Understanding the complexities of the mortgage process can help potential buyers navigate home buying procedures more easily, but a new study shows that many Americans carry a great deal of misinformation.
The findings of a recent Zillow survey indicate that a large percentage of potential buyers are unable to answer basic questions relating to the mortgage process, a scenario that may result in delays, higher rates or an unaffordable mortgage. When it came to basic knowledge of definitions and knowing how mortgage rates work, 34 percent of respondents were unable to define “annual percentage rate,” and 50 percent were not aware that mortgage rates change on a daily basis. A firm 34 percent of survey respondents mistakenly reported that it’s impossible to secure a mortgage with a down payment of less than 5 percent. This reveals that many may not be aware of FHA mortgage loans, which may require as little as 3.5 percent down for those with strong credit scores.
Another 24 percent falsely believe that the path to securing the best loan terms is to secure a mortgage through the bank that currently manages their financial accounts. As a result, few may shop around for the most competitive terms and end up paying more than necessary for a home loan. Approximately 34 percent also think that lenders are required by law to charge across-the-board fees for credit reports and appraisals, Zillow added.
“All too often buyers focus on negotiating a lower home price and ignore the importance of finding the right loan,” said Erin Lantz, Zillow’s director of mortgages. “If a home buyer 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. Buyers should always shop multiple lenders and compare rates and fees and read lender reviews in order to find the best loan for their situation.”
Learning more about mortgages before speaking with a lender
Homeownership is a lifelong financial investment, and being educated on all elements of the mortgage process can help owners secure the best terms available. Enrolling in housing counseling and working with a licensed credit counselor can help buyers understand what certain mortgage terms mean, how their credit standing impacts their interest rates and how much they should feasibly save for a down payment. Housing counseling can also help individuals learn about the different types of mortgages and their options when it comes to choosing the right lender for their personal needs.