When should you lock in your mortgage rate?

What does it mean to lock in an interest rate?

First things first, there’s no point in wondering when to lock in your mortgage rate if you don’t even fully understand what that means.

Every mortgage comes with an interest rate. This varies on many different things that you can control, such as your credit score. However, it also deals with a lot of things completely beyond your control.

For example, because Donald Trump was not expected by many to become president, his presidency is slightly unpredictable, which means that the interest rates could be too. When our neighbors across the ocean voted yes to “Brexit,” interest rates went way down by .125% or 125 points.

So, with this new presidency, rates could go way up, way down, or stay relatively the same. Right now, they’re at an almost one-year high from the presidency, but that isn’t to say they couldn’t go down again.

Basically, it’s mostly guesswork. There are financial experts that spend every day, all day attempting to understand what the interest rates will do, and they still get it wrong sometimes.

Because the interest rate is unpredictable, “locking in” a rate means that the bank promises to lend you the money at the rate during the time when you locked it in, not the rate on the day of closing on your new house.

For example, let’s say that interest rates are 3.75% when you lock in your rate. 30 days later when you sign the paperwork to close on your house, the rate becomes 3.8%. You only have to pay the 3.75%!

Sounds great, right? Unfortunately, this can work the other way as well and you could end up locking in a higher interest rate. This leads many people to ask the question: when is the right time to lock in an interest rate?

Is there a perfect time?

First, it’s important to know how far in advance should you lock in your interest rate if you choose to do so. You are able to lock it in any time after you are pre-approved up to a certain amount. But does that mean that you should?

Almost all experts agree that you should wait until you have a signed contract on a house first. Don’t get preapproved and lock in a rate before your realtor has even shown you all of your options. While we all hope to find the perfect house on the first day of looking, it could possibly take months.

Why does that matter, you ask? Locking in the rate costs more for the longer amount of time if the bank allows you to do it. If you want to lock it in for 120 days instead of an average 30-60, you’re going to have to pay a lot. Typically, it isn’t worth it and my advice would be to wait.

Okay, so now you’ve got a signed contract and you’re going to almost certainly purchase a house. Congrats! Is there a perfect hour, like Tuesday afternoon is said to be best for booking airline flights? Unfortunately, no.

As said before, interest rates are relatively unpredictable. As much as everyone would love to know when the best time is, it’s hard to know. That’s doesn’t mean it’s completely hopeless, though.

One day to keep your eye on to see if rates go up or down is the first Friday of every month when the jobs report is released by the U.S. Bureau of Labor Statistics. This report typically has an effect on interest rates.

Another good day to keep in mind is when the Federal Reserve holds its two-day policy meetings and releases its statement. The dates for these meetings can be found on their website and are almost sure to influence the rates.

So, is it smarter to lock it in or wait?

Unfortunately, a lot of this is chance. So, you have to ask what your family, specifically, can afford to do. If you wait and rates go up, will you have problems affording the house long-term? If so, the safest bet is to lock in your rates right away.

While it is true that you could lose a bit if they go down, it’s much smarter than risking losing the ability to comfortably purchase the house if they go up.

You do have one more option, called a “float down” provision. As you might suspect from the name, this means that if the interest rates go up, you will not be affected at all, but if they go down, you will get the new, lower rate (or “float down” to the lower rate).

Well, why didn’t I say that from the very beginning, right? Clearly, this is the best option that everyone would like to choose.

Banks realize this as well, so they charge quite large amounts to add this float down provision to your mortgage. While this depends on the specific bank and their rates, as well as your financial situation, the extra cost is usually not advisable. As the bank has to make money too, they usually factor out this cost so that they won’t lose much money if the interest rate does go down.

However, sometimes this could be the smartest move for your new mortgage. Talk about this in depth to your lender, real estate professional, and family, making sure you understand both the long and short-term costs of all decisions.

When making the decision to lock in your mortgage rate or not, the main question, as stated before, is just to ask yourself: what will I lose if the interest rate goes up versus down? Can I afford the risk of waiting? If not, and the initial rate you’re offered is fair, lock it in!

How to get a mortgage without a regular job

Today, many workers are employed in the “gig economy” such as Uber drivers or TaskRabbit workers. Additionally, there are a rising number of employees who work short-term contracts, jumping around from job to job, or freelance work, rather than having a steady, contracted job.

This means that even if those who make good money could find it more difficult to get a mortgage for a new home. Right now, lenders typically look at credit score, history of employment, and the likelihood of continued employment. In today’s changing economy, it’s getting less possible to check every necessary box.

Here are some tips to help make sure you have a better chance of getting that loan for your dream home, even if you don’t have a full-time, regular job.

Paperwork, paperwork, paperwork

You’ll need to make sure you have paperwork with each of your clients, even if it was just for a short amount of time. This includes proof of employment and income, phone numbers and email addresses of references, any previous employers, landlords and more.

It’s also helpful to know what your credit score is. I recommend CreditKarma for this because it’s free, although you could use any reputable site.

If you have all of your records, information, and documents of previous or ongoing clients, your lender will have more confidence in your ability to pay because they can see exactly how much money you have and where it’s coming from.

Explain your industry

Your lender might be a little behind on the times and need to better understand exactly what you do so they can feel comfortable knowing this work will still exist in the future. For example, if you are a freelance writer for magazines, the lender probably understands what this is as this job has been around for a while.

However, if you perform chores for people around your area on one of the numerous task apps, you might need to show the lender exactly what it is and how it works. Essentially, even though you don’t have a typical job with a contract, you can show that it’s likely that these jobs will continue at a steady rate for years to come.

Show that you have been performing your job regularly, even if it was with many different short-term clients, and the lender will better understand.

Careful with your deductions

Most self-employed people write off the expenses tied to their job when they report their income tax. You have to keep in mind, though, that these deductions, including things like your Internet service, travel bills, dinner bills and more, show your lower net income.

This net income then is used to help decide if you qualify for a mortgage. So, it might balance out in your favor to take off a little bit fewer deductions that you legally can in order to get the mortgage you’re after.

Talk to someone who knows

You can first talk to a mortgage lender, tell him about how much you’re planning to spend on a house, and see if that is possible given your line of work and income. They will then be able to tell if this is feasible and if not how much more you’ll need to make.

You’ll also learn what you are able to qualify now to potentially look for homes in that price range. Before you start looking at homes, it’s the best advice for everyone, but particularly self-employed individuals, to get pre-qualified for a certain amount by a trusted lender.

After this, you can either take on more clients to make more in the given year or find a home in your current budget.

If you need help finding a good lender, contact Priority Real Estate for local advice. We work with many great lenders in the area and will give you at least three people who you can call.

Have as little debt as possible

This one is important for everyone looking to buy a home but especially important for those who don’t have a regular job. The lender is going to be looking at each piece of your puzzle a little differently than they’d look at someone with a steady paycheck because there’s less security that you will pay your loan back.

Because you’re riskier, you want to prove that you handle your money well. That means that you want to make sure all debt you have is as close to zero as possible and your credit score is in great standing.

Unfortunately, you can’t get past the fact that you are held to a higher standard than other buyers. But, your risk greatly lowers as your debt does.

Ask about a ‘Bank Statement’ Mortgage

Some lenders are allowing the self-employed or gig economy workers to use a “bank statement” mortgage program. This works by reviewing 12 to 24 months’ worth of deposits to your bank account, as well as a profit and loss statement for your business.

Using this instead, you may not have to show two years of tax returns, W-2s, and payroll checks. This is geared specifically for those employees working in the new gig economy that don’t fit into the typical boxes created by mortgage lenders.

Just ask

Overall, if you don’t have a typical full-time job, the sad fact is that you will have a more difficult time getting a mortgage. However, following these tips can still help you get the house you’re after.

The top recommendation, after you pay down your debt and make sure your credit score is as high as you can get it, is to go talk to a good lender. They can help you understand all the ins-and-outs of this potentially difficult process.

After you know what price range you’ve been approved for, give me at Priority Real Estate a call and we’ll help you find the perfect home.

Michele Karl is the Owner/Broker of Priority Real Estate. She can be reached at her email at [email protected] or give her a call at her office at 865-577-6600.

How to increase your credit score

Perhaps you’ve just started learning how to budget properly or may have been unlucky in the past. Now, your credit score is not where you want it to be. While you can’t get a loan very a very low number, having a high credit score is not a necessity in buying a house. Yet, it certainly helps.

Lower interest rates are something everyone wants. Regardless of the reason that your credit score is lower than you would like, check out these tips for increasing it so you can better afford your new home.

First, pull your credit report. If your score is above 760, don’t worry about trying to get it any higher. You already have a great score. Otherwise, read on.

Follow three simple rules

Jeffrey Scott, a spokesman for FICO, claimed that all you have to do to raise your score is “Pay all your bills on time, every time, keep your credit card balances low, and only open new credit when you need it.”

While this advice seems obvious and you might not have been successful in the past, starting right now is important. Don’t lament about what happened before; start immediately paying your upcoming bills on time. This will greatly improve your credit score.

Also, if you can afford to, pay more than the required minimum payment each month to increase your number more quickly. A history of minimum-only payments can be a detriment to those viewing your report. Even if you’re only paying a little bit over the minimum, it will help (as well as save you money on interest).

Understand (and fix) your credit ratio

The way that your FICO score works is by comparing the amount of debt you have to your available credit. This means that some people’s advice of closing out your credit cards after they’re paid off is not a good idea.

Closing the credit card would mean that the amount of available credit you have will greatly fall. If you consider the credit ratio, you’ll see that this will negatively affect your FICO score, which is clearly the opposite effect of what you want.

If you don’t trust yourself not to overspend with the credit card, lock it away or give it to someone you can rely on.

While you should not only pay off your credit card bill as quickly as possible, you should also ask for a limit increase. Raising this will help improve your debt-to-credit ratio, helping your FICO score. The smaller percentage of debt will help you get closer to the interest rates you really want.

Don’t open new cards

When you understand credit ratio, you might think it will be a good idea to open numerous, new credit cards. Well, this type of behavior appears very risky to lenders and can hurt your score.

If you’re looking for one new credit card, this is acceptable. Just make sure you don’t open multiple accounts hoping for a better number.

On this note, older cards are actually better for your credit score. The length of your credit history factors in, so a long-term credit card account is better than a brand new one.

If the interest rate on your oldest card is very high or you don’t like the rewards it comes with, just put it in a drawer and don’t use it. This is a much smarter option than canceling it when it comes to thinking about your credit score.

Pay outstanding debt ASAP

Paying off any late accounts does not make them disappear from your record, but it does help. The longer these outstanding debts have been paid off, the more your credit score will grow.

It can be quite difficult to pay all current balances while also focusing on outstanding debt, but to improve your credit score, it’s a must.

Any errors in your report?

Do you feel like you should have a higher credit score than you do? Errors are not that uncommon. Check your report with a fine-toothed comb for things like balances that seem off or accounts that you didn’t create. Also, double check that every lender has accurately reported your credit limits.

It might seem crazy, but according to Forbes, “a whopping 25% of people who get declined for a mortgage had errors in their credit report.” These inaccuracies must be spotted and fixed by you by following the instructions on any of the credit bureau websites or your report.

Make sure you keep a record of everything involving your dispute. You can expect a response within thirty to sixty days of making the claim.

Don’t make any big purchases

This one is extremely important, especially if your credit has already been pre-approved and you’re waiting to close on a new house. Making any large purchase will affect your ability to get a loan.

If you’re trying to buy a car, take a nice vacation, or even purchase some appliances for your potential new house, just wait. These decisions can have very detrimental consequences, leaving you without a loan for your dream home.

Big purchases can also greatly impact your credit score because of the ratio explained above. Simply put, if you have more debt, your number will be lower.

Short and long-term changes

A fairly immediate change to your credit report will happen if you found any irregularities or errors in it. As soon as these are corrected, you should see your score go up.

It could take weeks or months of paying down balances to see a difference in your score. This entirely depends on you. For example, if you continue making minimum payments that are always on time, this will gradually help you score.

Instead, if you regularly make very large payments to the point where you have no or almost no debt left, your score will increase more quickly.

Paying off those outstanding debts could help you negotiate with lenders. However, you have to be patient about your credit score changes with this tactic as it takes from months to years to see large differences.

Follow the tips outlined above and your credit score will undoubtedly increase, potentially saving you tens of thousands of dollars in interest on your loan.

Michele Karl is the Owner/Broker of Priority Real Estate. She can be reached at her email at [email protected] or give her a call at her office at 865-577-6600.

Should you lock in your interest rate?

What does it mean to lock in an interest rate?

First things first, there’s no point in wondering when to lock in your mortgage rate if you don’t even fully understand what that means.

Every mortgage comes with an interest rate. This varies on many different things that you can control, such as your credit score. However, it also deals with a lot of things completely beyond your control.

For example, because Donald Trump was not expected by many to become president, his presidency is slightly unpredictable, which means that the interest rates could be too. When our neighbors across the ocean voted yes to “Brexit,” interest rates went way down by .125% or 125 points.

So, with this new presidency, rates could go way up, way down, or stay relatively the same. Right now, they’re at an almost one-year high from the presidency, but that isn’t to say they couldn’t go down again.

Basically, it’s mostly guesswork. There are financial experts that spend every day, all day attempting to understand what the interest rates will do, and they still get it wrong sometimes.

Because the interest rate is unpredictable, “locking in” a rate means that the bank promises to lend you the money at the rate during the time when you locked it in, not the rate on the day of closing on your new house.

For example, let’s say that interest rates are 3.75% when you lock in your rate. 30 days later when you sign the paperwork to close on your house, the rate becomes 3.8%. You only have to pay the 3.75%!

Sounds great, right? Unfortunately, this can work the other way as well and you could end up locking in a higher interest rate. This leads many people to ask the question: when is the right time to lock in an interest rate?

Is there a perfect time?

First, it’s important to know how far in advance should you lock in your interest rate if you choose to do so. You are able to lock it in any time after you are pre-approved up to a certain amount. But does that mean that you should?

Almost all experts agree that you should wait until you have a signed contract on a house first. Don’t get preapproved and lock in a rate before your realtor has even shown you all of your options. While we all hope to find the perfect house on the first day of looking, it could possibly take months.

Why does that matter, you ask? Locking in the rate costs more for the longer amount of time if the bank allows you to do it. If you want to lock it in for 120 days instead of an average 30-60, you’re going to have to pay a lot. Typically, it isn’t worth it and my advice would be to wait.

Okay, so now you’ve got a signed contract and you’re going to almost certainly purchase a house. Congrats! Is there a perfect hour, like Tuesday afternoon, is said to be best for booking airline flights? Unfortunately, no.

As said before, interest rates are relatively unpredictable. As much as everyone would love to know when the best time is, it’s hard to know. That’s doesn’t mean it’s completely hopeless, though.

One day to keep your eye on to see if rates go up or down is the first Friday of every month when the jobs report is released by the U.S. Bureau of Labor Statistics. This report typically has an effect on interest rates.

Another good day to keep in mind is when the Federal Reserve holds its two-day policy meetings and releases its statement. The dates for these meetings can be found on their website and are almost sure to influence the rates.

So, is it smarter to lock it in or wait?

Unfortunately, a lot of this is chance. So, you have to ask what your family, specifically, can afford to do. If you wait and rates go up, will you have problems affording the house long-term? If so, the safest bet is to lock in your rates right away.

While it is true that you could lose a bit if they go down, it’s much smarter than risking losing the ability to comfortably purchase the house if they go up.

You do have one more option, called a “float down” provision. As you might suspect from the name, this means that if the interest rates go up, you will not be affected at all, but if they go down, you will get the new, lower rate (or “float down” to the lower rate).

Well, why didn’t I say that from the very beginning, right? Clearly, this is the best option that everyone would like to choose.

Banks realize this as well, so they charge quite large amounts to add this float down provision to your mortgage. While this depends on the specific bank and their rates, as well as your financial situation, the extra cost is usually not advisable. As the bank has to make money too, they usually factor out this cost so that they won’t lose much money if the interest rate does go down.

However, sometimes this could be the smartest move for your new mortgage. Talk about this in depth to your lender, real estate professional, and family, making sure you understand both the long and short term costs of all decisions.

When making the decision to lock in your mortgage rate or not, the main question, as stated before, is just to ask yourself: what will I lose if the interest rate goes up versus down? Can I afford the risk of waiting? If not, and the initial rate you’re offered is fair, lock it in!

If you need any help finding a lender, contact us!