Contrary to popular belief, the FHA doesn’t control when you can lock your interest rate. In fact, the FHA doesn’t know much about your loan when you go through the process. Instead, you deal with an FHA approved lender. Because of that, each lender will have their own ‘rate lock’ requirements.
In general, you can lock your FHA interest rate once you have a signed purchase contract and have at least a pre-approval from a lender. Rate locks are only good for a specific period of time, so you must make sure you think long and hard before you lock your interest rate.
The Most Common Time to Lock an FHA Rate
Typically, borrowers lock their interest rate for 30 – 45 days. That means they lock it between 30 and 45 days before their loan closing date. Lenders typically don’t charge anything for a lock period of this length, as it’s common.
What happens if your rate lock expires and you don’t have loan approval yet? At that time, you may be forced to pay for a lock extension. If you don’t, you’ll be at the mercy of the current market rates at the time. This could mean that you get a lower interest rate, but it could also mean that you’re forced to take a higher interest rate.
Deciding When to Look
One of the largest factors in locking an interest rate is deciding when you are comfortable locking the rate. In other words, you must be happy with the rate you choose. We mention this because interests rates can increase or decrease during the time you wait for your loan to close. If they increase, you’ll likely be happy with your decision. If they decrease, you may find yourself feeling remorseful. By choosing an interest rate that you are comfortable with, though, you can close your loan with confidence.
Buying a Lower Rate
If you don’t like the interest rates at the time you think should lock in a rate, you may be able to pay discount points. Each point that you pay, which is 1% of your loan amount, usually lowers the interest rate by 0.5%.
A discount point is actually prepaid interest. The lender accepts payment upfront with your closing costs in exchange for a lower interest rate. This means the lender earns less interest over the life of the loan. If you know you are going to stay in the home for a long time and you will keep the same loan, it may make sense to pay for the lower rate, but you can’t do this until you lock in a rate.
The most important thing you can do before you lock your FHA interest rate is to make sure your loan is in good standing. Did you go over everything with your loan officer to ensure that you provided all of the necessary documentation? Did you receive a written pre-approval that shows the outstanding conditions? The more stipulations you have out of the way before you lock your interest rate, the less time it will take you to close on your loan. This means you should be able to get it closed before the rate expires and you have to make even more decisions.