This series has been designed with our homebuyers in mind. Regardless if you are a first-time or veteran buyer, the first step of the home buying process often involves shopping for a loan. This process is not always as simple as it sounds! Which types of loans are there? What is the difference between them? Which loan is best for you? Through this new series, we will help you navigate through those questions and the loan process, breaking down the most common loans that we deal with here at Nashville On The Move.
Week 3: Conventional Fixed Rate Loans
A fixed rate mortgage has an interest rate, term, and a monthly payment to principal and interest that remains constant for the life of the loan. The term will typically be 30 years. The interest rate will be higher than other types, but in exchange for the fixed rate, you have permanent stability.
Fixed rate loans can be obtained for as little as 5% down, however if the down payment is less than 20%, the lender may require that you have the loan secured with Private Mortgage Insurance (PMI). As an additional note, there are several lenders who have programs that have a higher rate of interest with no PMI. This may be a viable alternative, as PMI is not tax deductible and the added interest at a higher rate is deductible. If your down payment will be less than 20%, make sure to questions your lender of these options.
To decide if you qualify for an Conventional Mortgage Loan, they will look at:
- Your income and your monthly expenses. Standard debt-to-income ratios are 28/36 for Conventional Loans. These ratios may be exceeded with compensation factors.
- Your credit history (this is important, but Conventional’s credit standards are flexible). A FICO score of 620 or above is very helpful in obtaining an approval.
- Your overall pattern rather than to individual problems you may have had.
Conventional Loans are ideal for borrowers with excellent credit and a substantial down payment.
Thanks for tuning in to our Home Loans 101 blog series! | Next week: FHA Loans | Want to stay connected? Like us on Facebook + follow us on Twitter and Instagram. And, as always, check out our current homes for sale in the Nashville area.