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If you’re looking for a well-priced home and wouldn’t mind a fixer-upper, you might benefit from a HUD home, which is a property that was foreclosed on and is now being sold by the US Department of Housing and Urban Development.

HUD homes can offer affordable deals, especially to those buyers who don’t mind fixing up a property, and you might find lower down payments and help with closing costs in some cases. But HUD houses aren’t for everyone, so read on to learn the details and the pros and cons.

What Is the Department of Housing and Urban Development?

HUD was created in 1965 as part of President Lyndon B. Johnson’s war on poverty. Its current stated mission is “to create strong, sustainable, inclusive communities and quality affordable homes for all.”

HUD oversees mortgage insurance programs for lower- and moderate-income families; public housing, rental subsidy and voucher programs; and many others. In this way, it helps to improve deteriorating properties.

💡 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.

What Are HUD Homes?

Here’s the definition of a HUD home: The one- to four-unit residential properties that HUD sells come into HUD’s possession as a result of defaults on mortgages insured by the Federal Housing Administration (FHA), which is part of HUD.

Owner-occupants get first dibs, after which bidding opens to investors. HUD pays the lender what is owed and then sells the properties to the public to make up the deficit from the foreclosure.

You can look at available properties at the HUD Home Store but must have a HUD-approved real estate broker or agent submit a bid for you.

Recommended: FHA Loan Mortgage Calculator Table

Who Can Qualify for a HUD Home?

If you have the cash or can qualify for a loan, you may buy a HUD home.

Following the priority bidding period for owner-occupants, HUD-approved nonprofit organizations, and government entities, unsold properties are available to all buyers, including investors.

If you will be an owner-occupant, you must plan to live there for at least a year and can’t have purchased another HUD home within the last two years.

If you will need an FHA loan or other mortgage, expect to pass income and credit checks.

If you are buying as an investor, you’ll need to wait 30 days before bidding on a single-family HUD home listed as “insured” or “insured with escrow,” up from 15 days as of January 3, 2024. Homes with those designations are eligible for FHA-insured financing, meaning they may only need cosmetic repairs or nonstructural repairs of up to $10,000.

If the home is listed as “uninsured,” buyers cannot get a typical FHA loan, but they may be able to use an FHA 203k loan — a program that allows buyers to make repairs after closing and finance the cost into their loan.

Recommended: The Most Affordable Places to Live in the US

HUD Assistance Programs

HUD sweetens the pot to help make the dream of buying a home come true.

•   With the Dollar Homes program, low- or moderate-income families can purchase a HUD-owned home for $1. The Dollar Homes are single-family homes that have been in foreclosure and the FHA has been unable to sell for six months. The vacant homes have a market value of $25,000 or less.

•   The Good Neighbor Next Door Program rewards law enforcement officers, K-12 teachers, firefighters, and emergency medical technicians with a 50% discount on the list price of the home. It must be the homebuyer’s principal residence for three years.

HUD requires that you sign a second mortgage and note for the discount amount. No interest or payments are required on this “silent second,” provided that you fulfill the three-year occupancy requirement.

•   You might also find that the FHA HUD $100 Down Program is available in some areas. This involves buying a home with just $100 down vs. the usual requirement.

Buying a HUD Home

Buying a home is a big deal, especially if you’re a first-time homebuyer. How to buy a HUD home, though? Know that buying a HUD home is different from purchasing other properties. For one thing, it has to be sold at auction. If you get the winning bid, HUD contacts your agent and gives you a settlement date, often about 30 to 60 days to close.

Do keep in mind that with HUD, you get what you get. These homes are sold as is. At least go in with your eyes wide open about what you’re purchasing.

Finding HUD Homes

HUD homes exist in their own universe. You can’t find them just anywhere like other homes. You can find them on the agency’s website, the HUD Home Store, and in links to listings of homes being sold by other federal agencies.

Financing

You can finance a HUD home like any other home, though the lender will need to be HUD-approved. You may want to start by finding down payment assistance programs.

Also search for options like an FHA loan, which may be easier to obtain if you have credit issues, costs may be lower, and a lower down payment may be required than elsewhere. You might want to look into FHA 203k loans as well.

If you’re a veteran, a current member of the armed forces, or the spouse of a service member, consider looking into VA loans that might offer you better terms than other loans.

Getting preapproved for a loan is a good practice generally and particularly when you’re going after a HUD home. You’ll want to be ready to pounce if you get the green light on the home you’ve got your heart set on.

Recommended: Home Loan Help Center

HUD Homes vs Conventional Homes

Ready to compare HUD homes vs. conventional homes? Here’s the intel in chart form.

HUD Home Pros	HUD Home Cons
Low down payment	Home is sold “as is”
Help with closing costs	Must use HUD-approved real estate agent or broker
Home may be priced below market value	Limited supply, sold at auction
Conventional Home Pros	Conventional Home Cons
Wide market, lots of choices	House may be priced higher
Use any real estate agent	Closing costs may be higher
Qualify for a range of mortgages	Down payment may be higher

Pros and Cons of HUD Homes

Now, here’s how the pros and cons of HUD homes stack up.

First, the pros of HUD homes:

•   A low down payment can make purchasing a home more affordable.

•   There’s help with closing costs, which can make a big difference in home-buying expenses.

•   Homes may be priced below market value, making them more within reach for limited budgets.

•   Also, you may get a jump on the marketplace because investors must wait 30 days to shop.

As for the cons, here are the key ones:

•   Home is sold in “as is” condition, which can mean there’s a lot of work (DIY projects or otherwise) to be done.

•   You must use a HUD-approved real estate agent or broker, which can limit options.

•   Limited supply, sold at auction, so you may not have your pick of properties.

•   There are restrictions. As the owner-occupant, you need to live there for at least a year (three for the Good Neighbor program), and you can’t purchase another HUD home for at least the next two years.

The Takeaway

Whether you’re buying a HUD home for your own use or as an investment, getting financing lined up is essential. Getting pre-qualified and then pre-approved for a home loan lay the groundwork.

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

What does HUD do?

HUD is an agency of the federal government that is responsible for national policy and programs that address housing needs in the US.

How do you qualify for HUD housing in California?

Requirements will vary depending on where in the state you live, so check with your local housing authority. For example, a family’s gross annual income must be below 50% of the Area Median Income (AMI) in Los Angeles County.

What are the different types of HUD?

There are several types of HUD programs, including FHA Mortgage and Loan Insurance, Section 8, Public Housing, and Fair Housing Assistance Program.

Photo credit: iStock/CatLane

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

⁺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.

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.

^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.
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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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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If you’re dreaming of a home of your own, pulling together a down payment is probably on your financial to-do list. That sum can seem hard to wrangle, but take heart: First-time homebuyers with good credit have an edge. They often can put just 3% down, and they have access to a host of down payment assistance programs. What’s more, there are other ways to gather cash for your property purchase.

In this guide, you’ll learn more about down payments and how to afford one for your first home.

What Is a Down Payment?

Simply put, a down payment is a sum of money, often a percentage of the purchase price, that a buyer pays upfront when purchasing a home or a car.

When talking about buying a home, many people believe that 20% in cash is required, but that’s not the case. Twenty percent is the figure needed to avoid paying PMI, or private mortgage insurance, but there are mortgages available with 3% or even 0% down payments in some situations.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

How to Afford a Down Payment on Your First Home

There are many ways to afford a down payment on your first home. Below, you’ll learn some ways to save up and find low down payment options as well.

But first, consider some general ways to raise cash:

•   Start a side hustle to bring in more income. That could mean driving a rideshare, selling your ceramics on Etsy, walking dogs, or any number of other pursuits.

•   Sell your stuff. If you have gently used items, such as clothing, housewares, electronics, and jewelry, you might get cash by selling them.

•   Automate your finances. Have some money direct-deposited into savings with every paycheck. That can build your down payment, and the money doesn’t go into your checking account, where you might be tempted to spend it.

•   Make a better budget. If you’re not saving at all or as much as you’d like, evaluate your earnings, spending, and saving to optimize that. The 50/30/20 budget rule is one popular budgeting method.

Smart Ways to Save Up for a Down Payment

Here’s the lowdown on how to afford a down payment on a house. Read on before you go shopping for a mortgage.

1. Get a Low Down Payment Conventional Mortgages

Conventional loans, the most common type of mortgage, are offered by private mortgage lenders, such as banks, credit unions, and mortgage companies. If you can find one with a low down payment requirement, that can take some of the pressure off of accumulating a large down payment.

Some points to note:

•   Many lenders allow a down payment of 3% for a fixed-rate conventional conforming loan.

•   To qualify, borrowers usually will need to have a credit score of at least 620 and a debt-to-income ratio of 46% or less, though you might get approved with a DTI of 50%. Income limits may apply.

•   Putting 20% down, however, will allow a borrower to avoid private mortgage insurance (PMI) on a conventional loan.

2. Focus on Government-Backed Loans

If you are a low- to moderate-income borrower or have a lower credit score, you might want to pursue a government-backed loan, like an FHA, VA, or USDA mortgage. These also can have lower down payment requirements.

•   An FHA loan requires as little as 3.5% down on one- to four-unit owner-occupied properties as long as the borrower occupies the building for at least one year. To qualify for 3.5% down, your credit score must be 580 or higher. Someone with a credit score between 500 and 579 may qualify to put 10% down.

•   A VA loan, for veterans, active-duty military personnel, National Guard and Selected Reserve members, and some surviving spouses, requires no down payment. Borrowers can buy a property with up to four units, as long as the borrower occupies the property throughout the ownership. There is no stated minimum credit score, but generally speaking, lenders require a minimum credit score in the low- to mid-600s to qualify.

•   A USDA loan, for properties in eligible rural and suburban areas, also requires no down payment. Lenders typically want to see a credit score of at least 640, and household income can’t exceed 115% of the area’s median household income.

USDA and VA loans typically come with lower interest rates than conventional or FHA loans, but a USDA loan requires a guarantee fee, a VA loan requires a funding fee, and an FHA loan, upfront and annual mortgage insurance premiums (MIP). It pays to understand PMI vs. MIP to gain more insight onto the total costs of your loan.


💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

3. Down Payment Gifts

“Hey, Mom and Dad (or Great-Aunt Beth), I’d love it if you gave me a large cash infusion to help me buy a house.” It just rolls off the tongue, right? But in fact, one or more loved ones may be willing to pitch in toward your down payment or closing costs. That could help lower the amount of cash you need to come up with.

Some details to know:

•   Under conventional loan guidelines, gift money for a principal or second home is allowed from someone related by blood, marriage, adoption, or legal guardianship, or from a domestic partner or fiance. There’s no limit to the gift, but conventional loans may require borrowers to come up with a portion of the down payment.

•   FHA guidelines allow gift money from relatives, an employer, a close friend, a charitable organization, or a government agency that provides homeownership assistance.

•   With USDA or VA loans, the only people who cannot provide gift funds are those who would benefit from the sale, such as the seller, lender, real estate agent, or developer. A mortgage gift letter signed by donor and recipient will be required, verifying that the down payment funds are not expected to be repaid. A lender may also want to track the gift money.

•   There are also gifts of equity, when a seller gives part of the home’s equity to the buyer to fund all or part of the down payment on principal or second homes. For FHA loans, only equity gifts from family members are acceptable. A signed gift letter will be required.

4. Crowdfunding a Down Payment

Crowdfunding to help buy a house? It’s possible with sites like GoFundMe, Feather the Nest, HomeFundIt, and even Honeyfund (which is set up as a crowdfunder for honeymoons). A couple of details to consider, because fees are often involved when you use these platforms:

•   GoFundMe charges 2.9% plus 30 cents per gift.

•   Feather the Nest isn’t associated with a mortgage lender, so donation seekers can decide where to go for a loan. It charges a fee of 5% for every contribution.

•   HomeFundIt charges no fees, but you must pre-qualify and then use CMG Financial for your home purchase. The site shows a money match toward closing costs for first-time buyers.

•   For Honeyfund, U.S. residents receiving U.S. dollars via PayPal are charged 3.5% plus 59 cents per transaction.

5. Retirement Account Withdrawals or Loans

It might be a good idea to explore all options for getting cash before tapping your 401(k) savings account.

As you probably know, taking money out of your 401k before age 59 ½, or before you turn 55 and have left or lost your job, is met with a 10% early withdrawal penalty and income tax on the amount. So withdrawing money early from this tax-deferred account has a painful cost and impairs long-term growth.

Here are other options if you want to tap retirement savings:

•   Borrowing from a 401k may be possible. Your employer’s plan might let you borrow money from your 401k and pay it back to your account over time, with interest, within five years, in most cases. You don’t have to pay taxes and penalties when you take a 401k loan, but if you leave your current job, you might have to repay the loan in full fairly quickly. If you can’t repay the loan for any reason, you’ll owe taxes and a 10% penalty if you’re under 59 ½.

•   A traditional IRA allows first-time homebuyers to take an early withdrawal up to $10,000 (the lifetime limit) to use as a down payment (or to help build a home) without having to pay the 10% early withdrawal penalty. They still will have to pay regular income tax on the withdrawal.

•   With a Roth IRA, if you take a distribution of its earnings before age 59 ½ and before the account is less than 5 years old, the withdrawal may be subject to taxes and penalties. You may be able to avoid penalties but not taxes if you use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.

If you’re under age 59 ½ and your Roth IRA has been open for five years or more, a withdrawal of earnings will not be subject to taxes if you use the withdrawal to pay for a first-time home purchase.

Recommended: First-Time Homebuyers Guide

First-Time Homebuyer Assistance Programs

Here’s another way to help make your home-buying dreams come true: State, county, and city governments and nonprofit organizations offer down payment assistance programs to help get first-time homebuyers into homes. (By the way, the definition of who qualifies as a first-time homebuyer is more expansive than it may seem.)

Down payment assistance may come in the form of grants or second mortgage loans with various repayment or loan forgiveness provisions.

HUD steers buyers to state and local programs, and the National Council of State Housing Agencies has a state-by-state list of housing finance agencies; each offers a wealth of information designed to boost housing affordability and accessibility.

First-Time Homebuyer Tips

As you save for your down payment, follow this advice to get ready to become a property owner:

•   Figure out how much house you can afford with a home affordability calculator. You want to budget appropriately.

•   Don’t forget to account for closing costs, which are typically 3% to 6% of your loan amount.

Check your credit score and credit report. Building your credit and eliminating any errors on your report can help you qualify for favorable rates.

Recommended: Most Affordable Places to Live in the US

The Takeaway

How to afford a down payment on your first house? Saving is, of course, part of the equation. But you may not need to accrue that 20% of the purchase price that so many people aim for. There can be mortgages available with as little as 3% or even 0% down. Also, first-time homebuyers may benefit from assistance programs, down payment gifts, and other forms of funding.

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

How much should I save for a down payment on my first house?

While many people aim for a 20% down payment to avoid paying PMI, there are mortgages available to qualified buyers with as little as 3% or even 0% down.

Can I borrow money for a down payment on a house?

You might be able to find a personal loan to use for a down payment, or you could see if a relative or significant other has funds to lend you. Check with your lender to see if this source of cash is acceptable, though.

What credit score do I need to buy a house with no money down?

You’ll typically need a credit score of at least 640 for the 0% USDA loan program. VA loans with no money down (and low down payment FHA and conforming loans) usually require a minimum credit score of 580 to 620.

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

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

*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.

^†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.
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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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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Marginable securities are assets including stocks, bonds, exchange-traded funds (ETFs), and others that an investor can buy using borrowed funds via a margin account with their brokerage firm. Non-marginable securities are those that cannot be purchased using margin, usually because these assets are less liquid and higher risk.

Margin accounts, as well as the securities that are designated as marginable or non-marginable, are closely regulated because of the level of risk associated with margin trading.

For that reason, only some investors qualify to open a margin account and execute margin trades.

What Is Margin?

As a reminder: margin trading is an advanced investment strategy in which you trade securities using a loan from your broker. Trading on margin is similar to buying on credit. As with most types of credit, a margin loan requires collateral and must be repaid with interest.

Using margin for a trade is considered a type of leverage because you can use margin to amplify your investment. But using margin also amplifies losses because it exposes you to the risk of losing even more than the amount you invested.

Recommended: Cash Account vs Margin Account

How Margin Trading Works

To execute trades using a cash account, the broker directly withdraws funds for a cash trade. Thus every cash trade is secured 100% by money you’ve already deposited, entailing no risk to your broker.

With margin accounts, though, part of each trade is secured by cash, known as the initial margin, the rest is covered with funds you borrow from your broker. Typically, a margin account requires a minimum deposit of at least $2,000. And the margin terms at most brokerages dictate that investors can buy up to 50% of their purchase using margin. So a $10,000 margin account would allow you to buy up to $20,000 worth of marginable securities.

While margin trading gives you more buying power than you could achieve with cash alone, there is also a higher risk of loss. If you place a bigger bet using margin and the price moves in the wrong direction, you could lose all your cash, the amount of the margin loan, and still owe the interest on the margin loan.

That additional risk means that you’ll always need to maintain a minimum level of collateral to meet margin requirements.


💡 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.

What Is a Marginable Security?

Because margin trading can be higher risk than standard cash trades, certain securities can be traded using borrowed funds while others cannot.

Marginable securities are generally those that have high liquidity, trade on a major U.S. exchange, are worth at least $5 per share: e.g. stocks, bonds, mutual funds, ETFs.

The rules governing margin accounts and marginable securities are set out by the Federal Reserve Board in Regulation T and Regulation U. The Financial Industry Regulatory Authority (FINRA) and the individual brokerages themselves have their own margin rules, including which securities traders can buy or sell on credit.

If you have a margin account, you can get a marginable securities list from your brokerage by asking your representative or looking online.

Marginable Securities Example

Most brokerages that allow margin trading would allow investors to trade large, blue-chip stocks on margin. That means that investors can borrow from their brokerage to buy that stock.

Traders might also use margin to short a stock, or bet that its price is about to go down. In that instance, they’d borrow shares from their brokerage and sell them on the open market to another investor, with the hopes of buying them back later at a lower price.

What Is a Non-Marginable Security?

Non-marginable securities are securities that investors cannot purchase using borrowed funds, typically because these securities already entail a higher degree of risk.

If an investor or trader wants to purchase a non-marginable security, then, they must do so with a cash account, rather than a margin account.

Non-marginable Securities Example

Non-marginable securities typically include those considered high risk, perhaps because of low liquidity and higher levels of volatility. That can include stocks that trade over-the-counter (OTC), or penny stocks ( valued at less than $5 per share).

Non-marginable securities may also include IPO stocks, because these stocks are part of a company’s initial public offering and can be highly volatile. IPO stock may be marginable after 30 days post-IPO.

In general, securities held in an IRA account or a 401(k) retirement account are non-marginable because those accounts do not allow for margin trading.

Differences Between Marginable and Non-Marginable Securities

Here’s a quick rundown of the main differences, as well as pros and cons between marginable and non-marginable securities:

Marginable & Non-Marginable Securities: Key Differences
Marginable Securities	Non-Marginable Securities
Can be purchased using borrowed funds via a margin account	Can only be purchased with cash
Higher liquidity	Lower liquidity, more volatile
Typically includes stocks, bonds, ETFs, and mutual funds	Typically includes penny stocks, IPO stocks, OTC stocks

💡 Quick Tip: One of the advantages of using a margin account, if you qualify, is that a margin loan gives you the ability to buy more securities. Be sure to understand the terms of the margin account, though, as buying on margin includes the risk of bigger losses.

Why Are Some Securities Marginable vs Non-Marginable?

The reason for establishing a difference between marginable and non-marginable securities is to protect both traders and brokerages. Marginable securities have a degree of risk built into them that non-marginable securities lack.

Specifically, there is risk associated with using leverage, or margin, that could result in some traders finding themselves in debt or subject to a margin call by their brokerage.

By designating some securities as marginable, and restricting others as non-marginable, this provides some protection for both investors and financial institutions.

The Takeaway

Marginable securities are those that you can purchase by borrowing money from your broker, while you must purchase non-marginable securities with cash on hand. Trading on margin is riskier than trading cash since you can lose more money than you’ve invested, but there’s also potential for higher returns.

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, 12%*

FAQ

What securities can’t be margined?

Non-marginable securities are generally those that are less liquid and higher risk (e.g. some IPO stocks, penny stocks, and OTC stocks). Investors must purchase non-marginable securities with cash. Also, non-marginable securities don’t count as collateral in your margin account.

What is an example of marginable securities?

Marginable securities include stocks, bonds (including government and municipal bonds), mutual funds, and ETFs that trade on public exchanges. Marginable securities are more liquid and less volatile, generally, than non-marginable securities.

Who determines which securities are marginable?

The Federal Reserve Board has two regulations that govern the use of margin accounts and marginable securities: Regulation T and Regulation U.

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Photo credit: iStock/Delmaine Donson

*Borrow at 12%. 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®

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.

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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