What is a mortgage rate hold?
A rate hold is the locking in of a specific mortgage rate for a certain number of days. Usually, a rate hold is for 120 days, but 90 and 60-day rate holds are also common. A rate hold only really applies to fixed rates, since variable rates fluctuate by nature. If mortgage rates rise within your rate hold period, rest assured that you have access to your locked-in mortgage rate. If mortgage rates actually decline, you will still have access to the lower mortgage rates currently on the market.
There are a few differences to be aware of when acquiring a rate hold with a bank as opposed to with a mortgage broker. With a bank, you can lock in the day’s current mortgage rate for the specified length of time. If you go back to them within that time, you’re entitled to the rate that you locked in. However, a mortgage broker will generally try to lock in a few different mortgage rates with various lenders. As a consequence, these fixed rates will have different rate holds. Independent mortgage brokers work differently, but some of them may wait 24 hours to monitor how the rates are changing in order to maximize your rate hold period. It’s important to explore all of your options if you’re considering buying a property in the short term, and a rate hold requires thinking ahead of time.
Although a rate hold guarantees you an interest rate for a specified period, it doesn’t confirm that a lender has approved your mortgage application. A lender could refuse to lend to you on the basis that specific criteria were not met. That’s why a mortgage pre-approval is recommended. Conversely, when you receive a mortgage pre-approval, you can be automatically signed up for a rate hold.
How long does a mortgage pre-approval take?
A mortgage pre-approval typically takes a few days, although it can take longer in some special circ*mstances, such as if you are self-employed or have poor credit.
Your mortgage broker will want to see documentation from you to prove your identity, income and possibly your assets. Part of the time it takes to get pre-approved is simply gathering these documents. It might take some time to get a letter of employment or track down all the necessary bank statements. Your mortgage broker and the lender will also need some time to review your application, check your credit file, find the best mortgage rate you qualify for and write you a commitment letter.
When you’ve bought a home and are ready to get a mortgage, you will have to go through the full mortgage application and underwriting process. This can take anywhere from a couple of days to a few weeks. Fortunately, you will already have submitted most of the required documentation through the pre-approval process, cutting down on the amount of work you’ll have to do at this stage.
How long is a mortgage pre-approval good for?
Your mortgage pre-approval depends on the lender. Typically you’ll be approved for a period of 90 or 120 days, giving you ample time to look for a home. Often, the lender will allow an extension on your pre-approval. But, you may need to re-submit documents and your guaranteed rate may change.
The caveat to this is if your financial situation changes. A mortgage pre-approval is based on your financial picture at the time it’s given. If you make any major changes after getting your pre-approval, like changing jobs, buying a car, taking on a new loan or getting divorced, your mortgage pre-approval could be revoked. This is true even after you have final approval for your mortgage. So try and hold off on making any big changes or purchases until after your mortgage funds.
Mortgage pre-qualification vs. pre-approval
A mortgage pre-qualification shouldn’t be mistaken for pre-approval.When you are pre-qualified for a mortgage, your broker or lender will only look at your financial picture as you report it to them. They’ll ask basic questions about your job, income, assets, down payment, debt and expenses to make an informed estimate of how much mortgage you can afford. This is a good step to take early on – even before you are ready to start looking for a home – because it can give you more certainty about what you can afford and in more detail than you can get from a mortgage affordability calculator. The pre-qualification step can also raise red flags early on, so you have time to make adjustments while you still have time.
A pre-approval takes this one step further by actually collecting detailed information about your situation. They’ll check your credit and get a letter of commitment from a lender that you’ll be approved for a mortgage at a specific rate for a specific amount. It’s a more formal step toward getting a mortgage. It can also give you some bargaining power when purchasing a home.
