< Read Another Article LEARN ABOUT RATE LOCKS It's all locked up! You have 7% at zero points on a jumbo loan! But wait, at the last moment, as you're signing the loan documents, there has been some mistake! The loan documents say 7.75% with one point. What happened? Well, let's first discuss what a lock is, locking your loan, the kinds of locks there are, and how you can know you are getting what was promised to you. Basically, a lock is a commitment from the lender, on a given day, to provide a certain loan at an agreed upon rate, for a certain number of days. Depending upon the bond market, lenders change their rate every day, sometimes twice a day in a volatile market. Regardless, you should know there are different kinds of commitments or locks as we call them. Think of them in a literal sense for a moment. Bolt locks, combination, car doors, and the list goes on. They serve different purposes but they are all tagged with the title lock. It's the same way with mortgages. You can lock your loan with different time criteria and different conditions. For instance the shorter the time period, the lower the rate. As another example, you could lock a loan for 60 days on a home you are purchasing from a builder, giving them the time they need to finish the home or, you could lock for as short a time period as 7 days. The pricing between the two time periods from the same lender for the same loan will be about 1% in the interest rate or the equivalent of 2 points. (Points are the same as percentages and therefore 2 points on say a maximum conforming loan amount of $240,000 would be $4,800). With some lenders you can lock with a "best efforts" approach. Others take a "mandatory" approach. The difference being that if you do not follow through with your lock on a "best efforts" your banker's hand is slapped and he or she may slap yours. On the "mandatory" lock the mortgage banker or broker may have to pay a fee to the secondary money market. The fee is significant and not all bankers/brokers are willing to lock on this basis because of the risk. Or they may pass the fee on to you. Timing is everything! When you lock on a 30 or 45 day lock, you are allowing the lender, the title company, the appraiser, the credit reporting agency and any other company related to the transaction ample time to perform their due diligence. This reduces the chance of human error. However, this does not necessarily mean you shouldn't try to lock on a shorter basis to get better pricing. It does mean that if you shoot for a shorter lock period you need to take steps in advance to be carefully prepared with your financial information. There may be some risk involved that rates go up while preparing and gathering the financial information needed for the loan. But on the other hand, if you lock in advance rates could fall and your stuck with a rate you have already locked. Once again, timing is everything. Nevertheless, to be approved for a loan and take advantage of a short lock you're loan agent should have the following prepared for you and known in advance: Know your credit score. Excellent credit has a score of over 700. Know your debt and housing to income ratios follow close to lender guidelines. Know the property has adequate value for the transaction. Know you have the funds available for closing. Know the property meets its necessary value. In addition and even though it may not be required, you should have the following information ready to provide if requested: Your last two years W2's or tax returns if your self employed or own rental income property. Your last three months bank statements from checking and savings accounts. Your last two pay check stubs or a current P & L if you are self employed (A Quicken or Quick Books P & L is usually sufficient). Copies of retirement account statements. Having this information readyÉ you can employ various lock strategies. You can lock on a mandatory basis if your lender will allow you and with a short lock. Or if you believe interest rates will go down and have the luxury of being able to delay closing, you may be able to get a lower rate. There are risks rates could go either way no matter what you choose to do. And that's where we get back to "what happened to my rate?" in paragraph one above. KNOW your loan agent. If you do not know one, ask your friends or family for referrals. Talk to loan agents in person and on the phone. Ask lots of questions. Make sure you are comfortable with them and their knowledge. You should know you can trust them and their advice. If there's any doubt, ask your loan agent for a lock agreement in writing. This will disclose the locked rate and points and when the loan must close. Whatever you do, discuss your lock strategy and your goals with your loan agent. This will no doubt help you get the lowest rate possible and ensure a smooth transaction. < Read Another Article

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