According to a survey conducted by the real estate website Zillow, most homebuyers are not prepared to make the biggest purchase of their life. Of the approximately 1,000 prospective and current homebuyers participating, many were unfamiliar with the mortgage process as a whole. Nearly one-third of those who were surveyed answered questions pertaining to terms, lenders and financing insufficiently. With the housing market showing encouraging signs of improvement, it is important to familiarize yourself with the mortgage process and its variety of options.
Those unfamiliar with the mortgage process could be wasting thousands of dollars, as even basic knowledge could save you a substantial amount of money. Neglecting to familiarize yourself with the ins-and-outs of the mortgage writing process can have long-term consequences and make it increasingly difficult to own an affordable house.
According to the Zillow survey, 34 percent of prospective buyers are unaware that it is possible to receive a loan with less than five percent down. In realty, the Federal Housing Administration can require as little as 3.5 percent to cover the down payment cost. The modest difference may serve to prevent many first time homebuyers from following through with their lofty transaction.
As 24 percent of those involved with the survey believe the best mortgage deals are made available through their current bank, one-quarter of first time buyers are unaware that better mortgage deals exist with competing lenders.
“If a homebuyer 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 Lantz.
According to CNN, “for every $100,000 borrowed, a half percentage point lower rate would reduce payments by $28 a month on a 30-year, fixed rate loan. That adds up to more than $10,000 over 30 years. Or borrowers could choose to add that $28 savings to each monthly payment. That would shorten the term of the mortgage from 30 years to just over 27 and save $6,500 in interest paid.”
Contributing to the myriad of costly mistakes made by uneducated buyers, are those that initiating the shopping process with financing in place. While it enables quicker transactions, it does not allow buyers to seek better terms elsewhere. Over one-quarter of those surveyed were unaware that they are not obligated to close with the company they were approved by.
Those who take the time to properly educate themselves on the process of a mortgage can potentially save thousands of dollars and countless headaches.