Fixed Rate Mortgage

A fixed-rate mortgage is a home loan where the interest rate remains exactly the same for the entire life of the loan — whether that's 10, 15, 20, or 30 years. Your principal and interest payment is locked in at closing and will never change, no matter what happens to interest rates in the broader economy.

The two most common terms are 30 years and 15 years. A 30-year mortgage offers the lowest monthly payment and maximum purchasing flexibility. A 15-year mortgage has a higher monthly payment but carries a lower interest rate, builds equity twice as fast, and saves a remarkable amount in total interest — often $100,000 or more over the life of the loan.

Fixed-rate loans are available as conventional (Fannie Mae/Freddie Mac), FHA, VA, and USDA loans. The "fixed rate" just describes the rate structure; the other characteristics are determined by the loan program you choose.

Fixed-rate conventional mortgages are underwritten to Fannie Mae and Freddie Mac guidelines:

• Credit score: Minimum 620 for conventional fixed-rate loans. Rates improve significantly at 680, 720, and 760+. Higher scores unlock the best pricing.
• Debt-to-income ratio: Generally 45% or below, though Fannie Mae's DU system may approve up to 50% with strong compensating factors.
• Employment: Two-year employment history preferred. W-2 employees need two years of tax returns or pay stubs. Self-employed borrowers need two years of business and personal returns.
• Loan limits: Conforming limit for a single-family home is $806,500 in 2025 for most counties; higher in designated high-cost areas. Above this, you'll need a jumbo loan.
• Property types: Primary residences, second homes, and investment properties all qualify, though rates and requirements differ for each.

Down payment requirements vary based on how you use the property and which program you select:

• As low as 3%: Fannie Mae HomeReady and Freddie Mac Home Possible programs allow 3% down for first-time buyers (or buyers who haven't owned in three years) with income at or below 80% of AMI.
• Standard conventional: 5%: Most lenders require a minimum 5% down payment for conventional loans without special first-time buyer programs.
• 20% to avoid PMI: A 20% down payment eliminates private mortgage insurance entirely, reducing your monthly payment and improving cash flow.
• Rate sensitivity to credit score: Your interest rate is significantly influenced by your credit score. Moving from 660 to 760 can reduce your rate by 0.5%–1.0%, saving thousands per year.

Unlike government-backed loans, conventional fixed-rate mortgages don't have mandatory insurance premiums — with one important exception:

• PMI (Private Mortgage Insurance): Required if your down payment is less than 20%. Costs typically run 0.5%–1.5% of the loan per year, depending on your credit score and loan-to-value ratio.
• PMI cancellation: A major advantage over FHA — conventional PMI automatically cancels when your loan balance reaches 78% of the original purchase price (or you can request cancellation at 80% LTV). You're not stuck with it forever.
• Closing costs: Typically 2–5% of the loan amount. Lenders can offer "lender credits" in exchange for a slightly higher rate, which can reduce or eliminate out-of-pocket closing costs.
• No government fees: Conventional loans don't carry upfront guarantee fees like FHA's 1.75% UFMIP or USDA's 1% upfront fee.