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When you’re looking for your first home, there are lots things that people tell you to look out for.
I recently closed on my first property, and when I was hunting for the perfect condo, I got some really good advice from experienced homeowners, advice like:
Don’t let your realtor or lender talk you into spending more than you feel comfortable with – they’re always happy to spend your money, so be sure you stand firm!
When you think you’ve found a place you like, visit it often, at different times of day; this will give you a better “feel” for the neighborhood than a single visit does.
Get a home inspection. This could end up saving you thousands in repairs down the road.
This was all great information, mostly because it’s stuff I wouldn’t have thought of on my own. Unfortunately, though, there was a bump in the road on my path to homeownership that no one warned me about. It could have easily been avoided, but I never in a millions years would have considered it, which is why I’m so vocal about advocating that other people take this step: when you’re quoted an interest rate on your mortgage that you’re comfortable with, tell your lender you’d like to lock it in. Immediately.
What does “locking in” your interest rate mean? It essentially means that the lender is agreeing to provide you with your mortgage at that particular rate, and that it won’t go up (or down) between the time you lock it and the time that you close on your home. If your mortgage is fixed-rate, your interest rate will remain the same throughout the life of the loan.
Why is it so important to lock in an interest rate you’re comfortable with? Simply put, mortgage interest rates fluctuate constantly, and you don’t want to start shopping for a house operating under a certain interest rate assumption, only to be unpleasantly surprised that interest rates have risen during your house hunt. This is exactly what happened to me – the interest rate I ended up with was a full half of a percentage point higher than I had expected it to be.
While that may not sound like much, remember that with mortgages you’re dealing with hundreds of thousands of dollars. In my case, half a percentage point increased my monthly mortgage payment by $60 – not a deal-breaker, but still an unwanted wrinkle in my budget plans. Had I locked in the initial rate I’d been quoted, that’s $60 every month I could be spending on an extra dinner out or a couple of movies.
So now that you’re convinced that locking your interest rate as soon as possible is important, you’re probably wondering how you do it. All you really have to do is tell your lender that you’d like to lock the rate you’ve been quoted and they’ll take care of the rest. Something to keep in mind is that if you’re locking in your rate more than 30 days before closing, you may have to pay a fee to do so. While you may end up having to make a one-time payment of a few hundred dollars (the fee varies wildly depending on the lender, and some will let you lock up to 45 days in advance of closing, fee-free) it’s probably worth it for the peace of mind that locking in brings.
The important thing is to be aware that mortgage interest rates can change significantly day-to-day, so be sure that you’re upfront with your lender about the rate you’re comfortable with so that you can lock it in as soon as you can. The home-buying process is stressful enough without having to worry about your interest rate, so keep this important step in mind as you begin the search for your first home!
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