What is a Conventional Fixed-Rate Mortgage?
Conventional loans can be used to finance a primary residence, a second home, or a rental property.
A “fixed-rate” mortgage comes with an interest rate that won’t change for the life of your home loan. A “conventional” or “conforming” mortgage is a loan that conforms to established guidelines for the size of the loan and your financial situation. Conventional loans may feature lower interest rates than jumbo loans, FHA loans or VA loans. Terms of these conventional loans typically range from 10 to 30 years.
Monthly principal and interest payments on a conventional fixed-rate mortgage remain the same for the life of the loan making it an attractive option for borrowers who plan to stay in their home for several years. Watch our video below for more information.
Requirements and QualificationsA few of the key eligibility requirements include:
- Loan amount – The loan amount for a conforming mortgage is generally limited to $453,100 for a single-family home, though limits may be higher in areas where home prices are higher. Jumbo loans allow you to go over the conforming loan limit to borrow for a higher-priced home.
- Down payment – Most conventional loans will require at least 5 percent as a down payment. For loans with lower down-payment requirements, explore mortgages like VA loans and FHA loans.
- Credit – Generally credit scores of 620 or higher depending on the transaction, though the FICO requirement may vary from lender to lender Minimum 3% down payment – While you may choose to pay as little as 3% down, an approximately 20% minimum down payment is required to eliminate the need for mortgage insurance
- Savings – You should have at least two months cash reserves after closing to cover your loan costs Proof of income – You will need to show steady income to cover the cost of your loan and self-employed individuals will need to supply two years of tax returns
- Debt – Your debt-to-income ratio should be no more than 45%, but can go up to 50% in limited cases. This is the percentage of your monthly gross income that is paid out to recurring debts.
Frequently Asked Questions
- Why Do so Many Home Buyers Choose the 30-Year Fixed?
- When most people think of mortgages, they think about 30-year fixed rate loans. There are lots of reasons that borrowers choose the 30-year fixed but the most popular is probably the security of knowing what you’ll be paying over the life of your loan. While some people know they will only be in their homes for a finite amount of time and an adjustable-rate mortgage (ARM) will save them money, many prefer the added predictability of a fixed-rate loan.
- What Is Private Mortgage Insurance (PMI) and Will I Have to Pay It?
- If you’re unable to put down 20% or more on a conventional loan, you will probably be required to pay PMI (private mortgage insurance). On conventional loans, PMI can often be less than mortgage insurance on FHA loans when the borrower has good credit.
- What Are the Credit and Income Requirements for a Conventional Loan?
- Conventional loans may be best suited for those with a credit score of 680 and above, even though PennyMac only requires 620 or higher, depending on the transaction. While borrowers with lower scores may still qualify, they will probably be better off looking at other mortgage products that are better suited for the particulars of their financial situation.
- What Kind of Properties Can I Buy with a Conventional Mortgage?
- Conventional mortgages are relatively versatile loan products that can be used for a wide range of different types of properties. Some of the properties you finance with a conventional mortgage include: Single Family Homes, Planned Unit Developments, Condominiums, and more.
Additional InformationConventional fixed-rate mortgages are a popular option, but they’re not the only one. Compare mortgage options to learn more on your own, or contact a mortgage loan officer to find out which mortgage option may be the best fit for you.
- Type of Loan: Non- Government Loan.- Owned by Fannie Mae & Freddie Mac
- Loan Term: 5, 10, 15, or a 20 years
- Credit Score Requirements: 620 Middle Credit Score
- Down Payment Requirements: 3% under special FNMA and FHLMC programs
- Interest Rate: Fixed/ Adjustable
- Private Mortgage Insurance: Required with less than a 20% down payment or 20% equity on a refinance.
- Additional Facts: Typically requires 5% down; however, there are special programs allowing 3% down. One of the most popular mortgages chosen for a purchase or refinance in the mortgage industry.