What is Locking a loan really mean?

What does it mean when a lender "Locks your Loan".

A common misconception people have of the locking process goes something like this,… The lender/broker asks you if you want to lock in the rate at 6% for 30 days. You agree, and then the broker calls the bank and tells them to set aside X dollars at 6% for the next 30 days. And now that you are locked, you do not have any options to “change” you loan scenario. Be aware my friends, this is not true.

To lock a loan is basically an agreement to a specific “point in time” with a lender. A good way to envision your lock is to write down the date and time that you agreed to lock your rate. Now you and the end lender have agreed to do business under the market conditions surrounding that specific lock time. If you locked right now for 30 days then you would be granted pricing on December 28, 2007 at 9:14 am for the next 30 days regardless of what happens to the "market".

Lenders can have hundreds of different loan programs available every day, and the price that bank is willing to pay brokers for loans are constantly changing. This locking freezes all of the prices given at that time, and keeps them all available to you. So, what does that mean to you??

You have the ability to change many different things in regards to your loan that do not break the lock. You can change the loan amount. You can extend the lock period (for a fee). You can change the loan program (from a fixed to an ARM). You can even change the rate if you wish.

In changing the rate you are not altering how much the end lender is paying the broker for that loan. However, you can "buy down" the rate by paying your broker a fee, or you can raise your rate and have your broker pay for some of your closing costs with the additional money he/she will get for your loan.

So why is this important??

If your loan officer tells you that you cannot change aspects of your loan because you are “already locked” – that is usually not true. This could be a red flag that you are getting into a suspect loan. Be sure to ask direct questions about your lock, and if the answers you get are unclear or vague, you should probably look for another loan officer.

Arm yourself with knowledge!

JIM CUNNINGHAM
Community First Financial, LLC
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ext 305 - office
480-907-2435 - fax
602-434-8261 - cell
jcunningham@communityfirstfinancial.com
http://www.communityfirstfinancial.com/
http://www.jimcunninghamcff.blogspot.com/
http://activerain.com/jcunningham