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What Does it Mean to Lock a Rate?

rateLockGraphicWhen working on a home loan, one of the decisions we will make together is when to “lock” your loan.

What does a “rate lock” mean?

When we lock your loan, we are setting aside the necessary funds and “locking” in the loan terms and interest rate.  In essence, think of a lock as your “RSVP;” Envoy is setting aside the necessary funds for your transaction and we are assuming the risk of rates rising during the lock period.

What is important to know about locking your rate?

The moment we lock your loan together is the moment the clock officially begins ticking regarding the loan (for purchases, your offer to purchase will have already started the clock).  Most rate locks come with 15, 30, 45 or 60 day terms (We have extended rate lock options up to 270 days as of the time this post was written).  The shorter the period we lock your rate, the more beneficial to you in terms of overall cost but the faster you must close.

Why and how does the length of a rate lock affect my refinance cost?

In mortgage lending, most every cost factor comes down to one variable – risk.  You will generally find that the more risk a borrower is willing to assume, the better rates and terms a lender is willing to offer.  Conversely, when a lender assumes more risk they tend to counter that risk with higher costs.  In this particular case, the longer we guarantee an interest rate the larger a buffer we will require to offset that risk.

What is the smartest path for you – my client?

The ideal scenario for us is to have as many of our ducks in a row as possible – right now.  You see, if we have your loan file “pre-processed” this will help the underwriter expedite your file through the process.  The faster and smoother the process, the shorter “loan lock” period we can get away with – and the more money you will save overall.  In this same spirit, when and if the underwriter requires additional documentation at some point during the process – please jump on these requests immediately.  Keep in mind, however, that sometimes, no matter how fast we are, if you are purchasing a home, the seller may still make you wait until the last day on the offer to purchase to actually close the transaction. 

What happens if I commit to locking my loan and we do not close in that time period?

Sometimes, conditions arise that delay the process and loan locks “expire” before we can close the transaction.  In this case, the lender will typically grant an extension on the lock period – but at an additional cost.  An expiring loan lock does not typically jeopardize the overall likelihood of the loan closing but it’s a date that needs to be respected as much as possible.

Thanks for reading this post. I always say that “an educated consumer is an empowered borrower” and I am going to keep the information coming your way.  If I can be of any service any time, please do not hesitate to call or email me anytime.

Pre-Qualification Must-Know Items

Envoy Pre Approved WisconsinAs any experienced loan officer or real estate agent will tell you, there are certain must-knows that come along with buying a home and obtaining a mortgage. This is my most recent list of them to help keep your experience on the easy side of things. It’s organized in to Do’s and Don’ts

DO Let us know if there have been (or will be) any employment changes including raises, promotions, transfers, pay status, etc.

DON’T Transition out of your current job before first connecting with us about the implications this can have to your loan.

DO Keep in mind that a new (soft) credit report will be pulled prior to closing and, if your letter expires, a new full credit report will be pulled as well.

DO Let us know if you have opened any new credit in the past 90 days; sometimes the creditors don’t report them timely and we don’t want something you opened prior to now, pop-up on the soft pull note above.

DON’T Do not incur any new debt between now and closing unless you first pass it by us; any new liability can kill your loan.

DON’T Make any major purchases between now and closing without first consulting us; this includes, but isn’t limited to, items like a new car, furniture, appliances, etc. Purchases like this can significantly impact your ability to qualify for the amount you’d like.

DO Provide your Earnest Money Deposit to your seller from your own personal account or acceptable gift funds. If not well-managed, this can cause major issues later.

DON’T Deposit just anything into your bank account. Deposits into your bank account(s) that are not from payroll or transfers from another account you already own can derail your loan. Throughout the process, always remember that if you are making, plan to make, or have already made, deposits into your account(s) that are not direct-payroll-deposits or transfers from one of your current accounts to another, we need to talk to ensure it’s done in a way that is compliant with your loan program’s guidelines.

DON’T Make any decisions to close or open any asset accounts or transfer funds between accounts without first talking to us. This includes moving money from checking to savings.

DON’T Assume your rate is locked. The interest rate cannot be locked until a home has been identified and purchase contract has been secured; it can go up or down with the market until it is locked. With our premier standing as a national direct mortgage lender, I can assure you that when the time does come to lock, your rate will be both competitive to the market and very affordable. Beyond that, we have a Price Promise, which can be read here.  If you want to know what it means to lock a rate, click here. If you need suggestions on how to keep up with what the market is doing, please like our Facebook page or connect with me on Twitter or visit my Market Information area here on this website.

DO Send us the accepted offer as soon as you get it from your seller; without it, we cannot move to the formal application.

DO Familiarize yourself with the entire process of buying a home so as to know what to expect and when; you can read about that here in our full publication of the process from start to finish. While up to this point, if you’re reading on a phone, it’s been fine, this publication works best on a larger-than-a-phone screen. Check it out on a computer if you’re on a phone.