June 15, 2023
Under the rules of the FHA loan program, borrowers and lenders negotiate together on interest rates for the FHA loan. Part of those negotiations is the interest rate lock agreement.
This can feel intimidating for some who aren’t used to the home-buying process, but it’s a common part of the home loan transaction. What do you need to know about FHA home loan rates and getting a rate lock commitment from your lender?
The FHA does not set interest rates, and it’s also not responsible for regulating them aside from a general requirement that the rates be comparable to similar types of loans.
Interest rates on mortgages and other high-value transactions are under more scrutiny in 2023 due to continued elevated mortgage rates.
At the moment, it’s good to explore your options to get the most competitive rate possible as an FHA loan applicant or FHA refinance loan applicant.
You can negotiate with the lender to buy discount points, consider a shorter loan term, or work on your FICO scores to improve them over time in order to be a more competitive loan applicant.
As for the mortgage rate in general, some wonder how the borrower and lender arrive at an agreement on an interest rate, especially when there is elevated volatility in mortgage rates at press time? How is the borrower protected from such volatility?
The interest rate lock or interest rate lock-in agreement protects the borrower from fluctuations in the rate once the commitment has been made to lock the rate.
The rules for this procedure are found in the FHA Single Family Lender’s Handbook, which says the lender is permitted to charge a fee for this service, but there are rules governing that practice:
“The Mortgagee may charge the Borrower lock-in and rate lock fees only if the Mortgagee provides a lock-in or commitment agreement guaranteeing the interest rate and/or discount points for a period of not less than 15 Days prior to the anticipated closing..”
The loan may close sooner than that, but the lender is still entitled to the interest rate lock fee.
In cases where a Home Equity Conversion Mortgage loan is concerned, there may be different procedures or requirements than for other types of FHA home loans–check with your loan officer to see what may be needed in such cases.
FHA loan rules for mortgage rate lock fees and related costs may differ from some conventional loans. It’s never a bad idea to compare the two side by side to see what your costs may be depending on which option you choose.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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