Recently, the topic of cosigning a loan came up in a conversation I was having with a friend. Someone I know of cosigned a loan for another person, and now the original borrower isn’t paying any of the monthly payments. They are doing this on purpose – to get back at the person who cosigned a loan for them because of a recent falling out.
The above may sound crazy, but I have heard many stories where a person cosigned a loan and it went badly. Being a cosigner can have many consequences.
I did some research to see if there were any others who had shared crazy cosigning stories. I came across Learnvest’s article The Mistake That Plunged My Credit Score 200 Points. If you don’t believe me after reading today’s post that cosigning a loan, in general, is a bad idea, I recommend you read that article plus all of the comments on it.
Here’s a little snippet from that article:
It wasn’t until the fall of 2009, when I was thinking about getting satellite television, that I checked my credit report and discovered $10,000 in past due payments. My friend had missed not one, not two, but three mortgage payments!
Another interesting post is one I found on Reddit titled Co-Signing on a loan mistake.
As you can see, there are many who have an unfortunate story to share.
Here’s what you need to know about cosigning a loan.
What is a cosigner?
A cosigner is someone who agrees to be on a loan with another person so that they are more likely to be approved. For example, if your friend can only get a car with a cosigner (either due to them having a low credit score, not making enough money, etc.), then they may ask you to cosign so they can get approved.
However, a cosigner is agreeing to pay off the debt if the original borrower is unable to pay it in the future. So, even if the original borrower doesn’t pay a penny, the cosigner would have to make all of the payments or risk being sued, credit report damage, and more.
Related: Paying Off Debt And Budgeting: Tricks For Staying Motivated
Cosigning a loan may prevent you from being approved for future loans.
If you are thinking about buying a house, car, or something else soon that will need to be financed, you should think long and hard before you decide to be a cosigner on someone else’s loan.
This is for multiple reasons.
One, if the person doesn’t pay the monthly bills on time then you may be rejected for a loan in the future. Missed payments can damage your credit score and your credit report.
Two, your debt-to-income ratio will increase. So, even if your friend/family member pays every single bill on time, your debt to income ratio will increase and this may prevent a lender from approving your loan because they will think you have too much debt on your plate.
Being a cosigner isn’t something you can easily get rid of.
There’s not much you can do to remove yourself from a loan that you cosigned on. If the person isn’t making payments, you are stuck with it for the most part.
The loan would have to be refinanced to get your name off of it in most cases and there are many horror stories out there where the original borrower refused to refinance because then they wouldn’t be able to force the cosigner to continue to pay the monthly bill.
Plus, there are instances in which refinancing is impossible because of values tanking, the economy changing, and so on. So, while the original borrower may want to get you off the loan and refinance, it’s entirely up to the lender.
Cosigning a loan can ruin relationships.
Many cosigning relationships go sour. I have heard of many stories where someone cosigned a loan for someone else and then didn’t talk to them for decades because of a falling out of some sort.
I have always been a firm believer that money and relationships do not mix well. If you are going to cosign or lend money to someone then you should consider it a gift because there is a chance that you will never see that money again.
Cosigning a loan is up to you.
Everyone always feels like all of the cosigning horror stories out there would never happen to them. However, isn’t that how you think all cosigners felt at one time as well?
It’s up to each individual person to decide if they will cosign. However, I want you to remember that if you cosign then you should make sure that you can afford to make the monthly payment.
You never know – one day you may be making them. The original borrower may be a great person, but they may lose their job, have an unexpected expense come up, or something else that prevents them from paying their bills.
Cosigning a loan may not always be bad. However, I believe it’s better to realize what the consequences may be. It’s always better to be prepared!
Would you ever try cosigning a loan and being a cosigner? Why or why not?
By Peter Anderson24 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 8, 2012.
I signed up for Lending Club a few months back on a whim to try and see how it would perform. I’d been hearing about it quite a bit on personal finance blogs, and the returns that people were claiming to receive seemed like they were almost unrealistically good. There had to be a catch, it piqued my interest.
I started my investor account out slow. I took the $25 bonus Lending Club gave me for signing up (which you can get too) and added about $75 to that for about $100 in loans. I went into my account and hand picked 4 $25 loans to send out.
Purchasing investments in Lending Club is pretty easy. First, you link your bank account to your Lending Club account, and transfer any funds you wish to invest to your Lending Club account. Next you click on the “invest” tab in LC. On the invest page you can get as involved as you want with choosing your loans, or you can let the system choose loans for you. If you choose to allow the system to pick for you, you can just choose what type of investor you are (conservative, moderate or aggressive), and it will then give you a mix of loans to fit your personality and level of risk you’re willing to take on. The higher the risk, the greater the rewards, but also the greater the risk of choosing a loan that will default.
My Lending Club Strategy
Personally I chose to hand pick the loans that I gave out to help minimize my risk. I went in, searched only for loans with an A or B rating (good to decent credit/employment), and only chose loans that were ones that I could agree with (for example, people who were consolidating debt to get out of debt or paying off high rate credit cards). I also chose loans for smaller dollar amounts, below $10,000 because in my opinion those loans are probably going to have a lower rate of default (because of the lower monthly payments). So again, my strategy for Lending Club was to purchase loans that were:
Less than $10,000: Lower loan amounts means a lower monthly payment and a lower risk of defaulting on their loan.
A & B credit rating: I’ve only invested in loans that have either an A or B credit rating (good credit). That means I’ll have a lower return on my investment than someone with lesser credit, but it’s trade off I’m willing to take. I may sprinkle in a few C class loans soon, but not more than a few.
Zero delinquencies: When you view borrower’s profiles you can see from their credit report if they’ve had any reported delinquencies on their account. If they have, I skip their loan. If they’ve been late in the past or missed a payment – they’re likely to do it again.
Debt to income ratio below 25%: I like to invest in loans where the borrowers have a lower DTI ratio. Because of that I know they’re better able to afford the loan.
Loans over 60% funded: When other people have invested in the loan, a lot of the times that means that they’re a better risk because others have done their due diligence and agreed to invest.
Borrower answers to investor questions: Sometimes you’re on the fence about lending to someone, it can make the difference how the person answers questions on their loan request page. As an investor you can ask the borrower questions about their employment, debts, delinquencies and so on. Their answers can help sway me one way or the other.
Because I’m a conservative investor, my rates of return aren’t as high as some people’s, but I also feel like I have a lower risk of default on my loans. So far I haven’t had a single default, and my rate of return is hovering around the 11% range – that’s much better than my old high yield savings account! Since I’ve been happy with my returns so far, I’ve increased my loan total to $500 over the months I’ve been investing. I plan to keep on increasing that slowly over time as long as my success continues.
Lending Club By The Numbers
I was interested in just what the numbers were for Lending club as a whole, as far as amounts invested, number of defaults, how many people are declined, etc. I found these numbers on the Lending Club site:
82.80% of investors have earned between 6% and 18% net annualized returns since inception
Funded Loans (10,097) $96,195,875
Average Interest Rate 12.70%
Declined Loan Requests (96,063) $961,010,942
Annualized Default Rate 2.39%
Interest Paid to Investors $6,645,705.02
Average Net Annualized Return 9.65%
To be completely honest I was surprised by how many loan requests are actually declined by Lending Club for various reasons. In fact, the minimum FICO score to get a loan is 660. That makes me think that they’re actually pretty serious about making sure that those with a high probability of defaulting on their loans are weeded out before they are even able to get a loan. The default rate was also lower than I thought it would be – again tribute to the fact that they’re cutting out undesirable borrowers before they even begin the process of getting a loan.
One of the most important numbers that I see above is that average net annualized return of 9.65%. That means you’re getting a return that’s a lot higher than you’d be getting at your local bank, in a CD or in most investments. Yes there’s always the risks that are involved with something like social lending, but I believe the risks are manageable. If you choose good borrowers to help out that have verified incomes and credit, and you diversify your loan holdings, in the long run you’ll come out ahead.
So why not give it a shot?
Ready to sign Up For Lending Club And Start Investing?
Have you had any experience with Lending Club? Tell us about how you’re doing with your account, and how you manage the risk of peer to peer lending in the comments!
What Percentage of Your Income Should Safely Go to a Mortgage? – SmartAsset
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Buying a home is one of the biggest financial decisions many people will ever make. And it can also be one of the most complex. Even the simple question of what percentage of your income should safely go to a mortgage doesn’t have a single clear answer that applies equally to every situation.
A financial advisor can help you find ways to help you achieve your financial goals.
Mortgage Payments and Income
The people and organizations that make home loans naturally are interested in lending money only to people who have the means to repay the mortgage. To make this determination, they use a variety of methods, particularly debt-to-income ratios.
These metrics are well-suited to creating mortgages that can be packaged and sold to investors. And borrowers have to keep them in mind when they are applying for a loan. However, they aren’t always as useful to someone who is primarily concerned with their personal financial well-being.
People deciding how much of their own income they can safely devote to a mortgage payment can take a variety of approaches to making that important determination. Here are some of the approaches many have found useful.
Safe Mortgage Principles
There’s more than one way of calculating the safe percentage of your income you can plan to commit to making your mortgage payment. Some approaches are good for certain circumstances, while others fit different situations best.
Evaluate your own position and, if possible, use more than one of the following techniques in deciding how much of your income you can safely spend on a house payment. Here are some of the options:
Debt-to-income ratio (DTI)
Your lender generally will calculate your debt-to-income ratio (DTI) and look for a certain result to reassure themselves and the investors who will buy your mortgage that you can cover the payments while also staying current on car loans, student loans, credit cards and other debt payments.
After adding up all your monthly loan payments, including the mortgage, lenders typically want the total to be no more than 43% of your gross monthly income.
For example, say you have a $500 car payment, must pay a $175 minimum monthly toward your credit card, owe $225 a month toward a student loan and want to buy a home with a $2,000 mortgage payment. You will typically need approximately $6,744 in monthly gross income to qualify for a loan at most lenders.
To figure this out, add up all your debt payments like this: $500 + $175 + $225 + $2,000 = $2,900.
Now, divide that by 43: $2,900 / 43 = $6.74419. Multiply that result by 100 to get the required monthly gross income, $6,744.19, for a 43% DTI.
The 30% Rule
Another way to calculate the amount of your income you can devote to a mortgage is to simply multiply your gross income by 30%. This will produce a number that you can hypothetically afford to pay toward your mortgage every month.
For instance, if you make $5,000 per month, 30% of that is $1,500. The calculation looks like this $5,000 x 0.3 = $1,500.
This rule may also be stated as the 28% rule and calculated the same way. It differs from the DTI because it doesn’t specifically account for other debt payments you may have.
Income Divided by Two and a Half
You’ll get a slightly different number if you assume that your mortgage payment can be two and a half times your gross income. To do this, start with your gross income and divide it by 2.5.
For instance, if you make $5,000 per month, the calculation would be $5,000 x 2.5 = $2,000. This suggests that $2,000 is a safe amount you can commit to your monthly mortgage payment.
This is clearly a more liberal method than the 30% principle and, like it, may not adequately account for other payments you must make.
Limitations of Safe Mortgage Calculations
Every borrower and every mortgage are a little bit different. While these techniques for calculating the percentage of your income you should spend on a monthly mortgage payment are helpful heuristics, to generate a more reliable figure, you’ll need to account for some other variables.
Other important factors include the size of the down payment you make, the amount of closing costs, the type of mortgage, the interest rate, your credit score and other costs including homeowner’s association or condo fees, hazard insurance and property taxes.
It’s usually wise to bear in mind that the amount of money a lender will loan to you may be more than you can safely borrow.
Bottom Line
You can use more than one method to determine how much of your income you should devote to a mortgage. Lenders will often be satisfied with a certain debt-to-income ratio, but this doesn’t mean you will be comfortable making the payment. Typically, it’s advisable to use more than one approach to making this calculation and make an effort to include as many aspects of your personal situation as you can.
Mortgage Tips
You may want to consider talking to a financial advisor making highly consequential decisions such as buying a home. SmartAsset’s free tool matches you with up to three vetted financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
After deciding how much of your income you can devote to a mortgage it’s necessary to figure out what the mortgage payment on a given property is likely to be. You can do this with the help of SmartAsset’s Mortgage Calculator.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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Don’t speak personal finance? Not to worry! Mint is celebrating World Dictionary Day with a list of must-know money terms to bring some savvy to your saving.
Quiz yourself to see how many terms you know! Have a definition of a term that’s not on our list? Need help with an tough acronym? Ask us on Twitter with the hashtag #MyMintTips.
Must-Know Money Terms
401(K)
A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.
IRA
An investing tool used by individuals to earn and earmark funds for retirement savings. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs.
Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be tax deductible depending on the taxpayer’s income, tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible.
Net
The final amount that remains after all other amounts have been taken away. Examples: net profit, net income, net worth
1095 Forms
In 2014 the Affordable Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. For individuals who bought insurance through the health care marketplaces, the 1095-A will provide information that will help to determine whether you are able to receive an additional premium tax credit or have to pay some back. 1095-B’s and C’s are for people with private insurance or from their employer — you just need these for your records, and they’re not required to file.
APR
The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.
FICO Score
A type of credit score that makes up a substantial portion of the credit report that lenders use to assess an applicant’s credit risk and whether to extend a loan. FICO is an acronym for the Fair Isaac Corporation, the creators of the FICO score. Using mathematical models, the FICO score takes into account various factors in each of these five areas to determine credit risk: payment history, current level of indebtedness, types of credit used and length of credit history, and new credit.
A person’s FICO score will range between 300 and 850. In general, a FICO score above 650 indicates that the individual has a very good credit history. People with scores below 620 will often find it substantially more difficult to obtain financing at a favorable rate.
ARM
An adjustable rate mortgage is also known as a “variable-rate mortgage” or a “floating-rate mortgage”.It’s a type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin.
Debt to Income Ratio
A personal finance measure that compares an individual’s debt payment to his or her overall income. A debt-to-income ratio (DTI) is one way lenders (including mortgage lenders) measure an individual’s ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
For example, John pays $1,000 each month for his mortgage, $500 for his car loan and $500 for the rest of his debt each month, so his total recurring monthly debt equals $2,000 ($1,000 + $500 + $500). If John’s gross monthly income is $6,000, his DTI would be $2,000 ÷ $6,000 = 0.33, or 33%.
Equity
Equity is the value of an asset less the value of all liabilities on that asset. The term’s meaning depends very much on the context. You can think of equity as one’s ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered entirely the owner’s equity because he or she can readily sell the item for cash, with no debt standing between the owner and the sale. Stocks are equity because they represent ownership in a company, though ownership of shares in a publicly traded company generally does not come with accompanying liabilities.
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SoFi is a nationally chartered, online-only bank that offers customers a high 4.20% on savings, an interest-earning checking account, and a host of other benefits for being a member. The bank currently has more than 5.5 million customers, which it calls members, and has an extensive rewards system in place to help your money go further and grow faster.
Find out why SoFi is a top-rated bank, as well as one of the fastest growing financial technology companies offering loans, an investment platform, and a rewards credit card.
SoFi at a Glance
SoFi became a nationally chartered online bank in early 2022, following the fintech’s acquisition of Golden Pacific Bancorp. SoFi started as a company that provided student loan refinancing, and evolved to provide personal loans and other services.
Its status as a national bank enables the fintech to help even more people. “This incredible milestone elevates our ability to help even more people get their money right and realize their ambitions,” said SoFi CEO Anthony Noto in a press release following the acquisition.
SoFi Products
Today, the online bank offers a variety of products to help American consumers meet their financial goals. The parent company, SoFi Technologies, is the parent company of SoFi Bank, Member FDIC. Products and services include:
SoFi checking and savings
SoFi personal loans
Credit card
Student loans and student loan refinancing
Mortgages
Investment and Retirement Products
Find out how these products compare to competitors in the industry in our SoFi reviews below.
SoFi Checking and Savings Account
SoFi offers a combined checking and savings account to customers. You cannot open one without the other, but this provides tremendous benefits and an incentive to save. Currently, when you open a SoFi checking and savings account, you can earn up to $250 when you set up direct deposit within the first month.
That’s in addition to all the other perks, including an account with no monthly maintenance fees, no overdraft fees (for qualifying customers), and no minimum balance requirement. Plus, deposits are FDIC-insured up to $2 million through SoFi’s network of partner banks, which exceeds the federal limit of $250,000 per account holder, per account type.
SoFi Checking
Your SoFi checking account comes with a cash back debit card that pays up to 15% cash back on debit card purchases when you shop at local businesses. Your SoFi debit card also offers fee-free access to more than 55,000 AllPoint ATMs for cash withdrawals, cash deposits, and balance transfers. You can also check account balances at any ATM with no fees.
Your SoFi checking account also has many other benefits you may not find in a traditional bank account. You can get paid two days early with early direct deposit. Plus, your SoFi checking account earns interest at a rate of 1.20% APY.
If you enable overdraft protection, SoFi will pull from your savings account to cover checks, debit card purchases, and ACH withdrawals, including online bill payments, loans, and P2P payments. It will not pull from savings you have designated in vaults for specific purposes.
SoFi Savings Account
Your SoFi checking account offers a 4.20% APY, which is one of the highest available for online savings accounts. Be aware that to earn this high rate, you’ll need a qualifying direct deposit of any amount each month. Otherwise, you’ll earn 1.20% on all account balances.
The savings account also helps with cash management by offering automatic savings features and savings vaults. You can designate a specific amount of each ACH direct deposit or cash deposit to go directly into your SoFi savings account or into a specific savings vault. Unlike many traditional banks, there is no limit on savings withdrawals or transfers.
SoFi Pros and Cons
Your SoFi bank account has a number of desirable features that make it one of the best online savings and checking accounts for many people.
Pros
High 4.20% APY on savings
1.20% APY on checking account balances
Early direct deposit
No ATM fees
No bank fees
Overdraft protection for qualifying customers
Cons
No CDs
No money market accounts
No branches for in-person service
SoFi Membership Features and Additional Perks
SoFi members who open a fee-free combined checking and savings account also qualify for other benefits. There is no minimum opening balance or minimum balance requirements to be considered a SoFi member.
Some of the membership benefits include:
15% off estate planning
Free access to career coaching
Free financial planning services
Member events that can help with money management
SoFi Member Rewards
A few of the SoFi member benefits stand out, including the SoFi Member Rewards program. To join, download the SoFi app. You will earn points when you take actions like:
Using your debit card
Checking your credit store
Saving money
Investing
As you earn points, you can convert those points to cash deposited into your SoFi bank account. You can then redeem points to help may loan payments, convert points into fractional stock shares through SoFi Active Invest, or even cash in points for a statement credit.
SoFi Referral Program
SoFi’s Rewards don’t stop with actions you take within your account. If you share SoFi with friends using your unique link, you’ll earn additional points you can cash in.
Currently, SoFi offers 2,000 rewards points for every person you refer who opens a SoFi checking and savings account with at least $10. You will also earn 2,000 points for friends who open a credit card, SoFi Credit Score Monitoring Account, or fund a Lending Product within 90 days of registering for SoFi using your link. Your friend will also earn 2,000 points.
Note that you can only earn points for one account per friend, so your friend may open a bank account and a credit card, but you will each only earn 2,000 points.
SoFi Stadium Perks
You might not think of SoFi as a travel or entertainment rewards card, but SoFi’s Stadium Perks program does provide unique benefits for Los Angeles residents and tourists. SoFi members earn 25% cash back on purchases at SoFi Stadium, home of the Los Angeles Rams and Los Angeles Chargers, when you use your debit or credit card.
Plus, gain access to the exclusive SoFi Member Lounge and fast and easy entry to the stadium through the SoFi Member Express Entry line. If you need to check your bag, SoFi will reimburse the fees to your checking account or credit card.
SoFi Plus: Premium Membership
SoFi Premium members earn even more perks. Unlike many premier programs, SoFi Plus does not require an additional monthly purchase or subscription fee. To qualify, just set up direct deposit with your checking and savings account. When your first direct deposit clears, you’ll gain access to all the premium benefits.
Qualifying direct deposits for SoFi Plus must reach $1,000 per month or more to gain access to all the features of SoFi Plus. This includes no-fee overdraft coverage and rate discounts on SoFi loans. Other features, including the 4.20% APY, 2X rewards points, and preferred access to IPOs through SoFi Invest, apply to all SoFi Plus members.
How to Open a SoFi Account
Opening an account online is easy. You’ll need to provide some information, including your address and Social Security number. You must be a U.S. citizen or permanent resident to qualify.
There is no minimum opening deposit, but you’ll want to fund your account to take advantage of high interest rates and access all the benefits. You can deposit cash or checks to fund your account for the first time through:
ACH direct deposit
Mobile check deposit
a GreenDot debit card
Instant Funding
To take advantage of Instant Funding, link your existing Visa or Mastercard debit card to your SoFi account. Click “Transfer Instantly” and you can transfer up to $500 into your account in minutes. To use this method, you must be a new SoFi customer and deposit a minimum of $50.
SoFi Credit Card
The SoFi credit card lets you maximize the points you can earn. The card delivers 2% cash back rewards on every purchase and has no annual fees. To qualify, you’ll need a “good” or “excellent” credit score.
The card has a standard variable Annual Percentage Rate (APR) of between 17.74% up to 29.74% based on your credit score and financial history. Cash advances carry an APR of 31.74%.
The card carries fees comparable to other top-tier rewards cards, including a late payment/returned payment fee of up to $39, and balance transfer or cash advance fees of $10 or 5% of the transaction amount, whichever is greater.
You can redeem your cash back as a statement credit, cash back into your checking or savings account, or as a deposit for investing through SoFi Invest.
SoFi Investing
SoFi is not just an online bank, but a full-fledged financial services firm that includes planning, management, and investing. The online stock trading app provides automated investing or hands-on options. You can trade:
Stocks
ETFs
Fractional stocks
Crypto
IPOs (for qualified SoFi Plus members only)
SoFi Investing at a Glance
SoFi offers active investing for stocks, ETFs and even IPOs. You can start investing in some of the highest market cap companies on the S&P 500 and other stock indexes with as a little as $5. SoFi does not charge commissions on trades. When you open an Active Investing account with at least $10, you could win a bonus of stocks valued at up to $1,000 by playing the “Claw Game” promotion.
If you prefer not to engage in active investing, you can set up an automated investing account with as little as $1. Invest a set amount one time or set up automated recurring payments to watch your investments grow.
You will need to answer some questions so that SoFi can determine your risk tolerance and choose the right portfolio for you. SoFi automatically rebalances your investments quarterly and keeps your portfolio diversified based on your goals and risk tolerance.
SoFi also gives investors access to Bitcoin, Ethereum, Cardano, Dogecoin, Solana, and 25 other popular cryptocurrencies. When you make your first crypto trade with a $10 minimum, you will earn a $100 bonus in Bitcoin within seven days. SoFi charges a mark-up of 1.25% on all crypto transactions.
SoFi Retirement Accounts
In addition to active and passive investment services through stocks, bonds, and ETFs, SoFi’s investments include Roth, SEP, and Traditional IRAs for retirement. You can choose active or automated investing. SoFi financial planners can help you create a retirement strategy that will work for you.
SoFi Investing Pros and Cons
As with all investment platforms, SoFi: Invest has many benefits and a few drawbacks.
SoFi Invest Pros
Active or automated investing
Investments in crypto, stocks, ETFs
Fractional shares permitted
Options investing
Intuitive app
SoFi Invest Cons
Options investing may require advanced knowledge
Not every investment will earn money
Odds of winning a $1,000 stock bonus are slim
SoFi Student Loans
Unlike many online banks, SoFi offers student loan refinancing with fixed interest rates as low as 4.99%. To qualify for the lowest interest rate, you will need to set up autopay for your loan payments.
SoFi can help you pay down your student loans faster with fixed APRs of 4.99% up to 9.99% or variable APRs of 5.74% to 9.99% APR. You may qualify for a SoFi student loan if you are gainfully employed, starting a job within 90 days of your loan application, or have sufficient income from various sources. You should also show a solid financial history and monthly cash flow indicating you can make the SoFi loan payments.
SoFi Mortgages
SoFi offers a broad range of mortgage products, including:
Conventional mortgages
Jumbo loans
Home equity loans
Cash-out refis
Short-term bridge financing for investment properties
With interest rates rising, SoFi’s “Lock and Look” feature lets you lock in today’s rates for up to 90 days while you shop for your dream home. Checking for your rate won’t affect your credit score.
First-time homebuyer loans may require as little as 3% down, while other home mortgages require just 5% down. Mortgages with a loan-to-value ratio greater than 80% will require private mortgage insurance.
SoFi offers conventional, fixed-rate mortgages with terms ranging from 10 to 30 years. If you take out a 30-year mortgage, you may qualify for a 0.25% pricing special or interest rate discount. To qualify for the lowest rates, you’ll want to have a strong credit history, an excellent credit score, and a low debt to income ratio.
SoFi Personal Loans at a Glance
SoFi may offer one of the top-rated online checking accounts today. But SoFi was founded as an online loan company in 2011, providing personal loans with no fees and loan amounts from $5,000 to $100,000. You can check your rates quickly with no impact to your credit score.
SoFi Personal Loans Review: Members-only Perks and Competitive Rates
A SoFi personal loan offers low fixed rates based on your credit history. Repayment terms range from two to seven years, while loan amounts run from $5,000 up to $100,000. SoFi borrowers pay no origination fee. You won’t suffer a prepayment penalty if you want to pay off your loan early. You can receive loan funds as quickly as the same day you apply.
SoFi personal loan interest rates range start at 8.99% according to the SoFi website. Secure the lowest rates with automatic payments directly from your SoFi account. SoFi Plus borrowers with qualifying monthly direct deposits may receive a rate discount as well. The higher your credit score, the lower your interest rate.
SoFi offers unemployment protection for borrowers, which can help with cash flow if you lose your job. You can modify your SoFi personal loan payments while you look for a new job. SoFi’s career coaching can even help you find new work.
Best for Fee-Free Debt Consolidation Loans
As one of the top online lenders today, SoFi can help you save money by consolidating high interest credit card debt into one, low, monthly loan payment. SoFi personal loans have no origination fee. Credit card consolidation can help you get out of debt faster and make it easier to pay your bills with one monthly payment directly from your account.
If you are planning to consolidate credit card debt through a SoFi personal loan, you can choose Direct Pay. Loan proceeds will go to your credit card companies directly, saving you time and hassle. You’ll also earn an interest rate discount with Direct Pay, making SoFi a great choice for credit card debit consolidation.
SoFi Personal Loans: Pros and Cons
SoFi personal loans have a number of benefits compared to other online lenders. Let’s look at the pros and cons of your SoFi personal loan.
Pros
No origination fees
Unemployment protection
Receive funds the same day you are approved
No prepayment fees
Loan amounts up to $100,000
Cons
Must be a U.S. citizen-permanent resident
Risk of charging up credit cards again after debt consolidation loan
Excellent credit scores required to qualify for the lowest rates
Hard credit pull to obtain a loan may reduce your credit score temporarily
What You Can Use SoFi Loans For
You can use SoFi loan money for virtually anything, including home improvements, credit card debt consolidation, family planning and IVF, or even luxuries like weddings and travel. With competitive rates, easy automatic payments, and unemployment protection, a SoFi personal loan might make sense to pay for one-time events where you might normally use a credit card.
How to Apply for a SoFi Personal Loan
Applying for a personal loan is easy. You may want to check your credit report first to ensure that all the information is accurate. A solid financial history can help you secure the best loan rates and highest loan amounts.
You will first want to open your SoFi bank account and set up direct deposit as well. SoFi Plus members can get interest rate discounts and even earn reward points for their loan. Once you are ready, visit SoFi.com, select personal loans from the drop-down menu of products, and click “View your rate.”
You’ll need to submit some information, including your name, address, Social Security number, loan amount, and income.
Bottom Line
SoFi Money encompasses all the banking, lending and investing services SoFi bank offers. SoFi ranks as one of the top online financial service companies, with excellent customer service and a wide range of products.
You can reach SoFi customer service via email, using the online virtual assistant chatbot, or by phone. Hours vary depending on the service you need. A wide range of financial products, low rates, and FDIC insurance up to $2 million for deposits set SoFi apart from competitors.
By Peter Anderson6 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 8, 2012.
Lending Club launched a couple of years back and along with a few other companies helped to create a whole new banking paradigm, one where people lend their money to other people and get better returns on their money than if they had saved with a traditional bank. In turn, the people who are borrowing end up getting a lower rate than they may have at a traditional bank, and are able to save some money in the process.
While the road hasn’t been without it’s speed bumps, Lending Club has weathered the storm, and in my opinion has become the premier peer to peer lending site around. While others are starting to catch up to them in some respects, like the folks at Prosper, I still think they’re the gold standard when it comes to P2P lending sites.
I’ve been pretty happy with the returns that I’ve seen with my Lending Club account. When I first started using it I was expecting that I would put a small amount of money into it, and that I would probably see some defaults here and there. I wasn’t ever expecting to put anything more than a bit of fun money in there, and I didn’t think the returns would be as good as they’ve been. I thought they might be a bit better (after defaults) than what I’m seeing at my high yield savings account. The reality has been much brighter. I’m currently making over 10.5% on my invested money after just over 2 years, and I’ve yet to see a single default. At the same time I get to have the good feeling of helping others to get loans at lower rates than they would get at a traditional bank or via a credit card. It’s a great way to consolidate higher interest debt. So how are my returns right now, and what strategy am I using?
Check out my original Lending Club review
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Lending Club Returns Above 10.5%
So here’s a quick look at the returns I’ve been seeing lately after including more high risk loans over the past 8 months or so.
Net Annualized Return of 10.53%: Up from 10.17% in April, and 9.67% before that. That puts me in the 53rd percentile, in other words my return is higher than 53% and lower than 47% of all investors. My goal is to be doing better than 1/2 of Lending Club users, and it looks like I’ve now reached that goal. Of course I’ll still be trying to improve that number!
Number of defaults remains at zero: Despite all odds I’m still showing zero defaults on my account, despite having given out over 100 loans so far. I’m actually surprised I haven’t had at least one or two.
Ten loans have been paid off early: Eight were A grade loans, and the other two were C grade loans. Looks like grade A loans, while they’re more likely to be paid back, may also be more likely to pay of early – reducing returns.
My account balance still going up: I currently have $2,554.74 in my account, with another $600+ ready to invest. I’m starting to become more comfortable with using Lending Club, and as such adding more most months.
I’m still diversified by investing across a large number of loans: I’ve got over 100, with no more than $25 in each loan. That way if I do have defaults, while my return may go down, my risk will be minimized. Lending Club noted earlier this month, that 100% of their investors who have invested 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
So it looks like my strategy I laid out a few months ago of adding more risky C, D and F grade loans is paying off so far.
Riskier Loans Aren’t Always Bad Bets
As I’ve mentioned in the past about 8 months ago I modified my investing strategy a bit based off of the plan laid out by Matt at steadfastfinances.com. He started a Lending Club investing club where he would hand pick loans every week or two, based off of his own investing criteria. Part of his strategy was investing in lower grade loans to borrowers who he thought would be good risks. Most of the loans he was looking at and choosing were higher risk C or D grade loans, for people with lower credit scores, but who had a good high paying professions, solid job histories and job security, and good payment histories. Using his strategy he was seeing in excess of 14% returns at one point.
Using his strategy I’ve been able to get my returns from somewhere in the 8-9% range to up over 10.5% in about 8 months. I’d like to see if I can get my net annualized return up even closer to 11-12% by continuing this strategy.
Here’s where my NAR stands now, slightly above average. I hope to move up a couple of columns there:
My Strategy For Investing With Lending Club
My strategy I used in the past for Lending Club, and the strategy I’ll still be using to some degree:
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Borrower answers to investor questions: I like to ask questions from potential borrowers. You can tell a lot about someone, and about how they’ll do repaying the loan, by how they answer the questions. Unfortunately Lending Club stopped allowing investors to ask questions in part I believe because of privacy and liability concerns. You can now only ask from a pre-set list of questions. More than one investor – including Matt who I mentioned above, have quit Lending Club because of this change.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
By Peter Anderson8 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited September 26, 2011.
Lending Club has been around for a few years now, and while they and other P2P lending sites got off to a rocky start, I think they’ve started to hit their stride. Lending Club recently announced on their 4th anniversary that they have now originated over $300 million in total loans and paid out over 22 million in interest to investors. So they’re no longer the little engine that could, they’re now becoming the next big thing! Still, there are still those who don’t believe in P2P lending, mostly because they don’t completely understand it.
When I started lending with Lending Club I wasn’t sure what kind of returns I would see, and as such I was pretty cautious with who I lent money to. I was only investing with Grade A and B borrowers to begin with. Since then others have convinced me that investing with some lower grade borrowers is a sound idea, and I’ve seen my returns grow from somewhere in the high 8% range (not too bad) to the point where I’m now pushing 11%.
All I know is 11% net annualized returns are a lot higher than I’d be getting in a high yield savings account. The longer I’ve been using Lending Club, the more comfortable I am with the idea, and the more money I’ll consider putting in.
To start off at the beginning, check out my original review of lending club below:
Check out my original Lending Club review
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Lending Club Returns Above 10.76%
So how are my Lending Club investments currently doing? Here’s a snapshot of my account from earlier today showing that my returns are pushing 11% now.
Net Annualized Return of 10.76%: Up from 10.53% in June, and 10.13% before that. That puts me in the 55th percentile. My returns are higher than 55% and lower than 45% of all investors. So that means I’ve already reached my goal of doing better than 1/2 of other investors. Now to make it better than 75% of other investors!
Number of defaults remains at zero: Despite all odds I’m still showing zero defaults on my account, despite having given out over 100 loans so far. I’m actually surprised I haven’t had at least one or two. I do currently have one loan that is late, however. The funny thing is that once again the late loan is one of the Grade B loans, not one of the lower grade ones. Go figure.
Fourteen loans have been paid off early: Eight were A grade loans, and the other three were C grade loans, two were grade B and one grade E. Looks like grade A loans, while they’re more likely to be paid back, may also be more likely to pay of early – reducing returns.
My account balance still going up: I currently have $2,578.98 in my account, with another $800+ ready to invest. I’ll be the first to admit that the last couple of months I haven’t added many loans as I’ve been distracted by other things. I’ll probably be trying to invest that extra $800 soon though.
I’m still diversified by investing across a large number of loans: I’ve got 106 loans, with no more than $25 in each loan. That way if I do have defaults, while my return may go down, my risk will be minimized. Lending Club noted earlier this month, that 100% of their investors who have invested 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
So it looks like my strategy I laid out a few months ago of adding more risky C, D and F grade loans is paying off so far.
Risky Loans Still Defying The Odds With Zero Defaults
I mentioned a while back that I was changing my Lending Club investing strategy and starting to invest in more higher risk lower grade loans. The rationale was that you can still find people that are relatively good risks, but who have bad credit. Most of these are going to be loans from people who have high incomes and steady employement, but for one reason or another have had a hiccup in their credit causing them to be lower grade.
I’ve invested in a bunch of these Grade C-E loans over the past year, and since doing so my returns have steadily climbed. I would have expected to see a few defaults in there, but so far I’ve been investing in the riskier loans for about a year now, and none of them have defaulted yet. Would you think some of them will still default despite my early success? Possibly. But I’m hoping my gamble on those with steady jobs and high incomes will mean I wont’ see many defaults.
Here’s where my NAR stands now, getting better every month. Now standing at 10.76%. I’m hoping I can break through that 11% threshold next month!
Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club over the past couple of years.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Borrower answers to investor questions: Because of privacy and liability concerns you can no longer ask whatever question you want from borrowers, but only ask from a pre-set list of questions. It’s still good enough for me I think, although I’d prefer being able to ask specific questions.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
By Peter Anderson2 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 8, 2012.
Lending Club has been around for a few years now, and as time goes on, more and more people are coming around to peer to peer lending, and agreeing that it may be a legitimate part of a diversified portfolio.
The technology behind Lending Club has continuously shown improvement during the time I’ve been using the site, and I think they’ve got an innovative idea, and a great platform that will only continue to improve.
Apparently some people in high places agree because it was recently announced that Lending Club was honored as a World Economic Forum 2012 Technology Pioneer!
The World Economic Forum annually selects approximately 30 visionary companies in the fields of information technology and new media, energy/environment and life sciences/health,” said Olivier Schwab, director, Head of Technology Pioneers, World Economic Forum. “The selected Technology Pioneers represent the latest generation of innovators, poised to have a critical impact on how business and society work.”
Lending Club was honored in part because of their innovation in the lending and banking industries, which they are helping to change.
All I know is that in the time that I’ve been using Lending Club I’ve shown great results with almost 11% returns in a time when the stock market has been down, and high yield savings accounts are showing tiny interest rates. In short, I think it’s a great way to diversify your investments into something that won’t show as much volatility during rough economic times.
Interested in my original Lending Club Review? check it out below.
Check out my original Lending Club review
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Returns Increase To 10.93%
My Lending Club investments have continued to improve, and they’re now pushing 11% net annualized return.
Net Annualized Return of 10.93%: Up from 10.76% in August, 10.53% in June and 10.13% before that. That puts me in the 57th percentile. My returns are higher than 57% and lower than 43% of all investors. So that means I’ve reached my goal of doing better than 1/2 of other investors, so now it’s on to doing better than 75%!
Number of defaults remains at zero: Despite all odds I’m still showing zero defaults on my account, despite having given out over 100 loans so far. I’m actually surprised I haven’t had at least one or two. I do currently have one loan that is late, with partial payments coming in the past couple of months. The funny thing is that the late loan is a Grade B loan, not one of the lower grade ones. Go figure.
Sixteen loans have been paid off early: Nine were A grade loans, three were C grade loans, three were grade B and one grade E. Looks like grade A loans, while they’re more likely to be paid back, may also be more likely to pay of early – reducing returns.
My account balance still going up: I currently have $2,607.17 in my account, with $825.99 of that ready to invest. I’ll be the first to admit that the last couple of months I haven’t added many loans as I’ve been distracted by other things. I’ll probably be trying to invest the money sitting dormant right now.
I’m still diversified by investing across a large number of loans: I’ve got 111 loans, with no more than $25 in each loan. That way if I do have defaults, while my return may go down, my risk will be minimized. Lending Club noted earlier this month, that 100% of their investors who have invested 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
So it looks like my strategy I laid out a few months ago of adding more risky C, D and F grade loans is paying off so far.
Risky Loans Still Defying The Odds With Zero Defaults
I mentioned a while back that I was changing my Lending Club investing strategy and starting to invest in more higher risk lower grade loans. The rationale was that you can still find people that are relatively good risks, but who have bad credit. Most of these are going to be loans from people who have high incomes and steady employement, but for one reason or another have had a hiccup in their credit causing them to be lower grade.
I’ve invested in a bunch of these Grade C-E loans over the past year, and since doing so my returns have steadily climbed. I would have expected to see a few defaults in there, but so far I’ve been investing in the riskier loans for about a year now, and none of them have defaulted yet. Would you think some of them will still default despite my early success? Possibly. But I’m hoping my gamble on those with steady jobs and high incomes will mean I wont’ see many defaults.
Here’s where my NAR stands now, getting better every month. Now standing at 10.93%. I’m hoping I can break through that 11% threshold soon!
Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club over the past couple of years.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Borrower answers to investor questions: Because of privacy and liability concerns you can no longer ask whatever question you want from borrowers, but only ask from a pre-set list of questions. It’s still good enough for me I think, although I’d prefer being able to ask specific questions.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
By Peter Anderson4 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 7, 2011.
Lending Club has been having another banner year, reaching a variety of milestones and being honored with several different awards, including the World Economic Forum 2012 Technology Pioneer. Among the recent milestones that they have achieved include last week when they reached $400 million in total loan originations, less than 4 months after they reached $300 million!
We’re proud to announce that this week Lending Club passed $400 million in total loan originations, less than four months after reaching $300 million. It’s hard to visualize such a large number, and we’ve had some fun kicking around ways to understand just how much money $400 million is—for example, it could buy 100 million gallons of gas (enough to drive from San Francisco to New York 1 million times!), 200 million Slurpees, or maybe 250 Lamborghini Reventons.
But in all seriousness, reaching $400 million is a big milestone for us, and an exciting way to move into the final months of what has been a tremendous year for Lending Club.
While Lending Club has been having a good year, the returns I’m seeing mean I’m continuing to have a good year as well. The returns are much better than anywhere else my money is currently. I’m seeing in excess of 11% returns when my stock market holdings are down, and savings accounts are yielding right around 1% in interest. I think Lending Club and social lending in general are a great way to diversify your savings and investments especially in such turbulent times.
Interested in my original Lending Club Review? check it out below.
Check out my original Lending Club review
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Returns Now Up To 11.03%
My Lending Club investments have continued to improve, and they’ve now surpassed the 11% mark for the first time.
Net Annualized Return of 11.03%: Up from 10.93% in September, 10.76% in August and 10.53% before that. That puts me in the 59th percentile. My returns are higher than 59% and lower than 41% of all investors.
Number of defaults still zero… for now: Despite all odds I’m still showing zero defaults on my account, despite having given out over 100 loans so far. I’m actually surprised I haven’t had at least one or two. I do currently have two loans that are late, however. The funny thing is that the late loans are a Grade B and A loan, not one of the many lower grade ones I’ve signed up for. Go figure.
Twenty loans have been paid off early: Nine were A grade loans, five were C grade loans, four were grade B and one grade E and F. Looks like grade A loans, while they’re more likely to be paid back, may also be more likely to pay of early – reducing returns. Another reason to look at including more higher grade loans.
My account balance still going up: I currently have $2,631.70 in my account, with $454.28 of that ready to invest.
I’m still diversified by investing across a large number of loans: I’ve got 133 loans, with no more than $25 in each loan. That way if I do have defaults, while my return may go down, my risk will be minimized. Lending Club noted earlier this month, that 100% of their investors who have invested 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
So it looks like my strategy I laid out a while back of adding more risky C, D, E and F grade loans is paying off so far. My returns have gone up past 11% now!
How Do You Measure ROI?
One thing that is often talked about in the peer-to-peer lending world is how you can determine a more accurate way of knowing your true return on investment (ROI). Some have complained that the numbers on the Lending Club and Prosper sites will give an overly rosy view of what your actual or projected ROI will be, and the ways that they calculate your ROI are not standardized. They don’t take into account future default rates of your loans, how young or old your portfolio is, and other things that may be a factor. It’s basically a take or leave it when it comes to accepting their stated ROI on your portfolio.
This past month I read a great post over at SocialLending.net that talks about 5 ways to measure your ROI, and he expands on some alternative ways and tools that are out there for people to measure their own ROI. I normally just rely on what the Lending Club site tells me it is, although I know in reality it may be a bit lower. In checking my net annualized return this month on Lending Club, it sits at 11.03%.
One of the sites mentioned by Social Lending is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). In looking at my returns on the analyzer, my actual return according to the site will be closer to 9.79%.
I think my return is showing lower in part because I’ve currently got two loans 31-120 days late and a number of my loans are still relatively young. So we’ll see if this lower ROI bears itself out over time. I hope it’s higher though! I’ve gone a couple of years now with no defaults, I’m hoping I can continue that trend – but I wouldn’t count on it!
Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club over the past couple of years.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
Last Updated on February 24, 2022 by Mark Ferguson
Getting a loan on one or two rentals is not difficult if you have good credit and a decent job. However, many banks will tell you it is impossible to get more than four loans. The fact is there are many ways to get loans on multiple rentals, but the big banks don’t like to do it. There are ways to get loans on 10, 20, or even 100 properties. There are traditional banks that will finance more than four properties and portfolio lenders that will lend on multiple properties if you know where to look. There are even national lenders that specialize in rental property loans who prefer to lend on huge packages of rentals. When you hear a bank tell you it is impossible to get a loan on more than four properties, they are only talking about their bank. Don’t give up hope!
What is a portfolio lender?
Local lenders who offer portfolio financing are another option (my favorite) for investors. It can take some research, time and networking to find a portfolio lender, but they have much looser lending guidelines. Portfolio lending means the bank is using their own money to fund deals, and they don’t have to use Fannie Mae guidelines. My portfolio lender has no limits on how many loans they will give to investors as long as they have the cash reserves and income to support the mortgages. They allow 20% down on those properties and don’t require your life’s history to give you the loan.
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There are some drawbacks with a portfolio lender. My local bank does not offer a 30 year fixed mortgage. They offer a 15 year fixed, a 5/30, or a 7/30 ARM (adjustable-rate mortgage). I prefer to use ARMs with a 30-year mortgage instead of 15-year mortgages because the payments are much lower, which gives me much more cash flow. I can save that cash flow and keep buying more and more rentals that make much more money than the 4% or 5% interest rates on the loans. It does not hurt me to get an ARM and it is so much easier working with a local bank than it is working with the big banks.
Every local bank will have different terms and rates when they lend money. Some will not offer 30-year loans, some will have balloon payments, and some will not want to lend on rentals at all. It can take some time and work to find great investor-friendly banks.
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Why don’t big banks like to lend on rentals?
I think long-term rental properties are one of the best investments. Part of my retirement strategy is buying as many long-term rental properties as I can. The problem with buying many properties is most lenders don’t like lending to an investor who already has four mortgages. Most big banks will tell you it is impossible for them to give the fifth mortgage to anyone. The big banks have strict policies about loaning to investors because their primary business is lending to owner-occupied buyers. There is no law that says they cannot give investors more loans, it is simply the bank’s policies.
Most big banks will sell their loans off to other banks or as mortgage-backed securities. Because they sell their loans and do not keep them in-house as a portfolio lender does, the big banks have much stricter guidelines.
When are big banks a good option?
I used a conventional loan to finance my first rental that was from Bank of America. The loan was not easy to get, but I got it. I am a real estate agent and it is tougher for self-employed people to get loans, especially right after the housing crash (2010)! It was a 30 year fixed rate loan with an interest rate of right around 4 percent and I had to put 20 percent down. It was a great loan and I wish I could have continued to get loans like that, but Bank of America would not lend to me after I had four loans in my name. When starting out with less than 4 mortgages a big bank may be a good option.
How to get started investing in rentals.
Can you get a conventional loan on more than four properties?
It is possible to finance more than four properties with a traditional bank. Technically Fannie Mae guidelines say investors should be able to get a loan for up to 10 properties. Even with these guidelines in place, many lenders still won’t finance more than four properties because it is too risky for their investors. If you are diligent and make enough calls you should be able to find a lender who will loan up to ten properties. If you want to try an easier route, call a mortgage broker who can help you find a lender who can get it done. These are the requirements for most lenders that will finance from four to ten properties.
Own between 5-10 residential properties with financing attached
Make a 25 percent down payment on the property; 30 percent for 2-4 unit
Minimum credit score of 720
No mortgage late payments within the last 12 months on any mortgage
No bankruptcies or foreclosures in the last 7 years
2 years of tax returns showing rental income from all rental properties
6 months of PITI reserves on each of the financed properties
These guidelines are much stricter than when you are getting a loan and have fewer than four mortgages.
Refinancing rentals
If you want to refinance any of your properties and you already have four mortgages, most banks will only allow a 70% loan to value ratio and probably won’t allow you to take any cash out. One of the keys to my rental strategy is being able to take cash out when refinancing my rentals. I then take that cash out money and invest in more rental properties. Lenders will say it is too risky to do a cash-out refinance for investors with more than four mortgages. In my opinion, if an investor has the cash to put 20% down and has the cash reserves needed, they are less risky than the first-time home buyer putting 3.5% or less down.
Just because the big banks will not do it, does not mean it is impossible to do! I have been able to complete many cash-out refinances with a 75% loan to value ratio with local banks. I have done this on residential and commercial rental properties.
How to find a great lender
In order to find a portfolio lender, it takes some work. The first step is to ask everyone you know in the real estate industry. Ask Realtors, lenders, title companies, property managers, and other investors. Local real estate investor clubs may be able to provide information on portfolio lenders as well. If you can’t find a portfolio lender through word of mouth, try calling local banks. Ask banks if they loan their own money, what their policies are for investors, and if they don’t offer the right terms ask them who might.
National lenders
There are some new programs available from national rental property lenders that are built for investors to get loans on their rental properties. The lenders base their loans on the properties, not the investors. They have slightly higher rates than conventional lenders but are a great option for those who cannot find other financing. They often are much easier to work with if you have a high debt to income ratio, bad credit, or other issues. They usually do not have any limit on the number of loans you can obtain.
If I ever run into a problem finding a local bank to finance my rentals, I would look into using some of the national companies to finance me.
You can see a list of some of the lenders here.
Conclusion
There are ways to finance more than four properties even though many people will tell you it is impossible. Try talking to a mortgage broker who can get you in touch with banks that will finance more than four properties. If you have a big goal like myself like buying 100 properties in the next ten years, then you will need a portfolio lender who will finance more than four, more than 10, and more than 20 properties.