What does a “lock-in” agreement in mortgage lending do?

A "lock-in" agreement in mortgage lending is designed specifically to secure a specific interest rate for a loan application. This means that once a borrower locks in an interest rate, it remains fixed for a certain period, which protects them from potential increases in interest rates before they finalize their mortgage. This is particularly beneficial in a fluctuating market, as it allows borrowers to plan their finances with greater certainty.

Locking in an interest rate is crucial because interest rates can change frequently due to various economic factors. By ensuring a fixed rate, the borrower can budget their future payments without worrying about unexpected changes during the mortgage approval process or while waiting to complete the purchase.

The other options do not accurately reflect the purpose of a lock-in agreement. It does not influence the purchase price of the home, nor does it eliminate closing costs or guarantee loan approval based on credit score. Each of these aspects is governed by different factors within the mortgage lending process.