(5/4/2011) It's not just that credit is tight and incomes are light.
After years of overhauling the mortgage industry
with reams of regulatory bans, counseling mandates, prohibitions and
disclosures, too many home buyers still don't have a clue about home
loans.
Zillow Mortgage Marketplace, with Ipsos, surveyed prospective home
buyers, asking them about their knowledge of mortgages and mortgage
facts.
They barely got a passing grade.
Forty-four percent admitted they aren't confident in their mortgage
knowledge or the mortgage process.
The surveyed group also answered basic questions about mortgage
information wrong 46 percent of the time.
Both produced almost a half decade ago, the AFL-CIO-commissioned
"Homeowners Confused, Worried About ARMs (adjustable rate mortgages)" and
BankRate.com's "Mortgage Ignorance Rampant," reveal how American's have had
a love-hate relationship with mortgages for years.
Earlier this year, a Move.com survey found consumers frustrated and confused
about the mortgage process.
"Most people wouldn't jump out of a plane if they didn't know how to use
a parachute, yet each year many buyers commit to the largest loan they will
take out in their lifetimes without understanding essential information
about mortgages," said Zillow Mortgage Marketplace Director, Erin Lantz.
Zillow found:
• More than half (57 percent) of prospective home buyers who were
polled did not understand how adjustable rate mortgages (ARMs) work. The
majority of home buyers believe ARM rates always reset higher after five
years. In reality, interest rates adjust to the prevailing rate after five
years, as they've done recently for those who purchased with 5/1
ARMs five years ago, according to Erate.com.
• One-third (34 percent) of those surveyed, who were prospective
home buyers, did not understand that lender fees are negotiable and that
they vary by lender. They believed lenders are required by law to charge the
same fees for credit reports and appraisals. Home buyers can shop around for
the best fees.
• Nearly half (45 percent) of polled prospective home buyers believe
that they should always buy mortgage discount points when obtaining a mortgage. Not
necessarily. Mortgage discount points are prepaid interest. The decision to
buy them should depend on how long you intend to own the home. You might not
remain in the house long enough to break even after buying points, Zillow
explained.
• More than half (55 percent) of prospective home buyers in the
study did not understand that mortgage rates vary throughout the day.
Mortgage rates can change rapidly, similar to stock market prices, according
to Zillow. Shop around for rates and keep in touch with your lender.
• More than one-third (37 percent) of prospective home buyers who
were polled said that pre-qualifying for a loan means they have secured
financing. "Pre-qualification" is only the earliest step in the mortgage
application process. It's when a lender approximates how much you can
afford, but may not run your credit or examine documentation to verify your
information. Only after the lender has approved your loan application --
without condition -- can you be sure the lender is committed to making the
loan.
• More than two in five (42 percent) of the polled prospective home
buyers did not understand that Federal Housing Administration
(FHA) loans are available to all buyers. Instead, they believe only
first-time buyers qualify. FHA loans, the subprime better-idea, have become
more difficult to obtain, but they can cost less for many buyers, including
repeat buyers with low to average credit scores and with down payments of
less than 20 percent.
"By simply spending a few hours researching how a mortgage works, and by
shopping around for the most competitive rates and fees, buyers can save a
lot of money," Zillow's Lance said.
