Locking rates on new construction

[Loren Whitney]

Hey all, This should be a quick one. When building a new home, how early can one expect to lock-in an interest rate? I know most locks are 30-60 days but does that differ with new construction? The home in question won't be competed until December '14. Thanks in advance!

[Dion DePaoli]

The answer will depend on the finance arrangement for the construction segment. If you are financing the construction, then you will need a specific construction loan. Those loans are short term and must be refinanced upon maturity.

Some lenders will offer a "construction to permanent" (or "construction perm") loan which, from a borrower perspective, is one loan transaction. The opposite is a separate loan for each segment resulting in two transactions (purchase & refinance). In construction perm loans the construction portion automatically turns into permanent finance upon the end of the construction term.

It is really only in the construction perm loans that they will provide rate locks well in advance (some at origination) of the permanent loan. In the other setting, with two separate loans and transactions, you would be subject to normal lock periods like any other loan because that is essentially all it is. A standard loan used to refinance the construction loan.

In any standard loan you can lock with most lenders further into the future but you will have to pay for the lock, which is why most folks stick with the norm of a 30 day lock.

All in all, most borrower do not control when their rate is formally locked. That is something your MLO will do. More often than most folks know, the locks are set at 15 days. That is likely a topic for anther thread.