With Rates So Low, What Happens If I Lock in a USDA Loan and Don't Get to Closing on Time??

Currently, the investor we use for our USDA Rural Housing loans offers two rate lock extensions up to 60 days each, so that you can actually get 120 days extension.  They do charge for this and we have been told that, effective today, December 18, 2008, the price (charge) to extend is going up.  This price is charged as a one-time fee and is NOT an increase to your current rate.

Here are the new costs for extending a rate lock in:

1 day extension - No Charge, but can only do 1 free 1-day extension, not 2

7 day extension - .125% (this remained the same as it was)

15 day extension - .375% (was .25%)

30 day extension - .500% (was .375%)

45 day extension - .625% (was .500%)

60 day extension - 1.00% (was .75%)

We have to request a lock extension ON OR BEFORE the current rate lock expires.  Once it has expired, it can't be extended.  Loans may be extended a maximum of two times, which means that if a loan is extended for 1 day and then needs an additional 15 days, for example, the total cost will be .375% for 16 days.  The maximum extension time would be 120 days - can extend twice and 60 days is the max for each one.

If a lock expires, it has to be repriced subject to the higher of "worse case" pricing (were the rates higher on the day you locked or on the day you are repricing it - that is what the new pricing will be).  If expired less than 30 days, it will be locked at the existing locked price or the current market price, whichever is worse, PLUS THE COST OF AN EXTENSION FEE AS NOTED ABOVE for the number of days.  Obviously, it is a lot less costly to extend the loan rather than having to let it expire and relock it.

However, if the lock is expired for 30 days or more, it would be priced at the current market price with no extension fee.

Obviously, if you have a loan that is currently locked, it is very important that the borrower, the seller, the lender, the Realtor® and the title company all work together to try to get the loan closed prior to the rate expiring.  If that isn't possible, there will be fees associated with extending so it is important that a loan not be locked in too early!