3 good ways to lose your mortgage rate lock

January 04th, 2011

Since early November 2010 mortgage rates have risen dramatically. During the past two months thousands of mortgage applicants have seen their mortgage rate lock-ins expire, resulting in higher mortgage rates, higher origination fees or a cancelled transaction. Using mortgage calculators to plan your mortgage refinance or new home loan mortgage does not do any good if the interest rate you input is no longer available. These three issues are the primary reasons mortgage applicants do not close their transactions on time and see their mortgage rate locks expire.

1. Income

This is not 2006, therefore there are no more "stated income" or no-income qualifying mortgages available, especially from Fannie Mae or Freddie Mac. As a result you will need to verify your income for your mortgage lender. Not having complete income documentation can result in delays in processing your mortgage application, resulting in losing your loan rate lock.

If you used a prequalification calculator and input income for bonus, overtime, dividend and interest, rental property, commissions or self-employment income, be prepared to show tax returns and proof of income for the past two years. Any non-salaried income that cannot be verified for a two-year period and shown to be likely to continue in the future will not be allowed. Unverifiable income puts not only your mortgage rate lock in jeopardy but also your new home purchase transaction.

2. Cash

Using a closing costs calculator you can obtain a pretty good estimate for the amount of funds you will need to close your transaction for a new home loan. A refinance calculator can show you an estimate of closing costs you may need to close your refinance escrow if the bank cannot, or you will not, add them to your refinance mortgage balance.

Do you have these necessary funds available in one of your bank, investment or retirement accounts? Can you show the underwriter for your mortgage application that you have the necessary funds and they have been in your account for at least 60 days? If your funds for closing are not in your account and you are getting them as a gift, a bonus, tax refund or other source that is not part of your normal income be prepared to document the source of the new funds to your accounts. If you are using a retirement account be prepared to show the transfer of funds to your checking account.

Inability to document large or unusual deposits into your bank accounts is a primary source of delay in processing your mortgage that could result in your losing your mortgage rate lock.

3. Timing

The longer period you lock in your mortgage rate the higher the cost, conversely the shorter period you lock in your rate the lower the fee--and the lower the quote you can receive from a lender. Too often mortgage applicants are steered into shorter rate lock periods, 15 or 30 days, that are unrealistic given the market or the complexity of a transaction.

Keep in mind that mortgage rate locks include all calendar days and holidays. If you locked in a mortgage rate on Dec. 19, 2010, for 15 days it would expire on Jan. 3, 2011. During that 15-day period there were four weekend days and two holidays, Christmas and New Year's Eves, when most companies were closed either all day or half of the day. Unless your mortgage application is complete, it has cleared processing and underwriting, and your appraisal is complete, locking in a mortgage rate for 15 days is not prudent if your expectations are for your rate lock to not expire.

Whether you used mortgage calculators to determine your monthly savings from a mortgage refinance or to determine your purchasing power and funds to close with a new home loan, all the numbers are superfluous if you are not able to obtain the mortgage rate for which you applied.

Be prepared with all your documentation, have realistic expectations and quickly respond to requests for information from your mortgage lender to ensure you do not lose your mortgage rate lock in this up-rate environment.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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