Interest Rate Lock with a Lender if I'm Lender Shopping?

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Interest Rate Lock with a Lender if I'm Lender Shopping?

Sarah K.
Real Estate Agent · Silverton, ID · Member since 2022 · 8 posts · 2 votes

I'm new to real estate investing and I've started to analyze deals in my area, which has been a difficult area to find a good deal (North Idaho). I've been talking with different lenders and I've been pre-approved with two residential lenders this last week. Since rates are rising, one of them offered for me to sign an Interest Rate Lock Agreement with a No Float option. I'm still getting my head wrapped around the lock agreements and the float/no float options, could someone give me a brief summary on how the benefits/disadvantages of signing an agreement like this?

Also, I am unsure if I should be signing any of these types of documents with one of the lenders if I might end up using a different lender once I find my first deal? One of my lenders said they cannot do a rate lock until I'm under contract, but this lender that sent me the agreement said they're able to do the rate lock for 61 days.

Lastly, it says on the document that if I need to change the lock agreement or cancel it, I am subject to additional fees, but it doesn't say how much the fees are. So does that mean if I use a different lender I still owe this lender a fee to cancel their lock? Or does that only apply if I use this same lender? It would probably be easier if I would just ask the lender directly these questions, but I've had a bad experience in the past telling a lender that I was talking to other lenders.

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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
4y

@Sarah K.

If you haven't purchased a home before, usually after you get under contract you would apply for the loan and at some point "lock your rate."  

So, if you lock your rate in with this lender now..  yes, you'd have to use that lender to get the rate.  Yes, you'd have to close on a property before the rate lock expires to get the rate.  So, it doesn't make sense at all for you to lock anything in since you are uncertain of finding a deal in the first place.  Its just a waste of money.  The costs to lock in another rate will vary depending on the market conditions.  I'd have to look at the wording about changing or canceling.  Usually when the lock expires, it just expires...  Honestly, this lender doesn't sound like a prudent one to work with so I'd drop him/her.

When looking for lenders, I usually just go after service.  Rates tend to be in the end about the same since if you are getting conforming loans they are all sold off to the same secondary market so the rates are all about the same.  The quality of service that matters since it can so seriously reduce your stress levels.  However, that being said I know many people who don't care about 30-45 days of super stress as along as they get that 1/8 point better rate...

Good luck.

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Sarah K.

    If you haven't purchased a home before, usually after you get under contract you would apply for the loan and at some point "lock your rate."  

    So, if you lock your rate in with this lender now..  yes, you'd have to use that lender to get the rate.  Yes, you'd have to close on a property before the rate lock expires to get the rate.  So, it doesn't make sense at all for you to lock anything in since you are uncertain of finding a deal in the first place.  Its just a waste of money.  The costs to lock in another rate will vary depending on the market conditions.  I'd have to look at the wording about changing or canceling.  Usually when the lock expires, it just expires...  Honestly, this lender doesn't sound like a prudent one to work with so I'd drop him/her.

    When looking for lenders, I usually just go after service.  Rates tend to be in the end about the same since if you are getting conforming loans they are all sold off to the same secondary market so the rates are all about the same.  The quality of service that matters since it can so seriously reduce your stress levels.  However, that being said I know many people who don't care about 30-45 days of super stress as along as they get that 1/8 point better rate...

    Good luck.

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  • Michael Wooldridge
    Member since 2022 · 485 posts · 216 votes
    4y
    Quote from @David M.:

    @Sarah K.

    If you haven't purchased a home before, usually after you get under contract you would apply for the loan and at some point "lock your rate."  

    So, if you lock your rate in with this lender now..  yes, you'd have to use that lender to get the rate.  Yes, you'd have to close on a property before the rate lock expires to get the rate.  So, it doesn't make sense at all for you to lock anything in since you are uncertain of finding a deal in the first place.  Its just a waste of money.  The costs to lock in another rate will vary depending on the market conditions.  I'd have to look at the wording about changing or canceling.  Usually when the lock expires, it just expires...  Honestly, this lender doesn't sound like a prudent one to work with so I'd drop him/her.

    When looking for lenders, I usually just go after service.  Rates tend to be in the end about the same since if you are getting conforming loans they are all sold off to the same secondary market so the rates are all about the same.  The quality of service that matters since it can so seriously reduce your stress levels.  However, that being said I know many people who don't care about 30-45 days of super stress as along as they get that 1/8 point better rate...

    Good luck.

    Second this. I have a lender that knows me so well, removes all the pain and has helped me close far faster because of the relationship we built. This allowed me to put in cash offers with 30 days or even less to close - and then she helps finance it in time.

    Finally they can be immensely helpful, when you come across an unusual deal, thats when the relationship and quality lender, or agent for that matter, plays a big deal. And if you are doing this for long term wealth you will run into those situations. 


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  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    3y

    Sarah,

    You never want to lock into an agreement with a "No float down" option. That shows a couple of things one its a lender or small brokerage, two its a branch or loan officer that is heavy on commissions. There should always be a free float down but you typically get that with a bigger Bank/FDIC because "Bankers cannot make commission on the rate hikes". I always advise avoiding a lender/broker if you have good to excellent credit to avoid lender points/broker fee's of 2.75%.

    You also do not need to lock in a rate right now for 60 days if you are shopping do not lock until you enter into a purchase contract.  When you lock a rate and it goes past the lock date you pay a rate lock extension fee.  Those can pile up quickly and the lender should also avoid that due to penalties and interanl fee's on the percentages of "Lock & Fallout".

    I would tell you to alos get a quote from a bigger bank FDIC and compare rate and total costs!

    [email protected]727-637-4289
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  • Edward Burke
    Investor · Member since 2023 · 4 posts · 0 votes
    3y

    On the BPL/ Private Lender side- Lenders will lock the loan a couple ways, and only when the Client agrees with a Signed Term sheet and provides documentation.

    1- Client sends in their documentation where the file is complete and loan package is received by the lender. Locked upfront (45 days is typical).

    2- The appraisal inspection report is received by the lender. Locked pre Underwriting (30 days is typical)

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