August 30, 2011
If you are a first-time house hunter interested in buying a home with an FHA-insured mortgage, there are several things you should know about the FHA home loan process. It’s easy to assume that because a lender is FHA-approved, they offer the same services, rates and other features as any lender participating in the FHA loan program. But is that a safe assumption to make?
Borrowers should know before applying for an FHA home loan that the FHA loan program is voluntary–the government does not require lenders to participate. That means a lender is free to withdraw from the program and stop offering new FHA home loans. Banks that do participate must comply with FHA regulations, the Fair Housing Act, and other rules.
So while borrowers can safely expect an FHA loan application process that is fair (and get recourse for one that is not), it’s not a good idea to assume rates and terms are identical.
That’s because the FHA and HUD do not set interest rates, establish specific dollar amounts for FHA loans, or issue credit. The FHA administers the program, sets regulations and standards, and approves loan applications where required. The individual lender negotiates interest rates with the buyer and establishes terms based on FHA requirements and local market conditions.
The FHA’s own literature encourages buyers to do comparison shopping. Some of the major areas to concentrate on are interest rates, discount points, and private mortgage insurance fees. You may, depending on your credit information, be eligible for a more competitive interest rate, but rates differ from lender to lender. Never assume that the interest rate you’re quoted at one financial institution is the only one available or the best on you can get.
Some information–like interest rates–can change on a daily basis, so it’s good not to let too much time pass when checking those details. As you get close to making a commitment on a particular lender, ask how long a quoted rate would be in effect should you decide to fill out an application.
There are many other smart shopping tactics to consider when buying a house, and the FHA offers free home buying counseling information for those who want more ideas when starting the search for a home.
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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