Non-Financial Factors That Affect Home Loan Interest Rates

When applying for an FHA loan, lenders will consider more than just your credit scores and history. They also look at other factors affecting your risk profile and the interest rate they offer you.

One factor is occupancy type. For FHA loans, this is straightforward because these loans require owner occupancy. Investment properties aren't eligible. While conventional loans may have different rates for primary residences, second homes, and investment properties, this isn't a concern with FHA loans.

Some might not immediately know which loan is best for them, but knowing the occupancy requirement ahead of time can help them make a more informed choice.

Your employment history is another factor. A stable job with consistent income shows lenders you're reliable and can make your mortgage payments. They'll look at how long you've been employed, your income stability, and your industry. Building a strong employment profile can help you get a better interest rate if the lender feels that history shows you are a good credit risk.

The loan term and payoff schedule also play a role. The loan term affects your monthly payments and total interest costs.

The amortization schedule determines how your payments are applied to principal and interest over time. Your lender may offer different interest rates for a 15-year loan compared to a 30-year mortgage, for example.

Standard amortization has early payments mostly going toward interest, while graduated payment mortgages have payments that start lower and increase over time.

Your income projections and financial goals will influence your choice of amortization schedule, and your lender may offer different interest rates for different loan terms and amortization schedules.

Remember, lenders consider various factors when determining your FHA loan interest rate. Understanding these factors can help you make informed decisions and potentially secure a lower rate.