EDITORS NOTE: With changes to the 2010 Good Faith Estimate, a lot of the information below is no longer relevant (relating to the GFE). However, the pricing is still a good example of how locks work.
I love it when I’m asked an excellent question from a potential client. This person 
is still shopping for his next home and who the lender will be to provide financing. At this point, I have provided several good faith estimates and a total costs analysis to compare possible scenarios side by side along with how the mortgages may be working for him in 5 and 10 years.
Here are a few of his questions:
What level of guarantee can you offer me with these rates you have provided on the Good Faith Estimates?
Until your loan is “locked” the interest rates on the Good Faith Estimate (GFE) is simply a reflection of what the rate is at the moment the Loan Originator prepared the GFE. In fact it’s possible that the rate may have changed just moments after the GFE was provided to the client. Mortgage interest rates can change throughout the day. The GFE is not a guarantee of the mortgage interest rate, costs or that one is qualified or approved for a loan program. (I have addressed guarantees towards the of this post).
Can I lock in my rates and closing costs before I find my new home?
Typically, the buyer has a signed around (agreed to) purchase and sale agreement. Most locks require a property address along with the borrowers full legal name, social security number, program type, purchase price/loan amount and credit scores along with the length of time required to close the transaction.
Some lenders, like Mortgage Master, have a “lock and look” feature which does allow buyers to lock their interest rate before finding their next home. Unless the market is experience ramped rate increases, I recommend not doing this. The locks are for longer terms (so they are more expensive) and should rates improve, odds are the buyer is not going to want the long term rate they’ve committed to with the lock.
How long is the lock period?
Locks have various time periods that are available to accommodate a borrowers needs. The most common for a purchase is a 30 or 45 day lock. Again, loans are locked in based on how many days are needed to accommodate the transaction closing date. The longer the lock period, the higher the costs is for a specific rate.
For example, here is what the difference in fee may look like based on various lock times assuming the 30 day lock is par or neutral (comparing the other locks to 30 days):
- 15 day lock = 0.125 better over the 30 day price
- 30 day lock = 0
- 45 day lock = 0.05 cost over the 30 day price
- 60 day lock = 0.150 cost over the 30 day price
- 70 day lock = 0.270 cost over the 30 day price
- 90 day lock = 0.400 cost over the 30 day price (may have to pay additional upfront lock fee for this long of term)
So if you have a loan amount of $400,000 and a closing date that was just shy of two months away, and you want to have the 30 day rate, the cost may be $600 (400k x 0.15). If you have a longer closing, a Mortgage Professional should advise you of your options of locking now or waiting until your close date is more near and what the risk are (rates changing). At 70 and 90 days, instead of paying an increased cost for the 30 day rate, you could also opt for a slightly higher rate (0.125%) and still have the 30 day pricing (it would be factored into the rate). Again, the above numbers are just an example of possible pricing. Rates and pricing do change constantly.
You can lock 90 days and beyond. However, the cost increased (as you can see from my figures above) and there is often an additional upfront lock fee that is non-refundable.
Click here for your rate quote for homes located in Washington.
It’s important that the loan is locked in for the right amount of time. If a loan does
not close before the lock expiration date, the lender is put in a position to where they may need to extend the lock. The price of a lock extension varies from lender to lender and, if the market has improved from when the loan was originally locked, there may not be a cost for a shorter extension. Some lenders charge 0.015 per day of the extension; so if 10 more days were required to close and fund the loan, the cost could be 0.15% (0.015 x 10 days) of the loan amount. On a $400,000 loan amount, this is an additional cost of $600. You can see why it’s important to lock your loan correctly in the first place.
I recommend that when you lock in your loan, you ask your Mortgage Professional to guarantee the closing costs associated with the loan. Third party costs, such as the appraisal title and escrow fees, the Mortgage Professional has no control over. I would not work with any Loan Originator who is not willing to stand by their closing costs. As a borrower, you should be able to bring your Good Faith Estimate with you to closing (your signing appointment) and have the lender’s fees be reasonable close.
Once you have locked in your loan, you should receive:
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Written lock confirmation stating what the rate and points are associated with that rate.
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Request an updated Good Faith Estimate (and ask the lender if they are going to guarantee their loan costs) to correspond with the lock. [2010 UPDATE: You may find that mortgage originators will provide a written rate quote prior to providing a Good Faith Estimate with an actual Good Faith Estimate to follow.]
What ever you do, please do not select the person who will be assisting you with your largest investment (your mortgage) by interest rate alone.
what happens if my house is not to be built for 6 months can i get a locked rate?
Chase, check with your specific lender. The longer the lock is, the more expensive it will be, including an upfront non-refundable (additional) fee. You may not want to lock that long.
i locked in a rate, thru a broker, for a refinance. 5 days after the rate lock expired, the broker emailed me to advise me of a rate lock extension fee. the broker claims the lender is busy due to an influx of refinancing. we are now 20 days past the expiration date and no closing is scheduled. the broker refuses to absorb any of the extension fee and the lender refuses to even talk to me. what are my options?
Tom, I suggest you contact a manager. Did you receive a lock confirmation when you locked in the loan (which would have included the expiration date)?
If the lock is truly expired, you will be at worse case pricing which could be very costly.
thank you for your reply. unfortunately, i’m already dealing with the owner and he won’t budge on the rate lock extension fee. i don’t see a lock confirmation in my paperwork, but i’m not arguing the lock period has expired. but since the delay in closing is not my fault, rather the lenders and/or brokers, i don’t feel i should be responsible for the fees. other than cancelling the entire refi, do i have any recourse? or do i pay the $50/day fee and accept it.? what do you mean by “worse case pricing”?
Your LO should have notified you BEFORE the rate expired so you would have the option to extend (which still has a fee).
It is up to you whether or not you proceed with the refinance. You can cancel anytime up to three days after signing your loan documents (for owner occupied) while the right of recsission takes place. After the right of recsission period has passed, your loan will most likely fund.
Here’s a post I wrote about extensions http://budurl.com/extend just in case you haven’t seen it yet.
Loans need to be locked for a long enough period or they’ll have to be extended at a cost. If someone was shopping by rates for a LO and bit at the lowest rate, the LO could have been using a shorter lock period for bait.
I am actually canceling a loan right now because the consumer took long to provide me the required documentation and does not want to pay the extension. It’s the borrowers choice.
Here’s more info about the right of recsission from Bankrate’s website: http://www.bankrate.com/brm/news/loan/20040212a1.asp
I signed an application fee form from a lender representing B of A.. I thought I was signing this for the purposes of getting an appraisal. the lender already gave me a secured approved loan before I signed this papaer. (in my hast I didnt see where it is non refundable. I decided not to do the appprasial and I wanted my money refunded. in fact I was planning to switch lenders because I got much much better rate can bof a lender keep my 400.00?
Gayle, can you please fax or email the form to me? I’d like to review it. Did you agree to lock in the rate and then found a better rate after committing to locking with the the lender representing B of A?
Hi,
I am purchasing a new home that has a July 31st settlement, so I locked into my 30 year FHA interest rate on June 1st. This would give me a 60 day lock period. I recently found out that my house will not be finished until mid August, so that means I’m going to loose my locked interest rate and I’ll have to relock in at whatever August 1st’s rate is. I’m very worried because interest rates have been going up and up since June and if they go up too much more I may not be able to afford my house. I’ve had to put down $20,000 non-refundable money to the builder, so if we don’t buy this home we just loose that money. My mortgage lender said 60 days is the max for a lock in on an FHA loan and he can’t do anything about it if we don’t settle by July 31st. Is that true? What can I do?
Pam, it’s not uncommon to have a builder take longer than expected…unfortunately.
You may want to check with the lender about extensions and see if the builder will help pay for that. FHA loans can be locked longer than 60 days.
Regarding your earnest money, are there any contingencies (such as finance) that would provide you an “out”. You may not qualify at higher rates.
Are you working with the builder’s lender?
Are you working with the builders RE Agent?
Hi Rhonda,
I live on the other side of the country in MD. I just turned 28 and have done a tremendous amount of research into the housing market and mortgage rates. I’ve tracked this entire real estate market since 2005. I signed the papers to have a new home built in late April of this year and went through the entire loan approval process and was approved in Early May. The time and energy I’ve put into this is well above what most people have done.
I had spent well over an hour during the loan application process arguing with the representative about the direction of interest rates. I wanted to know what their extended locks were how much they cost,etc. The response I got was that interest rates go up and down and they don’t change by very much. I’ve been in the mortgage industry for 20 years,etc. I attempted to explain to him the extreme pressure the long bond was under given the total amount of debt our federal and state government are racking up. There was no way the Fed could keep interest rates even at the 10 yr under 3% much longer. Much less the 30 yr under 4%.
Once I was approved for the loan in early May I made another phone call requesting information on extended locks. I wanted to purchase an extended lock. The response I got was well we don’t sell 90 day locks and the entire speech about interest rates not moving very much,etc.
Well I was right they were wrong and I feel distraught on this whole loan process. I feel like I’ve wasted a tremendous amount of time and energy. The incentives the home builder gave me requires me to use their mortgage company. I know with my current income-expense ratio there’s no way I would be able to qualify for the loan unless I paid off my car.
I have plenty of cash to pay off my car and that seems like the cheaper option versus paying 4 pts to get my interest rate down to 4.5%. If I locked today. But my biggest concern is my credit score. I don’t want to see it come down from 800 because of this whole mess. Would me not qualifying for the loan and basically forcing me out of the deal make my credit score fall? Any suggestions?
Paul, Unfortunately the damage is done and you’re at a cross-roads. In the future (and for other readers of this blog) I’d recommend trusting your gut when you sense the mortgage originator you’re working with doesn’t understand how often rates can move (and how quickly). Some lenders may not offer a 90 day lock period–some do. So if you need one and your lender does not offer one, you might have to select another lender if you do not want to “float” your rate. A 90 day lock is more expensive than a shorter lock period.
It always bothers me when a builder (the seller) controls who the buyer’s mortgage company will be. I see this as a huge conflict of interest.
Your credit score should not be impacted. Your credit has all ready been pulled and with an 800, you’re sitting pretty.
Good luck!
I wonder if you could tell me what my recourses are. I was given a lock on a mortgage by my bank. The night before we were going to sign and close, they sent me a new GFE with a changed rate and terms. We had already extended the closing date twice and the seller was threatening to go to another buyer who apparantly had cash. Thus, in an effort to not lose the house, we signed at the new rate and terms. The bank did not give me an acceptable explanation, other than, th
“they could not do the precious'” We have the previous lock in writing via a GFE. What recourse do we have legally at this point.
Mario, it sounds like you’ve already closed? Out of curiosity, how quickly did you close after the new GFE with the revised rate/term?
Did you try talking to a manager at the bank?
It sounds like they were not able to approve the previous scenario you were originally quoted based on the GFE – albeit they disclosed this to you very late in the game and I would assume they would have known your loan was not approved well before closing.
Rhonda,
We closed at 10:00am last Friday and received the new GFE via e-mail on Thursday night at about 6:30PM. Key Bank is who we dealt with and they had people in 3 different cities processing our mortgage. My credit rating is 830 and my wife and I have over a 3 million dollar total equity between homes, business, and 401K, so we were definitely qualified. One of the loan processors made the original commitment and I think at the last minute they felt like they were giving up too much on the terms, which were a 4.00 rate (we chose it higher than 3.61 which was available), but they were giving us 2 points back for closing costs. The loan was for $417,000.
Hi Mario,
That really stinks. You could try filing a complaint with CFPB or whomever regulates Key Bank.
I would think a supervisor would want to somehow make this right for you.
How much did your APR change? They may have violated MDIA (mortgage disclosure improvement act).
Hi! Thank you for the info.
This has been one of the best descriptions of the rate lock process so far. I know that this is a really old post, but I wanted to point out that whenever you did a % to decimal conversion you ended up multiplying it my 100(!)
For example So if you have a loan amount of $400,000 and a closing date that was just shy of two months away, and you want to have the 30 day rate, the cost may be $600 (400k x 0.15)
$400,000 x 0.15 is $60,000
It should be 0.0015.
Other than that, thank you so much for your explanation! I really appreciate it.
Hi, my question is on behalf of buyers buying a REO through Bank of America. purchase agreement was signed May 6 and BOA required closing by June 21st. Because of problems with.different contractors, it took TWO months to get power to the home. at this point their rate has already expired once. Now, the well needs ffixing before appraisal can be done. Bank of america is repairing well but will not pay for 2nd lock rate fee. seeing as how the delays are on their end, shouldnt all of the fees be on BOA?
Audrey, Bank of America does not have to pay the extension fees even though it seems like the “fair” thing to do.
we are in the process of buying a new home. As of today we had to ask for an extension to our locked in rate(60days). It will be costing us $900.00 for this extension. The reasons are all due to the lack of information by the builder of the home. There seems to be several things that needed addressing due to the property and septic testing etc. Some trees had to come down around the property and the codes guy needs to get back there and fill out a report. Of course we knew of none of these problems til the week of the scheduled closing. We put in a purchase offer on July 24th 2013 and are still waiting for all this information to come together before closing. Who should pay for this extension? The only persont hat seems to be working is my husband who makes phone calls all day long??? Does anybody work anymore?
Hi Robin, You can try asking the seller/builder to pay for the extension since they’re causing the delay. Worse case scenario, it’s your cost. You may need to check with your lender about “what if” you need to extend again. Good luck!