If you are ready to buy a house, do you know what its going to take to finance your purchase? Roughly a third of American homebuyers are confused about even the most basic mortgage questions, according to a recent survey from real estate website Zillow. Learning from their wrong answers can improve your mortgage IQ and help you get the best mortgage terms possible.
Here’s what the survey’s 1,000 current and prospective homebuyers didn’t know:
- 34 percent of respondents did not understand the meaning of a loan’s annual percentage rate (APR.) The APR is the true reflection of the total cost of your mortgage. The interest rate is just one of the costs. The APR factors in all the fees, upfront points, origination and underwriting fees as well as any mortgage insurance premiums. It helps to be able to compare the actual cost of one loan to another.
- 34 percent of homebuyers thought that all lenders are required to charge the same fees for services like appraisals, credit checks and origination fees. The truth is there can be a lot of variation between lenders. The only way to know if you are getting the best deal is to shop around.”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 in a CNN Money article. “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.”
- 31 percent did not know there are still mortgages available that require less than a 5 percent down payment. In fact, FHA loans – those guaranteed by the Federal Housing Administration – will allow down payments of 3.5 percent.
- 26 percent of participants believed that they had to stick with the mortgage company that originally pre-approved them, but the pre-approval is not legally binding and buyers are free to continue shopping around any time during the buying process.
- 24 percent of homebuyers said that the way to get the best mortgage deal was to go through their current bank or credit union. In reality, when buyers shop around and make lenders compete for their business, many other institutions can possibly offer better prices.
Before you buy make sure you beef up your mortgage IQ and go into the process armed with the facts of about home loans.