The problem: An interest rate lock costs the buyer substantial non-refundable upfront money. The money will be lost if the house does not close on time. Yet, short sale timelines are long and unpredictable, to say the least.
What should all parties do in a short sale, as it relates to rate locks?
The listing agent should:
- Disclose in writing to the buyer, the buyer’s agent and the buyer’s loan officer that the short sale may take months and there is no guarantee of approval.
- Disclose in writing if the buyer locks in a rate it is at the buyer’s own monetary risk.
- Notify the buyer's agent ASAP when the short sale has been approved by the short sale lender. At that time there is a specific "close by" date and the buyer can plan their rate lock with more certainty.
The buyer’s agent should:
- Disclose in writing to the buyer and the buyer’s loan officer that the short sale may take months and there is no guarantee of approval.
- Disclose in writing if the buyer locks in a rate it is at the buyer’s own monetary risk.
- Notify the buyer and the buyer's loan officer ASAP when the short sale has been approved by the short sale lender. At that time there is a specific "close by" date and the buyer can plan their rate lock with more certainty.
The buyer’s loan officer should:
- Listen carefully to the Realtor’s warnings about the uncertainty of the short sale timelines.
- Make sure to learn what a short sale is and is not. Contrary to some misunderstanding, a short sale is NOT banked owned and is NOT an REO. It could take months to close or never close at all.
- Advise the buyer on the risks and rewards of locking in a rate. This varies based on where the interest rates are trending at the moment.
The buyers should:
- Internalize everything their Realtor and loan originator are advising. There is a risk of losing non-refundable rate lock fees, but there are also opportunities in timing the rate to the closing date.
- Unfortunately there are many variables and many unknowns, just like many decisions in life.
- Ultimately, the buyer has to make the decision, based on the best information available at the time.
Good luck to all involved. A short sale benefits the short sale lender, the seller and the buyer.
Typically, the buyer gets a good deal on the price and hopefully they can time a good interest rate, also.
Buyers are encouraged to seek advice from competent legal and mortgage advisors.
In Louisville KY, sellers who are "upside down" on their mortgage and need to sell, should call Dave Halpern at (502) 664-7827.
