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Once you begin looking for financing options, you may find your search leads you to multiple forms, including personal loans. One choice available to prospective borrowers is a short-term loan.

A short-term loan is a personal loan that can help with personal financial needs. But this type of loan may not fit every situation since it typically only provides limited funds. Read on to find out whether a short-term loan may help you meet your financial goals.

What Is a Short-Term Loan?

When you take out a short-term loan, you borrow funds to address immediate financial needs for a limited period. These loans serve a variety of functions, depending on your situation. For example, individuals may take out a short-term loan to keep them afloat until their next paycheck.

Or, someone running their own business who needs to cover small expenses may take out a short-term business loan.

Recommended: What Is a Personal Loan?

How Do Short-Term Loans Work?

Essentially, short-term loans operate on a short time scale. The approval process and repayment schedule occur quickly, usually within a year.

Average personal loan interest rates range from 5.99% to 36% APR, depending on the applicant’s creditworthiness. Short-term loans tend to be near the higher end of this scale, in addition to fees and penalties that may be charged by a lender.

However, lenders such as banks or credit unions offer varying personal loan terms and rates. So, it’s important to research and shop around before you apply for one.

What Can You Use a Short-Term Loan for?

Short-term loans can be used for many purposes when you need quick access to money and your cash flow is low. You can use the funds from a short-term loan to cover unexpected costs such as medical bills or for everyday expenses until you reach your next paycheck.

Businesses might use short-term loans in the form of merchant cash advances so they can replenish inventory or purchase new equipment even when short on cash. In this scenario, the business receives a lump sum of cash from a lender and repays it with a percentage of credit or debit card sales until the advance is paid in full.

Recommended: What Are Personal Loans Used For? And How to Apply

Example of a Short-Term Loan

A bank overdraft can be considered a short-term loan the bank provides when your account balance isn’t sufficient to pay for a purchase you’ve made. In this scenario, your account lacks funds to make a payment, but the bank lends you that money. In return, you pay a fee.

How Long Is a Short-Term Loan?

Every loan varies based on the lender and applicant. Often, short-term loans mature within a year or less. However, it is possible to find one that extends up to two years. Any loan term longer than that qualifies as either a medium-term or long-term personal loan.

Characteristics of Short-Term Loans

Short-term loans have unique features, such as:

•   Smaller borrowing amounts compared to other loans.

•   Typically offered as unsecured loans.

•   High annual percentage rates (APRs).

•   Short repayment periods.

•   Sometimes weekly payments are required.

Benefits of a Short-Term Loan

Short-term loans come with certain disadvantages, mostly due to their high interest rates. But they can be helpful if you find yourself in a tight spot. Some benefits include:

High Approval Rates

Since short-term loans only provide limited funds, the lending requirements may be easier to meet. Because of that, more applicants have a chance of approval. Even though you may not need a stellar credit score, you may still have some trouble if you have a low credit score. Your lender may ask for proof of a steady income, among other criteria.

Online Application

Short-term loans are also easy to access. Lenders often offer online applications, so there’s no need to visit a brick-and-mortar office. Applications are typically easy to fill out, taking only minutes to complete.

Quick Access to Funds

The short-term loan processing time is typically fast. As a result, you will probably receive approval and loan proceeds faster than you would for a long-term loan. So they might be a good option if you have an unexpected expense you need to pay as soon as possible.

Lower Accrued Interest

While short-term loans can come with high interest, they generally have a short time frame. Because of that, there are fewer total interest payments. As long as you pay on time, you could save money on built-up interest with a short-term loan.

Credit Score

As mentioned above, you don’t typically have to have an excellent credit score to get approved for a short-term loan. Applicants with average credit scores may also be able to usually qualify for a short-term personal loan.

Unsecured Personal Loan

When it comes to the difference between a secured vs. unsecured loan, a secured loan means more risk on the borrower’s part. That’s because a secured loan requires collateral, such as your car or your home. But most lenders don’t require collateral for a short-term personal loan because it doesn’t carry enough risk.

Recommended: Using Collateral on a Personal Loan

Disadvantages of a Short-Term Personal Loan

While short-term loans are easier to qualify for, they may not be the right choice for everyone. Here are some drawbacks to be aware of:

Lower Limit

For borrowers who need a significant amount of money, a short-term personal loan may not be the right choice. The borrowing limits for these types of loans tend to be small, sometimes just a few hundred dollars, to make it easier to pay off in a short amount of time.

May Lead To Cycle of Debt

Because of the high-interest rate and steep fees attached to short-term loans, they really aren’t long-term solutions. They might be an option in an emergency but can lead to a cycle of debt if relied on too often.

Types of Short-Term Loans

There are a few variations on the short-term loan available to you. The type of personal loan you apply for will generally depend on the amount of cash you want and how quickly you need it. Here are some worth considering:

Payday Loans

A payday loan is a short-term loan that some people use to tide themselves over financially until their next paycheck. The funds are meant to be repaid at the time of the borrower’s next payday — thus, the name. However, payday loan issues arise if the borrower can’t repay the loan in the short time frame required.

Installment Loans

Installment loans give borrowers a way to access a lump sum of money that’s repaid in monthly installments over a set time frame. A fixed-rate loan with steady monthly payments makes budgeting during the repayment period more convenient.

Lines of Credit

A line of credit is similar to a credit card. You receive a credit limit and can tap into the line of credit as needed. Funds can be taken out in installments of the amount needed at the time they’re needed. But you can’t surpass your limit, which the lender bases on your creditworthiness.

Recommended: Personal Loan vs Personal Line of Credit

Merchant Cash Advance

Merchant cash advances are used by businesses that make mainly debit or credit card sales. As a means to secure cash, the business will borrow a lump sum, which is advanced against the business’s daily sales. The lender is then repaid through a certain percentage of the business’s daily sales.

Invoice Financing

Similar to merchant cash advances, invoice financing is a type of short-term loan that can help business owners meet financial needs. The business submits unpaid invoices, i.e., accounts receivable, to a lender as collateral. The lender charges a fee for the financing and can collect on the invoices if the borrower defaults.

Short-Term Loan vs Long-Term Loan

It’s always important to explore your options. Short-term loans probably aren’t the right option if you need a large amount of funds in a lump sum or will need to periodically draw small amounts from a set amount of credit. In these situations, a long-term loan might be a better solution.

Long-term personal loans can sometimes have high-interest rates depending on the applicant’s credit score and other factors used by the lender. They may not require collateral, which makes them seem risky to lenders.

Here’s a breakdown of how these two loans stack up against each other:

	Short-Term Loans	Long-Term Loans
Loan Amount	Typically, a few hundred to a few thousand dollars, but can be up to $100,000	Depending on the lender, amounts can be a few thousand dollars to $200,000 or more
Loan Term	A couple of weeks to 18 months	Up to 25 years
Interest	High interest rates	Competitive interest rates
Eligibility	May qualify with bad credit	Stringent qualifications such as good credit

Typical Requirements to Get a Short-Term Loan

Requirements to be approved for a short-term loan vary by lender, but all lenders will evaluate your creditworthiness in some way. Generally, a higher credit score will likely secure you better terms and interest rates. You also need to be able to show your lender a range of personal and financial information such as proof of identity, verification of employer and income, and proof of current address.

Can I Get a Short-Term Loan With Bad Credit?

While short-term loans don’t typically require excellent credit, the higher an applicant’s credit score, the better their chances of approval. A lender may also offer more favorable interest rates and terms to a borrower with a higher score. Since short-term loans are often for relatively small amounts of money, requirements tend to be laxer.

Personal Loan Options From SoFi

SoFi offers personal loan options to fit a variety of financial situations and needs. With competitive interest rates and a range of terms, there may be a SoFi Personal Loan that works for you. SoFi does not charge fees on personal loans, so you only repay the loan principal and interest.

The Takeaway

Short-term personal loans vary based on your financial situation and the lender you use. Some lending institutions use high-interest rates and hidden fees that can add to the overall cost of a short-term personal loan. That doesn’t make a personal loan bad, but it’s important to be aware of what you’re agreeing to when you borrow money.

SoFi may have a personal loan that will work for your unique financial situation and needs. Checking your rate takes 60 seconds and won’t affect your credit score.^*

Research your personal loan options today

Photo credit: iStock/kitzcorner

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

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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Hiring a knowledgeable mortgage lender is one of the first steps you’ll take on your journey to homeownership. A good lender could help you make a sound decision about a major commitment.

If you want to know what questions to ask a mortgage lender, these can help you feel more confident choosing a lender to navigate the complex home buying process with you.

1. How Much Can You Borrow?

How much you can borrow is the question most buyers have on their minds when they start dreaming about real estate listings online. You may have come across a mortgage calculator tool that estimates how much a mortgage is going to cost.

But that’s just a starting point. A mortgage lender will evaluate the entire spectrum of a homebuyer’s financial situation and find the true amount they’ll be able to borrow. The lender may also make recommendations for programs or loans for each buyer’s unique situation.

So what is a mortgage note? It’s a legal contract between the lender and you that provides all the details about the loan, including the amount you were approved to borrow.

2. How Much of a Down Payment Do You Need?

Another key question your lender can help answer for you is how much are down payments? You’ve probably heard about the ideal 20% down, but a lender may be able to help homebuyers get into a home with a much lower down payment, such as 3% or 5%.

The 20% mark will enable you to forgo mortgage insurance on a conventional loan (one not insured by the federal government), but lower down payment amounts can help homebuyers obtain housing sooner. There are plenty of options to explore with your lender.

3. What Is the Interest Rate and APR?

Your mortgage lender may explain the difference between the interest rate and annual percentage rate.

•   Interest rate. The interest rate is the cost to borrow money each year. It does not include any fees or mortgage insurance premiums.

•   APR. The APR is a more comprehensive reflection of what you’ll pay for the mortgage, which will include the interest rate, points paid, mortgage lender fees, and other fees needed to acquire the mortgage. It’s usually higher than the interest rate.

The interest rate and APR must be disclosed to you in a loan estimate with the other terms and conditions the lender is offering. Pay particular attention to how the APR changes from loan to loan. When you’re looking at APR vs. interest rates for an FHA loan and a conventional mortgage, for instance, you’ll notice the numbers come out very different. (This is just a recent example.)

30-year term	Interest rate	APR
FHA	2.660%	3.530%
Conventional	3.140%	3.300%

In this case, the interest rate on a 30-year FHA loan is lower than on a conventional loan; however, when accounting an upfront mortgage premium for the FHA loan and other fees, the APR is higher on the FHA loan than on the conventional loan.

4. What Are the Differences Between Fixed and Adjustable Rate Mortgages?

The main difference between a fixed and adjustable rate mortgage (ARM) is whether or not the monthly payment will change over the life of the loan.

•   Fixed rate mortgages start with a little higher monthly payment than an ARM, but the rate is secure for the term.

•   An adjustable-rate mortgage will start with a lower interest rate that may increase as the index of interest rates increases. This type of loan may be more appropriate for buyers who know they will not be keeping the mortgage for long.

Fixed Rate Mortgages	ARMs
Interest rate is locked in for the term	Interest rate is variable
Monthly payment stays the same	Monthly payment is variable
Typically a longer-term mortgage, such as 15 or 30 years	Typically a shorter-term mortgage, such as five or seven years
Interest rate is determined when the rate is locked before closing the mortgage	When the index of interest rates goes up, the payment goes up

The key to an ARM is to know how it adjusts. How frequently will your rate adjust? How much could your interest and monthly payments increase with each adjustment? Is there a cap on how high your interest rate could go? A good mortgage lender will help you consider all these variables when selecting a fixed rate or adjustable rate mortgage.

5. How Many Points Does the Rate Include?

First, you may wonder, “What are points on a mortgage?” Mortgage points are fees paid to a lender for a lower interest rate. Asking your lender how many points are included in the rate can help you compare loan products accurately.

6. When Can the Interest Rate Be Locked In?

Rate lock policies differ from lender to lender. Check at the top of Page 1 of your loan estimate to see if your rate is locked, and for how long.

You’ll want to ensure that any rate lock agreement gives you enough time to close on your loan. Many lenders have fees for extending a rate lock.

7. How Much Are Estimated Closing Costs?

One of the most important documents you’ll receive from your lender is called a loan estimate. The loan estimate gives a detailed breakdown of the interest rate, monthly payment, fees, and closing costs on the loan you’re applying for. When you ask about closing costs, your lender can provide this document to you.

Common closing costs include:

•   Appraisal fee

•   Loan origination fee

•   Title insurance

•   Prepaid expenses such as homeowners insurance, property taxes, and interest until your first payment is due

Expect to see 2% to 5% of the purchase price in closing costs.

8. Are There Any Other Fees?

Lenders are required to disclose all costs in the loan estimate. They’re also required to use the same standard form so you can compare costs and fees among different lenders accurately. Be sure to ask lenders about other fees and watch for them on your loan estimate.

9. When Will the Closing Happen?

The time to close on a house will depend on your individual circumstances, but the national average is 46 days.

An experienced lender with a digitized process may be able to close a loan more quickly. The time it takes a lender to approve and process the loan are also factors to consider.

10. What Could Delay the Closing?

In the November 2021 National Association of Realtors^® Confidence Index survey, 24% of real estate transactions had a delayed settlement. The main reasons for the delays included:

•   Appraisal issues (21%)

•   Issues related to obtaining financing (20%)

•   Home inspection or environmental issues (11%)

•   Titling or deed issues (9%)

•   Contingencies stated in the contract (7%)

The largest culprits — appraisal and financing issues — accounted for more than 40% of the delayed closings. An experienced lender may know how to bring a home to the closing table despite the challenges with financing and appraisals. Be sure to ask upfront how these challenges would be addressed.

11. What Will Fees and Payments Be?

The neat part about obtaining a mortgage since 2015 is that the information is included in a standard form, the loan estimate. The form is used by all lenders and allows borrowers the opportunity to compare costs among lenders quickly and accurately. All fees and payments are required to be clearly outlined in this form.

💡 Recommended: Guide to Mortgage Statements

12. How Good Does Your Credit Need to Be?

You’ll typically need a FICO^® credit score of at least 620 to get a conventional mortgage, but lenders consider a credit score just one slice of the qualification pie.

With a lower credit score, a lender may steer you in the direction of an FHA loan, which requires a score of 580 or higher to qualify for a 3.5% down payment. Credit scores lower than 580 require a 10% down payment for an FHA loan.

Borrowers with credit scores above 740 may qualify for the best rates and terms a lender can offer.

13. Do You Need an Escrow Account?

Your lender can set up an escrow account to pay for expenses related to the property you’re purchasing. These may include homeowners insurance and taxes. An escrow account can take monthly deposits from the borrower, hold them, and then disburse them to the proper entities when yearly payments are due. In some locations and with certain lenders, escrow accounts are required.

14. Do You Offer Preapproval or Prequalification?

Lenders have different processes for qualifying mortgage applicants. Preapproval is a much more in-depth analysis of a buyer’s finances than prequalification.

A preapproval letter provided by the lender specifies how much the lender is willing to extend you, and helps to show sellers you’re a qualified buyer. Getting preapproved early in the home buying process can also help you spot and remedy any potential problems in your credit report.

💡 Recommended: Preapproved vs. Prequalified: What’s the Difference? 

15. Is There a Prepayment Penalty?

A prepayment penalty is a fee for paying off all or part of your mortgage early. Avoiding prepayment penalties is easy if you choose a mortgage that doesn’t have any. Ask lenders if your desired loan carries a prepayment penalty. It will also be noted in the loan estimate.

16. When Is the First Payment Due?

A lender will be able to help you get your first payment in, which is typically on the first day of the month after a 30-day period after you close. For example, if you closed on Aug. 15, the first mortgage payment would be due on the 1st of the next month following a 30-day period (Oct. 1).

Each mortgage statement sent every billing cycle includes current information about the loan, including the payment breakdown, payment amount due, and principal balance.

17. Do You Need Mortgage Insurance?

Your mortgage lender will guide you through the process of acquiring private mortgage insurance, commonly called PMI, if you need it. Mortgage insurance is required for most conventional mortgages made with a down payment of less than 20% as well as FHA and USDA loans.

It’s not insurance for the buyer; instead, it protects the lender from risk. A good mortgage lender can also help advise borrowers on dropping PMI as soon as possible.

💡 Recommended: What is PMI & How to Avoid It?

18. How Much Is the Lender Making Off of You?

Lenders are required to be clear and accurate when it comes to the costs of the loan. These should be fully disclosed on your loan estimate and closing documents. If you want to know how much the lender is charging for its services, you’ll find it under “origination fee.”

The Takeaway

If you’re shopping for a home loan or thinking about it, you might have mortgage questions — about down payments, APR, points, PMI, and more. Don’t worry about asking a lender too many, because many buyers need a guide throughout the home buying journey.

If you’re ready to look for a mortgage, view home loans from SoFi. Rates are competitive, and mortgage loan officers are there to answer questions.

If you need more information about mortgages and the home buying process, you can get home loan help from the SoFi Home Loan Help Center.

Find your mortgage rate in just minutes.

Photo credit: iStock/Ridofranz

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

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

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

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

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Looking to get into a home but can’t qualify for a traditional mortgage? You may want to look at owner financing.

Owner-financed homes aren’t very common, but they have some benefits for unique buyer and seller situations. Owner financing bypasses a traditional mortgage when the seller takes on the role of lender, but seller financing comes with some risks.

Let’s take a deep dive into how owner financing works and when it could make sense.

What Is Owner Financing?

Owner financing, also known as seller financing, is a transaction in which the property owner takes on the role of lender by financing the sale to the buyer. Like the trading of homes, this type of transaction bypasses traditional mortgages (unless the purchase of the home is only partially owner-financed.)

The payments for buyers are typically amortized over 30 years for a smaller monthly payment, but there’s often a large balloon payment at the end of a shorter period of time (usually one to seven years). Owner-financed transactions operate on the belief that the buyer’s finances may improve over time or the property will appreciate to a point where the buyer can get a home loan from a traditional lender.

How Does Owner Financing Work?

Owner-financed homes work much like traditionally financed homes, but with the seller acting as the lender. The seller may require a credit check, loan application, a down payment, an appraisal of the home, and the right to foreclose should the buyer default. Buyers and sellers will need to agree on an interest rate and length of loan.

The buyer and seller sign a promissory note, which contains the loan terms. They also record a mortgage (or deed of trust), and the buyer pays the seller. The buyer should also pay for homeowner’s insurance, taxes, title insurance, and other loan costs. It is typical to hire real estate professionals or lawyers to get more into the details of how to use a home contract in owner financing.

Pros and Cons of Owner Financing

For Sellers

Owner financing isn’t nearly as beneficial for sellers as it is for buyers, but there are still some upsides to consider along with the increased debt load and assumed risk.

Pros for Sellers	Cons for Sellers
Attract a larger buyer pool	Carry more debt
Saves money on selling costs	Assume more risk; buyers could default
May be able to sidestep inspections, especially if the home needs work or may not pass an inspection for FHA or VA loans	Not able to cash out for years
Can earn higher returns by acting as a lender	May need to act like a landlord; buyer may not keep up the property and the home may lose value
Faster closing occurs when buyers don’t have to go through the mortgage underwriting process	If the seller still has a fairly large mortgage on the property, the lender must agree to the transaction (many are not willing)

For Buyers

There are advantages to buying a house for sale by owner, namely that a buyer can obtain housing sooner under owner financing. A buyer may also be able to lower the down payment needed and pay lower closing costs. But it’s also riskier than borrowing from a traditional mortgage lender. If, for example, buyers are unable to finance the balloon payment, they risk losing all the money they’ve spent during the loan term.

Pros for Homebuyers	Cons for Homebuyers
Opportunity to gain equity	Sellers may ask for a hefty down payment to protect themselves against loss
Opportunity to improve finances	May pay a higher interest rate than the market rate
Can obtain housing and financing when traditional lenders would issue a denial	May pay too much for the home
No mandated credit check from a lender	Fewer consumer protections available when a homebuyer purchases from a seller
No mortgage insurance	Short loan terms
No minimum down payment	Sellers may not follow consumer protection laws
Lower closing costs	Buyers may not be protected by contingencies

To reduce risk exposure in an owner-financed transaction, buyers may want to hire an attorney.

Example of Owner Financing

Bob and Vila want to purchase a large, forever home for their family. The purchase price of the home is $965,000, but Bob and Vila can only qualify for $815,000. Part of Bob’s income is from recent self-employment, which is not accounted for by the lender but will help the couple be able to afford the house.

For the remaining $150,000, the seller offers owner financing as a junior mortgage. The buyers will pay both a traditional mortgage lender as well as the seller in this type of owner financing.

💡 Recommended: How Much Home Can I Afford?

Types of Owner Financing

Land contracts, mortgages, and lease-purchase agreements are a few ways to look at owner financing. Here’s how they work and how they’re different from a traditional mortgage.

Land Contracts

Because the title cannot pass to the buyer in owner financing, a land contract creates a shared title for the buyer and seller until the buyer makes the final payment to the seller. The seller maintains the legal title, but the buyer gains an interest in the property.

Mortgages

These are the different ways to structure a mortgage with owner financing.

•   All-inclusive mortgage. The seller carries the promissory note and the balance for the home purchase.

•   Junior mortgage. When a buyer is unable to finance the entire purchase with a lender on one mortgage, the seller carries a junior mortgage (or second mortgage) for the buyer. The seller is put in second position if the buyer defaults, so there is risk to the seller by doing a second mortgage.

•   Assumable mortgage. Some FHA, VA, and conventional adjustable-rate mortgages are assumable, meaning the buyer is able to take the seller’s place on the mortgage.

A mortgage calculator can help you get an idea of what purchase price you may be able to afford.

Lease-Purchase

In a lease-purchase arrangement, both parties agree on a purchase price. The potential buyer leases from the owner for an amount of time, usually one to three years, until a set date, when the renter has the option to purchase the property. In addition to paying rent, the tenant pays an additional fee, known as the rent premium.

It’s typical to see options that credit a percentage of the purchase price (often between 1% and 5%), rents, and rent premiums toward the purchase price. If the option to buy is not used, the buyer will lose the option fee and rent premiums.

They are also known as rent-to-own, lease-to-own, or lease with an option to purchase. They can be used when an aspiring buyer has a lower credit score and needs some time to qualify for traditional financing.

Steps to Structuring a Seller Financing Deal

If you’re thinking about finding a property with owner financing, consider taking these steps to help get you through the process.

1.    Hire a professional. Because owner financing bypasses traditional lending institutions, there’s a lot more risk involved. Hiring a real estate professional and an attorney can help you structure the deal to protect your interests.

2.    Find a property where the owner offers financing. An owner must be willing and able to offer seller financing to make this type of transaction happen. It’s difficult, which is why owner financing is more common between parties that know each other very well. It’s usually required that the property is owned free and clear of any mortgage. A few other ways to look for seller-financed properties:

◦   Asking your current landlord if they’re open to selling their property to you.

◦   Looking for real estate listings with phrases like “seller financing available.”

◦   Contacting the real estate agent for a home you’re interested in. If the home has been on the market a while and the conditions are right, the sellers may be open to this option.

◦   Finding a personal connection who is able to offer owner financing.

3.    Agree to terms. Because seller financing terms are so flexible, there are a lot of details that buyers and sellers need to work out, including:

◦   Sales price

◦   Amount of down payment

◦   Length of the loan

◦   Balloon payment amount

◦   Interest rate

◦   Structure of the contract (land contract, mortgage, or lease-purchase, as described above)

◦   Any late fees, prepayment penalties, and other costs the buyer is responsible for

4.    Complete due diligence. Buyers and sellers would be wise to do their due diligence as if it were a regular purchase. Sellers may want to examine a buyer’s credit, complete a background check, and confirm that buyers have obtained homeowner’s insurance and title insurance to move forward with the transaction. On the buyer’s end, a home inspection and appraisal may be warranted.

5.    Sign and file paperwork. Much like a real estate transaction, the contracts involved in owner financing arrangements can be pretty involved. Depending on how your financing is structured, you may have a promissory note, owner financing contract and addendums, and title paperwork. You’ll also want to be sure your promissory note and deed of trust are filed with the county recorder’s office. An attorney, if you hired one, should be able to complete this process for you.

Alternatives to Owner Financing

Traditional mortgage financing may work better for your individual situation.

•   FHA loans. FHA loans have a low down payment requirement and low closing costs and maybe approved for homebuyers with lower credit scores. They are underwritten by the Federal Housing Administration. Even if you’ve had a bankruptcy, you may be able to get an FHA loan.

•   USDA loans. USDA loans are backed by the Department of Agriculture. Income must meet certain guidelines (as determined by geographic region), and the home purchased must be in an eligible rural area.

•   VA loans. Loans guaranteed by the Department of Veteran Affairs are geared toward military members, veterans, and eligible spouses. The favorable terms include a low or no down payment, lower closing costs, low interest rate, and the ability to use the VA for a home loan multiple times.

•   Conventional loans. A conventional loan simply means the financing is not insured by the federal government as it is with FHA, VA, or USDA loans. Fannie Mae and Freddie Mac provide the backing for conforming loans: those that have maximum loan amounts that are set by the government.

It’s a good idea to not take interest rates at face value but to compare APRs instead. The annual percentage rate represents the interest rate and loan fees, so even if, for instance, an FHA loan looks better than a conventional mortgage, based on just the rates, an APR comparison may tell a different story.

💡 Recommended: 18 Mortgage Questions for Your Lender

The Takeaway

With owner financing, the seller is the lender. Both buyers and sellers face upsides and downsides when the transaction involves owner-financed homes.

No matter who you buy your home from, SoFi’s help center for mortgages can be a great resource for navigating the mortgage and home buying process.

It might pay off to view SoFi home loans to help you get into the house that’s right for you.

Finding your rate is quick and easy.

Photo credit: iStock/KTStock

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

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

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

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A popular method that analysts use to evaluate stocks is fundamental analysis. Learn what it is and how it’s used for stock purchases.

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If an investor is unhappy with their current brokerage firm’s service or tools, they shouldn’t let the hassle of the transfer process keep them from switching to brokerages. Putting off a transfer may keep investors from future portfolio growth because they don’t enjoy using the platform or are paying high fees.

Transferring brokerage accounts is not the huge hassle people might think it is. While it’s not as fast as certain cash payment services, the process only requires a few forms and patience to get it done. Keep reading to learn more about moving your investments from one account to another.

When to Consider Switching Brokers

There are several reasons why an investor might consider switching brokers, including the following:

•   High fees: If you pay high investment fees and commissions to your current broker, you may find a more cost-effective option by switching to a different broker. Many online brokerage firms now offer very low or no commissions.

•   Lack of customer service: If your current broker is not meeting your needs in terms of the types of investment products they offer, the level of customer service they provide, or the quality of their trading platform, you may want to consider switching to a different broker that better meets your needs.

•   Changes in your investment strategy: If you plan to make significant changes to your investment strategy, such as switching to a new asset class or adopting a new approach to trading, you may want to consider switching to a broker better equipped to support your new strategy. For example, your current broker may not offer options trading, but you’d like to start using options to speculate, generate income, or hedge risk.

•   Changes in your financial situation: If your personal finances change significantly, consider reviewing your broker to ensure it is still the best fit for your needs. For instance, your current broker may have a minimum account balance you can no longer meet.

However, switching brokerage accounts can be time-consuming and potentially costly, so it’s important to consider whether the benefits outweigh the costs.

Two Ways to Transfer Assets to Another Broker

When transferring a brokerage account from one broker to another, there are two main ways investors can transfer assets: cash transfer and in-kind transfer.

Cash Transfer

A cash transfer involves selling the assets in the account and transferring the proceeds to the new broker in the form of cash. A cash transfer is a straightforward and quick way to transfer an account, but it may not be the most tax-efficient option, as it could trigger capital gains or losses that may be subject to taxes.

💡 Recommended: Capital Gains Tax Guide: Short and Long-Term

In-Kind Transfer

An in-kind transfer involves transferring the assets in the account directly to the new broker without selling them. This may be a more tax-efficient investing option, as it allows you to carry over the cost basis of the assets to the new broker. However, executing an in-kind transfer may be more complex and time-consuming, as it may require the transfer of specific securities or other assets rather than just cash.

How to Move Investments From One Brokerage Account to Another

The process for transferring cash or securities from one brokerage account to another typically involves the following steps:

1. Confirming Account Information

Before an investor starts the transfer process, they should take some time to review their existing account, taking note of the assets they hold, total amounts held, and basics like account numbers and information on file.

Having a snapshot of account totals can serve as a backup if anything goes wrong in the transfer. Investors might want proof of their assets for confidence before getting started.

2. Contacting the New Broker

To kick off the process, an investor would reach out to their new broker, also known as the “receiving firm,” in the transfer. Each brokerage firm will have a slightly different transfer process, but most accounts will be transferred in an automated process through the help of the National Securities Clearing Corporation (NSCC).

NSCC runs Automated Customer Account Transfer Service (ACATS), a service that allows accounts to be transferred in a standard way from one brokerage firm to another. ACATS should work for most transfers, including cash, stocks, and bonds.

When an investor contacts the receiving firm, they’ll receive instructions and, often, a physical or digital copy of the Transfer Initiation Form (TIF). At this stage, investors don’t need to reach out to their old brokerage firm.

3. Completing a Transfer Initiation Form (TIF)

Completing the standard TIF officially kicks off the process. Once the receiving firm has an investor’s TIF, they’ll start making arrangements with the investor’s old brokerage firm, or “delivering firm,” to send the assets over.

Investors should take care to complete the TIF thoroughly and correctly. If information (such as Social Security number, name, or address) is not the same with both the delivering and receiving firms, the request could be flagged as fraud and rejected.

That means confirming an investor’s receiving and delivering firms have the correct personal information on file.

The most common hold-up in the transfer process is an investor error in the TIF.

TIFs typically include the following information:

•   Numbers for both brokerage accounts

•   The brokerage account type, such as joint, individual, Roth IRA, trust, estate, limited liability, 401(k), etc.

•   Social Security number

•   The delivering firm’s contact information

•   Specific assets to transfer in the event of a partial transfer

4. Submitting the TIF, and Sitting Tight

The investor will submit the TIF to their receiving firm when everything looks complete. From there, the investor will wait.

While the investor can’t do much more than sit on their hands and wait, the receiving firm is entering the TIF into ACATS. This information becomes a digital request submitted to the delivering firm, requesting a transfer of assets from one brokerage to another.

When the TIF is being reviewed, investors should pay close attention to their email and phone. If there’s any mismatched information on the TIF or between the two firms, the receiving firm will likely reach out to the investor to amend the issue.

Missing outreach could mean an even longer transfer period. That’s why investors should double-check that all the information on the TIF and between the two brokerages is consistent.

If the form is correct and approved by the delivering firm within the appropriate window, they will send a list of assets to the receiving firm. Now, it’s the receiving firm’s time to accept or reject.

While uncommon, a brokerage can reject the assets. Thus, an investor might consider contacting the receiving firm before the transfer to confirm their assets will be accepted. The receiving firm gets to decide if they want to accept or reject those assets.

If the assets are accepted, the delivering firm will digitally move the holdings to the receiving firm.

5. Contacting Your Old Broker (Optional)

In the world of texting, a phone call might be the last thing a person wants to do. But a simple call could save a few bucks in the transfer process. One hiccup that can come from the process is the account transfer fee. In some instances, the delivering firm will charge an “exit fee” when an investor makes a full transfer, partial transfer or decides to close an account entirely.

To avoid the surprise of a fee, an investor may reach out to their old brokerage firm and ask if they’ll be charged a fee for leaving or transferring funds.

If the delivering firm charges a fee, investors could reach out to the receiving firm to ask if they have any promotions for new clients that would cover the cost of transfer fees.

6. Watching the New Account, and Waiting

After the delivering and receiving firms approve the transfer request, it will still take a few days for the investments to move accounts.

Investors shouldn’t be alarmed when assets disappear from both accounts for a day or two, but the process typically takes no more than six business days.

The process may take longer if the delivering firm is not a broker-dealer. The transfer often takes longer than six business days if the delivering firm is a bank, mutual fund, or credit union.

No matter the length of the transfer, it’s common for one or both of the brokerage accounts involved to be frozen. That means no trades are allowed until the process is complete.

Investors may plan ahead and avoid trading during this period. If there is a stock or fund investors are looking to sell in the near future, they might want to sell it before starting a transfer.

Special Circumstances That Can Affect the Stock Transfer Process

Transferring Retirement or Other Tax-Advantaged Accounts

Transferring a tax-advantaged brokerage account, such as an individual retirement account (IRA) or 401(k) account, from one broker to another generally follows a similar process to regular brokerage accounts.

However, if you transfer a tax-advantaged account, you may need to follow certain rollover rules to avoid triggering taxes. For example, if you transfer an IRA, you generally have 60 days to complete the rollover and deposit the assets in the new account to avoid taxes and penalties.

💡 Recommended: IRA Transfer vs Rollover: What’s the Difference?

Transferring Stocks to Another Person

Transferring or gifting stocks to another person may have tax implications. For instance, transferring stocks may trigger gift taxes depending on their value.

Understanding Brokerage Transfer Fees

Brokerage account transfer fees are charges that may be assessed by a broker when an investor transfers their account from one broker to another. The new or old brokerage may charge these fees, which can vary depending on the broker and the assets being transferred.

Some common types of brokerage account transfer fees include:

•   Account transfer fees: These are fees that the current broker may charge for transferring the account to the new broker.

•   Termination fees: Some brokers may charge termination fees for closing an account or transferring assets out of the account.

•   Trade execution fees: If you need to sell any assets in your account to transfer them to the new broker, you may be subject to trade commission fees.

Keeping Records From Your Old Account

It’s generally a good idea to keep records from your old brokerage account following an account transfer, as these records may be helpful for various purposes.

For example, you may need to refer to your old brokerage account records for tax purposes. The information in these records can help you accurately report any capital gains or losses subject to taxes.

You may also need to refer to your old brokerage account records if you need to resolve any disputes or errors related to the transfer of your account or the assets held in the account.

Tax Implications of Switching Brokers

The tax implications of switching brokers will depend on several factors, including the type of assets held in the account, the method used to transfer the assets, and your tax situation.

If you sell and cash out stocks in your account to transfer them to the new broker, you may incur capital gains or losses that could be subject to taxes.

Additionally, the transfer may affect the cost basis and holding period of the assets in your account. The cost basis is the amount you paid for the asset, and the holding period is the length of time you have owned the asset. These factors can affect the amount of any capital gains or losses that may be subject to taxes.

Switching to SoFi Invest

People might put off transferring their brokerage account because they believe it’s involved and complicated. While it’s not instant, the process typically takes just six business days from start to finish. That means investors are only a few days and a simple form away from a new brokerage service. As long as an investor is careful and asks their receiving firm the right questions before getting started, they should avoid any significant roadblocks during the transfer.

By opening an online brokerage account with SoFi Invest®, you can take control of your financial portfolio with a DIY approach. You can trade stocks, exchange-traded funds (ETFs), fractional shares, and more with no commissions, all in the SoFi app.

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

FAQ

Can you transfer brokerage accounts?

It is generally possible to transfer a brokerage account from one broker to another. Transferring an account typically involves requesting a transfer form from your new broker and completing the transfer form and any other necessary documents.

How do you transfer stock to a family member?

To transfer stock to a family member, you will need to follow the steps for selling or transferring the stock following the policies of your brokerage firm. This may involve completing and submitting a stock transfer form or other required documentation to your broker and paying applicable fees.

What is an Automated Customer Account Transfer Service (ACATS)?

The Automated Customer Account Transfer Service (ACATS) is a system that facilitates the transfer of securities and cash between brokerage firms in the United States. It allows investors to transfer their accounts from one broker to another without manually selling and buying securities or transferring cash balances, which can streamline the process and minimize the risk of errors.

How will I know that my transfer is complete?

Once you have initiated the process of transferring your brokerage account from one broker to another, you should receive confirmation from both the current and new brokers when the transfer is complete. This confirmation may come in the form of a written statement or an email.

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