Core Insights - Conventional loans are the most prevalent home loans in the U.S., accounting for over 77% of all home loans in 2023 [1][17] - There are two main types of conventional loans: conforming and non-conforming [1][18] Types of Conventional Loans - Non-conforming loans do not adhere to Fannie Mae or Freddie Mac guidelines, allowing lenders more flexibility in terms of loan size and credit requirements [2][18] - Conventional loans are typically suited for individuals with stable income, good credit, and manageable debt levels, and can accommodate buyers of large or unique properties [2][3][18] Down Payment Options - Programs like HomeReady and Home Possible permit down payments as low as 3%, enhancing competition among lenders [4][18] - The minimum down payment for conforming loans is set at 3%, with conforming loan limits reaching $832,750 for most homes and up to $1,249,125 in high-cost areas by 2026 [6][18] Loan Terms and Types - Conventional loans offer both fixed-rate and adjustable-rate mortgage options, with terms available for 10, 15, 20, or 30 years [4][18] - Fixed-rate mortgages maintain the same interest rate throughout the loan term, while adjustable-rate mortgages (ARMs) have rates that can fluctuate over time [8][9][18] Qualification Criteria - Most lenders require a minimum credit score of 620 and a debt-to-income (DTI) ratio of 50% or less, with many preferring a DTI of 41% or lower [13][14][15][17] - Borrowers can avoid private mortgage insurance (PMI) by making a down payment of 20% or more [14][18] Comparison with Other Loan Types - Conventional loans generally have higher credit score requirements and may incur PMI costs, but they offer higher loan limits compared to FHA loans [14][18] - Government-backed loans, such as FHA, VA, and USDA loans, cater to borrowers with lower credit scores and income levels, providing alternative financing options [11][12][18]

Core Insights - The average 30-year mortgage rate is currently in the low- to mid-6% range, with expectations to remain above 6% for the foreseeable future, although slight decreases may occur in 2026 [1][23]. Group 1: Mortgage Rate Strategies - Government-backed loans, such as VA, FHA, and USDA loans, often have lower rates than conventional loans, with an example showing a 30-year FHA loan at 5.88% compared to a conventional loan at 6.29% [2][3]. - Shorter-term loans, like 15-year mortgages, typically offer lower rates, with a 5.76% average compared to 6.29% for 30-year loans, potentially saving nearly $300,000 in interest over the loan term [6][7]. - Buying discount points can reduce the interest rate, with a cost of approximately 1% of the loan amount to lower the rate by 0.25%, exemplified by a reduction from 6.22% to 5.97% [8][9]. - Temporary buydowns can lower rates for a set number of years, such as a 3-2-1 buydown, which decreases the rate by 3% in the first year, 2% in the second, and 1% in the third [12][13]. - Improving credit scores can lead to better interest rates, with a 780 credit score yielding an average rate of 6.14% compared to 6.59% for scores under 680 [14][15]. - Shopping around for lenders can yield significant savings, with just four quotes potentially saving over $1,200 annually in interest [16][17]. - Adjustable-rate mortgages (ARMs) often have lower initial rates compared to fixed-rate mortgages, but they carry the risk of rate adjustments after a set period [18][19]. - Waiting for rates to potentially drop below 6% may be an option, with Fannie Mae projecting a rate of 5.9% by the end of 2026, although predictions vary [20][23].

Core Insights - The article discusses the requirements and considerations for refinancing a mortgage, emphasizing the importance of home equity and the type of loan involved [1][3]. Group 1: Home Equity Requirements - Most lenders prefer at least 20% home equity to qualify for refinancing [2]. - The amount of equity needed can vary based on the type of mortgage and the refinancing option chosen, such as rate-and-term or cash-out refinancing [3][8]. - Borrowers with significant equity are viewed as lower risk compared to those with minimal equity [4]. Group 2: Calculating Home Equity and LTV Ratio - Home equity is calculated as the difference between the home's value and the outstanding mortgage balance, including any second mortgages [5]. - The Loan-to-Value (LTV) ratio is the percentage of the loan balance relative to the home's value, with a lower ratio indicating more equity [6]. - For conventional loans, maintaining an LTV ratio of 80% or less is crucial to avoid private mortgage insurance (PMI) [7]. Group 3: Refinancing by Loan Type - Conventional loans may allow refinancing with as little as 5% equity, but PMI will be required if equity is below 20% [8][10]. - FHA loans permit refinancing with a minimum of 3.5% equity for rate-and-term refinancing [10]. - VA and USDA loans have flexible requirements, with some not imposing a minimum equity rule [10][12]. Group 4: Special Refinancing Programs - FHA Streamline Refinance allows borrowers to refinance without a home equity requirement if they are current on payments [14]. - VA Interest Rate Reduction Refinance Loan (IRRRL) does not have a minimum equity requirement [14]. - Programs like Freddie Mac Refi Possible® and Fannie Mae RefiNow may allow refinancing with as little as 3% equity for eligible borrowers [15][18]. Group 5: Alternatives for Low Equity Homeowners - Homeowners with low or negative equity may consider options to build home value, such as making home improvements or paying down the principal more aggressively [20].