I know thre are no guarrantees on anything but this is my scenario.

I am building but due to inclement weather we have not broke ground yet.  As it stands we are probably looking at 5 months before I can close on my new construction home.  the buzz seems to indicate rates may be heading up so here's the big question. 

Would you lock in for 5 months and pay the fees.  I was quoted 5.125% to lock in for 165 days and an upfront non refundable fee of $850 or should I wait things out becasue I am not closing for a long while yet.  BTW- if I lock I can't take advantage of a lower rate if it drops.

Again, I know there are no perfect answers but I am curious what you mortgage professionals would do.

Regards,

Rick

The upside to rates is much higher than the downside at this point. If you are not a real gambler, that sounds like a solid deal.

how many points???

Since it is a new build I am guessing the builder is "building" the points in and a condition will be to use their in house mortgage...but it is a question worth asking.

Sorry for leaving that out.  I am doing two loans.  A constuction loan and end loan.  I am being charged 1 pt construction fee and .5 origination fee and about $1500 in closing costs. 

On the end loan they waived the origination fee as I am doing both loans through them.  The above rates apply to the end loan.  I think closing costs were similar.

if you're concerned that the gov't will be stop purchasing MBS in March, which they are slated to do, then I'd say lock.  There have been rumblings about them extending the program if necessary, but here's how I look at it:

Is the reward of mortgage rates being slightly lower (small chance of them going back to all time lows...) worth the risk that rates will increase drastically (many analysts peg it anywhere from .5% - 1% increase once the Fed stops purchasing MBS).

Rick Hernandez:

I am building but due to inclement weather we have not broke ground yet.  As it stands we are probably looking at 5 months before I can close on my new construction home.  the buzz seems to indicate rates may be heading up so here's the big question. 

My experience with new construction is that it never happens on time, especially where it hasn't even started.   The builder is always optimistic but if one of his subs has a problem or the carpeting gets delayed due to a teamster strike, etc closing doesn't happen on time.  If it were me I would inquire into whether I can buy an extension if the home isn't complete by the lock expiration date and if so what it would cost and how much time can I get.  If that isn't available then I would check into what it would cost for a longer term lock at this time.  $850 is pretty cheap insurance but if the construction isn't fully completed with a certificate of occupancy then you will not be able to close on the end loan and end up taking current market rates.

If I were buying a home today, 5.125% would look pretty good with the costs involved that you described.  Who knows where we will be in 6 months.   I agree with the other poster about the extension fee, be sure to have that in writing, especially if the extension is due to delays in construction.  You will not be able to extend it for any other reason.

Bryan Bledsoe:

My experience with new construction is that it never happens on time, especially where it hasn't even started.   The builder is always optimistic but if one of his subs has a problem or the carpeting gets delayed due to a teamster strike, etc closing doesn't happen on time.  If it were me I would inquire into whether I can buy an extension if the home isn't complete by the lock expiration date and if so what it would cost and how much time can I get.  If that isn't available then I would check into what it would cost for a longer term lock at this time.  $850 is pretty cheap insurance but if the construction isn't fully completed with a certificate of occupancy then you will not be able to close on the end loan and end up taking current market rates.

I agree with everything there, but I'd tried to put it back on the builder first.  Your making a financing decision based on the parameters the builder is giving you.  If he doesn't stick up to the end of his bargain - elements beyond your control, have them pay the rate extension.

The rate 5.125% is a great rate even today.   Locking a loan shouldn't cost any upfront money.  It does cost extra to lock for extended periods into the future either in rate, discount points, or origination fees, but that can be added to the closing statement.  That way if you never close or  your lock expires you save $850.

Hi, I want to thank everyone for their opinions.  I have new numbers to run by everyone. 

I am being quoted the following:

$190,000 (could be $180,000) loan amount

4.875 Interest rate

.075 discount fee

0 origination points

.25 of loan amount ($ 475) to lock in for 135 days. (more like 125 days as they need to send packet to investor.)

The investor is Franklin something or other.   Can you look at the numbers below at tell me if this is all reasonable in todays enviromnent.

Other fees as follows:

As someone already posted, if rates could go up to 5.5% or go down to 4.5%, what are you willing to wait for, $10 difference in monthly payment if they go down?  I don't think rates are going lower, just higher and soon.

Costs and rates are great, I would lock it in and forget about what the market is doing.  As has been said before though, make sure you know how much a lock extension will cost and if the builder is willing to cover it.

When are they supposed to break ground?

Builder will not cover cost of extending lock.  cost to lock is .2 points per day ( I think).

I have not locked yet because I am waiting on the builder to give me the go ahead as to when he thinks he can get it done within that 125 day period.  I spoke with him today and he thinks we are getting closer. 

We broke ground, walls and concret flooring is in.  Framers are finishing up the framing and flooring around the foundation.  The framers think they should be done in 1.5 weeks.  Living in Iowa everything is dependent on weather conditons.

Builder says he will do everything he can to get it done in time but says he cannot control the weather.  That is why he has asked me to wait on locking until he knows for sure when the framers will be done.

Rates change daily, sometimes two to three times a day.  You can't use this estimate if you are not ready to lock.  When the builder tells you to lock, get it in writing that he will pay any extension fees. 

Wow that seems like a high amount for a lock extension of one day. but everything else has seemed in line and at least he's letting you know that you should probably wait a little longer to lock it in.  Waiting for the framers to be done would seem to ensure this gets done within 125 days (of course no guarantees but that should be adequate).  I think waiting another week or two is prudent if the lock extension actually costs that much (make sure to double check).  Rates could go in either direction but I don't think you'll see anything too extreme in that timeline, just my opinion.

Thanks for the infor Jan, the rate is todays only.  Builder will not agree to pay for extension, period. 

He says if I lock its up to me as he cant control the weather.  He will not agree to pay any extension fees.  I serously doubt any builders in Iowa this time of year would agree to do that.  We could have a blizzard next week and than its fine again for a week.

Thanks again.

Even if he says it's OK to lock there are many things that can go wrong.  Give yourself some leeway and try to lock for a longer period or wait awhile. 

Rick Hernandez:

Total Closing Costs to be Paid at or Prior to Closing $21381

I sure hope that is a typo, or it includes your down payment.

someone else posted that you didn't have to pay upfront to lock a rate?  Typically to lock over a 90 day period the lender will ask for an upfront fee.