March 5, 2013
What do you, the borrower, need to know about FHA loan fees for new purchase mortgage loans and home loan refinances? It’s a big issue, but there are some basics to understand as you’re planning your next move in the search for a new home or a refinance loan rate.
First, the FHA does not set interest rates on refinance loans or mortgage loans. It does require them to be appropriate, reasonable and customary for the market, but the job of negotiating interest rates is one the borrower and lender work on together. The FHA loan rulebook says as much in Chapter One of HUD 4155.1:
“Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points.”
Another issue borrowers should understand is the interest rate lock and fees for that commitment. According to Chapter One, “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.”
As anyone currently watching the mortgage rates on a daily basis will understand, the value of an interest rate lock is quite high. Mortgage loan rates have been quite low in the last six months to a year depending on how far back you look; rates have risen a bit since the very low ranges they were reported in during 2012 but those rates are still quite competitive. Any borrower who gets an interest rate lock commitment from the lender would be protected from a sudden interest rate increase due to market conditions or other factors.
But the agreed-upon rate between lender and borrower doesn’t last forever. While FHA loan rules do regulate how long the rate lock must be in effect at a minimum, that commitment does expire. How long does the borrower have from the time the interest rate lock is established
According to Chapter One, “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.”
For more information on how interest and interest rate locks work, speak to a loan officer or contact the FHA directly at 1-800 CALL FHA.
Do you have questions about FHA loans or FHA refinance loans? Ask us in the comments section.
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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