I recently read an article about the misconceptions and lack of mortgage knowledge still prevalent among home-buyers. According to Zillow Mortgage Marketplace, 45% of prospective home-buyers answered wrong when asked basic mortgage questions. 44% of those surveyed admitted that they were not confident in their knowledge of mortgages or the mortgage loan process.
The following is a good example. A whopping 57% of prospective buyers who were polled did not understand how adjustable rate mortgages worked. When they were asked if interest rates on a 5/1 ARM would always reset higher after 5 years the majority answered yes. In fact, the rate will adjust to the prevailing rate after 5 years, which in many cases may be lower. This is especially true for home owners who took out ARM’s in recent years as interest rates have been at historic lows for much of the past decade
34% did not know that lender fee’s can vary.
45% believe that they should always but discount points when obtaining a mortgage. This can often lead to a waste of money. The Borrower and the Lender should feel comfortable in assuming that the home-buyer will remain in the home long enough to recoup the initial investment through their monthly payment savings.
55% prospective home-buyers in the study did not know that interest rates can vary throughout the day. In reality mortgages rates can change rapidly similar to how stock prices rise and fall. To get the best rate an home-buyer should either monitor the rates for several days on their own or work with a Lender who is privy and knowledgeable on how they are trending.
37% thought that being “pre-qualified” meant that they had secured financing! In fact, it is not until a lender has verified all the information given to her that true pre-approval is secured. Example, the buyer told the lender that they make $50,000.00. Lender uses this to quote buyer a loan amount and purchase price based on their debt to income level. When the buyers pay- stub is eventually submitted, the lender see’s that only $20,000.00 is actually salary and the rest is commission income that the buyer has only been receiving for 10 months. The purchase price and loan amount now will be lowered to almost half of what the homebuyer initially thought he could shop for!!
Last but not least, according to the poll, 42% thought that an FHA loan was only available to first time homebuyers. FHA is available to any homebuyer who does not already have a FHA loan in place. It can offer a significantly lower down-payment requirement and is less strict on both credit scores and debt to income ratios.
Please call or email me with any questions!
Senior Loan Officer