Jun
21
2023

Pros & Cons of Using Retirement Funds to Pay for College

By | Going to College, Preparing for Retirement, Student Loans, student_loan | Comments Off on Pros & Cons of Using Retirement Funds to Pay for College

In a perfect world, all parents would have a 529 plan—or another education savings account—full of funds to cover their children’s college years. But there are many reasons why that may not be the case for you. If so, you’re likely looking into other options to pay for college.

One possibility you may be considering is dipping into your retirement funds. Depending on the type of retirement account you have, you might be able to take an early withdrawal or a loan from your retirement account, which you could use to fund your child’s education.

But using your retirement funds to pay for college isn’t always the best move. Before you decide to do it, you may want to consider both the benefits and the drawbacks, as well as some potentially less costly alternatives.

Before we jump in, it’s important that you’re aware that this article is a basic, high-level overview of some potential options when it comes to using retirement funds to pay for college. Further, because these topics (taxes and investments) are complicated, none of what’s written here should be taken as tax advice or investment guidance. Always talk to qualified tax and investment professionals with questions about your retirement accounts, and never rely on blog posts (like this one) to make important financial decisions.

A Few Pros of Using Retirement Funds to Pay for College

If you already have the money saved up, there can be some upsides to taking money out of your retirement funds so that your child won’t need to take out student loans.

You May Be Able to Avoid an Early Withdrawal Penalty

If you have an individual retirement account (IRA), taking an early withdrawal typically results in income taxes on the withdrawal amount plus a 10% penalty. However, if you withdraw funds for qualified higher education expenses, the 10% penalty is waived .

That said, the withdrawn funds will still be considered taxable as income. Also, this tax break does not apply to 401(k) accounts. But if you roll over your 401(k) into an IRA, then you would be able to withdraw the funds from the IRA and avoid the penalty.

You May Be Able to Avoid Taxes Altogether

If you have a Roth IRA, you can withdraw up to the amount you’ve contributed to the account over the years without any tax consequences at all.

You’re Paying Interest to Yourself With a 401(k) Loan

In addition to allowing you to take early withdrawals, some 401(k) plans also let you borrow from the amount you’ve already saved and earned over the years.

If you borrow from a 401(k) account, that money won’t be subject to taxes the way an early withdrawal would. Also, when you’re paying that loan back, the money you pay in interest goes back into your 401(k) account rather than to a lender.

A Few Drawbacks of Using Retirement Funds to Pay for College

Before you raid your retirement to pay for your child’s college tuition, here are some potentially negative aspects to consider.

There May Be Negative Tax Consequences

Even if you manage to avoid being charged a 10% early withdrawal penalty on your retirement account, some or all of the money you withdraw from a retirement account may be considered taxable income. Depending on how much it is, you could face a larger-than-usual tax bill when you file your tax return for the year.

401(k) Loan Repayment Can Be Affected by Your Job Status

If you take out a large loan from your 401(k), then leave your job, you may be required to pay the loan in full right then, regardless of your original repayment term. If you can’t repay it, it’ll likely be considered an early withdrawal and be subject to income tax and the 10% penalty.

You May Have to Work Longer

Taking money out of a retirement account lowers your balance. But it also means that the money you’ve withdrawn is no longer working for you.

Due to compounding interest, the longer you have money invested, the more time it has to grow. But even if you replace the money you’ve taken out over time, the total growth may not be as much as if you’d left the money where it was all along.

Alternatives to Using Retirement Funds to Pay for College

Can you use retirement funds to pay for college? If you have the funds, it’s generally an option. But before you go ahead, consider these alternatives.

Scholarships and Grants

One of the best ways to pay for a college education is with scholarships and grants, since you typically don’t have to pay them back.

Check first with the school that your child is planning to attend (or is already attending) to see what types of scholarships and grants are available.

Then make sure your child fills out the Free Application for Federal Student Aid (FAFSA®). The information provided in the FAFSA will help determine his or her federal aid package, which typically includes grants, federal student loans, and/or work-study.

Finally, you and your child can search millions of scholarships from private organizations on websites like Scholarships.com and Fast Web . While your child may not qualify for all of them, there may be enough relevant options to help reduce that tuition bill.

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Federal Student Loans

As mentioned above, filling out the FAFSA will give your child an opportunity to qualify for federal student loans from the U.S. Department of Education.

These loans have low fixed interest rates, plus access to some special benefits, including loan forgiveness programs and income-driven repayment plans.

With most federal student loans, there’s no credit check requirement, so you don’t have to worry about needing to cosign a loan with your child.

Parent PLUS Loans

If you’re concerned about the effect of student loan debt on your child, you can opt to apply for a federal Parent PLUS loan to help cover the costs of college.

Keep in mind that the terms aren’t usually as favorable for Parent PLUS loans as they are for federal loans for undergraduate students. The interest rates are currently higher, and you may be denied if you have certain negative items on your credit history.

Private Student Loans

If your child can’t get federal student loans, is maxed out on loans, or has pursued all other options to no avail, private student loans may be worth considering to make up the difference.

To qualify for private student loans, however, you and/or your child may need to undergo a credit check. If your child is new to credit, you may need to cosign to help them get approved by being a cosigner—or you can apply on your own.

Private student loans don’t typically offer income-driven repayment plans or loan forgiveness programs, but if your credit and finances are strong, it may be possible to get a competitive interest rate.

Balance Your Child’s Needs and Your Own

Using retirement funds to pay for college is one way to help your child. But you probably don’t want to risk your future financial security. Take the time to help your child consider all of the options to get the money to pay for school.

If you do decide a private student loan is the right fit, SoFi is happy to help. In the spirit of complete transparency, we want you to know that we believe you should exhaust all of your federal grant and loan options before you consider SoFi as your private loan lender. That said, we do offer flexible payment options and terms, and don’t worry, there are no hidden fees.

If you’re considering a private student loan, you can find your SoFi rate today.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Jun
20
2023

Choosing Between Variable And Fixed Rate Student Loans

By | Fresh Out of School, Student Loans, student_loan | No Comments

Every year, 30-40% of undergraduate students take out student loans to help fund their college education. While all federal student loans have fixed interest rates, private student loans can have fixed or variable interest rates.

Fixed interest rates do not change throughout the loan term. Your monthly payment will remain the same unless you choose to refinance through a private lender and get a new loan with a new rate.

Variable rates, on the other hand, fluctuate with the market. Your rate could go up or down throughout the loan term, making monthly payments less predictable than with fixed interest rates.

What factors are worth considering before deciding between a fixed or variable student loan rate? Here’s the scoop on ways these two student loan options differ.

Fixed Rate Student Loans

Fixed rate student loans have a locked-in interest rate for the entire loan term. This means that the interest rate on the loan when it is originally borrowed will be the same rate you have at the end of the term.

The only way a borrower would be able to change this interest rate is through refinancing the loan with a private lender or, for federal student loans, consolidating them through the government.

When you refinance your federal and/or private student loans, your interest rate is based on the market and your personal financial situation, such as your credit profile and your debt-to-income ratio.

Recommended: How to Build Credit

With a federal student loan consolidation, your interest rate is the average of the loans you are consolidating, rounded up to the nearest one-eighth of a percent. This rate is always fixed.

Fixed rate student loans are usually considered the safer option as there is no chance the interest rate will rise. All federal student loans (since July 1, 2006) have fixed interest rates that are set by Congress each year, so no matter which federal loan you qualify for, your interest rate will not change over the life of the loan.

Each type of federal loan will have its own fixed interest rate. For example, Direct PLUS Loans have a different fixed interest rate than Direct Unsubsidized Loans.

Undergraduate Direct Subsidized Loans and Unsubsidized Loans disbursed between July 1, 2022 and July 1, 2023 have a fixed interest rate of 4.99%.

Pros of Fixed Rate Student Loans

•   They’re not affected by market rate changes.

•   The monthly payments stay the same throughout the life of the loan.

Cons of Fixed Rate Student Loans

•   Fixed rate loans may have a higher starting interest rate than variable rate loans. This could mean missing out on initial savings if variable rates are lower than the fixed interest rate.

•   Market rates could decrease, meaning you could miss out on potential savings down the line.

Variable Rate (or Floating Rate) Student Loans

As mentioned above, all federal student loans have fixed interest rates. Borrowers will only have the option to choose a variable rate student loan when borrowing from a private lender.

While variable rate student loans typically have a lower starting interest rate, they are also riskier than fixed interest loans. This is because the interest rate on a variable rate student loan can change (increase or decrease) throughout the life of the loan based on how the market performs at any given time.

While it can be a good thing if the interest rate goes lower than your original rate, there is also a possibility that the interest rate can increase.

Recommended: What to Do When Student Loan Variable Rates Rise

Before choosing a variable rate student loan, it can be a good idea to ask your lender how often your interest rate can change on their end. Each lender has their own way of adjusting rates (some do it every month, where others will do it every few months).

You can also ask if there is a cap on the rate — some lenders will implement a cap such that a variable rate can’t exceed a certain percentage.

Pros of Variable Rate Loans

•   Generally have a lower initial interest rate than fixed rate loans.

•   They can be a good option for borrowers who qualify for a low interest rate and are on track to pay off their student loans quickly.

•   Borrowers could potentially save money if the interest rate drops.

Cons of Variable Rate Loans

•   Your loan’s rate can go up or down on a monthly, quarterly, or annual basis.

•   The monthly payment may not remain stable, and may increase or decrease as the interest rate changes.

•   For those paying their loan off on a fairly long timeline, the interest rate has more time to go up, which could cost the borrower more in interest over the life of the loan.

Choosing a Student Loan That Works for You

The final decision depends on your unique situation, of course. If you plan to pay off your loan relatively quickly, a variable rate student loan may help you spend less in interest.

However, be aware that the longer it takes you to pay off the loan, the more opportunity there is for interest rates to rise. You can help mitigate your risk by choosing a lender that caps its variable rates, but they will still fluctuate.

For borrowers who anticipate repaying student loans over a longer time period or those whose future income level is uncertain, a fixed rate student loan may make more sense.

Recommended: Student Loans Payoff Calculator

Securing a New Interest Rate with Student Loan Refinancing

Whether you originally borrowed a fixed or variable student loan, the main thing to remember is that the rate assigned when the loan was initially borrowed doesn’t have to be the rate for the entire life of the loan. Knowing your refinancing options can help put your mind at ease — and hopefully help you spend less in interest over the life of the loan.

While refinancing student loans can potentially help borrowers secure a lower interest rate, it’s not always the right option. Refinancing a federal student loan eliminates them from federal forgiveness benefits and borrower protections like income-driven repayment plans or deferment. If you plan to use these benefits now or in the future, it is not recommended to refinance your student loans.

The Takeaway

When thinking of the difference between a fixed and variable rate student loan, it helps that the names are descriptive. A fixed interest rate remains the same throughout the entire life of the loan, whereas a variable rate fluctuates with market changes over time.

All federal student loans have fixed interest rates that are set annually by Congress. Private student loans may be either fixed or variable.

Student loans can get complicated, but SoFi is here to help. From helping you finance your education to helping you manage your existing student loan debt, we’ve got you covered.

If you are looking to change your interest rate from fixed to variable or variable to fixed, or you’re simply hoping to refinance to a lower rate to save money on interest, SoFi offers student loan refinancing with an easy online application, competitive fixed and variable student loan rates, and flexible loan terms.

See if you prequalify for a student loan refinance with SoFi.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Jun
20
2023
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What Is a Good Entry Level Salary?

By | Building Your Career, Life & Career, student_loan | Comments Off on What Is a Good Entry Level Salary?

Starting salaries can vary greatly based on location or line of work, so there’s no one answer to the question, “What is a good entry level salary?” The size of the paycheck will differ based on where someone lives, the industry they work in, the hiring institution or company, and other hard-to-tabulate variables.

So, how might a job seeker figure out a good entry level salary before sitting down with the new boss or an HR representative to discuss pay? Here are some helpful resources to get a handle on entry level rates across the U.S., including tips for negotiating compensation.

Understanding Entry Level Salaries

Entry level salary information changes on a regular basis, but many job-focused websites offer insights into the going rates. For instance, ZipRecruiter, a well-known American employment marketplace, lists the average U.S. entry level salary by state. In summer 2023, wages in North Carolina are $13.44 per hour or $27,956 per year, whereas New York pays $16.79 per hour or $34,933 per year, on average.

Still, even state-by-state averages don’t show the whole picture. Although more than half of U.S. states have minimum wage requirements higher than the federal minimum wage, which remains set at $7.25 per hour, the amount an early-career new hire might expect can also vary by county and city within the same state.

Recommended: The Highest Paying Job in Every State

Along with location, the industry one works in can play a big role in what kind of starting salary a new hire might expect. For instance, a data scientist at a tech company might be able to earn as much as $95,000 right out of the gate, while a newly minted journalist might expect something closer to $40,000.

One way to grasp what sort of salary that might be expected is targeted research on the specific industry, location, and even position and company. And if you’re in the early stages of college, you might want to align your eventual courses of studies with a high-paying entry level job.

Researching a Good Entry Level Salary

Recent grads wanting to understand if they’re being offered current market rates for a particular job (or location) can turn to the internet to research details. Some sites that might offer resources for those job seekers include:

•   Payscale, for example, allows employees to create custom “pay reports” based on their job title, years of experience, and city.

•   Salary.com offers a similar feature, allowing job seekers to search for positions by keyword and compare them accordingly.

•   Glassdoor is another well-known web resource that publishes employee-generated information on salary by specific company and position. It also hosts reviews by current and former employees, which may help a job applicant learn more about what it’s actually like to work there.

After researching average pay by role, location, and company, job seekers might also want to mull over how to negotiate an acceptable offer.

Recommended: Average Pay in the U.S. Per Year

Negotiating a Higher Offer

So, what can a job seeker do if their dream job doesn’t (initially) come with a dreamy paycheck? Luckily, there are ways to negotiate a higher offer both initially and once you’ve proven yourself down the line.

Negotiating a salary can be scary, especially for a recent grad who’s not used to the salary tango. Nevertheless, negotiating an offer up front can have a significant effect on one’s paycheck (and, by extension, one’s long-term earnings).

When thinking of how to negotiate your starting salary, don’t forget about the benefits package, as well. In addition to higher pay, you may want to negotiate other benefits such as tuition reimbursement, a flexible schedule, or childcare expenses into your total compensation package.

Preparing to Negotiate

How might a new hire negotiate a higher-paid entry level salary? Well, having a well-researched entry level salary forecast in mind is one place to start.

Of course, it’s not likely that an early-career new hire can simply negotiate up to an experienced data scientist’s $95,000 salary if that’s not the norm for the role or location they’ve applied for. But, it’s still possible to make the case to hiring managers for why a higher rate is merited. When preparing to negotiate, remember to:

Highlight Your Skills

When asking for a higher starting salary, it could be helpful to give concrete examples of how your current skills might benefit the company. In these conversations, it may be possible to push an offer up a few percentage points (especially when the skills required are in high demand).

Practice Your Pitch

Rehearsing what you’ll say ahead of time can help you hone a confident delivery style. What’s more, it can help you be prepared for questions that come your way regarding why you deserve a higher pay.

Negotiate Other Benefits

On top of baseline salary, it’s also possible in some roles and industries to negotiate for other valuable forms of compensation — such as fitness stipends, work-from-home time, funding for continued education, and more.

Of course, negotiating a good entry level salary is not necessarily an easy undertaking. Interviewers may put candidates on the spot, asking if they’re considering other offers or if the position is their top choice.

In an already uncomfortable situation, some candidates may stumble or misspeak if they don’t know how to justify what they’re asking for.

One simple place to start is asking whether it’s possible to negotiate the offer in the first place. Candidates may also inquire about future career growth and promotion potential, which could lead to a bigger salary later down the road.

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Navigating Post-College Life, Financially and Beyond

Navigating life after college can be exciting and challenging. Trying to make ends meet on an entry level salary might be particularly tough, especially when on the hook to pay back student loans. More than 43 million borrowers have federal student loan debt, with the average balance being $37,388 per person.

A flexible and adaptable approach to finances and where one lives could make the transition to post-college life more manageable.

Recommended: 46 Tips for College Graduates

For instance, recent graduates who are in a position to choose a new place to live might opt to move to a city with a lower cost of living.

Learning how to make a budget can also go a long way toward covering common expenses — even when one’s starting salary leaves a few zeroes to be desired. That said, there’s only so much instant ramen to eat or cups of coffee to skip out on.

Refinance Student Loan Debt

For those feeling weighed down by student loans while earning an entry level salary, additional options exist. Those with outstanding federal student loans, for example, may qualify for income-driven repayment plans, loan forgiveness for public service, or student loan deferment.

Refinancing educational debt with a private lender is another option that could save money each month — or help the borrower pay off student loans faster.

Student loan refinancing may allow recent grads to make lower monthly payments toward their existing debt, freeing up some extra cash. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.) Or, it could help a borrower to save money on interest paid on the loan as a whole, allowing them to pay off the debt total faster.

It’s important to note that refinancing with a private lender causes borrowers to forfeit certain guaranteed federal benefits, like income-driven repayment (IDR) and loan forgiveness.

SoFi refinances both federal and private student loans, offering no application fees and no prepayment penalties. Those who refinance their student loans through SoFi get access to a wide range of exclusive member benefits, including career coaching, financial advice, and more — at no additional cost.

Checking your student loan refinance rate won’t have an affect on your credit score and could be the first step toward saving thousands of dollars — or making more affordable monthly student loan payments.

See if you prequalify with SoFi in just two minutes.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Jun
20
2023

How Does a Realtor Get Paid When You Buy a House?

By | Family Finances, Home Ownership, mortgage | Comments Off on How Does a Realtor Get Paid When You Buy a House?

Real estate agents — both on the seller’s side and the buyer’s side — typically get paid at closing from the seller’s proceeds. The majority of real estate agents are paid via a commission vs. a set fee, which means the higher the sales price, the more money the agent gets paid.

Commissions are split evenly between the buyer’s and seller’s agents. The brokerage each real estate agent or Realtor® works for snags a portion of the commission as well. (Realtors are real estate agents who belong to the National Association of Realtors, requiring them to adhere to a certain code of ethics; we’ll use the terms interchangeably here.) Here’s an example of how a Realtor gets paid.

Real Estate Commission: An Example

Let’s say a home sells for $500,000 with a typical commission of 6%:

Total commission fee: $500,000 X 6% = $30,000

The commission is split evenly between the two sides:

•   Listing agent side = $15,000

•   Buyer’s agent side = $15,000

Real estate agents share their commissions with the brokers representing them. (A broker is an agent who also has an additional license to supervise other agents.) Let’s assume that the broker fee is 1% of the sales price (the broker’s split can go up to 50%, but we’ll use an easy 1% split here).

•   $500,000 sale price X 1% broker’s fee = $5,000

Subtract the broker fee from the total commission and the agent ends up with the rest.

•   $15,000 total commission – $5,000 broker’s fee = $10,000 agent commission

Typically, four people get paid from the seller-paid real estate commission. It may look something like this:

•   Listing agent = $10,000 (2% of sales price)

•   Listing agent broker = $5,000 (1% of sales price)

•   Buyer agent = $10,000 (2% of sales price)

•   Buyer agent broker = $5,000 (1% of sales price)

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A Real Estate Agent’s Responsibilities

To earn their commission, real estate agents often have a lot of responsibilities. Their duties include:

•   Providing market data and helping to set a listing price

•   Placing ads and putting up yard signs

•   Photographing the property

•   Listing the property in the MLS, a listings database

•   Scheduling showings

•   Placing lock boxes

•   Guiding first-time home buyers

•   Smoothing over difficult relationships

•   Navigating offers and counter offers

•   Negotiating home contracts

Making a living through commissions can be challenging for real estate agents, but it can also be very rewarding.

Recommended: How to Find a Real Estate Agent

Who Pays the Realtor Commission?

It is expected that the seller pays the real estate agent commission fee for both the buyer’s and seller’s agents. At settlement (also called the “closing”), the money for the commission comes out of the seller’s proceeds. If the sales price of a home is $500,000 and the sellers owe $250,000 on their mortgage, then the commission and other fees would be subtracted from the $250,000 that remains after the sellers pay off their mortgage.

How Much Are Realtor Fees?

It is common to see real estate agent commission fees between 5% and 6%. This includes both the seller’s and the buyer’s real estate agents’ fees. The money is usually split evenly between the two sides. If the commission is 6%, for example, 3% would go to each side.

Can You Negotiate Who Pays the Real Estate Agent?

The Realtor fee is negotiable, though it is extremely rare for a buyer to pay it. Some ideas to help reduce your fee if you are selling your home:

•   Barter. Do you have a photographer friend who can take photos of your home? Offer up skills in exchange for a lower commission.

•   Hire a newer agent. A newer agent may accept a lower commission to gain experience.

•   Pay attention to market conditions. If homes aren’t moving in your market, you may be able to negotiate a lower commission.

Take time to interview potential Realtors using these suggested questions. When you’re buying a home, look for an agent with a strong network. (These agents may be the first to hear about so-called “whisper listings.”) Be sure the commission outlined in the listing agreement you sign matches what you agreed on.

How Is an Agent’s Commission Determined?

An agent’s commission is determined by the compensation agreement they have with their brokerage. As noted above, after the commission is split between the buyer’s and the seller’s agents, it’s then split again between the agent and the broker.

When Do Agents Receive Their Commission?

Agents usually receive their commission after the home mortgage loan has been funded and the sale closes. Their brokerage receives a wire with the funds and the agent’s portion of the commission is released to them shortly thereafter.

How Do the Agents Share Their Commission?

It is customary for agents to share the commission 50/50. If the listing has a 6% commission on it, 3% would go to the buyer’s agent and 3% would go to the seller’s agent.

What Is Dual Agency?

Dual agency is when a real estate agent represents both the seller and the buyer in a transaction. It must be disclosed to both parties because real estate agents are bound by a fiduciary duty to serve their clients. An agent who represents both seller and buyer will earn more commission.

Is Paying a Real Estate Commission Worth It for the Seller?

For many sellers, it’s painful to look at the closing documents and see how much of the sales price goes to different agents, title insurance companies, concessions, and so forth. But a lot of sellers like having someone to guide them through the complexities of real estate law, and sensitive issues that the sale of a home creates.

Recommended: How to Buy a House Without a Realtor

Alternatives to a Percentage-based Commission

There are real estate brokerages that advertise services for a flat fee. Usually, the flat fee is very low and may only include a listing on the MLS with photos. They usually don’t offer to schedule showings or manage the listing in any other way.

The Takeaway

Working with a real estate agent who earns a commission isn’t painful when you’re a buyer because the fee is almost always covered by the seller, and you will have an agent on your side to help you negotiate.

Another way to be money-smart when you’re buying is to get a good rate on a home loan. SoFi Mortgages offer competitive interest rates, low down payment options, and a guaranteed on-time close* (which you and your Realtor will love).

See your home loan rate in minutes.

FAQ

Do sellers pay realtor fees?

Yes, sellers pay realtor fees for both the buyer and the seller.

Do buyers pay Realtor fees in Texas?

No, the seller pays the realtor fees in Texas, with very few exceptions.

Do buyers pay Realtor fees in Washington state?

No, the seller usually pays realtor fees in Washington state, but it is negotiable.

How much does a new Realtor make in Illinois?

According to ZipRecruiter.com, the average pay for a first-year real estate agent in Illinois is $82,481. The range for first-year salaries is between $18,866 and $153,998.

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*‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.

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Jun
20
2023

What Assets Should Be Noted on a Mortgage Application?

By | Family Finances, Home Ownership, mortgage | Comments Off on What Assets Should Be Noted on a Mortgage Application?

When lenders ask borrowers to list their assets during the mortgage application process, they’re looking primarily for cash and “cash equivalents” (assets that can be quickly converted to cash). But that doesn’t mean you can’t or shouldn’t include other types of assets on your application.

The assets you choose to include could help determine the type of mortgage you can get and the interest rate you’re offered. So it’s important to be prepared with a well-thought-out list of assets for your lender.

What Is Considered a Financial Asset?

When you apply for a loan, you can expect your lender to ask about your income, the debts you owe, and the assets you own. What’s an asset? In the broadest sense, a financial asset is anything you own that has monetary value and can be turned into cash. But all assets are not created equal when it comes to borrowing money.

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

Types of Financial Assets

Some assets can take longer to liquidate than others, and the value of some assets may change over time. So it can be helpful to break down your assets into different categories, including:

Cash and Cash Equivalents

This category includes cash you have on hand (in a home safe, for example); the accounts you use to hold your cash (checking, savings, and money market accounts); and assets that can be quickly converted to cash (CDs, money market funds).

Physical Assets

A physical or tangible asset is something you own that can be touched and that would have some value if you had to sell it to qualify for your loan or to make your loan payments. (If you need to use this type of asset to qualify for a mortgage, the lender may ask you to sell it before you close.) Some examples of physical assets include homes, cars, boats, jewelry, or artwork.

Nonphysical Assets

Nonphysical or nontangible assets aren’t as liquid as physical assets, and you can’t actually put your hands on them — but they still have value. This category includes workplace pensions and retirement plans (401(k)s, 403(b)s, etc.), and IRAs. You may be able to withdraw money from your account in certain circumstances, or borrowing from your 401(k) might be an option, but it can take time as well as careful planning to avoid tax and other consequences.

Liquid Assets

This category includes nonphysical assets that you can easily convert to cash if necessary. For example, a stock or bond that isn’t part of your retirement account would be considered a liquid asset.

Fixed Assets

Fixed assets are items you own that could be sold for cash, but it may take a while to find a buyer — and the value may have changed (up or down) since you made the initial purchase. You would list a valuable piece of furniture, an antique, or a real estate property as a fixed asset using the item’s current value — not its original purchase price.

Equity Assets

This category includes any ownership interest you may have in a company, such as a stock, mutual fund, or holdings in a retirement account.

Fixed Income Assets

Investment money lent in exchange for interest, such as a government bond, may be categorized as a fixed-income asset. (Yes, there can be some confusing overlap in how assets may be designated. Don’t let that hang you up: The goal is simply to keep your mind open to anything you own that might be helpful when listed as an asset on your application.)

Financial Assets to List on Your Mortgage Application

You may have heard or read that lenders tend to prioritize a borrower’s liquid net worth (the total amount of cash and cash equivalents you own minus any outstanding debt) over total net worth (everything you own minus everything you owe).

That’s partly because lenders want to be clear on where the money for your down payment and closing costs is coming from. When you apply for a home mortgage loan, a lender will want to determine if you’re a good financial risk, able to comfortably manage monthly mortgage payments — even if you suddenly have a bunch of medical bills to pay or experience a job layoff. So it can help your application if you have a healthy savings account, certificates of deposit (CDs), or other assets you can quickly liquidate in a pinch.

That doesn’t mean, though, that your lender won’t also note other assets you own when gauging your financial stability. Listing physical assets that can be quickly converted to cash may show your lender that you have options if you need more money for your down payment or to keep in cash reserves. And the assets you have in other categories could help bolster your application if you’re a candidate for a certain type of mortgage loan or a better interest rate.

Does Reporting More Assets Help With Mortgage Approval?

As you go through the mortgage preapproval process, you can ask your lender to help you determine which assets will help make your application stronger. You also could meet with your accountant in advance to go over what you have. If in doubt, you may want to list everything of value on your application — especially if you’re concerned about qualifying for the loan amount you want. Just be sure everything is accurate, because the lender will verify the information you provide. Bear in mind the lender will also be looking at whether you have the credit score needed to buy a house. Your debt-to-income ratio will also be important.

How Mortgage Lenders Verify Assets

Your lender will want to be sure all the information on your application is correct, so you should be prepared to provide asset statements to support everything you’ve listed. Documents you may be asked for include:

Bank Statements

Lenders generally will ask to see two or three of the most recent monthly statements from your checking, savings, and other bank accounts. You can send copies of paper statements (if you still do paper) or you can download copies online. If you have cash deposits on your statements, you should be ready to answer questions about the source (or sources) of that money. Your lender will want to be sure you have enough money on your own to make your down payment and monthly payments.

Keep in mind that when you turn over your bank statements, your lender will look for clues to the stability of your financial health. If you have a history of overdrafts or other problems, your application could be denied, even if your current balances are sufficient to qualify for a mortgage.

Gift Letters

Some lenders and loan programs allow borrowers to accept a large monetary gift from a family member to help with their down payment. But you’ll likely have to ask your benefactor to sign a document stating you won’t have to repay the money, and the lender also may ask to see a copy of that person’s bank statements to verify he or she was the source of the money.

Retirement and Investment Account Statements

If you need more money to make your down payment or help cover closing costs, and you plan to withdraw or borrow money from a retirement or brokerage account, you should be ready to provide two to three months’ worth of statements from those accounts.

Appraisal and Insurance Paperwork

If you’re listing a physical or fixed asset, you may have to produce an appraisal report or insurance document that states the item’s current value and that it belongs to you.

The Takeaway

Making a list of your assets, and gathering up documents to verify ownership and value, may seem like a tedious exercise. But being prepared to provide a complete accounting of your assets — along with the other documentation you’ll need — could help you find and get the mortgage you want.

Need help? SoFi’s Mortgage Loan Officers can provide one-on-one assistance as you work your way through the mortgage application process, so you can know what’s expected at each step. And SoFi’s online application makes it easy to get started.

Check out the flexible terms and competitive rates on a SoFi Home Loan today.

Photo credit: iStock/FG Trade

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

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.

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