Using your VA home loan benefit to buy and finance a house is one of the most important of all VA programs. Owning your own home, putting nothing down and having competitive mortgage rates are just some of the features of the VA home loan program. When you apply for a VA loan, your VA loan officer will start the process by providing you with a list of documentation needed to have your loan approved.
Depending upon your employment status and sources of income, you will provide income tax returns, pay check stubs or both, bank statements and a host of signed disclosures. It will take two to three weeks sometimes to get your loan fully approved but once your loan is approved you have one more duty—lock in your mortgage rate.
The VA Lock
For those not currently involved with the VA mortgage approval process it might be easy to think that it’s the VA that approves loans and issues interest rates. To a great degree in the past that was the case but in today’s mortgage market individual VA mortgage lenders approve loans and set rates independently of the VA. As long as the VA lender follows established VA loan guidelines, the VA lender is authorized to issue the approval.
VA lenders also compete with one another in several ways, one of which is the rates the VA lender issues. Competition among VA lenders and others is sometimes fierce and the differences between a VA rate from one lender to the next may be razor thin. But it doesn’t matter what the VA lender’s rates are until you’re ready to guarantee, or lock in that rate.
A lock means the rate you select is guaranteed for predetermined period, at least as long as is needed to close and fund your VA loan. VA rates can change daily, even change throughout the day during extremely volatile times. This isn’t common but it does happen and illustrates the need to understand when and how you need to lock in your mortgage rate. It’s your responsibility, not your VA lender’s to lock in the rate.
The Lock Disclosure
The VA doesn’t issue lock guidelines that lenders must follow and each individual VA lender establishes its own process. When you apply for a VA home loan, one of the documents you will receive outlines the lock procedure. The document will tell you when you can lock as well as what happens if your lock expires.
Lock expirations occur when the lock period falls short of the closing. When a rate lock expires, generally the borrower is relegated to accepting the higher of the locked rate or current rates. For example, say that your scheduled closing is 15 days away. Your lender quotes you a VA rate of 4.50 percent for 15 days or you can lock in the rate for 30 days if you pay the lender say ¼ of a discount point. You decide to take the 15 day lock and save the ¼ point. But the seller needs to reschedule the closing for another five days because the house they’re buying isn’t ready. Your lock expires before the closing takes place and rates have gone up to 4.625 percent.
Recall that an expired lock means you get the higher of the two. You can contact the seller to pay for that extension but your VA lender won’t be responsible for extending the lock at no charge. What if rates drop and your lock expires? Again, you’ll get the higher of the two rates.
If however your VA lender is experiencing internal delays and can’t get your loan documents out on time through no fault of your own. That can happen when a lender is shorthanded or loan volume is too great to approve loans as efficiently as they should. When lenders are at fault for an expired lock, you can expect the lender to extend your lock at no charge. If you’re the one holding up the process by not getting your paperwork submitted in a timely manner, don’t expect the VA lender to extend your lock for free.
Your lock disclosures will explain the various scenarios and if you’re not clear make sure you ask your loan officer about the lock procedure. Interest rates change and that can mean changing your approval to a declination if rates move so high you’re no longer qualified. Don’t wait on locking in. You could lose more than just ¼ of a point—you could lose the house.