Jun
15
2023
6 Benefits of Refinancing Student Loans

6 Benefits of Refinancing Student Loans

By | Fresh Out of School, Student Loans, student_loan | Comments Off on 6 Benefits of Refinancing Student Loans

Refinancing allows you to consolidate your existing student loans — you trade multiple loans for one student loan payment. When you refinance, you may be able to lower your monthly payments, reduce your interest rate, shorten your repayment terms, save money, and even add or remove a cosigner.

It’s a good idea to ask yourself, “Why refinance student loans?” before you start searching for the right private lender for you. Read on for a list of the benefits that may come your way when you refinance your student loans.

What Is Student Loan Refinancing?

Student loan refinancing involves consolidating your student loans with a private lender. In the process, you receive a new loan with a new rate and term. Moving forward, you’d make payments to that private lender on that one loan only.

It’s worth noting that refinancing is not the same as consolidating through a Direct Consolidation Loan. A Direct Consolidation Loan means that you combine multiple federal loans into one federal loan through the U.S. Department of Education. You usually don’t save money with a Direct Consolidation Loan, because the resulting interest rate is a weighted average, rounded up to the nearest ⅛ of a percent.

You may be able to refinance your federal student loans and private student loans all at once. However, it’s important to remember that refinancing your federal student loans means that you lose access to federal benefits and protections like income-driven repayment plans, some deferment and forbearance options, and loan forgiveness programs for certain borrowers, such as Public Service Loan Forgiveness. Federal student loans come with benefits and repayment options unique to them.

Is Refinancing Your Student Loans Worth It?

Is refinancing student loans a good idea for you? There are some benefits of refinancing student loans, like securing a lower monthly payment or a more competitive interest rate.

Continue reading for more information on when refinancing your student loans may make sense for your specific situation. Remember that not everyone will benefit from each of these advantages — it depends on your own needs.

1. Lower Monthly Payments

Refinancing may lower your monthly payments because you may lower your interest rate.

Or refinancing can lower your monthly payments if you lengthen your loan term. Extending your loan term, however, means you may pay more in interest over the life of the new loan. Some private lenders may offer lengthier repayment terms, varying from five to 25 years.

2. Reduced Interest Rates

In the context of reduced interest rates, refinancing student loans is probably worth it, especially if you choose a shorter loan term. That said, it’s important not to assume anything. It’s a good idea to take all calculations and factors into consideration before you pull the trigger on a refinance.

Private student loan lenders may offer both variable and fixed interest rates. Variable interest rates fluctuate depending on the situation in the broader market. They may begin at a lower rate but increase over time. In contrast, fixed interest rates stay the same throughout the life of your loan. If you are planning to pay off your loan quickly, you may consider a variable interest rate refinance.

3. Shorter Repayment Terms

Your repayment term refers to the number of years that you spend repaying your loan. A shorter repayment term may save you money because you’ll pay interest over a fewer number of years. In general, loans with a shorter repayment term come with lower interest costs over time but higher monthly payments. On the other hand, loans with a longer repayment term usually come with lower monthly payments.

It’s important to calculate your monthly payment and decide whether a higher monthly payment can fit into your budget.

4. Opportunity to Save Extra Money

Qualifying for a lower interest rate and either shortening your repayment term or keeping your current loan term may allow you to save money. Not only that, but when you don’t have several student loan payments to juggle, it may be easier to budget by lessening the confusion of having to make multiple loan repayments.

5. Consolidating Loan Payments

The perks of refinancing aren’t all money related. As mentioned earlier, you can simplify your loans and eliminate the confusion of having to make several loan payments every single month. Organizing your loan payments can go even further than this. Simplifying all of your bills (not just your student loans) may even give you some of the same psychological benefits of a Marie Kondo tidy-up, such as improving mental health, time management, and productivity.

Simplifying could also help you avoid missing payments, which can affect your credit score.

6. Adding or Removing a Cosigner

Applying for a cosigner release removes a cosigner from loans.

Why might you want to remove a cosigner from your loans through refinancing? You may no longer want a cosigner to remain responsible for repaying your debt if you were to default. Cosigning can also have implications for a cosigner’s debt-to-income (DTI) ratio, the ratio between the amount of debt they have related to their income. Their credit will show the extra debt they took on when they cosigned for you.

Learn more about refinancing student debt without a cosigner.

Tips for Finding a Lender

Ready to find a lender? Start by getting quotes from a few lenders, which usually just takes a few minutes online. Once you have several estimates, compare rates among lenders. Make sure you look at annual percentage rates (APRs), which represent the true cost of borrowing — they include fees as well.

Beyond getting a low-interest rate, you also want to look carefully at repayment terms. Are you looking at a shorter- or longer-term length? Choosing your current term length or a shorter term can help you save money.

Using a calculator tool for refinancing student loans can also help you estimate how much money you may save and give you a sense of what your monthly payments might be.

Life Changes That Can Make Student Loan Refinancing Worth It

Certain life changes and situations can also make refinancing worth it. For example, if you want to raise your credit score, save more money, or buy a house, you may want to consider refinancing.

•   Higher credit score: Making payments on time helps boost your credit score. One refinanced student loan payment is much easier to keep track of than multiple student loan payments. Simplifying can help prove that you’re a reliable borrower.

•   Save money for other things: If you want to save for a new living room set or for your child’s college fund, for example, refinancing can change your interest rate and help you save money over the long term.

•   Lower your debt-to-income (DTI) ratio: When you’re on the hunt for another type of loan, such as a mortgage loan to buy a home, you may discover that you need to lower your DTI. Refinancing your student loan debt can help you pay off your loans faster and therefore lower your DTI more quickly.

Learn more in our guide to refinancing student loans.

Explore SoFi’s Student Loan Refinancing Options

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

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

Photo credit: iStock/stockfour

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 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.


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
15
2023
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The Navy Loan Repayment Program Explained

By | Debt Payoff, Financial Independence, Student Loans, student_loan | Comments Off on The Navy Loan Repayment Program Explained

The U.S. Navy offers service members a proud and venerable tradition, having patrolled the seas since its inception in 1775.

Almost 250 years later, the Navy still offers its sailors a remarkable life experience, a chance to serve the country, and a host of benefits that make life somewhat easier for military personnel.

One perk that may appeal to Navy members is the Navy Loan Repayment Program, the cornerstone of the service’s student loan relief and forgiveness efforts.

The Navy Loan Repayment Program can pay up to $65,000 toward a service member’s student loans. That makes it well worth a closer look for Navy members looking for help paying down their college loan debt.

Who Qualifies for the Navy Program?

The Navy Loan Repayment Program is designed to pay up to $65,000 of federally guaranteed student loans for Navy personnel who qualify. The program is offered to members of the service’s Delayed Entry Program who eventually enlist in the Navy full time.

The Delayed Entry Program, also known as the Delayed Enlistment Program or inactive reserves, is meant to provide an onboarding experience before official enlistment. In the case of the Navy, a future sailor who signs on to delayed entry agrees to report for active duty in the next year. Currently, delayed-entry members can remain on inactive duty for 365 days. At that point, they must enlist for active duty in the Navy to receive student loan aid.

The Delayed Entry Program is only one hurdle Navy members must clear before becoming eligible for the loan repayment program. Service members must also meet the following criteria.

•   They must be “first time” military service members (meaning applicants have never served in the U.S. military before).

•   They must have a high school diploma.

•   They must have achieved a minimum score of 50 on the Armed Forces Qualification Test, which the Navy uses to measure a potential sailor’s IQ and aptitude. A test score of 35 will get an applicant into the Navy, but a higher score of 50 is needed to qualify for the loan repayment program.

•   They must have a student loan that is not in default.

How Navy Student Loan Repayment Works

Through the program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500 — whichever is higher — for each year of naval service, up to three years. If the student loan balance falls below the 33.3% threshold and the borrower is in good standing with the Navy, the Navy will pay the remaining student loan balance in full.

Only specific federal student loans qualify for the loan repayment program. They are as follows:

Stafford Loans, subsidized or unsubsidized. Also known as Direct Stafford Loans, these low-interest loans are made to qualified borrowers for tuition and other college expenses. The funds come directly from the U.S. Department of Education.

Federal PLUS Loans. Otherwise known as Direct PLUS Loans, these loans are offered by the U.S. government to undergraduate and graduate students to cover tuition and college costs. In many cases, Direct PLUS Loans offer funds to college students to cover expenses not covered by other financial aid programs.

Consolidation Loans. Consolidation loans bundle multiple federal loans into a single loan, streamlining the repayment process.

Perkins Loans. Perkins Loans are low-interest loans geared toward college students (both undergraduate and graduate) who demonstrate financial need. Congress stopped making Perkins student loans in 2018, but naval personnel may still have outstanding Perkins loan debt and thus are eligible for help from the Navy Loan Repayment Program.

A future Navy member may apply for the loan repayment program early in the service enrollment process. A Navy applicant is given the option to enroll in the program at the Military Entrance Processing Stations.

MEPS, the stations funded by the U.S. Department of Defense to enroll military service members, handle their applications and assess their physical, mental, and emotional health to see if they’re fit for military service.

For student loan relief purposes, the Navy recruiter on hand (also known as the MEPS classifier) will process all of a Navy recruit’s paperwork, including loan repayment application documents, and submit them for processing.

What Documents Do You Need To Apply?

All documents are available at the MEPS recruiting center or through specific U.S. government websites. You will need all of the following documents to apply:

•   A copy of the Loan Repayment Program Worksheet.

•   A copy of the Navy Enlistment Guarantee. The Navy Loan Repayment Program must be noted as a guarantee on the document.

•   A copy of the Statement of Understanding.

•   A copy of the Future Sailor’s National Student Loan Data System printout (available at the Department of Education’s website. When filing the data system form, the applicant will be assigned a PIN. By and large, it’s the same pin assigned to a financial aid applicant on the Free Application for Federal Student Aid. If the applicant doesn’t have a FAFSA® PIN, one will be assigned).

•   A copy of the Personalized Recruiting for Immediate and Delayed Enlistment.

•   A copy of DD Form 2475, Annual Application for Student Loan Repayment, completed by the student loan lender.

•   A copy of the lender’s promissory note for each Parent PLUS Loan, which clearly designates the student dependent on the note.

If you’re already serving in the military or served, Public Service Loan Forgiveness is a great option. The program is for those working for a qualified government organization (municipal, state, or federal) or many nonprofit organizations.

Filling Out the Loan Repayment Form

The key document when applying for the Navy Loan Repayment Program is DD Form 2475, which is broken down into four sections.

Section 1 is completed and approved by the recruiting officer (i.e., the verifying official). The section includes the naval office address and contact information so the lending institution can forward the proper paperwork. If the section is blank, the lender is under no obligation to complete the form. Basically, Section 1 includes the recruiter’s name and signature and the date.

Section 2 includes the applicant’s name, address, telephone number, email address, and Social Security number. This section is completed by the service member/applicant.

Section 3 includes the student loan data (including the borrower’s name, the loan amount, outstanding balance, the original date of the promissory note, the loan holder address, email and phone number, and the loan application number). The section also includes a box noting whether the student loan is in default or not, and asks for the name and address of the financial institution where the loan aid is to be sent.

Section 4 is a grid where more information on the loan can be included to expedite processing. Sections 3 and 4 are filled out by the student loan lending institution.

The Navy mandates that Form 2475 be completed, signed, and transmitted to the lending institution within 60 days of the recruit’s arrival in the Delayed Enlistment Program.

If the recruit/applicant doesn’t know his or her current student loan servicer, the U.S. Department of Education can lend a hand by phone or online.

Important Things to Know

Loan repayment program applicants may want to know several key features and rules governing the Navy student loan program.

Payment dates. Annual loan relief payments are issued to the service member on the original enlistment day during the first, second, and third year of enlistment in the Navy.

Payments are taxable. Any payments made by the Navy to the service member are taxed, as the Internal Revenue Service deems loan relief as taxable income in the year the money is paid out. Expect to have between 25% and 33% of the payment withheld in both federal and state taxes (the amount depends on the state where the applicant resides).

Lenders only. The Navy will not refund any loan amount that is paid out by other parties (aside from the qualified student loan lenders).

If a Navy recruit has any questions about the loan repayment program, the Navy urges him or her to contact the loan repayment manager at Naval Command. The manager is directly responsible for managing the loan program.

Contact the manager at:

Navy Recruiting Command
Attn: LRP
5722 Integrity Drive, Building 784
Millington, TN 38054

Email: [email protected]

Other Ways to Repay Student Loans

Former students who are on the fence about a military commitment or who may be struggling to make student loan payments, have alternatives to military-supported repayment.

One is student loan refinancing with a lender like SoFi®. Someone with a combination of private and federal student loans can refinance both types into one single loan with one monthly payment.

While there are many advantages to refinancing student loans, there are disadvantages, as well. If you are thinking of taking advantage of federal benefits like income-driven repayment or Public Service Loan Forgiveness, refinancing may not be right for you because you’ll lose your eligibility for federal programs.

Borrowers who do not plan on using federal benefits and choose to refinance may qualify for a lower interest rate or lower monthly payments. They’ll have only one payment a month and may be able to either lengthen or shorten the term. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

SoFi offers an easy online application, no fees, and competitive rates. It takes just two minutes to see if you prequalify and checking your rate will not affect your credit score.

Interested in student loan refinancing? Get started with SoFi today.

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.

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
13
2023
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The Basics of Electronic Trading

By | Growing Wealth, invest, Investing | Comments Off on The Basics of Electronic Trading

Electronic trading, also known as online trading, refers to the process of conducting trades in financial markets through an online broker dealer using the internet. These trades can take place in the stock, bond, options, futures, or foreign exchange (FOREX) markets.

Electronic trades can only be conducted during standard market hours: between 9:30 am and 4 pm Eastern Standard Time on weekdays. Traders can create orders after markets close, but the orders won’t be executed until the next trading day.

With just a few clicks, investors can buy or sell just about any stock, exchange-traded fund, or derivatives contract.

This represents a big change from the way the stock exchange worked prior to the internet, when traders would gather in one central place like The New York Stock Exchange (NYSE) and buy and sell stocks in person. With advances in digital technology, that’s no longer necessary and the age of electronic trades now dominates.

How to Start Electronic Trading

Many investors today will only ever engage in online stock trading. Traders no longer need a personal broker whom they have to call on the phone each time they want to buy or sell a security.

Instead, investors can now open an online brokerage, create an account, and start placing trades. But choosing a platform is only step one in electronic stock trading. After that, you’ll need to decide what stocks to trade, what type of orders to use, what expenses will be involved (if any), and how trading might affect your tax liability.

Choose an Electronic Trading Platform

There are many electronic trading platforms to choose from. They are all similar in many ways, with general ease of use: Signing up and getting started can take less than an hour, with perhaps a few days of wait time involved for identity or “know your customer” verification.

Among the various platforms, there are slightly different features or different options as far as the user experience is concerned. Not too long ago, most platforms charged a commission fee for each buy or sell order executed, and there was a minimum amount of money needed to create a new account.

Recently, many brokerages have eliminated trading fees, and few still require account minimums, although there may be other costs associated with your investments. It’s important to understand what you’re being charged, because even small amounts add up over time and can reduce investment returns.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Research Stocks or ETFs

There are thousands upon thousands of securities to choose from, and many different types of markets and exchanges. When first starting out, it’s easy to get overwhelmed by all the choices.

Thankfully, online brokerages offer tools to help investors get started. There is also an abundance of free information online about investing.

Sources like Zacks, Motley Fool, Yahoo Finance, Seeking Alpha, SoFi, and many others provide new articles on a daily basis that help investors learn about new market opportunities.

Recommended: Investing Guide 101

Determine Which Type of Order to Use

It might be common to assume there are only two types of orders — a buy order and a sell order. In actuality, there are many different types of orders.

The type of order that likely comes to mind for most new investors is known as a market order. This is simply an order to buy or sell a security at whatever price it’s trading at right now.

Another type of buy order is a limit order. This is an order to buy at or below a specific price. The order can remain on the books for a day, sixty days, or until canceled, and will be filled whenever the security falls to the specified price.

This can help investors wait to buy a security at a cheaper price without having to monitor things. Limit orders also help protect against sudden spikes in price. If a market order is used just before a large price increase, an investor could pay more for a security than expected.

A stop-loss order can help traders limit losses. Like a limit order, a stop-loss gets triggered when a security falls to a specific price. But as you might have guessed, unlike a limit buy order, a stop-loss order will initiate a sell when triggered.

The topic of order types is one that new investors ought to consider researching on their own.

Recommended: What Is the Average Stock Market Return?

Consider Tax Implications

Buying securities usually doesn’t invoke any tax liability. Selling at a gain often requires an investor to pay capital gains tax, while selling at a loss could result in a capital loss, which investors can sometimes use to reduce their taxable income.

The subject of taxes and investing is long and involved. New investors might want to consider researching the tax implications of buying and selling securities on their own and consult with a tax professional.


💡 Quick Tip: Did you know that investment losses aren’t necessarily bad news? Some losses can be used to offset gains, potentially reducing how much tax you owe. Learn more about investment taxes.

The Risks of Online Trading

In addition to the convenience that electronic trading offers investors, it does come with some risks. The chief caveat of online trading is that it gives investors the opportunity to try new strategies (like options trading) or explore new types of investments without the benefit of expert guidance.

All investments come with the risk of loss, meaning you can lose all the money you’ve invested — or more, in some cases. It’s important to balance the opportunities with the downsides when electing to explore new investments.

The Takeaway

The era of online or electronic trading is here to stay, thanks to its lower cost structure as well as the overall convenience and ease-of-use that online platforms provide for investors.

Now investors can set up and manage a wide range of portfolios — from day trading to retirement — right from their own computers.

Electronic trading does have its limitations, though. Things move quickly, fees can add up, and sometimes there are investment options available that require more time and expertise — which may not be available through an online platform.

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


For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Jun
13
2023
What every new investor should know about risk

What Every New Investor Should Know About Risk

By | Growing Wealth, invest, Investing | No Comments

Risk is a critical component of each and every investment, and there are several things about risk, and an individual’s ability to handle it, that investors need to know about. Those include the types of risk involved in investing, the relationship between risk and potential returns, and how to effectively manage it.

Investors should consider their appetite and tolerance for risk, and try to determine which assets are suitable for them. Investing involves understanding the risk profiles of the different assets, among other things, too.

Higher Risk, Higher Potential Return

The most important thing to understand about risk is something you’ve probably heard before: Generally, the higher the risk of your investment, the greater return you should expect on your money. It is, however, the nature of risk that the return you expect might not be the return you actually get.

The concept of “Modern Portfolio Theory” emphasizes that risk and reward are linked. If you hope for a higher return, you should also expect higher volatility — the variability of actual returns. The returns on an exchange-traded fund (ETF) may be up one year and down the next.

Returns on a mutual fund of emerging market stocks will likely have much wider changes in returns from year-to-year, or even month-to-month. You might make a lot more money, but you also could lose much more.


💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

How Much Risk Should You Take?

When determining a level or risk that you’re comfortable with, you want to first look at the goals you have (buying a house, saving for college, and retiring, to name a few), as well as how many years will it be before you need the money for each goal. That’s called a “time horizon.”

balancing risk

Generally speaking, the longer the time horizon, the more risk you can afford to take, because you have more time to recover from market downturns.

This is why young people are advised to put their retirement savings in a more aggressive portfolio. As you get closer to retirement, you’ll generally want to be more conservative. You can also consult a retirement calculator to see where you stand on your retirement goals.

Risk Tolerance Quiz

Take this 9 question quiz to see what your risk tolerance is.

⏲️ Takes 1 minute 30 seconds

What Types of Risk Are There?

There are several types of risk that every investor should be aware of. Here are a few:

•   market

•   business specific

•   price volatility

•   interest rate

•   concentration

Some risks you can’t avoid, like market risk or beta. The market goes up and down, and this often affects all stocks. Investors can measure the risk in their stock holdings by finding their portfolio’s beta. This will show how sensitive one’s portfolio is to volatility in the market.

You can, however, reduce other risks. For example, if you buy individual stocks, you open yourself up to business specific risk. But, if you buy an index fund, you are buying assets in multiple companies. If one of these companies falters, it will impact the index, but it won’t have the same harsh impact on your investment. This is why seasoned investors tend to emphasize portfolio diversification so much.

How Should You Manage Risk?

On a broad level, how do you use these concepts to manage your investing risk? One method is to utilize different asset allocation strategies to your advantage.

For example, if you wanted to take a particularly low-risk, or conservative position, you could allocate your portfolio to contain more bonds than stocks. Bonds tend to be safer investments than stocks (though it’s important to remember that there’s no such thing as a “safe” investment), and as such, may be less volatile if the market experiences a downturn or correction.

If you still wanted to play it safe but allow for some risk (and potentially bigger returns), you could split your portfolio’s allocation – that could include 50% stocks, 50% bonds, or something along those lines. Further, if you feel like you have a high risk tolerance, you could take an aggressive position, and invest most of, or your entire portfolio in stocks.


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

Managing Specific Types of Risk

If you want to get more granular, you can try to manage specific types of risk in your portfolio, such as interest rate risk, business-specific risk, etc.

Interest rate risk, for one, has to do with investment values fluctuating due to changing interest rates. This generally involves bond investments, and one way to try and manage it is through diversification, or even by participating in hedge funds — though that can be its own can of worms, so do your research before jumping into hedge funds.

As for business-specific risk? This refers to specific or particular companies or industries. For example, the aerospace industry faces a different set of challenges and risks than the food production industry. So, changes to the Federal Aviation Administration could, as a hypothetical, cause price fluctuation to aerospace stocks, but not other types of stocks. Again, this can largely be solved through diversification.

There are numerous other types of risks, too, and managing them all is difficult, if not impossible, for the typical investor. You can consider consulting a financial professional for further advice, however.

A good course to take? Be honest with yourself. Over time this portfolio is more likely to have a higher return than the other one, but only if you stay invested through the bad times as well as the good. If that isn’t you, no problem — just pick a less risky asset allocation.

The Takeaway

Risk is unavoidable when investing, and as such, it’s important to understand the nature of the risk, avoid taking risks that you can’t afford, and then to take steps to mitigate risk and still reap the benefits. Think about it like driving a car: It’s risky, but you understand that risk and mitigate it by maintaining your car, obeying traffic laws, and buying insurance. The return is that you get where you’re going faster.

There are no guarantees in investing, but you can make an informed choice of the amount of risk you are willing to take and invest intelligently to reach your goals.

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


For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Jun
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2023
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How to Negotiate House Price as a Buyer

By | Home Ownership, mortgage | Comments Off on How to Negotiate House Price as a Buyer

Buyers who learn how to negotiate house prices lay the foundation for a mutually acceptable deal. Whether you’re a first-time homebuyer or not, these strategies to negotiate home prices may help you score a property at the price that works best for you.

Why You Should Negotiate House Prices

While negotiating the price of a home as a buyer can seem intimidating, the benefits often outweigh the fear. For starters, negotiating lets the seller know you’re serious about the home. And if the asking price is over what you feel comfortable with, negotiating can help you see if there is any wiggle room.

A successful negotiation gives you the opportunity to create a concise offer that you’re happy with and that helps you stay within your budget. It feels great to get the house you want without putting yourself in a stressful financial situation.

Things to Know Before Negotiating Home Prices

Know Your Market

The market will dictate how much leverage you have to negotiate a home price. So start by determining whether it’s a hot seller’s market or a buyer’s market.

The power is typically in your hands if the number of homes for sale exceeds the number of willing buyers. Markets can vary from city to city and neighborhood to neighborhood. So check with your real estate professional to be certain what type of market you’re working with.

Know the Value of an Agent

Can you buy a house without a real estate agent? Sure, but it’s not a decision to make lightly.

Besides the fact that real estate agents know what’s reasonable for the current market conditions, they have valuable experience that can help you navigate offers and counteroffers. And because they aren’t emotionally attached to the outcome, they are better set up to get the best deal without making ​​excessive concessions.

But you don’t want to work with just any agent. You want to work with someone who is a buying and selling expert, has connections with other agents in the area, and is knowledgeable about the community you’re interested in.

Got your eye on a house for sale by owner? You can find a real estate agent or go it alone.

Recommended: Finding a Good Real Estate Agent When Buying a House

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

How Much Can You Negotiate on Average?

One of the best ways to get an idea of how much you can negotiate is to research the prices of “comps,” recently sold homes in your target area that are similar to the property you’re trying to buy.

A real estate agent will have access to market trends. But you can obtain the information yourself on sites like Zillow, Realtor.com, Redfin, and Trulia. If you’re moving from out of state, this guide to the cost of living by state can give you a sense of what housing expenses to expect. In a large state such as California, it’s helpful to consider the cost-of-living breakdown for individual cities.

Zillow also lists how long for-sale properties have been on the market, which can give you some insight into how negotiable a list price may be.

Unless you’re in a hot seller’s market, you may be able to offer 10% under the asking price and even ask the seller to pay closing costs or certain other concessions.

How to Negotiate a House Price as a Buyer

Once you have a sense of the market and an agent to help you negotiate, the next step is to get your finances in order so you’ll be in a strong position to negotiate. Sellers are apt to be most enthusiastic about buyers who have been preapproved, as opposed to prequalified, for a mortgage.

While both involve a lender taking a peek at your financial information, such as income, credit history, debts, and assets, preapproval involves an in-depth application and verification process. It’s a great way to send your offer to the front of the pile.

If you already own a home, selling it ahead of time could also put you in a better position to negotiate: It means you won’t have to wait until your home is sold to go forward with the buying process.

This “chain-free” approach requires careful timing and possibly setting up a temporary living space. While it’s not feasible for everyone, it is an option to keep in mind if you’re hoping to increase your odds of success in a competitive market.

Recommended: How Long Does a Mortgage Preapproval Last?

Now it’s time to make a smart offer.

Tips on Negotiating House Prices

Keep Your Cool

From the first time you walk through the home, it’s a good idea not to show all your cards by appearing overeager, even if you’re totally in love with the place. If you come across as desperate for the house, sellers may feel they can expect a higher offer from you.

Don’t be afraid to point out any drawbacks that give you pause, and give yourself time to shop around before you get serious about putting money on the table.

Get an Inspection

Found a property you love? While your mortgage lender might not require a home inspection — and while forgoing one may make your offer more appealing to the seller — it’s probably in your best interests to have one.

Without a home inspection, the only information you have about the house comes from what the seller is able (or willing) to disclose and what you observe during your tour. Home inspections can reveal hidden issues like cracks in the foundation or plumbing problems.

Along with helping you plan for unforeseen repair costs ahead of time, the inspection can also give you leverage to ask the sellers to knock down their price a bit, offer you a credit for closing costs, or fix the problem themselves. Your real estate agent can help you decide how to negotiate the house price after the inspection.

Put Your Offer in Writing

Many experts recommend putting your offer in writing and adding as much detail as possible. That way you avoid any disagreements on what was said and can negotiate on factors beyond price.

When competing against multiple offers on a house, buyers may waive one or all contingencies to sweeten their offer. Contingencies are simply conditions that must be met in order to close the deal.

An appraisal contingency can be an opportunity to negotiate the home price or back out if the property does not appraise at the price in the purchase contract.

A clear title contingency also gives the buyer a way out if liens or disputes are associated with the property.

And it can’t hurt to ask for help with closing costs.

Plead Your Case

In a competitive market, you might also consider adding a personalized letter to your offer. It might sound cheesy, but selling a home can be just as emotionally fraught as buying one. Describing why you love the house or how you imagine your family growing with the property can help your offer stand out from others, even if you aren’t the highest bidder.

Avoid offending a seller with a lowball offer, particularly if you’re negotiating in a seller’s market or purchasing a beloved property that’s been in the family for years. If you do decide to bid around 20 percent under the asking price, make sure you’re willing to walk away.

When it comes time to make an offer, consider not only the list price but closing costs and any repair or renovation expenses.

Knowing When to Walk Away From an Offer

Although you’ll generally hear back on (realistic) offers within a few business days, sellers aren’t legally obligated to respond to your offer at all. Including an expiration date in your offer will give you a firm calendar date on which you’ll know for a fact you didn’t get the home, which means you’ll be able to redirect your efforts.

Purchasing a home can take a long time. There’s no reason to waste your energy when it’s a moot point.

A seller who responds to your offer but who isn’t inclined to move on the price of the house might be willing to instead make repairs that are needed and that are identified during the inspection of the property. And consider asking the seller to throw in items like furniture or play equipment that they might be planning to take with them. If they decline and you still don’t feel good about the price, it’s time to walk away.

The Takeaway

Negotiation goes on in love and war, in a salary decision, with parents and toddlers, and in real estate. If you’re a buyer, the more you know about negotiating home prices, the better.

As important as it is to shop around for the right home — and negotiate for the right price — it’s also important to find the right home mortgage loan. SoFi offers competitive fixed-rate mortgage loans, and qualified buyers can put down as little as 3%.

Find your rate on a SoFi Mortgage Loan in just minutes.

FAQ

How do you politely ask for a lower price?

Rely on your real estate agent to help you determine a good offer price. Then consider writing a personal letter to accompany the offer, addressing the seller by name if possible and conveying, in a friendly tone, a sincere message about what you like about the house or how you can imagine your family living there.

How much can you negotiate when buying a house?

How much you can negotiate depends on how “hot” the market is. In a competitive seller’s market you may not be able to negotiate at all. Rely on your real estate agent to guide you. A property that has been on the market for a long time may provide more opportunity for negotiation.

What is not a smart way to negotiate when buying a home?

Avoid making a very low initial offer — you risk offending the seller. And don’t criticize the seller’s taste by, say, pointing out that the kitchen decor isn’t to your liking. Finally, if you are preapproved for a mortgage that is greater than your offer price, don’t tip your hand; instead, ask your lender to tailor the preapproval letter to the amount you are offering.

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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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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