30-Year Fixed Loans
30-Year Fixed Loan Candidates
A 30 year fixed loan is ideal for borrowers who wish to make lower payments towards their loan monthly, while taking advantage of an interest rate that does not change. Explore other benefits of a 30 year fixed loan below.
How A 30-Year Fixed Loan Works
A fixed-rate mortgage loan is a loan with the same interest rate throughout the entire life of the loan, which is usually 15 or 30 years. It can be FHA, Conventional or VA loans. Your monthly P&I payment – your principal plus your interest – stays the same. Each month, you pay off some of the principal balance. This means, next month, your principal balance is lower. More of your monthly payment is being paid towards the principal, and less is being paid towards the interest.
30-Year Fixed Loan Qualifications
- A minimum 3% down payment.
- A minimum FICO® Score of 620.
- A debt-to-income ratio (DTI) of no more than 50%. Estimate your DTI by adding your monthly debt payments (such as credit card and car payments) and dividing the total by your monthly income before taxes.
- Money to cover closing costs, which are about 2% – 6% of the purchase price.
Advantages of a 30-Year Fixed Loan
- If the homebuyer chooses to increase their monthly payments, they can build equity in their home faster.
- There are usually no pre-payment penalties with a 30-year fixed rate mortgage.
- The low payments allow the homebuyer to use their extra money for investing and on other expenses.
- A fixed interest rate that remains the same through the life of the loan.
- If rates rise the homeowner is protected, but if rates fall the homeowner can refinance into a lower rate loan.
Mortgage Insurance Requirements
For borrowers making smaller down payments, primary mortgage insurance (PMI) may be required. This threshold is a downpayment of 20% of your home’s value.
- PMI payments range between 0.5% and 1% of your loan annually, distributed over 12 payments.
- Once you reach 20% equity in your home, you may be able to request to cancel PMI.
- PMI is often cancelled automatically once you reach 22% equity.
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