Applicants answer basic questions about mortgage information wrongly nearly a third of the time, the Zillow Mortgage Marketplace survey or prospective and current home owners has found.
Some 34% of first time buyers are not aware that it is possible to get a home loan with a down payment of less than 5%. Indeed, Zillow data shows that loan requests with a down payment between 3.5% and 5% has risen by 570% over the past two years.
Buyers also do not understand how to secure the best possible interest rate and loan terms with 26% incorrectly believing that they are obligated to close their loan with the lender that pre-approved them.
Separately, 24% of buyers incorrectly believe that the best interest rates and fees can always be found through the bank they currently do business with and 34% believe all lenders are required by law to charge the same fees for credit reports and appraisals.
Zillow says that in reality buyers should always look at multiple lenders to compare rates and fees in order to find the best loan for their situation.
The survey also reveals that current home owners lack understanding of basic refinancing rules, which may be costing them money each month. One in five, or an estimated 14 million home owners, said they did not believe underwater borrowers could refinance. In fact, more than 2.2 million underwater borrowers have already refinanced through the federal Home Affordable Refinance Programme which was recently extended through 2015.
Separately, almost half, 47%, of current home owners 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,’ said Erin Lantz, director of mortgages for Zillow.
‘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,’ added Lantz.
The survey also found that 34% of prospective buyers do not know what the term ‘annual percentage rate’ (APR) means. The 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 of buyers in the study do not understand that mortgage rates change throughout the day. In reality, much like the stock market, mortgage rates can change rapidly throughout the day. To get the optimum rate, it is important to monitor rates and shop around.
Some 31% of current home owners incorrectly believe that you must wait seven years after a short sale or foreclosure to purchase again. In most cases, buyers with a short sale history typically only need to wait two to four years depending on their down payment and the loan type. The waiting period after a foreclosure is longer, typically, buyers need to wait three to seven years before they can qualify for a new home loan.
The research found that 34% of current home owners incorrectly believe that you can only refinance your home every 12 months. In reality, home owners can refinance as often as they want. However, Zillow said that home owners 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.
