October 3, 2013
In recent weeks, we’ve seen a steady drop in mortgage loan interest rates, with VA and FHA mortgage loan rates going as low as 4.0% in some cases (though that rate is not available from every lender or to every borrower). FHA mortgage loan rates tend to be lower than conventional loan rates in terms of the “ideal rate” for well qualified borrowers with very good FICO scores and credit repayment history.
But even for borrowers who don’t have spotless credit, the recent mortgage loan rate recovery has offered some applicants a better deal than they could have gotten a few months ago when interest rates were climbing steadily over a period of weeks.
One question some borrowers have about period like these when rates are higher in some months and lower in others: what can the borrower do if the rates take a dramatic turn for the better once an interest rate lock has already been agreed upon?
Let’s see what FHA loan rules have to say about interest rate locks. In HUD 4155.1 Chapter One, we find the following:
“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.”
“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.”
That means the lender is obligated to fulfill the mortgage rate lock agreement even if rates go dramatically higher. But can a borrower re-negotiate an interest rate lock with the lender? Here’s what FHA loan rules say about any such re-negotiation of FHA loan interest rate locks:
“The lender must re-qualify a borrower if there is any increase in either the interest rate, or discount points.” That would mean the borrower may have to go through the credit underwriting process all over again. Depending on the circumstances, that may dramatically affect the purchase. On top of that, this rule assumes the lender would be willing to re-negotiate at all. But the rules do provide this option for a change in interest rates and/or discount points, so it’s good to know “just in case”.
Do you have questions about FHA home 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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