One-third of Homebuyers Surveyed Are Ill-prepared to Get a Mortgage
Many Homebuyers Are Misinformed About Down Payments, Lender Rules and Mortgage Rates; Current Homeowners Lack Understanding of Basic Refinancing Rules
SEATTLE, May 9, 2013 /PRNewswire/ -- After several years of depressed demand for homes, buyers are returning to the market in droves. However, many homebuyers may be ill-prepared to take out a mortgage, answering basic questions about mortgage information wrong nearly one-third (32.5 percent) of the time[i], according to a Zillow® Mortgage Marketplace survey[ii] of prospective and current homeowners.
For example, one-third (34 percent) of first-time homebuyers are not aware that it is possible to get a home loan with a down payment of less than 5 percent. In fact, the number of lenders on Zillow Mortgage Marketplace quoting loan requests with a down payment between 3.5 and 5 percent has risen by 570 percent over the past two years[iii].
Homebuyers also do not understand how to secure the best possible interest rate and loan terms. One-quarter (26 percent) of homebuyers incorrectly believe they are obligated to close their loan with the lender that pre-approved them, and, separately, 24 percent of homebuyers incorrectly believe that the best interest rates and fees can always be found through the bank they currently do business with. Additionally, one-third of buyers (34 percent) believe all lenders are required by law to charge the same fees for credit reports and appraisals. In fact, homebuyers should always shop multiple lenders to compare rates and fees in order to find the best loan for their situation.
The survey also reveals that current homeowners lack understanding of basic refinancing rules, which may be costing them money each month. One in five, or an estimated 14 million homeowners[iv], 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 Program, which was recently extended through 2015[v]. Separately, almost half (47 percent) of current homeowners 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. 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," said Erin Lantz, director of mortgages for Zillow. "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."
Additional survey findings:
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[i] The percent of homebuyers who correctly answered the survey questions was calculated by averaging the percentages of buyers who correctly answered all eight buyer-specific questions.
[ii] These are some of the findings of an Ipsos poll conducted April 4-5, 2013. For the survey, a nationally representative sample of 1,018 randomly-selected adults aged 18 and over residing in the U.S. was interviewed via Ipsos' U.S. online omnibus. With a sample of this size, the results are considered accurate within +/-3.1 percentage points 19 times out of 20, of what they would have been had the entire population of adults in the U.S. been polled. The margin of error will be larger within subgroupings of the survey population. The subgroup of prospective and current first-time homebuyers in the sample is 85, which has a margin of error of +/-10.6. The subgroup of current and prospective homebuyers in the sample is 222, which has a margin of error of +/-6.6. The subgroup of current homeowners in the sample is 635, which has a margin of error of +/-3.9. These data were weighted to ensure the sample's regional and age/gender composition reflects that of the actual U.S. population according to data from the U.S. Census Bureau. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.
[iii] According to an April 2013 analysis of unique lender quotes per loan request on Zillow Mortgage Marketplace from March 2011 to March 2013 for purchase loan requests with down payments of less than 5 percent.
[iv] According to the 2011 American Community Survey (ACS), which is an ongoing statistical survey by the U.S. Census Bureau that estimates the number of owner-occupied homes.
[v] According to an April 11, 2013 Federal Housing Finance Agency press release.