What’s the Difference Between a Co-op and a Condo?

It’s easy to get confused about the difference between co-ops and condos. If you pulled up pictures of each during a home search, they might seem exactly the same.

But if you’re in the market for a home — especially in a large city where both housing types are popular — you’ll learn quickly that the terms are not interchangeable.

You might have wondered if you’d prefer a house or a condo. But if you’re moving in the direction of co-op vs. condo, it’s important to understand their many distinct features.

Both give a resident the right to use certain common areas, such as pools, gyms, meeting rooms, and courtyards. But there are big differences when it comes to what you actually own when you purchase a condo or co-op.

You’ve done the work of budgeting for a home. Now you need to get a handle on the difference between a condo and a co-op.

What Is a Condo?

With a condominium, you own your home, but you don’t solely own anything outside your unit — not even the exterior walls. Common areas of the complex are owned and shared by all the condo owners collectively.

Buying a condo is not all that different from securing any other type of real estate.

Typically, the complex will be managed by a homeowners association that is responsible for maintaining the property and enforcing any covenants, conditions, and restrictions that govern property usage. The HOA sets the regular fees needed to pay for repairs, landscaping, other services, and insurance for the shared parts of the property. Special assessments also might be levied to pay for unexpected repairs and needed improvements that aren’t in the normal operating budget.

What Is a Co-op?

In the co-op vs. condo debate, it’s key to know that with a housing cooperative, residents don’t own their units. Instead, they hold shares in a nonprofit corporation that has the title to the property and grants proprietary leases to residents. The lease grants you the right to live in your specific unit and use the common elements of the co-op according to its bylaws and regulations.

A co-op manager usually collects monthly maintenance fees; enforces covenants, conditions and restrictions; and makes sure the property is well kept.

As a shareholder, you become a voting manager of the building, and as such have a say in how the co-op is run and maintained. Residents generally vote on any decision that affects the building.

With a co-op, should you want to sell your shares, members of the board of directors will have to approve your new buyer. They will be much more involved than would be the case with a condo. That can make it a lengthy process.

Co-ops and condos are both common-interest communities, but their governing documents have different legal mechanisms that determine how they operate and can affect residents’ costs, control over their units, and even the feeling of community.

Some Pros & Cons of Co-Ops vs Condos

Financing

It’s important to drill down on the details of buying an apartment. Because you aren’t actually buying any real estate with a co-op, the price per square foot is usually lower than it would be for a condo. Eligibility for financing may depend on credit score, down payment, project analysis, minimum square footage of a unit, and more.

However, it might be somewhat harder to get a mortgage for a co-op than a condo, even if the bottom-line price is less. It might not have all that much to do with you. Some lenders are reluctant to underwrite a mortgage for a property on which they can’t foreclose.

Most condo associations don’t restrict lending or financing in the building. If you can get a mortgage, the condo association will usually let you buy a place.

Fees

Because a co-op’s monthly fee can include payments for the building’s underlying mortgage and property taxes as well as amenities, maintenance, security, and utilities, it’s usually higher than the monthly fee for a condo. Either way, though, generally the more perks that come with your unit, the more there is to maintain and in turn, the more you’re likely to pay.

If you’re concerned about an increase in fees, you might want to ask the association or board about any improvements that may lead to an increase in the future — and what the rules are for those who do not pay their assessed dues.

All of these factors are important to weigh when you’re making a home-buying checklist, which includes figuring out how much money you’ll need and the best financing strategy.

Taxes

If you itemize on your income tax return, you may be able to deduct the portion of a co-op’s monthly fee that goes to property taxes and mortgage interest. However, none of a condo’s monthly maintenance fee is tax deductible.

You might want to consult a tax professional about these nuances before moving forward with a co-op or condo purchase.

Privacy vs Community

If you’ve ever lived in one of those neighborhoods where the only time you saw your fellow residents was just before they pulled their cars into their garages, it could take you a while to adjust to cooperative or association living. Because you share ownership with your neighbors, you may be more likely to see them at meetings and other events. And you can trust that they’ll know who you are.

Co-op boards often require prospective buyers — who are potential shareholders — to provide substantial personal information before a purchase is approved, including personal tax returns, personal and business references, and in-person interviews.

You may find that you like the sense of community and that everyone knows and looks out for each other. Or you may not. Again, you might want to ask some questions about socialization and privacy while checking out a particular co-op or an active condo community.

Restrictions

In a co-op, you might run into more rules regarding how you can renovate or even decorate your unit. And don’t forget: You’ll also have to deal with that rigorous application approval process if you ever decide to sell.

Both condos and co-ops frequently have restrictions on renting your unit, how many people can stay overnight or park in the parking lot, the type of pets you can have and their size, and more. Before you look at a unit, you may want to ask your agent about covenants, conditions, and restrictions that could be difficult to handle.

The Takeaway

Whether you end up saying home sweet co-op or condo, ownership offers many benefits you won’t find in a rental. When you’re ready to start a serious search, take the time to look for a lender that will work with you on whatever type of loan you might require. In the co-op vs. condo terrain, there are specialists for both sides.

SoFi offers competitive options for home loans and refinancing, working with you to find the right fit for your financial needs. You can get prequalified online in just minutes, and you may be able to put as little as 5% down.

Check your rate on a SoFi mortgage today.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Source: sofi.com

The Future of Homebuying: Questions to Ask in a Post-Coronavirus World

For almost all of the spring homebuying season, the real estate world has been rocked by ever changing guidelines and procedures due to COVID-19. As some states deemed real estate non-essential and federal guidelines tightened, buyers are experiencing a new landscape in real estate. As Americans slowly transition to the new normal, buying a home in a future that’s post-coronavirus may look a little different. Knowing what changes have occurred during COVID-19, as well as what questions to ask, is going a vital part of navigating the real estate world in the future.

gay couple buying a home gay couple buying a home

How Can I Tour the Property I Want?

One of the most obvious– and fastest– changes during the pandemic crisis was how buyers could safely enter the homes for sale. In most cases, this has been an individual brokerage decision, as well catering to the comfort level of sellers. However, there have been some general guidelines in place, as well as new alternative options, that allow buyers to continue their home search.

  • Masks worn by all individuals viewing the home
  • Requests for individuals that have travelled out-of-state to refrain from viewing in person
  • Shoe “booties” provided to buyers as they tour the property
  • Online virtual tours, like those available on Homes.com, which allow buyers to view the property from the comfort of their own home
  • 360 degree walking tours
  • Zoom tours with a Realtor. Many agents are offering this service to reduce the number of individuals in a property while also allowing people to view the home

In a world post-coronavirus, or at least, post the social distancing guidelines, these safety recommendations may still be in the future of homebuying and selling. People will likely want to stay protected from outside germs, so having extra precautions in place will be around longer than you might think.

Read: How to Buy a Home During the COVID-19 Crisis

Read: What You Need to Know About Virtual Open Houses in the COVID-19 Era

Is My Down Payment Assistance Program Still Available?

Many first time homebuyers have relied on down payment assistance programs to purchase a home without having to pay 20% down; however, once COVID-19 hit and unemployment increased, many of the programs were suspended. It is important to note that not all down payment assistance programs were suspended and in the near future as guidelines loosen, many programs, if not all, will resume. If you as a buyer are relying on a DPA program to purchase your home in a post-pandemic world, it’s important to ask the following questions:

  • Will I still get a rate lock on my interest rate?
  • How will this impact the homebuyer education course that may be required?
  • Will there be a delay in processing my loan?
  • How often will I have to submit employment verification?
  • Has the credit score requirement changed?

Am I Still Approved For My Loan?

Since COVID-19, many lenders have tightened the requirements on loans. For many, they have increased down payment requirements and credit score requirements. In addition, many lenders are doing more employment verification checks throughout the loan process. Buyers may experience a delay in loan approval as processing times have increased, and as we continue to see the requirements loosen up in a post-coronavirus world, loan officers might become busier than before. These are some things to keep in mind about loan approval post-COVID-19 to prevent your approval from being dragged out longer than you want. Ask your broker these questions:

  • What do you need to verify my employment?
  • Is there a new minimum credit score requirement?
  • Will I be able to put less than 20% down? If not, what are my options?

How Will The Closing Process Work?

As attorneys and title companies work to close transactions during COVID-19, many are taking extra precautions to effectively protect themselves, and the public, while still conducting business. Each title company and attorney may have varying precautions, and many are even offering alternative closing options. It’s likely that as we continue to move forward with loosening up the restrictions of social distancing, many of these companies will be continuing to exercise precautionary steps. Here are some options you may be seeing come with us in the future:

  • Curbside closings to offer minimal contact
  • Electronic wire funding providing a touch-free funding option
  • Personal protective equipment required at in-person closings such as masks and gloves

What If I Was In The Process Of Buying But I’m Furloughed?

An unfortunate effect of COVID-19 is that many previously qualified buyers were furloughed or laid off due to no fault of their own. Unfortunately, while lenders may sympathize with the situation, most will not approve a home loan to an unpaid furloughed employee. Since this is uncharted territory even for lenders, requirements may differ. It’s important to ask the right questions if you’re currently furloughed, or expect to be out of work in the future, but are still wanting to buy a home:

  • How will my furlough affect my loan approval?
  • Will my time of employment have to start all over again once I’m not furloughed?

As we all adjust to a new normal, even in real estate, what has been business-as-usual may look differently. Buyers may experience more delays and hurdles in the process, but it is still possible to buy a home during and post-COVID-19. To begin your home search, download the free Homes.com app or search online!


Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She’s passionate about the power of real estate. She’s also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

Source: homes.com

Do You Qualify as a First-Time Homebuyer?

A first-time homebuyer isn’t just someone purchasing a first home. It can be anyone who has not owned a principal residence in the past three years, some single parents, and others.

If the thought of a down payment and closing costs put a chill down your spine, realize that first-time homebuyers often have access to down payment assistance in the form of grants or low- or no-interest loans.

‘First-Time Homebuyer’ Under the Microscope

To get a sense of who qualifies for a mortgage as a first-time homebuyer, let’s take a look at the government’s definition.

The U.S. Department of Housing and Urban Development (HUD) says first-time buyers meet any of these criteria:

•   An individual who has not held ownership in a principal residence during the three-year period ending on the date of the purchase.

•   A single parent who has only owned a home with a former spouse.

•   An individual who is a displaced homemaker (has worked only in the home for a substantial number of years providing unpaid household services for family members) and has only owned a home with a spouse.

•   Both spouses if one spouse is or was a homeowner but the other has not owned a home.

•   A person who has only owned a principal residence that was not permanently attached to a foundation (such as a mobile home when the wheels are in place).

•   An individual who has owned a property that is not in compliance with state, local, or model building codes and that cannot be brought into compliance for less than the cost of constructing a permanent structure.

For conventional (nongovernment) financing through private lenders, Fannie Mae’s criteria are similar.

You can use our Home Affordability
Calculator to get an estimate of how
much house you can afford.

Options for First-Time Homebuyers

First-time homebuyers may not realize that they, like other buyers, may qualify to buy a home with much less than 20% down.

They also have access to programs that may ease the credit requirements of homeownership.

Federal Government-Backed Mortgages

When the federal government insures mortgages, the loans pose less of a risk to lenders, so lenders may offer you a lower interest rate.

There are three government-backed home loan options. In exchange for a low down payment, you’ll pay an upfront and annual mortgage insurance premium for FHA loans, an upfront guarantee fee and annual fee for USDA loans, or a one-time funding fee for VA loans.

FHA Loans

The Federal Housing Administration, part of HUD, insures fixed-rate mortgages issued by approved lenders . On average, more than 80% of FHA-insured mortgages are for first-time homebuyers each year.

If you have a FICO® credit score of 580 or higher, you could get an FHA loan with just 3.5% down. If you have a score between 500 and 579, you may still qualify for a loan with 10% down.

USDA Loans

The U.S. Department of Agriculture offers assistance to buy (or, in some cases, even build) a home in certain rural areas. Your income has to be within a certain percentage of the average median income for the area.

If you qualify, the loan requires no down payment and offers a fixed interest rate.

The USDA has an interactive map to determine if a community is considered rural.

VA Loans

A mortgage guaranteed in part by the Department of Veterans Affairs requires no down payment and is available for military members, veterans, and certain surviving military spouses.

Although a VA loan does not state a minimum credit score, lenders who make the loan will set their minimum score for the product based on their risk tolerance.

Government-Backed Conventional Mortgages

Fannie Mae and Freddie Mac, government-backed mortgage companies, do not originate home loans; they buy and guarantee mortgages issued through lenders in the secondary mortgage market.

They make mortgages available that are geared toward lower-income, lower-credit score borrowers.

Freddie Mac’s Home Possible program offers down payment options as low as 3%. There are also sweat equity down payment options and flexible terms.

Fannie Mae’s 97% LTV program also offers 3% down payment loans.

Fannie Mae’s HomePath Ready Buyer program offers first-time homebuyers the ability to buy foreclosed properties with as little as 3% down and help with closing costs.

A Mortgage for Certain Civil Servants

If you’re a law enforcement officer, firefighter, or EMT working for a federal, state, local, or Indian tribal government agency, or a teacher at a public or private school, the HUD-backed Good Neighbor Next Door program could be a good fit. It provides 50% off the listing price of a foreclosed home in specific revitalization areas. In turn, you have to commit to living there for 36 months.

Homes are listed on the HUD website each week, and you have to put an offer in within seven days.

Only a registered HUD broker can submit a bid for you on a property.

If using an FHA loan to buy a home in the Good Neighbor Next Door program, the down payment will be $100. If using a VA loan to purchase a house through the program, buyers will receive 100% financing. If using a conventional home loan, the usual down payment requirements stay the same.

State, County, and City Assistance

It isn’t just the federal government that helps to get first-time buyers into homes. State, county, and city governments and nonprofit organizations run many down payment assistance programs.

HUD is the gatekeeper, steering buyers to state and local programs and offering advice from HUD home assistance counselors.

The National Council of State Housing Agencies has a state-by-state list of housing finance agencies, which cater to low- and middle-income households. Contact the agency to learn about the programs it offers and to get answers to housing finance questions.

Using Gift Money

First-time homebuyers might also want to think about seeking down payment and closing cost help from family members.

If you’re using a cash gift, your lender will want a formal gift letter, and the gift cannot be a loan. Home loans backed by Fannie Mae and Freddie Mac only allow down payment gifts from someone related to the borrower. Government-backed loans have looser requirements.

Want to use your 401(k) to make a down payment? You could, but financial advisors frown on the idea. Borrowing from your 401(k) can do damage to your retirement savings.

The Takeaway

First-time homebuyers are in the catbird seat if they don’t have much of a down payment or their credit isn’t stellar. Lots of programs, from local to federal, give first-time homeowners a break.

SoFi offers home loans with as little as 5% down. See how your rate and terms stack up against the competition.

It’s easy to find your rate.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

How I Made $2,000 in 1 Week by Writing an eBook

Hey everyone! Today, my fellow female finance blogger, Fiona Smith, is going to show you how she made $2,000 in 1 week by self-publishing an ebook on Gumroad. Fiona is the creator of The Millennial Money Woman, she’s been featured on Forbes, she’s a speaker at the national FinCon 2021 conference, and she’s a co-founder of a local non-profit charity, promoting financial literacy to underprivileged minorities. Today, Fiona will teach you how to potentially make a few extra $1,000 a month by writing an ebook. Take it away Fiona!

Hey guys and gals! How I Made $2,000 in 1 Week by Self-Publishing an eBook

How I Made $2,000 in 1 Week by Self-Publishing an eBook

My name is Fiona aka The Millennial Money Woman. I run my own personal finance blog and love helping others make more money and build long-term wealth.

If you had told me in early 2020 that I would soon make $2,000 in 1 week by self-publishing an ebook, I would have probably looked at you like you’re crazy!

I’ve always had an inner author and always thought about writing a book. I just never got around to it because, you know, life.

And for whatever reason, in the middle of the pandemic, I had the urge to write, publish, and sell an ebook about personal finance!

Here’s a bit of my personal story:

When I was young, I saw my grandparents lose everything they ever put into their small family business due to poor financial planning. 

From that day forward, I swore to myself that I would never go through the financial difficulties that my grandparents faced. 

I also swore to myself that I would try to help everyone I could to avoid making the same financial mistakes my grandparents once made. 

That’s why I committed myself to the path of learning about personal finance (I earned my Master’s Degree in Personal Financial Planning) to give others the tools that I wish I had growing up.

…And that’s ultimately how I came up with my ebook topic: How to Get Rich from Nothing.

My ebook doesn’t necessarily define “rich” as just having money.

In my ebook, “rich” also means:

  • Building a rich mindset
  • Developing rich relationships
  • Maintaining a rich outlook on life

…You get the point. 

And you know what?

Although I was admittedly a bit scared to write the book (because I was afraid that it would be a total flop), I decided to sit down one morning and put pen to paper. It was time I show the world what The Millennial Money Woman was made of. 

Now, 2 months after my first ever ebook release, I can happily tell you that in my first week of selling my ebook, I’ve made more than $2,000!

And in this article, I’m going to show you exactly how I did it.

Related content:

How to Make Money by Writing an eBook

The cool thing about writing ebooks is that there’s no secret code or formula to making money.

You can write an ebook that’s 5,000 words long or 100,000 words long. It could be a fiction novel or it could be an educational resource (like mine). It could be about the different types of dirt used on a golf course or it could be about how to start a blog.

Like I said, there’s no secret sauce.

The only key ingredient that holds true for any profitable passive income is to start! You won’t know your potential if you don’t give it a shot. 

As Wayne Gretzky famously once said, “you miss 100% of the shots you don’t take.”

So, here are some things you may want to keep in mind as you start writing your ebook:

  • Start with a topic where you have “expert” knowledge
  • Set mini-goals so that you finish the book on time
  • Write in simple, plain-English text
  • Proofread & re-edit often

This is the key to writing a successful ebook:

Write something that you’re passionate about – because you will spend a lot of time on your ebook (I took about 100+ hours from start to finish!). 

Imagine spending 100+ hours writing something that you don’t enjoy talking about!

That’s tragic – and such a waste of time. 

Set Mini-Goals

I would not have completed my ebook in 1 month if I had not set mini-goals.

Typically, it takes about 4 to 8 months for the average author to complete a book.

Because I’m trying to promote myself, my work, and my ebook in the shortest amount of time possible, I knew that time is of the essence, which is why I pushed to finish my ebook in just 1 month.

Imagine hearing yourself say, “I want to publish and sell my ebook in exactly 1 month from today.”

How would that make you feel?

Would you get heart palpitations? Would you feel anxious? Would you feel so overwhelmed that you wouldn’t know where to start?

Yep, that was me.

Here’s how I got over my paralysis and anxiety:

I broke my big goal (finishing a book in 1 month) into much smaller, more achievable goals. 

And, guess what? It worked.

Here’s what I did:

  • First, I figured out how many chapters my book would have (turns out I wanted 14 chapters)
  • Second, I determined what each chapter would cover
  • Third, I determined roughly how many words each chapter would have (turns out between 1,500 to 2,500)
  • Fourth, I determined how long it would take me to write each chapter (between 1 day to 2 days)
  • Fifth, I arranged for someone else to proofread my book once I finished the first draft
  • Sixth, I figured out a basic marketing strategy to promote my ebook on my Twitter account

After exactly 2 weeks (14 days for 14 chapters), I had someone re-read my first draft after which I [heavily] edited my ebook and re-read my book again for more edits. 

After exactly 3 weeks, I had a preliminary draft completed with a cover image that I created using Canva (see below).

After exactly 4 weeks, I had finalized my ebook, written 3 drafts, and had accomplished my pre-marketing strategy. 

Was I successful?

My goal, at the official launch, was to sell exactly 1 ebook (I set my sights low). 

By the end of week 1, I had made over $2,000 on ebook sales. I honestly couldn’t believe it – I was literally earning money in my sleep. 

All of this was made possible because I decided to break down this 1 huge goal of selling my ebook in 1 month into tiny little mini-goals.

After each mini-goal was accomplished, I moved on to the next step.

I created a structure for myself (and I work very well with a structure) so that I could stay in line with my overarching goal while not overwhelming myself without knowing where to start.

Don’t Reinvent the Wheel

I’ve published over 100 blog posts in the past 12 months on my website.

My blog posts are typically 3,000 to 6,000 words each, so they’re lengthy, they’re well-researched, and they offer lots of visual graphics about finance.

So, as I started writing my ebook, which is about finance, I had an idea…

If you already run a blog or have content written about the same or similar topic you’re planning to write about in your ebook – consider repurposing your old text!

Why reinvent the wheel if you already took the time previously to write about the same/similar topic?

Believe it or not (and I’m living proof), people who value your content and thoughts will pay money for an ebook with similar information that they can find on your blog, website, etc. for free. 

Why?

Because an ebook is typically a thoughtful curation of your finest work – carefully selected in an order that is often easier to read than on a blog or website, for example. 

Of course, you wouldn’t want to have your ebook be exactly the same as your previous content – your audience will notice that you didn’t put effort into the ebook.

And if your audience notices you didn’t put in effort, they can leave their remarks via ebook reviews or lower-star ratings (which will hurt your sales and your reputation). 

Put in the work, edit the text, and make sure that the content you provide makes sense, adds value, and flows.

Your eBook Marketing Strategy

Guys and gals – I cannot say it enough: Your network is key.

How do you expect to sell your ebook if you don’t have anyone to sell it to?

Here are some things you’ll probably want:

  • A social media following
  • A website following (potentially)
  • Ambassadors to help promote your book
  • An email or e-newsletter with a wide reach

I’m not saying you need 10,000’s of followers on social media to make a profit on your ebook. In fact, you can see profitable numbers if you “just” have a few hundred followers. 

That’s because the quality of your audience matters – not the quantity.

Would you rather have 10,000 unengaged followers or 1,000 high-quality, engaged followers – who would buy your book if you push a marketing campaign their way?

I know which option I’d take.

A good marketing strategy honestly should start before you start selling your ebook. 

I started promoting my ebook the day I started writing my ebook!

Why?

Because I wanted to see if my audience was even interested in buying my ebook – I didn’t want to spend 100+ hours on my ebook if I was only going to generate $100 in sales.

Here’s what I did:

I made sure I slipped into the inboxes of all of the important “influencers” in my niche (finance) – both on and off of Twitter – and asked them their candid, honest opinion:

Would they be willing to spend $15 on another finance book?

The only caveat is that this finance book was structured as a 14-week program, with actionable advice, written in simple English without technical jargon, and offered advice from a Millennial for Millennials.

And you know what?

I had a lot of positive feedback and a lot of constructive feedback. I used that constructive feedback to improve the overall format and outline of my ebook. 

Don’t ever shy away from constructive feedback. It will make you better.

Here’s how I started my ebook marketing strategy:

  • Market ebook before it is officially published to garner interest
  • Promote your ebook 1x to 2x times per day on your social media account
  • Send invitations to your niche influencers to read & review your ebook for free
  • Ask the top influencers of your niche to share your ebook link on its official launch day

And this is what my launch tweet looked like:

Another marketing strategy is to offer your book on a pre-order basis.

You’re basically selling a product that doesn’t exist yet – and you’re still making money!

If you receive 0 interest, you can cancel your project, save yourself some time, and give everyone a refund that has purchased your pre-order. 

If your pre-orders come in hot, then you better make sure you can deliver what you promised your audience. 

Your Earning Potential

I get a lot of questions about how much money you could expect to earn with an ebook.

And the answer is this: It completely depends.

Honestly, it depends on a lot of things like:

  • Your niche
  • Your expertise
  • Your audience
  • Your popularity

When I wrote my first ebook, I was honestly a nobody – and I was writing about a topic that has been talked about so many times before.

In other words, my niche was pretty saturated.

But here’s how I differentiated myself: 

My value proposition was that I would write my personal finance book in an easy-to-read, visually effective, and story-like manner. 

I also didn’t just talk about money in the form of numbers.

I included many anecdotes, stories, and my past experiences (with my millionaire mentor) in the hopes that my readers would pick up the same valuable information that I did from my mentor.

Once my book was ready to publish, I used the publishing and sales platform known as Gumroad.

Gumroad is an online platform that offers either free accounts or premium accounts for new users (if you’re serious about making sales on Gumroad, then the premium account – although more expensive initially – is worth the price). 

I’ve published my book using the premium Gumroad account, and haven’t looked back since.

So how much can you earn by selling an ebook?

You can earn between $50 to $5,000+ per month.

How much you earn is completely up to you. 

It also largely depends on how often you market your ebook (marketing it too many times is spammy and marketing it too little won’t give you the sales). 

I promoted my ebook between 1x to 2x per day. 

That’s it. 

Just make sure that whichever platform you use to promote your new ebook (Twitter, Facebook, Instagram, your website, your newsletter, etc.), you are authentic and genuine.

You don’t want to come across as pushy or aggressive, because that could cost you your followers (and likely reputation). 

You should also be aware of this:

Typically speaking, your ebook will earn you the most money at the beginning of your launch – that’s because you’ve [hopefully] promoted the ebook in the weeks and days coming up to its official launch. 

As the weeks turn into months after your ebook launch, chances are the demand (aka your profits) of your ebook will wane.

That’s totally normal and expected.

You can always bring back the original hype about your ebook by doing things like this:

  • Go on a podcast and promote your ebook
  • Add a new section or chapter to your ebook
  • Give away something for free with your ebook
  • Promote a notice that your ebook prices will increase soon

There are savvy ways to reignite the hype of your ebook. 

Or – you could simply write a new ebook!

Why Writing Ebooks is an Awesome Side Hustle

Writing (and selling!) ebooks is honestly one of the best side hustles. 

Why?

Because you can literally make money while you sleep. 

I’ve never earned money in my sleep before (aside from maybe my stock market investments), and I’ll never forget the first time I awoke to a Gumroad email on my phone that gave off a loud “ping!,” notifying me that I had just made a sale. 

I wasn’t even working!

And I made money. 

Ok, so I made $15, which in the grand scheme of things, isn’t a lot of money.

But for me, passively earning $15 from my first sale shattered a glass ceiling. 

I finally realized the power of earning passive income – and how passive income could literally change your life forever.

How?

Earning money passively – like by selling an ebook – is one of the very few ways (aside from maybe being a business owner) that can help you escape the daily grind of the 9 to 5 job. 

If your goal is to have the freedom to choose whether you want to work or spend time with your family on any given day, then passive income from ebooks could be a great start.

Your side hustle income could literally help you earn your way to early retirement.

The money that you make with passive income can help you:

  • Save more
  • Invest more
  • Pay off debt
  • Build wealth

The possibilities are endless. 

You just have to recognize the opportunity.

Closing Thoughts

If you want to earn some side income, but don’t know how, then you should seriously consider writing and selling an ebook. 

Speaking from personal experience, an ebook is one of the best side hustle incomes you can earn. I mean, who doesn’t want to earn an extra $2,000 per week?

I sure could use an extra $2,000!

The beauty of ebooks is that the process can be 100% free – you don’t have to hire an editor, an advertising agency to promote your ebook, or a publishing company. 

So aside from the opportunity cost of spending your time writing the book, you’re basically looking at a 100% profit!

Hopefully you’re not like me, where I took 4+ years to realize my vision and pursue what I love (writing and helping Millennials understand personal finance). Instead, if you are an expert in a certain area – I don’t care if it’s dog training or cookie baking – you should consider writing an ebook and using your network to promote your work. 

Don’t wait for tomorrow if you can do it today.

Your bank accounts will thank me later. 

For those of you who are wondering which ebook I wrote, mine is called How to Get Rich from Nothing. The book is designed to help you “get rich” not just financially but also “get rich” through your network, your mindset, your spirit, and your future goals.

Are you interested in writing a book? What questions do you have for Fiona on this topic?

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Source: makingsenseofcents.com

11 Side Hustles That Can Make You Money

We could all use a little extra money, and a good side hustle is one way to get it. A side hustle could help you save enough for a down payment on a car or house, fund that vacation you’ve always wanted, boost your investment portfolio, help you pay down debt or whatever you need some spare cash for.

In an ideal world, you could put your money to work and enjoy a truly passive income, or your side hustle would be so lucrative that it could finally become your main gig. But even if you have to keep your day job, a side hustle can make you money in an area you’re passionate about.

A side hustle is something you do in addition to your main job, so the best ones don’t require a lot of time, give you flexibility in when you work and can help you earn a decent amount of cash. The ideas below include a mix of low or flexible time commitment and good value for the amount of effort likely needed.

Top side hustles ideas to help you earn more

1. Walking dogs

Walking dogs sounds so old school, but it can offer a better payout than you might think. Plus, you can scale the business at least a little. Pet owners are likely to be wealthier than average (according to at least one study), and a busy pet owner in a city might not have time to walk their pooch. So they may be willing to pay you to do the job regularly — and if you coordinate things right, you may be able to walk a few dogs at a time, doubling or tripling the money you make in the same period.

If pets aren’t your thing, you could take a turn as a house sitter. While some homeowners may pay in cash, others may be away for months and offer you a place to stay, helping you save on what is probably your biggest expense.

2. Selling in an online marketplace

People are familiar with third-party selling sites such as eBay, Etsy or Amazon, but you can take it upscale by selling on a site such as Poshmark, which offers new and used fashion items. An advantage of going higher end is that you may be able to earn more for the same amount of work.

You could sell items from others who don’t have the time or ability to do it themselves. But when you develop a deeper knowledge of the market, you could take it a step further by buying the top items directly from clients and then earning that profit margin yourself.

3. Speaking engagements

Are you a master of motivation, a doyen of design or a ninja of cybersecurity? Take your expert skills and knowledge to an audience that’s willing to pay for your time. You’ll need to establish authority (through social media, blogs, books, videos or something else) and likely grow your audience first, but then you may be able to monetize that. Find a conference that’s willing to pay you to talk about what you love and then repeat the gig at new venues and for new audiences.

4. Tutoring

Everyone wants to ace the SAT or ACT or even just their next exam. Take your knowledge of the subject area and teach someone how to achieve success there. Nowadays you may even be able to do it from the safety and comfort of your own home through Zoom or other video conferencing software. If you have skills for standardized entrance exam tests for professional schools such as the GMAT or LSAT, you might be able to take things upmarket and turn an even greater profit on your time and skills.

5. Freelance writing

Freelance writing can be an attractive side hustle if you’re looking to fit in some work when you have time. It’s an even better setup if it’s in a specialized field with few competitors so that wages remain higher. Find a niche to write about, establish a reputation for turning in clean copy that needs few changes and then scale up as much as you want. You could turn that side hustle into writing about something you love or even a full-time position when you’re a known authority.

Is writing not your thing? Do the equivalent in media as a freelance video editor. Establish your credentials and then specialize in a subject area or two that you love.

6. Open a mobile business

Consider opening a mobile business for services that a user might not be able to travel to get. For example, consider a mobile service for replacing broken glass for windows in houses or cars. Schedule an appointment ahead of time and show up to fix the issue. You could focus on business outside of normal hours to establish a competitive edge and still keep your main gig.

Another option on the mobile theme could be a car detailing service. Bring your gear and get someone’s ride ready to roll in style.

7. Ride-sharing

Ride-sharing has become popular in recent years, though COVID-19 has helped put a damper on it, at least for the moment. But one benefit is the flexible hours. You may be able to work around your schedule, limiting your availability to nights or weekends, for example. Many people opt for a major ride-sharing player such as Uber or Lyft, or you may also be able to set up with a regional player.

8. Moving stuff

In a growing economy people are moving all the time, even if it’s only across town. Set yourself up as someone who can show up at any time and move that heavy item around the block or to the other side of town in your unused truck. You could expand into storing things for people while they’re in the process of moving from one residence to another.

9. Set up an online store

It’s never been easier to set up an online store through a service such as Shopify, and when you get things rolling, you really can make money while you sleep. It’s tough to beat that flexibility. Of course, the hard part is finding the products that consumers can’t live without and getting that community of people to your site. But building an online store is the kind of thing you could work on in your spare time and build out incrementally as you learn the ropes.

Bottom line

The best side hustles let you earn good money on your own terms, but it can take time to build up your side gig into something worthwhile. You’ll need to inform people of what you offer and show that you reliably deliver whatever you promise. From there you can see how big you can build your side hustle and whether it can become something even more lucrative.

Learn more:

Source: thesimpledollar.com

Understanding Property Valuations

If you’re applying for a mortgage, you probably expect the lender to take a look at your income, debt, credit history, employment, and assets.

There’s another loan element the lender will consider that may be less familiar: an objective property valuation.

What Is a Property Valuation?

Sellers may use a property valuation to determine how much their house is worth and how much they can charge on the open market.

A mortgage lender’s property valuation is slightly different. It helps the lender determine the value of the property you’re hoping to buy based on factors like size, location, condition, and demand.

Why would lenders require this type of home appraisal? They want to know that the loans they offer are backed by a sufficiently valuable property so that if a borrower were to default on the loan, they can recoup their losses.

Consider this: Sellers can choose any listing price they want — whatever they think someone is willing to pay. But if the buyer needs financing, the selling price must be supported by market value (what comparable homes have recently sold for in the area) before a lender will pony up the cash for a loan.

If the home you want to buy is appraised for less than the sales price, the seller would need to lower the price to the appraised value, you would have to make up the difference, or you’d exit the deal.

Who Carries Out a Property Valuation?

A lender’s property valuation typically will be carried out by a professional appraiser assigned by a third party.

The lender, buyer, and seller are not to have any relationship with the appraiser so that the valuation is unbiased. Buyers can hire an independent appraiser, but the valuation would not be official.

The kind of valuation required by lenders depends on factors such as the type of home you’re looking to buy, the type of loan you’re applying for, your credit score, and whether you’re buying a single-family or multifamily home.

Home Appraisals, Explained

The most common kind of property valuation is an appraisal.

How Does a Home Appraisal Work?

An appraisal is an independent estimate of the home’s value by a licensed or certified real estate appraiser.

Appraisers weigh factors like location, the condition of the home, size and layout, the year it was built, and any renovations that have been done. They also consider “comps” — what similar homes in the neighborhood recently sold for — tax records, and zoning.

The appraisal will determine a market value that is either “as is” or “subject to” certain conditions, such as completion of repairs or upgrades.

Lenders rely on the appraiser’s market value to come up with the loan-to-value ratio of a property, which influences the amount they’re willing to lend and the terms of the loan.

When Does an Appraisal Happen and What Does It Cost?

The federal government no longer requires appraisals for homes that cost less than $400,000, allowing simpler evaluations to stand in their place. That said, most mortgage lenders probably will still require an appraisal.

The appraisal typically occurs once the seller has accepted an offer and is normally performed within the loan contingency date of the purchase contract, usually 21 days.

The buyer pays for the appraisal ordered through the lender. The cost depends on the type of property, city, size, and features, but for a single-family home it averages $348, according to a national survey from HomeAdvisor, an online platform for home services professionals.

A desktop appraisal may cost much less than that.

What If You Get a Low Appraisal?

If the appraised value is as much as the agreed-upon price or more, that encourages the lender to move forward with the home loan, assuming that the other aspects of the property and your application are in order.

If the appraisal comes in under the agreed-upon price, the lender may reduce the amount of the loan it’s willing to offer.

You or the sellers can dispute the appraisal with the lender or ask for a second appraisal. If the value is still too low, there are three routes:

•   You can agree to contribute the difference in cash.

•   You can try to get the seller to reduce the price.

•   You and the seller may agree to split the difference.

Buyers can back out of the deal if the contract includes an appraisal contingency. A clean offer, one with as few contingencies as possible, caught on in the recent hot market, but buyers take risks in dropping contingencies.

Alternatives to a Full Home Appraisal

In certain situations or stages of the homebuying process, you may not need to go through a full formal home appraisal. Here are some alternative methods lenders use for home valuations.

Automated Valuation Model

Algorithms take into account the size of the home, the number of bedrooms and bathrooms, comps, and other factors to estimate property value.

Some lenders of conventional mortgages using Fannie Mae or Freddie Mac’s automated underwriting systems may receive a waiver for a full appraisal, thanks to robust sales in the neighborhood to support the purchase price, the amount of the down payment, strength of the borrower, or the type of transaction.

Some lenders also use automated valuation models when deciding whether to extend or adjust a home equity line of credit.

Drive-by or Exterior-Only Appraisal

A drive-by appraisal (also known as a summary appraisal) refers to an inspection that only looks at the exterior of a home. The appraiser will photograph the front and sides of the home, as well as the street in both directions.

The appraiser takes notes on the neighborhood and the condition of the home and looks at comps when coming up with an estimated value.

Desktop Appraisal

Never having to leave the desk, an appraiser uses property tax records, comps, and other public record data in lieu of a physical property inspection.

The Federal Housing Finance Agency made desktop appraisals, implemented in March 2020 amid lockdowns and social distancing, permanent for purchase loans starting in early 2022.

That means both Fannie Mae and Freddie Mac will allow appraisals to be conducted remotely.

Broker Price Opinion

A broker price opinion is an estimate of a property’s value determined by a real estate agent or broker, rather than a licensed appraiser. A client may request this estimate to underpin a home’s listing price.

A lender may request a broker price opinion when a borrower is behind on payments, and will use the unofficial assessment to see whether the home value is below the amount of the loan, potentially making the borrower eligible to negotiate a short sale.

Broker price opinions can also be used to buy and sell mortgages on the secondary market. Lenders prefer them in these cases because a full appraisal isn’t required, and because the valuations are fast and generally less costly.

The Takeaway

An unbiased professional appraiser determines real estate valuation based on factors like home size, condition, location, and comparable sales. When big money is at stake, a lender needs to determine the true property valuation.

Before you get to the home valuation stage, the first steps to becoming a homeowner may be getting prequalified and preapproved for a mortgage loan.

SoFi offers home loans with as little as 5% down, competitive rates, and flexible terms.

It’s quick and easy to find your rate on a SoFi mortgage.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

What Is a Reverse Mortgage?

A reverse mortgage is a loan that allows homeowners to turn part of their home equity into cash. Available to people 62 and older, a reverse mortgage can be set up and paid out as a lump sum, a monthly payment or a line of credit, which can then be used to fund home renovations, consolidate debt, pay off medical expenses or simply improve one’s lifestyle.

While older Americans, particularly retiring baby boomers, have increasingly drawn on this financial tool, reverse mortgages aren’t for everyone. We’ll dive further into the question of what is a reverse mortgage, as well as explore their pros and cons and alternatives you might consider.

How Does a Reverse Mortgage Work?

Usually when people refer to a reverse mortgage, they mean a federally insured home equity conversion mortgage (HECM). That being said, there are two other types of reverse mortgages — we’ll cover those reverse mortgage meanings in more depth below.

To qualify for an HECM, all owners of the home must be 62 or older and have paid off their home loan or have a considerable amount of equity. Borrowers must use the home as their primary residence or live in one of the units if the property is a two- to four-unit home. Certain condominium units and manufactured homes are also allowed. The borrower cannot have any delinquent federal debt. Plus, the following will be verified before approval:

•   Income, assets, monthly living expenses and credit history

•   On-time payment of real estate taxes, plus hazard and flood insurance premiums, as applicable

The reverse mortgage amount you qualify for is determined based on the lesser of the appraised value or the HECM mortgage loan limit (the sales price for HECM to purchase), the age of the youngest borrower or the age of an eligible non-borrowing spouse and current interest rates. Generally, the older you are and the more your home is worth, the higher your reverse mortgage amount could be, depending on other eligibility criteria.

The reverse mortgage loan and interest do not have to be repaid until the last surviving borrower dies, sells the house or moves out permanently. In some cases, a non-borrowing spouse may be able to remain in the home.

Loan Costs

An HECM loan may include several charges and fees, such as:

•   Mortgage insurance premiums

◦   Upfront fee (2% of the home’s appraised value or the Federal Housing Administration (FHA) lending limit, whichever is less)

◦   Annual fee (0.5% of the outstanding loan balance)

•   Third-party charges (an appraisal fee, surveys, inspections, title search, title insurance, recording fees and credit checks)

•   Origination fee (the greater of $2,500 or 2% of the first $200,000 of the home value, plus 1% of the amount over $200,000; the origination fee cap is $6,000)

•   Servicing fee (up to $30 per month if the loan interest rate is fixed or adjusted; if the interest rate can adjust monthly, up to $35 per month)

•   Interest

Your lender can let you know which of the above fees are mandatory. Many of the costs can be paid out of the loan proceeds, meaning you wouldn’t have to pay them out of pocket. However, financing the loan costs reduces how much money will be available for your needs.

The servicing fee noted above is a cost you could incur from the lender or agent who services the loan and verifies that real estate taxes and hazard insurance premiums are kept current, sends you account statements and disburses loan proceeds to you.

What Is the Most Common Kind of Reverse Mortgage?

The most common type of reverse mortgage is the HECM, or home equity conversion mortgage, which can also be used later in life to help fund long-term care. HECM reverse mortgages are made by private lenders but are governed by rules set by the Department of Housing and Urban Development (HUD). The current loan limit is $822,375.

To qualify for this kind of reverse mortgage loan, you must meet with an HECM counselor, which you can find through the HUD site. When you meet with the counselor, they may cover eligibility requirements, potential financial ramifications of the loan and when the loan would need to be paid back, including circumstances under which the outstanding amount would become immediately due and payable. The counselor may also share alternatives.

The reverse mortgage loan generally needs to be paid back if the borrower moves to another home for a majority of the year or to a long-term care facility for more than 12 consecutive months, and if no other borrower is listed on the loan.

However, a new HUD policy offers protections to a non-borrowing spouse when a partner moves into long-term care. The non-borrowing spouse may remain in the home as long as they continue to occupy the home as a principal residence, is still married and was married at the time the reverse mortgage was issued to the spouse listed on the reverse mortgage.

In 2021, HUD also removed the major remaining impediment to a non-borrowing spouse who wanted to stay in the home after the borrower’s death. Now they will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often meant a probate filing and had forced many spouses into foreclosure.

Two Other Types of Reverse Mortgages

The information provided so far answers the questions “What is a reverse mortgage?” and “How do reverse mortgages work?” for HECMs, but there are also two other kinds: the single-purpose reverse mortgage and the proprietary reverse mortgage.

Here’s more information about each of them.

Single-Purpose Reverse Mortgage

This loan is offered by state and local governments and nonprofit agencies. It’s the least expensive option, but the lender determines how the funds can be used. For example, the loan might be approved to catch up on property taxes or to make necessary home repairs.

Check with the organization giving the loan for specifics about costs, as they can vary.

Proprietary Reverse Mortgage

If a home is appraised at a value that exceeds the maximum for an HECM ($822,375), a homeowner could pursue a proprietary reverse mortgage.

Counseling may be required before obtaining one of these loans, and a counselor can help a homeowner decide between an HECM and a proprietary loan.

Typically, proprietary reverse mortgages can only be cashed out in a lump sum. The costs can be substantial and interest rates higher. This type of reverse mortgage, unlike an HECM, is not federally insured, so lenders tend to approve a lower percentage of the home’s value than they would with an HECM.

One cost a borrower wouldn’t have to pay with a proprietary mortgage: upfront mortgage insurance or the monthly premiums. In some cases, the costs associated with this type of mortgage may cause a homeowner to decide to sell the home and buy a new one.

Pros and Cons of Reverse Mortgages

Reverse Mortgages: Pros and Cons

Pros Cons

•   No monthly payments

•   Flexibility on how you get money

•   Can pay back the loan whenever you want

•   The money counts as a loan, not as income

•   An HECM can be used to buy a new primary residence

•   Rates can be higher than traditional mortgage rates

•   Generally requires reducing your home equity

•   Must keep up with property taxes, insurance, repairs and any association dues

•   Interest accrued isn’t deductible until it’s actually paid

If you’re nearing retirement, it’s easy to see why reverse mortgages are appealing. Here are some of their pros:

•   Unlike most loans, you don’t have to make any monthly payments. The HECM loan can be used for anything, whether that’s debt, health care, daily expenses or buying a vacation home (although this is not true for the single-purpose variety).

•   How you get the money from an HECM is flexible. You can choose whether to get a lump sum, monthly disbursement, line of credit or some combination of the three.

•   You can pay back the loan whenever you want, even if that means waiting until you’re ready to sell the house. If the home is sold for less than the amount owed on the mortgage, borrowers may not have to pay back more than 95% of the home’s appraised value because the mortgage insurance paid on the loan covers the remainder.

•   The money from a reverse mortgage counts as a loan, not as income. As a result, payments are not subject to income tax. Social Security and Medicare also are not affected.

•   An HECM can be used to buy a new primary residence. You’d make a down payment and then finance the rest of the purchase with the reverse mortgage.

Then again, here are some cons of reverse mortgages to consider:

•   Reverse mortgage interest rates can be higher than traditional mortgage rates. The added cost of mortgage insurance also applies, and, like most mortgage loans, there are origination and third-party fees you will be responsible for paying, as described above.

•   Taking out a reverse mortgage generally means reducing the equity in your home. That can mean leaving less for those who might inherit your house.

•   You’ll need to keep up property taxes and insurance, repairs and any association dues. If you don’t pay insurance or taxes, or if you let your home go into disrepair, you risk defaulting on the reverse mortgage, which means the outstanding balance could be called as immediately “due and payable.”

•   Interest accrued on a reverse mortgage isn’t deductible until it’s actually paid (usually when the loan is paid off). And a deduction of mortgage interest may be limited.

Alternatives to Reverse Mortgages

A reverse mortgage payout depends on the borrower’s age, the value of their home, the mortgage interest rate and loan fees, as well as whether they choose a lump sum, line of credit, monthly payment or a combination of those options.

If the payout will not provide financial stability that allows an individual to age in place, there are other ways to tap into cash, including:

Cash-out refi: If you meet credit and income requirements, you may be able to borrow up to 80% of your home’s value with a cash-out refinance of an existing mortgage. Closing costs are involved, but this product lets you turn home equity into cash and possibly lock in a lower interest rate.

Personal loan: A personal loan could provide a lump sum without diminishing the equity in your home. This kind of loan does not use your home as collateral. It’s generally a loan for shorter-term purposes.

Home equity line of credit (HELOC): A HELOC, based in part on your home equity, provides access to cash in case you need it but requires interest payments only on the money you actually borrow. Some lenders will waive or reduce closing costs if you keep the line open for at least three years. HELOCs usually have a variable interest rate.

Home equity loan: A fixed-rate home equity loan allows you to borrow a lump sum based on your home’s market value, minus any existing mortgages. You make a monthly principal and interest payment each month. Again, lenders may reduce or waive closing costs if you keep the loan for, usually, at least three years.

The Takeaway

A reverse mortgage may make sense for some older people who need to supplement their cash flow. But many factors must be considered, including the youngest homeowner’s age, home value, equity, loan rate and costs, heirs and payout type. As retirees are weighing the pros and cons, remember there are other options.

If you’re considering buying a home, another option is to shop around for a competitive rate. Use SoFi to find your mortgage rate and choose which type of mortgage is right for you.

See your rate — it takes just a few minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

What Is a Second Mortgage?

If you’re a homeowner, your house is not only the place you call home but also an asset. In fact, it’s the largest asset of most Americans, according to the most recent Federal Reserve Survey of Consumer Finances.

That asset can be even more valuable, because it can sometimes be used as collateral for a loan, such as a second mortgage.

How Does a Second Mortgage Work?

A second mortgage is an additional loan that you can obtain by using your house as collateral while already holding a mortgage secured by your house. Remember that collateral is something that borrowers own and pledge to give the lender in case they can’t pay back a loan.

An “open end” second mortgage is an open revolving line of credit that allows you to withdraw money and pay it back, as needed, up to a maximum approved limit, over time. A “closed end” second mortgage is a loan disbursed in a lump sum.

It’s not just called a second mortgage because you took it out in that order. The term also refers to the fact that if you can’t make your mortgage payments and your home is sold as a result, the proceeds will go toward paying off your first mortgage and then toward any remaining mortgages (if anything is left) against the home.

Types of Second Mortgages

We just alluded to home equity loans and home equity lines of credit (HELOCs).

Here are details.

Home Equity Loan

Home equity loans are generally limited to 85% of the equity in a home, with the exact amount influenced by income, credit history, and current market value.

You’ll receive a lump sum with a fixed interest rate that will stay the same over the life of the loan. Terms may range from five to 30 years.

Home Equity Line of Credit

As home values spiked, HELOCs became more difficult to get. If you can find one, here’s how they work.

Again, you may be able to borrow up to 85% of the appraised value of your home, less the amount owed on the first mortgage, depending on your creditworthiness.

Because a HELOC is a revolving line of credit rather than a single loan, you can borrow against the credit limit as many times as you want during the draw period, often 10 years.

During the draw period, payments are usually interest-only on the amount withdrawn. After that, you must begin repaying principal and interest on whatever amount you borrowed for the remainder of the term, often 20 years.

Most HELOCs have a variable interest rate that’s tied to the prime rate — an interest rate determined by individual banks — plus a lender’s margin. They typically come with yearly and lifetime interest rate caps.

Pros and Cons of a Second Mortgage

Taking out a second mortgage is a big decision, and it can be helpful to know the advantages and potential downsides before diving in.

Pros of a Second Mortgage

Relatively low interest rate. A second mortgage may come with a lower interest rate than debt not secured by collateral, such as credit cards. Some borrowers therefore choose to take out a second mortgage to pay off high-interest debt.

PMI avoidance via piggyback. A homebuyer may take out a second mortgage to avoid having to pay private mortgage insurance (PMI). People generally have to pay PMI when they make a down payment of less than 20% of the home’s value.

PMI helps protect the lender if borrowers default on a mortgage. It can add up: Most borrowers pay from $30 to $70 a month in PMI for every $100,000 borrowed, Freddie Mac says.

A “piggyback” second mortgage can be issued at the same time as the initial home loan and allow a buyer to borrow in order to meet the 20% threshold and avoid paying PMI.

Money for a big expense. People may take out a second mortgage to access funds needed to pay for a major expense, from home renovations to medical bills to a wedding.

Cons of a Second Mortgage

Potential closing costs and fees. Closing costs come with a home equity loan or HELOC, but some lenders will reduce or waive them if you meet certain conditions. With a HELOC, for example, some lenders will skip closing costs if you keep the credit line open for three years. It’s a good idea to scrutinize lender offers for fees and penalties and compare the annual percentage rate, or APR, not just interest rate.

Rate issues. Second mortgages generally have higher interest rates than first mortgage loans. And a revolving HELOC “piggyback” second mortgage likely comes with an adjustable interest rate. This means the rate you start out with can increase — or decrease — over time, making payments unpredictable and possibly difficult to afford.

Risk. If your monthly payments become unaffordable, there’s a lot on the line with a second mortgage: You could lose your home. If saving for your big expense is an option, that will likely cost you less in the long run than borrowing money.

Must qualify. Taking out a second mortgage isn’t a breeze just because you already have a mortgage.You’ll probably have to jump through similar qualifying hoops in terms of paperwork, home appraisal, and other documentation.

How Does Home Equity Work?

Your home equity is the market value of your home, minus anything still owed.

The more equity you have in your home, the more money that will be available to you should you decide to take out a second mortgage.

There are a few key ways to build equity.

•   Pay your mortgage. With each principal payment you make, that much more is added to the overall equity of your home.

•   Make home improvements. Installing a new roof or remodeling a kitchen can increase property value. Getting an appraisal after upgrades can help solidify the increased worth, thus increasing your equity.

•   Wait for it to appreciate. Property values are known to rise and fall with the economy. Though inflation may increase the overall equity of a home, its worth is more closely tied to the supply and demand of the real estate market. For instance, during times of high demand but a low supply of homes, home values are known to increase.

Second Mortgage vs. Refinance: What’s the Difference?

Refinancing your home loan also involves taking out a loan, but in this case the new loan replaces your existing mortgage.

People choose a traditional refinance to gain a lower interest rate, a lower monthly payment, a different loan term, or a fixed rate instead of an adjustable one.

Equity-rich homeowners may choose a cash-out refinance, taking out a mortgage for a larger amount than the existing mortgage and receiving the difference in cash.

Lenders look at your loan-to-value ratio, in part, to determine your eligibility for refinancing. (To find your LTV ratio, divide how much you owe on your current mortgage by the current value of the property and multiply by 100.) Once you know your LTV ratio, you can think about the loan amount you want to apply for. Just realize that most lenders favor an LTV of 80% or less.

Two cons of refinancing:

•   Since refinancing means you’re taking out a new loan, you face closing costs.

•   Just like a second mortgage, a refinanced mortgage uses your home as collateral, so the lender can seize your property if you fail to pay.

The main pros of refinancing:

•   Record-low rates could mean monthly savings.

•   A lower rate or shorter term could translate to significantly less interest paid over the life of the loan.

•   The rate for a cash-out refinance is typically lower than that of a home equity loan or HELOC.

There’s a lot to think about for homeowners pondering a second mortgage or a refi. You may want to ask yourself:

•   How much equity do I have in my home?

•   How much do I want to borrow?

•   When do I hope to repay the loan?

•   What’s my current mortgage rate?

•   Do I really want a fixed rate or is a variable rate OK?

•   Is adding debt with a second mortgage fine, or is refinancing my original mortgage the way to go?

The Takeaway

A second mortgage — a HELOC or home equity loan — can be advantageous for homeowners. So can a refinance or cash-out refi. It’s all about weighing your individual goals and needs.

If a new mortgage, refinance, or cash-out refinance sound appealing, SoFi offers all of them at competitive rates.

If a home equity loan is a better fit, SoFi has teamed up with Spring EQ on tapping home equity.

See your rate on a home loan, refinance, or home equity loan in two minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

Private Mortgage Insurance (PMI) vs. Mortgage Insurance Premium (MIP)

PMI or MIP may be the ticket to homeownership if you have a down payment of less than 20%, but mortgage insurance adds up over the years and is something to pay attention to.

Private mortgage insurance may be required for conventional home loans, those not backed by the government. Mortgage insurance premium is always a part of FHA-insured loans, at least for years.

Each is intended to protect lenders against losses if borrowers default.

What Is Mortgage Insurance Premium?

Borrowers pay MIP if they’re securing a loan backed by the Federal Housing Administration, no matter the down payment amount or loan term.

MIP runs for the loan’s full term or 11 years. There’s a one-time upfront premium of 1.75% of the base loan amount, which can be rolled into the loan, and an annual premium divided by 12 that is part of the monthly mortgage payment.

A key reason people choose FHA loans is the ability to put down as little as 3.5%.

Additionally, if your heart pounds with excitement when you think about buying a fixer-upper and making it beautiful and functional again, FHA offers the FHA 203(k) home loan for that — something that many lenders won’t do, especially if the home isn’t in good enough shape to be lived in.

With an FHA 203(k) loan, a single source of funding, the interest rate may be slightly higher than other mortgage rates, and the loan can require more coordination. It makes sense to choose contractors to rehab the home who are familiar with the program’s requirements.

How Much Is MIP on an FHA Loan?

The ongoing annual MIP of 0.45% to 1.05% is divided by 12 and added to your monthly mortgage payment. What you’ll pay depends on your loan-to-value (LTV) ratio (think: down payment) and length of the loan.

Taking out an FHA loan for the common 30 years, or anything greater than 15 years, will result in the following rates for 2021 (measured in basis points, or bps):

Base Loan Amount LTV Annual MIP
≤ $625,500 ≤ 95% 80 bps (0.80%)
≤ $625,500 > 95% 85 bps (0.85%)
> $625,500 ≤ 95% 100 bps (1%)
> $625,500 > 95% 105 bps (1.05%)

Here’s an example: Let’s say you borrow less than or equal to $625,500 and have a down payment of 5% or more. You’ll pay an annual MIP of 0.80%. On a home loan of $300,000, that’s $2,400 per year, or $200 per month. (0.0080 x 300,000 = 2,400, divided by 12.)

Some homeowners can pay off their loans quicker so they choose a shorter term, such as 15 years. As a result, they can take advantage of lower MIP, like this:

Base Loan Amount LTV Annual MIP
≤ $625,500 ≤ 90% 45 bps (0.45%)
≤ $625,500 > 95% 70 bps (0.70%)
> $625,500 ≤ 78% 45 bps (0.45%)
> $625,500 78.01% – 90% 70 bps (0.70%)
> $625,500 > 90% 95 bps (0.95%)

So if you were to borrow less than or equal to $625,500 and put down at least 10%, you’d pay an annual MIP of 0.45%. On a $300,000 home loan, that’s $1,250 a year, or $112.50 a month.

Can You Get Rid of MIP?

Maybe.

If you took out an FHA loan before June 3, 2013, you may be able to cancel MIP if you have 22% equity in your home and have made all payments on time. (FHA lenders do not automatically cancel your MIP once you reach that home equity threshold. You’ll need to ask.)

If you purchased or refinanced a home with an FHA loan on or after June 3, 2013, and your down payment was less than 10%, MIP will last for the entire loan term.

If you put down 10% or more, you’ll pay MIP for 11 years.

Here’s a chart that sums it up. For loans with FHA case numbers assigned on or after June 3, 2013, FHA will collect the annual MIP as follows:

Term LTV Previous New
≤ 15 years ≤ 78% No Annual MIP 11 Years
≤ 15 years 78.01% to 90% Canceled at 78% LTV 11 Years
≤ 15 years > 90% Loan Term Loan Term
> 15 years ≤ 78% 5 Years 11 Years
> 15 years 78.01% to 90% Canceled at 78% LTV and 5 Years 11 Years
> 15 years > 90% Canceled at 78% LTV and 5 Years Loan Term

Put as little as 5% down on a mortgage
with SoFi Home Loans.

One way to get rid of MIP is to refinance the FHA loan into a conventional loan with a private lender. Many FHA homeowners have enough equity to refi into a conventional loan and give mortgage insurance the heave-ho.

What Is Private Mortgage Insurance?

PMI is typically required when you’re putting less than 20% down on a conventional conforming loan. Most conventional mortgages are “conforming,” which means they meet the requirements to be sold to Fannie Mae or Freddie Mac.

One kind of nonconforming loan, the jumbo loan, which starts at over half a million for a single-family home, does not always require PMI.

Usually homeowners choose to pay PMI monthly, rather than annually, and it is included in monthly mortgage payments. A few may opt for lender-paid mortgage insurance, but for that convenience a homebuyer will usually pay a slightly higher interest rate.

Although PMI adds costs, it can allow you to qualify for a loan that you otherwise might not. And it can help you to buy a house without putting 20% down. In fact, 2 million homebuyers used PMI in 2020 to buy a home, a 53% increase from 2019, according to U.S. Mortgage Insurers.

How Much Does PMI Cost?

PMI varies but often is 0.5% to 1% of the total loan amount annually. The premium amount depends on the type of mortgage you get, LTV, your credit score, and more. It also depends on the amount of PMI that your loan program or lender requires.

According to a 2021 report from the Urban Institute, PMI is more economical than FHA loans for borrowers with a FICO score of 720 or above and who put 3.5% down.

The report also says PMI is more economical for:

•   Borrowers with a FICO score of 700 and above who put 5% down

•   Borrowers with a FICO score of 680 and above who put 10% down

•   Borrowers with a FICO score of 620 and above who put 15% down

•   Borrowers with 78% LTV, since it cancels

When Can You Stop Paying PMI?

Buying a home may require you to pay a PMI premium, but there are four methods available to stop paying it.

First, there is a legal end to PMI. Under the Homeowners Protection Act, also known as the PMI Cancellation Act, your lender is required to cancel PMI automatically once your mortgage balance is at 78% of the home’s original value. “Original value” generally means either the contract sales price or the appraised value of your home at the time you purchased it, whichever is lower (or, if you have refinanced, the appraised value at the time you refinanced). Which figure is used for original value can vary by state.

Second, you can reappraise your home, which will likely result in a new value. Thus, you can ask your servicer to cancel PMI based on your built equity and the current value. Owners of homes that appreciated, either over time or thanks to home improvements, may benefit from this. You may need to be proactive with your lender and meet specific eligibility requirements to help make that happen.

Third, you may be able to refinance your mortgage. If you have at least 20% equity, you can possibly qualify for a conventional loan without the need for PMI.

Finally, the Consumer Financial Protection Bureau notes another way in which PMI can be canceled: If you’re current on your payments and you’ve reached the halfway point of the loan’s schedule, even if your mortgage balance hasn’t yet reached 78% of the home’s original value.

What About Refinancing?

If you have a mortgage that includes PMI or MIP and your property value has increased significantly, one option to consider is refinancing.

Some borrowers may find that they are now able to qualify for a conventional home loan without mortgage insurance.

Refinancing holds appeal because of the possibility of locking in a better rate and reducing your monthly payment. Equity-rich homeowners sometimes like a cash-out refinance.

But as with your original mortgage, you’ll face closing costs if you refinance.

What about a “no cost refinance” you might see advertised? You’ll either add the closing costs to the principal or get an increased interest rate.

The Takeaway

Glass half-full: Private mortgage insurance and mortgage insurance premium open the door to homeownership to many who otherwise could not buy a property. Glass half-empty: PMI and MIP can really add up.

If you’re in the market for a home loan, know that SoFi offers mortgages with competitive rates as well as refinancing.

Find your rate in just two minutes.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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