Conventional Home Loans

There are two main types of conventional home loans, lasting for either 15 or 30 years. Both options have fixed interest rates that will never change unless you choose to refinance.

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Conventional Loan Benefits

  • You have the opportunity to purchase a new home with a 3% down payment.
  • You have the opportunity to pay off your loan at any point without incurring a prepayment penalty.
  • Monthly mortgage insurance is not required if your down payment is 20% or more.
  • The interest rate of each loan is fixed for the entire 15 or 30 years, so you have complete peace of mind that your principal and interest payments won’t change.
  • If you choose to, you have the option to refinance your mortgage for as much as 97% of your home’s value

How do Conventional Loans Work?

Each of these loans works in quite a straightforward manner. With a 15-year fixed loan, you pay off a mortgage over a period of 15 years. Since this is faster than a 30-year mortgage, you accumulate less interest and ultimately save more money in the long run.

Similarly, a 30-year fixed loan means you’ll pay off your mortgage over a period of 30 years. The main difference between the two is that with a 30-year mortgage you’ll end up paying more interest, but each of your monthly payments will be more affordable.

Both loans offer a fixed interest rate, so the interest you pay will never change throughout the entire life span of your loan. However, it is still possible for your taxes and insurance rates to change. There is also the possibility that you’ll have to take out mortgage insurance for either loan. This will depend on your down payment if you took out the mortgage to purchase a new home, or your equity if you have decided on a refinancing of mortgage.

Is a Conventional Loan Right for Me?

The conventional loan you opt for depends on your budget, your independent needs, and your circumstances when you apply for the mortgage in the first place. You have to think about how long you are willing to pay back a mortgage for, and also how much you’ll be able to spare each month to put towards it.

A 15-year fixed loan is your best option if you want to save money on interest and pay off your mortgage in a shorter amount of time. Similarly, you’re also going to want a fixed interest rate that will never change during the life of the loan. However, you need to consider if you can afford to pay off a higher amount every month as well.

If you want a lower amount to pay back each month, then a 30-year fixed rate is the better option for you. You still receive the benefit of a fixed interest rate, but you’re given more leeway in terms of payments because they’re paid off over a longer period of time.

What Is the Criteria to Qualify?

The factors needed to qualify for both a 15 and 30-year fixed loan are the same.

  • If you are applying for either mortgage because you’re looking at how to purchase a new home, then you’ll need to supply a minimum 3% down payment. For example, if your brand-new home costs $250,000, then the lowest amount you’ll need to have ready is $7,500, so you can get approved for the loan.
  • You’ll also need a FICO score of at least 620. This is your overall credit score and lets your lender know that you’re capable of paying back your monthly payments.
  • Your debt-to-income (DTI) ratio cannot exceed 50%. This means that your total debt cannot be more than half what you earn each month. The best way to figure out your individual percentage is by adding your monthly debt payments together and then dividing that figure by your monthly income before taxes.
  • You will also need some extra money to go towards the closing costs of your home. This is often between 2% and 6% of the purchase price of the property.

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Why Trust House Mortgage

House Mortgage provides you with great interest rates while providing you with the speed, service, and professionalism you deserve. Whether you are looking to buy a new home, or to refinance your existing mortgage, our licensed home loan experts will customize a loan to meet your personal needs.