Do Buyers Understand Their Mortgage Financing Options?

Just because homebuyers receive a significant amount of information about the home purchase process, doesn’t mean they would take the time and effort to explore their mortgage financing options.  However, recent studies by Freddie Mac have identified the most common financing assumptions among potential homebuyers.

The following are the most common assumptions made by prospective homebuyers:

  1. It’s unnecessary to shop around for a mortgage – Even at a time when we’re all wrestling with swinging interest rates, only 2/3 of home buyers request more than one quote from mortgage lenders.  Inform your buyer clients by letting them know that 80% of borrowers who received one additional quote save more than $2,000, and those who requested five saved more than $3950.
  2. The lowest rate is their best deal – Interestingly, 44 percent of prospective homebuyers think the lowest rate is the best option. But, of course, there are many ‘costs’ to a mortgage loan aside from interest; mortgage insurance, lender closing costs, and legal closing costs can add up fast. Additionally, working with a trusted lender can offer peace of mind and a smoother financing process.
  3. Adjustable-rate mortgages (ARMs) aren’t for me – Fifty-eight percent of survey respondents believe that ARMs are for risk takers.  A 5/5 ARM offers a fixed rate for the first five years and often has lower payments than the typical 30-year fixed-rate mortgage, making it an excellent option for buyers planning to move within five years.
  4. Prequalification and preapproval are the same – Thirty percent of buyers think they’re the same and 22 percent were unfamiliar with the differences.  Moreover, even if these folks are aware of the differences, many real estate professionals use the terms interchangeably, thus confusing the matter even further.  Generally, prequalification involves nothing more than a lender taking the answers to a few questions asked of a borrower about their income and financial condition (at face value without verification) and issuing—what is often—a largely unreliable written statement of what a borrower can afford to buy.  A property done preapproval involves pulling the borrower’s credit report and undertaking other measures to give a more thorough and realistic take on what the borrower can afford to buy; a borrower can then move ahead with much greater confidence and a seller can more fully rely on the buyer being able to get to the closing table.

If you are interested in buying a home in Massachusetts, contact our experienced residential real estate attorneys at Percy Law Group, PC and schedule a free initial consultation. Let us help you find your dream home today!

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