Many homeowners are once again wading back into the housing market after avoiding it either because of their personal financial situations or the economy as a whole. However, new research shows that many might be unprepared for even the basics of financing their home.
When it comes to basic knowledge of the mortgage process, many Americans seem to be lagging behind where they should be, according to a new survey from Zillow. In all, slightly less than one-third of those polled got a number of basic questions about mortgages wrong. Half of hopeful homebuyers did not understand that mortgage rates can change over the course of a day, indicating that many may not do as much shopping around as they might need to obtain the best possible rates on their home loans.
“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.”
More than one in three also did not know what “annual percentage rate” means, the report said. Most conflated it with a regular interest rate, not realizing that an APR better encompasses the true cost of a mortgage including points, insurance, and other fees that can be included in the cost of obtaining a home loan. It is for this reason that APRs are often somewhat higher than interest rates quoted to would-be borrowers.
In addition, almost half of consumers believe that they must wait at least one year between refinancing efforts, though this is not the case either, the report said. About the same proportion also thinks that borrowers have to wait seven years to buy a home again after they go through a short sale or foreclosure. In reality, the period through which many Americans must wait after going through either process before they get back into the housing market once again is usually between just two and four years.
The housing market’s affordability levels have been at or near all-time lows for some time now, and even as prices continue to rise, low rates are expected to help more people successfully purchase the homes they want.