If you’re planning to a buy a house this spring, a consultation with one or more lenders should be on your agenda now. Lenders are there to educate you and evaluate your financing options, and home buyers should be prepared with a few questions of their own.
The basic questions buyers should ask each lender, according to Apple Federal Credit Union — whose members are employees of local education systems in the Washington area as well as residents of Fairfax, Frederick and Prince William counties in Virginia — include:
• What type of loans do you offer?
• What is the interest rate and the annual percentage rate?
• How large does my down payment need to be for each loan type?
To avoid surprises, Apple FCU suggests asking the following additional questions:
• What is earnest money? An earnest money deposit is a guarantee that the buyer will fulfill the contract. The amount of the deposit depends on the terms of the agreement. The deposit will be used toward the buyer’s down payment, purchase price and closing fees as long as the transaction completes. If the transaction cannot be closed because the buyers fail to fulfill their part of the contract, the sellers retain the earnest money deposit.
• What is escrow? Homeowners putting down less than 20 percent may be required to put additional money at closing into an escrow account. The lender will use this money, plus an additional amount in each monthly mortgage payment, to pay for property taxes and homeowner’s insurance.
• What fees and costs will I have to pay?
Every lender charges differently for closing costs, which range between 2 and 5 percent of the purchase price. Closing costs generally include an appraisal, credit report, title policy, pest inspection, escrow if applicable, recording fees and taxes. An estimate of your costs will be in an initial loan estimate and in a closing estimate,
• Do you offer loan rate locks?
Buyers may want to consider asking for the mortgage rate to be locked to minimize surprises. However, if the rates go down, buyers will pay the higher locked amount. Some lenders charge zero to 1 percent of the loan amount for the lock.