Does a Pre Approval Lock In Your Rate? What Happens If Rates Rise After You Get Pre Approved?

By Alvaro Moreira
7 min read

Does a Pre Approval Lock In Your Rate? What Happens If Rates Rise After You Get Pre Approved?

Introduction to Mortgage Preapproval

Mortgage preapproval is a crucial step in the homebuying process that provides a conditional agreement on how much mortgage you can afford. Unlike prequalification, which is a less formal estimate, preapproval involves a thorough review of your financial situation. To get preapproved, you’ll need to provide detailed financial information, such as bank statements, pay stubs, and tax returns, and undergo a credit check. This process results in a preapproval letter, typically valid for 45 to 60 days, stating the loan amount and interest rate you qualify for.

Get Pre-Approved Now!

Having a preapproval letter gives you a significant advantage in the homebuying process. It shows sellers that you are a serious buyer who can secure a mortgage, making your offer more attractive. Additionally, knowing your preapproved loan amount helps you set a realistic homebuying budget and avoid the disappointment of falling in love with a home you can’t afford. Understanding the preapproval process and its benefits can help you navigate the homebuying journey with confidence.

Understanding Mortgage Rates

Mortgage rates change daily, even hourly, and can significantly impact your home buying budget. When mortgage rates fall, you can afford to borrow more, and your monthly payments will decrease. Conversely, when rates rise, your monthly payments will increase, and you may be able to borrow less. This fluctuation makes it crucial to consider the potential impact of rising rates on your budget and explore options for locking in your interest rate.

A rate lock agreement can protect you from rising rates, ensuring that your interest rate remains the same from the time you lock it until you close on your home. However, this protection may come with a fee, typically ranging from 0.25% to 0.5% of your loan amount. Understanding mortgage rates and how they affect your mortgage process can help you make informed decisions and avoid surprises. By staying informed about market trends and considering a rate lock, you can better manage your homebuying budget and secure a mortgage that fits your financial situation.

What Happens if You’re Pre Approved Then Rates Rise?

It isn’t possible to lock the rate when getting pre approved. The only time when you can lock your rate is when your offer has been accepted.

It is going to reduce your home buying budget. A higher rate can mean having to pay more in monthly payments, which affects home affordability. This is going to depend on the situation – and the home you want to buy.

Is The Rate Locked When Pre Approved?

No. You are going to get a “floating” rate when you get your pre approval letter. This means that the rate can rise or fall depending on the current market.

You get the chance of locking the mortgage rate when you sign a purchase agreement to buy the home and your loan application has been finalized. There are those who choose to float the rate hoping that the rates go down, but you are required to lock the rate at least five days before closing. Potential home buyers should consult with a loan officer to discuss their options regarding mortgage rate locks amidst fluctuating interest rates.

There are services that help in tracking mortgage rates and where they think it is headed in the future.

Is the Mortgage Rate Going to Change After Getting Pre Approved?

Yes, the rate can change after getting pre approved. If the rates are very volatile during that time, they can change a lot.

This is a good thing when the rates are going down. Every time the rate goes down, your monthly payments go down too and you are able to borrow more – or borrow the same amount but with a lower payment each month.

The opposite is also true when the rates go up. Each increase leads to a high monthly payment and it reduces the amount you can borrow. Market rates play a crucial role in this, as they fluctuate based on various economic indicators, impacting the amount a borrower can qualify for.

If the rates increase and you want to buy a home, it is a good idea to call your lender and find out whether the property is still within the budget.

Budgeting for Rising Rates to Avoid Surprises

The pre approval letter you get from the lender is going to show you the amount you can borrow using the quoted rate. You don’t even have to borrow the maximum amount. There are those who prefer borrowing less so that they have some flexibility.

If you want to borrow less and then the rate rises, you don’t have to worry about it. The extra wiggle room you gave yourself gives you the flexibility needed to afford the home you want even if the rate increases.

If you have maxed out on your budget then it increases, you have a problem. You might find yourself priced out of the home you like and you might have to change your plans in order to afford it. Prospective buyers may need to update their preapproval to continue their home search effectively if rates rise.

Comparison Shopping for Mortgages

Comparison shopping for mortgages is essential to find the best deal on your home loan. By shopping around and comparing rates from multiple lenders, including options like Navy Federal, you can find the lowest rate and fees. A thorough review of loan offers from different lenders can help you save thousands over the lifetime of your loan.

When comparing mortgage rates, consider the annual percentage rate (APR), which includes both the interest rate and fees, to get a comprehensive understanding of the costs. Additionally, look for lenders that offer flexible rate lock periods, such as 15-60 days, to give you more time to close on your home. By comparing mortgage rates and terms, you can make an informed decision and choose the best mortgage for your needs. Taking the time to comparison shop can lead to significant savings and a more favorable mortgage agreement.

When Can I Lock My Rate?

The first chance you get to lock the interest rate is when your final loan application is approved. This is going to happen after signing the purchase agreement with the seller.

You need to keep in mind that there is no open-ended lock. You need to close within a given time frame so that it is guaranteed.

The rate lock is going to last 15-60 days, depending on the lender. If this period ends before you close, you might have the option of renewing it for a fee. There are instances where the rate reverts to the market rate (there is a chance it goes up).

You need to find out the lender’s policy on locking the rate.

  • How long does the lock last?
  • If it can be renewed and at what cost?
  • If their lock option stops the rate from rising but allows it to fall depending on the current market.

You should lock the rate for a period ending after the anticipated closing date. It is common to face delayed closing, there is no need to risk getting caught out. You need to have a reasonable time frame because it might cost more.

Tips for Locking Your Rate

The point that you lock the rate is going to make a small difference most of the time. Over a given period, the rates aren’t going to change that much.

If you notice that the mortgage rates are going down fast, it is a good idea to put off locking for some time. Try closing at the last possible moment. If the rate is going up fast, you need to lock in the shortest time possible.

It is easy to see the current trend and you can easily tell whether the rates are going to increase or decrease in the near future. You need to lock the rates immediately if the current trend is downwards. If there is an increase, lock it at the last possible moment. Timing is crucial in securing favorable interest rates for home loans.

The fact that you have been working with one lender when getting pre approved doesn’t mean you have to remain with them until the end.

The lender you are currently working with won’t necessarily give the lowest fees and rates. When you are done with the signing of the purchase agreement, you need to apply with many lenders so you can choose the best mortgage deal to buy your home.

Every lender you apply with is going to give a quote which is the loan estimate, and it is going to state the terms, rate, and loan types that you qualify for. You might end up saving yourself thousands over the life of the loan by comparing the different lenders.

These days, lenders can have a quote for you in a matter of hours or even minutes. This means you don’t have to worry about the purchase being delayed because you chose to shop around.