June 8, 2016
There are many questions about FHA home loans, especially where interest rates are concerned. Do you know how the FHA loan process works when it comes to negotiating rates or choosing a fixed rate or an adjustable rate mortgage loan? Here are some of the most common questions and answers in this area:
How does the FHA set interest rates on FHA mortgage loans and refinance loans?
In general, the FHA actually does not set or regulate interest rates on FHA home loans. For certain loan products there are restrictions on how interest rates can be changed or modified, and there are rules governing the purchase of discount points in order to lower mortgage loan interest rates. But the rates for an FHA mortgage are negotiated between the lender and the borrower, the FHA does not have a role in this aspect of the transaction.
Can a borrower buy down the interest rate?
The purchase of “discount points” for this purpose is permitted for FHA home loans and refinance loans. In certain cases a borrower may be able to include a limited number of points into the loan amount, but lender requirements may apply in addition to FHA loan rules.
Can I purchase a home with an adjustable rate FHA mortgage?
FHA loan rules do permit the use of an adjustable rate mortgage (ARM) loan. If your chosen lender offers an FHA ARM loan, you are free to pursue the option. You are also free to refinance that ARM loan later on into a fixed rate FHA mortgage.
How much can the interest rate change on an FHA Adjustable Rate Mortgage Loan?
FHA ARM loan interest rate changes are governed in HUD 4000.1, which states on page 688:
“The Mortgagee must not adjust the interest rate over the entire term of the Mortgage resulting in a change in either direction of more than:
–five percentage points (500 bps) from the initial contract interest rate for 1-, 3- , and 5-year ARMs;
or
–six percentage points (600 bps) for 5-, 7-, and 10-year ARMs.”
Other standards and regulations may apply, discuss your specific concerns with your loan officer for more information.
Can I refinance from one ARM loan to another ARM loan?
This is permitted according to FHA loan rules in HUD 4000.1 but you may need to discuss this with your chosen lender to see if that financial institution permits this type of transaction.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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