Conventional - Oakstar Funding

Conventional Fixed-Rate Mortgage

A conventional fixed-rate mortgage is the most common type of mortgage loan in the United States. It provides the security of a fixed payment throughout the life of the loan. This may be a good option if you have good credit, a larger down payment, and plan on staying in your home for years to come.

What is a conventional fixed-rate mortgage?

A fixed-rate mortgage means you’ll have the same interest rate for the life of your loan.

A conventional loan is any mortgage loan that is not guaranteed by the government such as FHA, VA, or USDA mortgages. There are two type of conventional loans: conforming and non-conforming. A conforming mortgage is a loan that meets the guidelines set by Fannie Mae and Freddie Mac. These guidelines cover the size of the loan, credit requirements, loan to value (LTV) ratio, and debt to income (DTI) ratio. Buyers looking for a larger loan above the conforming loan limits should consider a Jumbo Loan.

Borrowers can structure their loans terms anywhere from 10-30 years to meet their individual goals, though a 30 year term is the most popular. Regardless of the length of the loan, your principal and interest payments remain the same for the life of the loan when you choose a fixed-rate mortgage.

The 30-year conventional fixed-rate mortgage is the most popular type of loan available in today’s market. It offers the lowest monthly payment compared to other fixed-rate loans. However, since the interest payments are spread out over 30 years, you’ll pay more interest over the life of the loan than you would on a shorter-term mortgage.

A shorter loan term will allow you to payoff your loan quicker and build equity faster. Although your monthly payments will be higher than with a 30-year loan, you’ll pay less interest over the life of the loan. Shorter term loans are popular for refinances, allowing borrowers to take advantage of lower interest rates or eliminate mortgage insurance without impacting their retirement.

If you can afford the larger monthly payment that comes with a 15-year fixed rate mortgage, there are many benefits to this product. Not only will you pay significantly less interest over the life of the loan and build equity faster, but choosing a 15-year fixed-rate mortgage typically gives borrowers access to lower interest rates than a 30-year loan. This product is great for buyers closer to retirement, since it will help you pay off your home faster.

Considerations for a Conventional Mortgage:

Loan Term

Conventional mortgage terms range from 10-30 years. Conventional fixed-rate mortgages are ideal for borrowers looking to stay in their home for a long time. Short-term borrowers may want to consider an Adjustable Rate Mortgage, where they may be able to take advantage of lower interest rates in the initial loan period.

Down Payment & Mortgage Insurance

While conventional loans do offer down payment options as low as 5%, to maximize the benefit of your conventional mortgage, you will want to put 20% down. If your down payment is less than 20% you’ll likely need to pay for private mortgage insurance (PMI). First time buyers with smaller down payments should consider FHA Loans.

Credit History

Conventional loans are credit score driven. To secure a conventional loan under Fannie Mae and Freddie Mac guidelines, you must have at least a 620 credit score or better. The higher the credit score traditionally the more favorable the interest rate will be. Having a credit score of 740 or better will help secure your best conventional interest rate, so they are a great option for borrowers who have good credit. Government-backed loans like FHA and VA have more relaxed qualification standards.

Conventional loan requirements and qualifications:

Loan amount – The 2022 loan limit for a conforming mortgage for all Texas counties is $647,200 for a single-family home. Homes above that threshold would not qualify for a conventional loan and would need to seek out a Jumbo Mortgage.
Down payment – Most conventional loans will require at least 5 percent as a down payment, although borrowers are usually required to put 20% down to avoid PMI.
Credit – Conventional loans typically require a minimum FICO score of 620 and a Debt to Income Ratio of no more than 45%.

Conventional fixed-rate mortgages are a popular option, but they’re not the only one. The OakStar team can walk you through the various loan products and help you choose the right product for your unique circumstances. We’re here to help make your dream of homeownership come true!