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Buying a Home? How to Still Get a Low Interest Rate!

You have options to safeguard yourself from fluctuating rates.

What happens if interest rates increase after you’ve already gone under contract? Is there any way to protect yourself?

Typically, mortgage lenders provide a floating rate, which is an estimated rate that could rise or fall, depending on what’s happening in the market during the pre-approval process. That’s why you should initially assume that your rate will be higher than you were quoted and budget accordingly. This may shrink the pool of homes that are affordable to you, but it also means that you won’t have to cancel a deal simply because interest rates spiked during the process.

Once you’ve gone under contract, your lender will provide an actual rate which you have the option to lock in between when you apply for the mortgage and the closing date. In a market with rising rates, you should lock yours in as soon as possible to prevent it from increasing further. 

“A rate lock ensures you won’t have to cancel a deal simply because interest rates spiked.”

Most rate locks last for between 15 and 60 days. Remember to ensure that your lock extends past your closing date because your rate could shoot back up if it expires before you close. Get a longer rate-lock period than it seems like you’ll need, just in case, and ask your lender if it will cost a fee to renew it. 

What if rates go down after you’ve locked yours? Much like it sounds, once you’re locked in, you can’t change your rate. However, there are ways to get a lower rate after locking in. For one, you could simply cancel your loan application and find a new lender. Secondly, you can ask your lender if they provide float-down options, which prevent your rates from rising but allow your rate to lower if market rates begin to fall again. Be advised, though, that float-down options typically come with an extra cost in exchange for a lower rate.

In addition, there are also other types of mortgage financing that can help you get a lower interest rate. For example, a 2-1 buydown is a type of mortgage financing where the lender agrees to temporarily reduce the interest rate on a mortgage loan for the first two years of the loan term. So the borrower’s interest rate is reduced by 2% in the first year of the loan, and by 1% in the second year. After the first two years, the interest rate on the loan will adjust to the fully indexed rate, which is based on the prevailing interest rates at the time. This type of loan can make the initial payments more affordable for the borrower and provide flexibility in the early years of the loan.

Finally, assumable home loans are a type of mortgage that can be transferred to a new owner of a property. This means that if you purchase a property that has an assumable mortgage, you can take over the remaining payments on the loan instead of obtaining a new mortgage. Not all mortgages are assumable, and the type of loan that is assumable can vary depending on the lender and the terms of the mortgage. In general, FHA and VA loans are assumable, while conventional loans are not assumable. However, it’s important to note that even if a loan is assumable, the lender will typically need to approve the new borrower and ensure that they meet the loan’s creditworthiness requirements. Assumable loans can be advantageous for buyers in certain situations, as they can provide a way to avoid obtaining a new mortgage with potentially higher interest rates or stricter qualifying requirements.

If you have any questions or would like to learn more about mortgage rate locks, float-down options, 2-1 buydowns, assumable loans, or other ways to get the best interest rates call us at Property Pros Group and we can discuss what will work best for you.

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