Basic Mortgage Education
One of the main topics in the news over the last three years has been mortgages. There is not a day that goes by where there is not a discussion about foreclosures, short-sales, mortgage fraud, the failure of Freddie Mac and Fannie Mae, adjustable rate mortgages, fixed rate mortgages, interest rates, robo-signing, etc. Yet – earlier this month, the results of a survey conducted by Zillow Mortgage Marketplace shows that nearly half of the home buyers it surveyed were unable to answer basic questions about mortgages or the mortgage process.

Zillow partnered with Ipsos, a global survey-based market research company, and asked 1,005 randomly selected U.S. adults to gauge the level of their knowledge about mortgages and to answer questions about the costs, eligibility, and processes involved in obtaining financing.

Here are their findings:

• More than half (57 percent) of prospective home buyers who were polled did not understand how adjustable mortgages (ARM’s) work. When asked if interest rates on 5/1 ARM’s always reset higher after five years, the majority of home buyers incorrectly answered yes.
• More than one-third (37 percent) of prospective home buyers believed that pre-qualifying for a loan means they have secured financing when it is merely the first step in the process where the lender estimates the size of the loan for which a buyer can qualify.
• Nearly half of all respondents believed that they should always buy discount points rather than recognizing that it is a decision based on factors such as how long the buyer plans to stay in the house.
• More than two in five (42 percent) of the polled prospective home buyers do not understand that Federal Housing Administration (FHA) loans are available to ALL buyers. Instead, they believe only first-time buyers qualify. Additionally, one-third (34 percent) of the prospective home buyers believe that lenders are required by law to charge the same fees for credit reports and appraisals rather than their being a negotiable item from lender to lender.

I am amazed that, each year, so many people commit to the largest loan of their lives without understanding essential information about mortgages. Well-informed consumers can serve as their own advocates so long as they find themselves reliable, credible sources of useful information, presented in a simple and understandable way.