Mortgage rates have, at the time of this writing, been moving lower for a variety of reasons. Given the up-and-down environment mortgage loan interest rates have experienced in the last six months, it’s easy to understand why some borrowers might be confused about how interest rates–and more importantly, interest rate locks on FHA mortgages–work.
According to the FHA loan rulebook, HUD 4155.1, there is no provision for the government to set mortgage rates on an FHA mortgage. “Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points.”
Borrowers might want to commit to a specific interest rate on a day when the rates seem particularly advantageous. But the loan won’t close until a later date in many cases, so how do the borrower and lender settle on the interest rate? By using something called a lock-in, which has the lender and borrower committing to a specific interest rate in writing.
FHA loan rules state, “The minimum time for lock-ins or rate locks is 15 days. The loan may close in less than 15 days at the convenience of the borrower, and the lender may still earn the lock-in fees. Lenders must honor all such commitments.”
When negotiating an interest rate lock-in, “Lenders are permitted to charge a commitment fee to guarantee, in writing, the interest rate and any discount points for a specific period of time, or to limit the extent to which the interest rate or discount points may change.”
Borrowers should be careful to make sure they can complete the paperwork and other requirements before the lock-in period expires–there is no guarantee mortgage loan rates will be higher or lower after that period expires. Any changes to the written agreement for the lock-in rate may require additional paperwork as well as certification from both the lender and the borrower that the changes are agreed-upon.
For more information on interest rate lock-ins, speak to your loan officer about that financial institution’s specific policies.
Do you have questions about FHA home loans? Ask us in the comments section.