Q & A: What is the Best Loan for Me?

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How do I know which loan is right for me? Why would I take a 7-year ARM? Does it matter how long I plan to stay in the home?

The right loan depends on your overall strategy and plans for what you are buying. An ARM (adjustable rate mortgage) might be good for someone planning on staying for a shorter amount of time as you get a lower interest rate, but the rate is only good for three, five, seven or 10 years depending on which loan you take. On the flip side, people who took out ARMs five, seven or 10 years ago have seen their interest rates drop once the loan started adjusting. I always advise people to prepare as though the rate will adjust to the maximum (anywhere from 2-5 percent above the initial rate) when the adjustment comes, but that may not always be the case.

What is the difference between locking and floating? I am in the process of looking for a home and I do not know which term applies to me.

At some point in the loan process you need to "lock in" your interest rate. That means your rate is set and you are no longer subject to daily market fluctuations. Rate lock periods are generally 60 days, which means you need to close within that time period. If you do not there may be costs to extend the rate. If you are looking for a home, you are likely floating as you need a property address to generally lock an interest rate.

I was supposed to close on a home last Friday. Then the seller's attorney pushed it to this Friday and now they want to change the date again. If they push it again my rate lock will expire. Is there something I can do since this is out of my control and we really don't want to have to go through this entire process again? If it expires, we need to reapply and start over?

It really depends on what your contract says. If your contract closing date is being pushed, you may have some recourse to have the seller pay for any rate extensions that might be needed. The likelihood of starting over is pretty slim as all banks have some kind of rate extension policy, but refer to your contract to see if there's anything you can do in order to induce a closing or get a rate extension paid for.

Do the banks base pre-approval on credit alone? My husband and I have decent credit, but his is much lower than mine for some blemishes he had in the past. Is that going to prohibit us from getting a good rate today?

That really depends in what the scores come out to be. These days, interest rates are based on credit scores and the amount of money you are putting down on a property. The top credit score is 740 to get the best rate. Also, of the two scores, the lower one will be used to qualify because banks look at maximum risk. His score has the potential to affect your rate, but you really need to see what the score is in order to determine that. Also, be aware that a credit report run by you will likely have a different score than one run by a mortgage professional.


Dottie Herman is CEO of Douglas Elliman. If you have a real estate question for Dottie, please send it to; Reporters@WPCnews.com