When applying for an FHA loan, you will begin by filling out an application as with any other type of loan. You will work with the lender to obtain approval of the loan, and once this has occurred, you can then move forward with securing it. The tricky part can be agreeing on an interest rate that you, the borrower will pay throughout the duration of your new loan. Dean Graziosi provides some useful information about this process below.
When you and the lender agree on an interest rate, this is what is known as a lock-in. Both you and the lender are committing to this rate and will enter into an agreement. Negotiating the interest rate is a standard part of obtaining an FHA loan. There are, however, some important rules to consider.
As an article posted on FHA.com notes, “Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points.” Once you and the lender agree on an interest rate and it is locked in, other FHA rules apply. These rules state that the lender may charge a commitment fee that will guarantee the interest rate and any discount points for a specified period of time. This commitment is in writing. The extent to which the interest rate or discount points can change may also be limited.
FHA loans can work much differently from conventional loans, so it is important to thoroughly understand what you are taking on before deciding this is the best option for you. Locking in an interest rate is very important because you will always know how much interest you are required to pay each month, but you should be aware of any additional expenses you may incur along the way.
So, how long do you have from the time of the agreement to the lock-in actually taking effect? According to FHA.gov, the minimum time for lock-ins is 15 days. It may be possible for the loan to close in less than 15 days at the borrower’s convenience, and the lender still may be able to earn the lock-in fees. Lenders are required to honor all relevant commitments.
What happens if the interest rate needs to be re-negotiated? Can you and the lender come to an agreement for a rate that is different from the previously agreed upon lock-in rate? Here the borrower is required to provide you with a HUD interest rate disclosure statement that will explain the terms of the loan are, in fact, negotiable. If there is an increase in either the interest rate itself or discount points, the lender will need to re-qualify you. This rule may require you to re-submit to a credit check, a debt-to-income ratio calculation, or other re-qualification data the financial institution requires.
Before locking in an interest rate, know what fees you may be required to pay and make sure the funds are there to do so. An FHA loan may be the best option for you, and the more prepared you are, the better off you’ll be in the long run. You can find more real estate topics at Dean Graziosi’s blog.