(SO10, Shane, and BrianB, DallasLoan Guy and other experts) Question on building

[dtjones052209]

I think I have just confused myself a bit.

But my question to you all is that when you are building a home and after the preapproval. What happens next during the 4 months of just them building?

Our Mtg told us that 60 days prior to completion that we will start pursuing closing by rate locking.  So right now the rate is 4.25%, but we are possibly looking at increases this year, so in reality that means really nothing right now?

Anyone can chime in on this.

[newmomnewme]

Bump. I would like to see answers. I am in the exact situation with the exact interest rate. 

[ezdriver]

I sell new construction. Our build time is 5 months. Our lender partner offers rate locks from 120 days or less. The longer the time covered by the reate lock, the hight the cost to the borrower. Our lender offers a one-time float down during the lock period as well. My recommendation to my buyers is to consider a 30-day lock because we reliably set a 30-day closing date once sheetrock is done. Before that milestone, all bets are off in terms of predicting when the closing will occur.

[ShanetheMortgageMan]

To add to what ezdriver mentioned, there are some lenders that will allow up to a 540 day lock period.  The drawback of locking in the rate for a longer period of time is that it'll be more expensive (more points) to get the same rate compared to locking it in for a shorter period of time.  Also on any lock periods longer than 180 days there is usually an upfront lock in fee you have to pay.  So if you are absolutely sure that rates will increase, or are convinced that they will and don't mind paying extra for the security of knowing your rate is locked in, the extended lock periods could be a good choice.  It's very difficult to predict where rates are going to go though, you can have a good idea but can never be sure.  I like a lock period of anywhere from 30-60 days depending on what your risk tolerance is and how much you follow the market.

[ezdriver]

"some lenders that will allow up to a 540 day lock period."

Wow! That buyer would be building a Taj Majal or the builder would be one person doing everything!

Can you give an example when a 540 day lock period would apply?

[ShanetheMortgageMan]

When you are building the Taj Majal

Honestly I can't see many situations where you'd want to do that long of a lock period.  We have had some estates built out here that have taken a few years though.  One example would be if someone barely qualifies for the current rate, and has no way of improving their debt ratios (paying off debt, buying down the rate, etc.), they may want to consider locking in for a longer period of time in order to avoid rates increasing and them becoming disqualified. 

[dtjones052209]

Thanks guys for your response. That makes sense now hearing it in a different perspective.