Lock It In!

Like your REALTOR®, a knowledgeable lender is crucial. Not all are created equally and not all offer the same loan products. For instance, not all lenders offer government-backed loans such as USDA (zero down outside Hilo), VA (zero down for Veterans in most neighborhoods), and FHA (3.5% down in most neighborhoods). Trouble is, lenders push their products and don’t always share that a better loan product might be available.

Understanding Interest Rate Locks

Your lender should also explain how an interest rate lock in a volatile interest environment might help. Locking your interest rate buys insurance against rising rates. Rate locks are normally good for 45 days although some lenders offer longer periods. We generally assume a loan will take at least 45 days but, truth is, 60 days is common. Lenders do not have control over the amount of time an appraisal (or underwriting for that matter) will take so it’s good to allow additional time for loan completion.

Exploring Rate Options

Rate locks are not typically free. There is also a charge to extend the lock. Today’s interest rates have been trending down so be sure to ask your lender if you can “float the rate” which means if the rate decreases, your lock goes down, and yes, these probably cost a bit more. If all else fails, it is also possible to lock your rate and cancel and re-lock at a lower rate. It never hurts to ask if there’s a no-fee option or if a lender-paid lock is available. A great loan officer can recommend the best strategy for you.

Buy-Downs

Another layer of rate manipulation can be added by doing a buy-down which will reduce your initial rate for a few years. You’d still need to qualify at the current rate but the reduction keeps money in your pocket and helps you ease into a future payment. These can be paid in a few different ways but asking the seller to pay is a common strategy. Besides, this actually nets the seller more money than constant price reductions. We just closed a home with a buy-down along with seller-paid closing costs. What a score for the buyer!

The Role of Your Real Estate Agent

But it all starts with your real estate agent who must understand how to structure your contract and who can recommend a great lender to add to your buying team.