A new program called “Lock It, List It” allows real estate agents to secure a mortgage rate for a buyer before the property even hits the market.
Chicago-based Guaranteed Rate launched the product just weeks after mortgage rates surpassed the dire 8% threshold.
This has pushed housing affordability to the brink, while also turning off prospective home buyers and making it harder to sell a home.
A below-market interest rate that is guaranteed could boost demand, and make it easier for a seller to unload their property.
It’d be a win-win for all parties involved, including the buyer, seller, listing agent, and loan officer.
How Lock It, List It Works
As the name suggests, a mortgage rate is locked in before the property is listed on the market.
Known as a mortgage pre-lock in industry jargon, the interest rate is secured before a buyer is found for the property.
This is a rather novel approach, as pre-locks are typically for home buyers who lock in a rate for themselves then search for a property.
In this scenario, the home seller is essentially locking in a rate on the home buyer’s behalf ahead of time.
But it only works if the buyer agrees to use Guaranteed Rate to obtain their mortgage.
Once a buyer makes an offer on the property, they would need to get approved for a mortgage with GR to take advantage of the offer.
The deal would be structured by the listing agent and a Guaranteed Rate loan officer via a fee that pays for the locked-in discounted rate for a buyer.
In other words, the cost might come out of the seller’s proceeds and/or the listing agent’s commission.
It’s unclear how much below market the mortgage rate might be, but if would need to be compelling enough to draw in a buyer (and have them use their preferred lender).
This unique benefit would also allow the listing agent to market this discounted mortgage rate to prospective home buyers in their listing.
Guaranteed Rate believes this could help the home to stand out from the crowd and give it a better likelihood of selling.
It would also allow the real estate agent to virtually guarantee a certain interest rate to a prospective home buyer, which would be helpful if rates continue to rise.
Taking a Page Out of the Home Builder’s Playbook
What Guaranteed Rate is doing with Lock It, List It is what home builders have been doing for a while with their creative financing specials.
Despite mortgage rates more than doubling in the past 18 months, home builders have continued to offer below-market mortgage rates to their customers.
Known as a mortgage buydown, money is paid upfront to lower the interest rate for the life of the loan.
Home builders have been offering both permanent and temporary mortgage rate buydowns to lure in buyers lately. Some have even offered both on the same loan.
For example, one builder offered a temporary down to 2.99% via 3-2-1 buydown. And bought down the rate for years 4-30 to 5.99%.
Deals like these have made captive builder lenders, such as Lennar Mortgage and Inspire Home Loans, essentially impossible to beat.
This program gives existing home sellers a leg up on their builder competition, assuming the discounted rate is low enough.
Is This a Good Deal for Home Buyers?
The program sounds like a good idea on paper, but it’s really dependent on the direction of mortgage rates. And how much the rate is bought down.
This is the same of any pre-lock option. When you lock in a mortgage rate ahead of time, you do so expecting mortgage rates to move higher.
You’re essentially locking in today’s low price because you’re concerned rates could worsen, which would make home buying more expensive.
Or even out of reach depending on how much worse they get between application and closing.
But if rates move lower, it doesn’t provide much if any benefit.
For example, if this program was around in early 2022 when the 30-year fixed was still priced around 3%, it would have been a huge deal.
It could have allowed a home buyer to snag a 3% rate as rates surged to 5% and beyond.
But we may be at a point where mortgage rates have peaked, and could in fact fall from here.
It Depends Where Mortgage Rates Go Next
In just the past couple weeks, mortgage rates surpassed 8% but then fell precipitously to around 7.25%. Those who pay discount points are now seeing rates in the mid-6s again.
If this continues, home buyers may not want to rush into a mortgage rate lock if there’s the expectation things get even better.
Of course, it depends how low the Lock It, List It mortgage rate is. If it’s significantly below market, it could still be a great selling point.
So the success of this program will really depend on where mortgage rates go next.
Note that you must use Guaranteed Rate as your mortgage lender if you wish to take advantage of the offer.
As always, it can pay to shop around with different banks, lenders, mortgage brokers, and so on to see what else is out there.
Even without a special bought-down rate, you might find a better combination of rate and fees from a different company.
Lock It, List It is available on both conforming loans and high balance loans that exceed the baseline conforming loan limit.
Guaranteed Rate was the nation’s 11th largest mortgage lender in 2022, and serves home buyers in all 50 states along with Washington, D.C.