Stated-Income

Home Improvements: Can you Use VA Financing to Pay for Them?

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If you are a veteran with VA loan eligibility, you probably know that you can buy a home with no down payment. But, did you also know that you can buy a home that isn’t in ‘good’ condition and repair it with the funds provided by the VA loan? The VA, like the FHA, has a home improvement loan that makes this possible.

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Keep reading to find out how you can take advantage of this program.

The VA Renovation Loan

The VA does allow you to purchase a home that doesn’t pass the VA appraisal requirements and use funds from the loan to fix the home up to code. Because the VA already allows 100% financing to purchase a home, though, not too many lenders allow this type of financing. If you only want VA financing, you’ll have to shop around to find a lender willing to offer this program.

In order to get enough financing to purchase and fix up a home, you must:

  • Submit a bid from the contractor providing all of the details of the renovation
  • You can only borrow the lesser of the purchase price plus renovations or the expected value of the home after the renovations
  • You must prove that the home passes the VA requirements after renovations are complete
  • All renovations must be necessary and not luxurious
  • You must have a contractor do the work – you cannot do it yourself

Alternatives to the VA Renovation Loan

What happens if you can’t find a VA lender willing to write a VA renovation loan or you don’t meet the above guidelines? You have one other option – the FHA 203K loan.

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The FHA 203K loan is the FHA’s version of the renovation loan. The main difference is that you will need a down payment in order to buy the home. It’s only 3.5% of the purchase price of the home, though. You can even receive 100% of the funds as a gift if necessary.

The FHA 203K loan has two options:

  • The streamline 203K loan – This loan provides you with up to $35,000 in renovations on top of the purchase price of the home. You cannot make structural changes, but you can make any other changes that fit within the $35,000 and make the home meet the necessary code
  • The full 203K loan – You can borrow up to 110% of the after-improved value of the home. You can make structural changes with this loan. Once you make the necessary changes to make the home up to code, you can make any cosmetic or optional changes that you desire as long as they fit into the loan amount

If the home you want to buy passes the VA appraisal, but it just needs other work that you would prefer, you can buy the home with your VA loan and then refinance it down the road. The refinance would be a part of the VA cash-out refinance program.

This program is a little more lenient because the VA doesn’t specify what you need to do with the funds. You can make as many or as few changes as you want with the money. With this program, you can borrow up to 100% of the value of the home at the time of the refinance. If you wait until you have a little equity, you can get the funds you need to renovate the home.

The VA loan can be a way to help you pay for home renovations, but it won’t be the easiest route. If you can manage to get a down payment for the home, the FHA 203K loan may be the easier route to take. If you can get the home to pass the appraisal, you can even wait and take out a cash-out refinance once your home is worth enough. Explore your options and decide which one will cost you the least and give you the greatest return on your investment.

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Can a Co-Borrower Help you Refinance?

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Have your financial circumstances changed since you bought your home? If your credit score fell or your debt ratio increased, you may find it harder to get a mortgage now than when you bought the home. What if you could get the help of a co-borrower though? Would that help?

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In some cases, a co-borrower can help. Keep reading to find out if finding a good co-borrower can help you.

Did Your Credit Score Fall?

Unfortunately, co-borrowers can’t be much help when it comes to credit scores. Lenders look at the middle credit score of each borrower. They then take the lowest middle score between the two borrowers to use for qualifying purposes. If you have worse credit than your co-borrower, the lender will use your credit score.

Here’s an example:

Your three credit scores are 649, 667, and 692

Your co-borrower’s three credit scores are 684, 691, and 695

Your middle credit score is then 667 and the co-borrower’s middle credit score is 691. The lender will use your score of 667 to qualify you for the loan. This credit score should be good enough for a variety of loan programs, but if you have a credit score much below 640, you may find it harder to find a loan program.

Did your Debt Ratio Increase?

Your debt ratio is the comparison of your debts to your gross monthly income. Each loan program has its own maximum debt ratio requirements, but in general, the total debt ratio shouldn’t exceed 41% – 43%.

If your debt ratio greatly exceeds these amounts, you may need a co-borrower to help bring your debt ratio down. Because your co-borrower goes on the loan, the lender can use his/her income to help you qualify for the loan. Here’s the catch, though. If you use the co-borrower’s income, the lender must also include his/her debts. If your co-borrower has a large amount of debts, adding him/her onto the loan may not help.

If you are lucky enough to have a co-borrower that doesn’t have a lot of debts, though, it can help you get qualified for the loan.

The Difference Between the Co-Borrower and Co-Signer

Don’t confuse the two terms co-borrower and co-signer. A co-borrower is on the loan and the title. He/she has rights to the property. This person is also liable for the mortgage. The co-borrower signs all of the loan documents. The co-borrower has a say in what happens to the property, including selling it.

A co-signer is on the mortgage note, but not on the deed. This means that the co-signer also is not on the title. The co-signer does not have ownership in the property. He/she cannot decide to sell the property or make changes to it. The co-signer is still liable for the mortgage payments should you stop making payments.

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Should you Use a Co-Borrower?

Now the big question is whether you should use a co-borrower. Typically, the best co-borrower is your spouse. You don’t have to worry about ownership issues when you own the home with someone you are married to. Of course, if you get divorced, you’ll have to split the property or work out a settlement with your lawyers, but the law covers you in this situation.

If you aren’t married and you need a co-borrower, you’ll have to choose someone wisely. Buying with a friend, for example, can be risky. You need a lawyer to help draw up the proper agreement for the ownership to ensure that both parties are properly covered should a disagreement regarding ownership occur. If you can qualify for a loan without a co-borrower, you may be in the best position.

Increasing Your Chances of Approval

If you can’t qualify for a refinance on your own, but don’t want a co-borrower, you can try fixing the issues that prevent you from getting approved. For example:

  • Pay your bills on time to help your credit score increase
  • Pay your debts down to increase your credit score and decrease your debt ratio
  • Avoid taking out any new debt to help your credit’s age increase, which helps your credit score
  • Take on a side job or second loan to help decrease your debt ratio

These simple tips can help you maximize your chances of approval without using a co-borrower. If you do need to use a co-borrower, make sure you choose wisely to ensure that you have the best chance at approval.

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Can you Get a Truly No-Cost Refinance?

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You may hear lenders advertise or suggest a no-cost refinance. You probably wonder how that could be possible. What lender would offer a refinance without charging anything? Closing costs can be in the thousands of dollars, so what’s the catch?

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The truth is that there is a catch. You won’t get the loan for ‘free.’ You’ll just pay it in other ways.

What the No-Cost Refinance Means

When a lender offers a no-cost refinance, it means that they will refinance your loan without charging you any closing costs upfront. It doesn’t mean that they won’t charge you for them, though. Typically, they get the payment from the higher interest rate that they charge you.

Let’s say that a lender offers you two options:

  • Option A is for a $200,000 loan at 4.5% with $3,000 in closing costs
  • Option B is for a $200,000 loan at 5% with no closing costs

Do you see the difference? You pay a higher interest rate so that you don’t have to come up with any money at the closing. The lender eats the costs of processing the loan while collecting more interest on your loan than they would have if they charged the closing costs upfront.

What’s in it for the Lender?

You probably wonder why a lender would even consider this option. Don’t they need the money upfront? While they do, they actually make out on the deal if you end up keeping your loan for the entire term. When you pay a higher interest rate, you pay it for the life of the loan.

Let’s say that Option B was for a 30-year term. You would pay $61 more per month with the higher interest rate. That’ doesn’t seem like a lot, but let’s look at it over the life of the loan. $61 per month is $732 per year and $21,960 over the life of the loan.

That means the lender comes out ahead $18,960 by giving you the higher interest rate rather than collecting the closing fees from you.

Now that’s only if you keep the loan for the entire term. That’s the lender’s hope and why they would give you the no-cost refinance.

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Do you Benefit?

You may benefit from the no-cost loan in a couple of ways. First, if you truly don’t have the money to pay for the closing costs now, you may have no choice. If the refinance is vital for you, because it will save you money on your loan each month, it may make sense to do so.

You may also benefit from the no-cost loan if you know you will move in the near future. Let’s say that you know you’ll move in three years, but you want to refinance because you have a high payment right now. If taking the slightly higher interest rate of the no-cost loan still benefits you, take it. This way you save money on your monthly payment and you get away with paying the closing costs.

In our above example, as long as you move before you have the refinanced loan for 4 years, you make out on the deal. Obviously, the earlier that you move and pay off the loan, the more you come out ahead, but the point is that you didn’t have to pay the closing costs on a loan that you knew you would not have for long.

Basically, you need to know where you break-even. When will the extra interest you pay for the no-closing cost loan cover the closing costs? If you will be in the home much longer than that break-even point, paying the closing costs yourself makes more sense. Otherwise, you’ll end up paying excessive interest and not benefiting from the deal. Ask your lender for quotes for both options and then see which way you come out ahead in order to make your decision.

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How Much Can You Borrow With a USDA Loan?

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If you plan to live in a rural area and your income doesn’t exceed 115% of the average income for the area, you may be a good candidate for USDA financing. The good news is that you can get 100% financing – you don’t need a down payment. The bad news is that the USDA does have maximum loan limits.

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They don’t do so in a matter of fact way, though. The USDA has a maximum amount of household income your total household can make in order to be eligible for the USDA loan. If you have household income higher than that amount, you won’t qualify. If you do fall within the parameters, you must meet the program’s debt ratio guidelines, which will limit your loan amount.

The Income Limits for 2019

The USDA recently increased the maximum amount of income a family with 1-4 members can make. The new limit is $82,700. If you have a household of five or more members, you can have a total household income of $109,150 and still qualify.

Keep in mind that these limits are for all household members. This includes household members that are not on the loan. The USDA uses the total income for the entire household when determining your eligibility. They do take into consideration certain costs, such as caring for children, the elderly, or the disabled.

These limits aren’t set in stone – they can change at any time, but the USDA typically changes income guidelines once at mid-year and then again at the end of the year.

If we use the USDA maximum housing debt ratio of 29%, you’d see that your maximum mortgage payment could be $1,998 for families of 1-4 and $2,637 for families of 1-5. This includes the principal, interest, real estate taxes, homeowner’s insurance, and mortgage insurance.

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How to Qualify for a USDA Loan

The numbers we spoke about above are just for ‘eligibility’ for the USDA loan. It doesn’t mean that you automatically qualify. In order to qualify for a USDA loan, you must meet the following requirements:

  • 640 credit score or higher
  • 29% housing ratio
  • 41% total debt ratio
  • Stable income and employment for the last 2 years
  • Proof that you can’t secure any other type of financing
  • Proof that you’ll live in the home as your primary residence
  • Proof that the home is located within the USDA’s boundaries

In order to prove that you qualify for the loan, you’ll need to provide your paystubs, W-2s, taxes (if applicable), asset statements, proof of income, and your credit score. The USDA lender will evaluate your qualifications to decide if you are a good candidate for the loan.

If the lender approves you for the loan, then they send your file to the USDA for final approval. This process does add a little time to the loan process, but not too much. As long as the lender sends a full underwriting package with all of your information, you should be in good shape.

How much you can borrow with a USDA loan depends on your total household income and your other debts. Basically, you determine how much the USDA will allow you to borrow. It’s a good thing that the USDA has these caps because it prevents you from borrowing more than you can afford.

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When is the Best Time to Lock Your Interest Rate?

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You think you did all of the hard work – you’ve found a home and you’ve even secured financing. But you still have one more big decision to make  – when should you lock the interest rate? This isn’t a decision that you should take lightly. There are many factors that go into it.

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Understanding a Locked Interest Rate

When you lock your interest rate, that’s your rate for your loan; it doesn’t matter what happens to rates moving forward. Even if you haven’t closed on your loan yet, you are still stuck with the rate you locked. There are a few exceptions to this rule though:

  • If the rate lock expires, you could be subjected to the current market rates if they are worse than the rate that you locked.
  • You may ask for a float down if rates get better. Certain lenders offer the opportunity for you to choose the lower rate for a fee once you lock your interest rate, but not all lenders offer this.

Typically, you’ll have the locked rate for 10 – 60 days, but some lenders offer longer lock periods. Typically, the longer you lock an interest rate, the more it costs you either in fees or with a higher interest rate.

Choosing the Right Time

Now it’s time to choose the right time to lock your interest rate. Is it right after you sign a contract? Is it right before you close? When should you lock it?

  • You must have a purchase contract – Almost all lenders require that you have a signed and executed purchase contract before you can lock your interest rate. If you lock a rate before then and you don’t end up getting the home, your lock will likely expire.
  • Watch the rates – Once you have a contract, you want to watch the rates. You should have a rate in mind that will make you feel comfortable. If rates hit that point, you probably want to lock it unless you are a long time out from closing. You can’t predict what rates will do the next day, so giving up that chance could be quite the gamble.
  • Watch your closing date – Some contracts have a closing date that is somewhat far away. If that’s the case, don’t lock your rate in too early. You have a long time ahead of you for rates to change. Plus, the longer your lock period is, the more the rate will cost you because it costs lenders for you to lock in a rate for much more than 30 days.
  • You must lock before you close – No matter how nervous you are or how reluctant you are to lock yourself into an interest rate, you have to lock it before you can close. Your lender cannot process your loan and create the closing documents until you choose a rate and lock it in for your loan.

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What if a Lock Expires?

Everyone worries about this scenario. What happens if a lock expires on you? You’ll have a few options:

  • Extend the lock – Some lenders allow you to pay a small fee to extend the lock. You should usually do this before the rate lock expires, though. Choosing to do it when you are near the date of the extension, but not past it is the best choice; you should ask your lender what the cost is, though, as it can vary by lender.
  • Take the current rate – Some lenders force you to take the current rate if they are higher than what you locked. You’ll have to decide at that point what you want to do. If the rates are really bad, you may want to find another lender, but that is only possible if you have time before the closing to do so.

The best thing you can do is stay in contact with your lender. They have the best idea of what will happen to interest rates. While they can’t predict what will happen, they have been around and seen what they do historically. Once you lock a rate, stay in closer contact with your lender. Ask about the status of your loan and your options if you get close to the expiration date and are worried about losing your rate.

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Understanding the FHA Loan Limits

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If you need a flexible loan with guidelines with low credit score requirements and high debt ratio allowances, you may want to explore the FHA loan. This loan allows a credit score as low as 580 and debt ratios as high as 43% in some cases.

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Many people want to know just how much they can borrow with the FHA loan, though. Keep reading to find out how much you may be able to borrow.

The Basics

FHA loans typically follow the conventional loan maximums. This year that means a maximum loan of $453,100. This is the case in most areas. However, there are some ‘high cost’ areas where you can borrow more than this because the cost of living is higher.

The Upper FHA Loan Limits

The FHA labels counties based on their cost of living and average home price. You’ll see low-cost counties, high-cost counties and average counties.

The limit for low-cost counties is $294,515. This is the most you can borrow in what the FHA considers a low-cost county. The limit for high-cost counties is $679,650. If your county doesn’t fall within the low-cost or high-cost counties, it will fall somewhere in between. This means your county will have a limit higher than the low-cost county, but lower than the high-cost county.

What do Loan Limits Mean?

So how does the loan limit affect you? Let’s say your county loan limit is $453,100. Does that mean that you can borrow that much?

It doesn’t. You have to qualify for the loan amount, which is a lot different than being eligible for it. You must qualify or prove that you have the credit score, income, and debt ratio to afford for the loan. Luckily, FHA loans have flexible guidelines allowing you some wiggle room.

In order to qualify for an FHA loan, you’ll need the following basic requirements:

  • 580 credit score or higher – The FHA allows a credit score as low as 580, but not all lenders will allow it. Check with induvial lenders to find out their requirements.
  • 31% housing ratio – The FHA allows you to have a housing payment that equals as much as 31% of your gross monthly income (income before taxes).
  • 41% total debt ratio – The FHA allows you to have a total debt ratio that equals up to 41% of your gross monthly income. In some cases, lenders may allow as much as a 43% ratio.
  • Stable income – You must prove that your income is stable and reliable. It helps if you’ve been at the same job for the last two years, but if you have a newer job, don’t worry. You just need to prove stability and reliability.
  • 5% down payment – The FHA requires at least a 3.5% down payment on the home, but you can make the down payment from your own funds or gift funds from relatives or an employer.

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That’s all that the FHA really requires. It’s a flexible loan program for many. It’s not just a first-time homebuyer’s loan as many people think of the FHA loan. If you need flexible guidelines, you may qualify for this loan.

The FHA’s Role

Something to keep in mind is that the FHA doesn’t underwrite or fund the loan. Your lender is in full control of whether or not you get approved. The FHA approves certain lenders to write loans in their name. As long as the lender follows the FHA rules, the FHA will guarantee the loan.

The guarantee the FHA provides is for the lender. They promise the lender that they will pay them back a portion of the money that they lose should you default. Even with that guaranty, some lenders make the guidelines a little stricter. They add what’s called lender overlays. They make it a little harder to get the loan so that the risk of default decreases.

FHA loans have flexible guidelines and varying loan limits. You can find the loan limits for your county here or you can ask your lender. This will give you an idea if FHA financing will be a good option for you based on the price of the home that you want to buy.

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Do These Things Before Buying a Home as an Unmarried Couple

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Are you thinking of buying a home with someone you haven’t’ married yet? While it’s not the ideal situation, it certainly is possible. Your parents may want you to wait, but legally there are ways that you can purchase a home together without it becoming a total nightmare if you end the relationship.

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Keep reading to learn the top things you should do before you buy a home as an unmarried couple.

Get a Legal Agreement

While you might be feeling head over heels in love right now, that could change. While we don’t want to dwell on the negative, it’s important to face the facts that not every couple that buys a house together stays together. What would happen if you split up? The law doesn’t cover unmarried couples in homeownership – only married couples. So you would be on your own dealing with a he said/she said type of situation if you don’t get a legal agreement.

Some people call it a ‘house prenup.’ Whatever you want to call it, the agreement puts into writing everything that you and your significant other agree on about the house. A few of the topics in can include are:

  • Who is responsible for the mortgage
  • Who is responsible for the utilities
  • Who is responsible for the taxes and/or homeowner’s insurance
  • What happens if the responsible partner can’t meet his/her financial obligations
  • What happens to the home if you break up?
  • What happens if one partner becomes ill or disabled?

These are just a few of the topics that you must cover.

Figure Out the Right Type of Ownership

Owning a home with someone you aren’t married to makes it more difficult to figure out how to take title. While you can own the home in joint tenancy, it’s not always the right option. You’ll have to consider:

  • Sole owner – Only one person’s name goes on the title. Even if your partner brings money to the table, he/she won’t be on the title in this situation. It’s not the best idea because the person that isn’t on the title risks walking away with nothing should you end the relationship.
  • Tenants in common – Both owners would go on the title with this type of ownership, but the ownership doesn’t have to be ‘equal.’ For example, one owner could own 45% of the home and the other own 55% or any other combination. This can help in the case that one person puts more money down on the home, but it makes it hard if one owner dies because there are no automatic rights with this type of ownership.
  • Joint tenancy – Both owners are on the title and own 50% of the property. If one owner dies, the other owner automatically inherits the other 50% of the property.

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Each type of ownership has its pros and cons, which you should discuss with your attorney before taking title.

Keep Written Track of Your Finances

Because you aren’t married, there could be squabbles down the road about who paid for what and who gets what. Rather than dealing with the stress of arguing, write everything down and keep proof of each payment.

If you pay with checks, keep the canceled checks. If you pay with a credit/debit card, keep the statements that show the payments. If you ever break up and have to fight for money that you paid for the house, you won’t have a leg to stand on without written proof of the payments.

No matter what you decide, you should always have an attorney look over the situation before you buy the home. This way you know all of your bases are covered. Buying a home with someone you are not married to can be complicated, but it can be done with the right help!

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Why You Should Understand the Index and Margin on the ARM Loans

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You hear that you can get a lower interest rate if you take an adjustable rate mortgage (ARM) so you jump on the chance. But do you know how the ARM loan works? Are you aware of how the index and margin affect your future payments?

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Keep reading to learn about these important terms so that you can fully understand how the ARM loan works.

The ARM Index

Each lender has their own requirements regarding which index they use for an ARM. The most common choices include:

  • Prime rate
  • Libor
  • 1-Year T-Bill

Of course, each lender can use any index they choose. You should know the chosen index so that you can look at its historical patterns. While you can’t predict what the index will do moving forward, you can see its increases and decreases throughout the past few years to give yourself a decent idea of what to expect.

The index is the base of your ARM rate. The lender then adds the pre-determined margin to the current index rate at the time of your adjustment.

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The Margin

The margin is the one factor in the ARM rate that doesn’t change. The margin your lender assigns to your loan is the margin for the life of the loan. Lenders often base your margin on your level of risk. If you are risky, you can expect a higher margin than if you were a low risk of default.

Let’s say a lender assigns a 2% margin to your loan. This means that you’d add 2% to the current index rate at the time that your rate adjusts.

How an ARM Loan Works

Now that you understand the index and margin, let’s look at how the ARM loan works. At first, you’ll get the low interest rate that the lender quotes you. Let’s say you can get a 4% interest rate if you take an ARM loan versus a 4.5% rate on a fixed rate loan.

You will notice that the ARM has a number, such as 3/1 or 5/1. The first number signifies the number of years you can enjoy the low introductory rate. In these examples, you’d have a fixed rate for 3 or 5 years. The next number is the frequency at which the rate changes after the first anniversary date change.

Let’s say you have a 3/1 ARM. After three years, the rate will adjust one time per year according to the chosen index plus your predetermined margin. You won’t be able to predict your interest rate by any means, but you can keep an eye on your index to see what it’s doing. If you don’t want to deal with a changing interest rate, you can always refinance out of the ARM before your first rate change. There’s no penalty for doing so.

The index and margin on your ARM loan play an important role in your loan. You should know these numbers and see how they may affect your interest rate. It’s a good idea to ask any potential lender what the worst-case scenario is for your ARM rate. Each loan has caps or maximum amounts the rate can change so a lender can tell you the highest your payment could ever be should the index get to that point. This way you can plan accordingly.

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What Is an Ideal Debt-To-Income Ratio for a Home Loan?

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Next to your credit score, your debt-to-income ratio is the next most important thing that lenders look at when determining if you qualify for a mortgage. So what debt ratio do you need to qualify?

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Unfortunately, the answer will differ by lender. But ideally, you want a housing ratio of no more than 28% and a total debt ratio of no more than 36%. These are the conforming loan standards, which many consider the ‘gold standard’ in the industry.

What happens if you have a higher housing or total debt ratio? The good news is that there are likely still loan programs out there for you.

It’s a Ballpark Figure

The required debt-to-income ratios are really a ballpark figure. For example, if you had a 29% housing ratio and applied for a conventional loan, you may still get approved. The lender will look at the ‘big picture’ or all of your qualifying factors. If you have great credit and disposable income each month, they may let the 29% housing ratio slide.

The key is to make the rest of your qualifying factors as good as possible, especially if your debt ratio is higher than the program allows. The more positive factors you have to offset the negative, the better your chance of approval becomes.

The Debt-to-Income Ratios for Other Programs

If you don’t have the ‘ideal’ debt ratios of 28/36, you may have better luck with other mortgage programs that are available today including:

  • FHA – The FHA allows much higher debt ratios of 31% for housing and 41% for your total debt ratio.
  • VA – The VA doesn’t have a maximum housing ratio that they require. They do like your total debt ratio to be around 41% – 43%, though.
  • USDA – The USDA allows a housing ratio of 29% and a total debt ratio of 41%.

As you can see, there are more flexible guidelines out there if you can’t meet the requirements of the conventional loan. In fact, the FHA, VA, and USDA have more lenient guidelines all the way around. Not only can you have higher debt ratios, but you can also have lower credit scores and put less money down on the home.

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Creating the Ideal Debt-to-Income Ratio

If you realize that your debt ratio is already high before you even apply for a mortgage, there are ways that you can help reduce it:

  • Pay off some debts – If you can pay any of your debts off in full, do it. This will eliminate an entire payment from your debt ratio, which can help it.
  • Pay some debts down – If you can’t afford to pay your debts off in full, consider at least paying them down so that the minimum payments decrease, which lowers your debt ratio.
  • Get a second job – If you have the time for a part-time job, take one to help you have extra money. You can either use the money to pay your debts down or to increase your qualifying income for your mortgage.
  • Start a side gig – If you can’t work a ‘formal’ part-time job, consider starting a side gig. You can do anything from sell crafts, do side jobs, or be a virtual assistant. You can then use the funds to pay down your debts. Since side gig money is hard to get through underwriting, your money is best used paying the debts down or off in full.

The ideal debt-to-income ratio is the one that works best for you. When it comes to qualifying for a mortgage, you’ll have to be in the ballpark of the program’s guidelines, as we stated above. If you find that you are just outside of a program’s guidelines, don’t give up. Just make sure you have maximized your other factors so that a lender won’t be too hard on your higher debt ratios and approve you for the loan.

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What Happens if the Rate Lock Expires Before Closing?

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You probably took your time choosing the perfect interest rate before you locked it. Unfortunately, it does happen where a borrower can’t close on their loan before the rate lock expires. What are you supposed to do?

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Luckily, you have options. Some of which you might like and others which you may not like.

Ask for a Rate Lock Extension

Some lenders offer a free rate lock extension for a short period of time. Not all lenders offer this, so don’t assume that you’ll get it. But, it’s worth asking the lender about it. If you only need a day or two, they may be willing to extend the offer. If you need a few weeks, though, the offer may be a little different.

If your lender isn’t willing to offer the rate lock free of charge, they may offer it for a fee. Ask the lender what they would charge and then decide if it’s in your best interest to pay it. Remember you’ll pay many closing costs, and the rate lock fee will just add to them. Give it careful consideration before you decide to pay it.

Take the Current Market Rate

If you don’t want to pay the extension fee or your lender just doesn’t offer one, you may be able to take the current market rate, but only if the rates are worse today. Lenders usually offer the option to either extend the lock or take the higher current rate. If rates fell, they will likely only offer a rate extension.

If the current market rate is acceptable, you can lock it in and hopefully have enough time to get your loan closed before this one expires. Of course, you should talk with your loan officer to get a good idea of how much longer it will take to get your loan closed. Are the issues they are having something major? If so, you may need another 30 – 60 days for the rate lock. If it’s minor things that can be cleared up in a day or two, though, you may be able to take a shorter lock period, which should cost you less in the end.

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Use a Different Lender

If you’ve already gotten through a large part of the underwriting process, you probably don’t want to start over again with a new lender, but it may be your only option.

If you have to start over, keep in mind that you’ll have to incur the appraisal and title fees again. The first lender may also require you to cover those fees since they are a third-party service. You would have paid the fees if you closed on the loan, and the lender may still owe them even if you don’t close the loan.

Talk with your current lender about the possibility of transferring the appraisal and any title work over to the new lender. This still incurs a fee, but less than you may incur if you have to pay for two appraisals and two title searches.

Each lender differs in their policies, so make sure you know where the lender stands ahead of time so that you can determine the right steps to take.

The ideal situation is to get your loan closed before the rate lock expires. If you don’t, consider your options carefully. Weigh the pros and cons of paying the extension fee and maybe even try negotiating with the lender. They may be willing to budge a little bit. In the end, you should make sure you get an interest rate you are comfortable with at fees that you can afford

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