Million dollar question to apply now or wait?

[Househunter121]

I'm current in a new build contract  but dont need to have loan completed until about may 2023,  i can either hold my breath and wait to see where rates will be around April 2023, or i can lock in a rate today around 6.875 but have to pay around 4K to lock it in today. What should i do?

[Mortgage-Specialist]

Heere's a hypothetical - let's say you were to lock now and the interest rates miraculously come down next year... What's  preventing you from using a different lender at that time and backing out?

That cost of 4k  from currwnt lender is just on paper and due at close only your loan closes. The one thing to consider is if there are incentives to use that specific lender that may be affiliated with the builder

[Househunter121]

Problem is they want the money up front 

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@Mortgage-Specialist wrote:

Heere's a hypothetical - let's say you were to lock now and the interest rates miraculously come down next year... What's  preventing you from using a different lender at that time and backing out?

That cost of 4k  from currwnt lender is just on paper and due at close only your loan closes. The one thing to consider is if there are incentives to use that specific lender that may be affiliated with the builder

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[Mortgage-Specialist]

Is the lender collecting these fees.or the builder?

[Househunter121]

Lender, builder has nothing to do with the loan 

[Mortgage-Specialist]

I've been I'm Lending for 20 years. All protocol shows that we cannot collect any fees upfront accept for the appraisal (which goes directly to the source (appraiser/appraisal mgt company.)  Not quite sure how they're able to get away with collecting. Regardless, this is a tough predicament for you. I've been seeing predictions of increasing rates. If I were you I'd do some added research of forecasting from experts in this field.

[ShanetheMortgageMan]

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@Mortgage-Specialist wrote:

I've been I'm Lending for 20 years. All protocol shows that we cannot collect any fees upfront accept for the appraisal (which goes directly to the source (appraiser/appraisal mgt company.)  Not quite sure how they're able to get away with collecting. Regardless, this is a tough predicament for you. I've been seeing predictions of increasing rates. If I were you I'd do some added research of forecasting from experts in this field.

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For extended rate lock options (over XX amount of days, varies by lender) there are upfront lock fees.  Over 20+ years I've had less than a half dozen clients pay an extended rate lock fee, it's never worked out in their favor.  Of course rates have never skyrocketed up at this pace either.  New constuction is attractive, but also has it's risks.  For most people I recommend buying resale whenever possible, the price is locked in (no escalation clauses like builders have put in their contracts lately) and it's a short closing (less gamble on what rates will do during the process).  I've bought both resale homes and new construction myself, and I've always got screwed with new construction - and the one new construction home I actually lived in I didn't live in for long.

That said, for @Househunter121 I think inflation will get under control and we'll see interest rates at least hold at current levels, if not improve.  It's tough to say if that'll happen before you are supposed to close, but one question I have is if you lock your rate in through May 2023 and the home isn't completed by then - what will your rate lock extension options be?  Some lenders have a maximum total # of days the rate lock is good for.  

[MortgageMama]

I agree with @ShanetheMortgageMan Long term locks are available and a lender may indeed charge for them. Also, they rarely work out well. While we may have some rough times ahead with rates, you still have the advantage of capturing a better rate for a shorter period of time. The longer the rate lock, the more costly it is. 

[Revelate]

My own new construction didn't have an escalation clause fortunately, though it got pushed back by over 9 months my price was fixed.

That extended rate lock fee sounds nearly the same as it would cost to refinance later.  Interest rates are sort of a Monte Carlo process right now and it'll almost assuredly get worse before it gets better, but I'd keep your money in your pocket for now.

I'm just going to put in the mortgage app on the usual timeline once I get a better committment on closing date and refi down the road if I'm still even in the home.  I may not be in 5 years, hard to say... like Shane said I don't think I'm doing new construction ever again, first time was OK, this time is a GODLIKE location for the next few years, but any future purchase?  I'll be resale, all new construction has idiosyncracices but this time around, meh.  

[TryItAgain]

With my lender I was charged $6k to lock the rate up front, however, it's refunded at the closing table.  So it's basically a rate lock deposit.

If I were to change houses from the new build to existing home, I'd get the deposit back but lose the lock as long as I stayed with them on new home.  However, if I were to changes lenders I would lose the deposit, so then it becomes a fee.

This is with lender NASB (bank statement loan), not sure of other lenders.