When purchasing a home or refinancing your mortgage, locking in your interest rate is an important step. This is your security against rates going up while your loan is in process. A rate lock is a three-way agreement between the borrower, lender, and the investor that says the loan will be done at a specific interest rate, for a specific cost (or credit), on a specific property.
Here are five important things to know about locking in your rate:
1) You, the borrower, are in charge of choosing when to lock in your rate, and you must instruct your loan officer when to do that. Neither the loan officer nor the lending institution chooses the day for your lock.
2) You need to call your loan officer to request the rate lock. Do not leave something of this importance to the uncertainty of email or text, because you have no way of knowing if your loan officer will see your message before the rate you want changes. Interest rates can change midday when the market is volatile.
3) Within 48 hours of locking in your rate, you will receive a confirmation of the rate lock. If you do not receive confirmation in writing (email is fine), then do not assume your rate is locked. Call your loan officer again to verify and ask for a written statement.
4) If interest rates go down after your rate is locked, your rate is still locked. This is not a one-way contract where you are protected if rates go up (and the lender takes the loss), but the reverse is not true. That said, if rates drop by at least half a percent (0.5%), then lenders will often compromise with a decrease of .25%.
5) Your rate lock includes an expiration date. If your loan does not close and fund by that date, then you have two choices.
First, you can buy a rate lock extension. It is a per day fee, and you need to ask your loan officer what their company’s policy is. This option makes sense if rates are higher.
Second, you can take the new, higher rate. If rates are the same or lower than when you locked, the lender will extend your current rate at no charge.
Note: You cannot get a lower rate by letting your lock run out and then grabbing the new, lower rate.
Another note: If the rate lock expires due to the fault of the lender, you do not get to demand a free extension. You have no recourse. That is just the way it works. This is one reason why I offer my clients a Peace of Mind Guarantee that includes closing on time (or the lender pays)*, best pricing, and timely updates.
If you have any additional questions about locking in an interest rate, let me know. The comment button is at the top of this post.
* This is for my mortgage clients. I am licensed in CA and WA states. For details on the Peace of Mind Guarantee, simply ask and I will email you the official flyer.
Heads up! Lenders are jacking up the interest rate or raising points–even after it is locked in. If you have a loan in progress, you need to know what’s going on so you can prevent it happening to you.
Today I received this email from T. Smith:
“I have a GFE (Good Faith Estimate) dated 13 September. Trying to close this week and they say our credit report has expired and want to increase the cost of our points. Is that legal?”
Yes, credit reports have a limited life; but moreover, a lender has the right to re-pull a credit report at any time, regardless of the date of the original report. Now more than ever before, lenders are re-pulling credit right at the end of the process in order to make sure no new negative information has popped. “Negative information” could include a new line of credit or an increase to a credit card balance.
If you purchased a car, opened a new line of credit for appliances or furniture for your new home, opened a new credit card, or increased the balance-to-limit ratio on a current card, then any one of those things could easily lower your credit score. And a lower score could place you smack dab in the middle of a higher risk category as a borrower.
Additionally, a new late payment would lower your score.
If a lender discovers that a borrower has a lower score than what they were previously approved at, then yes, they do have the right to raise your interest rate or increase your points in order to compensate for the higher risk they perceive you to be. (Increasing points is another way of charging more in interest. Points are interest paid up front in the form of a fee.)
This is why I have been warning people not to make any changes whatsoever–and not to purchase anything on credit at all–during the loan process. Patience is the name of the game while you have a loan in process. There will be plenty of time to shop after your new mortgage is funded and closed.
If you know someone who is refinancing or buying a house, please pass on this timely warning to them.
The report shows that hiring has increased above expectations. This good economic news means mortgage interest rates will be going up as well.
Based on that, I expect mortgage lenders to be showing interest rate price increases this morning. Yes, again! If you have a purchase contract, my advice is to lock in your rate ASAP this morning. If you do not yet have a purchase contract, you cannot lock in your rate, because rate locks are tied to a specific property address.
This is just my opinion and not a guarantee. Make your own decision about locking or floating your interest rate based on your own opinion.
If you know a home buyer or home owner refinancing, please alert them to this information as well.
What Are Disclosures?
Loan disclosures are a packet of papers that provide you with important information. Included is your three-page Good Faith Estimate (updated), Truth-in-Lending form, Rate Lock Confirmation that tells you what interest rate you’re locked in at or if you are not locked and still floating your rate, your credit scores, whether or not the lender sells your loan after closing, and other pertinent information. The purpose of the disclosures is to inform you about your financing. They are not a contract.
When Should You Receive Your Loan Disclosures?
You should receive your loan disclosures within three business days of giving your signed Purchase & Sale Agreement to your loan officer. As soon as you and a seller have a mutually signed contract, it is time to go full steam ahead with your loan processing. Your loan officer now has the address, closing date, and exact purchase price. This is the time for your disclosures to be prepared, and federal law states a lender must do so within 3 business days (whether or not your interest rate is locked.
You do not receive disclosures before you have a fully executed Purchase & Sale Agreement. There would be no point, because you don’t have an exact price or even a property before that time. What you ask for upfront is a Cost Estimate (the new name for the upfront Good Faith Estimate, due to the badly written Dodd-Frank law).
Signing Your Disclosures
Immediately upon receiving your paperwork, read through it and ask your loan officer about anything you don’t understand. It is your right and responsibility to understand your financing, and it is your loan officer’s job to explain it to you. Good loan officers love explaining loans, so don’t be reticent about asking. Then sign the paperwork and return to your loan officer asap–within a couple days. Don’t ignore them! Don’t leave them gathering dust for a week, because doing so could delay your loan processing and cause you to miss your closing date.
Loan disclosures are most often sent by email now. You print them out, sign and date, and return. If you cannot receive them by email and print them for signing, let your loan officer know so that he/she can mail them to you.
If–God forbid–your lender tries to sneak in additional lender fees that are above what was on your upfront Cost Estimate, do not sign any of the disclosures until this is corrected. Also, make sure the third party costs that are controlled by the lender are the same: appraisal fee, credit report fee, tax servicing fee, and flood certification. Just last week, one of my coaching clients noticed her disclosures had all fees increased from the initial cost estimate. This would have cost her an additional $350 had she not been aware. No bait-and-switch allowed!
When my client called the loan officer on it, he apologized and scurried to get her corrected disclosures. If he had not, she was prepared to walk away and go to a more ethical lender. If she had signed and returned the paperwork, she would have ended up paying more, because signing is acceptance of the terms. Once you sign, it is too late to negotiate.
Whatever you do, don’t neglect this important step in getting your mortgage–and don’t let your lender go weeks without providing you with this vital information: your loan disclosures.