The Best Possible Mortgage Relies A Lot On Timing
The old saying "timing is everything" is a critical fact when it comes to mortgages. NY1's Real Estate reporter Jill Urban filed the following report.
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Getting a mortgage these days is complicated enough, but many people don’t realize that timing all the individual steps in the process is critical.
"Timing is a very integral part of getting a mortgage today and timing starts as early as when you are looking to get a pre-approval, all the way through your process and locking and closing. And a lot of people don’t get it right," says President Ross Weinstein of New Deal Mortgage Group.
Weinstein says getting a mortgage and timing it right is nothing short of gambling. One day rates are up and the next they are down, so one needs to time it right to get through the process with a good rate.
He says attempting to get a mortgage needs come before you even start looking for a home.
"The biggest mistake I see today is when looking for a new property many folks don’t get pre-approved prior to getting out there for their search. The most critical part of the search is knowing you can obtain the financing," says Weinstein.
Once a buyer has found a home and has a signed contract, he or she can apply for a loan commitment. This can take anywhere from a few days to a few months, depending on the circumstances.
It is important to talk to a lender or advisor to get a sense of the timing, because one will need this in order to be reviewed by a coop or condo board.
The next step is locking in a rate. Weinstein says too often people rush to lock in a rate, and with the volatility in the market, that’s not always the best idea.
"Before you lock your loan, you need to know when your closing is going to be. Locks can go anywhere from 30 days to 60 days to 90 days. It's important to know the further out you go with your lock period, the higher the interest rate or the greater the fees you will pay for that lock," says Weinstein.
He says one should not lock too close to closing, because if rates come down there will not be time to adjust it.
Buyers who are not closing for a while and who don’t think rates will significantly increase may want to float the loan until they get closer to closing. This means the rate will remain at market rate value until until buyer is ready to lock.
If one cannot close on time and the lock expires, the buyer could pay penalty fees to extend it, or let the lock expire and run risk if rates have gone up.
Get pre-approval before you start searching. Your pre-approval will give you an idea of how much you can spend on a home, so you need it before you pick your price-point. Qualification standards differ based on many variables including purchase price, loan amount, credit and income.
Apply for a loan commitment - this is the time when you supply supporting documentation including your purchase contract for your loan application. Find out how long this will take because it will impact when you can submit a board package. Brokers and lender process times vary from just a few days to as much as a few months.
Lock in a rate - Mortgage rate locks usually last 15, 30, 60 or 90 days. The longer the lock, the higher the rate or the more fees you will pay for a lock. Longer lock terms are generally available for a fee but are often not the best idea given the current interest rate environment.
If you lock too soon, you run a few risks. If you can't close in time, you could pay penalty fees to extend your lock, which can be pricey. You could let the loan lock expire, but that leaves you at risk if rates have gone up. If rates have done down, you can't necessarily get a better rate. Some banks may allow you do get your original rate, which is called "worst-case pricing."
If you lock too late: you could leave yourself in a bind. If you lock a few days before you close and then rates come down, you won't have time to try to get it adjusted.
Ask your advisor if your bank offers a float down option. This means if rates come down during your lock period, your locked rate can be reduced.