My clients often ask me the question, “In your professional opinion, when should I lock the rate for my loan?” Locking the interest rate for your loan is a key aspect of the financing process. The interest rate lock reserves funds for the new proposed loan, and it is important to close the loan prior to the lock commitment period expires.
Every client is in a different financial situation; therefore, the first step is to take a complete loan and credit application with the client to verify they are qualified for the loan. This typically takes about 5 – 10 minutes with a licensed loan officer. Once the application has been taken, the loan officer will verify that the loan receives an Approve Eligible or Accept response from AUS (Automated Underwriting System). At this point the loan officer will know what type of appraisal is needed for the client’s home, and the loan officer will get a credit card deposit for the appraisal. The loan can now be locked.
Purchase transactions are slightly different than refinances. The purchase contract must be received prior to locking the loan. The loan officer should also verify that the client has liquid assets that will be used to pay for the down payment and closing costs before reserving funds from the lender for the purchase transaction.
Once the loan officer has gone through the proper steps listed above the client can say the magic words “Lock it in!” This should only be said once it has been determined that the rate being locked is in the clients best financial interests.
Locking loans without fulfilling the commitment to the lender is called rate lock fall out. This not only hurts the lender and the mortgage company, but it hurts the consumer base as a whole. As rate lock fall out increases lenders will decrease the pricing for their rate sheets. Only lock the loan if you are certain that the deal is beneficial to all parties involved, starting with the client.
Chris Kapas – VP Sales
800-761-9530 option 2 | NMLS: 306648
For more information about anything discussed in this article, please contact me. I’d be happy to assist you or put you in touch with someone that can.