Anyone with any eye on the mortgage marketplace knows that rates have risen since the start of the year, a trend which is hardly surprising given that interest levels hit historic lows in 2012. The bigger question is this: how can VA loan borrowers grab the rates we see today?
Every borrower wants the best possible rate at the time of application, but mortgage levels are a moving target. It’s easy to get some idea of where rates are generally, but because they are constantly in motion, it’s tough to know the exact moment of mortgage rate perfection, assuming there is such a thing.
If you like where rates are at this moment and are concerned that they may increase, then you want to “lock in” your rate at the time of application.
The alternative to locking-in a mortgage rate is to instead allow the rate to “float.” By letting the rate float it means that by the time of closing the interest cost could be higher or lower. If rates are moving slowly within a given range, and if one has some tolerance for risk, then floating can be okay strategy.
For borrowers who agree that the mortgage marketplace is generally heading higher then the better option is to lock-in at the time of application. Another reason to prefer lock-ins is simplicity: The mortgage hunt is over and done with a lock-in.
Questions to Ask
Borrowers should ask several questions if they want to lock-in the rate for a VA mortgage:
First, how long does the lock-in last? A lock-in commonly stays in place for 30 days but there can be a lock-in for 15 days or even for 45 or 60 days. The length of the lock-in is very important because if the loan application process is delayed as a result of a paperwork snafu or for another reason it’s possible the loan will not settle within the lock-in period, thus causing the borrower to lose the lock-in. For this reason borrowers should work closely with the lender to assure that the loan application is completed as quickly as possible.
Second, is there any fee or charge associated with the lock-in? Some lenders charge for a lock-in, some don’t and some have a policy which has a fee for a lock-in past a certain time period, say 30 days.
Third, get everything in writing and be sure the VA loan lock in arrangement is both clear and certain.
To learn more about rate locks and the VA homebuying process check out this great guide.
Photo courtesy art-dara