How to lock in your interest rate when buying a home

Key insights:

• Many of today’s buyers are paying close attention to fluctuating interest rates.
• Serious buyers who are ready to make offers on homes can consider “locking in” their interest rate as a way to protect against an unexpected (and unwelcome) increase in rates.
• Programs are available to help homeowners make the most of their home buying budget.

With ultra-low interest rates firmly in the rearview mirror, many buyers are paying close attention to fluctuating rates, understanding that even a fraction of a percentage point can add up when it comes to a home purchase. To maximize their buying power, today’s buyers might consider the option to “lock in” an interest rate. By locking in interest rates as they search and bid on properties, buyers can gain peace of mind and hedge against rising rates.

Here’s a quick primer on how that works.

What does it mean to lock in your interest rate?

While every mortgage lender may have a different process for locking in interest rates, borrowers can often lock in a rate at the same time that they are pre-approved for a home mortgage loan. Pre-approval essentially means that a lender has reviewed your financial documents and credit and deemed you worthy of a loan for a certain amount and on certain terms. Because a hike in interest rates could impact the buying power of a borrower, some lenders (like Prosperity Home Mortgage) offer the rate lock alongside the pre-approval letter, so that eligible buyers can set their budget and not be impacted by rising rates during their search.

Are all buyers eligible for a locked interest rate?

If a mortgage company offers borrowers the option to lock in their interest rate, the borrower must typically meet certain criteria. There will usually be a set period of 60-90 days for the lock¹, and it would be available to borrowers pursuing a certain type of loan program². Borrowers pursuing a jumbo, conventional or government fixed-rate loan would be eligible (provided they meet all other criteria as well).

At Prosperity Home Mortgage, the Lock, Shop & Home program offers eligible buyers the option to lock in their interest rate:

• If they are pre-approved through the HomeSURE Advantage® program³.
• If they request a jumbo, conventional or government fixed-rate loan program.
• For 90 days, as they search for a home. (Longer lock periods may be available².)

I plan to build a house, and a 90-day lock won’t work for me. Do I have any options?

Yes, many mortgage companies recognize that those on a building schedule will not benefit from a short-term rate lock. Some mortgage companies, including Prosperity Home Mortgage, offer a longer rate lock for those who are pursuing new construction financing.

Borrowers using Prosperity Home Mortgage’s Builder’s Assurance program, for example, are able to lock in their rate for 365 days⁴ if they are:

• Building a new construction home⁵.
• Pursuing a conventional, 30-year fixed-rate loan for $705,000 or lower.
• Planning to reside in the home as their primary residence.

As with Prosperity Home Mortgage’s Shop, Lock & Home program, the Builder’s Assurance loan program allows borrowers a one-time float-down⁶ to the current rate during their 365-day program.

How can I figure out which program is right for me?

Because most rate-locking programs only last 60 or 90 days, it’s important that you don’t lock in your rate before you’re truly ready to search for and purchase a home. Before you decide on rate locking or a certain loan program, it’s in your best interest to speak with a professional. You don’t have to figure any of this out all alone.

For no-obligation and no-pressure insights on the next best steps you should take, contact Edina Realty or your home mortgage professional today. We can walk you through the steps you’ll need to take to keep moving forward.

<sub>1. Lock, Shop & Home program is NOT available for bond, jumbo, or renovation loan programs.
2. Interest rate lock available up to 90 days. Longer lock periods may be available. Additional fees may apply for longer lock periods.
3. HomeSURE Advantage® is not a final loan approval. A Commitment Letter is based on information and documentation provided by you and a review of your credit report. The interest rate and type of mortgage used to approve you for a specified loan amount is subject to change, which may also change the terms of approval. If the interest rate used for credit approval has changed, you may need to re-qualify. Information provided by you is subject to review and all other loan conditions must be met. After you have chosen a home and your offer has been accepted, final loan approval will be contingent upon obtaining an acceptable appraisal and title commitment. Additional documentation may be required.
4. Upfront fee will be due at the time of rate lock and is eligible to be fully refunded at closing.
5. Eligible for permanent financing only. Temporary financing for new construction is not available.
6. Interest rate is eligible for a one-time float-down to a current market rate within 60 days of closing. Interest rate may not float-down within 14 days of the closing date.</sub>

Prosperity Home Mortgage is an affiliate of Edina Realty. See Affiliated Business Arrangement Disclosure Statement