December 13, 2012
Many people are considering the purchase of a new home lately since, at the time of this writing, mortgage loan interest rates are at or near historically low amounts. Borrowers who might have wondered whether it was a good idea to commit to a home loan a year or two ago are taking another look due to these low rates.
When a borrower decides to commit to an FHA home loan, they fill out an application and work with a lender to get approved for the mortgage. Assuming the loan application is approved and the loan will move forward, the borrower and lender may agree on an interest rate and commit to that rate–something known as an interest rate lock-in.
Coming to a mutual agreement on that interest rate is a standard part of doing business with an FHA mortgage. FHA loan rules state, “Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points.” When the borrower and lender agree on a rate and lock it in, another portion of the FHA loan rules kick in.
According to HUD 4155.1., “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.”
How long does the borrower have from the time of the mortgage loan interest rate lock-in? The FHA official site says, “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.” The rules add,”Lenders must honor all such commitments.”
Can the borrower and lender come to an agreement on a different interest rate than the one agreed to in the lock-in? FHA loan rules have a say for that situation, too. “The lender must provide the borrower with HUD-92900-B, HUD Interest Rate Disclosure Statement, to explain that the loan terms are negotiable. The lender must re-qualify a borrower if there is any increase in either
• the interest rate
or
• discount points.”
That means the borrower may have to re-submit to a credit check, debt-to-income ratio calculation, or other pertinent re-qualification data as required by the financial institution. That provides borrower and lender with incentive to consider the original interest rate lock-in agreement carefully.
Borrowers who have questions about the procedure for interest rate lock-ins should discuss them with the lender for specific bank policies or contact the FHA directly at 1-800 CALL FHA for information on FHA policies in this area.
Do you have questions about FHA 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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