January 14, 2011 (Shirley Allen)
As rates have risen, the number home buyers seeking a rate lock on their mortgage loan application has increased, but new rules and regulations are increasing the amount of time it takes to finish processing their loan, and borrowers are facing the prospect of higher mortgage rates or increased loan costs for a rate lock extension.
According to J. D. Power and Associates, in 2010, the average mortgage took 52.1 days to close, up from 46.9 in 2009, the year the new regulations took effect.
As a result, an increasing number of borrowers who elected to lock in their rates at the end of last year but did not close on time must now arrange extensions of their lock-in agreements. Lenders and mortgage brokers say these lock-in agreements have been complicated by changes in the Truth in Lending Act, which add more protection for consumers but also lengthen the loan-application process.
Of course, a number of other factors can also impede a closing, especially considering the industry’s tighter lending requirements. These range from lower credit scores, to delays in securing appraisal, to incomplete submission of documents verifying income. The most common rate locks are 30 to 60 days.
Borrowers often can arrange for an extension of their lock-in agreement, although they might have to pay extension fees. Most mortgage brokers do not charge money to extend a lock-in agreement, but some borrowers who deal directly with lenders may have to pay anywhere from 0.10 to 0.25 for a percentage point of the loan amount for a 15-week extension (e.g. $400,000 loan could mean $400-$1,000 in fees).
Irene Amato, the owner of the A.S.A.P. Mortgage Corporation in Cortlandt Manor, N.Y., recommended that borrowers take out a lock for 60 to 90 days, especially for a refinancing, which she said, could take a little longer than a home purchase because of a backlog of applications.
And remember, if your credit score plummets after you’ve signed a rate lock, lenders in some cases might rescind the lock. And some rate locks have buried in their fine print a caveat that a rate can in fact rise a quarter of a percentage point or so and still be considered applicable to the borrower.
Experts also recommend having a real estate attorney review any lock-in agreement, since the agreements can differ greatly among lenders.