Whether you are a first time home buyer, or you have been purchasing real estate for years, one of your main goals other than finding the perfect piece of property is to make sure that your mortgage rate is as low as possible. Anyone who has had to navigate the tricky waters of the mortgage markets knows that rates can vary day by day and knowing when to lock in the rate can save you thousands over the life of the loan.
When looking for a mortgage one of the most important things to keep in mind is that competition is key to getting the lowest rate. Many first time home buyers make the mistake of not shopping around for a mortgage. They take the first offer that is presented to them and often end up with a rate that can be as much as one or two full points higher than rates for others with a similar financial background. They think that their real estate agent is there to help guide them to the best choice – when in reality they are there to earn their commission. The best advice for new home buyers is to always make sure that you separate your financial transaction of buying the house away from the process of finding a home. The rule of thumb is you should compare rates from at least three different providers, more if you have the time.
Even experienced real estate buyers can sometimes end up over paying their interest. The biggest gotcha is not locking in your rate when you had to the chance. This is especially true in times of economic downturn or when there is uncertainty in the credit markets. Often you have less than 48 hours to lock in a rate once presented to you by your lender. If you are uncertain whether rates are going to go up or down after you lock in a good rule of thumb here is to watch the 10-year Treasury note. Mortgage rates tend to follow the yield for the 10-year note more than they do any other short-term investment, including Fed rate adjustments.
When you do decide to lock in a rate make sure that you get it in writing, including a full disclosure of the terms. Oral agreements won’t hold up should you need to pursue legal action. A written agreement protects both you and the lender from any miscommunications. You will know exactly what you are getting on what terms and how long the rate lock is good for. Typically, you want to aim for 30-60 days to give you enough time to find the house that is right for you. However, 30 days is becoming more standard as the rate markets continue on their rollercoaster ride.
You might also want to consider asking about a float-down agreement to lock in the rate. Under this agreement the lender keeps the rate at your locked in value should rates go higher, but if they decrease they lower the rate to match. The only drawback to these agreements is they can be expensive and depending on the size of the mortgage note the cost to enter into such an agreement may very well offset any savings you would gain unless the mortgage rate declined by more than half a point or more in many cases.
Locking in a mortgage rate is the best way to get the mortgage you want at terms you can agree with. It lets you focus on finding the perfect home of your dreams instead of worrying about fluctuating mortgage rates.