Under the rules of the FHA loan program, borrowers and lenders negotiate together on interest rates for the FHA loan. 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.
In recent times you may have noticed headlines and advertising discussing the idea that mortgage loan rates in general are as low as they’ve been in some time.
At the moment it’s a very good time to be exploring your options as an FHA loan applicant or refinance loan applicant. Rates have recently hit eleven month lows and qualified borrowers with excellent FICO scores have found rates as low as 4.0% or even lower depending on what’s being offered by a particular lender.
But how do the borrower and lender arrive at an agreement on an interest rate when the rates are subject to change depending on current events, economic news or other market-moving factors?
Something called 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 HUD 4155.1 which says the lender is permitted to charge a fee for this service, but there are rules governing that practice:
“Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points. 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.”
FHA loan rules specify a minimum of 15 days for an interest rate lock. 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.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at www.FHA.com, a private company and not a government website.