Dwell Residential’s Secret to Getting The Best Rate (Shhhhh)
Follow our series to learn how to get the best mortgage for your specific financial situation and goals. We show you what you need to do before, during, and after the entire mortgage process to make sure you are getting the right product for YOU. It’s the final week of our series but you can always go back through the prior weeks to read the complete series:
Week 1: What to ask your lender before you buy a home (it’s not a pre-approval!).
Week 2: Why it’s important to figure out your monthly budget.
Week 3: How to determine how much you really need for a down payment.
Week 4: Why your credit score can hurt or help your loan options.
Week 5: How to get the lowest interest rate possible.
Week 6: When you should or shouldn’t avoid PMI.
This week’s topic takes you to the last stage of the mortgage process and how to “seal the deal” on the best interest rate. Here’s what you need to know about when and how to “lock in” your loan and our dirty little secret to guarantee you get the best interest rate out there. We’ll give you the basics first, and then share our own secret plus a bonus tip too!
First, let’s talk about the who, what, where, how, when of “locking-in.”
When should you lock-in? You can only lock in once you are under contract, not before. Once you go under contract, contact all the lenders you may want to work with to compare rates. You MUST contact them on the same day, generally at the same time of day because interest rates change all day, every day.
Once you compare rates and decide on a lender, tell them to lock you in. You need to do so quickly or rates could change, and the lender can’t guarantee your initial rate if they do change. This can happen in a matter of hours…so be prompt!
But, we are getting a little ahead of ourselves…
What exactly is a lock-in? A lock-in is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time (typically 30 or 60 days), while your loan application is processed. It’ll protect you against any rate increases during the loan process. However, the downside of a lock-in is that rates may drop and you may not be able to take advantage of any decreases. (Look in the bonus section of this article to see how you can perhaps take advantage of a rate decrease when you are already locked-in.)
What to look for from a lender? Remember to shop around for a lender during the pre-approval process first, which we discussed in Week 1. Meet or talk with at least three lenders and see what they will offer in terms of interest rate, points, and fees, including any lock-in fees (which may or may not be refundable).
When you’re selecting a lender also consider how comfortable and confident you are in that lender and if they have a good history of service and closing loans on time. You want someone who will get the job done, who is honest and reliable – and offer you a loan with a good rate and terms!
How long is the lock-in period? The lock-in period should be long enough to allow for settlement and any other contingencies imposed by the lender. Have the lender estimate the time needed to process your loan.
Make sure you factor in any possible delays (construction issues, appraisal, inspections, etc.). Lock-ins of 30 to 60 days are common but some may range from seven to 120 days. However, the shorter your lock-in period, the lower your interest rate or fees/points (Another bonus tip for you!).
A longer lock-in period could mean an increase in the interest rate or added points. It could be a very slight increase or a half a percentage point. It’s important to know your lender’s terms and procedures since each lender can differ.
How can you protect yourself? Have a tangible record of your arrangements with the lender in the event of a dispute. Make sure you have a written rather than verbal lock-in agreement. You MUST fully understand your lender’s lock-in rules and procedures.
What happens if your lock expires? If your closing is delayed and your lock timeframe has expired (see above), you most likely will lose the interest rate you had locked in. Lenders will offer you a loan based on the prevailing interest rate and points, which may now be higher due to market conditions. Sometimes, though, the rates are lower.
If the delay is the lender’s fault such as heavy demand, the lock period may be extended; and sometimes it may be extended even if it is your fault. Again, check the specific lock-in rules with your lender.
Shhh….Here’s our secret!
If you have been using all of our tips and tricks we have shared during the seven-week How to Get the Best Mortage Series, you are already going to get a better mortgage and interest rate than most buyers. But, we want to make sure you get the best interest rate possible so here’s one more bonus tip for you:
Once you get the quotes from the lenders (remember at least 3, see advice above) and you know which bank and lender is giving you the best interest rate, go to one of the other lenders and ask them to “beat it” so they can win your business. Sometimes lenders will give discounts or special pricing so they won’t lose potential customers.
This is our dirty little secret and it will help you truly get the very best mortgage and interest rate possible.
But, wait! There’s more! We have a bonus tip for you!
What if interest rates dip while you are locked in? Ask your lender if they have a “float down,” whereby if your rate lowers more than a certain amount within a short time before settlement, you get the lower rate for no charge. However, YOU have to be the one to ask if your lending institution offers this option AND be the one to keep track.
Make sure you ask your lender upfront what the criteria is to get the lower rate if rates fall before your settlement. That way you’ll know what to keep an eye on and when to reach out to them to lower your already locked-in rate.
Let us know if you have any questions on locking in your rate and our secret strategy!
We hope you enjoyed our How to Get the Best Mortgage Series. We look forward to bringing you more informative series.