Mortgage Rate Lock Expiring Because You Can’t Find a Home to Buy?
The first step to take when buying a home is to apply for a mortgage loan. The next step would ideally be to lock in a mortgage rate, especially these days since mortgage rates are so low and on the rise. Most lenders will give you a 30 day to 45 day lock period on a rate so you have time to find the right home and still get the rate you were quoted.
Since single family home prices are significantly lower than the highs during the housing bubble, now is a good time to buy a home but you may not be able to find the home you're looking for right away. The inventory of homes available for sale is low and demand is the highest it has been in years. This perfect storm is forcing home prices higher across the country.
The Federal Reserve Board's Beige Book of Current Economic Conditions showed that in most of the 12 Federal Reserve's Districts, low home inventory and bidding wars are driving home prices higher. Other housing reports released over the past couple of months show housing prices increasing in the low double digits the past 12 months. This signifies the highest rate increases since the housing bubble.
Despite these facts on the current housing market, you should still find out how much of a loan you can quality for and lock in a rate. Getting a lender's commitment letter can help you in an instance when you are not the only bidder on a home. Granted, the lock might expire but lenders usually allow you to pay a fee to extend the lock.
Whether or not you want to extend a lock depends on the rate you locked in and where mortgage rates are today. You should weigh the cost of reapplying for a loan versus the cost of extending a rate lock. Since the beginning of 2013, mortgage rates have risen from record lows set in late 2012 and they've fallen again the past month.
For 30 year mortgage rates, the low point in 2013 was 3.35 percent and the high point was 3.63 percent (Freddie Mac's average 30 year rates). Chances are the rate you locked in falls within the averages, which may make extending the lock the best course of action.
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