When getting a mortgage, one of the steps in the process is to "lock your rate" which is a simple agreement between you and the mortgage lender that your rate is "locked in" and won't change between the time you lock it and the expiration date of the lock. Common lock periods for lenders include 10 days, 15 days, 25 days, 30 days, 60 days and 90 days -- although each lender has different increments for which you can lock your rate. Common sense tells you that if you are early in the process of getting a loan and the lender says that it takes on average 20 days to get a loan done, you would want to lock your rate in for 30 days and not 10. If only it were that easy. The process of getting a mortgage has always had some element of the unknown when it comes to planning exactly when you can close the loan. Things in the process "come up" and as a result, the closing date can be pushed off. Common issues that can delay a loan are delays in underwriting due to lender workloads and appraisal issues that result in a longer time required for the appraisal to be done (or re-done in some cases). Regardless of what actually causes delays in the process, here are 3 important questions you can ask your loan officer before you lock your loan:
1. How do I know for sure my loan is locked?
Thanks to the new Good Faith Estimate, it is easier than it used to be to know for sure that your rate is locked and how long it is locked. When you get your first Good Faith Estimate (GFE) from your loan officer, it will outline what to expect regarding how long the interest rate is good for, how long you have to close and how long before closing you must lock your rate. Your rate is not locked in when you get your first Good Faith Estimate. Should you decide to go to with a particular lender, when it comes time to lock, you will be issued a document called a Mortgage Rate Lock Disclosure along with an updated Good Faith Estimate and Truth in Lending document, Some lenders also require an additional document or two at the time of lock. You will be required to sign these documents acknowledging that you are aware that your rate is locked, for what period it is locked and the type of loan program. Once you have signed all of these documents and returned them to the lender, your loan officer will then lock your rate. Once your loan officer indicates that your loan has been locked, it is always a good idea to request a Lock Confirmation - just to be safe. The Lock Confirmation document is something that your lender may generally have as an internal document, but they shouldn't have a problem giving you a copy, if requested.
2. Can I get lock extension if needed?
Each lender will have their own guidelines as to who pays for a lock extension. Thanks to the new loan officer compensation rules, there are only two possibilities as to who pays for a lock extension -- the borrower, or the lender. The loan officer is no longer allowed to pay for a lock extension out of their commission. The most common answer I see as to "who pays" if a rate extension is needed is that it depends on why the delay happened in the process. If a lender is at fault for unforeseen delays that cause a rate lock extension to be required, I commonly see the lender pick up the extension. If a borrower is at fault for not getting requested items in a timely manner, I have seen the lender require that the borrower pay for the rate lock extension.
3. What happens if rates drop? Can I get a lower rate?
Policies about what happens if rates actually drop between the lock date and the close date also vary between lenders. Believe it or not, some lenders offer a "float down" in rate -- meaning if rates went down, you can actually get a lower rate. But, the most common policy among lenders is that if rates went down during the lock period, you are still obligated to close the loan (assuming that you close with that particular lender) at the agreed-upon lock rate. Perhaps the most important thing to know when locking a loan is to have the conversation with your loan officer about these three important things up front. Justin McHood works for Academy Mortgage and is based in Chandler, AZ. He is a contributor to Zillow Blog and has conversations about mortgages whenever he can. Learn more about Justin at http://www.mortgagecommentator.com.