How do annuities work?

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Many people know about 401(k)s and IRAs, but there are many other options for retirement planning and wealth-building. Find out more about annuities and whether this option might be right for you.

What is an annuity?

Annuities are a type of insurance product, but instead of insuring yourself or your property against potential future losses, annuities let you insure income. Specifically, they help ensure that you will receive an agreed-upon amount of money periodically at some point in the future, which makes them a popular vehicle for retirement planning.

Annuities are a type of income insurance product that helps ensure that you will receive an agreed-upon amount of money periodically in the future, which makes them a popular vehicle for retirement planning.

How annuities work

The basic concept behind annuities is that you purchase a product now. You pay for it either in a lump sum or via agreed-upon payments—sometimes in the form of insurance premiums over a period of years.

In exchange, at some point in the future, you begin to receive payments on your annuity. Those payments typically come periodically, such as monthly, quarterly or annually. Depending on the annuity product you purchase, you can receive those payments for a certain period of time or for the rest of your life once the annuity payout begins.

You can generally expect to get back more in annuity payments than you pay into the product. That’s why they’re considered an investment. The reason for this is that your annuity purchase price or premium payments are put into a pot with all the other payments being made by annuity customers for that product or provider. Those funds are invested, and the earnings over time result in a profit for you and the insurance provider.

The main types of annuities

How much you can earn, when and how it pays out and the risk associated with your investment all depend on what type of annuity you buy. The types of annuities are summarized below to help you determine if any might be a good choice for you.

Deferred annuities versus immediate annuities

The first major decision to make when purchasing an annuity is whether you want a deferred or immediate annuity. Deferred annuities begin paying out at some agreed-upon point in the future, making them potential vehicles for retirement planning. Immediate annuities start paying out immediately, which might make them a better option if you’re close to retirement or want to ensure a certain level of income in the near future.

Three categories of annuities

Once you decide when you want your payouts to begin, you’ll need to pick a more specific type of annuity to invest in. Both immediate and deferred annuities have three major categories which are outlined below.

3 types of annuities

1. Fixed annuities

Fixed annuities are those that pay out an agreed-upon, guaranteed amount each time you receive income. This can be a good option if you want a stable income you can count on. The downside of fixed annuities is that the lower risk comes with lower potential reward from a returns perspective.

2. Fixed indexed annuities

Fixed indexed annuities guarantee at least a minimum amount paid out, so they can help provide stability for your budget. But part of your returns is tied to the performance of a market index. Market indexes include options such as the Dow Jones or S&P 500. If you have a fixed indexed annuity, then you might earn more payout than the minimum if the market performs well in a given period.

3. Variable annuities

Variable annuities are tied to a group of mutual funds. The amount of your annuity payouts depends on the performance of those funds. That can mean greater long-term reward, but it also comes with more risk than either of the other two categories of annuities.

Can you withdraw your money early?

You may be able to withdraw money from an annuity early if you find that you need your investment back or can’t wait until payouts are scheduled to begin. But this can be a costly move.

First, if you take money out of a retirement account, including some annuities, before reaching retirement age, the IRS may levy a 10% penalty. You’ll also have to pay any applicable taxes on the income.

For the purposes of annuities, penalties and taxes are only paid on the amount you earned on the investment. You’re not taxed on the amount you paid into the annuity because you were already taxed on that amount when you earned it the first time.

In some cases, the IRS waives the 10% penalty. Such cases include the total disability of the annuity owner or the annuity owner taking early withdrawals to pay for qualified education expenses.

How are annuities taxed?

Taxes on annuities can be complex, so it’s important to consult a tax professional to understand what your tax burden might be. Typically, payments you make toward an annuity are not made with pre-tax dollars. That means the money you pay into an annuity is already taxed, and you won’t pay income tax on it again in the future.

But you might owe taxes on any earnings you make from the investment. That means when you begin to receive payouts, you will have to report the income and calculate how much of it is taxable.

Is an annuity right for you?

Deciding whether any investment is right for you is an individual matter. You must look at your current financial state, your goals for the future and the level of risk you’re comfortable with. Since annuities are based on contracts, they’re typically considered less risky than stock market investments, but no investment is 100% guaranteed. Consider talking to a financial adviser to understand what investment and retirement planning options might be right for you.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Gift Aid vs Self Help Aid For College

College tuition can be costly whether you are seeking an undergraduate and graduate degree, attending an out-of-state public university, or taking classes at a private university.

If you do not have adequate savings to pay for classes, room and board, food, travel and other necessities, then you may be considering how to pay for college.

The costs of attending college continue to rise each year for both public and private colleges and universities. The average tuition and fees at a public in-state college was $9,687 and at or private schools it $35,087 for the 2020-21 school year. Obtaining financial aid is one way students can afford to attend college.

One common type of financial aid is called gift aid and typically comes in the form of federal and state grants and a wide range of scholarships that are given by private donors, foundations, non-profit organizations and even the universities themselves.

These grants and scholarships do not have to be paid back, which is helpful for students who are on a tight budget or are considering obtaining a graduate degree.

Another type of aid is called self help aid and usually comes in a form of work study programs and student loans. Some work study programs are sponsored by the federal government and they provide part-time jobs for students who need help paying their tuition. These jobs can be either on the campus of the college or university or off campus nearby.

Self help aid also includes federal student loans which have to be paid back after a student graduates.

There are advantages and disadvantages of both gift aid and self help aid. Undergraduate and graduate students may only qualify for one type of aid, depending on their financial circumstances, where they are obtaining their college degree or other factors.

What Are The Pros and Cons of Gift Aid?

Grants and scholarships are considered gift aid. One common form of grants are called Pell grants. These are grants provided by the federal government and Pell grants are given to undergraduate students who have demonstrated financial need.

The maximum federal Pell grant award is $6,345 for the 2020–21 award year (July 1, 2020, to June 30, 2021), but amounts can change annually.

The main drawback of gift aid is that you may not know what amount you will receive and you may need to supplement paying for college by seeking more scholarships and grants or getting a part-time job.

Federal work study programs are available for both undergraduate and graduate students to help them pay for tuition and other educational costs. The program’s jobs are related to the student’s course of study and also include community service work.

Both full-time or part-time students may qualify for part-time employment while they are enrolled at their university or college and it is available to undergraduate and graduate and professional students who demonstrate financial aid.

The work study programs are operated by a college and university financial aid office and you will receive at least the federal minimum wage. These jobs are available both on-campus and off-campus which can be beneficial for students who do not have other means of transportation.

Students who work off campus typically work for a nonprofit organization or a public agency and the goal of the job is geared to be in the public interest. The number of jobs is limited, so students should apply early to ensure that they have a position for the following academic year.

Federal and Private Student Loans

Another type of self-help aid are federal and private student loans. Federal student loans are based upon the financial need of a student and their family. They are either subsidized or unsubsidized direct loans and may offer lower interest rates than private loans. One drawback is that the federal government will limit how much money you can borrow.

Undergraduate students may qualify for subsidized loans that are given based on their financial need. One benefit is that the federal government will pay the interest on these loans while you are attending school or at least taking classes half-time, during your grace period or when you have deferred the loan.

Both undergraduate and graduate students may qualify for unsubsidized loans and they are not based on financial need. These loans accrue interest while students are taking classes, during the loan’s grace period, or when you have deferred the loan.

Private student loans can be used to help make up the gap in what is needed to pay the remainder of tuition or living expenses. While both federal and private student loans may help students pay for their tuition; they must be repaid once a student graduates.

If you do not complete your course study and do not receive a degree, the student loans still have to be repaid.

Federal student loans have protections that private student loans do not offer. Students who have received federal student loans can seek several options after graduation to repay their loans including income-driven repayment programs.

Federal student loans also offer borrowers’ the ability to put loans in forbearance or deferment, allowing them to temporarily pause payments in certain situations.

Some borrowers will choose to refinance their federal student loans into new private student loans. But this option means that you lose the protection of the federal repayment plans. Private student loans have both fixed and variable interest rates.

Fixed interest rates are beneficial for people who want to know the exact amount of their loans each month helping them to budget more easily. The interest rate on variable student loans are sometimes lower than fixed rates but that means your payment amounts can fluctuate from month to month.

Shopping around can help you find the best private student loan that fits your financial needs and the amount that you can repay each month.

Qualifying For Gift Aid or Self Help Aid?

Qualifying for either gift aid or self help aid might depend on your financial circumstances. Students may want to apply early for grants, scholarships, work-study programs and student loans.

completing a FAFSA®, or Free Application for Federal Student Aid. This application must be completed every year.

Some states and colleges may have their own FAFSA deadlines , so double check to avoid missing any. Missing a deadline can mean forgoing some financial aid.

While some gift aid such as scholarships are given to students based on merit, grades or other accomplishments, grants, work study programs and student loans are typically based on your financial needs and the cost of tuition at your university.

Some universities use data from the FAFSA to determine gift aid like scholarships too. Students can also apply for scholarships and grants that aren’t associated with the FAFSA®.

Private Student Loans with SoFi

In some cases gift aid and federal aid aren’t enough to help students pay for their tuition. In that case, some students may consider private student loans.

SoFi offers private student loans with no late fees or origination fees with flexible repayment options. There are also interest rate discounts for eligible SoFi members.

Interested applicants can find out what rate and terms they could pre-qualify for in just a few minutes. Learn more.



SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. 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 Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

4 Ways to Keep Your Taxes Down If You Are Self-Employed

Self-employment has its perks, but being your own boss can lead to headaches come tax season. In addition to the income tax, you’ll need to pay self-employment taxes that support the Social Security and Medicare programs.

But there are ways to reduce the amount you owe.

At the start of the new year, you may receive a 1099-NEC tax form or 1099-K tax form. You also may have received other income in the form of cash or checks for work performed in the previous year from being self-employed.

One of the best ways to lower your taxes paid on self-employed income is to increase your business expenses. As a self-employed taxpayer, you can write off expenses and take certain deductions against that income to help reduce your tax liability.

However, it is very important to hold on to all receipts for any business expenses related to purchases or professional services received and to keep accurate, up-to-date records of your business’s activity.  

Here are four easy ways to keep your taxes down if you are self-employed.

1. Driving expenses

If your self-employed income is from operating a ride-hailing or delivery business through platforms such as Uber or Lyft, you will be able to take a vehicle expense deduction. This allows you to recover some costs associated with wear and tear on your vehicle to operate your business.

Be sure to keep track of your business miles, personal miles and commuting miles as you will need to provide this information to take the deduction.

2. Home office expenses

Home office expenses is another deduction that you can take advantage of if you utilize part of your home as your office space to conduct business. A home office deduction can be calculated using the simplified deduction method, which is a prescribed rate of $5 per square foot of your home that is used for business up to 300 square feet.

Or you can use the actual expense deduction method, which allows you to write off a percentage of expenses related to rent, utilities, mortgage interest, property taxes and repairs and maintenance.

Other common deductible expenses related to your home office include website services, computer software, merchant fees, electronics and other supplies needed to run your business. 

You also can deduct communication expenses, such as a portion of your internet and cellphone bill, as long as those costs are directly related to your business. For example, if 20% of your time on the phone is spent on business, you could deduct 20% of your phone bill.

3. Depreciation deductions

If you purchase equipment, such as a laptop or a leaf blower for your business, you can categorize it as an asset and take a depreciation deduction — which allows you to spread the expense over the useful life of your asset.

For example, let’s say you purchased a new ergonomic office chair at the beginning of the year for $400. You will be able to classify this as an asset and take a $57.14 depreciation expense deduction each year over a useful life of seven years, which is standard for office furniture.

You can also take a Section 179 election to fully expense and deduct the asset in the current year — instead of depreciating it — to further reduce your tax liability. This is an annual income tax deduction taken by filling Form 4562 with your tax return.

4. S Corp election

Another way to keep your taxes down is by changing your business structure into an S Corp election with the IRS. You can make the S Corp election for your corporation or limited liability company.

For example, when operating your business as an S Corp, if your business income is $100,000 per year and you pay yourself a reasonable salary of $60,000, all income that exceeds your salary — $40,000 in this case — is not subject to self-employment taxes. Only the salary of $60,000 is subject to self-employment taxes. However, if operating your business as a sole proprietor, self-employment tax is due on the entire amount of $100,000 business income.

Financial Reviewer, RetireGuide.com

Ebony J. Howard is a certified public accountant and financial reviewer for RetireGuide.com. Her background is in accounting, personal finance and income tax planning and preparation. Ebony holds a dual degree bachelor’s and master’s in accounting from Clark Atlanta University. She is passionate about making an impact in the community, sharing her knowledge in financial literacy and empowering people to achieve greater financial freedom.

Source: kiplinger.com

Creating a Debt Reduction Plan

When you’re worried about money and feel your options are limited, debt can feel like a pair of handcuffs. And if it feels like you can’t do what you want to do—which is to pay it all off and get yourself free—there’s the temptation to do nothing. But there are some things that can be helpful when crafting a debt reduction plan that will work for your situation.

Prioritizing Expenses

Before you start prioritizing expenses, it’s important to have a clear understanding of what income is available and how much is being spent. This can be done with pen and paper, or by leveraging an all-in-one app, such as SoFi Relay.

Keeping a roof over their head is a number one priority for most people. Mortgage lenders are not very patient when it comes to getting their money, and failing to make a house payment can leave a big black mark on a person’s credit record. For renters, paying the property owner on time each month may have a positive impact on their credit report.

Making sure a car loan and car insurance are current, especially if that’s the only way to get to work, might be next in order of importance. After that come big debts, such as student loans, but those may be eligible for student loan forgiveness depending on the type of loan and if the qualifications for forgiveness are met. Refinancing student loans into one manageable payment might be worth considering if that would save money with a lower interest rate or a shorter loan term. (For federal student loan borrowers, though, refinancing may not be the best option right now since the CARES Act has offered some relief through September 30, 2021.)

Making a plan to tackle credit card debt is also important. Each month, making the monthly minimum payment is important, otherwise, a person’s credit report can quickly reflect any lack of payment . And to manage the outstanding balances on those credit cards, it may be time to work out a new payment plan to get out from under credit card debt.

Once all that information is accounted for, moving forward with a personal debt reduction plan will make it easier to deal with all those long-term bills and relieve debt-related worry.

There are four popular approaches to knocking down debt. The debt avalanche method is probably best suited to those who are analytical, disciplined, and want to pay off their debt in the most efficient manner based solely on the math.

The debt snowball method takes human behavior into consideration and focuses on maintaining motivation as a person pays off their debt.

The debt fireball method is a hybrid approach that combines aspects of the snowball and avalanche methods.

And a personal loan may be an option for those who have a solid financial history or whose credit score has improved since they first signed up for their high-interest loans and credit cards.

Here’s how each strategy typically works.

Debt Avalanche

This method puts the focus on interest rates rather than the balance that’s owed on each bill.

1. The first step is collecting all debt statements (e.g., credit card, auto loan, student loan) and determining the interest rate being charged on each debt.
2. Making a list of all those bills is next, looking past the total amount owed on each debt. This method puts the debt with the highest interest rate in the spotlight, so that one will be at the top of the list, with the other debts listed in order of interest rate, second highest to lowest.
3. Some things to keep in mind might be any fees, prepayment penalties, or tax strategies that could make one debt more or less expensive than the others. When using a balance transfer credit card to save money on any particular debt, reprioritizing the list once the introductory rate runs out and a higher rate kicks in plays a part in how this method works.
4. Continuing to pay the minimum on each bill—on time, every month—is important. But paying extra (as much as possible) toward the bill at the top of the list will help that debt be paid off as quickly as possible.
5. When the first debt is paid off, moving on to the next debt on the list and starting to pay extra there will start the process over again. Money will be saved as each of those high-interest loans and credit cards are eliminated, which can allow all the bills to be paid off sooner.

Debt Snowball

This approach can be effective in getting a handle on debt by slowly reducing the number of bills there are to deal with each month.

1. This method also starts with collecting debt statements and making a list of those debts, but instead of listing them in order of interest rate, organizing them from the smallest debt to the largest (total amount owed, not monthly payment amount).
2. Continuing to pay the minimum—on time, every month—but paying as much extra as possible toward the smallest debt on the list is key to this method. (If possible, completely paying off the balance on that very first bill might provide some sweet momentum to get started.)
3. As with the debt avalanche method above, paying attention to fees, penalties, and tax strategies may determine which debt gets paid first.
4. Moving on to the next debt on the list, and so on, will keep this method in motion. Keeping track of paid-off debts with a visual tracker might help with motivation.
5. No longer using credit cards that have been paid off is a good way to stay out of debt for the long term. And having a goal to set up an emergency fund to cover unexpected expenses—a medical bill or car repair, for example—to stay on track is a good way to stay ahead of the game.

Debt Fireball

This strategy is a hybrid approach of the snowball and avalanche methods. It separates debt into two categories and can be helpful when blazing through costly “bad debt” quickly.

1. Categorizing all debt as either “good” or “bad.” “Good” debt is generally in the form of things that have potential to increase net worth, such as student loans, business loans, or mortgages, for example. “Bad” debt, on the other hand, is normally considered to be debt incurred for a depreciating asset, like car loans and credit card debt. As this list is being developed, identifying all debt with an interest rate of 7% or higher is likely the “bad” debt that may be beneficial to focus on first.
2. Listing bad debts from smallest to largest based on their outstanding balances will provide the working order.
3. Making the minimum monthly payment on all outstanding debts—on time, every month—then funneling any excess funds to the smallest of the bad debts is the focus of this method.
4. When that balance is paid in full, going on to the next smallest on the bad-debt list will keep the fireball momentum until all the bad debt is repaid.
5. When that’s done, paying off good debt on the normal schedule can be a smart way to invest in the future. Applying everything that was being paid toward the bad debt to a financial goal, such as saving for a house—or paying off a mortgage, starting a business, or saving for retirement, for example, is a good way to look forward to a financially secure future.

Personal Loan

Consolidating debts at a lower interest rate or with a shorter term offers another option to pay those debts off in less time than expected.

1. Gathering debt statements and totaling up the debts to be paid off is the first step.
2. To have an idea of interest rates that might be available (most lenders will offer a range), making sure the information on credit reports is accurate is the next important step. Any errors found on a credit report can be reported to the credit reporting agency.
3. Looking at a variety of lenders to find the best interest rates and terms available will help when setting a goal to find a manageable payment while paying off the debt load as quickly as possible.
4. Considering member benefits or other perks that lenders may offer, such as a hardship deferral or a discount on a future loan might make a difference when choosing a lender. Then, applying for the loan that best suits the borrower’s needs is the next step in the process.
5. Paying off old debts with the personal loan and staying current with the new loan payments will help keep things manageable. Sticking to a budget that prevents the same spending mistakes from being made again is important to keeping debt at bay.

Personal loans used for debt consolidation can help pull everything together for those who find it easier to keep up with just one monthly payment. A bonus is that because the interest rates for personal loans are typically lower than credit card interest rates, the amount paid on the total debt may be less than what would have been paid just by plugging away at those individual debts. For those who qualify for a rate that’s less than their credit card rates, a personal loan can make sense.

The Takeaway

With an unsecured personal loan from SoFi, debts can be consolidated and paid off in a way that works for your income, budget, and timeline.

Whatever payoff method you choose, the point is to do something. Having a debt reduction plan in place is key to getting rid of those financial handcuffs and being able to look forward to a successful financial future. Planning ahead, saving for specific goals, and sticking with a budget will go a long way to minimizing dependence on credit cards or high-interest loans in the future.

Ready to tackle your debt head-on? A personal loan from SoFi can help you consolidate your debt into one easy-to-manage monthly payment.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. 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.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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Source: sofi.com

Tips for Getting Approved for a Mortgage

When you start your home buying journey, you’ll notice advertisements of beautiful homes accompanied by happy families that make it seem like there is an abundance of lenders waiting to hand you the keys to your new home.

The truth is, getting approved for a mortgage is not always easy, and getting financed for such large amounts of money can be risky. If your home-buying fantasies have been interrupted by application denials, it’s time to take control of your borrowing power and find out what you can do to turn those “no’s” into a “yes.”

1. Document Your Income

Borrowers mistakenly downplay the importance of a stable income history, especially if they have a high credit score or large bank balance. No matter how favorable your credit and financial status may seem, you will be subject to income scrutiny. Be prepared to prove your income by providing tax documents for the last two and three years and paycheck stubs from the past few months. You may also be asked to provide a list of all your debts, including auto loans, credit cards, alimony, and student loans, and a list of your assets, including investment accounts, auto titles, real estate, and bank statements.

In addition to proving that you have adequate income to cover the loan, lenders will verify that you’ve been working in the same field for at least two years – the longer you’ve been working for the same employer, the better.

Getting a MortgageGetting a Mortgage

2. Shine Up Your Credit History

Maintaining a positive history while you apply for home loans is especially important. Lenders want to see that you have a good record of paying your bills on time. Before you apply for a mortgage, review your credit report. Give your credit a boost by keeping your credit card utilization below 30%. If you have any past debts, pay them. Lenders want to see a flawless credit history for the past 12+ months – the longer you go without a negative mark on your report, the better.

Keep in mind that lenders may re-check your credit score during the application process, so make sure all your accounts are on-time and current and avoid any other large purchases that could affect your score until after you receive an approval.

For credit repair assistance, contact Credit Absolute.

3. Two is Better than One

If you don’t have income high enough to qualify for type of loan you need, a cosigner with an adequate amount of disposable income to be considered on your mortgage may help your approval rating – regardless of whether this person will be helping you make your payments or living with you. In some cases, a cosigner with a positive credit history can help someone with less-than-perfect credit. However, he/she should keep in mind that they are guaranteeing to your lender that the mortgage payments will be paid in full and on-time.

4. Offer a Larger Down Payment

If you can pay for a percentage of the home on your own, your application for the rest of your home financing just may tilt in your favor. The larger personal investment you have in the house, the less likely you will walk away from the property and let it go into foreclosure.

Having a significant amount of cash is also a strong indicator of how you handle your finances. Banks don’t just want to hand anyone a loan; they want to provide financing to people that are guaranteed to pay them back.

5. Consider a Smaller Loan

While your pre-approval may indicate that you qualify for a loan up to $250,000, you want to tread carefully in asking for the highest loan amount. In fact, the closer you get to your limit, the more difficult it is to get approved.

If you don’t qualify for the mortgage that you want and you aren’t willing to wait, try setting your sights on a less-expensive property. Consider a townhouse instead of a house, accept fewer bathrooms and bedrooms, or move to a neighborhood further away to give you more options. For a more drastic approach, consider a different area of the country where homes are more affordable until you can trade up or build your financial history.

Source: creditabsolute.com

Understanding Fee Simple vs Leasehold Ownership

Leasehold ownership only applies in a few states, but if you’re buying property in one of them, you’ll want to read this.

Most people only know of one type of real estate ownership: fee simple, also known as freehold. But a handful of states have another form of ownership, known as leasehold.
The difference in these two types of land tenure is very different and affects the value of the real estate.  It is important to know the difference, especially if you’re buying real estate in a leasehold state (i.e., Hawaii, New York, Florida).

What is the difference between leasehold and fee simple?

  • Fee simple ownership. Fee simple ownership is probably the form of ownership most residential real estate buyers are familiar with. Depending on where you are from, you may not know of any other way to own real estate. Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership.  A fee simple buyer is given title (ownership) of the property, which includes the land and any improvements to the land in perpetuity. Aside from a few exceptions, no one can legally take that real estate from an owner with fee simple title. The fee simple owner has the right to possess, use the land and dispose of the land as he wishes — sell it, give it away, trade it for other things, lease it to others, or pass it to others upon death.
  • Leasehold ownership. A leasehold interest is created when a fee simple land-owner (Lessor) enters into an agreement or contract called a ground lease with a person or entity (Lessee). A Lessee gives compensation to the Lessor for the rights of use and enjoyment of the land much as one buys fee simple rights; however, the leasehold interest differs from the fee simple interest in several important respects. First, the buyer of leasehold real estate does not own the land; they only have a right to use the land for a pre-determined amount of time. Second, if leasehold real estate is transferred to a new owner, use of the land is limited to the remaining years covered by the original lease. At the end of the pre-determined period, the land reverts back to the Lessor, and is called reversion. Depending on the provisions of any surrender clause in the lease, the buildings and other improvements on the land may also revert to the lessor. Finally, the use, maintenance, and alteration of the leased premises are subject to any restrictions contained in the lease.

Important leasehold terms to know:

  • Lease Term – The length of the lease period (usually 55 years or more)
  • Lease Rent – The amount of rent paid to the Lessor for use of the land
  • Fixed Period – The period in which the lease rent amount is fixed
  • Renegotiation Date – Date after the fixed period that the lease rent is renegotiated
  • Expiration Date – The date that the lease ends
  • Reversion – The act of giving back the property to the Lessor
  • Surrender – Terms of the reversion
  • Leased Fee Interest – An amount a Lessor will accept to convey fee simple ownership

Related:

Source: zillow.com