Understand Lock In Periods Before You Sign.
March 7th, 2010 Posted in Mortgage InfoMost prospective home buyers are now familiar with the idea of a lock in rate for their mortgage. A rate on your mortgage is locked in at the time of application, and even if rates get higher, you will have that rate on the mortgage, within the lock in period, usually 30 days.
On the other hand, if you are not able to close on your home within this 30 day period, the bank is no longer bound by the lock in rate. This may not matter if rates stay the same or even go down.
Most borrowers will be offered a 30 day lock in period, but it is not practical in some circumstances to locate, contract on, inspect and close a house in 30 days. Most buyers want to have a cushion of 15 or more days in their lock in period, but a lender will usually charge more for a longer period.
The first issue most borrowers have to think about is whether or not they need a lock in rate. Do you think interest rates will rise? But if you think rates will decrease because of the state of the economy, you should wait for lower rates.
Most times, people don’t want to even consider whether rates will go up or down, they just want to stick to the rate that is the best for their budget and they will lock in the rate.
A lock in rate can be a bit of a Catch-22, since buyers are told that thebest bargaining position to be in is to have a pre-approved mortgage. Now you have to rush to get the home loan negotiated when you are just starting to look for a home. To perform all of this in 30 days is not easy.
If you have a good idea of the location and type of home you want, it can be done quickly. The good news is that most sellers are not in a strong negotiating position in the present housing crunch, so that stage of the process should go quickly and smoothly. It is wise to hire a home inspector in advance so you don’t have to waste time on this step.
Some borrowers barely qualify for a mortgage, so if they are given a lock in period, they should take it since changing circumstances may squeeze them out of a loan. If you are lucky enough to be able to get a mortgage and a lock in rate, you probably want to secure them before either your individual and economic circumstances change and you become no longer qualified.
The bottom line is you should decide to use a lock in rate if you: 1) think rates will increase 2) don’t want to gamble on the rate or 3) or border line qualifying and prefer not to lose the rate.
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