Life Stages Archives

Jan

2026

A man wearing glasses sits at a desk, working on his laptop and trading forwards.

What Is a Forward Contract?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

How Do Forward Contracts Work?
What’s the Difference Between Forward and Futures Contracts?
Forward Contract Example
Pros and Cons of Trading Forwards
Who Uses Forward Contracts?
How Do Investors Use Forwards?
Frequently Asked Questions

A forward contract, also referred to as a forward, is a type of customizable derivative contract between a buyer and a seller that sets the sale of an asset at a specific price on a specific future date. Like all derivatives, a forward contract is based on an underlying asset.

Forward contracts are similar to options, as discussed below, but there are some key differences that investors will need to know if they plan to use forwards as a part of their investing strategy.

Key Points

• A forward contract is a customizable derivative setting a specific price and date for an asset trade.

• Forwards are settled once at expiration, unlike daily-marked futures.

• These contracts are traded over-the-counter, offering flexibility but higher risk.

• Typically, no upfront payment is required to enter a forward contract (though some may include collateral requirements).

• Forward contracts are typically used by institutional investors due to high risks and lack of transparency.

How Do Forward Contracts Work?

Forwards are similar to options contracts in that they specify a price, amount, and expiration date for a trade. However, most options give traders the right, but not the obligation, to trade. With forward contracts, the transaction must take place at expiration.

Unlike futures contracts, another type of derivative, forwards are only settled once on their expiration date, but specific terms may vary based on the agreement between parties. The ability to customize forwards makes them popular with investors interested in self-directed investing, since the buyer and seller can set the exact terms they want for the contract.

Many other types of derivative contracts have predefined contract terms.

There are four main aspects and terms to understand and consider before entering into a forward contract. These components are:

• Asset: This refers to the underlying asset associated with the forward contract.

• Expiration Date: This is the date that the contract ends, and this is when the actual trade occurs between the buyer and seller. Traders will either settle the contract in cash or through the trade of the asset.

• Quantity: The forward contract will specify the number of units of the underlying asset subject to the transaction.

• Price: The contract will include the price per unit of the underlying asset, including the currency in which the transaction will take place.

Investors trade forwards over the counter, or OTC, instead of on centralized exchanges, which may make them less accessible to individual investors. Since the two parties custom-create the forwards, they may be more flexible than other types of financial products. However, they carry higher risk due to a lack of regulation and third party guarantee.

Recommended: What Are Over-the-Counter (OTC) Stocks?

What’s the Difference Between Forward and Futures Contracts?

Futures and forwards have many similarities in that they are both types of investments that specify a price, quantity, and date of a future transaction. However, there are some key differences for traders to know, including:

• Futures are standardized derivative contracts traded on centralized exchanges, while forwards are customized contracts created privately between two parties.

• Futures are settled through clearing houses, making them less risky and more guaranteed than forwards contracts, which are settled directly between the two parties. Parties involved in futures contracts almost never default on them.

• Futures are marked to market and settled daily, meaning that investors can buy and sell them whenever an exchange is open.

• Forwards are only settled on the expiration date. Because of this, forwards don’t usually include initial margins or maintenance margins like futures do.

• It’s more common for futures to be settled in cash, while forwards are often settled in the asset.

• The futures market is highly liquid, making it easy for investors to buy and sell whenever they want to, whereas the forwards market is far less liquid, adding additional risk.

Forward Contract Example

Let’s look at an example of a forward contract. If an agricultural company knows that in six months they will have one million bushels of wheat to sell, they may have concerns about changes in the price of wheat. If they think the price of wheat might decline in six months, they could enter into a forward contract with a financial institution that agrees to purchase the wheat for $5 per bushel in six months time in a cash settlement.

By the time of the expiration date, there are three possibilities for the wheat market:

1. The price per bushel is still $5. If the asset price hasn’t changed in six months, the contract may expire without a financial settlement.

2. The price per bushel has increased. Let’s say the price of wheat is now $5.20 per bushel. In this case, the agricultural producer must pay the financial institution $0.20 per bushel, the difference between the current market price and the price set in the contract, which was $5. The agricultural producer must pay $200,000.

3. The price per bushel has decreased. Let’s say the price is now $4.50. In this case, the financial institution must pay the agricultural producer the difference between the spot price and the contract price, which would be $500,000.

Pros and Cons of Trading Forwards

Forwards can be useful tools for traders, but they also come with risks and downsides.

Pros of Trading Forwards

There are several reasons that investors might choose to use a forward:

• Flexibility in the terms set by the contract

• Hedge against future losses

• Useful tool for speculation

• Large market

Cons of Trading Forwards

Investors who use forwards should be aware that there are risks involved with these financial products. Those include:

• Risky and unpredictable market

• Not as liquid as the futures market

• OTC trading means a higher chance of default and no third party guarantees or regulatory oversight

• Details of contracts in the market are not publicly available

• Contracts are only settled on the expiration date, making them riskier than futures contracts that are marked-to-market regularly

Who Uses Forward Contracts?

Typically, institutional investors and day traders use forwards more commonly than retail investors. That’s because the forwards market can be risky and unpredictable since traders create the contracts privately on a case-by-case basis. Often the public does not have access to the details of such agreements. Forward contracts are typically not accessible by retail investors; they are primarily used by institutional investors.

Institutional traders often use forwards to lock in exchange rates ahead of a planned international purchase. Traders might also buy and sell contracts themselves instead of waiting for the trade of the underlying asset.

Traders also use forwards to speculate on assets. For instance, if a trader thinks the price of an asset will increase in the future, they might enter into a long position in a forward contract to be able to buy the asset at the current lower price and sell it at the future higher price for a profit.

How Do Investors Use Forwards?

Traders use forwards to hedge against future losses and avoid price volatility by locking in a particular asset price or to speculate on the price of a particular asset, such as a currency, commodity, or stock. Forwards are not subject to daily price volatility. These strategies involve types of trades that aren’t typically available to individuals.

The trader buying a forward contract is taking a long position, and the trader selling is going into a short position. This is similar to options traders who buy calls and puts. The long position profits if the price of the underlying asset goes up, and the short position profits if it goes down.

Locking in a future price can be very helpful for traders, especially for assets that tend to be volatile such as currencies or commodities like oil, wheat, precious metals, or natural gas.

The Takeaway

Forward contracts are a common way for institutional investors to hedge against future volatility or reduce exposure to potential losses. However, they are generally considered high-risk investments that may not be suitable for most retail investors.

Given the specialized nature of forwards contracts (and other types of options), the risks may outweigh the potential rewards for many investors. As such, it may be a good idea to consult a financial professional before dabbling with forwards, or incorporating them into a larger investing strategy.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

🛈 SoFi does not offer future or forward contracts at this time.

Frequently Asked Questions

What is a forward contract in simple terms?

A forward contract is a private agreement between two parties to buy or sell an asset at a set price on a future date. These contracts are often used to hedge against price changes.

What is the difference between a forward and future contract?

Forwards are customizable contracts traded privately over the counter, while futures are standardized contracts traded on public exchanges. Futures typically have daily settlements and lower counterparty risk.

What are the benefits of a forward contract?

Forward contracts can help buyers and sellers lock in prices ahead of time, reducing exposure to market volatility. They also offer flexibility in terms and structure.

Do you pay to enter a forward contract?

Entering a forward contract usually doesn’t require an upfront payment. However, parties may face gains or losses at settlement depending on how the asset’s price changes over time.

Photo credit: iStock/fizkes

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

SOIN-Q425-008

Jan

2026

A blue and purple line, reminiscent of a stock chart with a dip, drifts up and to the right.

What Does “Buying The Dip” Mean?

By Rachel Kim | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Does “Buying the Dip” Mean in the Stock Market?
Why Do Stock Dips Happen?
What Is the Potential Upside of Buying the Dip?
Risks of Buying the Dip
3 Ways to Manage Risk When Buying the Dip
Is Buying the Dip a Good Strategy for Beginners?
Buy the Dip vs. Dollar-Cost Averaging
FAQ

A down stock market could create an opportunity for investors to “buy the dip,” which, in simple terms, is a strategy that involves investing in the stock market when prices are lower than they were at a previous time. The price, in other words, has “dipped.”

Buying the dip is a way to try and capitalize on bargain pricing and potentially benefit from price increases in the future. But like any other investing strategy, buying the dip involves some risk, as it’s often a matter of market timing. Knowing when to buy the dip (or when not to) matters for building a solid portfolio while managing risk.

Key Points

• Buying the dip involves purchasing stocks when prices decline below previous trading levels, anticipating future price recovery and potential profits from buying low and selling high.

• Stock price dips can result from macroeconomic downturns, geopolitical events, market volatility, or company-specific news like disappointing earnings reports or unexpected leadership changes affecting investor confidence.

• Historical examples include the 2020 COVID-19 market crash, where the S&P 500 fell 34% in March but recovered completely by August and gained 114% through January 2022.

• Timing risks include purchasing before prices reach their lowest point or mistaking a declining stock for a temporary dip, potentially resulting in smaller profits or losses.

• Risk management strategies involve researching the reasons behind price drops, evaluating company fundamentals for long-term strength, and considering passive dollar-cost averaging as an alternative to active market timing.

What Does “Buying the Dip” Mean in the Stock Market?

As noted, to buy the dip means to invest when the stock market is down, anticipating that values will go back up. A dip occurs when stock prices drop below where they’ve previously been trading, but there’s an indication or expectation that they’ll begin to rise again at some point.

This second part is crucial; if there’s no expectation that the stock’s price will bounce back down the line then there’s little incentive to buy in.

Why Do Stock Dips Happen?

Stock market dips can happen for various reasons, including a macroeconomic downturn, unexpected geopolitical events, or general stock market volatility that causes stock prices to tumble temporarily on a broad scale.

For example, in early 2022, the stock market fell from all-time highs for several reasons, including high inflation, tighter monetary policy, and the economic fallout from the Russian invasion of Ukraine. Accordingly, the S&P 500 Index fell nearly 20% from early January 2022 through mid-May, 2022, flirting with bear market territory.

Stock pricing dips can also be connected directly to a particular company rather than overall market trends. If a company announces a merger or posts a quarterly earnings report that falls below expectations, those could trigger a short-term drop in its share price.

What Is the Potential Upside of Buying the Dip?

Many investors buy the dip because it may help increase their returns. But again, it’s not without risks. Buying the dip is, effectively, a form of buying low and selling high. If, that is, everything shakes out in the investor’s favor.

When you buy into a stock below its normal price, there is a potential — but not a guarantee — to generate returns by selling it later if prices rebound.

Example of Buying the Dip

A hypothetical example of buying the dip could play out like this: Company A releases a quarterly earnings report that does not live up to expectations. As a result, its share price falls 5% on the day that report is released. But some investors have a hunch that Company A’s stock price will increase in the coming days, and buy shares at a reduced price.

Share prices do rebound, increasing 10% over the next few days. Investors who bought at the dip sell, and reap a positive return.

As for a real-world example, the market experienced a larger dip and recovery during the spring of 2020 connected to economic fears surrounding the coronavirus pandemic. The S&P 500 Index declined about 34% in a little over a month, from February 19, 2020, to Mar. 23, 2020. The index then experienced a gradual rise, recouping its losses by August 2020 and increasing 114% through January 2022 from the March 2020 low.

If an investor bought at the lower end of the stock market crash, they would have seen substantial gains in the subsequent rally.

On an individual stock level, and as another hypothetical, say you’ve been tracking a stock that’s been trading at $50 a share. Then the company’s CEO abruptly announces they’re resigning, which sends the stock price tumbling to $30 per share as overall investor confidence wavers. So, you decide to buy 100 shares at the $30 price.

Six months later, a new CEO has been installed who’s managed to slash costs while boosting profits. Now that same stock is trading at $70 per share. Because you bought the dip when prices were low, you now stand to pick up a profit of $40 per share if you sell.

The potential to earn big gains is what makes buying the dip a popular investment strategy for some people.

Risks of Buying the Dip

For any investor, it’s important to understand what kind of risk you’re taking when buying the dip. Timing the market is something even the most advanced investors may struggle with, as it’s impossible to predict which way stocks will move on any given day.

Understanding technical indicators and what they can tell you about the market may help, but it isn’t foolproof.

For these reasons, knowing when to buy the dip is an inexact science. If you buy into a stock low and then are able to sell it high later, then your play has paid off. On the other hand, you could lose money if you mistime the dip or you mistake a stock that’s in freefall for one that’s experiencing a dip.

In the former scenario, it’s possible that a stock’s price could drop even further before it starts to rebound. If you buy in before the dip hits bottom, that can shrink the amount of profits you’re able to realize when you sell.

In the latter case, you may think a stock has the potential to recover but be disappointed when it doesn’t. You’ve purchased the stock at a bargain but the profit you’re able to walk away with, if anything, may be much smaller than you anticipated.

3 Ways to Manage Risk When Buying the Dip

For investors who are interested in buying the dip, there are a few things to keep in mind that may help with managing risk.

1. Research Why the Stock or Market Dipped

First, it’s important to understand how market volatility may impact some sectors or industries over others.

For example, take consumer staples versus consumer discretionary. Staples represent the things most people spend money on to maintain a basic standard of living, like food or personal hygiene products. Consumer discretionary refers to the “wants” people spend money on, like furniture or electronics.

In the event of a recession, people spend more on staples than discretionary expenses, so consumer staples stocks tend to fare better. But that may create a buying opportunity for discretionary stocks if they’ve taken a hit. That’s because as a recession begins to give way to a new cycle of economic growth, those stocks may start to pick back up again.

2. Focus on Strong, Long-Term Investments

Next, consider the reasons behind a dip and a company’s fundamentals. If you’ve got your eye on a particular stock and you notice the price is beginning to slide, ask yourself why that may be happening.

When it’s specific to the company, rather than something general happening across the market, it’s important to analyze the stock and try to understand the underlying reasons for the dip, as well as how likely the stock’s price is to make a comeback later.

3. Use Limit Orders to Avoid Overpaying

Limit orders are a type of order that allow investors to automate a stock purchase or sale at a designated price, typically, at a specific maximum or minimum price. In effect, an investor can designate a maximum price at which they’re willing to buy a stock, and a minimum price for which they’d sell, depending on the type of limit order they’d use.

As it relates to buying the dip, investors can use limit orders for down-market conditions. If the price of a stock is dipping, investors can set a limit order to execute when it reaches a price at which they want to buy. Or, if they’re holding a stock, the minimum at which they’d want to sell.

Note, however, that limit orders don’t necessarily guarantee that an order will be executed. So, keep that in mind.

Is Buying the Dip a Good Strategy for Beginners?

Buying the dip has the potential to reap returns for investors, but it may not be a good strategy for beginners. That’s because, as noted, it’s a risky strategy. What investors are doing, when it comes down to it, is trying to time the market. And since nobody knows what’s going to happen in the future, that’s more or less impossible.

However, as investors become more experienced and recognize certain indicators or market trends, they may be able to make more informed decisions regarding a “buy the dip” strategy. That’s not to say they’ll become good or successful at it, but they’d likely better understand the risks and potential payoffs of trying it.

Buy the Dip vs. Dollar-Cost Averaging

Buying the dip is more of a hands-on, active trading strategy, since it requires an investor to actively monitor the markets and read stock charts to evaluate when to buy the dip or when to sell. If an investor prefers to take a more passive approach or has a lower tolerance for risk, they might consider dollar-cost averaging instead.

Dollar-cost averaging is generally an investing rule worth keeping in mind. With dollar-cost averaging, an individual continues making new investments on a regular basis, regardless of what’s happening with stock prices. The idea here is that by investing consistently over time, an investor can buy more shares when prices are low and fewer when prices are high, essentially smoothing out the ups and downs of the market when buying stock.

Example of Dollar-Cost Averaging

For example, you might invest $200 every month into an index mutual fund that tracks the performance of the S&P 500. As time goes by and the S&P experiences good years and bad years, you keep investing that same $200 a month into the fund.

You’ll buy shares during the dips and during the high points, as well, but you don’t necessarily have to actively track what’s happening with stock prices. This may be a preferable strategy if you lean toward a buy and hold investing approach versus active trading or you’re an investing beginner learning the basics.

The Takeaway

Buying the dip refers to purchasing shares at a price that is lower than a previous price, with the anticipation that values will recover and potentially overtake the previous peak. It can help investors increase returns, but as a strategy, has risks and no guarantees.

Knowing when to buy the dip can be tricky — timing the market usually is — but there are times when it may pay off for some. If investors maintain an eye on stock market and economic trends, it may help in determining when to buy the dip and how likely a stock or the market will rebound. However, it’s still important to consider the downside risks of timing the market and buying the dip.

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Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

How do you know when to buy the dip?

There is no way to know when it’s the right time to buy the dip. Buying the dip, as a strategy, is a form of market-timing, which is a high-risk tactic, and there’s no way to know when the market has reached a bottom, marking the ideal time to buy stocks.

What’s the difference between “buying the dip” and “catching a falling knife?”

Buying the dip refers to purchasing assets when their value has declined from a recent high. Catching a falling knife, on the other hand, refers to buying a stock that’s seen its value fall rapidly and continuously, which is an even higher-risk strategy than buying the dip.

Can you buy the dip with ETFs and mutual funds?

It is possible to buy the dip with ETFs and mutual funds, as both are exchange-traded and have specific prices that can dip, allowing for buyers to try and take advantage of price declines.

How long should you wait after a dip to buy?

Since trying to buy the dip is the same as trying to time the market, there is no designated or “right” amount of time to wait after a dip to buy. There’s also no guarantee that a price decline is a dip, and that an asset’s value will recover.

Does buying the dip actually work?

Buying the dip can work as a method for generating returns, but it has its risks. There’s also no guarantee that an asset’s value will recover to previous levels after it declines, or dips.

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q425-067

Jan

2026

A woman writes on a pad with a pen while working on a laptop computer.

What is Paper Trading Stocks and How To Get Started

By Colin Dodds | Financial Independence, Growing Wealth, invest, Investing | Comments Off

Table of Contents

How Does Paper Trading Work?
What Are the Pros of Paper Trading
What Are the Cons of Paper Trading?
How to Start Paper Trading in 3 Simple Steps
FAQ

Paper trading is simulated trading, done for practice without real money. It’s a way to test different trading strategies without the risk of losing money, before an investor starts trading with real capital.

The practice gets its name from how investors would once mark down their hypothetical stock purchases and sales and track their returns and losses, on paper. But these days, investors typically use digital platforms to virtually test out hypothetical investment portfolios, day-trading tactics, and broader investing strategies.

Key Points

• Paper trading is simulated trading done for practice without using real money, allowing investors to test strategies without financial risk.

• Paper trading helps new traders build skills and make mistakes without risking real money, in both bear and bull markets.

• To start paper trading, choose a virtual trading platform, develop a practice plan, and analyze results to refine strategies.

• Paper trading allows investors to learn about investing, track trades, and examine stock performance in a low-stress environment.

• Paper trading has limitations, including not perfectly replicating market conditions and potentially encouraging bad habits due to lack of real financial consequences.

How Does Paper Trading Work?

In its most basic form, paper trading involves selecting a stock, group of stocks, or a sector, then writing down the ticker or tickers and choosing a time to buy the stock. The paper trader then writes down the purchase price or prices.

When they sell the stock or stocks, they write down that price as well, and tally up their return. Most modern paper traders can use a simulation platform to keep track of their trades, rather than a pen and paper.

What Are the Pros of Paper Trading

Paper trading has both benefits and drawbacks. Here are some of the pros of paper trading.

Practice Trading Without Risking Real Money

Paper trading is a way to learn and build trading skills in either a bear or a bull market. For new traders, a virtual trading platform offers a way to make rookie mistakes without risking real money.

In other words, paper trading is a method to get comfortable with the process of buying and selling stocks, and making sure you don’t enter a limit order when you mean to place a market order.

Learn the Mechanics of an Investing Platform

Similarly, investors can learn the mechanics, or ins-and-outs, of particular investing platforms. That can be helpful when you want to take certain actions, perhaps within a set time frame, and know exactly what to do.

Test and Refine Your Trading Strategies

Perhaps most importantly: paper stock trading allows for experimentation. For example, an investor might hear about shorting a stock. But they may not know how the process works, and what it actually pays out. Paper trading permits investors to learn how these trades work in practical terms. Or, they might want to try out other strategies, such as swing trading.

Further, you can test your own mettle. Paper trading can serve as a way for investors to learn about their own strengths and weaknesses. Traders lose money in the markets for a number of personal reasons. Some stick to their guns too long, while others give up too soon when the market is down. Some lose money because they panic, while others lose money because they ignore clear warning signs.

What Are the Cons of Paper Trading?

There are also some drawbacks to paper trading.

It Doesn’t Simulate Real Trading Emotions

The biggest drawback of paper trading is that it’s not real. An investor can’t keep the returns they earn paper trading. And those paper returns can lead the investor to have an unrealistic sense of confidence, and a false sense of security. Paper trading also doesn’t account for real-life situations that might require an investor to withdraw money from the market for personal reasons or the impact of an unexpected recession.

As such, hypotheticals don’t necessarily spur genuine emotions. You’d likely react differently with real money on the line, in other words, than you would knowing that you’re simulating market conditions. So, paper trading may not be helpful for some investors when trying to emotionally prepare for market volatility.

It Can’t Perfectly Replicate Market Conditions

While paper trading offers important lessons, it can also mislead investors in other ways. If a paper trading strategy focuses on just a few stocks, or using one trading strategy, they can easily lose sight of how broader market conditions actually drive the performance of those stocks, including stock volatility, or their strategy, or have an inflated confidence in their ability to time the markets.

They need to realize their holdings or strategy may offer very different results in a real-world scenario.

Another danger with paper-trading is that traders may overlook the cost of slippage and commissions. These two factors are a reality of actual trading, and they erode an investor’s returns. Slippage is the difference between the price of a trade at the time the trader decides to execute it and the price they actually pay or receive for a given stock.

Especially during periods of high volatility, slippage can make a significant impact on the profitability of a trade. Any difference, up or down, counts as slippage, so slippage can be good news at times. Since brokerage commissions and other fees always come out of a trader’s bottom line, paper traders should include them in their model.

It Can Encourage Bad Habits

To a certain extent, investing with hypothetical dollars can help investors practice keeping their emotions in check while the markets are going up and down. However, once an investor’s real money is in play, it can be much more difficult to remain calm and keep perspective when stressful situations arise, such as when the market plunges over the course of a trading day.

To prepare emotionally, as well as practically, for the volatility of markets, investors can also practice risk management techniques appropriate for the strategies they’re exploringÄ. It can also be wise for novice investors to trade in smaller amounts, at first, as they learn more about the markets and become more comfortable with the interface and tools of the brokerage they’re using.

How to Start Paper Trading in 3 Simple Steps

If you’d like to try paper trading, be sure to research your investments, just like you would if you were investing for real, and use the same amount of paper money you would use in real life. This will help mimic the actual experience.

With that in mind, here are a few steps to get started.

Step 1: Choose a Paper Trading Platform or App

If you choose to paper trade with a pencil and paper, you can simply choose a stock or group of stocks, write down the ticker, and pick a time to buy the stock. You then write down the purchase price, or prices. When you sell the stock you record that price and then figure out your return.

If you decide to use an online investing platform, you’ll need to choose a platform. There are many free platforms available. You may want to look for one that has live market feeds so that you can practice trading without delays.

Once you’ve selected a virtual trading platform, you’ll set up an account. Simply log onto the platform and follow the prompts to set up an account. Once you’ve done that, there should be a “paper trading” option you can click on.You’ll need to select a balance and then you should be able to start simulating trading.

Step 2: Develop a Practice Plan or Strategy

The entire point of paper trading is to practice and test out your strategies. So, have some in mind before you start. Find an investing calculator. Think about buy-and-hold tactics, or swing trading and daytrading techniques. Give it all some thought.

You don’t even need to worry about Securities Investor Protection Corporation protection, or SIPC protection, at first, since its paper trading is all a form of practice. That protection helps protect investors up to certain amounts if they are victims of fraud or firm failure, similar to FDIC protections. SIPC does not protect against market losses, however. Try enacting your strategies over a set period of time, and see what happens. Again, this is the time and place to make mistakes, so don’t worry too much about the outcomes.

Experiment with different types of market orders, after hours trading, the whole shebang.

Step 3: Analyze Your Results and Learn

After you’ve gotten the hang of the platform and done some practicing, take a look at what your strategy has yielded, and analyze the results. Did your trend trading technique work out as you had hoped? Did you let your emotions get the best of you during a bout of volatility?

Think about the decisions you made, and how you can use what you’ve learned to sharpen your strategy when you move to trading with actual money.

The Takeaway

Paper trading can be a way to learn about investing. By keeping track of all trades, and the losses or gains they generate, it creates a low-stress practice for examining why certain stocks, and certain trades, perform the way they do. That can be invaluable later, when there’s real money on the line.

However, remember that paper trading isn’t real. In real-life trading with an investment account, you’ll have the potential for gains, but also for losses. Make sure you are comfortable taking that risk.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

How realistic is paper trading?

Paper trading is very realistic as paper traders are working in and with actual market conditions. The only difference should be that they’re not trading or investing real money.

Is paper trading good for beginners?

Yes, paper trading can be good for beginners as it gives them a chance to refine their strategy, learn about their risk tolerances or tendencies, and learn how to use a given platform without fear of making a costly mistake.

How long should I paper trade before using real money?

The duration you should paper trade before using real money is completely dependent upon you and your specific comfort level. Some investors may not want to paper trade at all and jump right into the mix with real money, while others will want to practice for a prolonged period of time — so, there’s no single answer.

Can you make real money with paper trading?

No, paper trading is done with virtual or fake money. As such, there isn’t really a way to generate an actual return.

What is the 90% rule in trading?

In trading, the 90% rule refers to the belief that 90% of traders will lose 90% of their capital within the first 90 days of trading. This is largely due to inexperience, unproven strategies, and their inability to handle risk.

Photo credit: iStock/fizkes

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

SOIN-Q425-050

Jan

2026

An investor looks at portfolio performance on a tablet.

8 Bear Market Investing Strategies

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Table of Contents

3 Common Mistakes to Avoid in a Bear Market
Bear Market Investing vs Bull Market Investing
Invest With SoFi
FAQ

While it may seem counterintuitive to invest during a bear market — a prolonged market decline, typically of 20% or more — there can, in fact, be investment opportunities during downturns, if you know where to look and what strategies to use.

By knowing which bear market investing strategies might make sense, it’s possible to mitigate losses and possibly realize some gains. Also, for investors with a long-term wealth-building goal, it’s important to remember that bear markets are often relatively short. So, rather than panic, it can help to look for potential investment opportunities that may be beneficial.

Key Points

• Defensive stocks in sectors like utilities and food, along with dividend-paying companies, tend to hold steady during market downturns and provide consistent income through regular payouts.

• Dollar-cost averaging involves investing set amounts at regular intervals regardless of market conditions, allowing investors to buy more shares when prices are low and fewer when prices are high.

• Maintaining a long-term perspective helps investors stay the course during bear markets, which are typically short-lived compared to bull markets that can last years with substantial gains.

• Portfolio diversification through ETFs, index funds, and varied asset classes helps mitigate risk by limiting overexposure to any single sector or investment type during market downturns.

• Advanced strategies like shorting stocks, purchasing put options, and using inverse ETFs can profit from declining prices but carry significant risks and complexity for inexperienced investors.

1. Focus on Defensive Stocks and Sectors

One bear market investing strategy involves buying assets that may increase in price when the overall financial markets decline. Many factors influence which investments perform well during a bear stock market.

Investors may shift their portfolios to defensive stocks, to bigger and more mature companies, and companies in sectors with constant demand, such as utilities and food. These may be good assets to hold during bear markets because these stocks tend to hold steady, even in a downturn, as people need to eat and power or heat their homes.

Defensive investments may provide consistent income through dividend payouts (more on that below) while experiencing less volatile share price action during market downturns. Buying assets like these at the beginning of a downturn can be beneficial.

2. Consider Dollar-Cost Averaging

Using a dollar-cost averaging strategy isn’t limited to bear markets, but it may be useful if the market does experience a downturn.

Dollar-cost averaging involves investing a set dollar amount at regular intervals (e.g., weekly, monthly, quarterly), regardless of whether the markets are up or down. That way, when prices are lower you buy more; when prices are higher you buy less. Otherwise, you might be tempted to buy less when prices drop, and buy more when prices are increasing, based on your emotions.

For example, if you invest $100 in Stock A at $20 per share, you get 5 shares. The following month, say, the price has dropped to $10 per share, but you stay the course and invest $100 in Stock A — and you get 10 shares. Now you own 15 shares of stock A at an average price of $13.33.

💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

3. Maintain a Long-term Perspective

During a bear market, it’s not always necessary to do anything special. Investors with a long time horizon sometimes choose to hold on and stay the course, even when a portfolio declines in value. Taking a long-term perspective may pay off well over many years, as the market as a whole tends to trend upward over time.

For example, the bear market that began in December 2007 was over by March 2009, lasting about a year and a half. But the bull market that followed lasted almost eleven years; the S&P 500 index recouped its losses from the bear market by March 2013, and from March 2009 through February 2020, the S&P 500 increased just over 400%.

4. Diversify Your Holdings

It also helps if investors have a well-diversified portfolio during any market. Diversifying typically ensures that all of an investor’s eggs are not in one basket, which can help mitigate the risk of loss, since you’re not overexposed in one sector or asset class.

One easy way to accomplish portfolio diversification might be to buy structured securities like ETFs or index funds.

5. Look Into Dividend-paying Companies

One way to invest during a bear market is to focus on stocks that provide income, i.e., dividend-paying stocks. Typically, these companies are bigger, more established, and growth oriented.

A dividend is a portion of a company’s earnings that is paid to its shareholders, as approved by the board of directors. Companies usually pay dividends quarterly, but they may also be distributed annually or monthly.

Most dividends are paid in cash, on a per-share basis. For example, if the company pays a dividend of 50 cents per share, an investor with 100 shares of stock would receive $50.

Many investors who rely on dividend-paying stocks do so as part of an income investing strategy — which also serves investors during a downturn.

6. Build a Watchlist of Quality Growth Stocks

While value stocks are generally considered undervalued relative to their actual worth, growth stocks are shares of companies that have the potential for higher earnings, often rising faster than the rest of the market. In addition, growth stocks have shown historic resilience in market downturns.

These companies tend to reinvest their earnings back into their business to continue their company’s growth spurt. Growth investors are betting that a company that’s growing fast now, will continue to grow quickly in the future.

To spot growth stocks, investors look for companies that are not only expanding rapidly but may be leaders in their industry. For example, a company may have developed a new technology that gives it a competitive edge over similar companies.

7.Study Advanced Strategies (like Shorting)

Bear markets may open up opportunities to learn new investing strategies.

One of the more sophisticated bear market trading strategies is placing bets that will rise in value when other investments lose value. This might involve, for example, purchasing put options contracts on stocks that may decline in value. A put option allows investors to benefit from falling share prices.

Shorting stocks to speculate on falling stock prices is another strategy investors can employ. When investors short a stock, they sell borrowed shares and hopefully repurchase them at a lower price. The investor profits when the price they pay to buy back the shares is lower than the price at which they sold the borrowed shares.

Alternatively, investors might consider inverse exchange-traded funds (ETF) as the overall market declines. An inverse ETF tracks a market index and, through complex trading strategies, looks to produce the opposite result of the index. For example, if the S&P 500 index declines, an inverse ETF that tracks the index will hopefully increase in value.

Note that the SEC has issued a warning about inverse ETFs, however, as they do introduce risks. Specifically, these products are designed to meet their goals within a day, and holding them longer could lead to losses.

However, using put options, inverse ETFs, and other short strategies involves many nuances that may be complicated for some investors. They are very risky trading strategies that could compound losses if the bets do not work out. Interested investors ought to conduct additional research before considering this strategy.

8. Consider Laying Low

If none of the above bear market strategies appeals to you, there is always the option of “playing dead,” as the saying goes. This derives from the advice given to those in the wilderness who might face a live bear: to not panic or do anything rash or risky.

In the same way, some investors believe the best way to handle a bear market is to stay calm, moving a portion of your portfolio into more secure and stable investments like Treasury bills, bonds, and money market funds.

3 Common Mistakes to Avoid in a Bear Market

While bear markets may be advantageous in that they open up opportunities, there are some tried-and-true mistakes that investors can make, too. Here are some examples.

Mistake 1: Panic Selling

Panic selling is exactly what it sounds like: Investors see the market decline, fear that they’re going to lose some or all of their money, and sell their holdings in an effort to salvage what value they can. It’s an emotional response, and for people who don’t have much appetite for risk, understandable.

But the market has, historically, always bounced back. By selling, you’re locking in your losses. That is, you’re guaranteeing that you’re losing money, rather than waiting things out, and letting the market recover.

Mistake 2: Trying to Perfectly Time the Bottom

You’ve likely heard the saying: Time in the market beats timing the market. That’s because it’s pretty much impossible to effectively time the market. If you’re trying to get a sense of when the market has “bottomed out” and will start to appreciate once again, you’ll probably be wrong. So, it’s likely best not to even try, and instead, stick to your plan or strategy.

Mistake 3: Abandoning Your Plan

On that last point, sometimes a down market scares investors so much that they throw their investment plan or strategy out of the window. That’s another mistake — if and when the market recovers, you’ve thrown your portfolio into flux, and lost sense of what you’re trying to do.

Again, try to remain detached and unemotional as it relates to bear markets or downturns. They happen. It’s a part of the market cycle. If it’s too much for you to bear (ha!), utilize some strategies to help lower the risk profile of your portfolio — it may help you sleep at night.

Bear Market Investing vs Bull Market Investing

For those investing for the long term, the only real difference between a bear market and a bull market will be a temporary dip in the value of their portfolio. The main goal will be to stay the course. As mentioned, long-term investors often make regular, recurring purchases of financial assets.

During bull markets, a common investment strategy is to buy and hold. This tends to work because bull markets are characterized by most asset classes rising in unison.

However, investors may have to be a little more active with their portfolios during bear markets. Some investors choose to increase the amount of money they put into their investments during market downturns. Their overall strategy remains the same, but buying more assets at lower prices lets them acquire a larger number of assets overall.

For those with a higher risk tolerance looking to make short-term gains (often referred to as speculators), a mix of strategies might be employed. Speculators may look to short the market using puts or inverse ETFs, or research assets likely to increase in value due to current bear market trends.

Invest With SoFi

When the financial markets are in turmoil and your portfolio seems to be in the red, you may be tempted to panic. You may want to sell off your assets to mitigate further losses, content to pocket the cash. However, this sort of strategy may be short-sighted for most investors as it locks in your losses.

Also, you may be setting yourself up to miss a potential rally by getting out of the markets. After all, bear markets are often relatively short-lived and are followed by bull markets.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

Should I sell all my stocks in a bear market?

You could sell your stocks during a bear market, but doing so could lock in your losses. Waiting for the market to rebound, assuming it does, could lead to a positive return over time.

Is it actually a good time to buy stocks during a bear market?

It may be a good time to buy stocks during a downturn as they’re effectively “on sale,” this is sometimes called “buying the dip.” Since the market has, historically, always rebounded, it may be a fruitful long-term strategy.

How can I protect my 401(k) during a bear market?

There may not be a way to protect your 401(k) or investments during a bear market, but if you’re feeling panicked, you can utilize some strategies to lower risk and volatility within your holdings, such as reallocating assets and further diversifying.

What are the safest investments during a market downturn?

There’s no such thing as a safe investment, but some investments that tend to have lower risk profiles include bonds, Treasurys, and even certain commodities like precious metals.

How much cash should I have on hand in a bear market?

There’s no single answer to how much cash you should have on hand during a bear market, so the best response may be “as much as required to make you comfortable.”

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

SOIN-Q425-066

Jan

2026

A graphic image of a series of tiny toy houses, some of them white and some turquoise

Student Loan Debt and Mortgage: How Much Can You Qualify For?

By Janet Siroto | Fresh Out of School, Home Ownership, invest, Student Loans, student_loan | No Comments

Table of Contents

Getting a Mortgage When You Have Student Loans
How Student Loan Debt Affects Your DTI Ratio
Improving Your Chances of Qualifying for a Mortgage
How Student Loan Refinancing May Help
Tools to Estimate Home Affordability With Student Loans
FAQ

If you’re like many Americans, you may have student loans, and you may also hope to own your home at some point. You might worry that carrying student debt and getting a mortgage are mutually exclusive, but that’s not necessarily the case.

Understanding your debt-to-income ratio and other aspects of your financial profile can be vital. It can give you a sense of how much room there is in your budget for a home loan and highlight how to improve your odds of being approved for a mortgage.

In this guide, you’ll learn about mortgage and student loan debt, including how mortgage lenders evaluate your finances, the way student loans impact your profile, and strategies that may boost your chances of getting a home loan application approved when you have student debt.

Key Points

• Student loans affect mortgage eligibility by increasing your debt-to-income (DTI) ratio, a key factor lenders evaluate.

• A DTI under 36% is ideal, and student loan payments count toward your monthly debt load.

• A strong credit score, paying down debt, and increasing your income can improve your chances of getting approved.

• Refinancing student loans can potentially lower monthly payments and reduce your DTI, helping you qualify for a mortgage.

• Student loans don’t prevent homeownership, but managing debt wisely is key to affording a home.

Getting a Mortgage When You Have Student Loans

Currently, Americans hold more than $1.8 trillion in student loan debt. The average federal student loan debt per borrower is more than $39,075, while the average total balance, including private student loan debt, may be as high as $42,673, according to the Education Data Initiative.

Here’s what you should know about student loan debt and mortgage qualification: When a lender is considering you for a home loan, they want to feel confident that you will pay them back on time. A key factor is whether they think you can afford the mortgage payment with everything else on your plate. To assess this, a lender will examine your debt-to-income ratio (also known as DTI), or how high your total monthly debt payments are relative to your gross monthly income.

For the debt component, the institution will look at all your liabilities. These can include:

• Car loans

• Credit card payments

• Student loans

Many industry professionals say that your debt-to-income ratio should ideally be below 36%, with 43% the maximum. If you have a high student loan payment or a relatively low income, that can affect your DTI and your chances of qualifying for a mortgage.

Can You Get a Mortgage With Student Loan Debt?

Student loan debt and getting a mortgage is possible. However, while carrying student loans doesn’t disqualify you from getting a mortgage, it can make it more difficult. That’s because student loan debt will increase your DTI ratio, which can make it harder to qualify for funds from lenders.

For example, say you hypothetically earn an annual salary of $60,000, making your gross monthly income $5,000. And you owe $650 per month on a car loan and have a credit card balance with a $500 monthly minimum payment.

And let’s say you have student loans with a minimum payment of $650 a month. All your debt payments add up to $1,800 a month. So your debt-to-income ratio is $1,800/$5,000 = 0.36, or 36%. That’s right at the limit that some conventional lenders allow. So you can see how having a student loan payment can affect your ability to qualify for a mortgage.

Another way that student loans can affect your chances of buying a home is if you have a history of missed payments. If you don’t make your minimum student loan payments each month, that gets recorded in your credit history.

When you consistently stop paying your student loans, your loans can become delinquent or go into default. Skipping payments is a red flag to your potential mortgage lender: Since you haven’t met your obligations on other loans in the past, they may fear you’re at risk of failing to pay a new one as well.

That said, if you have an acceptable DTI ratio and a history of on-time payments on your student loans, you likely have a good shot at being approved for a mortgage. It’s not a matter of having to make a choice between paying off student loans or buying a house — you can do both as long as you meet the parameters.

Estimate How Much House You Can Afford

Taking into account the debt-to-income ratio you just learned about, you can use a home affordability calculator to get a general idea of how much you can afford. This tool is one you can use to help estimate the cost of purchasing a home and the monthly payment.

How Student Loan Debt Affects Your DTI Ratio

As noted, student loan debt can increase your DTI ratio. How much it will increase your DTI number will depend on how big your loan debt is.

In addition, other debts you owe are also factored into the DTI equation. Consider these two scenarios:

• Person A earns $120,000 and has $80,000 in student loan debt, plus a car payment, plus $15,00 in credit card debt.

• Person B earns $80,000, and has $10,000 in student loan debt, no car payment, and $3,000 in credit card debt.

It’s likely that Person B will have an easier time qualifying for a home loan than Person A since Person A will have a higher DTI ratio.

Understanding Front-End vs Back-End DTI

When you’re purchasing a home, lenders generally calculate two types of DTI — front-end DTI and back-end DTI.

Front-end DTI looks specifically at how much of your income will go toward your future estimated housing-related costs if you are approved for a mortgage, including mortgage payments, homeowner’s insurance, and property taxes.

Back-end DTI factors in all your debt, including student loan debt, credit card debt, and car loan debt, in addition to housing debt.

How Lenders Use DTI to Assess Risk

Lenders use your DTI to evaluate your ability to take on and manage new debt. They do this by comparing your total monthly debt payments to your gross monthly income. The lower your DTI ratio, the better, as it indicates that you’re in a stronger financial position to take on more debt. As mentioned, many lenders prefer a DTI of 36% or below. A higher DTI signals that you have a high proportion of debt relative to your income, which could make you a riskier borrowing proposition.

Strategies to Improve Your DTI Ratio

There are a number of ways to improve your DTI ratio that will also help strengthen your financial situation overall.

• Reduce your debt. Whether it’s student loans, credit card balances, or a car loan, tackling some of your debt could help lower your DTI. Debt-reduction methods include: prioritizing paying off high-interest loans, which tend to weigh more heavily in your DTI calculation, and making extra loan payments to help reduce what you owe and repay debt faster.

• Increase your income. Earning more money will improve your DTI ratio and it can help you pay off debt, too. Consider asking for a raise, looking for a new higher-paying job, or taking on a side hustle.

• Consider debt consolidation. A debt consolidation loan for high-interest debt such as credit card debt could give you a fixed lower interest rate, which could make it easier and potentially faster to repay what you owe.

Improving Your Chances of Qualifying for a Mortgage

Your student loan debt is just one part of the picture when you go shopping for a home loan. Lenders look at many other aspects of your financial situation to assess your trustworthiness as a borrower. By focusing on improving these factors, you may be able to increase your chances of getting a mortgage.

Paying Down Credit Card and Consumer Debt

Paying down high-interest credit card debt, as well as other consumer debt such as student loans and car loans, can help lower your DTI and improve your chances of getting a mortgage.

To do this, you could pay more than the minimum due on your credit cards and/or loans, direct extra payments on your credit card or loan debt, or put more money toward the principal balance on your student loans or auto loan. By paying down the balance on your debts, you can potentially pay off debt faster and reduce the amount of interest you’ll pay overall.

Building Your Credit Score Through Timely Payments

Your credit score is an important measure lenders use to evaluate how risky it would be to lend to you. Your credit score is determined by many factors, including whether you’ve missed payments on bills in the past, which accounts for the biggest percentage (35%) of your score.

If your credit score is below 650 or 700, you may want to work on building it. Starting by consistently making your payments on time may help. If keeping up with payments has been challenging for you in the past, you can set up automatic payments to your credit card so you don’t miss or forget a due date.

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

Questions? Call (888)-541-0398.

How Student Loan Refinancing May Help

If you have student loans and you’re trying to buy a home, another way to potentially improve your debt-to-income ratio is to consider student loan refinancing to help pay off your student debt.

With student loan refinancing, you replace your existing student loans — whether federal, private, or a mix of the two — with a new loan from a private lender that comes with fresh terms.

Refinancing can help borrowers obtain a lower interest rate than they previously had, which may translate to meaningful savings over the life of the loan. You may also be able to lower your monthly payments through refinancing, which can reduce your debt-to-income ratio. A student loan refinancing calculator can help you determine how much refinancing might save you.

Refinancing isn’t for everyone, since you can lose benefits associated with federal student loans, such as access to deferment, forbearance, loan forgiveness, and income-based repayment plans. But for many borrowers, especially those with a solid credit and employment history, it may be an effective way to reduce debt more quickly and improve their chances of getting a mortgage.

Recommended: Preapproval vs Prequalification

Tools to Estimate Home Affordability With Student Loans

Before you apply for a mortgage with student loan debt, you can take some steps to see how much of a mortgage you can afford — including the mortgage principal and interest — without being overburdened. These tools and resources can help.

Using a Mortgage Calculator with Debt Inputs

Online tools such as a mortgage calculator can be a good place to start. Look for a calculator with debt inputs that factor in your existing monthly debt, such as your student loans, car loan, and credit card payments. Once you input your debts along with your income, the calculator can give you an estimate of a home price you can afford.

Working with a Mortgage Advisor

A mortgage advisor could help you assess your overall financial situation, including your debts, income, and credit. The advisor will also likely talk to you about your goals for buying a house. They can then typically help you determine the best type of home loan for your needs, such as fixed rate or variable rate, and give you options from their network of lenders.

The advisor also usually helps would-be buyers prepare and submit their loan application when the time comes.

The Takeaway

Student loans and a mortgage aren’t mutually exclusive. Paying for your education doesn’t have to cost you your dream of owning a home.

If you’ve been making student loan payments on time and your overall debt is manageable relative to your income, your loans might not be an issue at all. If your student loans do become a factor, you can take steps to get them under control, potentially improving your chances of qualifying for a mortgage. Options might include making extra payments on your loans or refinancing them.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can I refinance student loans to improve my mortgage eligibility?

Refinancing student loans might improve your mortgage eligibility. If you obtain a lower interest rate, you could potentially pay down your student loans more quickly, which could lower your debt-to-income (DTI) ratio. However, refinancing federal loans means you are no longer eligible for loan forgiveness and other federal programs.

Can a cosigner help if I have student loans and want to buy a house?

A cosigner with a strong financial profile and credit history could help improve your chances of being approved for a mortgage by lowering your debt-to-income ratio and making you less risky as a borrower from the lender’s perspective.

Will a history of on-time student loan payments positively impact my mortgage application?

A history of on-time loan payments is an asset. It can help build your credit score, which is one of the factors lenders use to assess whether to approve your mortgage application.

How much of a mortgage can I qualify for if I have student loan debt?

How much of a mortgage you can qualify for if you have student loan debt depends on your debt-to-income (DTI) ratio, which is the amount of debt you have compared to your gross monthly income. Most lenders prefer a DTI under 36%, with a maximum of 43%. You can use a mortgage calculator that factors in your existing debts, such as student loans, along with your income to get an estimate on how much of a mortgage you may be able to afford.

Should I delay home buying until after my student loans are paid off?

While it depends on your specific situation, you don’t have to delay buying a home until after you pay off your student loans. If you have an acceptable debt-to-income ratio, a steady job, and a history of on-time payments on your student loans, you may be able to qualify for a mortgage.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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SOSLR-Q126-008

What Is a Forward Contract?

How Do Forward Contracts Work?

What’s the Difference Between Forward and Futures Contracts?

Forward Contract Example

Pros and Cons of Trading Forwards

Pros of Trading Forwards

Cons of Trading Forwards

Who Uses Forward Contracts?

How Do Investors Use Forwards?

The Takeaway

Frequently Asked Questions

What is a forward contract in simple terms?

What is the difference between a forward and future contract?

What are the benefits of a forward contract?

Do you pay to enter a forward contract?

What Does “Buying The Dip” Mean?

What Does “Buying the Dip” Mean in the Stock Market?

Why Do Stock Dips Happen?

What Is the Potential Upside of Buying the Dip?

Example of Buying the Dip

Risks of Buying the Dip

3 Ways to Manage Risk When Buying the Dip

1. Research Why the Stock or Market Dipped

2. Focus on Strong, Long-Term Investments

3. Use Limit Orders to Avoid Overpaying

Is Buying the Dip a Good Strategy for Beginners?

Buy the Dip vs. Dollar-Cost Averaging

Example of Dollar-Cost Averaging

The Takeaway

FAQ

How do you know when to buy the dip?

What’s the difference between “buying the dip” and “catching a falling knife?”

Can you buy the dip with ETFs and mutual funds?

How long should you wait after a dip to buy?

Does buying the dip actually work?

What is Paper Trading Stocks and How To Get Started

How Does Paper Trading Work?

What Are the Pros of Paper Trading

Practice Trading Without Risking Real Money

Learn the Mechanics of an Investing Platform

Test and Refine Your Trading Strategies

What Are the Cons of Paper Trading?

It Doesn’t Simulate Real Trading Emotions

It Can’t Perfectly Replicate Market Conditions

It Can Encourage Bad Habits

How to Start Paper Trading in 3 Simple Steps

Step 1: Choose a Paper Trading Platform or App

Step 2: Develop a Practice Plan or Strategy

Step 3: Analyze Your Results and Learn

The Takeaway

FAQ

How realistic is paper trading?

Is paper trading good for beginners?

How long should I paper trade before using real money?

Can you make real money with paper trading?

What is the 90% rule in trading?

8 Bear Market Investing Strategies

1. Focus on Defensive Stocks and Sectors

2. Consider Dollar-Cost Averaging

3. Maintain a Long-term Perspective

4. Diversify Your Holdings

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

5. Look Into Dividend-paying Companies

6. Build a Watchlist of Quality Growth Stocks

7.Study Advanced Strategies (like Shorting)

8. Consider Laying Low

3 Common Mistakes to Avoid in a Bear Market

Mistake 1: Panic Selling

Mistake 2: Trying to Perfectly Time the Bottom

Mistake 3: Abandoning Your Plan

Bear Market Investing vs Bull Market Investing

Invest With SoFi

FAQ

Should I sell all my stocks in a bear market?

Is it actually a good time to buy stocks during a bear market?

How can I protect my 401(k) during a bear market?

What are the safest investments during a market downturn?

How much cash should I have on hand in a bear market?

Student Loan Debt and Mortgage: How Much Can You Qualify For?

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

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