Rate Commitments on FHA/HUD 221(d)(4) Loans
Are you a builder or developer interested in taking out a HUD 221(d)(4) loan to construct or rehabilitate a project with HUD multifamily financing? If so, understanding what interest rate you might be paying is essential to your financial decision-making process. After the preliminary underwriting on your loan is complete, a 30 to 180 day rate commitment (or rate lock) is available. However, it's subject to a 1% rate lock deposit, which is refunded at closing.
What is a Rate Commitment?
Also known as a ‘mortgage rate lock’ or a ‘mortgage lock-in’, a rate commitment is the lender’s promise to loan money at a certain interest rate and a certain number of points. Typically, this rate lock is temporary, lasting only as long as it takes to process the loan. However, be aware that a rate commitment is not the same thing as a loan commitment.
Overall, there are three typical rate commitment options:
Locked-In Interest Rate, Locked-In Points
Locked-In Interest Rate, Floating Points
Floating Interest Rate, Floating Points
The main benefit of a rate commitment, or rate lock, is to make sure you receive a certain interest rate, points, and fees. Specifically, this means that if interest rates go up next week or next month, you still get today’s lower interest rate from the lender. In some cases, a lender might be willing to lower your interest rate if rates decrease.
Typically, lenders charge a fee for rate locks. Also, the longer the rate commitment, the higher the fee. As stated above, with a HUD 221(d)(4) loan, the rate lock is subject to a 1% deposit and is refunded at closing.