Editor’s Note:Lending Club no longer offers peer-to-peer lending on it’s platform.
You’re probably already familiar with Lending Club, the largest peer-to-peer lending platform in the US. Since the site began operating in 2007, it has funded almost $16 billion worth of loans. It does this by bringing together borrowers and investors – who will be the ultimate lenders – on the same platform to make loan arrangements that will benefit both parties. This provides a form of direct borrowing/lending that effectively removes the “middle man”, which in traditional loan arrangements is the bank.
Borrowers benefit because many of them either pay lower interest rates on their loans, or are able to borrow money that would not be available from banks. But investors have perhaps an even bigger advantage – they are able to invest money in those loans and earn interest rates that are substantially higher than what they can ever get through the banks and other conventional fixed income investments.
The peer-to-peer universe, and especially Lending Club, are now drawing billions of dollars in investment capital from investors who are eager to take advantage of those higher returns.
Lending Club provides the perfect platform for the creation of new loans on a continuous basis. However one function that Lending Club doesn’t provide is the direct ability to buy or sell an existing loan note. For that, they are working with Folio Investing, an investment service that provides everything you need to buy and sell peer-to-peer loan notes on the secondary market.
And it all takes place through the Lending Club platform.
What Is Lending Club Folio?
Lending Club itself is solely responsible for the origination of new peer-to-peer loans. Investors can purchase entire loans, or they can purchase a small part of a loan, both of which are referred to as a “note”. You can purchase a loan note in denominations of as little as $25. This will enable you to diversify an investment of a few thousand dollars across a very large number of notes, limiting the amount of loss that you will suffer when a single loan defaults.
But if you want to sell a note before the end of the loan term, or if you want to purchase existing notes, Lending Club enables you to do that through its affiliation with Folio Investing.
McLean, Virginia based Folio Investing began operations in 2000, determined to bring about investing innovations that will help investors benefit from smarter investments. The company has developed new technology to help investors that have resulted in 19 patents. And the company is committed to developing even more.
You can actually open an account with Folio Investing for the purpose of investing through other platforms, in addition to Lending Club.
How Lending Club Folio Works
If you want to buy or sell existing notes, you first sign up for a Lending Club investor account and then move to the Note Trading Platform. There you can buy or sell notes from and to other Lending Club investors.
The Note Trading Platform is operated by Folio Investing through the Lending Club site. In order to participate on the platform you must have an account with Lending Club, and you must also open a Folio Investing trading account, which you can do through Lending Club. Folio is a member of both FINRA and SIPC.
If you want to buy or sell a note, you can offer it on the Note Trading Platform. There you will set the asking price. Potential buyers can browse through the list of notes available for sale, including your note, as well as get detailed information about each note. If a buyer is interested, he or she can choose the note, and place an order to buy it.
Pricing a note. The price of a note that is offered for sale is determined by the seller of the note. There is a marketplace rule however requiring a note not be priced at a markup greater than 70% of the total value of accrued interest and outstanding principal, or that would otherwise produce a negative yield to maturity.
Trades typically settle in one business day. Borrower payments made after the trade settlement go to the buyer, including principal and interest accrued before the sale of the note. The payments will be received from Lending Club, not Folio Investing.
In each sale, the transaction fee is paid by the seller, not by the buyer.
If you want to buy existing notes, rather than brand-new ones, you simply need to go to the Note Trading Platform and browse through the notes that are offered. There you can choose to buy any notes that meet your investment criteria.
We’ll discuss the reasons why you might want to invest in existing notes, rather than brand-new ones, below.
Features and Benefits
There are a number of benefits to selling existing notes, and selling them through Folio.
Liquidity – One of the limitations of peer-to-peer investing is the lack of options to sell a note once you buy it (it is one of the only real complaints about lending club). Not only are you unable to sell directly through Lending Club (other than through Folio), but you can’t sell them through a traditional investment broker either. At least at the current time, peer-to-peer loan notes exist only on peer-to-peer lending platforms. But through Folio, Lending Club provides you with an outlet to sell your current notes. That provides you with a solid measure of liquidity, that makes investing through Lending Club even more advantageous.
Portfolio management – With the ability to sell notes, you have an enhanced capability to manage your note portfolio. Let’s say that you invested in a note that met your criteria at the time you purchased it, but it no longer does; Folio provides you with the ability to sell it out of your portfolio and to move on to other notes. Perhaps this happens because the note does not perform as expected, or because you have changed your investment criteria since purchasing the particular note. As is the case with investing in any type of asset, it’s always best to have the option to sell the security after the fact.
Potential profit – Though it isn’t a common investment activity (yet), but it may be possible to earn extra income on a note if you can sell it at a price above par. For example, if you have a note with $75 remaining to be paid on it, but you can sell it for $77, you have an immediate additional profit of $2 on the investment. That may not seem like a lot of money, but if you can multiply the activity across many notes on a monthly basis, you could increase your investment returns considerably.
Fees – When you sell a note through Folio you are charged a fee of 1% of the purchase price. If you aren’t satisfied with the performance of a note, you may be happy to pay such a small fee in order to get out of it.
There are also a number of benefits to buying existing notes, and buying them through Folio.
Short-term investing – New notes purchased on Lending Club range from 36 months to 60 months. But let’s say that you don’t want to tie up your money for up to five years – you can buy existing notes through Folio that will have shorter terms due to the fact that they are already in progress. For example, you can purchase a 60 month term loan that has been in existence for three years; that means that the loan will have just 24 months remaining until it is fully paid. In this way, you can choose the maturities of the notes that you invest in.
Investment opportunities – You may be able to purchase existing notes that are priced below what you think they are actually worth. This could have something to do with the performance history on the note, or it can simply be that the current noteholder wants to dump it and move on. Whatever the reason, an underpriced note will offer you an opportunity to earn some extra principal on on it, in addition to the remaining interest due on it.
Loan “seasoning” – This is actually a term that is common in the lending industry. “Seasoning” refers to the fact that a loan is existing, and therefore it has an established payment history. This makes the integrity of the loan a known commodity. It is important to understand that there is no way to know with absolute certainty how a loan will perform when it is brand-new. Even borrowers with AAA credit profiles occasionally default on loans. But with existing loans, you have a better idea of the borrower’s willingness and ability to repay the loan. And since the loan has a shorter remaining term, that also serves to reduce the risk of the investment.
Access – There is simply no other source where you can buy existing Lending Club notes. They are not available through traditional investment brokers, despite the fact that they can represent profitable investment opportunities.
No Folio fees – Folio does not charge a buyer for purchasing existing notes. The only fee in the transaction is charged to the seller of the note.
Summary
If you are going to invest in peer-to-peer lending, as thousands of people now do, then it’s an excellent idea to sign up with Folio Investing through the Lending Club site. Folio will give you the ability to sell any notes that you are no longer comfortable owning. And if you decide that you would like to diversify your note holdings by adding existing notes to new ones, you will have that ability.
Liquidity – the ability to sell an investment – is a welcome feature in any investment portfolio. Not only does it reduce the risk of holding a note that you no longer consider to be investment-worthy, but it also gives you the ability to create the exact kind of portfolio that you want.
Once you become an investor set up a Note Trading Platform through Folio Investing, even if you don’t think you’ll use it. Chances are good that you will, sooner or later.
It didn’t take long after President Biden announced his student loan forgiveness program in August 2022 for the scammers to get up and running. The Better Business Bureau (BBB) and federal agencies have unearthed hundreds of ads, text messages, phone calls, and emails targeting student loan borrowers. Their purpose? To get consumers to divulge private financial information or to pay for unnecessary services. In response, the U.S. Department of Education issued warnings about the student loan forgiveness scams and advice on how to avoid them .
The ongoing student loan payment pause hasn’t slowed the scammers down. Keep reading to learn how student loan forgiveness program scams try to fool you, and how you can avoid getting duped.
Status of Biden’s Student Loan Forgiveness Plan
The student loan forgiveness plan would cancel up to $10,000 in federal student loan debt for single borrowers with an adjusted gross income of less than $125,000 a year, or less than $250,000 for married couples. Pell Grant recipients could have as much as $20,000 in student debt canceled. To refresh your memory, check out this story on the student debt relief plan.
The DOE officially began to accept applications for forgiveness on Oct. 17, 2022, but had to stop in November due to legal challenges to Biden’s program.
Meanwhile, the pause on federal student loan payments for all borrowers has been extended several times. Repayment could potentially resume as late as 60 days after June 30, 2023, when the U.S. Supreme Court is expected to release its decision on the challenges to President Biden’s student debt cancellation program.
While borrowers wait for updates, scammers are actively using phony government websites, false promises, and other criminal schemes to lure unsuspecting consumers. Here’s what you need to know to avoid student loan forgiveness scams.
Recommended: What Biden’s Student Loan Forgiveness Means for Your Taxes
Types of Student Loan Forgiveness Scams
Watchdogs have identified a variety of scams related to student loan forgiveness. Some are aimed at borrowers searching out information on the internet, and others directly target people who hold student loans. Fortunately, certain patterns are coming into focus. Here’s a rundown of what officials have seen so far.
Recommended: How Do Student Loans Work? Guide to Student Loans
False Deadline Warnings
These scams include texts, calls, and emails sent to borrowers conveying a false sense of urgency that they must take action before a certain date or miss out on forgiveness. In reality, the messages are designed to scare you into disclosing personal financial information, which criminals may then use for identity theft and other financial fraud. Be very wary of any “student loan forgiveness center” calls.
On Oct. 17, the DOE opened the official forgiveness application portal . The deadline for applications is the end of 2023, but you’ll want to apply a lot sooner if your payments will be resuming in January.
What’s more, for many borrowers who already have income information on file with the DOE, forgiveness will be automatic. No application — and no deadline — is necessary.
Fake Email Alerts
Especially while borrowers were waiting on an email from the DOE informing them that the forgiveness application was open, scammers are sending fraudulent emails that look as if they might be from the government in an effort to collect personal financial information. This and other fraudulent strategies are expected to continue.
To make sure you’re responding to a legitimate email, always check the address of the sender. The full address isn’t always obvious on a phone or other mobile device: That interface often shows only the name of the sender. Always click on the sender’s name to see the actual address.
The address is likely to be the real thing if it has a .gov ending, something not easy for fraudsters to imitate.
You can sign up for student loan forgiveness notifications and updates from this DOE webpage .
Help With the Student Loan Forgiveness Application
There are lots of offers on the internet and elsewhere to help borrowers claim their loan forgiveness — for a fee. While not all of the companies offering these services are illegitimate, the DOE has warned that it won’t be necessary to pay for help. They promise the application will be simple and quick to complete.
Predatory companies love to use webinars and videos explaining the details of the loan forgiveness program. The ending is always the same: a plea to sign up for their paid service, with the promise they’ll get you your debt relief. They may claim they can get you additional benefits, get your benefits faster, or get you to state tax breaks if you pay them upfront. In some cases, the outlaws charge hundreds of dollars for unnecessary service.
A real government agency will never ask for an advance processing fee. And legitimate student loan servicers will never charge a fee for providing information about your loans. You can check if a company works with the DOE at the Federal Student Aid site on avoiding scams .
Recommended: 9 Smart Ways to Pay Off Student Loans
What You Can Do to Avoid Scammers
To protect yourself from student loan forgiveness program scams, familiarize yourself with the following tips. They can help you avoid the threat of costly identity theft or financial fraud that can result from these schemes.
Never give out your FSA ID, student aid account information, or password. The DOE and the company that services your federal student loans will never call or email asking you for this information. Along the same lines, never give your personal or financial information — including your Social Security number and bank account information — over the phone or email. (That said, the beta version of the forgiveness application asks for your Social Security number but not your FSA ID.)
Avoid upfront fees. Think twice before paying anyone for help filling out the application. It is highly likely you won’t need help because the government is promising a free and easy-to-use application. Paying a fee before the application is even available is totally unnecessary.
Stay up-to-date. Having the most accurate and current student loan forgiveness information is the best defense against fraud. As mentioned above, sign up with the DOE for notifications and updates. And keep an eye on the Better Business Bureau and Federal Student Aid websites for the latest official information.
Update your contact information. To receive official notices related to student debt relief, make sure the government and your loan servicer have your most current contact information. If your income information is already on file at the DOE, qualifying borrowers will automatically receive loan forgiveness without having to apply. All borrowers, whether or not they have to apply, will be notified by the DOE when the application goes live.
To make sure you get these notices and other updates, sign up with StudentAid.gov to receive text alerts. If you don’t have a StudentAid.gov account, create one now .
You’ll also want to make sure your student loan servicer has your most recent contact information. You can find your federal student loan servicer’s contact information at Studentaid.gov/manage-loans/repayment/servicers
The Takeaway
Understanding how student loan forgiveness scammers work is an important step toward protecting yourself. Staying up to date on the latest official news and announcements can also help you bypass the onslaught of scams out there. Another important defense: Actively manage your student loan accounts and make sure all of your information is accurate and up to date.
SoFi can help. If you have more federal student debt than the new debt relief plan will forgive, or you don’t qualify for loan forgiveness, or you have private student loans, you may want to consider refinancing your debt before rates rise further.
If you do qualify for forgiveness and you refinance your entire federal student debt, you will no longer qualify for the new program. If you still wish to refinance, leave up to $10,000 unrefinanced ($20,000 for Pell Grant recipients) to receive your federal benefit. Remember: Good information is your best weapon when it comes to managing all aspects of student debt.
Save thousands of dollars thanks to flexible terms and low fixed or variable rates.
FAQ
What are common types of student loan forgiveness scams?
Look out for false email alerts claiming to be from the government and phony government websites. These schemes attempt to get you to divulge personal financial information, which can then be used for identity theft and other financial fraud. Other scammers are offering unnecessary forgiveness application help for a costly upfront fee.
How can I avoid falling victim to a student loan forgiveness scam?
Information is your best defense. Sign up for government alerts and notifications, and keep an eye on advice from official outlets. Also, make sure your contact information is current with both the government and your loan servicer.
Does everyone eligible to receive student loan forgiveness need to fill out an application?
No. If your income information is already on file with the Department of Education, you will not need to apply for student loan forgiveness. You’ll receive it automatically.
Photo credit: iStock/Pekic
SoFi Student Loan Refinance If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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. Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article. External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement. 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. SOSL1022002
Save more, spend smarter, and make your money go further
Summer is an extremely popular time to move. Many people avoid moving during the other months due to their kids being in school and not wanting to disrupt the school season. Once school’s out in May or June, then people start their journeys to their new homes and cities. Another reason people often move in the summer is that it’s much more pleasant than trying to move in the cold, rain, snow, or ice! Whether you are moving cross-town or across the country, here are a few tips to save money while moving.
Consider when you’re moving
As we mentioned, most people move during either the late spring, summer, and early fall. And based on the laws of supply and demand, it’s likely to cost more to move then vs. moving in the offseason, all other things remaining equal. If you have kids whose school schedules you don’t want to interrupt, you may not have a choice in what time of year you move.
Even if you’re moving during peak moving season, you might consider saving some money by not moving on the weekend. Again, weekends are when many people move, so many moving companies will charge more for a weekend move. If you have the flexibility to do so, consider moving during the week. If you’re using a professional moving company, ask them if they will give a discount if you move during the week.
Don’t move everything you have
Once you’ve figured out when you’re planning on moving, it’s time to figure out WHAT you’re moving. No matter how much stuff you think you have, you actually have way more. It’s amazing how much you accumulate over the years. Make sure you carefully measure the dimensions of your new home to figure out what will fit. Sell, donate or give away anything that won’t fit in. The earlier that you start the process, the better off you will be.
If you have the flexibility to start moving a few weeks or months before you need to move, you’ll have the time to be able to sell things you don’t want to take with you. If you’re not able to have a garage or yard sale yourself, you might have a friend or family member that is having one. See if they will let you sell some of your items at their sale either on a commission or for a fixed price. If you put it off until the last minute, you’re likely to find yourself giving things away for free or, worse, paying someone to haul it away.
Whether you are moving within your same city or to a new city will have an impact on how much you need to get rid of. When you move long-distance, you’re limited to whatever gets shipped or put on the truck. For shorter moves, you can make multiple trips. Whether you’re moving to a smaller or larger place plays a big part as well. In any case, it’s a good idea to try and downsize as much as possible.
Saving money on packing supplies
There are a few ways that you can save money on packing supplies like boxes. The best way to save money is to get boxes from someone who moved a week or two before you did. They’ll likely be happy for someone to take their boxes away. Unless you know someone that’s recently moved, there aren’t a lot of places to reliably get free moving boxes. One option can be Uhaul — while their boxes aren’t free, they will buy back any boxes that you don’t use. That way you don’t have to worry about overpaying for boxes.
Pack it (or move it) yourself
Another great way to save money while moving is to move things yourself. Now is a great time to call in those favors to get help from your friends, family and church. Of course, the feasibility of moving yourself will depend a lot on your specific situation. Where you’re moving, how much you have to move, and how many people you can call on will be major factors in whether moving things yourself is even possible.
Even if you are hiring a moving company, you can still save money by doing the packing yourself. Most moving companies will pack things for you, but it definitely drives up the cost. Remember that if you do pack things yourself, you may be responsible for any items that are damaged during the move.
The Bottom Line
Moving can be a stressful time, so it depends on your own specific situation how much you want to focus on saving money vs. saving your time. If you can be flexible, try to move during the week and/or during the offseason. The next most important thing to save money while moving is to start early and downsize your possessions as much as possible. The sooner you start, the more time you’ll have to sell the things you can’t take with you. If you can find someone who moved shortly before you, ask if they have any moving boxes you can use, and pack and move as much as you can yourself to save money while moving.
Save more, spend smarter, and make your money go further
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Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids. More from Dan Miller
The GI Bill offers veterans, military members, and their loved ones many benefits. But one thing it doesn’t cover? That’d be buying a house.
Fortunately, if you’re looking to purchase a new home as a veteran or active-duty service member, you still have options. While there may not be a specific GI Bill home loan out there, there is a mortgage program designed just for military home buyers — and it’s one of the best home loan programs on the market.
Are you interested in using the VA loan program to buy a house? Let this VA home loan info guide the way.
Check your eligibility for a VA home loan here (Apr 30th, 2023)
Mortgage program for military home buyers
Dubbed the VA loan program, these military-only mortgages are some of the best financing options available. They’re backed by the Department of Veterans Affairs and offer low interest rates, come with no loan limits, and require zero down payment at all.
So while there is no official “GI home loan,” military borrowers have access to a VA home loan benefit, a great mortgage program intended to put homeownership into reach for veterans, active-duty service members and their families.
Benefits of a VA loan
VA loans come with countless benefits, but the biggest perk is that they require no down payment.
Unlike other mortgage programs, which ask for anywhere from 3% to 20% down, VA loans require no down payment at all. This can offer significant savings right off the bat. (A low-cost FHA loan requires at least $7,000 down on a $200,000 house, for example, while a VA loan requires $0 down).
Some other benefits of VA loans include:
Competitively low interest rates
No credit score requirements
Limits on closing costs
Loans are assumable, meaning future buyers can take over the loan (and the favorable rate and term it comes with)
No private mortgage insurance (PMI)
No loan limits
Can be used multiple times
VA loan mortgage rates 2023
When compared to other loan types — conventional loans and FHA loans, for example — VA home loans offer consistently lower rates than for the average consumer.
VA
Conventional
FHA
March 2023
6.18%
6.54%
6.44%
February 2023
6.04%
6.26%
6.30%
January 2023
5.96%
6.27%
6.22%
December 2022
6.17%
6.36%
6.36%
November 2022
6.56%
6.81%
6.66%
October 2022
6.62%
6.90%
6.73%
Source: Economic Research Federal Reserve Bank of St. Louis
A lower interest rate translates to a lower monthly mortgage payment and substantial savings over the life of your loan.
Qualify with GI Monthly Housing Allowance (MHA)
One last advantage? If you qualify for GI Bill benefits, you can actually use your GI Monthly Housing Allowance (MHA) to qualify for a VA loan. If you’re considering this option, talk to a VA lender. They can give you an idea of what your MHA qualifies you for.
VA loan eligibility & guidelines
For eligible borrowers, VA loans are usually the best mortgage option available. To qualify, borrowers must meet eligibility requirements set by the U.S. Department of Veterans Affairs and by the individual lender.
VA loan service eligibility requirements
VA loans are only for active-duty military members, veterans, and their families (including surviving spouses), so there are strict service requirements you’ll need to meet to qualify.
The exact standards depend on when you served, but generally speaking, you’ll need to have one of the following:
90 consecutive days of active service during wartime
181 days of active service during peacetime
6 years of service in the National Guard or Reserves
A veteran/service member spouse who died in the line of duty or due to a service-related disability or injury
Qualifying for a VA loan
The VA doesn’t set specific financial standards for its loans, though private mortgage lenders — the companies who actually issue the loans — do. These vary from one lender to the next, but in most cases, borrowers need at least a 620 credit score and a debt-to-income ratio of 41% or less.
If you fall short of these requirements, you still might qualify. Just make sure to shop around for your lender, work on improving your credit, and consider making a down payment. These steps can all help you better qualify for a mortgage loan (VA or not).
VA loan property requirements
The VA home loan program is intended to help veterans and active-duty service members become homeowners. That means, with some rare exceptions, these homes are reserved for single-family homes that the borrower plans to use as a primary residence.
A VA appraisal will ensure the property meets the VA’s Minimum Property Requirements, to ensure the home is livable and worth the value of the loan.
See if you’re eligible for a VA home loan (Apr 30th, 2023)
Types of VA loans
You can use a VA loan to either purchase a property or refinance an existing one. In both cases, there are a few options.
These include:
VA Purchase Loans: These can be used to buy a home (up to four units), an approved condo, or a manufactured home. You can also use VA purchase loans to build a new construction property or purchase a home and renovate it
VA Streamline Refinance: Also known as a VA Interest Rate Reduction Refinance Loan (IRRRL), these streamlined refinance loans allow existing VA loan borrowers to lower their interest rates or get more favorable terms quickly and affordably.
Native American Direct Loans: These are VA loans reserved just for veterans of Native American descent. They can be used to buy, build, or renovate properties on federal trust lands or to refinance.
VA Cash-out Refinance Loans: These are VA loans that let you tap your home equity. They replace your existing VA loan with a larger-balance one and give you a lump-sum payment in return. Cash-out refinancing can be a good choice if you need to make repairs on your property or if you have unexpected or looming expenses to cover.
VA funding fee
The VA funding fee is a one-time fee you’ll pay at closing. It helps subsidize the VA loan program and keeps costs low for future VA borrowers. The exact fee depends on your loan type, the number of times you’ve used your VA loan benefits, and your down payment size.
VA home loan FAQ
How much is a typical GI home loan?
There is no GI Bill home loan, but VA loans have no loan limits. As long as you have your full entitlement, you can borrow as much as you need to purchase a property. Keep in mind, though, lenders have their own criteria for evaluating borrowers. These tend to be stricter on higher loan amounts.
What are the benefits of a VA home loan?
The VA housing loan is one of the most beneficial financing products out there. The VA guarantee means private lenders can afford to pass along valuable benefits to eligible veterans, active-duty service members and their families. These loans come with no mortgage insurance or down payment, they have low interest rates, and there are no credit score requirements or loan limits either.
How much house can I afford as a veteran?
That depends on your budget, the interest rate you qualify for, and the down payment you’re willing to make. You can use this VA home loan calculator to point you in the right direction.
What is a Certificate of Eligibility (COE)?
A Certificate of Eligibility is an official document from the VA that details your military service. Lenders use it to determine whether you meet the VA loan program’s service requirements, which are detailed above. You can retrieve your COE yourself through your eBenefits portal, or you can ask your chosen VA lender to request the document on your behalf.
Can I get a COE as the spouse of a Veteran?
You can get a Certificate of Eligibility as the spouse of a veteran in some cases, but not all. To qualify for a COE, your spouse will either need to be missing in action, a prisoner of war or have died while in service from a service-connected disability. There are some other nuances, too — especially if you’ve remarried, so be sure to check out the VA’s detailed rules here.
Can I get a Certificate of Eligibility (COE) for a VA direct or VA-backed home loan?
Certificates of Eligibility are required for all VA mortgages, including Native American Direct and VA-backed purchase and refinance loans.
How much is the VA funding fee?
Your VA funding fee will depend on a few factors, including the type of loan you’re using, whether you’re a first-time home buyer, and whether you’re making a down payment. Fees range anywhere from 0.5% to 3.6% of the total loan amount and is typically well-worth the VA loan savings it allows you to access. This money allows the U.S. Department of Veterans Affairs to continue to offer this valuable VA home loan benefit to qualified veterans, active-duty service members and their families.
GI home loans: The bottom line
While there is technically no such thing as a GI home loan, veterans and active-duty service members do have access to excellent VA mortgage program, which offers significant benefits including:
Zero down payment
Competitively low interest rates
No credit score requirements
Limits on closing costs
Loans are assumable, meaning future buyers can take over the loan (and the favorable rate and term it comes with)
No private mortgage insurance (PMI)
No loan limits
Can be used multiple times
If you’re ready to buy a home (or refinance one), a VA loan might be your best option.
Ready to buy a home with a VA loan? Start here (Apr 30th, 2023)
Digital wallets, also called electronic wallets or e-wallets, offer consumers a convenient way to make payments from their financial accounts using devices such as smartphones, laptops, tablets, and even wearables. Digital wallets store payment information securely, typically allowing for safe, efficient, and fast transactions in person and online.
Read on to learn more, including:
• What is a digital wallet?
• How do digital wallets work?
• What are examples of digital wallets?
• What are the pros and cons of digital wallets?
What Is a Digital Wallet?
A digital wallet is typically a safe and convenient way to store your payment information electronically. Here are some key points to know:
• While often used interchangeably with the term “mobile wallet,” a mobile wallet is actually a form of a digital wallet — on a mobile phone. You can also use digital wallets on a desktop computer, tablet, and even internet-connected devices like a smartwatch or a smart fridge.
• If you’re shopping at a store that accepts digital wallets, you can pay using your smartphone, with no physical credit cards, debit cards, or cash necessary. You can also keep payment information online on sites like Amazon or Walmart and quickly pay using that stored information the next time you shop.
• Some digital wallets also enable peer-to-peer transfers (P2P transfers). You can send money to friends and family and receive money when they send it to you. Some popular P2P services are Venmo and PayPal.
Digital wallets can store more than just your payment information. Consumers often use digital wallets to store:
• Airline tickets
• Events tickets
• Loyalty cards
• Gift cards
• Membership cards
• Coupons
• Hotel reservations
• Digital car keys
• Driver’s licenses or state IDs
• Health information, such as COVID-19 vaccination cards
How Do Digital Wallets Work?
To use a digital wallet, you’ll need to follow a couple of relatively simple steps:
• First, download an app to your phone or access a digital wallet online. You’ll then enter in any payment information you’d like to link to the digital wallet to make it easy to spend and send your money.
• When shopping in person with a digital wallet, your mobile device will interact with a point of sale reader or terminal, using technologies like QR codes, near field communication (NFC), and magnetic secure transmission (MSC).
• You’ll have to hold your device close to the terminal, where indicated. During this contactless payment, the merchant receives your encrypted payment information to process the transaction.
• You can also use digital wallets to send money to peers. For this to work, you usually need to know their account name. You can often “friend” them or connect with them before sending funds, which can help make sure the money will go to the right person.
Recommended: How to Send Money to Someone Without a Bank Account
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What Are the Different Types of Digital Wallets?
There are a few different types of digital wallets. Understanding the options can impact what you decide to use since it informs how and when you can use them.
Closed Wallet
Retailers and restaurant chains can develop their own digital wallets that allow you to store payment information, loyalty cards, and rewards program information for use at that specific merchant.
For example, Target, Walmart, Amazon, and Starbucks all have their own proprietary digital wallets. These make the checkout experience faster and easier online and in the store. Such wallets also make it easier to track refunds and returns.
Semi-Closed Wallet
A semi-closed wallet enables users to make payments at select merchants and retailers. To be compatible with such wallets, merchants must sign an agreement with the wallet issuer.
Open Wallet
Open wallets are the most common because they’re the most widely accepted. Think Apple Wallet, Google Wallet, Venmo, and PayPal. Consumers can use these wallets at a wide range of merchants and even withdraw money at banks and ATMs, as well as transfer money between bank accounts.
Different Types of Mobile Wallets
Other types of online digital wallets include IoT wallets. (IoT stands for internet of things.) IoT wallets allow you to make payments from wearables like smart watches and even smart appliances.
Recommended: 15 Causes of Overspending
Digital Wallet Examples
Here are some examples of the digital wallets you might use in your day-to-day finances:
• Apple Wallet
• Google Wallet
• Samsung Pay
• PayPal
• Venmo
• Cash App
• Zelle
• Amazon Pay
• Walmart Pay
Pros and Cons of Digital Wallets
Are digital wallets worth using? Let’s break down the pros and cons.
Pros
Here are the upsides of using a digital wallet:
• Safety: Digital wallets use encryption and tokenization to protect your data, which makes it harder for hackers to access your financial information. If you lose your physical wallet, a criminal immediately has access to your cash and cards; with a digital wallet, your money can be further protected by passwords, multi-factor authentication, and biometric screening — and card numbers aren’t actually stored on your phone.
• Convenience: When shopping online, having your information already stored via digital wallet can make the checkout process much easier. And when you have your information stored in a mobile wallet, paying for groceries or a cup of coffee is as easy as tapping with your phone.
• Flexibility: When you have a digital wallet, you have an additional payment method at your disposal. No more panicking in the checkout aisle if you realize you left your physical wallet at home.
• Budgeting: Some digital wallets make it easy to track your spending, even across various payment methods. This can make it simpler to monitor your personal budget and ensure you aren’t overspending. You may even be able to set spending limits within the wallet, which can help if you have trouble talking yourself out of unnecessary purchases.
Quick Money Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield savings account can help you make meaningful progress towards your financial goals.
Cons
Next, consider the potential downsides of digital wallets:
• Security: While digital wallets are largely safer than physical wallets, there are some security concerns. For example, it’s not a good idea to use public WiFi when accessing your digital wallet. In addition, keeping your phone and digital wallet safe entails setting good passwords and enabling fingerprint or facial recognition; if you don’t take these safety precautions on your phone, your wallet won’t be as safe as it could be.
• Charging your device: If you rely on your phone for your wallet, you’ll have to keep it charged throughout the day. If your phone dies — or you lose it, break it, or leave it at home — you’ll still need a physical wallet for any transactions.
• Acceptance: Though acceptance of digital wallets is growing, you probably still can’t use digital wallets for payments everywhere you go.
• Overspending: Though digital wallets may have cool budgeting features built in, they might also encourage poor spending habits. Why? Because it’s so easy to pay for things online and in person, you may be tempted to buy things more often than you would otherwise. The barriers to purchase may be lower.
Here’s a look at how these upsides and downsides stack up in chart form:
Pros of Digital Wallets
Cons of Digital Wallets
Safety
Some security vulnerabilities
Convenience
Must keep your device charged
An additional payment option
Not yet accepted everywhere
Can help with budgeting
May allow overspending to happen more easily
Recommended: Why Do People Feel Guilty About Spending Money?
Using a Digital Wallet
Ready to start using a digital wallet? Here are a few tips to keep in mind:
• Using smart safety precautions: Having a strong password and enabling facial recognition on your smartphone are good ways to increase the security of digital wallets. It’s also a good idea to avoid public WiFi when accessing your payment methods.
• Adding additional information: Digital wallets can store more than just payment info. For improved convenience, consider adding things like boarding passes for flights, loyalty cards, and even your driver’s license.
• Carrying a backup payment method: Things happen. A merchant may not accept your digital wallet, or your phone could run out of juice (or fall and break!). It’s always smart to have a backup payment method available, just in case.
• Updating payment methods: Credit cards expire. If you get a new card in the mail, don’t forget to update it in your digital wallet.
• Monitoring your spending: If you’re on a tight budget, you’ll want to monitor your digital wallet spending the same way you would any other payment method.
The Takeaway
Digital wallets offer consumers a safe, convenient way of making payments electronically. Your payment information is securely stored so you can use your mobile device, tablet, and smart watch, among other options, to shop. As long as you practice good smartphone safety, you’ll likely find digital wallets to be more secure than a physical wallet.
Better banking is here with up to 4.20% APY on SoFi Checking and Savings.
FAQ
What is the best digital wallet?
The best digital wallet depends on your needs from such a technology. For example, Apple Wallet is one of the more popular options, but if you’re not an iPhone user, it’s not available to you. Think about your needs from a digital wallet — and where each wallet is accepted — to determine the best digital wallet for your lifestyle.
And remember: You can always have more than one digital wallet!
Are digital wallets safer than traditional wallets?
Digital wallets can be safer than a traditional wallet because they encrypt your data and can be password-protected. If a criminal steals your physical wallet, they just have to reach inside to grab your cards and cash, but with a digital wallet, you can keep them locked out of the phone with passwords and biometric screening, like facial recognition. Some digital wallets even require fingerprint scans or facial recognition to complete a contactless transaction.
What is the most common type of digital wallet?
Open wallets are the most common type of digital wallet simply because they have the widest use case. You can use open wallets like Apple Wallet and Google Wallet at a wide variety of merchants.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
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. SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. 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. SOBK1222079
A payable on death account or POD account allows you to transfer money to someone else when you pass away without requiring those assets to go through probate. The individual or entity who collects those assets is called a POD beneficiary.
What does POD mean in banking? Broadly speaking, there are a number of deposit accounts that can be deemed payable on death, including checking and savings accounts.
If you’re considering establishing one of these accounts, it’s important to understand how POD accounts work, and if you are a beneficiary, it’s also helpful to know when and how you’re entitled to withdraw money from a payable on death bank account. Read on to learn:
• What does POD mean in banking?
• What are POD bank account rules?
• What are the pros and cons of POD accounts?
Payable on Death Accounts Explained
A payable on death account pays out assets to a beneficiary when the account owner passes away. You may also hear POD accounts referred to by other names, including:
• Totten trust
• Tentative trust
• In trust for account
• Revocable bank account trust
• Informal trust
When you create a payable on death account you can decide how many beneficiaries to add and who to name. Examples of POD beneficiaries can include:
• Adult children
• Siblings
• A non-profit
• A trust
Worth noting: If you co-own the account with someone else, they cannot be named as a POD beneficiary.
Payable on Death Rules
Payable on death accounts have certain rules that set them apart from other accounts. The most significant rule concerns when beneficiaries can access the money in the account. Here are some details to know:
• If you open a POD bank account, you have full control over the money in the account during your lifetime. Even if you name 10 beneficiaries to the account, those beneficiaries cannot lay claim to any of the funds in it until you’ve passed away.
• In terms of how the money in a payable on death bank account is divided, each beneficiary receives an equal share. So if you have $100,000 in a savings account when you pass away and that account has four POD beneficiaries, each one would receive $25,000.
• Note that state law may limit the number of beneficiaries you can name to a payable on death account. Your depository institution may have additional rules for POD accounts.
Types of Accounts That Can Be Payable on Death
There are a number of account types that can be established as POD accounts. Your options can include:
• Checking accounts
• Savings accounts
• Certificate of deposit (CD) accounts
• Individual Retirement Accounts (IRAs)
• Investment accounts
You can make a bank account that you own by yourself or with someone else a POD account, though again note that the co-owner could not be listed as a POD beneficiary.
In terms of what accounts cannot be POD, the list includes small business and commercial bank accounts as well as safety deposit boxes.
Credit accounts are not POD accounts either, since there are no assets to leave behind. In terms of what happens to credit card debt when you die, it can become the responsibility of your spouse or your estate, depending on where you live.
Recommended: Why It’s So Hard to Save Money Today
Payable on Death vs Beneficiary
Payable on death refers to a specific type of financial account that’s used to pass assets to someone else. The term “beneficiary,” however, is used to refer to an individual or entity that’s entitled to inherit assets from someone else. POD beneficiaries fall under the larger beneficiary umbrella.
Similarities
Here are some ways in which POD accounts and beneficiaries are the same. When you name a payable on death beneficiary, you’re telling your bank that you want that person or entity to receive money from the account when you pass away. In a sense, that’s no different from naming a beneficiary to a 401(k) plan or a life insurance policy. Your life insurance beneficiary, for example, is entitled to receive a life insurance death benefit from the policy when you die.
Payable on death beneficiaries and life insurance or retirement plan beneficiaries are not entitled to any money during your lifetime. They can’t access your bank account, withdraw money from your 401(k), or cash in your life insurance. But they all stand to benefit financially from your passing in some way.
Additionally, assets that have a named beneficiary are not subject to probate. So, if you open a Roth IRA and name your spouse as the beneficiary, they’d have access to the money in the account when you pass away. The same is true with regard to life insurance.
Differences
The main difference between payable on death accounts and other beneficiary accounts lies in what’s being passed on. With POD accounts, you’re typically talking about bank accounts. So you might leave your checking account or savings account to your children after you’re gone.
As mentioned, you can name beneficiaries for other types of assets such as a 401(k), IRA, investment account, or life insurance policy.
There can also be differences between payable on death accounts and other beneficiary accounts with regard to taxation. Someone who inherits a POD account may owe estate taxes, for instance, whereas life insurance proceeds are typically income and estate tax-free. (Determining how to allocate one’s funds and the tax burden that will result can be an important part of estate planning.)
Recommended: Tips to Improve Your Money Mindset
Pros and Cons of POD Accounts
Payable on death accounts can offer advantages and disadvantages. It’s helpful to weigh both sides before opening one.
Here’s an overview of the main pros and cons of POD accounts.
Benefits
Drawbacks
You retain control of the account and the assets in it during your lifetime.
Beneficiaries would not be able to access funds if you were to become incapacitated.
Payable on death accounts are not subject to the probate process.
Your bank may require you to close a POD account in order to choose a new beneficiary.
Depending on state law, you may be able to name multiple beneficiaries.
State law may restrict the number of POD beneficiaries you can name.
Removing POD accounts from probate can allow beneficiaries to access funds quicker.
It can be complicated for estate executors to access funds to settle a larger estate using POD deposits.
Payable on Death Account vs Trust
A POD bank account differs from a trust in a couple of key ways.
• In a typical trust arrangement, the trust creator or grantor transfers assets to the control of a trustee. The trustee manages those assets on behalf of one or more named beneficiaries. Assets held in trust are not subject to probate when the trust grantor passes away.
Probate is a legal process in which someone’s assets are inventoried, outstanding debts are paid, and remaining assets are distributed according to the terms of the decedent’s will. Dying without a will in place means assets would be distributed according to state inheritance laws.
• In a Totten trust or POD bank account, there’s no trustee. However, by designating an account as payable on death you can still remove the assets in the account from probate. That’s an advantage, as probate can be both lengthy and time-consuming.
The Takeaway
You might consider a payable on death account if you’d like to pass assets on to loved ones with minimal fuss. That could be helpful if you’d like to make sure they have easy access to cash to cover funeral and burial expenses or any basic living expenses after you’re gone.
Regardless of whether you opt for a POD account or not, choosing the right bank matters. With a SoFi Checking and Savings account, you’ll spend and save in one convenient place. You’ll earn a competitive annual percentage yield (APY) and pay no account fees, which can help your money grow faster.
Better banking is here with up to 4.20% APY on SoFi Checking and Savings.
FAQ
What does payable on death mean?
Payable on death means that money in account is payable to one or more beneficiaries when the original account owner passes away. A payable on death bank account allows beneficiaries to receive funds without having to go through the probate process.
Is a POD on a bank account a good idea?
Adding POD beneficiaries to a bank account could be a good idea if you’d like to make sure the money in the account goes to whom you want it to after you pass away. You could also choose to set up a payable on death bank account simply to allow those assets to bypass the probate process after you’re gone.
What is the difference between a pay on death and a beneficiary?
Payable on death is a designation that applies to bank accounts and other financial accounts. A beneficiary is someone who’s named to receive money from a bank account, retirement account, or other asset, such as a life insurance policy. A POD account can have one or more beneficiary designations.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
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. SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. SOBK0323031
Can you use your Roth IRA to pay for higher education expenses?
Yes. Under IRS rules, you can withdraw funds from your Roth IRA early and avoid the 10% early withdrawal penalty if you’re using the funds to pay for qualified education expenses.
According to the IRS, such withdrawals must meet three criteria:
1) They must go toward paying qualified higher education expenses,
2) Those expenses must be incurred at a qualified educational institution, and
3) Those expenses must be for an eligible member of your family.
If you need to pay for education expenses which meet these criteria, then more than likely, you’re eligible to make an early, penalty-free withdrawal from your Roth IRA.
Early Withdrawals From Your Roth IRA
First, it’s important to remember that you can always withdraw your original Roth IRA contributions tax-free and penalty-free at any time and for any reason.
Only your Roth IRA earnings (such as interest, dividends, and capital gains) trigger taxes and penalties if you withdraw them early. So what constitutes an early withdrawal? Any withdrawal of earnings which is made prior to meeting the Roth IRA 5 year rule and prior to reaching age 59 ½.
For instance, let’s say you’re 40 years old with $20,000 in your Roth IRA. Your $20,000 balance is composed of $14,000 in original contributions and $6,000 in capital gains. Under the Roth IRA withdrawal rules, you can withdraw up to $14,000 tax-free and penalty-free. But if you withdraw the remaining $6,000 in capital gains, that $6,000 is subject to income taxes and a 10% early withdrawal penalty.
So if you need to withdraw funds from your Roth IRA to pay for educational expenses, then you would first withdraw any original contributions you’ve made – which are withdrawn tax-free and penalty-free.
But if you need to make an early withdrawal of earnings from your Roth IRA, you can avoid the 10% penalty (but not the income taxes) if you use the funds to pay for qualified higher education expenses at an eligible educational institution for an eligible family member.
Qualified Education Expenses
So what constitutes a “qualified higher education expense”? According to the IRS, all of the following are “qualified higher education expenses”:
Tuition
Institutional fees
Books
School supplies, and
Equipment required for enrollment or attendance
Room and board only counts as a qualified higher education expense for special needs students who are enrolled as at least half-time students.
For instance, if your daughter is attending college, her tuition counts as a qualified higher education expense. So does the cost of her books, enrollment fees, and the laptop computer she’s required to have. But her rent and utilities at a local apartment complex don’t count.
Once you identify your qualified higher education expenses, you need to make sure they’re incurred at an eligible educational institution.
An Eligible Educational Institution
So what consitutes an “eligible educational institution”?
According the IRS, such an institution is:
“Any college, university, vocational school, or other postsecondary educational institutional eligible to participate in the student aid programs administered by the U.S. Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.”
This is the easiest to meet of the three criteria. Most postsecondary educational institutions meet this definition, from your local community college and state university to online, for-profit university programs. But if you’re not sure, just ask. Your school will know the answer.
Once you establish that you have a qualified higher education expense incurred at an eligible educational institution, then you only need to make sure the expense is paid on behalf of either yourself or an eligible family member.
Eligible Family Members
So who are eligible family members?
Only the following people are eligible to pay qualified higher education expenses with a penalty-free early withdrawal from your Roth IRA:
Yourself
Your Spouse
Your Children
Your Grandchildren
Your Spouse’s Children or Grandchildren
Brothers, sisters, and second cousins don’t qualify. Only the direct descendants of either yourself or your spouse.
Exceptions
So do all qualified higher education expenses incurred at an eligible education instition on behalf of an eligible family member avoid the 10% penalty if you make an early withdrawal from your Roth IRA?
Unfortunately, no. If you’ve already paid the bill for your qualified higher education expenses, and you’re looking to make an early withdrawal in order to reimburse yourself, you may not qualify.
Under IRS rules, you can only reimburse yourself for qualified higher education expenses you’ve already paid using these types of funds:
Payment for services, such as salary and wages
Gifts
Loans
An inheritance given to either yourself or the student
Withdrawals from personal savings
Withdrawals from a qualified tuition savings program
But if you’ve used any of the following types of funds to pay for qualified higher education expenses, you will owe a 10% penalty on any early Roth IRA withdrawals:
Pell grants
Employer-provided tuition assistance
Tax-free withdrawals from a Coverdell Education Savings Account (ESA)
Tax-free scholarships
Tax-free fellowships
Tax-free educational assistance for veterans
Other tax-free payments received as educational assistance (other than gifts)
That’s a lot of fine print to take in, so let’s use an example to illustrate.
Let’s say you’re 45 years old, you’re in the 25% tax bracket, and you have $36,000 in your Roth IRA – $14,000 in original contributions and $22,000 in capital gains. Your 19 year old son just finished his sophomore year in college incurring qualified higher education expenses of $18,000. He received a $2,000 tax-free scholarship, while you paid the rest of his tuition and book expenses for a grand total of $16,000 in out-of-pocket expenses.
You can use your Roth IRA to reimburse yourself for these out-of-pocket expenses. In fact, you can withdraw up to $14,000 tax-free and penalty-free. Why? Because in doing so, you’re simply withdrawing your original after-tax Roth IRA contributions.
However, the next $2,000 you withdraw is subject to income taxes, but NOT the 10% early withdrawal penalty. Why? Given your age, a withdrawal of earnings consitutes an early withdrawal, so it’s subject to income taxes at your current rate of 25%. However, because you’re using the funds to pay for qualified higher education expenses, you avoid having to pay the 10% early withdrawal penalty.
If you try to withdraw an additional $2,000 for a grand total of $18,000, you’ll owe income taxes AND the 10% early withdrawal penalty. Why? Even though $2,000 was used to pay for qualified higher education expenses, those expenses were already covered in the form of a $2,000 tax-free scholarship. So any additional funds beyond the $16,000 you’ve already withdrawn from your Roth IRA will be treated the same as any other non-qualified early withdrawal. And non-qualified early withdrawals are subject to income taxes and a 10% early withdrawal penalty.
Summary
If you or a qualified family member incur qualified higher education expenses, you can use your Roth IRA savings as college savings to pay for those expenses and avoid the 10% early withdrawal penalty if applicable.
While a Roth IRA is primarily intended as a vehicle for retirement savings, each individual circumstance is different. As such, you might want to look into using this special IRS provision to help out with your higher education expenses.
This is an article from Britt at http://www.your-roth-ira.com, the Web’s #1 resource for Roth IRA information.
Should You Become an Authorized User? – MintLife Blog
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establish credit history, consider becoming an authorized user and building your credit in other ways, like getting a secured credit card.
What Is an Authorized User?
An authorized user is someone who can make purchases on your credit card but isn’t legally obligated to pay the balance. It’s easy to sign someone up as an authorized user online or over the phone with a few pieces of information like their address, name, and birth date. You can order a separate card or have them use your credit card. You can have several authorized users on a single credit card, usually up to five. If the person is under 18, they can still usually be an authorized user on a parent or guardian’s account.
You get some privileges as an authorized user, but not the same ones as the cardholder. You can make purchases, find the available balance, and make payments. You can also report a missing card and dispute a fraudulent charge. Authorized users aren’t able to make changes to the account, though. For instance, they can’t close the account, add another user, or change the address.
Authorized Users and Credit
Becoming an authorized user could improve your credit score, but not always, and typically not in a drastic way. Check to see if the creditor sends authorized users’ activity to the major credit bureaus. Most do, but not all. If you’re trying to build your credit, you want to make sure being an authorized user will count toward your history.
When you’re a user on someone’s account who has a solid history of on-time payments and low credit utilization, it can help your credit. On the flip side, if you’re connected to someone with a lower credit score or a spotty payment history, your credit might suffer. For instance, if the cardholder misses a payment, your score could be affected, because it will also be reported on your history. That’s why it’s important to select someone you trust. Choose someone who you know will pay on time and not let their balance lapse. You can even have an upfront conversation about credit history and payments before being added as an authorized user to their credit card.
Just because you won’t be legally responsible for your charges, you may have a different arrangement with family. For example, Asher is an authorized user on his mom’s credit card. She pays for his groceries and utilities, but he is responsible for discretionary spending like going to the movies. Still, if the authorized user like Asher refuses to pay their portion, the cardholder remains responsible for covering it. If the cardholder doesn’t pay or can’t pay the balance, it could harm you more than help you.
Ways to Build Credit
Besides becoming an authorized user, there are other ways to build your credit. Try a combination of different approaches to build your history and show that you’re a responsible borrower.
Try a rent reporting service: Put your monthly payments toward your credit history by signing up for a rent reporting service. Proof of your payments is sent to the major credit bureaus. You’ll have to pay a small fee for the service, but it’s a low-risk way to create a credit history for payments you already make.
Apply for a secured credit card: Most credit cards are unsecured but require an established credit history. Secured credit cards allow you to put down collateral, such as a $500 cash deposit, in case you don’t pay your bills. These cards are for those without much credit history because the deposit guarantees payment to the lender if you don’t make payments. In most cases, secured credit cards carry higher fees and interest rates than normal unsecured cards.
Have someone cosign on a loan: Whether you’re purchasing a vehicle or need more funds for college, having someone cosign on a loan can help build your credit. Banks and lenders will often give out small loans to those without much credit history, as long as they have a solid cosigner backing them.
Choose a student credit card: If you’re in college, build credit with a student card. You may be approved even with no credit history. You might have a lower credit limit, such as $500 or $1,000, but the card allows you to spend on credit and build trust with creditors.
Practicing smart financial habits, like building your credit or having a personal budget, reaps rewards both now and in the future. Being an authorized user is one practical way to go about improving your overall financial health when done correctly. With a higher credit score and stronger finances, you can achieve bigger goals, like buying a home or saving for early retirement.
The Federal Home Loan Mortgage Corporation, or FHLMC, is known as Freddie Mac, the entity created by Congress for the purpose of buying mortgages from lenders to increase liquidity in the market. Freddie Mac was created in 1970 and expressly authorized to create mortgage-backed securities (MBS) to help manage interest-rate risk.
Because the FHLMC buys mortgages, lenders don’t have to keep loans they originate on their books. In turn, these lenders are able to originate more mortgages for new customers. The mortgage market is able to keep capital flowing and offer competitive financing terms to borrowers because of this system. In other words, the market runs more smoothly because of Freddie Mac and its sister company, Fannie Mae, the Federal National Mortgage Association (FNMA).
If you want to know more about how this government-sponsored enterprise works and how it affects your money, read on for details on:
• What is the FHLMC and what are FHLMC loans?
• What is the difference between Freddie Mac and Fannie Mae?
• What are Freddie Mac mortgages?
• How does the Federal Home Loan Mortgage Corporation work?
Freddie Mac and Fannie Mae
These organizations, with their friendly-sounding nicknames, serve a very important purpose. Freddie Mac and Fannie Mae were created for the purpose of stabilizing the mortgage market and improving housing affordability. These government-sponsored enterprises (GSEs) do this by increasing the liquidity (the free flow of money) in the market by buying mortgages from lenders. Mortgages are then pooled together into a mortgage-backed security (MBS) and sold to investors. The process created the secondary mortgage market, where lenders, homebuyers, and investors are connected in a single system.
In the past, Freddie Mac and Fannie Mae operated as private companies, though they were created by Congress. Fannie Mae came first in 1938, followed by Freddie Mac in 1970. Freddie Mac’s addition in 1970 resulted in the creation of the first mortgage-backed security.
The federal government took over operations at both companies following the financial crisis in 2008. According to the National Association of Realtors, without government support of Freddie Mac and Fannie Mae, there wouldn’t be very much money available to lend for mortgages.
The Federal Housing Finance Agency (FHFA) has oversight of Freddie Mac and Fannie Mae. On a yearly basis, they assess the financial soundness and risk management of Fannie Mae and Freddie Mac.
What Is the Purpose of the FHLMC?
As mentioned above, the FHLMC, or Freddie Mac, makes the housing market more affordable, stable, and liquid by buying mortgages on the secondary market. When they buy these loans, the retail lenders they buy them from are able to originate more mortgages to new customers and keep the mortgage market flowing smoothly.
There are many types of mortgage loans; the ones that Freddie Mac buys are known as conventional loans. The mortgage loan must meet certain standards (such as loan limits) for Freddie Mac to guarantee they will buy these loans.
In general, the process of successfully obtaining a mortgage usually looks something like this once the buyer has made an offer on a house that’s been accepted:
• The consumer finds a lender, if they haven’t already done so, and will apply for a mortgage.
• The lender collects documentation required by the loan type and submits it to underwriting.
• The underwriter approves the loan.
• The homebuyer closes on the loan, and mortgage servicing begins
• The lender sells the loan on the secondary mortgage market to Freddie Mac (or Fannie Mae or Ginnie Mae, depending on what type of loan it is and from what type of lender it originated).
From a homebuyer standpoint, they will see the outward mortgage servicing, which is the entity to which they will send their monthly payment and who takes care of the escrow account. The mortgage servicer is the one who forwards the different parts of the mortgage payment to the appropriate parties.
Mortgage servicing can also be sold from servicer to servicer, but this is different from the sale of a mortgage to Fannie Mae or Freddie Mac.
Freddie Mac is also tasked with the responsibility of making housing affordable. There are specific mortgage programs guaranteed by Freddie Mac and offered by lenders.
• HomeOne®. HomeOne is a mortgage program that offers low down payment options for first-time homebuyers. There are no income or geographic limits.
• Home Possible®. Home Possible is a program for first-time homebuyers and low- to moderate-income homebuyers. It offers discounted fees and low down payment options.
• Construction Conversion and Renovation Mortgage. This type of loan combines the costs of purchasing, building, and remodeling into one loan.
• Manufactured Home Mortgage. For qualified buyers, Freddie Mac can guarantee mortgages when buying manufactured homes that meet their criteria.
• Relief Refinance/Home Affordable Refinance Program (HARP). For borrowers with a good repayment history but little equity, loans are available to refinance into a more affordable rate.
Recommended: What Is the Average Down Payment on a House?
Understanding Mortgage-Backed Securities
After a mortgage is acquired from a lender, Freddie Mac can do one of two things: either keep the mortgage on its books or pool it with other, similar loans and create a mortgage-backed security (MBS). These MBS are then sold to investors on the secondary mortgage market.
What’s attractive about a mortgage-backed security to an investor is how secure it is. Fannie Mae and Freddie Mac guarantee payment of principal and interest. Both Fannie Mae and Freddie Mac issue mortgage backed securities now.
Does the FHLMC offer Mortgage Loans?
Freddie Mac does not sell mortgages directly to consumers. You won’t see a Freddie Mac mortgage or an FHLMC loan advertised to consumers. Instead, the FHLMC buys mortgages from approved lenders that meet their standards.
Recommended: What Are the Conforming Loan Limits?
The Takeaway
The housing market in the United States arguably benefits from the role of the Federal Home Loan Mortgage Corporation. Lenders can essentially originate mortgages to as many borrowers as can qualify. The free flow of capital created by the FHLMC also means mortgages are less expensive for homebuyers all around. In short, the smooth operation of the housing market owes much of its success to Freddie Mac and Fannie Mae.
If you’re shopping for a home and looking for a lending partner, consider what SoFi has to offer. With dedicated loan officers, competitive interest rates, flexible terms, and low down payment options, SoFi Mortgage Loans can offer something for nearly every borrower.
SoFi Mortgage Loans: Simple, smart, flexible.
FAQs
What does FHLMC stand for?
FHLMC is an abbreviation of Federal Home Loan Mortgage Corporation. It is commonly referred to as Freddie Mac.
What type of loan is FHLMC?
Freddie Mac guarantees conventional loans that adhere to funding criteria, but it does not offer Freddie Mac mortgages directly to consumers.
What is the difference between FNMA and FHLMC?
Fannie Mae and Freddie Mac originated in different decades and initially had different purposes, but for the most part, they serve the same purpose today of helping to improve mortgage liquidity and availability.
Photo credit: iStock/Andrii Yalanskyi
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information. SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. 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. SOHL0223008
Many people want to buy investment properties because of the fantastic returns they can provide. However, many people do not have the 20 percent down payment (or more) that most banks require. There are ways to buy an investment property with little money down. The easiest way to buy an investment property with less than 20 percent down is to buy as an owner-occupant and later rent out the house, but there are many other options for investors as well. Using a line of credit, refinancing your home, house hacking, the BRRRR method, or even credit cards can provide ways to buy investment properties for less money. Seller financing is a great way to put less money down on a rental property if you can find sellers who are willing. A more advanced technique is to use hard-money financing that you can refinance into a conventional loan. Whatever way you choose to buy a rental property, research the method to make sure that it is legal in your state, your lender approves it, and that you are not stretching your finances too thin.
How much money down do most banks require?
An investor will have to put down at least 20 percent to buy a property from a typical bank. If you own more than four properties, that figure can increase to 25 percent down, providing that they are even willing to finance more than four properties. On top of the down payment, an investor will have to pay closing costs, which can range from two to four percent of the loan amount. It is very expensive to buy an investment property using financing from a typical bank. I have found a great portfolio lender who will finance as many properties as I want with 20 percent down, but they are not easy to find. Once you factor in repairs, carrying costs, down payment, and closing costs it can cost as much as $30,000 to buy a $100,000 rental property.
The video below goes over ways to buy with little money down as well:
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How to buy as an owner-occupant
The easiest way to buy an investment property with little money down is to buy as an owner-occupant, satisfy your loan requirements, rent out the property, and keep it as an investment. Most owner-occupant loans require the buyer to occupy the home for at least a year. Once that year is up, you can rent out the house and turn it into an investment property. There are many owner-occupied loans available, with down payments ranging from 0 to 5 percent down. You can put as much money down as you want if you want to put 20 percent down or even 50 percent down. USDA and VA have great no-money-down programs and little to no mortgage insurance, which will save an investor a lot of money each month. You will have more costs with little money down loans because mortgage insurance is required. Mortgage insurance can add hundreds of dollars to your house payment and eat away at your cash flow. The process of buying as an owner-occupant and then turning the house into an investment property is as follows:
1. Buy a house as an owner occupant, which will cash flow when you rent it out.
2. Move into the house and live there for at least a year.
After the year is up, find another house that will cash flow and purchase that home as an owner-occupant.
4. Move out of the first house and keep it as a rental. Move into the new house and repeat the process every year!
Eventually, you will be building up equity and extra cash flow, which will enable you to buy properties with a 20 percent down payment. Repeating this process 10 times would be an excellent way to get started, but no one wants to move ten times in ten years. It can also be tough to convince your family to live in a home that would be a great rental.
Low down payment owner occupant loans
If you are going the owner-occupant route there are many loans available that have from very little to nothing down required.
FHA loan
FHA loans are government-insured loans that can be obtained with as little as 3.5 percent down. You can only have one FHA loan at a time unless you have extenuating circumstances like a job relocation. You do have to pay mortgage insurance on FHA loans, which I will discuss later in this article. There are limits to the amount an FHA mortgage can be, which varies by state and even city.
USDA loan
USDA is a loan that can be used in rural areas and small towns. The loan can’t be used in medium-sized towns or large towns/metro areas. The loan is a fantastic loan for those that qualify and want to buy a home in the designated areas. USDA loans can be had with no money down, but do have mortgage insurance as well.
VA loans
VA loans are run through the United States Veterans Administration. You have to be a veteran to qualify for the loan, but they also can be had with no money down and no mortgage insurance! VA is a great option for those that qualify because the costs are so much less without mortgage insurance.
Down payment assistance programs
Many states have down payment assistance programs. In Colorado, we have a program called CHFA. The program helps buyers get into owner-occupied homes with very little money down. CHFA actually uses an FHA loan but allows for less than a 3.5 percent down payment. Check with lenders on your state to see if you have any programs that help with down payment assistance.
Conventional mortgages
Even conventional mortgages have low down payment loans available for owner-occupants. For owner-occupants, conventional loans have down payments as low as 3 percent. You will most certainly have to pay mortgage insurance with any conventional loan that has less than 20 percent down. Unlike some of the other loan options available, you can have as many conventional mortgages in your name as you want as an owner occupant.
FHA 203K Rehab loan
An FHA 203K rehab loan allows the borrower to finance the house they are buying and repairs they would like to complete after closing. This is a great loan for homes that need work, but the buyer has limited funds to repair a home. There are more costs associated with this loan upfront because two appraisals are needed and lenders have higher fees for 203K loans.
NACA Loans
NACA is a non-profit program with:
No down payment
No closing costs
No points or fees
No credit score consideration
Below market 30-year and 15-year fixed-rate loans
This sounds like it is too good to be true, and it is a great program. However, you do not simply apply for the loan and hope the lender approves you. You must take classes, and even host classes when in the loan program.
More details are on the NACA site.
What loan costs does a buyer need to consider besides the down payment?
On almost any loan you will have more costs than just the down payment. The lender will charge an origination fee, appraisal fee, prepaid interest, prepaid insurance and possibly prepaid mortgage insurance. Plus you may have more costs the title company charges like a closing fee, recording fees, and possibly title insurance. In most cases, the seller pays for title insurance, but with HUD and VA foreclosures the buyer has to pay for title insurance. These costs can add up to another 3.5 percent of the mortgage amount or sometimes more. When you talk to a lender they can give you an estimate of exactly how much these costs will be before you get your loan.
Can you ask the seller to pay closing costs?
Even though the lenders and title company will charge you more fees than just the down payment, that does not mean you have to pay that upfront. You can ask the seller to pay closing costs for you. If you can get the seller to pay your closing costs for you, loans like VA and USDA may be obtained with no out-of-pocket cash. You may still have to put down an earnest money deposit, but that can be refunded at closing in some cases. When you ask the seller to pay closing costs, it reduces the amount of money they are getting from the sale so you might actually be paying more for the home than if you didn’t ask for closing costs. But in my mind paying a little more for the house and financing those costs to save cash is better than paying more money out-of-pocket for a little cheaper home.
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House Hacking
House hacking is when you buy as an owner-occupant but you buy a multifamily property instead of a house. By purchasing a multifamily property you can live in one unit while you rent out the other units. This strategy allows you to rent the property faster, which may mean the bank will be more willing to give you a new loan as soon as you are ready to move out. You will also have help from the other tenants to pay your mortgage. In some cases, you may be able to live for free while you own the house because the other rent covers your costs.
Virtual real estate
Yes, you can now buy virtual real estate! This is land in the metaverse that only exists digitally. Some pieces of virtual real estate have sold for millions of dollars and others can be bought for almost nothing. Here is some more information on getting started!
BRRRR Method
BRRRR stands for buy, repair, rent, refinance, and repeat. It is a great way to get into rentals with less money down. You will need to get an awesome deal to make this strategy work, but you may be able to get all of your money back. You buy a house that is an amazing deal, fix it up, rent the property, and then refinance it. Once the refinance is done you repeat over and over! The key to making this strategy work is getting an awesome deal with plenty of equity. You also need to be prepared if things do not go perfectly. Appraisals can come in low, the banks may not want to finance you, you may not get the property rented or repaired as fast as hoped, etc.
Hard money loans
Using hard money can save you a ton of cash in the short-term, but it is more expensive in the end. Fannie Mae lending guidelines, allow you to refinance a home with no seasoning period, which means you do not have to wait six months or a year after you purchase a home, to refinance at a higher value than what you bought it for. Fannie Mae guidelines base the refinance amount on a new appraisal, and they will allow a 75 percent loan-to-value ratio. Fannie Mae guidelines do not allow a cash-out refinance, but they do allow the refinance to pay off any existing loans. Many hard money lenders will allow a buyer to borrow up to 100 percent of the purchase price and to finance repairs as well.
Since Fannie Mae guidelines allow a 75 percent loan-to-value refinance, theoretically an investor could buy a home for $100,000 and get a loan with a hard money lender for $100,000 plus $30,000 in repairs for a total loan amount of $130,000. The investor could refinance the home for as much as 75 percent of a new appraisal. If the appraisal came in at $180,000, then 75 percent loan-to-value would allow a refinance of $135,000. Fannie will not allow a cash-out refinance, but the investor could refinance the full $130,000 loan amount. This strategy can be costly due to hard money fees, but it allows the investor to refinance the entire purchase price and repairs!
This strategy can also be very risky because you are depending on a high appraisal to get your money out. Most hard money loans are only one year and you must pay off the loan after that year. Refinance appraisals are not always as high as we would like them to be. Make sure you have an exit strategy if the appraisal comes in lower than you expect.
Private money loans
One legitimate way to buy real estate with no money down is to use private money. Private money is from a private investor, friend, or family member. The private investor will give you money at a certain interest rate to buy a flip or rental property. Private money rates can vary from very cheap to very expensive depending on the relationship, investment, and terms of the loan. I use private money from my sister for my fix and flips. She charges me six percent interest. It is a great way to reduce the amount of cash I have into the properties.
I have used private money to buy commercial rentals and then refinance into a long-term loan with a local bank.
Can being a real estate agent help?
There are many advantages to having your real estate license, but the biggest benefit is you can keep your commission on almost every house you buy. On a $100,000 house, your commission could be $3,000 dollars or more. Here is an article that details why it is an advantage to become a real estate agent if you are an investor. Being a real estate agent also gives me an advantage in finding and purchasing great deals. I detail how hard it is to get your real estate license here. I saved more than $270,000 a year on commissions by being a real estate agent. That does not include the money I made on deals that I got because I was an agent.
Turnkey rentals
A new trend in the US is buying turnkey rental properties that are purchased, repaired, rented, and managed by a turnkey provider. Turnkey properties are a great opportunity for investors to buy rental properties out-of-state when homes are too expensive in their area. There are turnkey providers who offer as little as 5 percent down for investors, but they tend to have very high-interest rates. Here is a great article about turnkey providers or send me a request here for turnkey providers I know of. I bought a turnkey rental in Cleveland a few years ago.
Line of credit
I have had many lines of credit in my career. I have had lines of credit against my personal house (the house I live in) and my investment properties. It is much easier to get a line of credit against your personal house and some banks will not even offer lines of credit on investment properties. A line of credit is basically a loan against a home, but you do not have to use the money all the time. If you do not need the money you can pay it back to the bank and not be charged interest on it. When you need the money again, you can borrow it very quickly as long as the line is open.
Off-market properties
Off-market properties are purchased through direct marketing or by word of mouth. Buying off-market usually means less expensive properties and in some cases, owners with flexible terms such as owner financing. Many investors wholesale off-market properties, which you can purchase with no down payment. Wholesaling is a process of buying and selling properties very quickly. The properties must be very good deals and are usually found by direct marketing for properties. Many investors make a great living by only wholesaling properties to other investors.
Seller financing
Some sellers may be willing to finance the house they are selling or finance a second loan on a home that allows a buyer to put less than 20 percent down. If your bank is willing to offer 80 percent loan-to-value, the seller may offer to loan the other 20 percent, which would amount to no money down for the buyer. The seller may also offer a number of other loan-to-value percentages to help a buyer get into a home for less than 20 percent down.
Finding seller-financed properties is the tricky part. Most sellers are not looking to finance a loan when they sell. To find seller financed listings, look for homes that have no loans against them or an MLS listing description that say seller financing is available. The seller’s terms can vary greatly depending on how desperate they are to sell and what exactly they are looking to get out of the deal. Do not expect to pay four percent interest on a seller-financed loan; they will want a premium on any money they lend. It is also harder to find great deals with seller financing, which is key to my strategy.
There are many new restrictions on financing thanks to the recent Dodd-Frank Act.
Refinance
In most areas of the country, home values are rising and interest rates are at record lows. You may be able to refinance your home and get enough money to buy an investment property. Once you are able to buy an investment property, you can refinance it in one year (sometimes less with the right bank). With rates as low as they are, if you bought the home below market value, you should be able to take out as much as you put into the house and still cash flow. I use this refinance technique all the time. Getting lenders to do a refinance is tricky when you own multiple investment properties. I use a portfolio lender who has allowed me to use a cash-out refinance on as many properties as I want.
Below is a property I refinanced:
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Move in ready Houses
A move-in ready property means all the repairs are completed and it is ready to rent as soon as you buy the home. There can be many advantages to buying a nice home. The biggest advantage is you do not have to pay for repairs. You also do not have to spend time waiting for repairs to be done, which saves money on mortgage payments, utilities, and other carrying costs. The downside of a move-in ready property is that it is usually more expensive and provides less cash flow than a home that needs work.
Credit cards
A few other ways to get quick cash can be very expensive and are usually reserved for people looking to do a quick flip. If you have a killer deal you cannot pass up, you may want to consider these options, but I do not recommend using them unless it is necessary. The easiest way to get quick cash is with credit cards. You can get a cash advance or pay for repairs using your credit card. If you use a credit card to finance your down payment or repairs and cannot pay it off right away, do not pay the 17 percent interest rate. Do your best to get another card that will allow a balance transfer. Many times, you can transfer all of your balance and pay little to no interest for up to a year. That may give you enough time to pay off the card and not to be stuck with a high-interest rate eating all of your profits. I also suggest using a rewards card for repairs on your investment properties. If you pay the balance off every month, this is a great way to make a little extra money.
Self-directed IRA
If you have money invested in an IRA, you are not limited to investing in stocks or mutual funds. There are special self-directed IRAs that you can use to purchase an investment property. You can use your IRA for down payments and repairs and then collect rent in the IRA.
401K
Some 401ks allow an investor to take out a loan against them. You usually have to pay back the loan relatively quickly and pay interest on the loan. You have to be very careful when borrowing from a 401k because the money you borrow is no longer earning interest or growing in your retirement fund. If you lose your job, you also may be required to pay back the loan within 60 days or pay a 10 percent penalty and income tax on the loan.
Subject to loans
With a subject to loan, you buy a house without paying off the previous owner’s mortgage. This is another tricky situation; investors must be very careful with it. Most bank mortgages are not assumable; when the homeowner sells the house, they have to pay the loan in full. The bank most likely will have a due-on-sale clause that says the loans must be paid in full, once the property transfers ownership. With subject to loans the new investor buys a house subject to an old mortgage and does not pay off the loan. There is a chance that the bank will require the loan to be paid off if they find out that the home has been sold.
Investors buy homes subject to a mortgage so that they do not have to get a new loan. It may be hard for the investor to qualify for a mortgage or they may be maxed out on being able to get new loans. If you buy a home for $80,000 that has a $75,000 mortgage in place, the investor would only need $5,000 to buy the house instead of the normal 20 percent or more.
Fannie Mae Homepath program
The Fannie Mae Homepath program on their REO properties allows investors to put only 10 percent down and allows up to 20 financed loans in one person’s name, which is also a huge bonus. It is very difficult for many investors to get loans on more than four properties.
This program has been discontinued.
Conclusion
Rental properties can be expensive, but there are ways to purchase them with less than 20 percent down. If you are short on cash, buying properties with little money down can accelerate the purchasing schedule and increase your returns. However, you will most likely make less money on each property, because borrowing that last 20 percent can be much more expensive than the first 80 percent.
My book Build a Rental Property Empire, goes over how to buy investment properties with little money down. It also covers how to find deals, finance rentals, manage them, and much more! It is available as a paperback and ebook on Amazon or as an audiobook on Audible.