Questions & Answers About Locking in a Mortgage Rate

In case you haven’t heard, mortgage rates have been at or near historic lows for quite a while now, and if you’re in the market for a new home, that is something you want to keep an eye on. While nobody can predict what market rates will do, everybody wants to get the best possible interest rate on something as big as a mortgage loan. If you’re shopping for a home right now and you’re worried that rates might go up, consider whether locking in a rate right now is the best choice for you. Here are some commonly asked questions and answers about mortgage rate locks.

What does it mean to “lock in” a mortgage rate?

The going interest rate for mortgage loans can vary as the market fluctuates, so if you are going to buy a home and you know that the rates are very low right now, you can talk to a lender about “locking” that rate in for your loan. Then if the rates go up between now and when your home loan is finalized, you will still get the lower rate.

How long can I keep my rate locked in?

The exact amount of time that you can lock a mortgage rate is dependent on the lender, but most offer it for as few as 15 days as up to 60 days or more. The catch is that the longer you want to lock in a rate, the more likely there will be a cost—that’s because if rates do go up and you get to keep the lower rate from before, the lender is the one that will lose money.

When is the best time to lock in a rate?

Since you cannot keep a rate locked in indefinitely, and the home buying process takes time, it’s best not to lock in a rate until you’re well into the process of buying your home. Most buyers wait until they have an offer on a home that the seller has accepted; that way you only have to wait through the process of closing the loan.

Am I guaranteed to get the lowest available interest rate if I lock it in?

Not necessarily. The rate you ultimately get depends on a lot of factors, so to accurately give you a rate quote, the lender may need information about your credit score, the loan-to-value ratio you’re going to need, the type of property, and your ability to pay back a loan

What will it cost to lock a rate?

Most borrowers won’t pay a fee (out of pocket) for a rate lock, but that doesn’t mean it’s free. As mentioned previously, when a lender allows a borrower to lock in an interest rate they are taking a risk that they might lose out on money over the years if rates go up before the loan closes. In most cases you “pay” for the rate lock with a slightly higher interest rate—the longer you lock in the rate, the higher it’s likely to be at the end. 

What if the rate lock expires before closing?

Depending on the lender, you might be able to get an extension in the lock, but you would have to discuss what is available. For this reason, it’s not recommended to lock in a rate until you’re fairly certain you can close the loan in time.

If you’re in the market for a new home and want to find out more about locking in historically low interest rates, talk to Altius Mortgage today.

What You Will Need to Get Prequalified for a Mortgage

When you begin searching for a new home, the best thing you can do is start by getting prequalified for a mortgage. Taking this essential step early in the process can benefit you significantly because you can find out how much you will be able to borrow (the approximate amount you can get approved for on your mortgage loan), discuss options for loans and budgeting, and show sellers that you are serious about the home buying process. In order to get prequalified, here’s what you will need.

Income Proof

One of the first things a lender will ask to see is proof of income. Generally you can show this with your W-2 statements from the past two years, and pay stubs that show your most recent and year-to-date income from your employer (which also proves that you’re employed). If you have income from alimony or bonuses and want that included in your loan consideration, have the documentation to prove it. It’s much more difficult to get a loan if you are self-employed, so be prepared to prove your income with tax filings and other documentation if that is the case. Ask your lender if you are self-employed what they would need to see.

List of Assets

Lenders want to know that you will be able to repay a loan before they give it to you, so they also like to see what your cash flow is like and find out if you have any assets, including cash, available. The easiest way to show this is through bank statements from the past couple of months and investment account statements, but you can talk to your lender if you have questions about what they want.

Down Payment

No-down-payment loans do still exist, but they are much harder to get. In most cases you will need to have at least 3.5% of the home price available as a down payment (for FHA loans), and 10 to 20% available for conventional loans. Be prepared to show the lender that you have this available in cash; if you’re getting the money from a friend or relative to help with the down payment, you’ll need to show a gift letter so they know it’s not a “loan” (which would make it a liability for you).

Credit Score

Prequalification may not require a credit check (some lenders differentiate between prequalification, which is a quick process without a credit check) and pre-approval, which is more in depth, but your lender may ask you to estimate your credit score. Anything above 720 is usually considered excellent, while anything below about 620 may not be good enough to get a loan without a much larger down payment.

Other documents to take along for your prequalification meeting include identification ( a driver’s license or other government-issued ID), Social Security number, and anything else they request as part of the process. Once you have your prequalification you can get started shopping for the home of your dreams!