When buying a new house, one of the most important factors is the interest rate. This number could save or cost you thousands of dollars over the course of a mortgage. Because the interest rate is so vital, it is important to lock it in once you get a rate quote that is attractive.
Rate Lock vs. Rate Quote
Do keep in mind that locking in a mortgage is different from a rate quote. A quote is simply an estimate of the rate. However, rates can change or other factors such as your credit rating and income can change the quote. On the other hand, a rate lock is a legally binding promise that you will get a specific rate.
How Long Does a Rate Lock Last?
You can typically lock in a rate any time after you have found the property that you want to purchase. These locks are then valid for anywhere from several days to several months. However, any rate lock lasting more than 30 days may result in you having to pay a fee. Many times the home buying process can take several weeks so be sure that you will be able to complete the purchase within the time in which the lock is valid.
Is a Verbal Rate Lock Good Enough?
While a verbal lock rate is enforceable, it is important to get the agreement in writing. This document may accompany a document such as a letter of commitment or a loan commitment letter. The lock-in document should list your name along with the name of the lender, amount to be loaned, interest rate, points and any fees associated with the locked in rate. It should also state when the date the lock is going to expire.
Getting a locking in mortgage rate is important if you believe interest rates will rise before closing on the property. If they fall, try to include a float-down option in the letter of commitment that allows you to have the option to grab the lower rate. Not all lenders will provide this feature and it may come with a fee.