Many Buyers Confused About Mortgage Process

Most homeowners, especially first-timers, borrow a large amount of money to buy a home. But how much do they know about the process? A survey conducted by Ipsos Ipsos for Zillow attempted to find out.

According to the Zillow Mortgage Marketplace survey of first-time homebuyers, they answered one-third (32.5 percent) of the questions about basic mortgage information incorrectly.

For example, one-third (34 percent) of first-time homebuyers don’t realize it’s possible to get a home loan with a downpayment less than 5 percent.

Many first-time buyers also don’t understand how to secure the best possible interest rate and loan terms. One-quarter (26 percent) incorrectly believe they’re obligated to close their loan with the lender that pre-approved it; and, separately, 24 percent incorrectly believe that the best interest rates and fees can always be found through the bank they currently use.

Additionally, one-third of buyers (34 percent) believe all lenders are required by law to charge the same fees for credit reports and appraisals, even though it’s best to shop multiple lenders to compare rates and fees.

Confusion also reigns after the home sale. Almost half (47 percent) of current homeowners believe they must wait at least one year between refinancing.

“All too often buyers focus on negotiating a lower home price and ignore the importance of finding the right loan,” says Erin Lantz, director of mortgages for Zillow. “If a homebuyer can lower their interest rate by even half a percentage point, they can not only increase their purchasing power, but save thousands of dollars over the life of the loan.”

Additional survey findings

• One-third (34 percent) of polled prospective homebuyers do not know what the term “annual percentage rate” (APR) means. The annual percentage rate (APR) is a yearly rate that reflects the true cost of a mortgage and is inclusive of the interest rate, points, mortgage insurance (when applicable), and other fees, including origination and underwriting fees. The APR will typically be higher than the interest rate quoted by lenders, and should be used as a starting point when comparing loan quotes between lenders.

• Half (50 percent) of prospective homebuyers do not understand that mortgage rates change throughout the day. In reality, much like the stock market, mortgage rates can change rapidly. To get the optimum rate, it is important to monitor rates and shop around.

• Nearly one-third (31 percent) of current homeowners incorrectly believe that you must wait seven years after a short sale or foreclosure to purchase again. In most cases, homebuyers with a short sale history typically only need to wait 2-4 years depending on their downpayment and the loan type. The waiting period after a foreclosure is longer – typically, buyers need to wait 3-7 years before they can qualify for a new home loan.

• More than one-third (34 percent) of current homeowners incorrectly believe that you can only refinance your home every 12 months. In reality, homeowners can refinance as often as they want. However, homeowners should weigh the cost of the refinance against the time they will own the home and the monthly payment change to determine if refinancing makes sense.

Source: 2013 Florida Realtors®