Long Closing Date and Rate Lock Dilemma

[Phitor]

At the seller's request, we have a long closing date of July 31 (110 days from now). We really wanted the house, and this worked best with them, as they needed to remain in the home until then.

My mortgage commitment is due April 30 (18 days from now). However, what I am finding out is that mortgage rate locks usually only 60 days, or 90 days if you purchase an extension. I have a broker investigating 120 day extensions, but I don't know.

So my dilemma is that I am going to be forced to apply for a floating rate mortgage now, and commit to it at the end of the month, and will be at the mercy of whatever rates are available this summer. Which is kind of scary, as the difference between 4.0% and 4.5% can be an extra $100 in monthly payment.

So I seem to have a few options:

- Lock now, and pay for a 120 day lock, if it exists (not holding my breath)
- Apply now, and commit at the end of the month to a floating rate loan, and hopefully rates are still decent this summer.
- Lock now, and ask the sellers to push up the closing date, with the stipulation that I will rent back to them until July 31.

Anyways, just looking for advice on my dilemma, and any options I may not have considered.

Thanks...

[StartingOver10]

The least amount of risk appears to be option (3): close first and rent back to the seller. There are standard addenda available for post closing occupancy by the seller. You didn't mention the type of financing you are planning to get, and some types of financing require you to move into the property within 60 days of closing (FHA requirement).

If you do the rent back, make sure you have a lease prepared and signed by the seller even if you plan to charge a nominal rent. Also, make sure any rent you charge is collected in advance at closing.

The 120 day lock is likely to be very expensive if it does exist and probably not worth the expense.

Same with the 90 day lock.

[Booner72]

Lock Now.  You never know what could happen and 4.0 is a great rate.

[Phitor]

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@StartingOver10 wrote:

The least amount of risk appears to be option (3): close first and rent back to the seller. There are standard addenda available for post closing occupancy by the seller. You didn't mention the type of financing you are planning to get, and some types of financing require you to move into the property within 60 days of closing (FHA requirement).

If you do the rent back, make sure you have a lease prepared and signed by the seller even if you plan to charge a nominal rent. Also, make sure any rent you charge is collected in advance at closing.

The 120 day lock is likely to be very expensive if it does exist and probably not worth the expense.

Same with the 90 day lock.

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It will be a conventional, 30-year fixed. Thanks...

[Phitor]

Also, one broker has told me that if interest rates increase, it will probably be later this year, but not this summer. In fact, traditional and historically speaking, rates are lowest in August. FWIW, so maybe I'm making a mountain out of a molehill here.

[cdtotten]

I'd close now and rent the home to the seller for as long as they need. Make sure all rent payments are made in advance and get a security deposit for potential damages. This will allow you to lock in your rate, and satisfy the sellers needs.

[pizzadude]

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@cdtotten wrote:

I'd close now and rent the home to the seller for as long as they need. Make sure all rent payments are made in advance and get a security deposit for potential damages. This will allow you to lock in your rate, and satisfy the sellers needs.

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+1.   This makes the most sense to me.    If the seller doesn't want to go with this option then give them the option of paying the fee to lock in your rate for 120 days.  

[Phitor]

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@cdtotten wrote:

I'd close now and rent the home to the seller for as long as they need. Make sure all rent payments are made in advance and get a security deposit for potential damages. This will allow you to lock in your rate, and satisfy the sellers needs.

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Thanks, looking into this possibility now with the seller's agent.

[Walt_K]

Might be worth checking around with a few more banks as well.  I know you said your commitment letter is due in 18 days, but seller's should be willing to extend your financing commitment to allow you to explore options if they want such a long closing period.  I dealt with a similar thing.  We were about 70 days out when we made the offer.  By the time we had a ratified contract, we were 65 days out.  Most of the banks I spoke with said I'd have to take the 90 day lock which was more expensive, or pay to get the 60 day rate.  I found a local bank that gave me a 65 day lock, they were .25% less than everyone else, and they gave me a .875% credit where the others wanted me to pay.  The BofA LO insisted there was no such thing as a 65 day lock.  Maybe I should knock on wood because we don't close for two more weeks, but I have everything in writing.  Anyway, I know you're dealing with a longer time period, but just wanted to point out that in my experience at least, there was flexibility on getting longer locks with local banks.