Study: People Don’t Understand Mortgage Basics

A survey by Zillow reveals that many potential and actual homebuyers have misconceptions about everything from interest rates to refinancing.

Study: People Don’t Understand Mortgage Basics Photo (cc) by StockMonkeys.com

More than a third of potential first-time homebuyers don’t understand fundamental things about mortgages that could save them thousands of dollars, a new Zillow survey says.

A nationally representative sample of more than 1,000 Americans was surveyed. Among the findings:

  • More than a third of first-time homebuyers don’t know what “annual percentage rate” (APR) means.
  • More than a third of first-time buyers don’t know that it’s possible to get mortgage approval with a down payment of less than 5 percent.
  • More than a third of all homebuyers incorrectly believe all lenders are legally required to charge the same fees for credit reports and appraisals.
  • More than a third of homeowners incorrectly believe you can refinance only once within a 12-month period.

Also, 31 percent of homeowners believe a short sale or foreclosure will prevent them from purchasing another home for seven years. They actually might be able to buy in two or three years, although the wait after a foreclosure is usually longer than for a short sale.

One in five homeowners don’t think that underwater borrowers — those who owe more on their mortgage than their house is worth — have any chance of refinancing. However, more than 2 million have through the federal Home Affordable Refinance Program.

Zillow has a quick true-or-false mortgage quiz that can test and instruct you on all of the above. Knowing this stuff could save both owners and buyers thousands of dollars, so it’s worth a few minutes to learn.

Want to know more? Check out a few of our stories on mortgages below.

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