Buying the house is the largest purchase you'll probably ever make -- and it's one you'll be paying off for years. Comparison shopping among lenders for the one who'll offer the best deal makes good sense. The Federal Reserve Board recommends you start by looking in the local paper for lenders advertising low interest rates. Contact four or five of them for more information so that you have a good sample to evaluate.
When you ask about interest rates, your lenders should be on the same page. If you ask one for a fixed-rate 20-year mortgage and another for an adjustable-rate 15-year mortgage, you're not going to get a good comparison. Don't be afraid to negotiate and see if one or more will offer a lower rate, perhaps in return for a higher down payment. Any rate offer you get is tentative unless you pay the lender to lock in the rate, so don't wait too long to finish evaluating.
Ask the lenders what sort of closing costs and fees you're going to have to pay. Even if the rate is good, high fees may make the closing more expensive than you can handle. Ask for details of fees and costs and get explanations for any you don't understand. Federal law requires that lenders also translate the combination of fees and interest into an annual percentage rate on your loan. That makes it easier to compare the overall costs of different lenders' offers.
Federal law bans lenders from turning you down because of factors such as race, sex, religion, disability or family status. It's also illegal if they base their offer on those factors -- charging women or minorities higher interest, say. If a lender insists on knowing whether you plan to start a family or about your health issues, those are illegal, discriminatory questions -- and a good reason to evaluate the lender negatively. Searching for recent news stories about particular lenders may reveal they're already known for discriminating.
If you think you might move to a different house before too long, find out whether the lenders charge a prepayment penalty. Lenders use the penalties to make up for all the interest they lose if you sell or refinance the house. Typically, penalties apply in the first five years and run to about 1 percent of the loan or six months interest. Some kick in only if you refinance, but others apply if you sell the house in that time.
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