Consider the following four things when deciding whether or not to lock in your mortgage interest rate:
- Lock in your rate as soon as you know you have a good deal in front of you, and you know roughly when you can close (30 to 60 days should be the longest lock period).
. - Lock it in with a lender who has the option of a “float down” if possible. If rates get better, you can participate in a portion of that improvement.
. - Lock it in with a lender who has a liberal rate-lock extension policy. No rate-lock extensions are free. Some even expire beyond the ability to extend. Make sure, whenever possible, that you work with a lender who will allow you to extend your lock if for some reason your deal takes a little longer to close than anticipated.
. - Don’t think about it very long. The rates go up a whole bunch faster than they come down. If the above is to your liking, lock!
No one can time the market. No one knows – plain and simple. If anyone tells you what will happen to interest rates in the future, consider not working with them – they think they know things they could not possibly know.
We do know what moves rates. We can even know anecdotally (after the fact) what did move rates. But then, we also know who won the Super Bowl – on Monday morning. We even know why, almost exactly why.
But, we never know what will happen to them. Lock in your interest rate with the above options as soon as you are able to.
If you have questions about locking in interest rates, use the comment link below to contact us with your questions and we’ll get back to you with answers.
The Obama administration is laying out three broad options for overhauling the mortgage lending system, but will let Congress make the final decision…
What are your thoughts about the government doing away with Fannie Mae and Freddie Mac? We’d love to hear your opinion about this plan. Click the comment link below and sound off…
Residential mortgage refinances are expected to deteriorate over the next two years due to factors not limited to rising interest rates. Some are predicting that mortgage refinancings, in fact, will fall by 77% by 2012 and drag down the overall market for originations.
Total refinances hit about $1 trillion in 2010 and accounted for 69% of the market share for originations, according to the Mortgage Bankers Association. The trade association is predicting that will drop more than two-thirds to just $352 billion and comprise of 36% market share in 2011.
MBA anticipates only $236 billion worth of refinances to take place in 2012.
Mortgage purchases will not make up for the losses in the refinance sector, according to the firm’s numbers. Purchase originations are expected to increase to $614 billion from $473 billion in 2011 (up 30%), bringing the total originations for the year to $966 billion.
In 2010, origination transactions summed $1.5 trillion, which means a nearly 36% drop in overall residential lending activity.
MBA Senior Vice President and Chief Economist Jay Brinkmann said rising mortgage rates will filter the market for refinances, and that repurchase requests from Fannie Mae, Freddie Mac and mortgage insurers will also impact the market.
What do mortgage lenders look for when they scrutinize your finances? It all boils down to financial stability and making sure you’re a good credit risk.
On your application, you’ll be asked to disclose personal finance information that will help the lender decide whether your finances are stable or precarious at that moment in time.
Salary/Annual Income: Lenders want to see that you’re gainfully employed. If you’re employed as a full-time employee, receiving a W2, that’s going to be the best indication of financial stability. (Lenders don’t assume you’re going to be losing that job anytime soon.) If you’re a 1099, or contract employee, or if you own your own business, you can still buy a home or refinance, but you’re going to have a tougher time proving that you’re financially stable. Lenders see 1099 contract employees as temporary, even if you’ve been “temporarily” employed for years in this manner. Self-employed individuals (and those who receive 1099s) will have to show stable income for at least two to three years, which is usually done through tax returns.
Tax Returns: Your lender may ask you to provide copies of your tax return (particularly if you own your own business), but you’ll be asked to sign a tax form permitting the lender to pull its own copies of your tax return directly from the IRS. Obviously, with today’s tax software, it’s easy to create a second set of tax returns you didn’t file with the IRS. This way, your lender can see what’s really going on with your finances. Tax returns can be a minefield with today’s lenders.
Bank/Retirement Account Statements: Lenders want to see how much cash you have on hand, and how cash has come into and out of your account over the past year (and sometimes longer, particularly if you’re a small business owner or a 1099 contract employee). Large, unexplained cash withdrawals and deposits are a red flag, as are accounts with extremely low balances. If you’ve overdrawn your account – watch out. Lenders really don’t want to see any sign that you’re not managing your financial accounts with the utmost of ease.
Cash on Hand: How much cash you have on hand is a bigger issue for lenders now than in the past. You’ll need cash to pay closing costs, and to have in reserve. Lenders want to see at least a month’s worth of expenses (mortgage payment, taxes, insurance) to make them feel as though you won’t go delinquent on the loan payment at the first sign of trouble.
Credit History/Score: Since Minneapolis-based Fair Isaacs invented the concept of a credit score, it’s been one of the key factors lenders consider when deciding whether to approve your loan application. That hasn’t changed. In fact, lenders are now looking for higher credit scores than ever before. Managing your credit history is a skill that’s becoming increasingly important, as we move to an electronic society. You need to regularly check your credit history, and if there are errors or your history contains erroneous information, you’ll need to work on correcting those problems. You’ll also need to think about how each credit account you open or close, and how you use the lines of credit that you have, will affect your credit history and ultimately your credit score. Having a higher credit score will save you thousands of dollars over the life of any loan you take out.
You can get a free copy of your credit history and pay for your credit score (around $9) at AnnualCreditReport.com. This is the site maintained by the three credit reporting bureaus: Equifax, TransUnion, and Experian. You can also buy a copy of your credit score from each credit reporting bureau and directly at MyFico.com.