August 1, 2012
A reader asked recently whether pre-qualification for an FHA home loan has an expiration date. The answer to that question depends greatly on the lender’s policies for pre-qualifying, but there’s a related issue that some borrowers may confuse with pre-qualification–interest rate lock-ins.
Pre-qualifying is when an FHA loan applicant applies in advance for an FHA loan amount.
The lender will tentatively approve an FHA loan amount based on the borrower’s application data and credit worthiness, but the real FHA home loan isn’t finalized until an offer is made, the appraisal has been accomplished and all the other usual procedures are finished. Pre-qualification is a way for the lender to know approximately how much loan he or she can afford and house hunt accordingly.
The interest rate lock-in period is different than pre-qualifying. The FHA does not set interest rates for FHA guaranteed mortgage loans; interest rates are negotiated between the borrower and the lender. When the borrower wants to commit to an FHA mortgage, the lender can offer an interest rate that will be considered firm for a limited amount of time.
According to FHA loan rules found in HUD 4155.1 Chapter One, Section A:
“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.
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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