An Introduction to Conventional Fixed Rate Loans

Borrowers that plan on living in their home for a while will turn to the comfort of a conventional loan with its low, fixed rate.

If you’re looking to stay in your home for longer than five to 10 years, a fixed-rate conventional loan provides the stability of a principal and interest monthly payment that won’t change. Borrowers with funds for at least 20% down can also save by eliminating the need for mortgage insurance. This is an excellent option for buyers selling a current home with equity or refinancing out of an ARM or FHA loan.

What is a Conventional Loan

Conventional loans can offer the stability of a low, fixed-rate with a payment that won’t change from month to month and feature a wide variety of term options. You can consider conventional loans at 15-, 20-, and 30-year rates, which allow you options for how quickly you plan to pay off your loan. 

These loans are also a great option if you have good credit because your valuable credit score can help you secure—and maintain—a lower interest rate. When considering a loan, talk to your personal lender about how your credit score can impact your interest rates. 

Less Documentation

One of the catches of FHA loans or other assistance loans is the sheer amount of paperwork you must provide for the loan application. With a conventional loan, your paperwork is at a minimum, and you might find that this speeds up processing.

Avoiding Mortgage Insurance (MI)

Borrowers putting 20% down or more on a conventional loan can save money by eliminating the need for mortgage insurance. However, a 20% downpayment isn’t a requirement for a conventional loan. Those putting less than 20% down can also eliminate MI down the road once enough equity has built up.

Mortgage insurance is designed to protect the lender in case you fall behind on your payments. It is often arranged at closing and can sometimes be wrapped into your closing costs, added to your monthly payment, or handled by a private firm. In the case of conventional loans, the MI can be handled by private lenders (called a PMI or private mortgage insurance), and rates will vary based on your credit score.

A little help from my friends

Just because you’re aiming to put 20% down doesn’t mean you can’t use a little help. One of the best parts about conventional loans is that they allow for both seller concessions and gift funds from friends or family. 

Conventional Fixed Rate Loan Details

• No mortgage insurance on loans with 20% down or more
• Stability of a low, fixed-rate and payment that won’t change month to month
• Wide variety of loan terms available
• Purchase and refinance options
• Seller-paid closing costs or concessions up to 3-6% of sales price depending on LTV
• Gift funds allowed for a down payment

Additional Details

• 3% minimum down payment
• Non-occupying borrowers are allowed to help the occupying borrowers qualify for the loan. (An excellent option for parents looking to help their children buy their first home!)
• Conventional loans with less than 20% down can require mortgage insurance but also have the ability to cancel mortgage insurance once enough equity is present