May 6, 2015
FHA home loans, like their conventional mortgage counterparts, feature interest rates that must be negotiated between the borrower and the lender. HUD 4155.1 Chapter One verifies this, stating:
“Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points”.
In recent days at the time of this writing, FHA and conventional mortgage rates have been in a state of flux, moving higher due to upward pressure from overseas economic developments and other factors. FHA borrowers may wonder how they might be protected from further increases in mortgage loan rates, should they occur, once they have committed to an FHA home loan.
That is where something called the interest rate lock comes into play. The lender and borrower can enter into an agreement (the “rate lock”) that guarantees the borrower a certain interest rate for a specific amount of time–generally the time between the commitment and the loan closing–so that the borrower’s rate is not influenced by changes in the meantime.
The lender is permitted to charge a fee for this service, as described in HUD 4155.1 Chapter One:
“Lenders are permitted to charge a commitment fee to guarantee, in writing, the interest rate and any discount points for a specific p eriod of time, or to limit the extent to which the interest rate or discount points may change. 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.”
Notice the terms described above–the loan can close before the lock-in period ends, and the fee must be paid regardless, seeing as the fee is for services rendered. But the lender is also required to honor the commitment under the same circumstances.
Lenders are required to re-qualify an FHA loan applicant if there is any increase in the interest rate above what is agreed upon, so you can see that it’s in both parties’ best interest to arrive at a rate lock commitment in order to avoid additional paperwork and processing.
Do you have questions about FHA home loans? Ask us in the comments section. All questions and/or comments are held for review.
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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