SoFi

Real estate investments make money through appreciation and rental income. Real estate can diversify a portfolio and act as a hedge against inflation, since landlords can pass rising costs to tenants. But the down payment on multifamily investment properties? At least 20%, or 25% to get a better rate.

It’s true that eligible borrowers may use a 0% down U.S. Department of Veterans Affairs (VA) loan for a property with up to four units as long as they live there. But those loans serve a relative few and are considered residential financing. Properties with more than four units are considered commercial.

So how can a cash-poor but curiosity-rich person tap the potential of multifamily properties? By not footing the entire bill themselves.

Can You Buy a Multifamily Property With No Money?

When you buy real estate, you typically have two options: Buy with cash or finance your purchase with a mortgage loan.

There are various types of mortgages. If you take out a home loan, you’ll likely need to pay a portion of the purchase price in cash in the form of a down payment. The minimum down payment you make will depend on the type of mortgage you choose — the average down payment on a house is well under 20% — and it will help determine what terms and interest rates you’ll be offered by lenders.

This money needs to come from somewhere, but it doesn’t necessarily need to come from your own savings account. When investors buy multifamily properties with “no money down,” it just means they are using little to no personal money to cover the upfront costs.

If you don’t have much cash of your own, there are several ways that you can fund the purchase of a multifamily investment property.


💡 Quick Tip: Jumbo mortgage loans are the answer for borrowers who need to borrow more than the conforming loan limit values set by the Federal Housing Finance Agency ($766,550 in most places, or $1,149,825 in many high-cost areas). If you have your eye on a pricier property, a jumbo loan could be a good solution.

6 Ways to Pay for a Multifamily Property

Find a Co-Borrower

If you don’t have the money to front the costs of a property yourself, you may be able to partner with a family member, friend, or business partner. They may have the money to cover the down payment, and you might pull your weight by researching properties or managing them.

When you co-borrow with someone, you’ll each be responsible for the monthly mortgage payments. You’ll also share profits in the form of rents or capital gains if you sell the property.

Give an Equity Share

You may give an equity investor a share in the property to cover the down payment. Say a multifamily property costs $750,000, and you need a 20% down payment. An equity investor could give you $150,000 in exchange for 20% of the monthly rental income and 20% of the profit when the property is sold.

Borrow From a Hard Money Lender

Hard money loans are offered by private lenders or investors, not banks. The mortgage underwriting process tends to be less strict than that of traditional mortgages. Depending on the property you want to buy, no down payment may be required.

These loans (also called bridge loans) have high interest rates and short terms — one to three years is typical — with interest-only payments the norm. For this reason, they may be used by investors who may be looking to flip the property in short order, allowing them to make a profit and pay off the loan quickly.

House Hack

House hacking refers to leveraging property you already own to generate income. For example, you might rent out an in-law suite or list your property on Airbnb.

Another option: You could rent out your primary residence and move into one of the units in a multifamily property you buy. This way, you’d probably generate more income than if you had rented out the unit to a tenant.

Finally, you could hop on the ADU bandwagon if you own a single-family home. Accessory dwelling units can take the form of a converted garage, an attached or detached unit, or an interior conversion. The rental income can be sizable. To fund a new ADU, homeowners may tap home equity, look into cash-out refinancing, or even use a personal loan.

Seek Seller Financing

If you don’t have the cash for a down payment on a property, you may be able to forgo financing from a lending institution and get help instead from the seller.

With owner financing, there are no minimum down payment requirements. Several types of seller financing arrangements exist:

•   All-inclusive mortgage: The seller extends credit for the entire purchase price of the home, less any down payment.

•   Junior mortgage: The buyer finances a portion of the sales price through a lending institution, while the seller finances the difference.

•   Land contracts: The buyer and seller share ownership until the buyer makes the final payment on the property and receives the deed.

•   Lease purchase: The buyer leases the property from the seller for a set period of time, after which the owner agrees to sell the property at previously agreed-upon terms. Lease payments may count toward the purchase price.

•   Assumable mortgage: A buyer may be able to take over a seller’s mortgage if the lender approves and the buyer qualifies. FHA, VA, and USDA loans are assumable mortgages.

Invest Indirectly

Not everyone wants to become a landlord in order to add real estate to their portfolio. Luckily, they can invest indirectly, including through crowdfunding sites and real estate investment trusts (REITs).

The Jumpstart Our Business Startups Act of 2013 allows real estate investors to pool their money through online real estate crowdfunding platforms to buy multifamily and other types of properties. The platforms give average investors access to real estate options that were once only available to the very wealthy.

REITs are companies that own various types of real estate, including apartment buildings. Investors can buy shares on the open market, and the company passes along the profits generated by rent. To qualify as a REIT, the company must pass along at least 90% of its taxable income to shareholders each year.

As investment opportunities go, REITs can be a good choice for passive-income investors.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

The Takeaway

Buying a multifamily property with no money down is possible if you take the roads less traveled, including leveraging other people’s money. And if you have the means to make a down payment on a property, your first step is to research possible home mortgage loans.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can I buy a multifamily home with an FHA loan?

It is possible to buy a property with up to four units with a standard mortgage backed by the Federal Housing Administration (FHA) if the buyer plans to live in one of the units for at least a year. The FHA considers homes with up to four units single-family housing. The down payment could be as low as 3.5%. There are loan limits.

A rarer product, an FHA multifamily loan, may be used to buy a property with five or more units. The down payment is higher. You’ll pay mortgage insurance premiums upfront and annually for any FHA loan.

Is a multifamily property considered a commercial property?

Properties with five or more units are generally considered commercial real estate. Commercial real estate loans usually have shorter terms, and higher interest rates and down payment requirements than residential loans. They almost always include a prepayment penalty.

---

Photo credit: iStock/jsmith

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.

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

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

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SOHL-Q224-1842703-V1

Read more

When looking for a home loan, the two main choices of financial institutions are credit unions and banks. Each option comes with pros and cons.

Here’s an overview to help you make the right choice for your situation. You might start with general tips when shopping for a mortgage.

How Credit Union and Bank Mortgages Are Similar

Common types of home loans include fixed-rate and adjustable-rate loans as well as conventional and government-insured loans (such as FHA and VA loans). Most of the different mortgage types are available at both credit unions and banks.

At a high level, approval processes are the same at each type of financial institution as well. Each will have mortgage underwriting guidelines, and after a borrower applies, the loan will be reviewed and approved, suspended, or denied.

Plus, both may offer mortgage preapprovals.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home

Differences Between Credit Union and Bank Mortgages

So, credit union or bank for mortgages? Beyond general similarities, differences exist. Let’s look at credit union mortgages and then bank home loans.

Benefits of Getting a Credit Union Mortgage

Are credit unions good for mortgages? In many ways they are. While a bank has stockholders, a credit union consists of members (account holders) who more or less serve in this role. A bank must satisfy its investors by making a profit; credit unions don’t, so they can return those dollars to members through more attractive interest rates, lower fees, and more.

To enhance their members’ financial wellness, credit unions typically provide the following benefits:

Looser Approval Criteria

In general, credit unions may approve more loans in the lower- to middle-income range for their members. Plus, when credit scores are less than ideal, a credit union loan is sometimes the better choice.

Lower Interest Rates

Overall, credit unions offer lower rates on their mortgage loans. To estimate how much money this may save you, use a mortgage calculator.

Fewer Fees

Credit unions can pass on savings to members through lower fees as well as lower rates.

The Personal Touch

Because credit unions are less likely to sell their mortgage loans to a third party, a borrower is more likely to know the loan servicer (the credit union). This can lead to more personalized service.

Recommended: How Does the Mortgage Preapproval Process Work?

Disadvantages of Getting a Credit Union Mortgage

Are credit unions better for mortgages? That depends on a borrower’s needs and preferences because disadvantages of credit union mortgages also exist, including these:

Membership is a Must

In most cases, a borrower must meet certain requirements to join a credit union. This can include living in a certain community, belonging to a certain profession, or otherwise having the appropriate affiliation.

Fewer Locations

Usually, credit unions have fewer branches, which can limit their geographical range. So when away from home, outside the credit union’s range, it may be harder to conduct all the financial transactions you might like. For example, the ATM network may be smaller and less convenient.

Stale Tech

Because credit unions are often more local institutions, they typically won’t have the up-to-date technology found at larger banks. So if a borrower wants first-class online and mobile banking, credit unions may not be the best choice.

Limited Menu

Credit unions may offer fewer financial products, especially on the savings and investment side. They may only offer checking and savings accounts, for example, plus credit cards. Although that may not affect a borrower’s ability to get a mortgage, this can limit what other products they can benefit from at the credit union.

Possibly Higher Interest Rates

Sometimes credit unions can’t compete with banks, especially when a large bank offers especially good interest rates. So be sure to compare rates if you’re looking for the most attractive ones.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

Benefits of Getting a Bank Mortgage

Getting a home loan at a bank has its upsides, including these:

Variety of Services

Banks often offer a significant range of savings, lending, and retirement-related financial products, making it easier for a borrower to have an all-in-one financial institution.

Multiple Branches and ATMs

Banks, especially national ones, will typically allow you to have access to multiple branches in more locations as well as a larger ATM network. This can make for a more convenient experience.

New Tech

Banks are, overall, more likely to have the latest in banking technology, including the ability to bank online and to use more sophisticated mobile apps.

Disadvantages of Getting a Bank Mortgage

Meanwhile, drawbacks of getting a bank home loan can include the following:

Higher Interest Rates

Banks need to generate profit for stockholders — and credit unions don’t — so banks may charge a higher rate on home loans. But this isn’t universally true, so it’s always a good idea to compare rates.

Higher Fees

In general, banks charge higher mortgage fees than credit unions do. Although not always true, this is something to investigate.

Less Personalized Customer Service

Because credit union membership tends to be smaller and more local, bank customers may receive less personal service, especially when using a branch outside their more typical one (perhaps while traveling). Plus, banks are more likely to sell mortgage loans to a third-party loan servicer.

With any lender, bank, or credit union, a house hunter should feel at ease asking a range of mortgage questions.

The Takeaway

Credit union vs. bank mortgage? Each has its upsides and potential downsides. Borrowers looking for a home mortgage loan can explore the pros and cons to make the right choice for their specific situation.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is it better to get a mortgage at a credit union?

Not necessarily. It’s a good idea to look into what each route offers before making the right choice for you.

What are the disadvantages of credit unions?

Credit unions tend to be smaller and more localized than many banks, so disadvantages can include fewer locations, a smaller ATM network, and more limited financial products. Borrowers must qualify to become a credit union member; technology probably won’t be as modern as that at a larger bank; and, in some cases, costs can be higher.

Are credit unions safe for mortgages?

The National Credit Union Administration insures deposits of up to $250,000 at all federal and some state credit unions, protects the members who own credit unions, and regulates federal credit unions. Eligible bank accounts of the same amount are insured by the Federal Deposit Insurance Corp.

Can I take out a HELOC or second mortgage through a credit union?

Not all credit unions offer the same products, but many of them do offer home equity lines of credit and home equity loans.

---

Photo credit: iStock/Lemon_tm

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.

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

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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.

SOHL-Q224-1843070-V1

Read more

Business bank accounts can help owners keep professional transactions separate from personal banking and aid in their business cash management. These accounts often come with special conditions and requirements, and they may have various fees.

Here, we’ll take a closer look at these accounts, their pros and cons, and what it takes to open one. Read on to dive into the details about business bank accounts.

What Is a Business Bank Account?

There are three main types of business banking accounts: checking accounts for everyday use, savings accounts for intermediate and long-term savings, and merchant accounts for accepting debit and credit card payments. In this article, you’ll learn about business checking and savings accounts, available from both online and brick-and-mortar banks.

What Is a Business Checking Account?

A business checking account works much the same way a personal checking account does. You use it to deposit payments and make withdrawals, usually an unlimited amount. Like personal checking accounts, business checking accounts typically pay low to no interest on your balance.

What Is a Business Savings Account?

A business savings account will pay more interest than a checking account, so it can be a good place to park cash on an interim basis. You will likely be limited on how many transactions you can make per month without a penalty (typically six), and there may be a monthly minimum balance to maintain. Many business owners find using both a business checking and savings account can meet their banking needs.

How Long Does Opening a Business Bank Account Take?

If you open up a bank account — whether it’s checking, savings, or both — the time commitment needed is usually similar to that of opening a personal checking and savings account. It will likely take just a matter of minutes if you have the necessary information on hand.

•   You will need to provide some details about yourself, your business, and any additional business owners involved in your enterprise.

•   You’ll deposit funds.

•  Keep in mind it can take up to seven business days for final approval before you can actually access funds.


💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

What Is Needed to Open a Business Bank Account?

Whether you open your bank account online or in person, you’ll need documentation of several personal and business details. Different banks may have their own verification requirements, depending on the type of business you own and the type of account you’re looking to open.

Here is a general list of what you might need to open a bank account for your business:

•   Your name, birthdate, and Social Security number

•   Mailing address and all contact information

•   What percentage you own of the business (anyone who owns 25% of the business or more will likely have to disclose personal details and identification)

•   A government-issued photo ID, such as driver’s license or passport

•   Business name and DBA (“doing business as” name) or trade name, if applicable

•   Business address and employer identification number (EIN) (Note: sometimes Social Security numbers suffice)

•   Industry/type of business

Depending on the type of business you own, you may be asked for the following documents:

•   Sole proprietorships may need the business name registration certificate and the business license.

•   Partnerships may need the partnership agreement, business name registration certificate, business license, and the state certificate of partnership.

•   Limited Liability Companies (LLCs) may need the articles of organization, LLC operating agreement, and business license.

•   Corporations may need articles of incorporation, corporate bylaws, and business licenses.

Recommended: Business Cash Management: Tips for Managing Cash

What to Look for in a Business Banking Account

Traditional banks, online banks, and credit unions all offer business bank accounts. All have different fee structures and provide different services. There are many fees and restrictions to consider when choosing a business banking account. But consider this overarching factor: online accounts are usually best for businesses that don’t need to make bank deposits.

Here’s what to compare when you’re looking for an account:

•   Monthly fees, such as account maintenance

•   Any minimum balance requirements

•   No-fee transactions

•   ATM access (for deposits and withdrawals)

•   Transfer, wiring, and payment capabilities

•   Incidental fees (such as, stop payment, overdraft, and nonsufficient funds)

•   Online and mobile banking tools

•   Additional features, such as invoicing, bill pay, or integrations with other business tools (especially tax reporting software)

Benefits of Opening a Business Banking Account

A business account can be a smart tool for a variety of reasons. Business owners may need to keep their personal and business accounts separate for tax and liability reasons. A business bank account also helps you establish a banking relationship that you can draw on in the future for lending or other services that may help your business grow. You will also establish a financial record that can come in handy when it comes time to file taxes and help your concern establish a good credit rating.

Recommended: How to Open a Business Checking Account

Cons of Opening a Business Banking Account

There are very few cases when a business banking account is a bad idea. Some very small sole proprietors may find they don’t need the extra fees and bookkeeping involved. But for most business owners, a separate account can be an efficient tool.

That said, one of the potential drawbacks of a business account is the cost of bank fees. High fees that you may not have anticipated can eat into your business profits. Some fees to look out for include:

•   Monthly fees

•   Transaction fees

•   Monthly balance transfer fees

•   Cash deposit fees

•   ATM fees

•   Wire transfer fees.

These fees add up fast. Be sure to check thoroughly what fees are involved and compare from one financial institution to another.

Pros of a Business Bank Account	Cons of a Business Bank Account
Keeps professional finances separate from personal	May involve additional fees
Establishes a business relationship with a financial institution	May involve more bookkeeping
Creates a financial record that can be useful for tax or credit-rating purposes

Choosing a Business Bank Account

Now that you’ve looked at fees, here are some other considerations as you choose your business bank account:

•   Banking online: Business bank accounts with online-only banks can be great for virtual businesses or any business that is not handling daily cash transactions. Many online banks do not require a monthly minimum balance.

•   Network: If you’re banking in person, be sure there is a conveniently located branch near your business. Also, find out how many no-fee ATMs are available in your area.

•   Electronic services: Check if online bill pay, electronic fund transfers, and other electronic services that can support your business are available for low or no fees.

•   Electronic payments: Does your bank accept Zelle and Venmo? If so, are there additional fees involved? How long will it take for transactions to post? Electronic payments are increasingly becoming the lifeblood of many businesses.

•   Software compatibility: Is the bank account you’re considering compatible with the bookkeeping software you use? That can make life easier when you need to track or get access to cash flow, outstanding receivables, and other items each month.

Other support: Does the bank offer small business loans, lines of credit, business credit cards, and other financial support for entrepreneurs that you may need in the future?

The Takeaway

While we’re on the topic of bank accounts, have you reviewed your personal accounts lately?

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

---

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

Our account fee policy is subject to change at any time.

Photo credit: iStock/Deagreez
SOBK-Q224-1837020-V1

Read more

Leverage allows investors to allocate a small amount of capital to get exposure to a much bigger position. Leverage, also called margin, is effectively a way of borrowing cash for increased trading power. A leverage ratio of 20:1 means a $1 investment can buy $20 worth of an asset.

Using leverage, traders can place bigger bets and potentially earn higher returns on their initial capital. However, leveraged trading also increases a trader’s risk of losses; if the asset moves in the wrong direction, the trader not only suffers a loss but must repay the amount borrowed, plus interest and fees.

This is one reason that only experienced investors qualify for leverage accounts, e.g. margin accounts, and leveraged trading opportunities.

What Is Leverage Trading?

In both business and finance, the term leverage refers to the use of debt to fuel expansion or purchase securities. In leverage trading, traders can use margin to buy assets like stocks, options, and forex.

Leverage and margin are similar concepts, but they’re different. One way to think of the differences is that a trader can use margin to increase their leverage. Margin is the tool, and leverage is the force behind the tool, which can be used to potentially increase returns (or losses).

A margin account allows you to borrow from the brokerage to purchase securities that are worth more than the cash you have on hand. In this case, the cash or securities already in your account act as collateral.

Which Securities Are Eligible for Margin?

Not all securities can be bought using leverage, however. Industry rules dictate that equities known as penny stocks and Initial Public Offering (IPO) stocks are not marginable. Generally, stocks and exchange-traded funds (ETFs) that are worth more than $3 per share, as well as mutual funds and certain types of bonds are eligible for leverage trades using margin. Check with your broker, as rules can vary by jurisdiction.

Margin can be used to trade options and futures, but this type of leverage trading can be highly risky. Forex options trading, for example, allows traders to place big bets using very small amounts of cash.

While there is no standard amount of margin in the forex market, it is common for traders to post 1% margin, which allows them to trade $100,000 of notional currency for every $1,000 posted — a ratio of 100:1.

Leverage Risks and Rewards

Leverage trading can only be successful if the return on an investment is higher than the cost to borrow money, which you must repay with interest and fees.

Leverage trading can significantly increase potential earnings, but it is also very risky because you can lose more than the entire amount of your investment. For that reason leverage is usually only available to experienced traders.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

How Leverage Works in Trading

Leverage trading in a brokerage account consists of a trader borrowing money from the broker, then using that along with their own funds to enter into trades.

The key to understanding how using leverage can help generate higher returns, but also greater losses, is that the funds borrowed are a fixed liability. Suppose a trader starts with $50, and borrows $50 to buy $100 worth of stock. Whether the stock’s value goes up or down from there, the trader is on the hook to give back $50, plus interest, to the broker.

Example of Leverage Trading

Using the above example, suppose the stock appreciates by 10%, and the trader closes out the position. They return the $50 they borrowed, and keep the remaining $60. That equates to a $10 gain on their $50 of capital, and a 20% return — double the return of the underlying stock.

On the flip side, consider what happens if the stock declines in value by 10%. The trader closes out the position and receives $90, but has to give the broker back the $50 they borrowed, plus interest. They are left with $40, a loss of $10, plus any interest or fees, which is a 20% loss or more.

Understanding Leverage Ratio

Leverage is often expressed as a ratio. For example, a leverage ratio of 2:1 is generally the rule for using margin for equity trades. If you have $50, you can buy $100 worth of stock.

In the case of other types of securities, the leverage ratio can be much higher. A leverage ratio of 20 means a $1,000 investment would allow you to open a trading position of $20,000; 50:1 would allow you to take a position of $50,000.

Maximum Leverage

Brokers have limits on how much they’ll lend traders based on the amount of funds the trader has in their account, their own regulations, and government regulations around leverage trading. If you’re considering using leverage, be sure to understand the rules.

•   Stocks. Thanks to the Federal Reserve Board’s Regulation T, plus a FINRA rule governing margin trades in brokerage accounts, the maximum you can borrow is 50% for an equity trade.

•   Forex. The foreign currency market tends to allow greater amounts of leverage. In some cases, you can place bets as high as 100:1 in the U.S.

•   Commodities. Commodities rules around maximum leverage, and leverage ratios can fluctuate based on the underlying.

Types of Leverage Trading

There are a few different types of leverage trading, each with similarities and differences.

Trading on Margin

Margin is money that a trader borrows from their broker to purchase securities. They use the other securities in their account as collateral for the loan. If their leveraged trade goes down in value, a trader will need to sell other securities to cover the loss.

Many brokers charge interest on margin loans. So in order for a trader to earn a profit, the security has to increase in value enough to cover the interest.

Leveraged ETFs

Some ETFs use leverage to try and increase potential gains based on the index they track. For example, there is an ETF that specifically aims to return 3x the returns that the regular S&P 500 index would get.

It’s important to note that most funds reset on a daily basis. The leveraged ETF aims to match the single day performance of the underlying index. So over the long term even if an index increases in value, a leveraged ETF might decrease in value.

Derivatives

Traders can also use leverage trading with derivatives and options contracts. Buying a single options contract lets a trader control many shares of the underlying security — generally 100 shares — for far less than the value of those 100 shares. As the underlying security increases or decreases in value, the value of the options contract changes.

Options are derivatives contracts that give buyers the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) an asset at a specified price within a certain period of time. Traders can choose to sell call options on a stock if they think it is going to decrease in value.

Options trading is one of the riskiest types of leverage trading. A trader could potentially lose an unlimited amount of money if they sell a call option and the underlying stock price skyrockets in value.

If the option seller exercises the trade, the trader will have to purchase the associated amount of the underlying security to sell to the option seller. If the security has gone up a significant amount this could cost millions of dollars or more.

Recommended: Options Trading 101

Leverage Trading Terms to Know

There are several key terms to know in order to fully understand leverage trading.

Account balance: The total amount of funds in a trader’s account that are not currently in trades.

Buying power: This is the total amount a trader has available to enter into leverage trades, including both their own capital and the amount they can borrow.

Coverage: The ratio of the amount of funds currently in leveraged trades in one’s account to the net balance in their account.

Margin Requirement: This is the amount of funds a broker requires a trader to have in their margin account when entering into leverage trades. If a trader incurs losses, those funds will be used to cover them. Traders can also use securities they hold in their account to cover losses. Margin requirement is often a percentage. For example, at a leverage amount of 100:1, the margin requirement is 1%.

Margin call: If a trader’s account balance falls below the margin requirement, the broker will issue a margin call. This is a warning telling the trader they have to either add more funds to their account or close out some of their positions to meet the minimum margin requirement. The broker does this to make sure the trader has sufficient funds in their account to cover potential losses.

Used margin: When an investor enters into trades, some of their account balance is held by the broker as collateral in case it needs to be used to cover losses. That amount will only be available for the trader to use after they close out some of their positions.

Usable margin: This is the money in one’s account that is currently available to put into new trades.

Open position: When a trader is currently holding an asset they are in an open position. For instance, if a trader owns 100 shares of XYZ stock, they have an open position on the stock until they sell it.

Close position: The total value of an investment at the time the trader closes it out.

Stop-loss: Traders can set a price at which their asset will automatically be sold in order to prevent further losses if its value is decreasing. This is very useful if a trader wants to hold positions overnight or if a stock is very volatile.

Pros and Cons of Leveraged Trading

On the surface, leverage can sound like a powerful tool for investors — which it can be. But it’s a tool that can cut both ways: Leverage can add to buying power and potentially increase returns, but it can also magnify losses, and put an investor in the hole.

Pros of Leverage	Cons of Leverage
Increases buying power	Leverage funds must be repaid, with interest
Potential to earn higher returns	Potential to lose more than your initial investment
Relatively easy to use, if you qualify	Investors must meet specific criteria in order to use leverage or open a margin account

Pros

Using leverage can increase your trading power, sometimes to a large degree. It’s important to know the rules, as leverage ratios vary according to the securities you’re trading, the jurisdiction you’re in, and sometimes your broker’s discretion.

If you meet the criteria for using leverage or opening a margin account to trade, it’s relatively easy to access the funds and open bigger positions. Sometimes, placing that bigger bet can pay off with a much higher return than you would have gotten if you invested just the capital you had on hand.

Cons

Just as using leverage can amplify gains, it can amplify losses — in some cases to the point where you lose your initial investment, you must repay the money you borrowed, and you may owe fees and interest on top of that.

For that reason, many brokers require investors to meet certain criteria before they can place leveraged trades.

Tips for Managing the Risks of Leveraged Trading

Experience and skill can help you manage the risk factors inherent in leveraged trades, and a couple of basic protective strategies may help.

Hedge Your Bets

It might be possible to hedge against potential losses by taking an offsetting position to the leverage trade.

Limit Potential Loss of Capital

One rule of thumb suggests that traders limit their loss of capital to no more than 3% of the actual cash portion of the trade. While it’s difficult to know the exact risk level.

Decide Whether Leverage Trading Is Right for You

Although there is potential for significant earnings using leverage trading, there is no guarantee of any earnings, and there is also potential for significant loss. For this reason leverage trading is often said to be best left to experienced traders.

If an investor wants to try leverage trading it’s important for them to assess their financial situation, figure out how much they’re willing to risk, and conduct detailed analysis of the securities they are looking to trade.

Setting up a stop-loss order may help decrease the risk of losses, and traders can also set up a take-profit order to automatically take profits on a position when it reaches a certain amount.

The Takeaway

Leveraged trading is a popular strategy for investors looking to increase their potential profits. By using borrowed funds it’s possible to take much bigger positions, and possibly see bigger wins. But using leverage is very risky, and you can lose more than you have (because the money you borrow has to be repaid in full, plus interest).

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

Get one of the most competitive margin loan rates with SoFi, 10%*

FAQ

What leverage is good for $100?

If you only wanted to invest a small amount of capital, say $100, you would first need to check the policies at your brokerage about the use of lower amounts. If approved, you might want to use a lower amount of leverage, e.g. 10:1. That means for every $1 of cash you put down, you can get $10 in leverage. So a $100 leverage trade would be worth $1,000.

How much leverage is too high?

Knowing how much you can afford to lose is an important calculation when making leveraged trades. In addition, the amount of leverage available to you will also be restricted by existing regulations or brokerage rules. And remember, if a trade goes south, your broker can liquidate existing assets to cover your losses and any margin.

---

Photo credit: iStock/ljubaphoto

*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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.

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

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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

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

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

SOIN0124040

Read more