Rate-Lock Strategies for Long Builds: Float-Downs, Extensions, and Permanent Buydowns

A long build amplifies one big risk: you pick a mortgage rate before you have a house to close on. If the market swings 1% while your framing crew waits on trusses or the utility company delays service, that slow-motion rollercoaster can add or remove tens of thousands of dollars from your lifetime borrowing cost. I’ve walked many buyers through that ride—first-time owners, custom-home clients, even seasoned investors—and the best outcomes come from treating the interest rate like another construction component. You plan it, budget it, and manage its lead times. That’s where long locks, float-downs, extensions, and permanent buydowns pay for themselves.

Why long builds demand a smarter rate plan

• Build timelines stretch: A semi-custom tract home can run 6–10 months. True custom often takes 10–18 months. Weather, permitting, cabinetry, electrical utility scheduling, and inspection backlogs can quickly add weeks.
• Rate swings happen: The 30-year fixed conventional mortgage moved from the 3% range to over 7% between 2021 and 2023 before settling lower again. A 1% move in rate on a $600,000 loan changes your payment by roughly $375–$400 per month.
• Standard locks are short: Traditional 30–60 day locks don’t match build timelines. Without a strategy, you either gamble on future rates or pay steep fees at the last minute.

The good news: lenders created tools for this exact problem—long-dated locks, float-down options, extensions, and buydown structures. Used together, they can cap your risk while letting you benefit if the market improves.

The loan type shapes your options

Before we get into strategy, it helps to know which loan you’re using; the rules differ.

• Conventional conforming (Fannie/Freddie): Most flexible for long locks and float-downs. Many lenders offer 180–360 day locks with defined extension policies.
• FHA: Long locks available, but lender overlays vary. FHA appraisals and documentation have different validity periods; allow a cushion for re-verification before closing.
• VA: VA buyers sometimes get preferential pricing and flexible temporary buydowns. Float-downs depend on the lender’s hedging policy.
• USDA: Fewer lenders do long-lock USDA. If you’re rural-eligible, ask early about lock duration.
• Jumbo/non-conforming: Often stricter—higher costs for long locks, fewer float-down options, and tighter documentation timelines. Expect more conservative extension policies.
• Construction-to-permanent (C2P), single-close: One closing covers the build and the permanent loan; you often lock the permanent rate up front for 9–18 months. Pricing includes a premium for the long rate commitment.
• Two-close (one loan during construction, a second loan when you convert to permanent): You may lock the permanent loan later, which can be dangerous or advantageous depending on rate direction and your risk tolerance.

Tip: If you’re still choosing a lender, prioritize those with a documented long-lock and float-down policy, not just an informal “we’ll try to help later.” Ask for their lock desk addendum up front.

Rate-lock anatomy: how your price is really built

A rate lock is a hedge. The lender commits to you, then they hedge their exposure in the secondary market, which costs money that fluctuates by duration.

Typical moving parts in a long lock:

• Lock term: 60, 90, 180, 270, 360+ days. The longer the lock, the higher the upfront premium (often expressed in points).
• Lock premium: For 180–360 day locks, you’ll commonly see 0.50–1.50 points added versus a short 30–45 day lock. One point equals 1% of the loan amount.
• Extension fees: If you need more time, extensions usually cost 0.02–0.04 points per day (roughly 0.125–0.25 points per 7 days), sometimes with a minimum charge.
• Float-down: A one-time option to lower your rate if the market improves. Often allowed within the final 30–60 days before closing, triggered by a set market improvement (e.g., rate sheet improves by at least 0.25% in rate or 50–100 basis points in price).
• Re-lock rules: If your lock expires, some lenders allow a re-lock with a penalty or a “worse-case” rule: you get the higher of your old rate or current market, plus fees.

The lock agreement matters. Ask for it in writing and read the fine print: rate floors, what happens if the property isn’t complete, and how they define “market improvement” for float-down eligibility.

Strategy 1: Long-dated locks with planned extensions

Long locks cap your worst-case scenario. You pay for that insurance, but for many buyers it’s worth every basis point.

What it looks like in practice:

• Terms and pricing you might see:
• 180-day lock: +0.375 to +0.75 points vs. a 45-day lock
• 270-day lock: +0.75 to +1.25 points
• 360-day lock: +1.00 to +1.50 points
• Extension: 0.125–0.25 points per week
• Triggers for considering a long lock:
• You’re stretching your budget; a 1% rate jump would jeopardize approval.
• Your build schedule is 9–15 months and the lender’s float-down option is decent.
• You want payment certainty to lock construction decisions (e.g., committing to higher-spec finishes).

Practical playbook:

1. Establish a realistic schedule buffer. If your builder shows 10 months, plan for 12. Weather and inspection bottlenecks can add 30–60 days during certain seasons.
2. Time your lock around known milestones. Many lenders allow the long lock once you have a signed contract and building permit. Some want a foundation in or a dry-in (roof on) stage. Earlier is safer for rates; later reduces how much lock time you need.
3. Price the insurance. Add the lock premium to your closing cost budget. If it’s 1.0 point on a $600,000 loan, that’s $6,000. Get a credit from the builder if they caused timeline risk (e.g., structural options added late).
4. Negotiate a float-down add-on. Even if it costs 0.25 points, it can more than pay for itself if rates dip.

Case example: 12-month semi-custom build

• Loan: $700,000 conventional, 20% down.
• Without long lock: Today’s 6.75% could be 7.75% in 10 months (no one knows). Payment difference: roughly $460/month.
• With a 360-day lock: +1.00 point (=$7,000). Payment guaranteed at 6.75%. You add a float-down option for 0.25 points (=$1,750).
• If rates go to 7.75%: Your $8,750 in lock + float-down fees saved you $460/mo x 360 months ≈ $165,600 in nominal payments relative to a future 7.75% (yes, you might refinance later, but the cushion matters).
• If rates fall to 6.00%: Use the float-down to capture improvement (subject to policy—maybe you land at 6.125–6.25%). The float-down fee pays for itself in ~8–10 months of savings.

Common mistake: Locking too short with the idea of “I’ll extend if needed.” Extensions are often pricier than starting with the right term, and you risk expiration or full re-underwriting if the delay crosses certain documentation limits.

Strategy 2: Float-downs that protect your upside

A float-down keeps your long lock from feeling like a bet against yourself.

How they usually work:

• Availability: Often offered on 180–360 day locks; not always on jumbo.
• Trigger window: Typically 30–60 days before closing when you can close within that period.
• Market improvement required: Examples—“Rate sheet must improve by 0.25% in rate or 75 basis points in price vs. your locked terms.” Many lenders quote improvement in price rather than rate because internal pricing is granular.
• Floor and cap: Lenders almost always impose them. They may not let you float all the way to the day’s absolute best rate; they might reduce your rate to the nearest increment that keeps the lender’s long-lock hedge intact.
• Cost: 0.125–0.50 points paid at lock or at float-down exercise. Some lenders bundle it for free with a higher initial rate—get both versions quoted.

Real-world example: Float-down math

• You locked 6.875% for 270 days with a float-down option for 0.25 points. Your base price included a 1.0 point long-lock premium.
• At 45 days to close, market pricing improves. For your scenario, the current 45-day par rate is 6.25% with 0.25 points.
• Float-down policy: They’ll reprice you to the current 45-day sheet, then add the long-lock spread below a floor, and ensure the lender isn’t worse off. You might land at 6.375% with 0.375 points instead of 6.25% with 0.25 points.
• Savings: On $700,000, dropping from 6.875% to 6.375% cuts the payment roughly $225–$250/mo. Even after paying the 0.25-point float-down fee, that’s a quick win.

Pro tips for negotiating float-downs:

• Ask how they measure “market improvement.” You want a clean, objective metric tied to their own rate sheet.
• Clarify whether existing points/credits change. Sometimes a float-down alters lender credits; you don’t want to lose a large credit that covered other closing costs.
• Get the floor rate in writing. I’ve seen “we’ll do our best” turn into “sorry, not this week.”

Strategy 3: Permanent buydowns (points) that lock in long-term savings

Permanent buydowns are old-school and still effective. You pay points to lower your rate for the life of the loan.

What to expect:

• Typical exchange: Roughly 1 point (1% of loan amount) might lower the rate 0.25–0.375% depending on market conditions, lender, and lock term. The longer your lock, the less efficient points can become because part of what you’re paying covers the long-lock hedge, not just your permanent rate.
• Break-even calculation:
• Monthly savings = Payment at higher rate minus payment at lower rate.
• Break-even months = Points cost / Monthly savings.
• Tax angle: Points can be tax-deductible in the year of purchase for primary residences if paid by the borrower and if certain IRS rules are met. If points are paid by the seller/builder, treatment can differ. Always check with your CPA.

Example: Is 1 point worth it?

• Loan: $600,000, 30-year fixed.
• Base rate: 6.75% with zero points.
• Option: Pay 1 point ($6,000) to reach 6.375%.
• Payment difference: At 6.75%, P&I ≈ $3,891. At 6.375%, P&I ≈ $3,744. Savings ≈ $147/mo.
• Break-even: $6,000 / $147 ≈ 41 months. If you’ll keep the loan beyond ~3.5 years, it’s attractive. If you’ll refinance or sell sooner, maybe not.

When permanent buydowns shine:

• You intend to hold the property and the loan for 5–10+ years.
• You’re in a high-cost area where each 0.125% step matters.
• You’ve already paid for a long lock and still have budget for points—and your float-down option is modest.

Temporary buydowns vs permanent

• Temporary (e.g., 2-1 or 3-2-1): Lower the rate for the first 1–3 years; the buydown cost subsidizes the payment difference and sits in an escrow-like account.
• Who pays: Often builder or seller. It’s common to see “3-2-1 buydown with preferred lender” in new communities.
• Use case: Smooths cash flow early in ownership. Not a true long-term rate reduction.
• Watch for traps: Temporary buydown can mask the real payment. Underwrite your budget to the full note rate.

Pro tip: If a builder offers a large incentive, run two versions:

• Use credits to buy your permanent rate down.
• Or use credits to cover long-lock costs and general closing costs, then add a smaller permanent buydown.

Pick the structure with the best after-tax, long-term outcome for your likely holding period.

Combining strategies: a practical blueprint

You don’t have to choose just one tool. The most resilient plan blends them.

Scenario: 10–12 month build, $800,000 purchase, 20% down

• Step 1: Lock for 270 days with a float-down.
• Cost: +0.875 points (long lock) + 0.25 points (float-down).
• Step 2: Add a 30-day buffer via extension if needed.
• Cost: 0.125–0.25 points per week; negotiate who pays if builder delays.
• Step 3: Use a portion of builder credits to offset the lock premium and extension risk.
• Ask for a “rate protection allowance” in your contract or selection addendum.
• Step 4: 45 days from completion, check float-down potential.
• If market improved, exercise it.
• Step 5: If cash allows, consider an additional permanent buydown at final pricing.
• Example: Add 0.5–1.0 point to shave another 0.125–0.25% if break-even fits your 5–7-year plan.

Outcome: You capped your risk on day one, gained upside if rates eased, and finished by custom-fitting the final rate to your long-term goals.

Extensions and delays: plan for them like weather

Most delays are mundane, not dramatic:

• City/county inspection queues after holidays
• Utility trench scheduling
• Custom cabinets arriving with the wrong finish
• Weather closing the site for 10 days
• A missed back-ordered part for HVAC that stalls mechanical inspection

What extensions really cost

• Fees: 0.02–0.04 points per day is common. Many lenders quote 0.125–0.25 points for each 7-day block, sometimes with a minimum extension of 7–15 days.
• Documentation fallout:
• Income and asset documentation is typically valid 60–120 days. Many lenders re-verify employment near closing.
• Appraisals: For existing homes, 120–180 days is typical. New construction sometimes allows a longer validity (up to a year) with a 120-day recertification. Policies vary by investor—ask upfront.
• Credit report refresh: Lenders often refresh credit inside 30 days of closing or on extension. Avoid opening new accounts.

Risk control tips I give every long-build client:

• Include a “builder-caused delay” clause. If the builder slips beyond the scheduled completion without your change orders causing it, builder contributes to extension costs.
• Request a status checkpoint 90 and 45 days before estimated completion. That’s when you can still adjust lock, extension, or float-down timing.
• Keep credit quiet. Don’t finance furniture until after you fund.
• Update your insurance quote at the framing stage. Premiums can change, and coverage must meet lender requirements before the clear-to-close.

Jumbo and non-conforming: the rules are stricter

If your loan is above conforming limits or uses non-agency underwriting:

• Expect fewer long-lock options. Some jumbo investors cap long locks at 180 days.
• Float-downs are less common; if offered, floors are stricter.
• Extension fees may be higher, and documentation windows shorter (e.g., 90-day income validity vs. 120).
• Some jumbo programs require a full re-underwrite after a lock expires, even if you extend.

Jumbo strategy adjustments:

• Start with a conservative lock length and budget for one extension.
• Plan a bigger liquidity cushion. Jumbo reserves requirements can be 6–12 months of PITI or more, and lenders will re-check assets if timelines slip.
• Consider a two-close approach (construction then permanent) if jumbo long-lock pricing is punitive and you’re comfortable with interim rate risk.

Why long locks cost what they do (and why it’s worth understanding)

Lenders hedge long locks by shorting mortgage-backed securities or using other instruments. Longer hedges mean more carrying cost and bigger exposure to “fallout” (borrowers who don’t close because the house isn’t ready, they switch lenders, or they no longer qualify). That risk and hedge cost gets priced into your lock. Knowing this helps you:

• Ask for the right thing: “Can I see pricing for 180, 270, and 360 days, with and without a float-down?”
• Time milestone updates: Share build progress so your lender can manage their hedge efficiently. A well-run file sometimes earns small pricing favors when you need an exception.

If rates fall mid-build: float-down vs. re-lock vs. switching lenders

You have options. Compare them apples-to-apples.

• Float-down with your current lender:
• Pro: Easy, keeps your credits, appraisal, and timeline intact.
• Con: You might not get the full market improvement due to floors and hedging.
• Re-lock with current lender (if allowed):
• Pro: Clean slate pricing.
• Con: Usually uses “worse-case” rules or fees. Can erase prior credits.
• Switch lenders:
• Pro: Access entirely new pricing; if competition is hot, you might get aggressive buydown offers.
• Con: New appraisal and underwriting, possible builder approval needed, lost time, and potential extension fees with your original lender if you back out late.

Rule of thumb I use: If the competing offer saves you 0.375–0.50% in rate on a large loan and you have 45–60 days left, it can outweigh the switching friction. Under that, the float-down is usually the smoother win.

Builder incentives and “below-market” rates: how they work

When a national builder advertises “5.99% today,” they’re not breaking physics—they’ve pre-purchased rate commitments (forward commitments) or set aside funds to buy points for their buyers. That’s good for you if:

• The incentive is large enough to cover your unique needs (long lock + float-down + some permanent buydown).
• The preferred lender’s extension and float-down policies are written and fair.
• You compare the all-in APR and total cost, not just the headline rate.

What to ask the builder’s lender:

• Will the incentive cover a 270–360 day lock?
• Is a float-down included or extra?
• If we need an extension because of construction, does the builder’s credit cover it?
• Can I allocate some incentive to a permanent buydown at closing?

Action plan: your step-by-step schedule

Phase 1: Before you sign the build contract

• Get pre-approved with two lenders who offer long locks and float-downs.
• Request written long-lock and float-down policies, including extension fees.
• Ask your builder for a realistic construction calendar and typical variance (+/- weeks by season).
• Insert a “rate protection allowance” into the contract if possible—credits that can be used for long-lock costs or extensions if builder-related.

Phase 2: Within 2 weeks after permits issued

• Lock term decision: If the build is 10 months, consider a 270–360 day lock plus a float-down.
• Decide how to allocate points:
• Option A: Spend points on lock protection.
• Option B: Use builder credits for lock protection and reserve your cash for a permanent buydown later.
• Confirm appraisal timing. For new construction, your lender may order the appraisal closer to completion with a final inspection. Clarify validity windows.

Phase 3: Mid-build check-ins (framing and mechanical)

• Reconfirm timeline. If you’re slipping by 30+ days, discuss extension math now instead of the week you’re trying to close.
• Keep your financial profile steady. Big purchases wait.
• Review insurance and taxes. New construction assessments can rise after completion; budget for escrow changes.

Phase 4: 60–45 days from completion

• Evaluate float-down. If the market improved by the lender’s definition, set a calendar reminder to exercise within the window.
• Lock in final closing costs strategy: credit allocation, permanent buydown amount, reserves for prepaid items (taxes/insurance).

Phase 5: Final 30 days

• Clear conditions early. Don’t let a last-minute document issue push you into an extension.
• Confirm appraisal final inspection date and Certificate Of Occupancy delivery.
• Triple-check payoff figures if you’re selling a current home to fund closing.

Real-world scenarios to model your decision

Scenario A: Payment certainty beats everything

• Profile: First-time buyers, tight DTI, $550,000 loan.
• Play: 360-day lock with float-down. Use builder credits to cover most of the lock premium and standard closing costs. Skip permanent buydown unless float-down already improved you and you’ve got discretionary cash.
• Why: Approval risk if rates rise. Certainty lets you choose finishes without fear of falling out of qualification.

Scenario B: Optimistic about refinancing later

• Profile: Tech couple, expecting future income growth, $900,000 jumbo.
• Play: 180-day lock timed mid-build, no permanent buydown. If rates drop, evaluate float-down or switch lenders if spread is big enough.
• Why: Jumbo buydowns are expensive when hedging is costly. Cash is better kept liquid for reserves and post-closing projects.

Scenario C: Long-term hold, high tax bracket

• Profile: Move-up buyers, intend to stay 10+ years, $700,000 conventional.
• Play: 270-day lock with float-down, plus a 1–1.5 point permanent buydown at closing if break-even <5 years. Consider tax deduction for points (ask CPA).
• Why: Permanent savings accumulate meaningfully over a decade. The float-down protects upside.

Common mistakes (and how to avoid them)

• Picking a lock term that matches the builder’s “best case.” Pad by 30–60 days or count on at least one extension.
• Ignoring the extension fee schedule until the week of closing. Know the daily cost on day one; build it into your budget.
• Confusing temporary and permanent buydowns. A 2-1 feels great at move-in but resets. You need to like the note rate you’re really marrying.
• Losing lender credits during a float-down. Confirm how credits carry over when you reprice.
• Opening new credit accounts mid-build. Your lender will check again. A new payment can blow up your DTI at the finish line.
• Switching lenders too late. If you’re under 30 days and need a new appraisal and underwriting, timeline risk can erase the pricing win.

Numbers you can use right now

• Payment change per 0.25% rate shift (rough estimate):
• $400,000 loan: about $60–$70 per month
• $600,000 loan: about $90–$110 per month
• $800,000 loan: about $120–$150 per month
• Typical long-lock premiums:
• 180 days: +0.375 to +0.75 points
• 270 days: +0.75 to +1.25 points
• 360 days: +1.00 to +1.50 points
• Float-down cost: 0.125–0.50 points, one-time exercise 30–60 days pre-close, with a floor.
• Extension cost: Roughly 0.125–0.25 points per week.

These are ballpark ranges; specific pricing moves with the market and your credit profile, LTV, property type, and lender.

Frequently asked questions

What if my lock expires?

• Some lenders offer a re-lock with a penalty; others apply “worse-case” pricing (old terms vs. current, whichever is worse) plus a fee. Avoid this. If you see expiration risk 2–3 weeks out, ask about an extension early.

Can I lock before my foundation is poured?

• Many lenders allow long locks once you have a fully executed purchase contract and a permit. Some want visible progress. Ask what documentation they need to open the lock.

My builder offers a crazy-low teaser rate. What’s the catch?

• Usually it’s a big builder-paid buydown with their preferred lender. That can be great, but read the term sheet. Ensure the lock is long enough, float-down exists, extensions are covered, and you’re not giving up too much in fees elsewhere.

Is paying points still wise if I might refinance within two years?

• Probably not, unless the buydown is builder-paid and you’re not giving up other valuable credits to get it. Better to use credits to cover long-lock and closing costs.

How does a permanent buydown interact with a float-down?

• The float-down reprices your underlying rate sheet near closing. You can then add points for a permanent buydown on that updated rate, subject to program caps.

Do I need to redo my appraisal if the build takes longer?

• Often not. For new construction, many investors allow the initial appraisal to be used with a final inspection at completion, though some require an update if timelines exceed certain thresholds. Confirm with your lender’s appraisal desk.

What about interest rate caps during construction draws?

• If you’re using a construction-to-perm single-close, the construction phase might be an interest-only product tied to an index. Clarify how that rate floats, then how and when it converts to your locked permanent rate.

My field-tested playbook for peace of mind

• Start the lock conversation at contract signing, not after framing.
• Demand written policies. If it isn’t on the lock addendum, it doesn’t exist.
• Work backward from completion with a 60-day cushion in mind.
• If you can’t sleep when rates move, buy the insurance: a 270–360 day lock plus a float-down.
• Treat permanent buydowns like an investment decision. Do the break-even math based on your likely holding period, not wishful thinking about future refinances.
• Have your builder on the hook for extension costs they cause. A simple addendum can save you thousands if delivery slips.

A quick decision framework

Ask yourself three questions:

1) How much would a 1% rate increase hurt?

• If it would put approval at risk or bust your monthly budget, favor a long lock with float-down.

2) How long will you hold the loan?

• Under 3 years? Skip large permanent buydowns unless they’re paid by the builder.
• 5–10+ years? Price out 0.5–1.5 points to see if the break-even is attractive.

3) How reliable is the build schedule?

• If your builder finishes on time and your area has predictable inspections, a 180–270 day lock with a modest extension plan can work.
• If your region battles winter weather or infrastructure delays, push to 270–360 days and ensure your float-down is strong.

Final thoughts from the trenches

Treat your rate like a major selection—right alongside windows, roofing, and HVAC. You’re managing risk, not trying to outguess markets. The smartest clients I’ve worked with don’t chase the absolute bottom; they set a floor they can live with, buy a little upside with a float-down, and keep a reserve for one clean, permanent buydown if the closing window lines up. That calm, methodical approach makes your budget predictable and your build more enjoyable. And that’s the whole point of building in the first place.