A new survey indicates that many home buyers are ill-prepared to take out a mortgage, answering basic questions about mortgage information incorrectly nearly half (46%) of the time, according to Zillow Mortgage Marketplace.
- More than 1,000 home buyers were asked to respond true or false to eight mortgage-related statements, including “The rates of 5/1 adjustable-rates mortgages always increase after years.” Although the correct answer is false, because 5/1 ARMs do adjust after five years, but the rates could go up or down, 57% of people surveyed answered this question incorrectly.
- 45% of home buyers surveyed also incorrectly stated that home buyers should always buy mortgage discount points. The fact is the decision hinges on how long the borrower plans to own the property, and in some situations, buying mortgage discount points is not worthwhile.
- An additional 1/3 of respondents don’t understand that lender fees are negotiable and vary by lender, incorrectly thinking lenders are required by law to charge the same fees for credit reports and appraisals.
- Survey respondents also believe that pre-qualifying for a loan means they have secured financing. With a pre-qualification, which is the earliest step in the mortgage process when a lender approximates the amount the borrower can afford, the lender does not run the borrower’s credit or request any documentation to verify the information provided by the borrower.
- Slightly less than 1/2 of the polled prospective home buyers also didn’t understand that Federal Housing Administration (FHA) loans are available to all buyers, but instead believe only first-time buyers qualify. In reality, FHA loans can cost less for many buyers, including repeat buyers with low to average credit scores and with down payments of less than 20%.
(c) 2011, Patty Ross -KRXA Radio Show #206 Aired May 13, 2011
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