Yale Roth M.A., M.Ed

This is a mortgage question I get a lot – both when refinancing the existing mortgage or when buying a new home.

“When should I lock my mortgage rate when Im buying a new home”?

In yesterday’s post, I answered the mortgage question, “When should you lock your mortgage rate when you’re refinancing your mortgage?”

When buying a new home, it’s a little bit different.

In contrast to refinancing your existing mortgage, when you buy a new home, you sign a real estate purchase and sale contract.  In the contract, there is a settlement date listed.

So, it’s says you have to close on your new home on or before a certain date.

You have an end date.

Unlike refinancing, when there really is no formal end date, when you buy a new home, you have an end date.  If you don’t close by that end date, you are techically “out of contract” and all sorts of things can happen.  But that’s for another post.

How does this impact when you should lock the mortgage rate?

It impacts you inasmuch as you need to lock the mortgage rate in for enough time to cover you through your settlement date.

FYI – mortgage rate lock periods are secured for definitive amounts of time, like 30, 45, or 60 days.  So you can secure the rate lock for anyone of these time periods.

On a refinance, during normal times when mortgage application volume is normal, it’s customary to lock the mortgage rate in for 30 days.

Your cost to get the mortgage rate will also be lower when you secure the rate for 30 days – as opposed to 45 or 60 days.

However, when your buying a new home, your settlement date may be outside 30 days.  It could be 33 days or 47 days or 52 days from the time you applied for the mortgage and are ready to lock in.

So what do you do?

Here are your choices.

1.  Look at the mortgage rates and the lender fees for the lock period that will cover you through your settlement period and determine whether you want to secure the rate and cost.  Like refinancing, if you have little tolerance for risk and are happy with the rate and price at the lock period covering you through settlement, then lock the mortgage rate.

2. Float the mortgage rate until you get within a 45 or 30 day lock period to get better pricing.  What youre risking doing this however, is that by floating the mortgage rate until you get closer to your settlement date and within the 45 or 30 day period, mortgage rates could rise or the cost to get the same rate can go up – depending on what’s going on in the mortgage bond market.

If you’re ok with risk and believe that mortgage rates will remain low, then go ahead and float the mortgage rate until you get within the 45 or 30 day lock period.

Next up: “What drive mortgage rates?”

Related Posts:

• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”
• Mortgage Rate Questions – “What Happens If My Mortgage Rate Lock Expires?”
• Mortgage Rate Questions – When Do Mortgage Rates Change?
• Mortgage Questions – Should I Do A Cash Out Refinance To Pay Off My Home Equity Line Of Credit HELOC?
• Mortgage Questions Video – “How To Shop For A Mortgage Rate”?