Better Mortgage Rates Start With Better FICO Scores

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If you plan to use a mortgage for your next home purchase, you’ll want to keep your credit scores as high as possible. Credit scores play an out-sized role in determining for which mortgage product you’ll qualify, and to which rate you’ll be assigned by your lender.

The higher your credit score, the lower your mortgage rate will be.

What Is A Credit Score?
History has shown that the best way to predict a person’s behavior over the near-term future is to look at that person’s behavior in the recent past. It’s a concept similar to the First Rule of Physics — an object in motion tends to stay in motion.

We can apply this theory to consumer credit, too. A person who has recently paid his bills on-time should continue to pay his bills on-time in the near-future.

This is the basis of credit scoring; using your past to predict your future.

To mortgage lenders, your credit score represents your likelihood of making on-time mortgage payments for the next 90 days. “90 days” matters because, after 90 days without payments, a homeowner falls into default.

Higher credit scores correlate with lower default risk which explains why people with high credit scores tend to receive lower mortgage rates than people with low credit scores. This is true across all loan types, including conventional, jumbo, and FHA mortgages.

Like most else in finance, those with the lowest risks get to pay the lowest rates.

Lenders Use The FICO Scoring Model, Exclusively
There are three main credit bureaus in the United States. They are Equifax, Experian and TransUnion. Each offers a bevy of credit-scoring products, available for purchase on their respective websites. Prices range from “free” to several hundred dollars.

None, however, are particularly relevant in the home-buying process. This is because the nation’s mortgage lenders rely on a different credit model — the FICO model.

FICO is named for the Fair Isaac Corporation. It was “invented” in the 1950s and has become the mortgage industry standard for credit ratings. Today, FICO scores are omnipresent to the point that people generically refer to all credit scores as “FICO scores”.

This is akin to calling all adhesive bandages “Band-Aids”. FICO is the brand name — not the product.

FICO scores range from 300-850.

Credit Scores Change Mortgage Rates
Your FICO score has always influenced the mortgage rate for which you’re eligible. In 2008, though, it began to change your loan fees.

In response to major mortgage market losses, in April 2008, both Fannie Mae and Freddie Mac introduced something called Loan-Level Pricing Adjustments (LLPA). Loan-level pricing adjustments are “discount points” added to a mortgage rate, based on a specific borrower’s risk to the lender.

A discount point is a loan fee, paid at the time of closing. 1 discount point is equal to 1 percent of your loan size.

Example : A $300,000 mortgage that’s assessed 1 discount point will have $3,000 in extra fees due at closing.

Fannie Mae and Freddie Mac know that low credit scores correlate to high default rates so, like an insurance policy, they assigned the highest costs to the highest-risk borrowers.

Assuming a 20% downpayment, look at how discount points change based on credit score. Fees get massive for FICOs under 700.

• 740+ FICO  : There are no discount points required. This loan is “low risk”.
• 720-739 FICO :  0.250 discount points are charged to the borrower, or $250 per $100,000 borrowed
• 700-719 FICO :  0.750 discount points are charged to the borrower, or $750 per $100,000 borrowed
• 680-699 FICO :  1.500 discount points are charged to the borrower, or $1,500 per $100,000 borrowed
• 660-679 FICO :  2.500 discount points are charged to the borrower, or $2,500 per $100,000 borrowed

Now, not many new home buyers just have that kind of extra cash just laying around. Therefore, as an alternative to paying discount points with cash, many choose to “roll up” the fees into their respective mortgage rates. In general, 1.000 discount point can be “traded in” for a 0.250 increase to your mortgage rate.

Example : A consumer with a 680 FICO score is required to pay 1.500 discount points at closing, or can alternatively accept a mortgage rate increase of 0.375%.

This is why it’s important to keep your credit score high. There are real dollar costs for having scores under 740.

Improving On Your Credit Score
If your credit score is not as high as you’d like, the good news is that you can take steps to raise it — sometimes without even changing your spending habits.

via trulia

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10 Major Mortgage Mistakes to Avoid

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Getting a mortgage is no simple task: It's a complex and time-consuming process, and perhaps one of the most significant events of our lives, at least in financial terms. Here are ten potential pitfalls to avoid:

1. Not checking your credit: Long before you begin searching for a mortgage, you should know where you stand in the credit score department. After all, a bad credit score can bump up your mortgage interest rate several percentage points or leave you with no approval at all. Be sure you check your credit early on (several months in advance) in case any changes need to be made to get it back up to snuff.

2. Applying for new credit alongside the mortgage: In this same vein, be sure to avoid applying for any other type of credit before and during the mortgage application process. Whenever you apply for new credit, you're seen as a greater credit risk, at least initially. If you happen to apply for a credit card or auto loan around the same time you apply for a mortgage, your credit score might get dinged enough to kill your eligibility or bump up your interest rate.

3. Failing to look at the total housing payment: A mortgage payment consists of principal, interest, taxes, and insurance (PITI). A common mistake made by prospective home buyers is not factoring in their property taxes and insurance premium into their overall mortgage budget. The debt-to-income ratio (DTI ratio), used to determine if a borrower will qualify for a certain mortgage payment, is calculated by dividing the proposed cost of PITI by gross monthly income. A $1,200 homeowner's insurance policy would add $100 per month to an escrowed mortgage payment.

4. Not seasoning your assets: The bank or lender will want to see that you can actually pay your mortgage each month. But without seasoned assets, those that have been in your own account for at least a couple months, you could be out of luck entirely. Some borrowers seem to think they can transfer funds from a relative's account days before applying, but this simply won't fly once the underwriter uncovers the paper trail.

5. Job hopping: Another key to mortgage approval is steady employment and income. An underwriter will want to know that the income you bring in every month is consistent and expected to continue into the foreseeable future. So don't jump from job to job too much before applying for a mortgage. If it's in the same field, it shouldn't be a deal killer, but a career change will lead to problems. If you're thinking about jumping ship, wait until you've closed your mortgage first.

6. Not getting pre-approved: Good preparation is the key to a good mortgage. Before shopping for a home, make sure you can actually qualify for financing by getting a pre-approval. A mortgage pre-approval is more robust than a simple pre-qualification because the bank pulls your credit and looks at your income, assets, and employment. Your DTI ratio will also come into play to ensure you know exactly how much you can afford. With this pre-approval, you will also get a written commitment from the lender that will show home sellers you're serious about the purchase.

7. Not shopping around: But just because you're pre-approved with one bank doesn't mean you need to obtain financing from them. Be sure to shop around with multiple banks and lenders and even consider a mortgage broker. A broker can shop your rate with a number of banks concurrently and find you the lowest rate with the best terms. Don't be one of the many consumers who obtains a single mortgage rate prior to applying. Comparison shop as you would for anything else you buy. And don't forget to factor in closing costs!

8. Chasing exotic loan programs: Shop around for the lowest rate and closing costs, but not at the expense of your mortgage. Anything that sounds too good to be true most likely is. If the payment seems too low, you might be paying interest-only or even negatively amortizing, meaning your mortgage balance is growing each month. It's best to keep it simple and go with a loan program you can get your head around, like a fixed-rate mortgage.

9. Forgetting to lock your rate: Keep in mind that a mortgage rate means very little if it's not locked-in. If you're happy with your rate, lock it. Mortgage rates change daily and sometimes several times daily. All those mortgage quotes you obtain are just quotes until you actually tell the bank, lender, or broker to "lock it in." Once locked, your rate is guaranteed for a certain period of time, be it 7 days, 15 days, or a month. But never assume your rate is locked until you get it in writing!

10. Not reading your loan documents: Finally, it's your responsibility to read and accept the terms of your new mortgage. Sure, it might be a pain to go through all the loan documents at signing, but it's a bigger pain to sign up for something you don't want or agree with. Take the time at closing to ensure you understand everything you're signing, and thereby agreeing to. And don't be afraid to ask questions! Otherwise, you could wind up with a mortgage with predatory terms and no place to turn.

by Colin Robertson | U.S.News & World Report LP 

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6 Must-Do's Before Buying a Home

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You might be ready to buy a home, but are you armed with the knowledge you need? Do you know about credit score requirements? Are you familiar with flexible standards on Federal Housing Administration loans?

Whether you are a first-time homebuyer or an experienced owner, buying a house requires a "preflight check," in the words of Barry Zigas, director of housing policy for the Consumer Federation of America.

Here is a six-item checklist, including tips on two types of savings you need, plus advice about what's more important than buying a house for its resale value.

Strengthen your credit score
"It's a brave, new world with respect to credit requirements for mortgages," says John Ulzheimer, president of consumer education at smartcredit.com and formerly of FICO, which pioneered credit scoring.

One old rule still applies: The higher your credit score, the lower your down payment and monthly payments.

"Below 660 or 680, you're either going to have to pay sizable fees or a higher down payment," Zigas says. And that's pretty much the cutoff score for getting a mortgage, he says.

Vicki Bott, deputy assistant secretary for single-family housing at the Department of Housing and Urban Development, says that her office has noticed much the same thing. "While there are many qualified borrowers in the 580 range, the market today is probably (looking for) 640 to 660, at a minimum," Bott says.

On the other end, a score of 700 to 720 will get you a good deal and 750 and above will garner the best rates on the market, Ulzheimer says.

Improve your chances by: pulling your credit reports and ensuring you're not being unfairly penalized for old, paid or settled debts, Zigas says.

Stop applying for new credit a year before you apply for financing. And keep the moratorium in place until after you close on your home, Ulzheimer says.

Figure out how much house you can afford
The buyer's mantra: Get a home that's financially comfortable.

There are various rules of thumb that will help you get an idea of how much home you can afford. If you're using FHA financing, as almost one-fifth of buyers get FHA-insured loans, your home payment can't exceed 31 percent of your monthly income. But, with some mitigating factors, FHA will let you go higher.

For conventional loans, a safe formula is that home expenses should not exceed 28 percent of your gross monthly income, says Susan Tiffany, director of consumer periodicals for the Credit Union National Association.

Improve your chances by: trying on that financial obligation long before you sign the mortgage papers, says Tiffany. Before you home shop, calculate the mortgage payment for the home in your intended price range, along with the increased expenses (such as taxes, insurance and utilities). Then bank the difference between that and what you're paying now.

Not only does it allow you to build a nice nest egg, but "you can back away from it," or scale back, if the payments start to pinch, she says.

Save for down payment and closing costs
Depending on your credit and financing, you'll typically need to save enough money to put anywhere from 3.5 percent to 20 percent down.

If you're using FHA financing, then you need a score of 500 or higher. And in the 500 to 579 range, if you can find a lender, you'll have to put 10 percent down instead of 3.5 percent.

One exception: Veterans Affairs loans, which require no down payment.

Another cash expense: closing costs. Whatever your loan source, you'll also need money to pay closing costs, which run (depending on where you live), from $2,300 to $4,000. Get the average closing costs in your state at Bankrate's closing costs map.

Improve your chances by: Along with banking your own money, search out down payment assistance, Tiffany says. Often it's location-based or tagged to a certain type of buyer, like first-timers, she says. So do an Internet search with the city name, then the county name, along with word combinations such as "down payment assistance," "first-time homebuyers" and "homebuyer's assistance."

In a buyer's market, you can also negotiate to have the seller pay a portion of the closing costs.

Build a healthy savings account
This is over and above your money for the down payment and closing. Your lender wants to see that you're not living paycheck to paycheck. If you have three to five months' worth of mortgage payments set aside, that makes you a much better loan candidate. And some lenders and backers, like the FHA, will give you a little more latitude on other factors if they see that you save a cash cushion.

That money will also help you with maintenance and repair issues that come up when you own a home. While repairs are sporadic, items such as a new roof, water heater or other big-ticket items can hit suddenly and hard.

Improve your chances by: setting aside money every month. A good rule of thumb: on average you'll spend 2.5 percent to 3 percent of your home's value annually on upkeep, repairs and maintenance, says Joseph Gyourko, chairman of the real estate department at the Wharton School of the University of Pennsylvania. If you're buying a $250,000 home, aim to bank $520 to $625 per month.

Get preapproved for a mortgage
For serious home shoppers, "the No. 1 thing is they better have everything in order," says Dick Gaylord, past president of the National Association of Realtors. That means that, before the real home shopping begins, you want to get financing in place, he says.

And the preapproval process is "much more extensive" than it was a few years ago, he says.

Bott agrees. "That documentation around income and assets is very essential, more so than in the last five years," she says.

Improve your chances by: getting financing in place "before you walk through the first house," Gaylord says. Otherwise, he says, "How do you know how much you can afford?"

Buy a house you like
If you're buying today for yourself and your family, you want a home that will make you happy for the next few years.

Gone are the days when you could count on a quick sale, Tiffany says. And depending on how much you put down, and how much you have to shell out to sell and relocate, short-term ownership can be a pretty expensive proposition.

Improve your chances by: stepping back, Gyourko says, and making certain "you like the house."

via bankrate

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6 Don’ts After You Apply For A Mortgage

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I learned a long time ago that “common sense is NOT common practice“. This is especially the case during the emotional time that surrounds buying a home, when people tend to do some non-commonsensical things. Here are a few that I’ve seen over the years that have delayed (and even killed) deals:

1. Don’t deposit cash into your bank accounts. Lenders need to source your money and cash is not really traceable. Small, explainable deposits are fine, but getting $10,000 from your parents as a gift in cash is not. Discuss the proper way to track your assets with your loan officer.
2. Don’t make any large purchases like a new car or a bunch of new furniture. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios…higher ratios make for riskier loans…and sometimes qualified borrowers are no longer qualifying.
3. Don’t co-sign other loans for anyone. When you co-sign, you are obligated. With that obligation comes higher ratios, as well. Even if you swear you won’t be making the payments, the lender will be counting the payment against you.
4. Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Frankly, before you even transfer money between accounts, talk to your loan officer.
5. Don’t apply for new credit. It doesn’t matter whether it’s a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
6. Don’t close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more approvable. Wrong. A major component of your score is your length and depth credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.

The best advice is to fully disclose and discuss your plans with your loan officer/real estate agent before you do anything financial in nature. Any blip in income, assets, or credit should be reviewed and executed in a way to keep your application in the most positive light.

via kcmblog

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The Right Mortgage

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If you're considering buying a home, securing a mortgage loan is a key part of the process.  However, you’re probably wondering: how do I find the best mortgage loan for my financial needs? Generally speaking, there are two types of mortgage loans:

• A fixed-rate mortgage offers a rate that stays the same over the life of the loan. This type of loan generally has a longer term and may be good if you plan to own your home for a long time.
• An adjustable-rate mortgage offers an interest rate that adjusts based on market conditions (it goes higher or lower) after a specified time period. This type of loan may be good for people who need an initial lower monthly payment.

Consider the following factors to help you gain insight into the kind of home you can afford, and the type of mortgage that will best fit your financial situation:

How long do you plan to own the home?

• Some loans have longer terms (from 15 to 40 years) that typically work well when you plan to stay in the home for a long time. Other loans have lower interest rates for a shorter term, and may be attractive if you plan to move in five to seven years.
• CONSIDER: How many years do you plan to stay in the home? Will you move within seven years, or is this the place to "settle down?"

How much can you afford as a down payment?

• 20% of the cost of the home is standard for the down payment on a conventional loan, but there are loans that allow you to put down as little as 5 or 10%.
• The higher your down payment, the lower your monthly mortgage payment will be.
• CONSIDER: How much can you realistically afford as the down payment?

What is the general price range for other homes in your neighborhood?

• How many homes are for sale in the area? How are they priced? Do you have a list of comparable properties?
• Are there other neighborhoods that catch your eye? How are the homes in these other areas priced?
• CONSIDER: Which area/home features the best combination of location, quality, and cost for you.

Which of the following is more important to you?

• To have low monthly payments?
• To pay less over the life of the loan, even if monthly payments are high?
• Some loans offer lower monthly mortgage payments over a long period of time. Other loans are designed to be paid in a shorter time frame, but have higher monthly payments.
• CONSIDER: Which situation would work best for you? It helps to be clear about your financial goals and resources.

Your credit history

• Mortgage lenders will look at your credit history and credit score to determine your track record for paying off debt.
• CONSIDER: Do you have a good credit score? Review your credit report to find out.

via bhgrealestate.com

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Your Credit Report Will Be Re-Pulled Just Prior To Closing (And It Could Change Your Loan Terms)

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When does "cleared to close" not mean "cleared to close"? When Fannie Mae's involved, that's when.

Fannie Mae's "Loan Quality Initiative"

Fannie Mae doesn't make loans. Rather, it buys loans from banks and securitizes them into mortgage-backed securities. As such, Fannie Mae wants to make sure that every loan it buys to meet its basic underwriting standards. That way, it can stand behind the quality of its securities.

And, when we talk about loan approvals, this is actually what's happening; your loan is being underwritten based on Fannie Mae's guidelines. Loans approved for closing are -- presumably --  in line with Fannie Mae's minimum standards.

We say "presumably" because when foreclosures began to increase last decade, Fannie Mae started an audit of its loans and found large numbers of mortgage that had failed to meet its standards. Some loans, it found, were grossly underwritten, comprising its securities and its bottom-line.

To limit "bad loans", Fannie Mae created its Loan Quality Initiative.

The Loan Quality Initiative is broad in scope, comprising 9 pages. For banks, it creates "extra steps" in underwriting. It's validation of things like social security numbers and borrower occupancy. They're small tasks, but time-consuming, and there's a lot of them.

As a mortgage applicant, you don't have to worry about what the bank is doing. You have one task only -- don't mess up your credit.

Just Before Funding, Your Credit Will Be Repulled

The Loan Quality Initiative requires lenders to re-verify credit credit profiles just prior to closing and to look for changes. In other words, although your credit was pulled at the start of underwriting, Fannie Mae wants your bank to pull it again -- just in case something changed.

This ensures that loans are priced properly, and are funded on the borrower's risk at closing as opposed to at application; because a lot can change while a loan is in-process. Especially when the loan is for a purchase closing in 60 days or more.

Banks will repull your credit prior to closing. Some of the things they're looking for include :

• Did you apply for new credit cards while your loan was in-process?
• Did you run up existing cards while your loan was in-process?
• Did you finance an automobile while your loan was in-process?
• Did you make some other major purchase while your loan was in-process?
• Did you add non-disclosed debts while your loan was in-process?

Each of the above is a red flag to underwriting. If your "final" credit report doesn't match your original credit report, your mortgage may be subject to a complete re-underwrite and, in a worst case scenario, a loan application denial.

The 3 Credit Hotspots For Loans In-Process

The Loan Quality Initiative is pretty straight-forward and common sense-like. As a mortgage applicant, it's easy to avoid its claws. There are 3 things for which an underwriter is looking in your credit file.

Here are those 3 items how the bank will react.

What the bank will do: Recalculate debt-to-income ratios using your "new" minimum payment due figures. If the DTI exceeds Fannie Mae's maximum threshold, the loan will be denied.

What you should do about it: Don't run up credit cards prior to closing -- even for layaway items. Consider paying more than the minimum due, just in case.

What the bank will do: Use your new credit score to assess loan-level pricing adjustments or outright denials for when scores fall below Fannie Mae's minimum credit score requirement.

What you should do about it: Follow the basic rules of keeping your credit score high -- pay your bills, don't let things go into collection, and don't look for new credit unless necessary. myFICO.com has a terrific series on credit scoring you can review.

What the bank will do: Look at the Credit Inquiry section of your credit report to look for "non-disclosed liabilities". If items are found, the bank will ask for supporting documentation on the inquiry, and will use the information to re-underwrite your mortgage.

What you should do about it: Don't go looking for new credit until after your loan is funded.  Period.  Now re-read that first sentence, please, to help it sink it.

And remember -- this is all happening after your loan has reached "final approval" status. You should protect your credit all the way through funding. Don't buy new furniture on credit the day before you move in; or buy a car for that new garage.

Loan Approvals Tough, But Not Impossible

Fannie Mae began its Loan Quality Initiative to improve its loan pool's overall performance.  Better loan quality helps to keep conforming mortgage rates down and reduces the taxpayer burden of bad loans.  That's two big wins.

Unfortunately, the Loan Quality Initiative can also result in additional mortgage turndowns and broken closings.

Therefore, be extra careful with your credit between your application date and closing.  If you must buy something big, consider paying cash or waiting it out.  major purchases on your credit card can be grounds to revoke an approval.

Even if your loan is cleared-to-close.

Apply For A Mortgage With Great, Low Rates

Fannie Mae's Loan Quality Initiative applies to Fannie Mae loans only. It does not apply to FHA mortgages, USDA loans, VA loans or jumbo loans. However, it's still good smarts to keep your credit clean while your loan is in-process.

via themortgagereport.com

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Refinancing Gets Even More Attractive

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Homeowners who have resisted the urge to refinance their mortgages until now could be rewarded for their willpower. Mortgage rates have fallen to new lows—and banks are rolling out incentives to win business.

Economic uncertainty in Europe and slow growth in the U.S. are prompting investors to pile into ultrasafe U.S. Treasurys. That, in turn, is pushing down mortgage rates, which are tied to Treasurys.

The average interest rate on a 30-year mortgage fell to 4.05% for the week ended Dec. 23, the lowest in 60 years, according to HSH Associates, a mortgage-data firm. And rates on jumbo mortgages—private loans that in most parts of the country are larger than $417,000—also have hit new lows, averaging 4.61%.

"It's hard to argue rates will get much lower than they are today," says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.

That's good news for homeowners. A person who refinanced a $400,000 30-year mortgage in February would pay an interest rate of 5.04% on average, according to HSH Associates, and fork over $2,157 a month; at the current rate of 4.05%, he'd save $236 per month, or $2,830 per year.

What's more, demand for refinancing is declining, since many homeowners already took advantage of lower mortgage rates. Applications for refinancing are 17% below this year's peak in September, according to the latest data from the Mortgage Bankers Association.

That and other factors have prompted some lenders to offer incentives to win new business—particularly regional and community banks, which are focusing more on jumbo mortgages, says Stu Feldstein, president at SMR Research, which tracks the mortgage market.

The discounts can be sizable. Regional bank Valley National Bank charges homeowners in New Jersey and eastern Pennsylvania a flat fee of $499 for closing costs on mortgages as large as $1 million. Since average closing costs on a refinance run about 2% of the total loan amount, a person with an $800,000 mortgage could save about $15,500.

A spokesman for the bank says it is aggressively marketing the discount in part to bring in more customers.

While many lenders don't refinance mortgages that are larger than about $2 million, Union Bank—which has branches in California, Oregon and Washington—refinances up to $4 million at no extra cost. (Many banks that refinance multimillion-dollar mortgages tack up to an extra quarter of a percentage point on the interest rate.)

Since November, Union Bank has also allowed borrowers to roll the costs of a refinance, like the appraisal fee and loan processing fee, into the mortgage. And borrowers whose original mortgage is from Union Bank don't have to provide all of the income documentation that other customers do in order to refinance.

In part, the bank's goal is to develop relationships with high-net-worth clients, says Stuart Bernstein, national production manager of residential lending at Union Bank.

Despite the incentives, many would-be applicants remain sidelined because they can't meet the long list of qualifications.

The home-equity requirement is one of the toughest hurdles, says Mr. Feldstein. Homeowners with at least 10% home equity make the cut, but people with less have a tougher time.

Borrowers with 10% to 19% equity in their home usually have to buy private mortgage insurance, whose cost varies based on many factors, including their credit score. A borrower with 15% equity and a FICO credit score above 720 could pay 0.44% of the total loan amount, says Keith Gumbinger, vice president at HSH Associates. On an $800,000 loan that would be $3,520 a year—eating into the potential savings of a refinance.

In December, the federal government rolled out a revamped version of the Home Affordable Refinance Program with relaxed home-equity requirements, to allow more borrowers to refinance. To qualify, the current mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae, and borrowers need to be mostly current on payments.

For regular refinancing, applicants need a FICO credit score of at least 740 to get the best rates, says Mr. Gumbinger. And they must provide copious documentation, including at least two years' worth of tax returns and proof of income as well as recent statements for assets such as retirement and brokerage accounts.

After clearing those hurdles, you might wait about 60 days for refinancing to be completed, says Mr. Gumbinger—longer than the typical 45 days. While some lenders are offering 60-day rate locks for free, others charge a quarter of a percentage point of the total loan amount for the service. On an $800,000 mortgage, that's $2,000.

Or you could opt to take your chances with a free 45-day lock and hope rates don't spike between day 46 and the date your loan closes. With the euro zone still in economic crisis and global investors rushing to the safety of U.S. Treasurys, housing-market analysts say it could be at least six months before rates rise significantly.

By AnnaMaria Andriotis | The Wall Street Journal

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