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There are a lot of things factored in when calculating an interest rate and there is rarely a one size fits all answer. This is why the rates posted online are rarely accurate for your specific scenario. Here are some of the factors that lenders use when calculating an interest rate. All of these topics play a factor in what interest rate and loan program you may be offered.
-Loan Term (I.E 30 year fixed, 15 year fixed)
-Type of Loan (I.E. Conventional, FHA, USDA, VA, Jumbo)
-Purchase Price and/or Property Value
-Down Payment
-Loan Amount
-Property Type (Single Family verse a Condo)
-Property Use (Primary Home, Second Home, Investment Property, Multi-Unit)
-Credit Score
-Debt to Income (DTI)
-Rate Lock Period which is how much time you need to close on your home
-First Time Home Buyer or Non First Time Home Buyer
Rates are subject to change at any point and in some cases change multiple times a day. Please be aware of this. Your rate is NOT secured until you officially lock a rate with your lender.
Rate Locks
Once you find a home and go under contract one of the first things you want to do with your lender is lock in your interest rate. Locking a rate means the lender secured the money for your house at the specific rate that you negotiate with them.
Your closing date does affect your interest rate lock. Of course, you don't want your rate to expire before closing, so knowing your closing date is an important part of this process. Lenders typically lock interest rates in 15-day increments. For example, you can typically lock a rate for 15 days, 30 days, 45 days, 60 days, 75 days, and 90 days. Let's say you are closing on your home in 35 days you will want to take a 45-day rate lock so that your rate doesn't expire before you close.
It's also important to note that the longer you need to close on your house the higher the interest rate might be. For example, if a lender locks your rate for 30 days they might offer XYZ interest rate. If your lender locks for 45 days he/she might offer you a higher rate than what the 30-day rate lock was. Basically, the farther away your closing is the higher the rate the lender might offer you. Here is Google's answer on this topic which is reasonably accurate. The longer you lock your interest rate, the more chance there is that rates will rise before your loan closes. So when you have an extended rate lock, the lender is taking on some risk by guaranteeing you a potentially lower rate than you'd get otherwise. That's why it costs more the longer you lock your mortgage rate.
Let's say you lock a rate in with your lender then the next day rates drop and go lower. Are you stuck at the interest rate that your lender locked you in at? In most cases yes. However, most reputable lenders offer a process called Rate Renegotiations. This typically means if rates drop a specific amount they can lower your rate one time as a courtesy. Every lender has a different process for this because there is a cost to the lender to do this.
If you are in the loan process and you feel you don't want to lock an interest and want to play the market a little please understand this is a gamble. No lender knows what rates will do. Not locking a rate is called Floating. This means your rate is not secured. If you do this be in contact with your lender daily for current rates and do your best to find a small dip in rates so you can lock in.
Mortgage Interest Rates
Rate Locks
Once you find a home and go under contract one of the first things you want to do with your lender is lock in your interest rate. Locking a rate means the lender secured the money for your house at the specific rate that you negotiate with them.
Your closing date does affect your interest rate lock. Of course, you don't want your rate to expire before closing, so knowing your closing date is an important part of this process. Lenders typically lock interest rates in 15-day increments. For example, you can typically lock a rate for 15 days, 30 days, 45 days, 60 days, 75 days, and 90 days. Let's say you are closing on your home in 35 days you will want to take a 45-day rate lock so that your rate doesn't expire before you close.
It's also important to note that the longer you need to close on your house the higher the interest rate might be. For example, if a lender locks your rate for 30 days they might offer XYZ interest rate. If your lender locks for 45 days he/she might offer you a higher rate than what the 30-day rate lock was. Basically, the farther away your closing is the higher the rate the lender might offer you. Here is Google's answer on this topic which is reasonably accurate. The longer you lock your interest rate, the more chance there is that rates will rise before your loan closes. So when you have an extended rate lock, the lender is taking on some risk by guaranteeing you a potentially lower rate than you'd get otherwise. That's why it costs more the longer you lock your mortgage rate.
Let's say you lock a rate in with your lender then the next day rates drop and go lower. Are you stuck at the interest rate that your lender locked you in at? In most cases yes. However, most reputable lenders offer a process called Rate Renegotiations. This typically means if rates drop a specific amount they can lower your rate one time as a courtesy. Every lender has a different process for this because there is a cost to the lender to do this.
If you are in the loan process and you feel you don't want to lock an interest and want to play the market a little please understand this is a gamble. No lender knows what rates will do. Not locking a rate is called Floating. This means your rate is not secured. If you do this be in contact with your lender daily for current rates and do your best to find a small dip in rates so you can lock in.
