One of the (many) thorny decisions you’ll face when buying a home is when to lock your mortgage rate. What if you lock it in now and rates go down? Or, if you don’t lock today — and rates go up? Gah!
Ordinarily, you’ll encounter those choices once you’ve got a contract on a house and are slogging through the final phases of the mortgage approval. But Quicken Loans offers a RateShield Approval, which allows home buyers to lock in an interest rate while they’re still shopping for a house to buy.
And if rates go down?
"At the point where they sign a purchase agreement ... if interest rates have gone down, we're going to offer you that lower rate," Joel Gurman, a Quicken Loans executive vice president, tells NerdWallet.
Too good to be true? Not really. It’s a version of a mortgage rate "float down." A float down allows you to lock your interest rate but have the option to obtain a lower rate if one becomes available. Lenders may charge for this option — a few hundred dollars or so — but it’s often built into the origination fee.
An early interest rate float down
Traditional float down options usually happen later in the loan process. Here’s how a float down typically works:
You apply for preapprovals from a few lenders.
You sign a contract on a house.
Choose the lender with the best pricing and then lock your rate.
And with a regular float down option on that rate lock, if rates go down before you close the loan, you can "float down" to that lower rate.
The Quicken Loans RateShield is much the same, but happens earlier:
You apply for a RateShield loan approval with Quicken Loans.
Your interest rate is locked for up to 90 days while you shop for a house.
Once you submit a purchase agreement on a house, you have an option to float down your interest rate, snagging a lower rate if one is available.
That rate is locked for another 40 to 60 days until closing.
How RateShield differs: It’s a preapproval
Getting the RateShield float down option requires more than getting just an initial pre-qualification, which is little more than a "Yes, we'll probably do your loan." Quicken Loans is digging deeper from the very beginning of the loan process with a full-blown preapproval.
"We do a 'verified approval,'" Gurman says. "We underwrite and review their income, their assets and their credit. So, while they're in that [home search] process, we've underwritten three of the four pieces that will get a home closed. The fourth piece being obviously the property."
When a purchase agreement is in hand, all Quicken Loans has left to do is get an appraisal, do the title work and wrap up the rest of the loan details.
"The vast majority of the heavy lifting has been done," Gurman says. That means the loan can typically close faster, he adds.
There is no additional fee for the RateShield preapproval; it's built into the loan origination fee.
You can shop for other lock-or-lower options
With a Quicken Loans preapproval in hand — and that RateShield peace of mind — you might feel like you don't have to comparison shop other lenders. We know it’s hard, but try to shop at least a couple of others — and get a full-fledged preapproval from them, too. Making sure you’re getting the best interest rate and terms you qualify for can save you thousands of dollars over time.
And ask those other lenders if they offer float down rate locks. In fact, we’ve found at least one other lender with an early rate lock similar to Quicken Loans'. PrimeLending’s Lock & Shop program allows borrowers up to 45 days to find a property and another 30 days to close, with a float down option, too.
Whether you lock or lower your rate early in the loan process or late is not nearly as important as getting the best deal possible on that long-term, you’re-paying-interest-for-decades home loan.
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