Paying to Lock your Interest Rate?

When a buyer makes an offer to buy a home in Tucson, they must include a form called a Loan Status Report, or LSR for short. The LSR, among other things, says that the Buyer must lock their interest rate and points by separate written agreement during their inspection period, or the interest rate provision of the loan contingency is waived.

Basically, in the LSR, we set upper limits to the interest rate a Buyer will pay for their loan. If the Buyer doesn’t lock their rate in their inspection period, and rates go above our stated upper limits, then they can’t walk away from the home purchase with their earnest money, on the basis of the interest rate being to high.

I was writing an offer last night with a Buyer, who was balking at that provision, which I didn’t understand at first. Then I learn that the last time he got a home loan, six separate loan officers told him that he would have to pay to lock his rate, that the rate he got wasn’t set until the day the loan closed.

Say what?

I talked to a couple of lenders that I use frequently, as a sanity check for myself, to see if they charge a buyer for a 30 day lock. We’re talking about conventional loans, a 30 day escrow, no buy-down points. Here’s the responses:

Phaedra Wilson’s office of First Magnus says absolutely not, and asked, incredulously, “People charge for that?”

Mary Maza-Abihai at Long Mortgage says they do not charge for locks up to 45 days, but that in previous loan markets, lenders sometimes charged a fee upfront to keep their customers from jumping ship mid-loan, and then refunded the fee back to them at closing.

Steve Kirkpatrick of Select Mortgage says they will lock for free for 30 days, with a contract and an address.

Tony Whitaker at Wemmer Mortgage says that if my Buyer wants to pay to lock his rate, then he’s got some land in Florida he’s be happy to sell him (that Tony’s a kidder)… and that they don’t charge to lock rates at a 30 day lock.

What can I say? There’s some crazy lenders out there actually getting away with this stuff. Shop carefully.