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Build a Home Series – Question for You – Interest Rate Extension Fees

Hey all of you!  I have a question…

We have the chance to lock in a 4% interest rate for 30 days, BUT if we have to extend that term, it would cost us about $650.  The builder told us that our closing date would be September 20.  So we could lock this rate BUT would have to close by September 21.

My question is, would the builder need to cover this $650 if the closing date is pushed back because of them?  I ask because they just figured out today that the brick they ordered (and which is sitting in our new front yard), is the wrong brick.  It will take 5 days to get our actual brick, but they can keep working on the inside apparently.

What do you think?  Would they be liable for the $650 or do we just sit around and settle on whatever rate we can in a week or so?  Would it work to threaten them and just say that they either cover the $650 if they run behind or we back out?

FYI:  I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year.  I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home.  If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!).  Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!
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15 thoughts on “Build a Home Series – Question for You – Interest Rate Extension Fees

  1. Why is the rate so high? I’m assuming that is a 30 year (and I know it varies by area). We have family that just got a 30 year at 3.5 and my soon to be neighbor is at 2.875 on a 15 (super jealous).

    I would certainly ask if the builder will cover it if they cause the delay, but I probably wouldn’t threaten to back out unless you are serious about it.

  2. My brother and sister-in-law just went through this situation. They had to extend their rate and it was clearly due to the seller’s lack of speed in making repairs. Because they were able to show that it was strictly due to the seller, their agent negotiated the seller to pay the extension.

    If you have an agreement in writing to close on the 21st and you lock your rate based on that, if they request to change that date, you can always at least request that they pay the lock extension. They may say “no” or they may speed construction to get you in by your close date or they may just pay it. This is also all provided that your original agreement doesn’t provide for flexibility in the closing date due to sourcing materials or something in the like.

    You could even give the builder a heads up (preferably in writing) that based on their close date of September 21st you are locking your loan rate and you appreciate their expedience in completing your home to make that date.

  3. Oh, and the above is just based on my homebuying experience and my in-laws. You can ask for anything. You may not get it. But you can ask for anything. 🙂

  4. What do you have that says when the closing date will be. If you have a contract in writing stating that and they have to pay damages if they don’t close by then then they’d have to pay I’d think. If you don’t they should but it doesn’t mean they will. Of course, I am no expert, that’s just what I would think…

  5. @Jenn, yes, it is a 30 year fixed rate. I don’t know why it is 4-4.25%, but that is what I am being quoted right now. I’ve looked online, and it seems to span from 3.6-4.25% depending on the company. It is illegal as of 2010 for mortgage brokers to charge excess interest rates and pocket commissions from that. No idea if that would keep them in line or not. Called around for comparison rates, but no one will get back to me until tomorrow. We’ll see.

    @Andi B, I will be getting the closing date in writing tomorrow. As of now, I have a text message. I also wrote an email to my builder’s rep and his boss asking if they will cover the fee if they go past September 21…

    @Lance, I have a text message. Yep, that is how they let me know about the “realistic closing date”…I will reread our contract and see what they will or will not cover, but I do not remember reading anything about this the first time.

  6. Crystal, the lock only has value if you expect interest rates to go up. If they don’t, you don’t need a lock. With a rate of 4%, it sounds to me your challenge is to do more shopping. Without being too pushy, call someone else and ask up front: can you beat a rate of 3.75%? If they say no, hang up, no harm, no foul. But if they say yes, keep talking to them. Then you call someone else and ask them if they can beat that. It’s a pain in the butt, but think of it this way: it’s work, and you’re working for money.

    The lock is nothing but a futures contract on interest rates. (They know if they call it that, it might scare us all off.) Think of it as insurance. What’s the risk you’re insuring against? The risk is rising interest rates.

    Nobody knows the future, but my take after listening to the FOMC minutes earlier today is the Fed is likely to favor more quantitative easing. Translation: interest rates may stay the same or even go down. It makes no sense for them to print money and raise interest rates. Disclaimer: I don’t know the future, so I may be wrong. It may shock you, but I’ve actually been wrong before! 🙂

    In any event, the rate you want to lock in on is 4%. My guess is you can beat that by some shopping, and EVEN IF interest rates in general go up, your shopping will still net you a rate better than 4%. Do credit unions n Houston do mortgages?

    In any event, good luck! 🙂

  7. Here’s the quote I lifted from the minutes. There was a lot of discussion and not many resolutions. This quote is from a resolution (i.e. decision):

    “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant excep-tionally low levels for the federal funds rate at least through late 2014.” (page 10)

    Translation to English: We will keep rates where they are till at least the end of the year, possibly the end of 2014.

    Hot off the presses today.

  8. I wouldn’t push the builder to work that much faster because they could start cutting corners.

    I wonder if the rate is higher because you’re self-employed, therefore potentially a bigger risk.

    If the rate is going up, I’d try to work with the bank and builder to either get it extended w/o the fee and if they won’t do that, have the builder agree to pay some or all.

  9. The rate will not go up until after elections, IF they go up before 2014. You, not having business revenue for more than a year and 3/4’s I guess, are stuck using the mortgage broker who said he would give you the loan; thus you either have to lock in the rate or take whatever is offered at closing. I cannot see it going over 4%, so not worth the $650. If it does go over 4%, refinance as soon as other banks accept your credit as legit. Call around, you may find other mortgages available to you now, since its been more than a year. In this time of cheap loans, I cannot believe they want points to lock in a loan …personally I would tell the mortgage broker to ….well, that if he wants a customer, they better deal with you fairly. If you pay for the fixed rate and the builder finishes the day before, your final walk through will be a joke. The builder will know you will close to keep from losing your rate. He will have no reason to worry about finishing up the house, ever. Back in the 80’s when interest rates were going up, we paid a point to lock in the interest at 7%, the builder never finished cleaning up paint, straightening out door jambs, etc. He would send some guy off the street with a paint bucket to slosh over the floor, then tell me that he would clean up the paint, wait a month and send another guy with a dirty cloth and turpentine to stink up the house and ruin the vinyl flooring. That went on for 6 months before I called it quits. I would not pay anything for a guaranteed rate, unless it was 2% or less.

  10. Crystal – shop around some more. My credit union is offering 3.5% with no points and 3.375 with 1 point on 30 year fixed. That being said, perhaps your rates is slightly higher than we would expect because you don’t have a 2 year history on your self-employed wages. I am not a mortgage person so I don’t know for sure, but that is my guess. You may just need to find a lender that is self-employed friend.

    PS. I LOVE my credit union. They are in Northern Virginia only, but if you are willing to e-bank, you might want to check them out. If you don’t already meet one of their eligibility requirement, they offer a “loophole” for $10…

    Another Option for Membership–Financial Awareness Network (FAN):

    If you are not eligible to join Northwest Federal via the relationships defined above, you can join by enrolling in the Financial Awareness Network (FAN), an organization dedicated to promoting and supporting financial education.

    There is a one-time $10 fee to join FAN
    FAN membership is open to anyone ages 13 and older
    There is no additional paperwork. Simply, select Financial Awareness Network (FAN) in the eligibility section of your Northwest Federal membership application and fund your FAN $10 membership fee.

  11. Oh, and if you are going to lock (which may not be necessary in this rate environment), I would at least see if you can get the builder to commit in writing to a closing date – assuming you don’t have it in writing already. Then if they push it, you ask for a concession for missing the written closing date – not sure if they have any incentive to give you a written date now but you can always ask.

  12. Your contract should say the details of who costs of late delivery are accrued to, as well as what date constitutes late. But don’t you have a realtor or a lawyer in this? Ask them – you hired them to look out for your interests in this transaction, and that’s what they are earning their commission to do! The builder shouldn’t be the only one with someone looking out for him.
    That said, interest rates probably aren’t goig to skyrocket in the next couple of months so you might not want to worry too much about it. If they go down and you don’t have a lock you’ll be glad to get the lower rate, and if they go up, it’s probably not going to be by much.
    Have you looked into 15yr mortgages? That’s what we refi-d into and are super happy with our rate and payments.

  13. Sounds like everyone thinks I should find a better rate. I totally agree, but it was hard to find anyone to even underwrite us since we’ve been self employed for less than 2 years. I called two more agents today and have questions in the works though. We’ll see. We may just have to refinance next May, after we can show two tax returns during two calendar years that I was self employed. They all think I could get 3.5%-3.75% if I had two tax returns showing self employment income.

    But I won’t lock now for sure. When I asked for our closing date in writing, it magically moved to September 28, lol. So I shouldn’t even think about interest rates for another 2 weeks…

    @William, thanks for finding that update!

    @Money Beagle, they can’t legally charge me a higher rate for being self employed. I know that because several people letting me down easy let me know. They can just decide not to work with me. But if I make it through their underwriter, I’m just another customer like everyone else. My current broker just sells at higher rates than most other brokers, so I am equal opportunity screwed, lol.

    @Kim, thanks.

    @ME, I’m not being charged to lock a rate, just for extending the lock beyond 30 days. And the mortgage broker agrees with you that the rates will stay generally low until after the elections at least. They just seem to fluctuate .25 points day-to-day.

    @Becky, thanks for the suggestion! I’ll try them too. 🙂 The builder committed to September 28 and is hoping for earlier.

    @Mrs. Pop, my realtor just pointed out that the builder said they weren’t responsible for being late, but she suggested I at least try. The builder committed to September 28 or earlier (mainly because our home has to be off their books by October or their bank will get ticked off). We have a 15 year mortgage on our current house, but now that we are self employed, it makes more sense to get a 30 year and pay it off early. We need the flexibility so we aren’t suffering in bad months. It’s $1000 compared to $1450 pretty much. At the end of each month or two, I can just make big principal payments after knowing how well those months went. I assume we will be able to pay it off in 5-10 years total based on what we make and my hatred for debt.

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