There can be significant risks, and options trading strategies can be complex. That said, trading options has the potential to be profitable for experienced investors.
7. Commodities
A commodity is a raw material — such as oil, gold, corn, or coffee. Trading commodities has a reputation for being risky and volatile. That’s because they’re heavily driven by supply and demand forces. Say for instance, there’s a bad harvest of coffee beans one year. That might help push up prices. But on the other hand, if a country discovers a major oil field, that could dramatically depress prices of the fuel.
Pros and Cons of Commodity Trading
Here are some pros and cons of commodity trading:
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Pros:
• Commodities can diversify an investor’s portfolio.
• Commodities tend to be more protected from the volatility of the stock market than stocks and bonds.
• Prices of commodities are driven by supply and demand instead of the market, which can make them more resilient.
• Investing in commodities can help hedge against inflation because commodities prices tend to rise when consumer prices do.
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Cons:
• Commodities are considered high-risk investments because the commodities market can fluctuate based on factors like the weather. Prices could plummet suddenly.
• Commodities trading is often best left to investors experienced in trading in them.
• Commodities offer no dividends.
• An investor could end up having to take physical possession of a commodity if they don’t close out the position, and/or having to sell it.
Why Invest in Commodities?
Investors have several ways they can gain exposure to commodities. They can directly hold the physical commodity, although this option is very rare for individual investors (Imagine having to store barrels and barrels of oil).
So, many investors wager on commodity markets via derivatives — financial contracts whose prices are tied to the underlying raw material. For instance, instead of buying physical bars of precious metals to invest in them, a trader might use futures contracts to make speculative trades on gold or silver. Another way that retail investors may get exposure to commodities is through exchanged-traded funds (ETFs) that track prices of raw materials.
That said, there are risks associated with commodities trading, and investors may want to ensure that it aligns with their investment strategy and goals before getting started.
8. Real Estate
Owning real estate, either directly or as part of real estate investment trust (REIT) investing or limited partnerships, gives you a tangible asset that may increase in value over time. If you become invested in real estate outside of your own home, rent payments can be a regular source of income. However, real estate can also be risky and labor-intensive.
Pros and Cons of Investing in Real Estate
Consider these pros and cons of investing in real estate (REITs, in particular):
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Pros:
• Real estate is a tangible asset that tends to appreciate in value.
• There are typically tax deductions and benefits, depending on what you own.
• Investing in real estate, such as through a REIT, can help diversify your portfolio.
• By law, REITs must pay 90% of their income in dividends.
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Cons:
• Real estate is typically illiquid, although REIT investments offer more liquidity than property.
• There are constant ongoing expenses and work needed to maintain a property.
• REITs are generally very sensitive to changes in interest rates, especially rising rates.
• With a REIT, dividends are taxed at a rate that’s usually higher than the rate for many other investments.
Why Invest in Real Estate?
Investing in real estate may help diversify a portfolio, generate recurring cash flow (from rent, or dividends), or enable ownership of a tangible asset that may increase in value over time. However, investments may be subject to changes in the real estate market, such as rising and falling interest rates and regulatory changes, and are often better suited for longer-term investments.
9. Private Companies
Only public companies sell shares of stock, however private companies do also look for investment at times — it typically comes in the form of private rounds of direct funding. If the company you invest in ends up increasing in value, that can pay off, but it can also be risky.
• Lets investors get in early with promising startups and/or innovative technology or products.
• Investing in private companies can help diversify your portfolio.
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Cons:
• You could lose your money if the company fails.
• The value of your shares in the company could be reduced if the company issues new shares or chooses to raise additional capital. Your shares may then be worth less (this is known as dilution).
• Investing in a private company is illiquid, and it can be very difficult to sell your assets.
• Dividends are rarely paid by private companies.
• There could be potential for fraud since private company investment tends to be less regulated than other investments.
Tips for Investing in IPOs
Investing in companies that are going public for the first time via an IPO can be attractive to investors who think the company has potential — IPO investing is fairly popular, but can be risky. With that in mind, if you do want to invest in companies going public, you’ll want to do your homework, and review filings and disclosures the company has filed with regulators, and anything else you might come across that could help inform your decision.
And remember, too, that IPO investing is generally considered high risk – a hot new stock can lose steam just as easily as it can gain it.
Investment Account Options
An investor can put money into different types of investment accounts, each with their own benefits. The type of account can impact what kinds of returns an investor sees, as well as when and how they can withdraw their money.
401(k)
A 401(k) plan is a retirement account provided by your employer. You can often put money into a 401(k) account via a simple payroll deduction, and in a traditional 401(k), your contribution isn’t taxed as income. Many employers will also match your contributions to a certain point. The IRS puts caps on how much you can contribute to a 401(k) annually.
Pros and Cons of 401(k)s
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Pros:
• Contributions you make to a 401(k) can reduce your taxable income. The money is not taxed until you withdraw it when you retire.
• Contributions can be automatically deducted from your paycheck.
• Your employer may provide matching funds up to a certain limit.
• You can roll over a 401(k) if you leave your job.
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Cons:
• There is a cap on how much you can contribute each year.
• Most withdrawals before age 59 ½ will incur a 10% penalty.
• You must take required minimum distributions (RMDs) from traditional 401(k) plans when you reach a certain age. (Roth 401(k)s are not subject to RMDs during the account holder’s lifetime.)
• You may have limited investment options.
IRA
IRA stands for “individual retirement account” — so it isn’t tied to an employer. There are IRS guidelines for IRAs, but, essentially, they’re retirement accounts for individuals. IRAs allow people to set aside money for retirement without needing an employer-backed 401(k).
With a traditional IRA, individuals contribute pre-tax dollars to the account, up to the annual limit. Those contributions are tax-deferred, meaning you don’t need to pay taxes on those funds (and their earnings) until they’re withdrawn in retirement. With a Roth IRA, however, you can contribute after-tax dollars up to the annual limit. Those funds and their earnings are not subject to taxes when qualified withdrawals are made.
Pros and Cons of IRAs
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Pros:
• IRA accounts are tax advantaged: Earnings grow tax-deferred for traditional IRAs and tax-free free for Roth IRAs.
• You can choose how the money is invested, giving you more control.
• Those aged 50 and over can contribute an extra $1,000 in catch-up contributions.
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Cons:
• Relatively low annual contribution limits ($7,000 in both 2024 and 2025).
• There is a 10% penalty for most early withdrawals before age 59 ½.
Brokerage Accounts
A brokerage account is a taxed account through which you can buy most of the investments discussed here: stocks, bonds, ETFs. Some brokerage firms charge fees on the trades you make, while others offer free trading but send your orders to third parties to execute — a practice known as payment for order flow. Investors can be taxed on any realized gains.
You might also consider enlisting the help of a wealth manager or financial advisor who can provide financial planning and advice, and then manage your portfolio and wealth. Typically, these advisors are paid a fee based on the assets they manage.
There are even a number of investment options out there not listed here — like buying into a venture capital firm if you’re a high-net-worth individual or putting funding into your own business.
Pros and Cons of Brokerage Accounts
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Pros:
• Offer flexibility to invest in a wide range of assets.
• Brokerage accounts provide the potential for growth, depending on your investments. However, all investments come with risks that include the potential for loss.
• You can contribute as much as you like to a brokerage account.
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Cons:
• You must pay taxes on your investment income and capital gains in the year they are received.
• Investments in brokerage accounts are not tax deductible.
• There is a risk that you could lose the money you invested.
The Takeaway
It might still seem overwhelming to figure out what kinds of investments will help you achieve your goals. There are different investment strategies and finding the right one can depend on where you are in your career, what your financial goals are and how far away retirement is. Options such as index funds and ETFs may help provide immediate diversification, while a financial professional can help advise you on how you might build your portfolio so that it aligns with your objectives.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.
FAQ
What is the most common investment type?
Stocks are one of the most common and well-known types of investments. A stock gives an investor fractional ownership of a public company in units known as shares.
How do I decide when to invest?
Some prime times to start investing include when you have a retirement fund at work that you can contribute to and that your employer may contribute matching funds to (up to a certain amount); you have an emergency fund of three to six months’ worth of money already set aside and you have additional money to invest for your future; there are financial goals you’re ready to save up for, such as buying a house, saving for your kids’ college funds, or investing for retirement. Please remember you need to consider your investment objectives and risk tolerance when deciding the “right” time to start investing.
Should I use multiple investment types?
Yes. It’s wise to diversify your portfolio. That way, you’ll have different types of assets which will increase the chances that some of them will do well even when others don’t. This will also help reduce your risk of losing money on one single type of investment. In short, having a diverse mix of assets helps you balance risk with return. However, diversification does not eliminate all risk.
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
Whether you just set up your 401(k) plan or you established one long ago, you may want to change the amount of your contributions — or even how they’re invested. Fortunately, it’s usually a fairly straightforward process to change 401(k) contributions.
How often can you change your 401(k) contributions? You may be able to make changes at any time, depending on your plan. After all, the point of a 401(k) plan is to help you save for your retirement. So it’s important to keep an eye on your account and your investments within the account, to make sure that you’re saving and investing according to your goals.
Learn how to maximize your 401(k), change your 401(k) contributions, and save for retirement.
Key Points
• Adjusting 401(k) contributions can usually be done at any time, depending on the specific plan rules.
• Employers may match contributions up to a certain percentage, enhancing the value of saving.
• Changes in financial circumstances or salary increases can justify modifying contribution amounts.
• Rebalancing investment allocations periodically is crucial to maintain desired risk levels.
• Automatic contribution increases can be set up to progressively enhance retirement savings.
Purpose of a 401(k)
A 401(k) is a retirement account that a company may offer to its employees. In some cases, enrollment in the employer’s 401(k) is automatic; in other cases it’s not. Be sure to check, so that you can take advantage of this savings opportunity.
Employees may contribute a portion of their paycheck to their 401(k) account, and employers might also contribute to each employee’s account (again, depending on the plan).
The employer’s portion is called the company’s “match” or matching funds. Typically, an employer might match up to a certain percentage of what the employee saves. One common matching plan is when a company matches 50 cents for every dollar saved, up to 6% of the employee’s total contributions. Terms vary, so it’s best to ask your Human Resources representative what the match is.
The money a participant contributes to their 401(k) plan is technically called an “elective salary deferral” because it’s optional, not required, and those deductions are not included in an employee’s taxable income. That’s why 401(k) and similar accounts (like a 403(b) and most IRAs) are often called tax-deferred accounts: You don’t pay taxes on the money you’ve saved until you withdraw the money in retirement.
This tax benefit can be significant. Every dollar you save reduces your taxable income, which may result in a lower tax bill in some cases.
💡 Quick Tip: The advantage of opening an IRA, like a Roth IRA, and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.
Can You Change Your 401(k) Contribution at Any Time?
While the opportunity to make changes to some employee benefits, like health insurance, are generally only offered once a year during so-called open enrollment periods, many 401(k) plans allow participants to change the amount of their 401(k) contributions at any point. According to Department of Labor guidelines, an employer must allow plan participants to change investments at least quarterly (sometimes more often, if company stock or other high-risk investments are offered by the plan).
These are some of the reasons you may want to change 401(k) contribution amounts.
The Ability to Save More
You may have gotten a raise, or experienced a change in your financial circumstances, and wish to increase the percentage of your savings. Contributions to these plans are typically expressed as a percentage of your annual salary. For example, if you earn $75,000 per year, and your contribution rate is 10%, you would save a total of $7,500 per year. If you got a raise to $80,000 and now wish to contribute 12%, you would save a total of $9,600 per year.
To Get the Match
As discussed above, some 401(k) plans offer a savings match from the employer. In most cases, the match is a set percentage of the employee’s contribution. If you started your 401(k) at a point when you couldn’t get the full match, you may want to increase your contributions to get the full employer match.
Rebalancing Your Asset Allocation
If you’ve held the account for a while, say a year or more, the original allocation of your investments — i.e. the balance between equities, cash, and fixed income investments — may have shifted. Restoring the original balance of your investments may be a priority, if your strategy and risk tolerance haven’t changed.
Changing Your Asset Allocation
You also might want to shift the asset allocation because your financial strategy has become more aggressive (i.e. tilting toward stocks) or more conservative (tilting toward cash and fixed income).
Setting Up Automatic Increases
Some plans offer participants the option of automatically increasing their contribution rate every year, typically up to a certain percentage (e.g. 15%), and not to exceed the maximum contribution levels. The IRS contribution limit for 401(k) plans for 2024 is $23,000 for participants under age 50. Those 50 and older can save an extra $7,500 in “catch-up contributions,” for a total of $30,500.
For 2025, the contribution limit is $23,500 for participants under age 50. Those 50 and older can save an extra $7,500 in “catch-up contributions”, for a total of $31,000. In addition for 2025, those aged 60 to 63 may contribute an additional $11,250, instead of $7,500.
Setting up automatic increases allows you to save more in your 401(k) each year without having to think about it; this can be beneficial for overcoming the inertia common among some savers.
How to Change 401(k) Contributions: 3 Steps
Again, the 401(k) plan provider will be able to advise participants on how often they can make changes to their contributions, and what the process will look like. For employees unsure of who the plan provider is, the company’s human resource department can point them in the right direction.
In some cases, participants can change their contributions directly through their plan provider’s website. Generally, the process of making changes to a 401(k) looks like this:
Step 1:
The employee contacts their 401(k) provider to discuss how to change contributions for their particular 401(k) plan.
Step 2:
The employee considers how much of their paycheck they want to contribute to their 401(k) moving forward, taking their company’s 401(k) match into consideration, and ideally contributing at least that much. The employee might also change their asset allocation, depending on plan rules.
Step 3:
The participant fills out any forms (online or via paperwork) to confirm their new contribution.
Often, these steps can take just a few minutes, using your plan sponsor’s website.
Why Contribute to a 401(k)? 3 Good Reasons
Contributing to a 401(k) plan is an important way to save for retirement. The funds in a 401(k) are invested, generally in mutual funds, exchange-traded funds (ETFs), or target date funds — which can offer the potential for growth over time. Typically there are about eight to 12 investment options in most 401(k) plans.
But perhaps the three best reasons to contribute to a 401(k) plan are the opportunity to save automatically via regular payroll deductions; the potentially lower tax bill; and the ability to get “free money” from your employer match, if it’s offered.
Low-stress Saving
For many people, this type of investment is easy because you can choose how much of your salary to contribute each pay period, and deductions happen automatically. You don’t have to think about your savings, your contributions are taken directly from each paycheck, so it helps to build your nest egg over time.
Lower Taxable Income
Another benefit is the potential for savings during tax season. Since the contributions an employee makes to their 401(k) plan over the course of the year aren’t included in their taxable income, that can lower their overall taxable income. This, in turn, may result in an individual falling into a lower tax bracket and paying less income tax for that year.
And in the future, when they might likely be in a lower tax bracket due to retirement, they’ll pay lower taxes when they withdraw the money from their 401(k) account.
Note: Withdrawing money from a 401(k) account before retirement age may lead to early withdrawal penalties.
Another perk of enrolling in a 401(k) plan is the notion of “free money” from one’s employer. Some companies match a portion of their employees’ contributions — often around 50 cents to $1 for each dollar that an employee contributes.
Typically, an employer might set a maximum matching limit, such as 3% to 6% of the employee’s salary.
This matching contribution is often referred to as free money because the contribution effectively increases an employee’s income without increasing their current tax bill. It’s worth noting that an employer’s match generally vests over the course of three or four years — meaning that the employer-contributed money will accrue in the account, but an employee won’t be able to keep it if they switch jobs, unless they remain with the company for that set period of time.
Setting up Recurring Contributions
When it comes to setting up a 401(k), the process varies by workplace. Some companies offer automatic enrollment to employees, automatically reducing the employee’s wages by a certain amount and diverting that money to the employee’s 401(k) plan, unless the employee chooses not to have their wages contributed.
Or, an employee can choose to enroll, but to contribute a custom amount. This type of contribution is referred to as an elective deferral.
In companies that don’t offer automatic enrollment as an option, employees will need to work with their HR department and retirement plan provider to get their 401(k) set up.
Participants need to decide how much they want to contribute and they may need to choose their investments. They can also opt to take advantage of autopilot settings, and can roll over a 401(k) from a past job into their new one.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.
How Much to Save for Retirement
The Department of Labor (DOL) outlined a few best practices for investing in order to save for retirement.
It estimated that most Americans will need 70% to 90% of their preretirement income saved by retirement, in order to maintain their current standard of living. Doing that math can give plan participants an idea of how much they should be contributing to their 401(k).
Participants might also consider a few basic investment principles, such as diversifying retirement investments to reduce risk and improve return. These investment choices may evolve overtime depending on someone’s age, goals, and financial situation.
The DOL recommends that employees contribute all they can to their employer-sponsored 401(k) plan to take advantage of benefits like lower taxes, company contributions, and tax deferrals.
Adding Alternative Investments to a 401(k)
Some savers may find themselves interested in pursuing alternative investments when saving for retirement. An alternative investment takes place outside of the traditional markets of stocks, fixed-income, and cash. This method may appeal to those looking for portfolio diversification. Popular examples of alternative investments are private equity, venture capital, hedge funds, real estate, and commodities.
Self-directed 401(k)s allow participants to add alternate investments to their 401(k) portfolio. With a self-directed 401(k), the investor chooses a custodian such as a brokerage or investment firm to hold the amount of assets and execute the purchase or sale of investments on the participant’s behalf. If an employer offers a self-directed 401(k), the custodian will likely be the plan administrator.
The Takeaway
For employees looking to change 401(k) contributions, the process is often as simple as reaching out to your plan provider and confirming that you’re allowed to make a change at this time.
Some companies have rules around when and how often employees can make changes to their contributions. Once you have the go-ahead to make the change, and have considered what works best for your current financial situation and your future goals, it’s generally straightforward.
A company-sponsored 401(k) plan offers many benefits, but once you leave your job, many of those benefits — including the employer-matching program — no longer apply. At that point, you may want to consider doing a rollover of your previous 401(k) to an IRA, so you can remain in control of your money.
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).
Easily manage your retirement savings with a SoFi IRA.
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.
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.
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.
A mortgage commitment letter is a step beyond prequalification and preapproval and could give a homebuyer an edge in a competitive market. It lays out the loan details and indicates that a buyer has an agreement for a mortgage.
But who should obtain a mortgage commitment letter and when? Let’s take a look at those answers and more.
What Is a Mortgage Commitment Letter?
A mortgage commitment letter — conditional or final — is a step closer to finalizing a mortgage but short of “cleared to close.” The letter signals to the seller that the buyer and a chosen financial institution have forged an agreement.
Buyers may seek a conditional mortgage commitment letter when they’re house hunting, and a final commitment letter when they’re ready to make an offer on a specific home.
In both types of loan commitments, the lender outlines the terms of the mortgage.
In the mortgage loan process, buyers will hear “approval” thrown around a lot. But not all approvals are built equally, and each type signifies a different part of the process.
Prequalification
Getting prequalified is often an early step for buyers in the home search. It’s quick, can be done online, and doesn’t require a hard credit inquiry.
To get prequalified, buyers provide financial details, including income, debt, and assets, but no documentation, so this step serves as an estimate of how much home they can afford.
Prequalification can help buyers create a realistic budget, but the amount, interest rate, and loan program might change as the lender gets more information.
Preapproval
Preapproval is slightly more complicated, requiring a hard credit inquiry and documentation from the buyer. Lenders may ask for the following:
• Identification
• Recent pay stubs
• W-2 statements
• Tax returns
• Activity from checking, savings, and investment accounts
• Residential history
Armed with this information, a lender will give buyers a specific amount they’ll likely qualify for.
Preapproval also shows sellers that a buyer is serious about a home, as it means a lender is willing to approve them for a mortgage.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Conditional vs Final Commitment
Prequalification and preapproval can be important steps during the home search. But especially in a seller’s market and in certain cities, the mortgage commitment letter can become an important tool.
While a mortgage loan commitment letter can show a seller that the buyer is serious, not all letters are the same.
A conditional mortgage approval letter, the most common type, means that the lender will approve buyers as long as they meet certain conditions.
Conditions could include:
• No change to the buyer’s finances before the closing date
• Proof of funds to cover the down payment and closing costs
• No liens or other problems with the property title
A final commitment letter means the lender has unconditionally approved the buyer for a loan to purchase a home. However, this doesn’t mean the buyer is guaranteed a loan; it just means the lender is ready to approve the mortgage.
Having a mortgage commitment letter in hand is a good way to ensure that nothing will go wrong during underwriting.
How to Know If You Need a Mortgage Commitment Letter
Buyers don’t need to provide a mortgage commitment letter to a seller. Still, that extra step beyond preapproval indicates how serious they are about a property.
Since it may require a little extra work, it shows sellers that a buyer is less likely to back out, especially due to financing issues.
A mortgage commitment letter could convince a seller to take a buyer more seriously in a seller’s market. And it could calm the nerves of buyers who face home-buying angst, including the challenge of covering a down payment and closing costs (even if they plan to roll closing costs into the loan).
How to Get a Mortgage Commitment Letter
Getting a mortgage commitment letter might sound like a hassle during an already stressful home-buying process, but doing so could save buyers time and provide a sense of relief as they creep closer to closing.
First off, buyers will need to be preapproved. If they have chosen a home, once under contract, their lender or underwriter will want more information, which may include:
• A gift letter if another party is helping with the down payment
• Employment verification
• Explanation of any late payments
• Proof of debts paid and settled
From there, it could be a back-and-forth between the lender and buyer, with the lender asking for clarification or additional documentation. Common issues that arise include:
• Tax returns with errors or inconsistencies
• Unexplained deposits into buyer bank accounts
• Multiple late payments or collections on a credit report
• Unclear pay stubs
At this point, the lender may grant a conditional commitment letter, with the caveat of additional information and an appraisal. If the buyer has an appraisal and meets lender expectations with documentation, they’re likely to get a final commitment.
Contents of a Commitment Letter
A commitment letter will vary from lender to lender but generally include the following details:
What happens after the commitment letter? The lender and underwriter will continue to iron out the mortgage details, aiming for cleared-to-close status before the closing date on the property.
The Takeaway
A mortgage commitment letter is like a short engagement before the wedding: It signals an agreement before the real deal. Buyers in an active seller’s market might find a mortgage commitment letter advantageous.
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 long does it take to get a mortgage commitment letter?
It typically takes 20 to 45 days to get a mortgage commitment letter. The average closing process takes 50 days.
Does a mortgage commitment letter expire?
Yes.
How long is a mortgage commitment letter valid?
Timing can vary by lender, but the length of commitment is typically 30 days.
Photo credit: iStock/MartinPrescott
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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.
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.
