Locking In a Mortgage Rate Before Finding a House With 'Lock And Shop' Programs
In the past, lenders let you lock in a mortgage rate only when you found a property.
But in today’s rate-volatile environment, more lenders are creating “lock and shop” programs. You can shop for homes without rising rates invalidating your pre-approval.
It’s a relatively new opportunity that’s making things much easier for homebuyers.
Why “Lock And Shop” Programs Are Getting Popular
Mortgage rates have been wildly unpredictable since early 2022.
According to Freddie Mac, the 30-year fixed mortgage rate averaged 3.11% at the end of December 2021. By May 2022, rates hit 5.30% and by October, exceeded 7%.
To put it in real dollars, a homebuyer in December 2021 would have received a $1,500 principal and interest payment on a $350,000 mortgage.
By May, that skyrocketed to $1,950, and in October, $2,350.
Image: Freddie Mac
While rates have slowed their ascent, they remain highly volatile. On March 27, 2024, Mortgage News Daily reported a 6.91% average rate. That shot to 7.37% in just two weeks after the worst day for rates in about 16 months. A rate-unfriendly inflation report is all it took.
When it comes to affordability, rates matter more than home prices. They change faster and have a bigger impact on monthly payments.
But what if you could eliminate the mortgage rate variable while looking for a home?
Enter lock and shop mortgages.
How Do Lock And Shop Mortgages Work?
A lock and shop mortgage lets you lock in a rate while you shop for a home. Locks are good anywhere from 60 to 365 days, depending on the lender.
The borrower must receive a full pre-approval, meaning a full review of credit, income, assets, and more.
The lender issues a fully underwritten pre-approval. Then, the borrower go under contract to buy a home, typically with 30 days remaining in the lock period. This gives lenders time to close the loan.
This is a departure from the traditional mortgage lending.
Many lenders need a property address to lock in your rate. In fact, some require you to have received an accepted offer and be under contract before you lock.
This system works fine in a steady mortgage rate market. But the last two years have proven that pre-approvals can become invalid due to rising rates.
“Lock and shop,” a name adopted by many lenders, is a program that seeks to put homebuyers’ minds at ease.
It’s also good for lenders. It likely reduces loan cancelations and keeps pre-approved customers from shopping around with other lenders.
So where do you find these programs?
Lenders That Let You Lock Your Rate Before Finding a House
The “lock and shop” idea is gaining traction and many lenders are creating programs.
Below are just a few examples, in no particular order. We don’t endorse any particular program so do your own homework before applying with a lender.
Guild Mortgage
Guild Mortgage locks your mortgage for 120 days and gives you 90 days to shop for a home. Conventional, FHA, and VA loans are eligible. One attractive feature: if rates drop during your home search, you may be able to “float down” to the current rate when you find a home.
Waterstone Mortgage
Applicants who receive a Platinum Credit Approval – Waterstone’s fully-reviewed pre-approval – can lock their loan for 60 or 90 days. The borrower has 30 days to find a home with a 60-day lock or 60 days with a 90-day lock.
AmeriSave
A 90-day lock is backed up with an AmeriSave Certified Approval. If you find a home but the approval falls through, and it was their fault, they will pay you $1,500.
Union Home Mortgage
This Ohio-based lender is licensed in most states and offers a 90-day lock. The fine print says borrowers must pre-pay $1,000 which is credited toward closing costs at closing.
Atlantic Bay
Atlantic Bay’s Lock and Look program gives you 60 days to shop for a home with a 90-day lock. You can float down to current rates if they’re lower by the time you find a home. This lender requires a fee of 0.5% of the loan amount upfront which is credited toward closing costs. If you don’t close on time, you can extend your lock up to an additional 30 days for a fee.
UWM
United Wholesale Mortgage doesn’t lend directly but offers its programs via mortgage brokers. It turbo-charges the lock and shop idea with lock options up to 365 days. They even offer a float-down option if rates improve during your search. If you’re still a long way out from buying a home, but want to protect your pre-approval, UWM could be the answer.
CMG Financial
CMG was an early adopter of the lock and shop idea, rolling out its program in March 2019, long before the rate mayhem of the COVID era. It offers a 60- or 90-day lock and you can receive a lower rate if rates fall later.
Does the Lock Period Refer to Loan Closing or Getting Under Contract?
You must close the loan within the lock period. Most programs require you to find a home and be under contract at least 30 days before the lock expiration.
Some lenders offer 60-day locks, which may prove too short. It would only give a homebuyer 30 days to find a home, which is difficult in some markets. Customers might consider a 90-day lock so they don't rush into a decision.
What Happens If You Don’t Find a Home In Time?
Read the lender’s terms and conditions before agreeing to their lock and shop program. Some require upfront fees which are only refundable under certain circumstances.
Not including potential lost fees, the consequence of not finding a home is that the lock expires. You have to lock again at current rates or go the traditional route and search for homes without knowing the eventual rate.
What Happens if Rates Go Down?
Some lenders let you “float down” to the better rate. This simply means receiving a current market rate instead of your higher locked rate. It’s worth looking for lenders with a free float down option. It would be difficult to accept 7%, for instance, when rates are 6.5% when you find a home.
What If Rates Go Up…Like Really High?
Avoiding higher rates is where lock and shop programs shine. If rates rise after you lock, you keep your locked rate if you find a home and close on time. Period. This is true even if rates skyrocket, for instance, from 6% to 9% while you’re house shopping. Just be sure to find a home and close the loan within allowed timeframes.
Are Lock and Shop Programs Expensive?
The longer your lock, the higher the rate or fees will be. For example, you may find a 30-day lock for 7% after you find a property. But a 60-day lock might be 7.125%, for instance, and 90-days, 7.25%. Or the lender may require higher closing costs for longer locks. Rates and fees will vary by lender.
So while lock and shop programs can set your mind at ease, they may not be the least expensive option. It all depends on what happens in the market after you lock.
These programs may also come with upfront fees. From our limited survey, most lenders apply fees to closing costs, and refund them under various conditions. Check your lender’s rules before locking.
Should You Get a Lock and Shop Mortgage?
Lock and shop mortgages are for extreme planners who don’t like surprises, and don’t mind paying a little extra to sleep better at night.
The mortgage rate lock has been a powerful tool for homebuyers for decades, and now lenders are taking the idea one step further by letting you lock before you find a property.
Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
