Should You Pay Off Your Mortgage Early?

Paying off a mortgage early, if doable, seems like the smartest plan in the world. But the question remains: Should you pay off your mortgage early? Dedicating most of your money to a home loan means you may not be able to fund your business, investments, a college fund, an emergency fund, travel, or fun purchases.

There are a lot of scenarios where your money may be put to better use elsewhere.

Here’s what to consider before you decide to go all-in on paying off your mortgage early.

Key Points

•   A solid emergency fund is essential before considering early mortgage payoff to ensure financial stability.

•   Fully funding retirement accounts should be a priority due to potential higher returns and tax benefits.

•   Strategies for early mortgage payoff include biweekly payments, refinancing, recasting, and lump-sum payments.

•   High-interest debt should be addressed before focusing on early mortgage payoff.

•   Early mortgage payoff reduces monthly expenses and interest costs, beneficial before retirement.

When Should You Pay Off Your Mortgage Early?

Sometimes paying off your mortgage early could make sense. For example:

You Have a Rainy Day Fund

You have emergency savings, the three to six months of living expenses in reserve that most experts recommend.

And your college savings plan, if that’s a need, is funded.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


You’re Funding Your Retirement

You’re contributing the max to your 401(k), IRA, and other retirement accounts. If that’s not the case, you may want to do that before paying off the mortgage.

You Want to Reduce Monthly Expenses Ahead of Retirement

If a mortgage takes up a large portion of your monthly expenses, it may make sense to eliminate the mortgage payment if you know you’re going to be on a limited income soon (such as retirement).

You Want to Save on Interest Costs

Take a look at the loan you signed, or any mortgage calculator tool for that matter. On many standard 30-year loans, you will pay just as much in interest as you do in principal. Paying off a home mortgage loan early could save you a lot of money in interest over the life of a home loan.

Reasons to Hold Off on Paying Off Your Mortgage Early

If you’re in the fortunate position of contemplating paying off your mortgage early, there are a few reasons to rethink doing so.

Investment Offers Possibility of Higher Return

If investments provide a return greater than the interest rate you’re paying on your mortgage, it may not make sense to pay off your home loan right now. Remember, past performance doesn’t guarantee future returns, so you’ll want to periodically evaluate how investments are performing against your mortgage interest rate. Many investments also have better liquidity than a mortgage. However, you’ll want to make sure to consider your risk tolerance and investment objectives when deciding to invest instead of paying down your mortgage.

What about buying a rental property instead of paying off a mortgage? Purchasing investment property could generate cash flow, and adding to a real estate portfolio is one way to build generational wealth.

You Still Have High-Interest Debt

Mortgages tend to have much lower interest rates than credit cards do. If you’re a “revolver” who carries balances from one month to the next, or in a family of revolvers, paying off that debt first makes sense.

Nearly half of U.S. families report having revolving balances on one or more of their credit cards, with the average revolving family owing over $6,000, recent data shows.

How to Pay Off Your Mortgage Early

If paying off your mortgage makes sense for your financial situation, it’s helpful to know how to pay off your mortgage early. A handful of strategies may work for different types of mortgages.

Biweekly or Extra Monthly Payment

One strategy homeowners use to pay off their mortgage early is to pay biweekly. If you pay every two weeks instead of monthly ($1,000 every two weeks, for example, instead of $2,000 a month), by the end of the year you’ll have made a full extra payment. Mortgage servicers may charge fees if you do this, though.

If you want to get more aggressive, making an extra payment every month will decrease the principal quickly. You’ll want to make sure the payment is applied to principal only.

Paying a bit extra every month is one sure way to shrink total interest paid and the loan term. For a mortgage loan of $450,000 at a 5.6% fixed rate for 30 years, total interest paid would be $480,008. Putting $400 more toward the mortgage payment every month would whittle total interest paid to $329,881 — a savings of $150,127. And the mortgage would be paid off in 21 years and 10 months instead of 30 years.

Refinance to a Shorter Term

Changing a 30-year mortgage to a 15-year term with a mortgage refinance will likely result in a larger monthly payment (depending on how much you owe) but a substantial amount in interest savings.

With a shorter mortgage term, payments eat into the principal more quickly. If you stack extra payments on top of a 15-year mortgage, you’ll quickly decrease your loan balance on your way to a paid-off mortgage. Refinancing doesn’t have to happen with your current lender, so consider shopping for a mortgage to see what rate and terms you can get if you are going this route.

Recast Your Mortgage

Recasting your mortgage involves making a large lump sum payment toward the principal and having your lender reamortize the mortgage. Your monthly mortgage payment will be recalculated based on how much you owe after the large payment. The term and interest rate will stay the same.

With a recast, you don’t have to go through the application process, and the administrative fee is usually a few hundred dollars.

To decide on a mortgage recast vs. refinance, weigh the pros and cons of each.

Make Lump-Sum Payments

Making lump sum payments will go far toward paying down your mortgage. Just make sure the payments go directly toward the principal.

Get a Loan Modification

A loan modification alters the terms of your original loan to make it more affordable, which could ultimately lead to an earlier mortgage payoff date. This mortgage relief option is reserved for those experiencing financial hardship.

Changes to the terms of the mortgage are designed to potentially lower the mortgage payment so that the homeowner avoids foreclosure. Talk to your lender if you’re thinking about going this route.

Recommended: Home Loan Help Center

The Takeaway

Paying off your mortgage early is a lofty goal, but if you have other financial needs or can make a better return elsewhere, it may make sense to keep your mortgage. Make sure you consider all options before you make your decision.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Do property taxes go up when you pay off your mortgage?

No. Property taxes do not change based on whether or not you’ve paid off your mortgage. If you do pay off your mortgage, it might seem like you’re paying more because you’ll pay taxes all at once or in a couple larger installments.

What happens to escrow when you pay off your mortgage?

When a mortgage is paid off, an escrow account, if one was in place, is closed. Homeowners will need to contact their property insurance company and taxing entity to have the charges sent directly to them. If there is extra money in the escrow account, it will be sent back to the homeowner when the mortgage is paid off and the escrow account is closed.

How does paying off your mortgage early affect your credit score?

Your credit score won’t be greatly affected by paying off your mortgage early. The account will remain on your credit for 10 years as a closed account in good standing.


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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41 Things to Do With Your Tax Refund

If you got a tax refund this year, you may be tempted to spend it all on something fun. And, there’s certainly nothing wrong with that.

But before you get too impulsive, you may also want to think about how that refund might be able to help you get to the next level in life. In fact, smart use of your tax refund check may draw you closer to reaching financial security.

So what should you do with the refund you received? Read on for a mix of smart, practical, and also fun, ways to spend your tax refund.

How Should I Spend my Tax Refund?

With the average taxpayer getting a refund of roughly $3,000 for each of the past several years, you may have a nice lump sum of money to play with. Here are a whopping 41 “how should I use my tax refund?” ideas to consider for both your long-term and short-term financial goals.


💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

1. Unloading Your High-Interest Debt

If you have credit card or other high-interest debt, a tax refund can be a great way to reduce your balance, or even wipe it out completely.

Doing this will help you stop throwing money away on interest charges each month. And, if you manage to wipe out that debt completely, you’ll have one less financial responsibility to deal with monthly.

2. Starting an Emergency Fund

How are you fixed for life’s unexpected emergencies? If you were to lose your job, would you have about three-to-six months of living expenses at the ready? How about a car or home repair? Would you be able to cover that? Taking that tax refund and stashing it away in an emergency fund may save you in a pinch. Your future self may thank you.

3. Saving for Your Kid’s College Education

If you have kids, using your tax refund to start a 529 college savings plan could be a great first step toward dealing with the rising cost of college education. Money in these funds grows tax-free.

Additionally some states and 529 savings plans enable you to deduct your contributions from your state income taxes, so these contributions could save you tax dollars in the future.

4. Improving Yourself

When you get your tax refund, you could use it to make yourself more marketable to future employers. That could mean investing in additional or new career training, attending conferences, joining professional organizations, earning an MBA, or pursuing networking events.

This could all work toward creating a new you, and possibly a bigger paycheck with bigger tax refunds in the future.

5. Planning for Retirement

Does your company offer to match your retirement savings in your 401(k)? If so, you could take advantage of this “free money” by investing your tax refund in your retirement plan. Doing this could potentially increase your contribution level to maximize the benefit your employer offers.

If you don’t have a 401(k), you could use your tax refund to open an Individual Retirement Account (IRA), or add to an existing one, keeping in mind that there are annual limits to how much you can put into a retirement account each year.

6. Becoming a Homeowner

You could also use your tax refund to help fund a down payment on a new home. Offering a larger down payment will reduce your mortgage, which means you’ll pay less in interest. That could translate into lower monthly payments and paying less for the home overall.

7. Making Much-Needed Repairs

Already own a house? You might consider using your refund to make repairs and/or upgrades that could make your home more functional and also more re-sellable.

8. Starting an Investment Plan

If you’ve been putting off any serious investing until you have some available cash, now might be your chance. Of course, it’s important to do your research before making any investments, but this could be the time to start financially planning for the future.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

9. Paying Monthly Fees Up Front

Do you have subscriptions to streaming services? How about a gym membership? If possible, you could pay the annual fee in one fell swoop, which is often cheaper than paying month-to-month. It will also mean one or two less bills to pay each month.

10. Gifting a Loved One

The IRS sets a limit on the gifts you are able to give to family members and others without having to pay a gift tax. That limit is $18,000 for 2024 and $19,000 for 2025 per recipient.

This means that you can give the person up to that much without triggering taxes.

11. Going on Vacation

If you’re thinking about what to do with a tax refund that might also be fun, consider taking a trip with some of the money. Then, you won’t get stuck paying for your vacation on a credit card like you might have in the past — and potentially paying even more due to interest charges.

12. Buying Things That Will Save You Money

If only you had a smart thermostat in your home, you could save on your electricity, A/C, and heating every month. Or, if you got a good oven, you would cook more and wouldn’t eat out as much. If you purchased a set of weights, you could cancel your expensive gym membership. You may want to think about ways you can spend your tax refund that will end up saving you money on an everyday basis, and then make those investments.

13. Making Appointments You’ve Been Putting Off

When thinking about what to do with your tax refund, you might consider spending it on services that you may have been delaying but could improve your life. For instance, if you’ve had some back pain and need to get it checked out, you could use the money to see your doctor or chiropractor. Using your tax refund to take care of your health is generally always a good idea.

14. Funding Your Business Idea

Have you always wanted to start a small business? Then now may be the time. When you’re thinking about what to do with a tax refund, you might want to put it toward getting your business up and running. You may even be able to avoid taking out a loan to start your venture.

15. Donating It

If there’s an organization you believe in and want to support, you might consider donating your tax refund to that group. You’ll not only be doing good, but you may also be able to deduct your donation on your taxes next year for a win-win.

16. Making Extra Mortgage Payments

If you’re contemplating what to do with your tax return, you could always make extra payments towards your mortgage (just be sure it goes toward the principal, not interest). Reducing your principal can help you save significant money in interest over the long haul.

17. Purchasing Life Insurance

Signing up for a term life policy when you have the resources to do so can be a smart idea, especially if you are married and/or have children. That way, you will know that your loved ones are protected should anything happen to you.

18. Hiring an Estate Planning Attorney

This is another way you can plan for the future. If you have a spouse or young children, an estate planning attorney can help you devise an estate plan that protects them in the event that you pass away. This could include designating guardians and setting up a trust for your children.

19. Purchasing Renter’s Insurance

While your landlord is protected if something happens to their property, you are not. If you’re thinking about what to do with your tax refund that could save you money in the long run, you might consider buying a renter’s insurance policy.

This kind of policy will typically cover the cost of your belongings should anything happen, and also help protect you if someone gets injured in your home, since they can make a claim with the insurance company instead of coming after you.

20. Paying for a Subscription-Canceling Service

A subscription-canceling service can help you figure out which subscriptions you can cancel, and may even be able to negotiate with your service providers to lower your monthly bills. The fee for this service might ultimately save you money — not to mention all that time you would have spent on hold trying to do this yourself.

21. Taking a Class

Education can improve your life in so many ways. You could take a class in a subject that interests you, or to learn a new hobby, like photography or watercolor painting. If you look for courses at your local community college or adult ed program, you may be able to save significantly on tuition.

22. Hiring a Financial Advisor

If you don’t know what to do with money when it comes to saving, investing, and becoming financially stable, you may want to use your tax refund to hire a financial advisor. To find an advisor, you can ask family and friends for recommendations. You can also consult industry associations, such as the National Association of Personal Financial Advisors and the Financial Planning Association.

23. Signing Up for a Meal Subscription Service

Do you eat out all the time? Then it might make sense to put your tax refund towards a meal service that sends you ingredients and simple recipes each week. While it’s typically not as cheap as going to the grocery store, these services can make cooking at home easy and convenient. Eventually, after you learn some good recipes, you can likely cancel and switch to completely DIY meals instead.

24. Saving for Holiday Gifts

During the holidays, are you always short on cash to buy gifts for your family and friends? Even if you get your tax refund early, you might want to put some of it aside in an interest-bearing account until your favorite stores and websites are running sales. For example, you can save big by waiting for Amazon Prime Day, Black Friday, or Cyber Monday.

25. Investing in Your Health

When it comes to what to do with a tax refund, you might want to use it to improve your health and wellness. You could sign up for a gym, hire a nutritionist, purchase exercise equipment, or get a personal trainer. You may end up saving much more in the long run on your healthcare bills.

26. Investing in Your Children’s Needs

If your children need new clothes or school supplies, or you think they could benefit from summer camp or after-school lessons, then you may want to put your tax refund towards those costs.

27. Investing in Your Pets

Does your dog need a teeth cleaning? Have you been putting off getting your cat an MRI because it’s too expensive? Then you could finally take care of some of their needs with your tax return. You could also purchase pet insurance, which could save you money on your vet bills.

28. Purchasing a Car

Is your car always breaking down? Does it guzzle gas? Do you normally use Ubers? Then purchasing a new or used car with your tax refund could save you money over time. If you currently rely on public transportation, owning a car can also open you up to new job opportunities that may have been inaccessible before.

29. Paying Off Your Car Loan

If you’re wondering what to do with a tax refund, you could always make advance payments on your car loan. If you’re paying high interest every month, paying the loan off early could save you significant money. And, if you pay it off in full, you won’t have to worry about that annoying monthly payment anymore.

30. Investing in a Second Income Stream

You can take your tax refund and start making money with it by investing in a new income stream. For example, you could start drop shipping with Amazon, which involves buying items at a discount from a wholesaler then selling them at a profit. Or, you could fix up your spare bedroom and start renting it out on Airbnb.

31. Investing in REITs

If you want to start investing in real estate but don’t have the funds to buy a property, you could invest in real estate investment trusts (REITs) instead. REITs are companies that own, operate, and finance real estate that produces an income. If you put your money into the right REIT, you may see healthy returns. Just remember that no investment is risk-free. Research the pros and cons of REITs before you decide to go this route.

32. Investing in Crowdfunded Real Estate

Another way to get into real estate with your tax refund is to consider investing in crowdfunded real estate. On crowdfunded real estate platforms, you can generally invest for less and potentially reap the benefits of buying into the real estate market. However, there is also the possibility you could lose money, so weigh the benefits and drawbacks carefully. If you decide to go ahead, just be sure to thoroughly investigate any platform before investing on it.

33. Funding a Startup

While investing in startups can definitely be very risky, the rewards could potentially be high. When you’re looking into what to do with a tax refund, you might want to check out services that let you invest in small businesses. Again, make sure you do due diligence and check out the service fully before you sign up with it.

34. Saving for Next Year’s Tax Payment

If you do freelance work or you’re an independent contractor, you may have to make estimated payments every quarter. You could get a head start on your taxes by saving your refund and then using it to make those estimated payments on time.

35. Hiring an Accountant

If you believe you could have gotten a higher tax refund this year, then you may want to put aside your refund so you can use it to hire a good accountant to help you file next year’s tax return. The additional tax savings could far exceed the accountant’s fee.

36. Moving to a Better Rental

In the past, it may have been hard to move to a better rental because you didn’t have the funds necessary — like the first and last month’s rent and security deposit — to make it happen. Now that you have your refund, you might be able to make it a reality. You’ll want to make sure, however, that the rent works with your budget.

37. Getting Dental Insurance

You may have been delaying going to the dentist because it’s too expensive. Or, you might need dental work done, but can’t afford it. If so, you may want to put your tax refund towards purchasing dental insurance for the year. Then, you can take care of your teeth.

38. Buying New Clothes

The right clothes can make a big difference in your day. You not only have to wear the right clothes in a professional setting, but being comfortable in what you’re wearing can give you more confidence as well. It can be a good idea to look for deals, however, so you don’t spend your entire tax refund on a fancy pair of shoes or designer coat.

39. Purchasing Stocks

While investing in the stock market can be risky, if you buy shares in a company with a solid track record that pays dividends, you may end up making money on dividends as the company grows. You can always talk with your financial advisor about how to carefully invest in stocks.

40. Investing in Bonds

If you want to invest your tax refund, but don’t have much tolerance for risk, you might consider investing the money in bonds such as Treasury bonds. These are fixed-income investments that typically make regular interest payments to investors. On the maturity date, your principal investment will be returned to you.

41. Pampering Yourself

Whether you filed on time or missed the deadline and filed late, tax time can be stressful. If you have some tension to work out, you may want to use some of your refund to reward yourself for getting it all done. You could get a massage to help release tension in your shoulders, or splurge on a day at the spa.

The Takeaway

While your tax return may feel like “free money,” it’s really your money given back to you by the government. Uncle Sam was merely holding on to it for a while. It’s yours, so it can be a good idea to be smart with it. For instance, you could use it to save for a house or to invest in your future.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


Invest with as little as $5 with a SoFi Active Investing account.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Benefits, Drawbacks, and Options of a Self-Directed 401(k) Plan

Benefits, Drawbacks, and Options of a Self-Directed 401(k) Plan

Self-directed 401(k) accounts aren’t as common as managed or target-date 401(k) plans, but they can be of real value for DIY-minded investors.

What is a self-directed 401(k)? These 401(k) plans — which may be employer-sponsored or available as a solo 401(k) for self-employed individuals — expand account holders’ investment choices, giving them more control over their own retirement plans. Instead of being limited to a packaged fund, an investor can choose specific stocks, bonds, mutual funds, and sometimes even alternative investments, in which to invest their retirement money.

What Is a Self-Directed 401(k) Account?

The key promise of self-directed 401(k) plans is control. They allow retirement plan savers to basically act as a trustee for their own retirement funds.

A self-directed 401(k) plan offers expanded investment choices, from stocks, bonds, funds, and cash, to alternative investments like Real Estate Investment Trusts (REITs) and commodities.

For a plan holder who believes they have the investment know-how to leverage better returns than a managed fund or target-date fund, a self-directed 401(k) can be an appealing choice.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1


1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Who Is Eligible for a Self-Directed 401(k)?

As long as your employer offers a self-directed 401(k), and you have earned taxable income for the current calendar year, you can enroll.

Alternatively, if you are self-employed and own and run a small business alone, with no employees (aside from a spouse), and your business earns an income, you are also eligible. You can search for a financial institution that offers self-directed plans, which might include a solo 401(k).

This is one of the self-employed retirement options you may want to consider.

How to Set Up a Self-Directed 401(k)

Setting up a self-managed 401(k) plan can be fairly straightforward. Once a 401(k) account is established, employees can fund it in the following ways:

•   Plan transfer. An employee can shift funds from previous or existing 401(k) plans and individual retirement accounts (IRAs). However, Roth IRAs can’t be transferred.

•   Profit sharing. An employee receiving funds from a company through profit sharing can use that money to open a self-directed 401(k) plan — up to 25% of the profit share amount.

•   Direct plan contributions. Any income related to employment can be contributed to a self-directed 401(k) plan.

Recommended: How to Manage Your 401(k)

Pros and Cons of Self-Directed 401(k)s

Like most investment vehicles, self-managed 401(k) plans have their upsides and downsides.

Pros of Self-Directed 401(k) Plans

These attributes are at the top of the self-directed 401(k) plan “advantages” list:

•   More options. Self-directed 401(k) plans allow retirement savers to gain more control, flexibility, and expanded investment choices compared to traditional 40k plans, putting their money exactly where they want — without relying on established funds.

•   Tax deferral. Like regular 401(k) plans, all self-directed 401(k) plan contributions and asset gains are tax-deferred.

•   Employee matching. Self-directed 401(k) plans make room for employer matching plan contributions, thus potentially paving the way for more robust retirement plan growth.

•   Plan diversity. Account holders can invest in assets not typically offered to 401(k) plan investors. Alternative investments like real estate, gold, silver and other commodities, and private companies are allowed, thus lending additional potential for diversity to self-directed 401(k) plans.

Cons of Self-Directed 401(k) Plans

These caveats and concerns are most often associated with self-directed 401(k) plans:

•   Higher-risk investments. Historically, alternative investments like precious metals and real estate come with more volatility — and hence more risk — than stocks and bonds.

•   Diversification is on you. You’ll need to choose among stocks, bonds and funds to augment your self-directed 401(k) plan asset allocation.

•   Higher fees. Typically, self-directed employer retirement plans cost employees more to manage, especially if an investor makes frequent trades.

•   Larger time investment. Since self-directed 401(k) plans offer access to more investment platforms, savers will likely need to spend more time doing their due diligence to research, select, and manage (especially in the area of risk assessment) their plan options.

How Much Money Can be Put in a Self-Directed IRA?

The amount an investor can contribute to a self-directed IRA is the same as the amount that can be contributed to a traditional IRA savings account. The annual contribution limit is $7,000 for tax years 2024 and 2025. Those 50 and older can contribute an additional $1,000, for a total of $8,000 per year.

For a self-directed 401(k), the amount that can be contributed is the same as the contribution limits for a traditional 401(k). For 2024, the limit is $23,000. For those age 50 and older, there is the option of making an additional catch-up contribution of up to $7,500. That means an individual 50 or older could contribute as much as $30,500 to a self-directed 401(k) in 2024.

For 2025, the limit is $23,500. Those 50 and older can make an additional catch-up contribution of up to $7,500, for a total of up to $31,000. In 2025, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500), for a total of $34,750.

Recommended: IRA vs 401(k)

Common Self-Directed 401(k) Investments

The ability to choose from an expanded list of investment categories is an intriguing benefit for a 401(k) plan holder who believes they have the investment know-how to leverage better returns from investments like self-directed 401(k) real estate, precious metals, or shares of private companies, among other eligible alternative investments.

For any retirement saver looking to leverage those options, the key is understanding what potential opportunities and what risks those extra self-directed investment vehicles bring to the table. Here’s a closer look at two of the more common alternative investments linked to self-directed 401(k) plans.

Real Estate Investment Trusts (REITs)

Investing in real estate simply means investing in residential or commercial properties, or real estate funds, with the goal of income generation. A self-directed 401(k) plan allows for real estate investing outside of the plan holder’s personal residence.

Examples of residential properties include:

•   Single-family homes

•   Condos

•   Townhouses

Examples of commercial real estate include:

•   Multi family homes

•   Office or retail buildings

•   Storage facilities and warehouses

To invest in real estate with a self-directed 401(k) plan, an investor would use their 401(k) funds to purchase the property, as well as to pay for maintenance, taxes, and other property-related expenses.

Real estate can be cyclical in nature, and can require large amounts of cash when investing in direct real estate properties. Thus, risk of investment loss is real and must be treated prudently by self-directed 401(k) real estate investors.

Precious metals

Investing in “hard commodities” like gold, silver, titanium, copper, zinc, and bronze, among other metals, are allowable with self-directed 401(k) plans. Self-directed 401(k) plan participants can either invest in precious metals directly, like buying gold bullion or coins, or invest in precious metals via stocks or precious metal funds.

Precious metal investing can be high risk, as gold, silver, and other metals can be highly volatile in value. As with real estate, investors have to be able to ride out chaotic market periods for commodities — but for some, the potential payoff may be worth it.

Investments That Aren’t Allowed Under Self-Directed 401(k) Plan Rules

While the list of investment vehicles that are included in a self-directed 401(k) plan are substantial, regulatory rules do prohibit specific investment activities tied to several of those asset classes. The following investment strategies and associated transactions, for example, would not pass muster in self-directed 401(k) plans.

Real Estate with Family Ties

While investing in real estate is allowed in a self-directed 401(k) plan, using that real estate for extended personal gain is not allowed. For example, that could include buying an apartment and allowing a family member to live there, or purchasing a slice of a family business and holding it as a 401(k) plan asset. Neither of these scenarios is allowed under 401(k) plan regulatory rules.

Loans

Self-directed 401(k) plan consumers may not loan any plan money to family members or sign any loan guarantees on funds used in a self-directed 401(k) plan.

No Investment Benefit Beyond Asset Returns

Self-directed 401(k) plan holders cannot earn “extra” funds through transactions linked to plan assets. For example, a plan holder can buy a real estate property under 401(k) plan rules but he or she cannot charge any management fees nor receive any commissions from the sale of that property.

Basically, a self-directed 401(k) plan participant cannot invest in any asset category that leads to that plan participant garnering a financial benefit that goes beyond the investment appreciation of that asset. That means not using 401(k) funds to purchase a personal residence or investing in assets like investments of collectibles (i.e. vehicles, paintings or jewelry or real estate properties that the plan participant personally uses.

Manage Your Retirement Savings With SoFi

While self-directed 401(k) plans can add value to a retirement fund, self-directed retirement planning is not for everyone.

This type of account requires more hands-on involvement from the plan holder than a typical target-date or managed fund might. Additionally, investing in alternative investments like precious metals, real estate, and other risk-laden investment vehicles, require a realistic outlook on downside risk and a healthy knowledge of how investments work beyond stocks, bonds, and funds.

In the meantime, you might want to consider rolling over any old 401(k) accounts to an IRA rollover to better manage your retirement savings overall.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

What is the difference between an individual 401(k) and a self-directed 401(k)?

A self-directed 401(k) gives account holders more investment choices, as well as more control over their own retirement plans. Instead of being limited to a packaged fund as they would be with an individual 401(k), an investor can choose specific stocks, bonds, mutual funds, and even alternative investments, in which to invest their retirement money.

Can I roll my traditional 401(k) into a self-directed 401(k)?

Yes. You can shift funds from a previous or existing 401(k) plan or individual retirement account (IRA) into a self-directed 401(k). The exception is a Roth IRA, which can’t be transferred.

How is a self-directed 401(k) taxed?

Like regular 401(k) plans, all self-directed 401(k) plan contributions and asset gains are tax-deferred until withdrawn. With self-directed 401(k)’s, there is a 10% tax penalty for early withdrawals (before age 59 ½), the same as with traditional 401(k)s.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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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What Is a Salary Reduction Contribution Plan?

What Is a Salary Reduction Contribution Plan?

A salary reduction contribution plan allows employees to reduce their taxable income by investing for retirement. With this type of plan, an employee’s salary isn’t really reduced; rather the employer deducts a percentage of their salary and deposits the funds in a retirement savings plan where the money can grow tax deferred.

Common employer-sponsored retirement plans include 401(k)s, 403(b)s, and SIMPLE IRAs. Employee contributions — also called elective deferral contributions — are typically made with pre-tax money, effectively reducing the participant’s taxable income and often lowering their tax bill. Some plans feature an after-tax Roth contribution option, too.

You may already be contributing to a salary reduction contribution plan, although your company may not call it that. These plans can be a valuable way to boost your retirement savings, and offer you a tax break. Here’s what you need to know.

Salary Reduction Contribution Plans Explained

A salary reduction contribution plan helps workers save and invest for retirement through their employer via several types of retirement accounts. Money is typically deposited in a retirement account such as a 401(k), 403(b), or SIMPLE IRA on a pre-tax basis through recurring deferrals (aka contributions) on behalf of the employee.

Employees typically select the percentage they wish to deposit, e.g. 3%, 10%, or more. That percentage is deducted from an employee’s paycheck automatically, and deposited in their retirement account. Sometimes a specific dollar amount is established as the salary reduction contribution amount.

The upshot for the worker is that they can delay paying taxes on the amount of the salary reduction for many years, until they withdraw money from the account during retirement. Like a traditional 401(k) or 403(b), these accounts can be tax deferred; Roth options are considered after tax (because you deposit after-tax funds, but pay no tax on withdrawals). Retirement contributions may offer decades of compounded investment returns without taxation. Essentially, retirement contributions through an employer’s plan means saving money from your salary.

There are also SIMPLE IRA salary reduction agreements sometimes offered by small businesses with 100 or fewer employees: “SIMPLE” is short for “Savings Incentive Match Plan for Employees.”

A Salary Reduction Simplified Employee Pension Plan (SARSEP), on the other hand, is a simplified employee pension plan established before 1997.

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1


1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

How Salary Reduction Contribution Plans Work

Salary reduction contribution plans are established between a worker and their employer. The two parties agree to have a set percentage or a dollar amount taken from the employee’s salary and deposited into a tax-advantaged retirement plan. That money can then be invested in stock or bond mutual funds, or other investments offered by the plan.

With pre-tax contributions, the employee has a reduced paycheck but gets current-year tax savings. With after-tax contributions, as in a Roth account, taxes are paid today while the account can potentially grow tax-free through retirement; withdrawals from a Roth account are tax free.

Example of a Salary Reduction Contribution Plan

Here’s an example of how a salary reduction contribution plan agreement might work:

Let’s say an employee at a university has a $100,000 salary and wishes to save 10% of their pay in a pre-tax retirement account. The school has a 403(b) plan in place. The worker contacts their Human Resources department to ask about submitting a salary reduction agreement form. On the form, the worker chooses an amount of their salary to defer into the 403(b) plan (10%).

Typically they also select investments from a lineup of mutual funds or exchange-traded funds (ETFs).

Come payday, the employee’s paycheck will look different. If the usual biweekly gross earnings amount is $3,846 ($100,000 salary divided by 26 pay periods, per year), then $384.60, or 10% of earnings, is deducted from the employee’s paycheck and deposited into the 403(b) and invested, assuming the employee has selected their desired investment options.

Depending on other deductions, the employee’s new taxable income might be $3,461.40. The contribution effectively reduced the worker’s salary, potentially lowering their tax bill at the end of the year.

If the worker is in the 22% marginal income tax bracket, the $10,000 annual deferral amounts to an annual federal income tax savings of $2,200 per year.

Bear in mind that withdrawals from the 403(b) plan are taxable with pre-tax salary reductions. We’ll look at salary reduction plan withdrawal rules later.

Pros & Cons of Salary Reduction Contribution Plans

Although your employer may offer a salary reduction contribution plan like a 401(k) or SIMPLE IRA salary reduction agreement for retirement, it’s not required to participate. Before deciding whether you want to join your organization’s plan, here are some advantages and disadvantages to consider.

Pros

A salary reduction contribution offers employees the chance to reduce their current-year taxable income. A lower salary defers taxation on the money you save, until retirement. For young workers, that could mean decades of compounding returns without having to pay taxes along the way.

For those who have the option of choosing to open a Roth account, taxes are paid in the current year, but withdrawals are tax free (as long as certain criteria are met). Also, contributions to a Roth 401(k) or Roth 403(b) plan can grow tax-free through retirement.

What’s more, the employer might offer their own contribution such as a matching contribution. Typically, an employer might match employees’ contributions up to a certain amount: e.g. they’ll match 50 cents for every dollar an employee saves, up to 6% of their salary.

Another upside is that lowering one’s salary through automated savings can help an individual live on less money and avoid spending beyond their means — which may help establish long-term savings habits. Thus, contributing to a salary reduction plan can be a step toward creating a financial plan.

Cons

Like many aspects of personal finance, salary reduction contributions can be a balancing act between meeting your obligations today and providing for your future self.

Saving for the future can mean forgoing some pleasure in the present, similar to the concept of delayed gratification. Maybe you decide to postpone a vacation or purchase of a new car in exchange for a more robust retirement account balance.

Employees should also weigh the likelihood of needing money in the event of an emergency. Taking early withdrawals or borrowing from your 401(k) account can be costly, or may come with penalties, versus having extra cash in a checking or savings account. In most cases if you take out a loan from an employer-sponsored plan, you would have to repay the loan in full if you left your job.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Salary Reduction Contribution Limits

Annual salary reduction contribution limits can change each year. The Internal Revenue Service (IRS) determines the yearly maximum contribution amount. For 2024, the most a worker can contribute to a 401(k) or 403(b) is $23,000. For those age 50 and older, an additional $7,500 contribution is permitted.

In 2025, a worker can contribute up to $23,500 to a 401(k) or 403(b), and those 50 and older can contribute an additional $7,500 in catch-up contributions. For 2025, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500) to their 401(k) plan.

A SIMPLE IRA salary reduction agreement has different limits. For 2024, a SIMPLE IRA’s annual maximum contribution is $16,000 with a catch-up contribution of up to $3,500 for those age 50 and older. For 2025, the annual maximum SIMPLE IRA contribution limit is $16,500 and $3,500 for those 50 and up. For 2025, those aged 60 to 63 may contribute an additional $5,250 (instead of $3,500) to their SIMPLE IRA.

Salary Reduction Contribution Plan Withdrawal Rules

There are many rules regarding salary reduction contribution plan withdrawals.

At a high level, when an employee withdraws money from a tax-deferred retirement account, they will owe income tax on the money. If you withdraw money before age 59 ½, a 10% early-withdrawal tax might be applied.

There can be some exceptions to these rules, but it’s best to consult with a professional.

Should you withdraw money when you leave your employer? While taking a lump sum is possible under those circumstances, it may not be your best choice: You’d owe taxes on the full amount, and you’d risk spending money that’s meant to support you when you’re older.

The standard rule of thumb is that individuals who are leaving one employer should consider rolling over their retirement account to an IRA, or their new employer’s plan. In that case there are no penalties or taxes owed, and the money is once again secured for the future.

The Takeaway

Salary reduction contribution plans can help workers save money for retirement on a pre-tax or after-tax basis. Steadily putting money to work for your future is a major step toward building a solid long-term financial plan. And in many cases you will reap a tax advantage in the present — or in the future.

That said, there are important pros and cons to weigh when deciding whether you should contribute via a salary reduction plan. You may have another strategy. But if you don’t, you might want to consider opting into your employer’s plan for the benefits it can provide.

An important point to know: Even when you join a salary reduction plan, you can still open up an IRA online to boost your savings. And if you leave your job, you can roll over your salary reduction retirement account to an IRA without paying taxes or penalties.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

Does a 401(k) reduce salary?

Not really. Contributions toward a traditional 401(k) retirement plan are a tax-deductible form of savings that effectively reduce an individual’s taxable income. In that regard, making retirement contributions on a pre-tax basis can reduce someone’s salary (but you still have the money in your retirement account).

Also, some plans allow for after-tax contributions which also reduce the size of your paycheck, but are not tax deductible.

What does employee salary reduction mean?

Employee salary reduction means that money is automatically deducted from an employee’s paycheck and contributed to a retirement plan. Money moves into a plan such as a 401(k), 403(b), or a SIMPLE IRA. The account is in the employee’s name, and they decide how to invest the funds.

What is the difference between SEP and SARSEP?

A SEP is known as a Simplified Employee Pension Plan. A SEP plan allows employers to contribute to traditional IRAs (called SEP IRAs) for their employees. The IRS states that a business of any size, even self-employed, can establish a SEP. These plans are common in the small business world.

A SARSEP, on the other hand, is a simplified employee pension plan established before 1997. A SARSEP includes a salary reduction arrangement. The employee can choose to have the employer contribute a portion of their salary to an IRA or annuity. Per the IRS, a SARSEP may not be established after 1996.


Photo credit: iStock/visualspace

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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The Mortgage Underwriting Process: How Long Does it Take?

Underwriters are a bit like jurors: They soberly weigh the evidence and render a verdict. Unlike jurors, underwriters sometimes reach out to those they are, well, judging to obtain additional information, clarify a matter, or otherwise help the case for mortgage approval.

If the underwriter finds that you’re fiscally fit enough to take on a mortgage and that the amount you want to borrow is a manageable size, you’re on your way to a home purchase. So you want to put your best foot forward where the underwriter is concerned. By learning about underwriting, you’ll be prepared for the document-gathering and hurdles ahead.

What Is Mortgage Underwriting?

Underwriters protect a bank, credit union, or mortgage company by making sure that they only give loan approval to aspiring homeowners who have a good chance of paying the lender back.

If you’re wondering what is the underwriting process, here are some of their tasks:

•   Verify documents and financial information and make sure that enough savings exist to supplement income or contribute toward the down payment.

•   Check an applicant’s credit score and history and note any bankruptcies, late payments, significant debts, or other red flags.

•   Calculate the debt-to-income ratio by adding up monthly debt payments and dividing that number by monthly pretax income.

•   Request additional documents and ask questions if necessary. For example, if a homebuyer has had more than one job over the past year and their income is not consistent, an underwriter may want to see more assets.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


5 Steps of the Mortgage Underwriting Process

The mortgage-seeking journey is a winding path that eventually arrives at the underwriter. Automated underwriting may approve your loan application, though a human underwriter will verify your application and documentation. If the software refers your application to manual underwriting, that’s usually a slower process.

Here are common steps leading to underwriting:

1. Explore Your Budget

Prequalifying for a mortgage is a quick move that will provide a ballpark budget for your home purchase, based on self-reported financial info. And you can employ a home affordability calculator to get a feel for your top price.

Think, too, about lending questions you’ll have during the mortgage process.

2. Get Preapproved for a Loan

Shop around for the best deal, and best-fitting loan, with a mortgage broker or direct lender. This is the time to submit documentation of your income, employment, assets, and debts and allow a hard pull of your credit score. What credit score is needed to buy a house? Much depends on whether you plan to use a conventional or government-backed mortgage loan (an FHA loan is more lenient).

A mortgage preapproval letter, often good for 30 to 90 days, indicates the lender’s willingness to lend you a particular amount at a tentative or locked interest rate. A preapproval letter also allows a buyer to act quickly in a seller’s market.

3. Find Your Home

Once you find a home that meets your needs, you’ll need to agree on a price. Ideally it is within the amount you’ve budgeted and been preapproved for.

4. Apply for the Loan

You may choose one of the lenders you gained preapproval from, or another lender, to apply for the mortgage. You’ll receive a loan estimate within three business days from each lender you apply with.

If you go with one of the former, you submitted documents in order to get preapproved. Still, the lender will likely ask for further documentation now that you’re ready to act on a purchase, and will take another look at your credit.

5. Wait for the Underwriting Verdict

A loan processor will confirm your information, and then it’s time for the underwriter to review your credit scores and history, employment history, income, debts, assets, and requested mortgage amount.

The underwriter will order an appraisal of the chosen property and get a copy of the title insurance, which shows that there are no liens or judgments. Finally, the underwriter will consider your down payment.

Then comes the decision on your mortgage application: approved, suspended (more documentation is needed), or denied. How long does underwriting take? The verdict could come in as little as a few days.

Required Information for Underwriting

Lenders are going to request a lot of documents from mortgage loan applicants.

Income verification. The lender will want to see W-2s from the past two years, your two most recent bank statements, and two most recent pay stubs. Those who are self-employed will need to document stable work and payments and ideally have a business website. Applicants will typically need to show evidence of at least two years of self-employment income in the same field.

Any additional income. Pension, Social Security, alimony, dividends, and the like all count.

Proof of assets. This can include checking and savings accounts, real estate you own, retirement savings, and personal property. A lender might want to see that a down payment and closing costs have been in an applicant’s account for a while.

Debts. Your debt-to-income ratio matters greatly, so list all monthly debt payments, each creditor’s name and address, account numbers, loan balances, and minimum payment amounts.

Gift letter. If you’ve received money from a family member or another person to put toward your home purchase, the lender will request a gift letter for the mortgage and proof of that funding in your account.

Rent payments. Renters will likely need to show evidence of payments for the past 12 months and give contact information for landlords for two years.

How Long Does Underwriting Take?

Underwriting may take a couple of days to more than a week. It all depends on how complicated someone’s finances are and how busy an underwriter is. Thankfully, underwriters typically do everything online these days, so an applicant can upload documents to a website or simply email them.

Can You Speed Up the Mortgage Underwriting Process?

Most of the methods used to speed up the underwriting process are not in the hands of the borrower but rather methods lenders can use to accelerate their review. An applicant can help ensure an efficient underwriting process by making sure they submit all the requested information and documents the first time around, thereby lessening the likelihood an underwriter will have questions.

How You Can Improve Your Chance of Being Approved

Before applicants try to get a mortgage, they can take a number of steps to improve their chances of getting approved.

Lighten the debt load. It’s critical to pay off as much debt as possible and to try to keep your credit utilization ratio below 30%, though some lenders like to see a ratio below 25%.

Applicants can pay off debt faster by making a budget (and sticking to it), using cash instead of credit cards to make purchases, and negotiating interest rates with creditors.

Look at credit reports. Applicants should also scour their credit reports and fix any mistakes so that their score is as high as possible. Federal law guarantees the right to access credit reports from each of the three major credit bureaus annually for free.

The reports show only credit history, not credit scores. There are ways to monitor your credit scores and track your money at no cost.

Attempt to boost income. Applicants may want to apply for higher-paying jobs or get to know the benefits of a side hustle so they can save more money.

Ask for a gift or loan partner. You could also ask a family member for a gift to put toward the down payment, or you could ask a relative with a stable credit history and income if they would apply for the loan as a co-borrower or cosigner.

With an underwriter extending a hand, a solution may be found that leads to approval.

The Takeaway

Ready to apply for a mortgage? Prepare for a probing look at your private life — the financial one — by an underwriter, who is gauging the risk of lending you a bundle of money. The underwriter looks at a homebuyer’s finances and history, the loan amount, and the chosen property and renders a verdict.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.

FAQ

How long does it take for the mortgage underwriter to make a decision?

Underwriting can take anywhere from a couple days to a few weeks, depending in part on the complexity of a mortgage applicant’s financial situation and how thorough applicants are in submitting requested documents.

Is underwriting the last step before closing?

Not quite. After the underwriter signs off on the loan, it’s likely that your lender will want to do a final verification of your employment status, credit score, income, or all of the above. You’ll then be sent closing documents to review, and you’ll need to arrange payment of the closing costs, usually via a cashier’s check or bank transfer. At that point, you should be headed to a closing.

How often do underwriters deny loans?

About one in 10 loan applications are denied, according to the Consumer Finance Protection Bureau. Denials are less common for conventional loan applicants than for those applying for Federal Housing Administration (FHA) loans. Denial rates tend to be higher for refinance applicants than for home purchasers.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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