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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:

•   How do conventional mortgages work?

•   What are the different types of conventional loans?

•   How do conventional loans compare to other mortgages?

•   What are the pros and cons of conventional mortgages?

•   How do you qualify for a conventional loan?

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.

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.

Recommended: Fixed-Rate vs Adjustable-Rate Mortgages

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.

Recommended: Private Mortgage Insurance (PMI) vs Mortgage Insurance Premium (MIP)

Conventional Loans vs VA Loans

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.

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.

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SOHL-Q225-011

Buying a house is a major rite of passage. While it’s fun to imagine what kind of home you’ll buy (A farmhouse? Mid-century modern?), how you’ll renovate it, and what it will be like to have your own space, buying a home also requires considerable planning and financial discipline.

After all, buying a home is often the largest financial transaction you will ever make, and it can be the biggest investment of your lifetime, too; a key source of growing your personal wealth. Here is the advice you need on:

•  How to prepare for buying a home

•  How to save money for a house, including the down payment

•  How to budget for owning a house.

What You Need to Know Before Saving for a House

Here are some important first steps toward homeownership.

Understand Your Finances

Many people have debt these days, whether student loans, a personal loan, credit card debt, a car loan, or a combination of some (or all) of these. A lot of debt could hinder your ability to save for a home and qualify for a home loan.

A number of factors come into play when you’re applying for a mortgage, including your debt-to-income ratio (DTI). Your DTI looks at how your debt relates to the money you have coming in; what percentage of your income must go to paying what you owe. Lenders use this number to assess your risk as a customer — whether you have too much debt to be able to afford your monthly mortgage payments.

Qualifying DTIs can vary depending upon elements such as credit, type of property, and others. Typically, lenders look for a DTI of 45% or, ideally, lower. They generally prefer that your DTI be closer to 36% or perhaps even lower. For this reason, as you focus on becoming a homeowner, you may want to try lowering or even eliminating your debt.

•   The snowball method involves listing all your debts, then putting extra money toward your lowest balance first while paying the minimum on the others. Once that debt is paid off, you can apply that entire payment to your next debt on top of the minimum, and then rinse and repeat.

•   The avalanche method is similar, however it focuses on the highest-interest balance first. By eliminating that high-interest debt at the start, the theory goes, you’ll pay less debt over time as the money starts to roll downhill into your other payments.

•  The snowflake method is a bit different in that the objective is to put any and all extra money (not already budgeted) toward debt as often as possible. Called micropayments, these can be anything from credit-card cash back to the money you pocket by eating at home instead of a restaurant. That holiday money from Grandma? Goes toward debt. Same with any work bonuses.

Debt consolidation loans or refinancing are two other ways that could potentially allow you to get out from under high interest payments. While they won’t eliminate your debt, with better terms, they could help reduce the number of monthly payments you’re responsible for.

Determine Your Budget

Understanding how much house you can afford is a vital step when you are contemplating buying a house. There are several factors to consider, including the home’s price, meaning how much of a down payment you can make and how much the home mortgage loan for the remaining amount will cost you. (There are other costs to consider, too; more on those below.)

You will likely find this information by doing some research online, trying out home mortgage calculators, and talking to friends and family who are homeowners.

Research Potential Mortgages

As mentioned above, understanding your potential down payment and monthly mortgage payments is an important step.

It’s also wise to acquaint yourself with the different kinds of mortgages. You may think it’s just a matter of snagging the lowest interest rate out there, but there’s more to the equation:

•  Options for low- and no-money-down loans. These are available via various programs, such as VA loans for those who are active members of the military or veterans.

•  Fixed- vs. variable-rate mortgages. One may be a better option than the other, depending on your financial needs and how long you plan to live in the home.

•  The different terms possible for mortgages are another factor. While many people may think of a mortgage as a 30-year commitment, there are also loans ranging from 10 to 40 years in length. Depending on your financial resources and cash flow, you may want something other than a 30-year mortgage.

Establish a Solid Budget

As you look for the best way to save for a house, it’s wise to have a solid budget to help you track your money and make sure it goes where you want. That might mean funneling money toward your down payment fund as well as toward paying off debt. There are different budgeting methods you might use.

One popular one is the 50/30/20 rule. In this budget, you allocate 50% of your after-tax dollars to needs, 30% to wants, and 20% to savings.

There are many tools that can help you with budgeting, including apps. You may find that your financial institution’s app includes ways to track your spending and automate your savings.

Automating your savings can be an excellent way to help save a down payment (you’ll learn more about this in a moment). This means that money is seamlessly transferred from your checking to your designated savings account. You don’t have to expend any effort; nor do you see that money bound for savings sitting in checking where you might spend it.

Save for a Down Payment

While there are (as mentioned above) a variety of ways to save for a down payment, consider the fact that it’s a myth that you must put 20% down on a house. The reality, though, is that the median down payment on a conventional loan was around 18% last year and 9% for first-time homebuyers, according to data from the National Association of Realtors®.

To come to your real-life goal for a down payment, you can start by calculating how much house you can afford.

One option you can look into for your mortgage loan is government programs that offer low or no-down-payment mortgage options:

•  Federal Housing Administration (FHA) loans are government-backed loans. For those that qualify, they may require only a 3.5% down payment with a credit score of 580 or higher. Loan limits apply by property location.

•  United States Department of Agriculture (USDA) loans offer up to 100% financing in rural areas for eligible properties and borrowers. (SoFi does not offer USDA loans, but we do offer FHA and VA loans.)

•  Veterans Administration (VA) loans , as noted above, are available for military service and eligible family members with up to 100% financing.

Even though 20% down isn’t a given these days, it might still be a good idea for a number of reasons if you can swing it. First, you avoid paying private mortgage insurance (PMI), which is used to insure the lender against loss on a loan with less than 20% down. Putting 20% down could potentially mean lower monthly payments, less interest overall, and a quicker path to home equity.

Then, you can find ways to save up for a house, which can range from setting up recurring transfers into a high-yield savings account to investing in the market (more on that below). You might also consider selling stuff you no longer need or want or starting a side hustle to bring in more cash.

Consider Additional Costs

Saving money for a house involves more than you might think. It might start with a down payment, but it can also include several other important (and not insignificant) expenses. Consider the following:

Closing Costs

In addition to your down payment, you’ll likely need to come to the table with your portion of the closing costs.

These include fees that go along with the home buying and loan approval process, such as lender fees, payments to the home inspector, appraiser, and surveyor, escrow payments, and attorney and title fees. It’s a long list, and these closing costs are typically 2% to 5% of the loan amount.

Moving Costs

Moving costs aren’t insignificant: A basic local move may cost you $480 to $2,880, and a long-distance move can ring in at $2,363 to $6,885. It can be wise to get a couple of quotes from well-reviewed moving companies as you go into house-hunting mode so you can budget appropriately.

One easy way to cut down on moving costs is to DIY the entire process, from finding free moving boxes from friends, family, and grocery stores to loading and driving your stuff across town in a friend’s truck. It’s safe to say that even the most frugal moving strategy, however, will likely incur some costs.

Repairs and Decor

It may be difficult to estimate these costs before you have an accepted offer on a home, but it is good to keep in mind how much renovations, repairs, and decorating could cost.

If you’re moving to a larger space, will you need an extra bedroom set? Are you thinking the backyard is perfect for a fire pit, or even a pool? If you are considering a fixer-upper, repairs or upgrades could be tens of thousands of dollars or more.

One bit of good news here is that you may not have to fork over the cash in order to pay for renovations. The FHA offers 203(k) rehab loans to homebuyers. Eligible improvements include structural repairs, elimination of health or safety hazards, modernization, and adding or replacing roofing. You can also add loan fees and mortgage payments during renovation up to the maximum loan amount.

In addition, considering a fixer-upper could be a more affordable way into the housing market. The property might be available for less than market value due to needed work, and any sweat equity you put into the house could equal larger returns down the road.

That said, keep in mind that not all properties are eligible for financing due to structural or other issues and the costs of home repairs can add up quickly, so it’s essential to do your research in advance.

Additional Costs

In addition, you need to account for such other costs as:

•  Property taxes

•  Private mortgage insurance (PMI)

•  Any HOA fees

•  Home maintenance costs (lawn care, HVAC checkups, pest control, and the like)

•  Utilities (heating a house can be pricier than a small apartment).

Invest in Your Future

As you take steps forward to afford a home, you can choose to invest your money in ways that can help you either get to closing day sooner or save even more than you need.

One way to think of investing for a down payment is to compare it to a retirement plan, where a common approach is to save aggressively when you’re younger, then start to transfer your investments into more stable options as you get close to retirement.

Here are some ways you could apply this philosophy to saving for a down payment:

•   If your timeline is under 3 years, consider a conservative portfolio, or maybe a high-yield savings account.

•   If you are looking at 3 to 5 years, consider a conservative or moderately conservative portfolio that could grow your money faster than a cash-based account.

•   If your closing day is 5 to 10 years or more in the future, consider a moderate or moderately aggressive investment portfolio that could yield higher returns in the long run.

While creating a plan can be a smart first step, that doesn’t mean it will go off without a hitch, especially if it’s long-term. You or your partner might change jobs, unexpected medical expenses might pop up, the heating bill could go way up due to a cold winter — life happens.

That’s why it’s important to check in on your budget periodically, see how you’re doing, rebalance your portfolio if needed, and make adjustments to your plan if you’ve gotten off-track from your goal.

The Takeaway

Saving for a house is a big commitment and involves some focus. You’ll need to budget, consider your down payment and other upcoming costs, and also find ways to help your money grow quickly but safely.

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.

FAQ

How much money should you save before buying a house?

When buying a house, most people focus on the down payment. Currently, most buyers put down about 13%, but mortgages are available with as little as 3% or 0% down, depending on qualifications. In addition, it’s wise to budget for closing costs, home renovation, and furnishing costs, as well as having an emergency fund in place.

What is the fastest way to save money for a house?

There are a variety of ways to quickly save money for a house including tracking and reducing your spending, minimizing debt, automating your savings, considering opening a high-yield savings account or investing in the market (depending on your timeline), and bringing in more income via a side hustle.

How do you realistically save for a house?

To afford a home, it can be wise to pay off or lower your debt, minimize your spending, increase your savings, sell stuff you no longer want or need, and bring in extra income through additional work.

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

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