January 10, 2012
The FHA loan rulebook provides lenders with a set of guidelines and requirements for FHA loans. One important section of those rules, as found in HUDdoc 4155.1, has to do with interest rates and something called interest rate lock-in periods.
The government does not set the interest rates for FHA loans. According to the FHA loan rules, “Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points.” But the fact that those rates and points are negotiable does not mean interest rates are not regulated by FHA loan rules–once those rates are agreed upon, the lender must abide by the rules for the FHA loan program.
For example, the amount of time the lender is bound to honor the interest rate offered when the buyer commits to the loan is regulated in HUD 4155.1, which states, “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.”
But that’s not all–did you know the lender is compelled by FHA loan rules to disclose that the interest rate is indeed negotiable? HUD 4155.1 1.A.3.c states, “The lender must provide the borrower with HUD-92900-B, HUD Interest Rate Disclosure Statement, to explain that the loan terms are negotiable.”
The rules for interest rate locks permit the lender to charge a “commitment fee” for interest rate lock-ins, but such fees must be put in writing. “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.”
One very important part of the FHA rulebook borrowers should understand when it comes to interest rates? The rules for re-qualifying a borrower should those agreed-upon interest rates change. The rules clearly state, “The lender must re-qualify a borrower if there is any increase in either the interest rate, or discount points.” That’s one reason a borrower should carefully negotiate his or her rates–letting the lock-in rate period expire may cause a delay in closing the deal while the lender re-qualifies the borrower if the rates offered are no longer available.
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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