Conventional Mortgage Loans

Regular mortgage loans in the US average around $200,000-$250,000. The interest rates vary depending on the credit rating, among other things. Conventional mortgage loans run at about 7% interest, with good credit, and depending on the Federal government’s interest rate. The average amortization schedule is drawn out over a 20 or 30 year period. The longer period amortization is usually for the higher amounts.
Mortgage loans are a long-term commitment which requires a lot of thought and planning. It’s important to know what your options are in terms of how your interest rate and the amount the lender will lend are configured. Each lender has a different way to calculate the amount and interest rate. Typically they rely on your credit score, debt to income ratio, length of time at your job, and income level. A conventional mortgage loan incorporates all of those things.

The credit score is determined by the federal government and is known as the FICO score. This score is a collection of your payment history, the number of open accounts you have, how long you’ve had a credit line and what types of accounts you have open. It’s the biggest factor in determining your interest rate and the amount of the loan.

Every open loan account has a value. A mortgage is the highest value, next is a car loan, personal loan, major credit card and department store cards etc.

When it comes to loans, higher limits are better than more accounts. In other words, it’s better to have one credit card with a $5000 limit than 5 credit cards with $500 limits.

How long you’ve owned those accounts is another factor which is significant. The longer you’ve had an open line of credit, the more payments have had time to prove your credit worthiness.

Your debt to income ratio is the next biggest factor in your loan amount and interest rate. This is the amount of debt you have, recurring, divided by the income. The ideal percentage of this ratio should be 28%, but anything below 36% will net a relatively low rate income.

The next factor is the how long you’ve been in your current job or home. Every year you’re in a home or job makes you a much more dependable risk for a loan. Ideally you’ll want to be in a home or job at least a year. The longer you’re in both, the lower possible interest rate you’ll get.

Knowing all the factors that decide how your loan will be distributed and at which interest rates are possible is the most important thing you can configure before applying for a loan. Knowing these factors will let you create the ideal situation for which to get the best possible interest rate and loan amount.

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