Before You Lock a Mortgage Rate: 4 Crucial Expirations
by Kathy in New Jersey
Ask Kate about mortgage rate lock, expiration dates, extension fees, and escrow holdbacks: The feeling of finality after locking in a mortgage rate is deceptive. Not only do locked interest rates expire, there are three additional deadlines during the loan process that must be guarded with care. But first, let's meet Kathy who is up against two of these four deadlines and needs an extension.
FHA Mortgage Rate Lock Extension Fees By Kathy in New Jersey
My son was approved for a FHA mortgage.
There was already one extension because of poor communication on both sides.
The septic needs to be replaced but the septic guy won't dig because the ground is too wet and muddy.
He's afraid that digging might buckle the foundation of the house. With the chance of refreezing, he doesn't want to be liable for any cracks.
The sellers do not want to take liability either.
The closing date is coming up soon. The bank says my son needs another extension for the lock-in rate. But the septic could be delayed another 3 to 4 months.
Should the sellers be responsible for the extension fee? What should we do? His Lawyer isn't the sharpest crayon in the box. I would appreciate any advise. Thanks.
Kate Answers: FHA Mortgage Rate Lock Extension Fees
When deadlines expire during a mortgage transaction, it causes a major scramble. Preparation and a watchful eye are the best way to avoid the chaos caused by going past an expiration date.
Yet many borrowers are not aware of the 4 major expiration dates during a mortgage transaction...
- Purchase and Sale Agreements between home buyers and sellers expire
- Loan approvals expire
- Final loan documents expire
- Mortgage rate locks expire
Dream Teams Ensure Smoother Transactions
Your mortgage transaction deserves expert support. Forming a Dream Team of professional players ensures a smooth process.
Dream Teams always start with a top-notch real estate agent and mortgage originator. Rounding out the team are home inspectors, escrow officers, title representatives, and homeowner's insurance agents. Go here to learn what to expect from a Dream Team
Purchase and Sale Agreement Expiration Dates
This is the closing date established on the contract between a seller and home buyer. The real estate agents will need to negotiate a sufficient extension should the mortgage not be able to close by the deadline. Mark this date on your calendar if you are buying a house and watch it like a hawk.
In the absence of an extension, the agreement between buyer and seller could become void. This means the buyer stands to lose the home they've fallen in love with and the seller might not be able to proceed with another home purchase.
Loan Approval Expiration Dates
When your mortgage originator calls with the exhilarating news of your loan approval, ask for the expiration date. You should know if the loan is not closed before your approval expires, your transaction could be subject to an additional underwriting process including the perusal of new paystubs, bank statements, and credit report.
Going through a second approval process opens the door to further scrutiny. Avoid this like the plague. Learn what to do if your loan approval develops hiccups
Final Loan Document Expiration Dates
When you are called to sign your final packet of official loan documents, don't dilly-dally. These too can expire and signing them twice will set off carpal tunnel syndrome in your wrist, for sure.
Worse yet, expired loan documents often have a domino affect, cascading into expired mortgage rate lock agreements.
Mortgage Rate Lock-in Expiration Dates
I saved the rate lock expiration date for last since it is the biggie. Locking in a mortgage rate often feels final. On the contrary, if the transaction does not close on time, all bets can be off.
This means you may not have access to the rate you initially locked, sometimes even when rates go down. It all depends on the terms of your mortgage rate lock agreement
If you are allowed to extend the lock, you may find that you are charged an extension fee. So I recommend before you lock, understand the terms. Ask these questions about mortgage rate lock-ins
Rate Lock Extension Fees Paid by Sellers
Sellers occasionally pay lenders' extension fees on behalf of home buyers. For example, a seller may not be able to provide clear title to her property. While the issue is being resolved by the title company, the seller may feel obligated to pay her buyer's lock extension fee.
This will require negotiating skill on the part of your real estate agent. (Remember the Dream Team?
Escrow Holdbacks Solve Rate Extension
But let's assume the seller is not willing to pitch in and extending the lock is not affordable for your son. In this case, perhaps the underwriter would grant him an escrow holdback so the transaction could close on time.
Escrow holdbacks work like this. When inclement weather prevents required repairs, funds equal to one-and-a-half times the cost of repairs are deposited into a special account held by the lender until weather permits the repairs. This allows the home buyer and seller to close their transaction on time.
Escrow holdbacks are generally not welcomed with open arms by lenders because of the inspections that follow after the loan closes. But hopefully between your real estate agent (who can ask the seller to deposit the funds) and your loan originator (who will request the underwriter to approve the holdback), your son's lock will not need an extension and he can complete the purchase of the home without delay.
The best way to avoid extension fees and the need for escrow holdbacks is to lock your rate for more time than you think is needed to close the mortgage. Longer lock-ins could cost a little more but they are the best insurance against paying to extend your lock period.
Click here for Ask Kate's Mortgage Rate Lock Talk
, including extension fee and float down help.
Good luck and best wishes on a timely closing,
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