Mortgage rate locks for Tulsa homes are key to keeping the lid on lending costs when interest rates begin to take off -- as they have for the past month and a half.
Since Sept. 8, when the average fixed interest rate on 30-year conforming mortgages was 5.71 percent, rates have risen for six consecutive weeks, adding 0.39 percentage points to the average.
That pushed the average mortgage interest rate to 6.10 percent on October 20, according to Freddie Mac's Weekly Primary Mortgage Market Survey.
The six-week run up in prices was the longest sustained week-after-week increase in average interest rates since spring of last year when rates rose for eight consecutive weeks. From 5.38 percent in March 2004, they rose to 6.34 percent by May, 2004.
What's more, the 6.10 percent average rate is the highest it's been since July 1, 2004 when it averaged 6.21 percent, Freddie Mac said.
"Anytime rates go up, rate locks are an issue. If you don't lock in your rate, then your rate is floating with the market," said Jack Guttentag, the "Mortgage Professor" and finance professor emeritus at the University of Pennsylvania's Wharton School.
A traditional rate lock is a lender's guarantee that your mortgage carries a specific interest rate, points, and other terms.
The lock is good for a specified period -- if you fail to complete your home purchase or refinance before the clock runs out, and interest rates rise, brace yourself for a higher rate.
If you qualify for a given rate as the maximum the lender will allow you, and interest rates rise during escrow, you could have to add cash to the deal, be priced out of the market or have the lender turn on you.
"This is mainly a problem with a home purchase because a home buyer has so much at stake and is at the mercy of the market price as defined by the loan officer. If you get to closing and find someone has been playing games and things are not what you agreed to and you don't have a rate lock, you are in a vulnerable position. If you are refinancing, you have options, at least in principle. You don't lose the house if you don't close on the scheduled date," said Guttentag.
If interest rates fall during the lock period you can't take advantage of the lower rate unless you rewrite the lock and perhaps pay additional costs.
The exception is a rate lock with a "float down" option to grant you a lower rate if rates fall within a given window of time. Again, unless specified otherwise, float downs stick you with the higher rate if rates rise during the lock period.
While most locks are designed to protect borrowers from rising rates, everything depends on the language in the rate lock agreement.
You will need to get that Tulsa mortgage rate lock in writing.
"There are two kinds of locks. The written lock and the verbal lock. If it's a verbal lock they'd better be your best friend. When rates go up, if he or she didn't lock it in with the lender you are out of luck. If you are going to be careful say, 'Could you write this down?' said Earl Peattie a mortgage expert from Hartford, CT.
In some cases, if the loan doesn't close on time, lenders may automatically extend your lock, say until the loan closes, but that's an option that's less likely in a rising rate market. Other lenders may give you a temporary extension and you'll have to pay fees beyond that. Still others may charge you a percentage of the loan amount for the extension.
The many scenarios make a written contract mandatory.
The contract should lock in as many costs as possible, the interest rate as well as points. The agreement should include your name; the lock's effective date; the agreement's effective date; lock cost, if any; what rate and other loan terms are locked; the lock's expiration date and time; and any post-lock options.
Lock as soon as you see the desired rate or "on application" -- when you first apply for the mortgage -- so that your rate is locked as you spend time getting the application approved. That's particularly important if you barely qualify at today's rates and an increase would make buying unaffordable.
Lock periods should be long enough to allow for settlement, contingencies, and other potential delays. Locks average 30 days, but range from 15 to 60 days.
? Before choosing a lock-in period, determine the average time for loan processing. Ask your lender to estimate the time necessary to process your loan.
? Once you lock-in a rate, make sure your loan is approved and closed before the commitment expires. Quickly submit the application and other required documents.
? Locks cost money. Shop around for both the terms of the lock contract and its cost. Some lenders charge an up-front, non-refundable fee even if the loan doesn't close. Others might levy the fee at settlement. The fee could be a flat fee, a percentage of the mortgage amount, a fraction of a percentage point or a higher interest rate. The cost could vary depending upon the length of the lock-in period, the options you choose and mortgage program.
? If you have a floater, it's up to you to keep an eye on the market.
Your Tulsa Home Loan Application ? Rejected?
As interest rates rise and rising housing costs swells lenders' portfolios with riskier loans, lenders will tighten underwriting rules making it tougher to buy a home.
Still -- in hot markets and in cool ones -- the fundamentals apply, even in the Tulsa property market.
Getting a loan application approved is often knowing how to keep lenders from saying "no." To that end, here are the Top 10 reasons Tulsa loan applications wind up the circular file. There are more, but these top the list.
· Being in denial about what you can really afford for your new Tulsa home. Apply for too much and you could be out the door faster than you went in. Let the lender decide what you can afford to borrow. From that, you decide what your budget will realistically let you afford to pay each month Get pre-approved with a bona fide, carved-in-stone pre-approval that guarantees in writing a loan amount, interest rate and as much of the other loan terms as possible.
"It makes your offer more attractive to sellers," said Jeff Lyons, of LendingTree, LLC.
· Poor preparation. Get all your Tulsa docs in a row. The more information you have available at application -- proof of income from your Tulsa employer, investments, assets, debts, tax returns for the self-employed, even addresses, current and past -- the more complete the loan officer's analysis can be in a more timely manner.
"A thousand and one little things go a long way toward ensuring the client has a good experience," said Bill Emerson, Livonia, MI-based Quicken Loans' CEO and co-author one of eight co-authors of the new "Homebuying By The Experts" (Quantum Leaves Publishing, $14.95).
· Misunderstandings. You may need loan programs explained if you are new to the Tulsa home buying game. Industry jargon about an "index," "margin," "T-bills" and other terminology is familiar to real estate and mortgage professionals, but likely not you. Your loan representative can help you with any terms you may not be familiar with, you can visit many online glossaries or pick up one of many real estate mortgage books, virtually all of which contain a glossary.
· Not realizing you are self-employed. First-time buyers who are self-employed (which can include working at home, being paid by commission only, or owning 25 percent or more of a business) often need to show tax returns as a proof of income. Communicate your employment status before the loan hits the underwriting process and avoid snags later.
· Over looking property repair problems. Government loans on homes in need of repair need to come with instructions explaining who is responsible for repairs and when. Ask the loan representative for assistance.
· Third party vendor problems. Credit reports and appraisals typically come through on time but other documents -- tax returns, home inspections, investment reports -- may require extra early efforts to get them to the table on time.
· Lack of understanding about the loan process. A working knowledge of what happens during the processing, underwriting and closing of a loan is crucial. Understanding time frames, documentation and the responsibilities of all parties is also key.
"Despite our efforts to simplify the mortgage process, it is still a very complicated process," said Emerson.
Lyons advises, "Make sure that you get a Good Faith Estimate of your closing costs to ensure that you understand everything that will be paid at closing. This document will also be a great reference when closing arrives to make sure everything is as it should be."
· Undocumented explanations for credit problems. Check your credit report before you apply for your Tulsa mortgage. You need to know before the lender about errors you can correct, problems you may need to explain, and delinquencies you can clean up.
· Unverified closing funds. If your loan requires funds from you to close (down payment, gifts, cash to keep the loan from exceeding 80 percent of the value, etc.), you may have to show bank statements or documents that prove how long the funds have been in place, the source of the funds, your asset level, etc.
"Do not be afraid to read the closing documents and statements carefully. Whether buying or selling, you've got a lot on the line with these documents and want to make sure that the figures are correct and as agreed," said Lyons
· Poor communications. There are many parties involved in a residential real estate transaction -- buyer, seller, real estate agent, mortgage banker, home inspectors, appraiser, attorney and settlement or escrow agent -- and each must have complete understanding of what is going on at any given time. A good loan representative, broker or real estate agent will help keep the lines of communication open.
"A lack of communication is the number one reason deals fall apart based on 15 years in the business," says Rob McCarthy a senior mortgage planner with American Family Funding in Campbell, CA.
"The client fails to tell the Tulsa mortgage lender they just got laid off. A large percentage of the down payment is a gift that has not been seasoned for 60 days. All of these can be resolved as long as everyone is communicating and not making assumptions that everything will be okay," said McCarthy.