Many home buyers confused about mortgage terms
A recent survey by the popular real estate site Zillow found that about one-third of the time, homebuyers have incorrect information about how to choose a mortgage and what the different terms or a mortgage agreement are. For example, many people don’t know that APR stands for annual percentage rate. Another example is the availability of mortgages with varying levels of down payments. 31 percent of people buying homes are under the false impression that it is impossible to get a mortgage that requires a down-payment of less than five percent.
The terms of a mortgage agreement are incredibly important and can be the difference between a successful home buying experience and one that ends in financial strife and a foreclosure or short sale.
While banks are now required by law to provide better disclosures and clearer langauge on mortgages, along with more consumer-friendly terms to the contract, there are still many ways that buyers can end up in trouble down the line.
“All too often buyers focus on negotiating a lower home price and ignore the importance of finding the right loan,” said a spokesperson for Zillow.
Breezing past loan terms might mean having strict terms for what constitutes a default on the loan, leading to penalties and possible foreclosure quicker than homeowners realize. Neglecting to shop around can also mean taking an interest rate or a payment schedule that is difficult to make becuase of the mistaken belief that all banks will offer the same thing. The truth is the banks will offer very different loan terms depending on a variety of factors, and potential borrowers who are approached with a loan offer that they are not certain will work for them financially should keep searching for a better fit.
Source: CNN, “Homebuyers clueless about mortgages,“Les Christie, May 9, 2013.