Fixed mortgage rates are on the rise. Don’t panic.
I will say that if you are seriously considering buying in the next few months its likely a good time to get a rate hold in place.
What is a rate hold?
When I work with clients I work on a pre-qualification. We often use the terms pre-approval and pre-qualification interchangeably but its important to understand the difference.
A pre-qualification means I do a deep dive into my clients’ finances to see what they qualify to borrow based on their overall picture. I look at the amount and type of income, all debts owing, and the amount available for down payment.
We spend time going over the process of buying a home, timing for each step, and what they need to have on hand to move forward. If rates are relatively stable I won’t always get a rate hold in place because that means I have to pull credit bureaus.
I am cautious about pulling credit unless clients are seriously shopping, because if too many lenders pull your credit too often it can drop your score and make it look like you are an avid credit seeker. When the market is rumbling about upcoming rate increases I will move forward with nailing down rate holds more often.
A rate hold is kind of like a guarantee from a lender that provided everything is verified as stated in your application and the property you write an offer on meets the lender’s approval, they will honor the rate on your rate hold even if rates have gone up in the meantime.
Most lenders offer 120-day rate holds, which provides some comfort if you are out shopping for a home and are concerned about rising interest rates.
Your new mortgage has to close within the 120 day period. Some people think that as long as you write an offer within the 120 day period that the rate hold will apply, so its key that you understand the important dates you are working with.
Clients often think that a rate hold equals a pre-approval. This isn’t always the case.
Most lenders have automated programs that evaluate applications for rate holds. As long as the information entered in the application meets their criteria a rate-hold is put in place. Most lenders don’t actually review pre-approval applications (some have an underwriter do a cursory review) or the supporting documents.
More concerning for me is when I chat with clients who have received a pre-approval from on online program and run out to write an offer, thinking they have their financing in order.
If you are planning to buy a home this spring, I encourage you to reach out to a mortgage professional to discuss your situation so you have your ducks in a row when the right home comes on the market.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.