You’ve probably heard of a fixed-rate home loan in passing as a “30-year fixed” or “15-year fixed” mortgage. This type of loan is pretty straightforward: a mortgage that offers homeowners a constant interest rate over a set loan term. Sure, things like homeowners insurance and property taxes might nudge your total monthly payment up or down a bit, but the main part of your payment, the loan itself, remains steady. This means you can budget better and have peace of mind knowing exactly what you’re paying. No surprises!

A fixed-rate mortgage loan offers the comfort of knowing your interest rate will stay the same from the moment your loan is approved. This rate is shaped by a few key factors including your credit score, the term of your loan, your down payment size, and other important criteria. Once your rate is set, your lender gives you an amortization schedule. This breakdown divides your monthly payments into parts that chip away at the principal amount and the interest. It's a reliable way to ensure your loan is completely paid off by the end of your mortgage term, letting you plan your finances with peace of mind.

30-year vs. 15-year fixed

The choice between a 30-year and 15-year fixed mortgage boils down to what’s good for your wallet and what’s good for your future.

A 30-year fixed mortgage is the most common because it offers lower monthly payments spread over a longer period, making homeownership more attainable. Your monthly bill will be more affordable, but you’ll end up paying more in interest over time. This works great if you need wiggle room in your budget or have other plans for your money on the horizon.

On the other side, a 15-year fixed mortgage allows homeowners to pay off their home in less time and save a significant amount on interest as these loans typically come with lower interest rates. The trade-off here is higher monthly payments than those of a 30-year loan. This works best if you can afford the higher monthly payments and want to build equity quickly, save on interest and own your home outright sooner.

Check out today’s current rates to compare loan terms and find what works best for you.

Ready to lock down your housing costs with a fixed-rate mortgage? Let's dive into everything you need to know about qualifying for this popular home loan option. Whether you're a first-time home buyer or looking to refinance, understanding the ins and outs of fixed-rate mortgages can make all the difference in your financial planning. Let's get started!

Fixed-rate mortgage loan limits

The loan limits for fixed-rate mortgages can vary depending on your area and type of loan. For conventional loans, the limits are set by the Federal Housing Finance Agency (FHFA) and can change annually. In high-cost areas, loan limits can skew higher than average.

Fixed-rate mortgage loan interest rates

A fixed interest rate on a mortgage is set by considering a blend of broader economic conditions and your personal financial details. Lenders start with the big picture, like the economy's overall health and benchmark interest rates, such as U.S. Treasury yields. Then, they factor in their own costs and the competitive landscape to make sure their rates are attractive. On a more personal level, your credit score, debt-to-income ratio, the size of your down payment, amongst other factors come into play.

All these elements help the lender decide on a rate that reflects both the market conditions and how risky they perceive the loan to be. With a fixed-rate loan, once your rate is set, it stays the same throughout the loan term, which means no surprises on your monthly payments.

Fixed-rate mortgage loan down payments

The golden rule of thumb is the more money you put up front, the better terms you’ll lock down. Typically, fixed-rate loans require at least a 5% down payment, which is a portion of the home's purchase price that you pay right away. This isn't just a formality—it's a key factor of your loan that affects everything from your monthly payments to whether you'll need Private Mortgage Insurance (PMI).

The more you put down initially, the better the terms you can secure. A higher down payment often means lower interest rates and smaller monthly payments because you're borrowing less money. It's a straightforward way to make your loan more manageable right from the start.

A bigger down payment also boosts your home equity sooner. Equity is the part of your home you truly own: the value of the property minus what you still owe on the mortgage. The more equity you have, the more options you'll have for borrowing in the future, should you need to.

In the eyes of lenders, a substantial down payment also makes you look like a safer bet, which can lead to quicker loan approval and more competitive rates. So, while it might seem like a big effort to put more money down initially, it's an investment that can lead to significant savings in the long run.

Fixed-rate loan mortgage insurance

If your down payment is less than 20%, you'll probably need to budget for private mortgage insurance, or PMI. This is just a safety net for your lender in case things don't go as planned and you can't make your payments. PMI is usually rolled into your monthly mortgage payments, and it sticks around until you've built up 20% equity in your home. At that point, you can ask your lender what's required to drop the PMI, which can lower your monthly expenses a bit. The cost of PMI can vary—it's typically between 0.3% and 1.5% of your loan amount annually, influenced by your down payment and credit score.

There's bit of relief in sight: if you’re in a conventional loan, once your loan-to-value ratio hits 78%, PMI is usually cut off automatically, and you'll see your payments decrease. Just a little something to look forward to as you chip away at that mortgage! Note, FHA loans have different requirements for dropping PMI. 

Fixed-rate mortgage loan credit score

In general, a higher credit score will increase your chances of getting approved and securing a lower interest rate. Most lenders require a minimum credit score of 620 for conventional fixed-rate mortgages. If your score isn't quite there yet, don't worry! There are plenty of ways to give it a boost. Focus on paying down your debts and making sure your payments are on time.

Fixed-rate mortgage home loan DTI

Debt-to-income ratio (DTI) is another important factor lenders consider. DTI is the ratio of your total monthly debts, including your future mortgage payment, divided by your gross monthly income. Most lenders prefer a DTI ratio of no more than 43%. If your DTI is higher than this, it might be a good idea to tidy up your finances before applying for a mortgage.

This could mean paying off some of those smaller debts or holding off on big purchases that could add to your debt pile. Getting your DTI in good shape not only boosts your chances of getting approved for a mortgage, but also sets you up for more financial stability in the long run.

Fixed-rate mortgage income requirements

Your required income level will depend on the loan amount, your other debts and your living expenses. Lenders will want to verify your income to ensure you can afford the monthly payments. Be ready to provide recent pay stubs, W-2 forms or tax returns for proof of income when you apply. Remember, the goal is to show that you can comfortably manage the mortgage payments, so being organized and thorough with your documentation can significantly impact the approval process.

How is a fixed-rate mortgage different from an adjustable-rate mortgage? The distinction comes down to rate stability—with a fixed-rate, you have long term rate stability and with an adjustable-rate, you don’t. Compare their features here and understand the benefits of both.

Applying for a fixed-rate mortgage involves a series of steps that help ensure you secure a loan with terms that best suit you. Here’s a guide to help you through the process:

1. Assess your financial health: Start by checking your credit score as it plays a crucial role in determining the interest rate you'll receive. A higher score can help you secure a better rate.
2. Gather required documentation: Prepare necessary documents that lenders typically ask for, including recent pay stubs, tax returns, employment verification and details about your debts and assets.
3. Get pre-approved: Consider obtaining a pre-approval, like the Citi SureStart® Pre-Approval. This particular pre-approval program not only clarifies how much you can afford, but also comes with a firm commitment to lend which tells sellers that you're a serious buyer—it’s pretty handy when house hunting in a competitive market!
4. Choose the right mortgage: Make sure a fixed-rate mortgage suits your needs. Fixed-rate mortgages offer stability as your interest rate remains the same for the entire term of the loan, making it easier to manage your budget.
5. Submit your mortgage application: Once you’ve found your dream home and the right mortgage type, complete the application form and submit it along with your documents.
6. Loan processing and approval: The lender will process your application, conduct a credit check and arrange for a home appraisal to confirm the property’s value.
7. Closing the loan: If your application is approved, the final step is the closing process, where you'll sign the loan documents, pay any remaining closing costs and finalize the mortgage.

Ready to explore your options?