A home inspection can give homebuyers important information about the condition of a home they’re purchasing, and it may help alert them to any major repairs and expenses down the road.
When the housing market is competitive, some buyers skip all contingencies, including the home inspection, which can be risky. But others are still opting to have an inspection done before making an offer.
In a seller’s market, many properties are sold “as is,” which means sellers won’t negotiate for repairs even after an inspection.
Even so, a home inspection, and a home inspection checklist, could help you avoid buying a home at the top of your budget that will soon need big fixes.
Key Points
• Home inspections are crucial for identifying potential issues, ensuring that buyers can make informed decisions.
• Inspectors evaluate critical systems such as HVAC, plumbing, and electrical, for functionality and safety.
• Structural elements, including floors, walls, and ceilings, are assessed for stability and signs of damage.
• The house’s exterior is examined for water damage, infestation, and other issues.
What’s on a House Inspection Checklist?
Here are the common items evaluated in a general professional inspection, according to the American Society of Home Inspectors.
The average cost of a home inspector ranges from $296 to $424, though they can go higher or lower depending on location and house size. What’s more, the inspector might suggest a separate inspection by a specialist if they spot a potential problem but think an expert should evaluate it further.
It’s a good idea to make sure you can accommodate these types of costs in your home-buying budget.
Heating and Air System
Depending on your geographical location and the weather there, a finely tuned heating, ventilation, and air conditioning (HVAC) system might be a top priority on your home inspections list.
Does the house you’re considering have an HVAC system? An older property might not, in which case you may want to research and price the purchase and installation of a system.
If the property does have HVAC, does the system work and how old is it? If it doesn’t work, or work well, you’ll want to find out what it will cost to repair or replace it.
If the system is practically vintage, the Department of Energy says it might be worthwhile to replace it, as newer models are more efficient and likely to lower your energy costs.
It’s easy to forget about pipes when you’re walking through a home. You can’t see them, but they greatly affect daily life and are not always simple to repair.
Ask your home inspector to check all plumbing work for possible leakage. A leaky pipe can lead to water damage and additional repair work. Once you know if there’s a problem and how significant it is, you can determine the cost of fixing a leaky pipe.
An inspector could also check drainage throughout the home, the condition of the garbage disposal and water heater, and overall water pressure. If the home is older and has a septic tank, that could be inspected, too.
Check out the SoFi guide
to first-time home buying.
Electrical System
A professional home inspection will likely include an evaluation of a property’s entire electrical system, ensuring that it is up to safety standards outlined by the National Electrical Code.
The functioning of the electrical box, outlets, switches, and lighting will be checked, as well as the state of the wiring throughout the home. If major work needs to be done, you can get a quote for the cost of rewiring.
If the house has solar panels, you might want to make sure they’re in working order and ask for the maintenance history.
Roof
No matter the type of roof, the home inspector will check its condition and age.
A roof in good shape helps ensure against leaks and provides some level of insulation. It’s also important to know if you’re buying a home with a roof at the end of its lifespan, so you can set aside money to replace it when needed.
Replacing a roof can run from about $5,867 to $13,209, HomeAdvisor notes.
Floors, Walls, Ceilings
Put the bones of the house on your house inspection checklist.
Structural components like these will likely be looked at in your home inspection. You’ll want to be sure the floors are level. And consider the floors cosmetically. Is the carpeting new? Are there wooden floors that need refinishing?
Look for cracks in the drywall or plaster that make up the walls and ceiling as well. Sometimes cracks are a natural change as walls expand and contract with weather changes. But it’s good to know if all you’ll need is spackle and paint or if repairs will require a lot more time and money. A home improvement calculator could help you figure out the potential cost.
Foundation, Attic, Basement
A home inspector will crawl through a foundation space, checking for stability and that it is up to national safety codes. This is just one of the reasons why failing to get a home inspection is a homebuyer’s mistake to avoid.
A basement will be checked for dampness and good ventilation for moisture control.
And if the home has an attic, your inspector will check to see that the beams and rafters (which support the roof) look secure and distress-free.
Insulation
Homes generally lose heat through the windows, walls, roof, and attic. Proper sealing and insulation can be a good way to prevent this, lowering energy costs.
If your prospective home is quite old, it’s possible it has no insulation, and you might want to consider the cost of adding it. If the home has been insulated, the home inspector will check its condition and look for gaps.
Exterior
Exterior walls will be evaluated, with an eye toward any damaged bricks, shingles, or siding or bubbling paint. Other important exterior components are chimneys, gutters and downspouts, doors, and windows. You might also want to check for moisture.
If water collects and stands anywhere on the property—because of poorly hung gutters or a leaking sprinkler, for example—you may want to nip it in the bud to avoid mold growth and/or water damage. Check for pests like termites or cockroaches as well.
Appliances
If a refrigerator, stove, and washer and dryer are part of the deal, have your inspector make sure they are in good working order.
If the home comes with few to no appliances, determine how much adding them will cost.
If you’re using a real estate agent, chances are your agent can recommend a few home inspectors they’ve worked with previously.
Then again, a home inspector your agent referred may feel obligated to go easy on the inspection.
Whether you’re using a buyer’s agent or not, some consumer advocates say it’s a good idea to find your own inspector. You can ask for references if you know someone else who’s bought a home in the area recently. Or you can search a referrals site like Ang or HomeAdvisor for a recommendation. The National Association of Home Inspectors also offers a tool to help you find a home inspector near you.
Other things to put on your house-hunting checklist: Know your credit score and get prequalified and preapproved for a home loan.
The Takeaway
A home inspection checklist can unearth problems that can be a dealbreaker, possibly a negotiating tool, or something a buyer is willing to accept and deal with. The curb appeal may be great, the staging superb, but house inspection lists offer a probing look at what lies beneath.
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’s the biggest red flag in a home inspection?
There are a number of red flags that a home inspection may turn up. Among the top concerns are roof and foundation issues, signs of mold and/or mildew, indications of water damage, and termite or other infestations. All of these can be difficult and expensive to remedy.
How many buyers back out after inspection?
It’s hard to know exactly why buyers decide not to go through with a home purchase, but the number who back out after the home inspection is about 10% to 15%, though it can fluctuate.
How often do homes fail an inspection?
Of homebuyers who get their new homes inspected before buying, 24% report that the properties failed the inspection.The majority (32%) say the inspector found minor issues, while 30% say the house passed the first inspection.
*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.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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.
Buying a home is probably one of the biggest financial commitments many people make in their life, and so it stands to reason that the process can be complex and lengthy. From figuring out how much you can afford to learning how mortgages work to getting preapproved to determining where exactly to live…it’s a lot!
But by learning about the usual flow before you begin hitting the open houses, you can be well-prepared to dive into homeownership. Below, the eight steps to follow that will help make purchasing a home a smooth process.
Key Points
• Check your credit score and strengthen it to help secure a mortgage with favorable terms.
• Save for a down payment to influence monthly mortgage payments and attract sellers in a competitive market.
• Decide on a budget to understand how much you can afford, covering down payment, closing costs, and ongoing expenses.
• Shop for a mortgage lender and compare interest rates, terms, and closing costs.
• Find a real estate agent to assist in the house-hunting process and provide expertise in the local market.
8 Steps to Prepare for a Home Purchase
Here are the moves that will help you get ready to buy your dream property:
1. Determining Credit Score
A homebuyer’s credit score can impact their ability to secure a mortgage loan with a desirable rate. It can also affect how much they’ll be required to pay as a down payment when it’s time to close.
Credit score can be influenced by a variety of factors, from payment history to amount of debt (aka credit utilization ratio) to age of credit accounts, mix of credit accounts, and new credit inquiries.
Payment history is the main factor that affects a person’s credit score, accounting for 35% of an overall FICO® score. Missing a payment on any credit account — from unpaid student loans to credit cards, auto loans, and mortgages — can negatively impact a person’s credit score.
On the other hand, positive habits can include making on-time payments, limiting the number of new inquiries on their credit file, and working to pay down outstanding balances.
Is There a Credit Score “Sweet Spot?”
Many buyers wonder whether there’s a desired credit score range or “sweet spot” to obtain a mortgage. Typically, a credit score of 740 or higher will get the best deals (meaning lowest rates).
Credit scores can also affect the amount of the down payment itself. Some mortgage lenders require at least 20% of the house’s sale price be put down, but might offer more flexibility if the buyer’s credit score is in the higher range. A lower credit score, on the other hand, could call for a larger down payment.
Whether homebuyers have debt or not, checking credit reports is still a recommended first step to applying for a mortgage. Understanding the information on credit reports can be invaluable in knowing where you stand when qualifying for a mortgage loan rate.
2. Deciding How Much to Spend
Deciding how much to pay for a new home can be based on a variety of factors including expected and unexpected housing costs, upfront payments and closing costs, and how it all fits into the buyer’s overall budget.
Calculating Housing Costs
There are several housing costs for home purchasers to consider that might affect how much they can afford to offer for the house itself. The costs of ongoing fees like property taxes, homeowner’s insurance, and interest — if the loan isn’t a fixed-rate mortgage — can all lead to an increase in the monthly mortgage payment.
Closing costs are fees associated with the final real estate transaction that go above and beyond the price of the property itself. These costs might include an origination fee paid to the bank or lender for its services in creating the loan, real estate attorney fees, escrow fees, title insurance fees, home inspection and appraisal fees and recording fees, to name a few.
Typically, closing costs are between 2% and 5% of the loan’s amount. To get an idea on how this can impact your budget, use this home affordability calculator to estimate total purchase cost.
In addition to closing costs, expenses that potential homebuyers might want to consider are repairs and updates they might want to make to a home, new furniture, moving costs, or even commuting costs. If you are considering buying in a community with a homeowners association, factor those costs in as well.
Finally, unforeseen costs of a major life event like a layoff or the birth of a new child might not be the first expenses that come to mind. However, some buyers could find themselves making a potential home-buying mistake by not getting their finances in order to prepare for the unexpected.
Making a list of these estimated expenses can help homebuyers calculate how much they can feasibly afford. It can also help them create a budget that could help them avoid being overextended on housing costs, especially if they might be paying other debt or saving for other financial goals.
3. Saving for a Down Payment
Saving money for a house is one of life’s biggest financial goals. And how much they’re able to offer as a down payment can significantly impact the amount of their monthly mortgage payment.
A larger down payment can also be convincing to sellers who see it as evidence of solid finances, sometimes beating out other offers in a competitive housing market.
The typical down payment on a house varies depending on the type of buyer, loan, location, and housing prices. Most recently, the median down payment was 18%, although it was 9% for first-time buyers.
For first-time homebuyers, 18% or even 9% of the price of the home can seem like a daunting figure. Many buyers find that cutting spending on luxury or non-essential items and entertainment can help them save up the funds.
Other tactics could include getting gifts and loans from family members, applying for low down-payment mortgages, withdrawing funds from a retirement account, or receiving assistance from state and local agencies.
For buyers who are also sellers, proceeds from another property could also fund the down payment.
4. Shopping for a Mortgage Lender
There are many mortgage lenders competing for the business of homebuyers who finance their home purchases. These lenders offer a variety of mortgages to apply for, with a few of the most common being conventional/fixed rate, adjustable rate, FHA loans, and VA loans.
Buyers might not realize they can — and should — shop around for a lender before selecting one to work with. Different lenders offer different variations in interest rates, terms, and closing costs, so it can be helpful to conduct adequate research before landing on a particular lender.
Mortgage lenders must provide a home mortgage loan estimate within three business days of receiving a mortgage application. The form is standard — all lenders are required to use the same form, which makes it easier for the applicant to compare information from different lenders and make sure they are getting the best loan for their financial situation.
When comparing loan offers, don’t just look at the interest rate. Examine the annual percentage rate (APR), which factors in costs.
When a buyer is prequalified for a loan, their mortgage lender estimates the loan amount they are qualified for, based on financial information they provided.
When a buyer is preapproved, the lender conducts a thorough investigation into their finances that includes income verification, assets, and credit rating. Preapproval is not a guarantee but tells a buyer that a lender is likely to approve them for a certain amount, as long as they clear the underwriting process.
Having a preapproval letter in hand can help some buyers get ahead in a competitive home market. It shows the would-be owner’s intent to purchase and a lender’s guarantee to back that purchase up.
6. Finding the Right Real Estate Agent
While the internet and popular real estate search websites have made it easier for homebuyers to hunt for a house online, most buyers still solicit the help of a real estate agent to find the right home and negotiate the price and purchase.
Also, many realtors are experts in their particular housing market, so for buyers who are searching in a specific location, a real estate agent may be able to offer valuable insights that might not be revealed online.
7. Exploring Different Neighborhoods
By researching neighborhoods where they might want to purchase a property (both in-person and online), homebuyers can get a better sense of what living in their future community could look like.
Many real estate websites provide comparable listings to help determine a reasonable offer amount in a given neighborhood.
Check out housing market
trends, hot neighborhoods,
and demographics by city.
They may also highlight nearby school ratings, price and tax history, commute times, and neighborhood stats like home value fluctuations or predictions, and walkability ratings.
All of this information can help paint a picture of life in the area a homebuyer chooses to settle in. Doing a deep dive into a desired neighborhood can help inform a more realistic decision on where to buy a house.
8. Kicking off the House Hunt
Once the neighborhoods are whittled down, the loan is preapproved, the real estate agent has been signed, and the savings are set aside, the official house hunt can begin.
With the help of a trusted real estate agent and a housing market with adequate inventory, most homebuyers can begin to book showings, attend open houses, and formally put down an offer on a house they like.
In particularly “hot” markets, houses could receive several offers, so homebuyers might want to be prepared to go through the bidding process with a few properties before they get to that glorious final sale.
Are You Ready to Buy a Home Quiz
The Takeaway
A home may well be the biggest purchase you make and the biggest asset you ever own, so it makes sense to spend some time on the home-buying process. From checking out different mortgage options to getting preapproved for a loan to attending open houses, the process is a valuable one that brings you closer to your dream home.
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 is the 20% rule when buying a house?
The 20% rule typically refers to the idea that a homebuyer should make a 20% down payment. This percentage allows the buyer to avoid paying for private mortgage insurance (PMI) as part of their monthly mortgage payment. It’s hard to come up with that much cash upfront, especially for first-time buyers, and it’s not unusual to see buyers put down less. In fact, eligible first-time homebuyers can purchase with as little as 3% down with some lenders. And some government-backed loans require no down payment at all.
How large a down payment do I need for a $350,000 house?
If you want to put down 20% and avoid paying for private mortgage insurance, you will need to come up with a down payment of $70,000. This may be difficult for some buyers, and it is certainly possible to put down less. Eligible buyers may be able to put down just 3.5%, which on a $350,000 house would be $12,250. And if you buy with a government loan, you may be able to avoid a down payment altogether.
What do I do now if I want to buy a house next year?
Preparing to buy a house one year from now is primarily about strengthening your financial situation. Check your credit score and practice good credit hygiene: Pay your bills on time and clear up any blemishes on your credit report. Try to pay down debt and also to save some money for a down payment and the expenses that come with a home purchase. If you have a particular neighborhood or city in mind, begin to follow listings and local news in the area.
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-criteria 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.
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.
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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
For about 74% of homebuyers, purchasing a home means taking out a mortgage — and a conventional 30-year fixed-rate mortgage is the most popular kind of financing. So what is a conventional mortgage loan?
Conventional mortgages are those that are not insured or guaranteed by the government.
But the fact that conventional mortgages are so popular doesn’t mean that a conventional home loan is right for everyone. Here, learn more about what a conventional home loan is and how it compares to other options, including:
• A conventional mortgage is a loan not backed by the government.
• Offered by private lenders, a conventional mortgage can have a fixed or adjustable interest rate.
• Qualifications for conventional loans are typically stricter than those for government-backed loans.
• Private mortgage insurance is often required for down payments less than 20%.
• Conforming loans must follow guidelines set by Fannie Mae and Freddie Mac.
How Conventional Mortgages Work
How does a conventional mortgage work? Conventional mortgages are home loans that are not backed by a government agency. Provided by private lenders, they are the most common type of home loan. A few points to note:
• Conventional loans are offered by banks, credit unions, and mortgage companies, as well as by two government-sponsored enterprises, known as Fannie Mae and Freddie Mac. (Note: Government-sponsored and government-backed loans are two different things.)
• Conventional mortgages tend to have a higher barrier to entry than government-guaranteed home loans. Because of what a conventional mortgage loan is – a loan that you are personally responsible for repaying – lenders want to feel secure that you’ll be able to make good. You might need a better credit score and pay more in interest, for example. Government-backed FHA loans, VA loans, and USDA loans, on the other hand, are designed for certain kinds of homebuyers or homes and are often easier to qualify for. You’ll learn more about them below.
• Among conventional loans, you’ll find substantial variety. You’ll have a choice of term length (how long you have to pay off the loan with installments), and you’ll probably have a choice between fixed-rate and adjustable-rate products. Keep reading for more detail on these options.
• Because the government isn’t offering any assurances to the lender that you will pay back that loan, you’ll need to prove you are a good risk. That’s why lenders look at things like your credit score and down payment amount when deciding whether to offer you a conventional mortgage and at what rate.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Conventional vs Conforming Loans
As you pursue a home loan, you’ll likely hear the phrases “conventional loan” and “conforming loan.” Are they the same thing? Not exactly. Let’s spell out the difference:
• A conforming loan is one in which the underlying terms and conditions adhere to the funding criteria of Freddie Mac and Fannie Mae. There’s a limit to how big the loan can be, and this figure is determined each year by the Federal Housing Finance Agency, or FHFA. For 2026, that ceiling is set at $832,750 for a one-family home in most of the United States. (It is a higher number for those purchasing in certain high-cost areas; you can see the limit for your specific location on the FHFA web site.)
So all conforming loans are conventional loans. But what is a conventional mortgage may not be conforming. If, for instance, you apply for a jumbo mortgage (meaning one that’s more than $832,750 in 2026), you’d be hoping to be approved for a conventional loan. It would not, however, be a conforming mortgage because the amount is over the limit that Freddie Mac or Fannie Mae would back.
Types of Conventional Loans
When you’re researching, “What is a conventional loan?” you’ll learn that it’s not just one single product. There are many options, such as how long a term (you may look at 15- and 30-year, as well as other time frames). Perhaps one of the most important decisions is whether you want to opt for a fixed or adjustable rate.
Fixed Rate Conventional Loans
A conventional loan with a fixed interest rate is one in which the rate won’t change over the life of the loan. If you have one of these “fully amortized conventional loans,” as they are sometimes called, your monthly principal and interest payment will stay the same each month.
Although fixed-rate loans can provide predictability when it comes to payments, they may have higher interest rates than the initial ones offered by adjustable-rate mortgages.
Fixed-rate conventional loans can be a great option for homebuyers during periods of low rates because they can lock in a rate and it won’t rise, even decades from now.
Adjustable Rate Conventional Loans
Adjustable-rate mortgages (sometimes called variable rate loans) have the same interest rate for a set period of time, and then the rate will adjust for the rest of the loan term.
The major upside to choosing an ARM is that the initial rate is usually set below prevailing interest rates and remains constant for a specific amount of time, from six months to 10 years.
There’s a bit of lingo to learn with these loans. A 7/6 ARM of 30 years will have a fixed rate for the first seven years, and then the rate will adjust once every six months over the remaining 23 years, keeping in sync with prevailing rates. A 5/1 ARM will have a fixed rate for five years, followed by a variable rate that adjusts every year.
An ARM may be a good option if you’re not planning on staying in the home that long. The downside, of course, is that if you do stay put, your interest rate could end up higher than you want it to be.
Most adjustable-rate conventional mortgages have limits on how much the interest rate can increase over time. These caps protect a borrower from facing an unexpectedly steep rate hike.
Also, read the fine print and see if your introductory rate will adjust downward if rates shift lower over the course of the loan. Don’t assume they will.
How Are Conventional Home Loans Different From Other Loans?
Wondering how a conventional loan works vs. government-backed loans? Keep reading to learn more.
Conventional Loans vs. FHA Loans
Not sure if a conventional or FHA loan is better for you? FHA loans are geared toward lower- and middle-income buyers; these mortgages can offer a more affordable way to join the ranks of homeowners. Unlike conventional loans, FHA loans are insured by the Federal Housing Administration, so lenders take on less risk. If a borrower defaults, the FHA will help the lender recoup some of the lost costs.
But are FHA loans right for you, the borrower? Here are some of the key differences between FHA loans and conventional ones:
• FHA loans are usually easier to qualify for. Conventional loans typically need a credit score of at least 620 and at least 3% down. With an FHA loan, you may get approved with a credit score as low as 500 with 10% down or 580 if you put down 3.5%.
• Unlike conventional loans, FHA loans are limited to a certain amount of money, depending on the geographic location of the house you’re buying. The lender administering the FHA loan can impose its own requirements as well.
• An FHA loan can be a good option for a buyer with a lower credit score, but it also will require a more rigorous home appraisal and possibly a longer approval process than a conventional loan.
• Conventional loans require private mortgage insurance (PMI) if the down payment is less than 20%, but PMI will terminate once you reach 22% equity. FHA loans, however, require mortgage insurance for the life of the loan if you put less than 10% down.
Not everyone has the choice between conventional and VA loans, which are backed by the U.S. Department of Veterans Affairs. Conventional loans are available to all who qualify, but VA loans are only accessible to those who are veterans, active-duty military, National Guard or Reserve members, or surviving spouses of those who served.
VA loans offer a number of perks that conventional loans don’t:
• No down payment is needed.
• No PMI is required, which is a good thing, because it’s typically anywhere from 0.46% to 1.5% of the original loan amount per year.
There are a couple of potential drawbacks to be aware of:
• Most VA loans demand that you pay what’s known as a funding fee. This is typically 1.25% to 3.3% of the loan amount.
• A VA loan must be used for a primary residence; no second homes are eligible.
Conventional Loans vs USDA Loans
Curious if you should apply for a USDA loan vs. a conventional loan? Consider this: No matter where in America your dream house is, you can likely apply for a conventional loan. Loans backed by the U.S. Department of Agriculture, however, are only available for use when buying a property in a qualifying rural area. The goal is to encourage people to move into certain areas and help them along with accessible loans. (Note: SoFi does not offer USDA loans, but we do offer FHA and VA loans.)
Beyond this stipulation, consider these upsides of USDA loans vs. conventional loans:
• USDA loans can offer a very affordable interest rate versus other loans.
• USDA loans are available without a down payment.
• These loans don’t require PMI.
But, to provide full disclosure, there are some downsides, beyond limited geographic availability:
• USDA loans have income-based eligibility requirements. The loans are designed for lower- and middle-income potential home buyers, but the exact cap on income will depend on your geographic area and how many household members you have.
• This program requires that the loan holder pay a guarantee fee, which is typically 1% of the loan’s total amount.
Pros and Cons of Conventional Mortgage Loans
Now that you’ve learned what a conventional home loan is and how it compares to some other options, let’s do a quick recap of the pros and cons of conventional loans.
Benefits of Conventional Loans
The upsides are:
• Competitive rates. Rates may seem high, but they are still far from their high point of 16.63% in 1981. Plus, lenders want your business and you may be able to find attractive offers. You can use a mortgage calculator to see how even a small adjustment in interest rates can impact your monthly payments and interest payments over the life of the loan.
• The ability to buy with little money down. Some conventional mortgages can be had with just 3% down for first-time homebuyers.
• PMI isn’t forever. Once you have achieved 22% equity in your property, your PMI can be canceled.
• Flexibility. There are different conventional mortgages to suit your needs, such as fixed- and variable-rate home loans. Also, these mortgages can be used for primary residences (whether single- or multi-family), second homes, and other variations.
Drawbacks of Conventional Loans
Now, the downsides of conventional loans:
• PMI. If your mortgage involves a small down payment, you do have to pay that PMI until you reach a target number, such as 2% equity.
• Tougher qualifications vs. government programs. You’ll usually need a credit score of 620 and, with that number, your rate will likely be higher than it would be if you had a higher score.
• Stricter debt-to-income (DTI) ratio requirements. It’s likely that lenders will want to see a 45% DTI ratio. (DTI is your total monthly recurring payments divided by your monthly gross income.) Government programs have less rigorous qualifications.
The Takeaway
A conventional home loan — meaning a loan not guaranteed by the government — is a very popular option for homebuyers, so it’s important to understand how conventional loans work. These mortgages have their pros and cons, as well as variations. It’s also important to know how they differ from government-backed loans, so you can choose the right product to suit your needs. Buying a home is a major step and a big investment, so you want to get the mortgage that suits you best.
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 is the minimum down payment for a conventional loan?
In most cases, 3% of the purchase price is the lowest amount possible and that minimum is usually reserved for first-time homebuyers — a group that can include people who have not purchased a primary residence in the last three years.
How many conventional loans can you have?
A lot! The Federal National Mortgage Association (FNMA, aka Fannie Mae) allows a person to have up to 10 properties with conventional financing. Just remember, you’ll have to convince a lender that you are a good risk for each and every loan.
Do all conventional loans require PMI?
Most lenders require PMI (private mortgage insurance) if you are putting less than 20% down when purchasing a property. However, you may find some PMI-free loans available. They typically have a higher interest rate, though, so make sure they are worthwhile given your particular situation.
What is required to apply for a conventional home loan?
While different conventional mortgage lenders may have different requirements, typically they like borrowers who can put down a substantial down payment (though not necessarily as much as 20%), have a credit rating of 620 or more, and can show that they’ll be able to afford their monthly mortgage payments.
Can you buy a foreclosed home with a conventional loan?
You can buy many kinds of foreclosed homes with a conventional mortgage. However, if you purchase a foreclosure on auction, you will probably need to pay for it in cash. Depending on your eligibility, you may also be able to use an FHA loan, a VA loan, or a USDA loan. If you’re planning to get financing for a foreclosure, it may be a good idea to get preapproved in advance so you’ll be ready when you find a property you like.
Is a home inspection required for a conventional loan?
Typically, home inspections are not required for conventional loans. However, individual lenders may require or suggest a home inspection at their discretion. They may also want an appraisal to determine the fair market value of the house, but that will not generally check for the kind of issues a home inspection should find, like structural problems or systems that aren’t working well.
What is the maximum loan amount for a conventional loan?
Technically, there is no maximum loan amount for a conventional loan. However, mortgages acquired by Fannie Mae and Freddie Mac must be for no more than the conforming loan limits, which are issued every year. For 2026, the conforming loan limit on a one-family residence mortgage in most parts of the U.S. is $832,750.
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-criteria 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.
†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.
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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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Closing costs average 2% to 5% of your mortgage loan principal. So even if you’ve saved for a down payment on a new place, you are likely going to have to dig somewhat deeper to afford to seal the deal. How deep, you ask? For buyers, closing costs can add up to a significant sum.
Whether you are a first-time homebuyer or a seasoned property purchaser, it’s wise to know what to expect, in terms of both money and process, when it’s time to gather at the closing table. Payments will be due from both the buyer and the seller.
Get ready to delve into this important home-buying topic and learn:
• What are closing costs?
• How much are closing costs on a house?
• Who pays closing costs?
• How much are closing costs for the buyer and the seller?
• How can you lower closing costs?
What Are Closing Costs?
Closing costs are the fees needed to pay the professionals and businesses involved in securing a new home. These range from fees charged by appraisers, real estate agents, and title companies, to lender and home warranty fees.
Here are some key points to know:
• When you apply for a mortgage loan, each lender must provide a loan estimate within three business days. This will give you information such as closing costs, interest rate, and monthly payment. Review those closing costs carefully.
• Your closing costs will depend on the sale price of the home, the fees the chosen lender charges, the type of loan and property, and your credit score.
• Closing costs are traditionally divided between the buyer and seller, so you won’t necessarily be on the hook for the whole bill. That said, the exact division between buyer and seller will depend on your individual circumstances and can even be a point of negotiation when you make an offer on a house.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
How Much Are Closing Costs?
As noted above, average closing costs on a house typically range from 2% to 5% of the mortgage principal. Let’s say you take out a $300,000 mortgage loan to buy a house with an agreed-upon sale price of $350,000. Your closing costs could be between $6,000 and $15,000, or 2% and 5%.
Be aware that a “no closing cost mortgage” often means a higher rate and a lot more interest paid over the life of the loan. The lender will pay for many of the initial closing costs and fees but charge a higher interest rate.
Good news if you are buying a HUD home: HUD will pay some of the closing costs as well as the real estate commission fee usually paid by the seller.
The tool below is a home affordability calculator, and it’s a great way to also see what the potential closing costs and additional monthly costs would be based on how much home you can afford.
Who Pays Closing Costs?
Typically, closing costs are paid by both the buyer and the seller. Each has their own responsibilities to uphold.
Some fees are specific to the purchase and are payable by the buyer. These include title search, prepaid interest on the mortgage loan, and more.
Other costs are the seller’s responsibility: paying the real estate agent and so forth. Read on to learn more about who pays for what when closing on a home sale.
How Much Are Closing Costs for a Buyer?
Typically, the buyer pays the following closing costs:
• Abstract and recording fees: These fees relate to summarizing the title search (more on that below) and then filing deeds and documentation with the local department of public records. You may find that abstract fees can cost anywhere from $200 to $1,000, and recording fees in the range of $125.
• Application fee: Your lender may charge you to process your application for a mortgage loan. This could cost up to $500.
• Appraisal and survey fees: It is easy to be wooed by pristine wood floors and dining room walls covered in vintage wallpaper, but surface good looks will only get you so far. You and your lender want to make sure that your potential new home is actually worth the purchase price. This means paying professionals to delve more deeply and provide a current market value. These home appraisal and survey fees are typically due at closing. This is usually in the $300 to $600 range, but could be considerably higher, depending on the home, its location, and other factors.
• Attorney costs: Working with a real estate attorney to review and vet documents may be an hourly rate (typically $150 to $500 per hour) or a project fee (such as $750 or $1,500). The specifics will vary depending on the individual professional you use, your location, and how complex your purchase is.
• Credit reporting, underwriting, and origination fees: The lender may charge anywhere from $10 to $100 per applicant to check their credit score; underwriting fees (often in the $300 to $750 range) may also be added to closing costs. Origination fees can be about 0.5% to 1% of your loan’s value and cover the costs of the lender creating your loan documents.
• Flood certification fee: The lender may require a flood certification, which states the flood zone status of the property. This could cost anywhere from $170 to $2,000, depending on your state.
• Home inspection fee: This will likely cost between $187 and $510, but it could go higher. This is paid by the buyer, who is commissioning the work to learn about the home’s condition. In some cases, it may be paid at the time of service rather than at closing.
• Homeowners insurance: Your lender may require you to take out homeowners insurance. The first payment may be due at closing. The exact amount will depend on your home value and other specifics of your policy.
• Home warranty: A home warranty is optional and can be purchased to protect against major mechanical problems. A warranty plan may be offered by the seller as part of the deal, or a buyer can purchase one from a private company. Your lender, however, will not require a home warranty.
• Mortgage points: Each mortgage point you choose to buy costs 1% of your mortgage amount and typically lowers your mortgage rate by 0.25% per point. That point money you are paying upfront is due at closing. All the mortgage fees will be spelled out in the mortgage note at the closing.
• Prepaid interest: Some interest on your mortgage is probably going to accrue between your closing date and when the first payment is due on your loan. That will vary with your principal and interest rate, but will be due at closing.
• Private mortgage insurance: Often lenders require PMI if you make a down payment that is less than 20% of the purchase price. Putting less money down can make a buyer look less reliable when it comes to repaying debt in the eyes of lenders. They require this premium to protect themselves. This is usually a fee that you pay monthly, but the first year’s premium can also be paid at the time of closing. Expect a full year to cost between .5% and 2% of the original loan amount. Expect to pay between $3o and $70 a month for every $100,000 you are borrowing.
• Title search and title insurance fees: When a title search is done to see if there are any other claims on the property in question, the buyer typically pays the fee, which is usually in the $75 to $200 range. The lender often requires title insurance as a protection. This is likely a one-time fee that costs between 0.1% and 2% of the sale price. If your house costs $400,000, the title insurance could be between $4,000 and $8,000.
As you see, some of these fees will vary greatly depending on your specific situation, but they do add up. You’ll want to be sure to estimate how much closing costs are for a buyer and then budget for them before you head to your closing.
You may also wonder what closing costs are if you are selling your home. Here are some of the fees you are likely liable for at closing:
• Real estate agent commission: Typically, the seller pays the agent a percentage of the sale price of the home at closing, often out of the proceeds from the sale. The commission is likely to be in the 3% to 6% range, and may be equally split between the buyer’s and seller’s agents.
• Homeowners association fees: If the home being sold is in a location with a homeowners association (HOA), any unpaid fees must be taken care of by the seller at closing. The actual cost will depend upon the home being sold and the HOA’s charges.
• Property taxes: The seller must keep these fees current at closing and not leave the buyer with any unpaid charges. These charges will vary depending on the property and location.
• Title fees: The seller will probably pay for the costs associated with transferring the title for the property.
It’s important for sellers to anticipate these costs in order to know just how much they will walk away with after selling a home.
How to Reduce Closing Costs
Closing costs can certainly add up. Here are some ways to potentially lower your costs.
• Shop around. Compare lenders not just on the basis of interest rates but also the fees they charge. Not every mortgage lender will charge, say, an application, rate lock, loan processing, and underwriting fee. See where you can get a competitive rate and avoid excess fees.
• Schedule your closing for the end of the month. This can lower your prepaid interest charges.
• Seek help from your seller. You might be able to get the seller to pay some of your closing costs if they are motivated to push the deal through. For instance, if the property has sat for a while, they might be open to covering some fees to nudge the sale along.
• Transfer some costs into your mortgage payments. You may be able to roll some costs into the mortgage loan. But beware: You’ll be raising your principal and interest payments, and might even get stuck with a higher interest rate. Proceed with caution.
Other Costs of Buying a Home
In addition to your down payment and closing costs, you also need to make sure that you can afford the full monthly costs of your new home. That means figuring out not only your monthly mortgage payment but all the ancillary costs that go along with it.
Understanding and preparing for these costs can help ensure that you are in sound financial shape for your first few years of homeownership:
Principal and interest. Your principal and interest payment is the amount that you are paying on your home loan. This can be estimated by plugging your sales price, down payment, and interest rate into a mortgage calculator. This number is likely to be the biggest monthly expense of homeownership.
Insurance. Your homeowners insurance cost should be factored into your monthly ownership expenses. Your insurance agent can provide you with details on what this policy will cover.
Property taxes. Property tax rates vary throughout the country. The rates are typically set by the local taxing authorities and may include county and city taxes. It’s important to factor in these costs as you think about your ongoing home-related expenses.
Private mortgage insurance. As mentioned, PMI may be required with a down payment of less than 20%. PMI is usually required until you have at least 20% equity in your home based on your original loan terms.
Homeowners association fees. If you live in a condo or planned community, you may also be responsible for a monthly homeowners association fee for upkeep in the common areas in your community.
Of course, these are just some of the things to budget for after buying a home. Your needs will depend on whether you are moving a long distance, whether you have owned a home before, and other factors. It’s a lot to think about, but it’s an exciting time.
The Takeaway
Before buyers can close the door to their new home behind them and exhale, they must be able to afford their down payment, qualify for a mortgage loan, and pay the closing costs — usually 2% to 5% of the loan amount. A home loan hunter may want to compare estimated closing costs in addition to rates when choosing a lender. It can be a smart way to keep expenses down.
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 can I estimate closing costs?
Typically, closing costs will cost between 2% and 5% of your home loan’s amount.
When do I pay closing costs?
Your closing costs are typically paid at your closing. That is when you take ownership of the property and when your home mortgage officially begins.
*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.
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-criteria 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.
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.
You may not think of saving money as being a creative pursuit, but with a little effort, you can find fresh (and even fun) ways to help you stash away some cash. This can make the process more engaging and motivating.
Whether your goal is to save for the down payment on a house, build up your kid’s college fund, or simply take a great vacation next year, these clever ways to save money can help you get there — without feeling bored or deprived. Get set to save more.
Key Points
• Set clear, specific savings goals to stay motivated and focused.
• Automate savings by setting up monthly transfers and using round-up apps.
• Reduce expenses by negotiating bills and switching to a bank that charges low or no fees.
• Make savings fun with challenges, milestones, and a savings buddy.
• Increase income through side gigs, freelancing, and selling unused items.
15 Creative Ideas to Save Money
You’re probably familiar with some of the usual strategies for saving money, such as comparison shopping and clipping coupons. If you’re ready to mix things up and try some less common tactics, consider the following 15 quirky but effective ideas.
1. Identify Your Saving Goals
Not sure how to make saving money fun or prioritize it? You could start by identifying your goals, a target savings amount, and a timeline for achieving them. For example, if you’re saving up to purchase a car in one year, determine how much you’ll need, then divide that amount by 12 to come up with a monthly savings goal. You might even open up a separate savings account earmarked for a new car. Seeing your “car” account grow over time can motivate you to keep going, even throw in some extra cash whenever you can.
2. Find a Saving Buddy
With the right company, even the most mundane tasks can be enjoyable. You might talk about your savings goals with your friends and family members to potentially identify a saving buddy with similar objectives.
An ideal saving buddy will be supportive of your financial goals, offer good advice, and have a positive money mindset.
Checking in with your buddy regularly could help keep you both stay on track and you can celebrate each other’s accomplishments. This person might also be able to talk you down if you’re on the verge of making a big impulse buy. If you’re stressed about how to make saving money fun, you could brainstorm creative tactics with your saving buddy and implement them together.
3. Seek Out Free Activities
Saving money does not have to be synonymous with missing out. There are likely a number of free activities offered in your area. Perhaps your local park offers free theater performances or concerts in the summer, or your area bookstore hosts interesting literary panels and author discussions with no attendance fee. This can be a great alternative to pricey movie or concert tickets.
Also think about the resources provided by your local library, such as book clubs, language exchange programs, craft nights, and movie screenings. You might also find a way to save money on streaming services: Many libraries offer services like Hoopla or Kanopy at no cost to card holders.
4. Get Creative and DIY
Another clever way to save money is to think about what you could create rather than buy new. For example, you may be able to make your own household cleaning products with items you already own (like vinegar and baking soda) or whip up a facial mask using fresh ingredients like avocado, tea, honey, and oatmeal. Out of wrapping paper? You don’t necessarily need to run to the store. Consider using old newspapers, maps, magazines, brown paper bags, or scraps of fabric. It’s free – and kinder to the earth.
5. Gamify Savings
To break up the monotony of saving, consider incorporating games and challenges into your overall savings plan. For example, you might try a “no-spend week,” where you refrain from spending money on anything other than necessities for seven days. If you succeed at that, you might want to ramp up to a 30-day no-spend challenge.
If a full no-spend challenge feels like too much, you could simply challenge yourself to not spend in a certain category for one month, like clothing, shoes, or take-out. You might choose something else the next month to keep the savings going.
6. Swap Goods and Trade Skills
Getting serious about money management doesn’t mean you need to give up on “luxuries” like exercise classes or new clothes. Rather than pay cash, you might explore trading skills or goods for pricey things or experiences on your wish list. For example, you could see if your favorite yoga studio offers a work-trade program where you can do administrative duties in exchange for classes. Or if your wardrobe needs a refresh, consider setting up a clothing swap with friends to score finds — and have fun — at no cost.
You might also consider an informal exchange with skilled friends. For example, if you’ve been eyeing an original painting from your artist pal but don’t have the funds to pay her, you could offer your website design services (or some other helpful skills) for the painting.
Increase your savings with a limited-time APY boost.*
*Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking & Savings account and enroll in SoFi Plus by 1/31/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.
7. Increase Income
Sometimes, cutting down on expenses might not be the most effective way to reach a savings goal. It might be easier, in some cases, to look for ways to make more money rather than reduce costs.
If a salary raise isn’t in the offing, you might consider your particular skills and/or hobbies to see if there is a way to translate one of them into an income stream. For example, if you love to knit, you might start an online store for your yarn creations. Or if you’re a wordsmith, you could potentially offer your writing or editing services in a freelance capacity. A successful low-cost side hustle could help bring additional money into your bank account and even add more fun and enjoyment in your life.
8. Switch Your Bank
If your financial institution seems to be charging you endless fees and offers little interest on your savings account, consider switching banks.
You might shop around and see what online banks and local credit unions are offering. Online-only institutions don’t have brick-and-mortar locations to fund and can pass those savings along to customers in the form of lower or no fees and higher interest rates. Credit unions, on the other hand, are run as financial co-ops, meaning each member has a stake in business. As nonprofits, they are designed to serve their members, typically paying higher interest rates on deposits and charging lower fees.
9. Split Your Direct Deposit into Checking and Savings
If you have regular paychecks, one of the easiest ways to start saving more is to have some of each paycheck go directly into a savings account, where you’ll be less tempted to spend it. Many employers will allow you to do a split direct deposit, where some of your pay goes into your checking account and some goes into your savings account. Evening saving off 5% or 10% of your paycheck each pay period can add up to a serious sum over time. If you choose a high yield account, you can help your savings grow faster.
If you don’t have the option to split up your paycheck or would prefer not to, another way to automate savings is to set up a recurring monthly transfer from checking to savings for the same day each month, perhaps the day after you get paid. You won’t have to remember to make the transfer or give saving a second thought.
10. Change Your Due Dates for Bills
If you frequently overdraft your checking account or have to pull money from savings to cover bills, consider this unique way to save money: Changing some of your billing due dates.
Moving due dates for large payments — like credit card bills or student loans — away from the due date for your rent or mortgage, could help you avoid getting hit with overdraft or non-sufficient fund (NSF) fees. It can also keep you from transferring money from savings to checking to cover a temporary shortfall, and then never transferring it back.
11. Save Every $5 Bill
This is a classic adult remix of the piggy bank you had as a kid. Only this time, instead of squirreling away pocket change, you take every $5 you get and put it in an envelope tucked into the back of a drawer.
Once you get into the habit of identifying $5’s as “no spend” bills, you’ll find it can really be a creative way to save money. You likely won’t miss the money (it’s just $5) but at the end of the year, it could easily add up to enough cash to help with holiday shopping, a loan payment, or even a nice charity donation, without having to touch your savings in the bank.
Need another clever way to save money? Look for a credit card that offers a good rewards program like SoFi Plus. Depending on the card, you may be able to redeem cash back rewards as statement credits, checks, or direct deposits. Just keep in mind that a cash back credit card isn’t a good saving solution if you tend to carry a balance — the money you’ll pay in interest is likely to be significantly higher than your rewards rate.
13. Round Up Your Purchases Automatically
There are plenty of apps available that will round up your purchase to the nearest dollar and then save the change for you. Your bank may offer this kind of savings tool, which can be an easy way to save money automatically.
The amount these apps save for you is small, so you aren’t likely to notice 25 or 80 cents here and there when the round-up transfers, but it can potentially add up to hundreds saved per year.
14. Consolidate Credit Card Debt with a Personal Loan
If credit card debt is preventing you from saving as much as you would like, you might use a personal loan as a creative way to save some extra money every month.
If you can qualify for a personal loan with a significantly lower interest rate than you’re paying on your credit card balances, you could use it to pay off your credit cards. While you’ll still be paying off the personal loan, you could save on interest. You might also be able to pay off your debt faster. Once your loan is paid off, you can redirect those monthly payments to your savings account.
15. Take Advantage of an Employer’s 401(k) Match
If your employer offers a match on your 401(k) savings, it’s wise to take full advantage — this is essentially free money. For example, if your employer matches 50% of employee contributions up to 5% of your salary, consider putting at least 5% of your paycheck into your retirement account each month. Otherwise you’ll be leaving money on the table.
Creative Savings Challenges to Try
Saving money can feel like a chore, but making it a fun challenge can turn it into an exciting goal. Here are some ways to keep things interesting.
• 52-Week Savings Challenge: This challenge encourages you to save a small, increasing amount each week. Start with $1 in the first week, $2 in the second, and so on until you reach $52 in the final week. By the end of the year, you’ll have saved $1,378.
• Receipt Challenge: Love to shop sales or use coupons? Collect your receipts that show your purchase savings in a drawer. Once a month, add up your savings, then transfer that amount into your savings account.
• 100 Envelope Challenge: Label 100 envelopes with numbers from 1 to 100. Each day (or week), pick an envelope randomly and place the corresponding amount inside. If you complete all envelopes, you’ll save $5,050!
• Vacation Savings Challenge: A year before you want to go away, set a savings goal that will cover all of your vacation costs (including airfare, lodging, and spending money). Divide that total by 12, and transfer that amount into a savings account each month.
How To Stay Motivated to Save Money
Staying motivated to save money requires setting clear goals and making saving a rewarding habit. A good place to start is by defining a specific reason for saving, whether it’s for an emergency fund, a vacation, or a major purchase. Next, break your savings into small, manageable milestones to make it feel achievable.
Tracking your progress with a savings app or chart, and sprinkling in fun challenges (like a $5 or no-spend challenge), can also help you stay motivated. In addition, you might reward yourself for reaching savings milestones with a low-cost treat, like going out for ice cream or a fancy coffee.
Why Is Making Saving Money Fun Important?
Trying tactics like the ones above can help make saving money feel less like deprivation and more like fun. That’s important for a couple of reasons. Shaking up your savings routine can make socking away cash seem fresh and more engaging, meaning you are more likely to get the job done. Basically, it can rev up your motivation to save money.
Also, when you find a technique that is fun, such as a spending challenge, it can help encode the new savings behavior in your routine. If it’s enjoyable, you are more likely to keep up the good work.
How Can You Make the Most of the Money You Save?
When you save money, you likely want it to grow over time, not just sit there. One good way to do that is to stash your money in an interest-earning account. This can be especially effective if the financial institution charges low or no banking fees.
You might look for a high-interest or high-yield savings account. These can pay a significantly higher rate than standard savings accounts, and your money will be accessible and likely insured (up to certain limits) by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).
Optimizing Your Savings
Beyond the creative ways listed above, there are other important ways to optimize your savings.
• Assess your cash flow. Coming up with a basic monthly budget can help you better understand your personal finances and get a grip on your earnings, spending, and savings. When you see where your money goes, you can tweak your spending to help funnel more towards savings.
• Negotiate your bills. You may be able to reduce some of your recurring bills (such as cable, car insurance, and cell phone) by negotiating a lower rate or switching to another service provider. Even a small reduction in a monthly bill can save significant cash by the end of the year.
• Lower your living costs. If you’re living well beyond your means, one dramatic shift that can help you save more is to move to an area that has a lower cost of living. Whether that means moving across town or across the country, it could make a major difference in your finances.
The Takeaway
Putting away money for your short- and long-term goals doesn’t have to be a boring task — there are countless fun ways to save money that can be customized to your specific financial needs and wants. From finding a savings buddy to gamifying the saving process, creative tactics can help enhance your motivation and your ability to put away cash.
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 3.60% APY on SoFi Checking and Savings with eligible direct deposit.
FAQ
What is a clever way to save money?
There are several clever ways to save money. Automating savings so you don’t have to remember to transfer funds is one good tactic; so is giving yourself a “no-spend” challenge, finding free activities, and doing a skills swap (i.e., bartering your expertise/skills to receive a service or product in return for free).
How can you save $1000 in 30 days?
To save $1,000 in 30 days, you might try a “no spend” challenge. This involves putting a freeze on all non-essential spending for a full month. You might also try selling items you no longer want online, taking on a side gig or freelance project, cancelling unnecessary subscriptions (like streaming channels you rarely watch or a gym membership you don’t use), and meal-prepping to save money on food.
What is the 50-30-20 rule?
The 50-30-20 rule is a budgeting method that divides your income into three categories: 50% for needs (rent, utilities, groceries, minimum debt payments), 30% for wants (entertainment, dining out, hobbies), and 20% for savings and extra debt payments. This structure can provide a starting framework for money management, but you may need to adjust the formula based on your monthly living expenses and savings goals.
How can I use automated tools to help save money?
One of the easiest ways to automate saving is to set up a recurring monthly transfer from your checking account to your savings account on the day after you get paid. Or, if your employer offers split direct deposit, you could have most of your paycheck go into checking, and a small portion go directly into savings.
You might also try a “round-up” app: Each time you make a purchase, the app will automatically round it up to the nearest dollar and deposit the difference into savings.
What is the best method to start a savings habit?
One of the best ways to start a savings habit is by making it automatic. You can do this by setting up a recurring transfer from your checking to your savings account for a set amount on the same day each month, perhaps the day after you get paid. It’s fine to start small, even just $5 a week, and gradually increase the amount over time.
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Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.
See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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