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The Sussex floor plan by AB Homes with gray siding white trim and purple door
The Sussex floor plan by AB Homes with gray siding white trim and purple door

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The Importance of Locking in a Mortgage Rate in Today’s Homebuyer’s Market

by Brandon Simpson and Dan Lawson

Locking in a mortgage rate has become vitally important in today’s housing market. Home builders, buyers, and sellers in Virginia are experiencing a sales frenzy. It started a few years ago, as more people moved from big cities for life in small, rural communities—including those in Hampton Roads. Houses are selling so fast here; it is hard to get your foot in the door, make an offer and have it accepted. If you are in the market to build a home or buy a resale home, move quickly and “lock” your mortgage rate early. This advice comes from Connie Ramsay, a senior mortgage banker with Atlantic Bay Mortgage Group. We caught up with her recently for advice on this topic and other home-buying tips.

Couple signing papers showing The importance of locking in a mortgage rate

What are you seeing in today’s hot real estate market?

It has been busy! Beginning in late 2020, we saw a lot of people coming from New York and New Jersey, who wanted to get away from the high-density cities. Many were earning the same salary while working from home for the first time and thought, “I can spend the same price I would for a condo in the city and buy a larger home in a less congested area.” At the same time, our local military community was not transitioning as much as they do, so there were less homes on the market.

As this scenario of low supply and high demand came together, we had people paying over the asking price for a home—and it has not stopped. Recently, we have seen buyers paying $10-20,000 over the asking price, even if the home appraisal does not support it. I even had one buyer who paid $1.4 million in cash for a home that listed for $995,000.

What should buyers do to get the home of their dreams?

After an offer on a home is accepted, buyers should have their lender “lock” them in to protect their rate until their closing date, under 90 days with no long-term lock cost. There are also long-term locks up to 360 days to consider when freezing the mortgage rate. Rate locks guarantee that the rate offered to a borrower will remain available to them for a stated period.

A lot can happen from the time you make an offer on a home, to the time you close. With a lock, the borrower does not have to worry if rates go up during this time. This protects them from any potential increase in the market.

What if the mortgage rate goes down after locking in a mortgage rate?

If there’s market fluctuation, buyers also have a one-time “float down” rate. This means if the mortgage rates decrease, they can secure the rate at the lower cost. Locking in a mortgage rate not only protects the buyer, but it will also protect the lender and the builder/seller as well. For lenders, it means we do not have to worry about denying a loan, which would leave the seller or builder with a property to sell. Having a rate lock protects all parties involved.

What other advice do you have for home buyers?

One, make sure you have a clean financial record.

If you have debt, continue to pay it off or down during the mortgage process. In the end, this may lower the cost of your rate because it lowers your debt ratios. When running a new credit report, the lower the debt owed to the credit limit should yield higher scores. Higher scores yield the best interest rate offerings.

Two, if you are working with a builder, be sure to stay in touch about any changes to your financials that could affect your approval.

Any job, income and debt changes can play a part in qualifying.

And three, do not panic.

Inventory may be low now, but things always seem to pivot. If you buy with a higher-than-anticipated rate, keep in mind that markets go up and down. Stay abreast of market changes. And reach out to your loan officer to see what financial changes could benefit you if the rates drop more than 1% from when they closed. When rates drop and values continue to rise, take note. There could be opportunities for buyers to refinance to consolidate all their consumer debts into one mortgage loan to open up cashflow in the household.

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