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We started the processing for a FHA 203K loan and the lender send us a eletronic PDF documents one of the documents called “RATE LOCK OPTION FINANCING AGREEMENT” the two options on the bottom is “LOCK” or “FLOAT” the problem is we wanted LOCK the interest and the document came PRE-SELECTED as “FLOAT” my husband called the lender and they basically said that we need to sign/consent as “FLOAT” after that he can lock the loan and get us written confirmation that the loan is locked. Is that standard practice?

2 Thoughts on Rate Lock Option Agreement option – mortgage?
  1. Reply
    Dan B
    February 10, 2014 at 3:25 am

    It’s a gamble. With a FIXED, you’re stuck with the quoted rate. If the rates go up, you win, but if they go down, you can’t renegotiate without starting all over again and probably lose some money. With a FLOAT, if the rates go down, you win, if the rates go up, you lose.

    I couldn’t find anywhere on the net that 203k loans must be floating interest rates.

    You don’t NEED to sign for a floating rate. It’s your choice. That’s the same line that forced people into ARMs before the mortgage meltdown. There were people who qualified for 30 year fixed, but weren’t offered them because ARMs were more profitable to mortgage brokers.

  2. Reply
    February 10, 2014 at 4:16 am

    Sorry, the other answer went in a completely wrong direction.
    Locked and Floating have nothing to do with fixed rates and arms!
    To answer your question, yes, that is standard practice.
    At application, your rate is always “floating” because we can not lock a rate until you have a signed application in.
    As soon as you sign the appplication (which includes the rate lock/float agreement) and send it in, you can call/write (I always suggest putting it in writing) that you wish to lock your rate and at that time, you should sign a new rate lock float/agreement that has the “lock” box checked.
    Keep in mind that once you are locked, you are locked. If rates go down, you do not get the benefit of a lower rate and if rates go up, you are protected. I always tell borrowers that once they decide to lock (it is your decision, not your lenders!) that they should refrain from looking up rates until they close. It will just cause frustration!
    Also keep in mind that you get the best rates on shorter lock periods. If you lock for 15 days, that is a lower rate than if you lock for 60 days. 203(k) loans are notorious for not closing on time, simply because you are relying on contractors to give you bids. The bids have to be written a certain way (which is generally not the way most contractors write them so we have to request that the are re-written) and then we also need to get a lot of additional information from these contractors contractors (insurance, bond, license, etc.) that is always slow to come in. Because of the type of loan you are getting, be aware that if you lock for 30 days and you don’t close on time regardless of who is to blame, there will be a rate lock extension fee that you will have to pay.

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