Conventional Loan Interest Rates

Ideal for those with strong credit seeking fixed/adjustable rates >>

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Overview

A conventional loan is any mortgage loan that isn’t insured or guaranteed by the government (such as under the Fair Housing Administration or Department of Veterans Affairs). Credit requirements may be more stringent compared to an FHA or VA loan. Conventional loan interest rates can be fixed or adjustable.

Reading Time

10 mins | EMAIL US with questions

Features

  • Competitive interest rates for those with good to excellent credit
  • Low down payment, as little as 3%
  • No private mortgage insurance (PMI) if down payment is ≥ 20%
  • Eligible to drop PMI once loan-to-value ratio (LTV) reaches 80%
  • Potentially lower APR compared to FHA and VA loans (as there are minimal fees associated with conventional loans)¹
  • Greater flexibility on property type compared to FHA or VA loans²

Topics Below

I. Eligibility Requirements
II. Key Factors | Interest Rates
III. Our Approach
IV. FAQs

I. Eligibility Requirements³

Provided for informational purposes only and subject to change. Strong Home Mortgage eligibility requirements may differ. Contact a loan officer to discuss.

  • Debt-to-Income ratio of 45% or under⁴
  • Minimum FICO® score of 620 for conforming loan / 700 for non-conforming
  • Minimum down payment of 3% for conforming loans
  • Minimum down payment of 20% for non-conforming loan
  • Meet lender’s credit and income requirements

If your credit score is low to mid-600s, then an FHA loan may be a better option. Concerned about your credit score? Let’s schedule a call.

II. Key Factors | Interest Rates

Conventional loan interest rates are set by the lender and follow Federal Reserve benchmarks. Some factors that may affect your interest rate include:

  • Down Payment Amount
  • Loan Purpose (e.g. purchase, refinance)
  • Loan Duration (e.g. 30 year vs 15 year)
  • Fixed or Adjustable Rate
  • Credit Score
  • Previous Loan Repayment History
  • Current Market Conditions

III. Our Approach

Conventional loan interest rates, like other mortgage aspects, have many moving parts. Each borrower is unique. Your loan officer becomes your single point-of-contact to ensure clear, timely, and tailored communication. We often close loans in less than 30 days, beating the gold standard for well-qualified customers. We answer questions, promote understanding, clear hurdles, and hustle to deliver your loan sooner.

IV. FAQs

Below are answers to commonly-asked questions, including aspects of conventional loan interest rates.

What’s the difference between interest rate and APR?
An interest rate is what you pay each year to borrow money. It doesn’t reflect any fees incurred. The APR, or annual percentage rate reflects a broader borrowing cost. It includes conventional loan interest rates plus any fees associated with obtaining the loan. Conventional loans have minimal fees, so while the interest rate may appear higher than other loan types, the APR may be more attractive when comparing a conventional loan to other loan types.*

* Compare the APR at the head of this page vs. what’s listed at our VA loan and FHA loan product pages.

Are conventional loan interest rates lower?
Assuming your credit scores are above 700, conventional loan interest rates may be as or even more competitive than other loan products. If your credit score is in the low to mid-600s, then interest rates on a conventional loan may be higher than an FHA Loan. However, a conventional loan typically doesn’t come with as many costs, so you’ll need to factor in the fees with an FHA mortgage when deciding what mortgage is best for you. Veterans, active-duty service members, reservists, and surviving spouses may qualify for a VA Loan, a loan type which typically does not require a minimum down payment.
What’s the down payment requirement on a conventional mortgage?

Conventional loans may offer down payment options as low as 3% of the purchase price. If the down payment is below 20%, lenders will require borrowers to pay a monthly payment toward private mortgage insurance (PMI) until the loan becomes eligible to drop PMI at 80% LTV.

Is private mortgage insurance (PMI) required on a conventional loan?

Mortgage insurance is typically required on conventional loans where the down payment is less than 20% of the purchase price. This insurance is designed to protect the lender if the loan goes into default. Mortgage insurance rates can be affected by credit score and loan-to-value ration (LTV). PMI is usually paid as a monthly fee. However, you may opt to pay it as an upfront fee or request a slightly higher conventional loan interest rates to cover the PMI cost.

How can you eliminate PMI on a conventional loan?

Here are two ways to eliminate PMI:

1) Once you have at least 20% equity in your home, you make a request to your loan servicer to drop your PMI. This may require obtaining an additional appraisal. Otherwise, PMI automatically drops off once you hit 22% equity unless the loan is for a second home or investment property. For these type of properties, the PMI may remain in place for the entire life of the loan.

2) Explore ways to avoid PMI altogether through down-assistance payment programs or alternative loan structures. For example, using a “piggyback mortgage” may allow for a lower down payment while simultaneously avoiding PMI.

Are there any limits with a conventional loan?

“Conforming” conventional loans that are backed by Fannie Mae and Freddie Mac must not exceed $647,200 (up from $548,250 in 2021). In many parts of the country, this limit may be higher. For instance, Fannie Mae and Freddie Mac allow a loan amount up to $970,800 in certain state counties (up from $822,375 in 2021).

Who sets the loan limits for Fannie Mae and Freddie Mac?

Loan limits are set by the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie. Loans that exceed the limits of Fannie and Freddie are considered non-conforming and may qualify under a Jumbo mortgage.

What’s a non-conforming conventional loan?

A non-conforming conventional loan doesn’t meet the loan limits and/or eligibility requirements of Fannie Mae or Freddie Mac. A loan that exceeds the Freddie and Fannie loan limits may fall into the Jumbo Loan category, which is another type of conventional loan.

What’s the difference between a fixed-rate and adjustable-rate mortgage?

Fixed-rate and adjustable-rate mortgages (ARMs) are two mortgage product types.

A fixed-rate mortgage has an interest rate determined when you take out the loan which will never change. While insurance and taxes may fluctuate, your principal and interest payment does not. This makes budgeting easy, as your principal and interest mortgage payment is predictable and won’t change over the years as conventional loan interest rates move.

An adjustable-rate mortgage has an interest rate that’s fixed for a set period of time (e.g. 5, 7 or 10 years) but then adjusts at agreed-upon intervals. The interest rate may go up or down. For example, a 5/1 ARM will have an initial interest rate for five years and then adjust every year thereafter based on an index and a margin.

What are discount points?

Discount points enable you to pay interest upfront in exchange for lower conventional loan interest rates over a loan’s lifetime. Generally, for each point paid, you’ll receive a ¼ point reduction in your rate. If you’re looking to stay in your home for a longer period, then paying points to lower your rate may make sense for your situation.

What's the typical length of a fixed-rate conventional mortgage?

The most common loan terms are 30, 20, and 15 years.

Many people choose a 30-year mortgage because it offers the lowest monthly payment. However, in return for a lower monthly payment, you’ll pay more in conventional loan interest rates over the life of your loan. While monthly payments for shorter term mortgages may be higher because the loan is being paid off in a shorter period, you’ll pay significantly less in interest over the course of the loan. Shorter-term mortgages usually offer a lower interest rate so more of your monthly payment is applied to paying down the principal. Therefore, shorter term mortgages cost significantly less overall.

How do Fannie Mae and Freddie Mac differ from FHA?

Fannie and Freddie are private shareholder-owned corporations that were chartered by Congress to support a. Fannie and Freddie are private shareholder-owned corporations chartered by Congress to support the U.S. housing market and are commonly referred to as “government-sponsored enterprises” (GSEs). Their role is to purchase mortgages from lenders to provide liquidity, stability and affordability in the mortgage market.

The Federal Housing Administration (FHA) is a government agency that insures loans for borrowers that typically have lower credit scores and lower to moderate income. Eligibility requirements for FHA loans may be less stringent compared to conventional loans purchased by Fannie Mae and Freddie Mac.

How much equity do I need to obtain a conventional loan to refinance my home?

Fannie Mae and Freddie Mac require at least 3% equity. If you’re doing a cash-out refinance, then you’ll need at least 20% equity in your home. Adjustable-rate refinances usually require at least 5% equity.

Ready to explore your conventional loan options?

By using this website, you agree to these Terms of Use.  All content provided is for informational purposes only and subject to change.  Contact a loan officer to discuss your personal situation.  Strong Home Mortgage does not offer goods or services to residents located in New York, Georgia, Nevada, or Missouri.

¹Compare the APR on this webpage to the APR listed on the webpages for “FHA Loans” and “VA Loans.”
²Conventional loans may be used for primary residences, investment properties, or second homes.
³Additional requirements apply. Eligibility subject to final underwriting approval. This is not a commitment to lend.
⁴DTI may be extended to 50% with higher credit scores and additional mortgage reserves.

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