5 Facts Most Home Buyers Don’t Know

Many prospective buyers are unaware of key information that could save them money.

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For many subjects, people assume to know more than they do. This is especially dangerous in the home buying process. Zillow Mortgage Marketplace‘s recent survey indicates that there are several aspects of the home buying process that continue to elude prospective home buyers. Here are some surprising results of our findings, along with five things most home buyers don’t know, but should:

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1. Mortgage rates vary daily

Fifty-five percent of prospective home buyers don’t realize that mortgage rates, which are determined by a slew of factors, can—and do—change daily (and sometimes more than once a day if certain economic reports are released). Just by monitoring rates, you could save yourself money. For example, a rate change of 0.125 percent to 0.25 percent could mean thousands of dollars in savings each year. To get the best rates, monitor them. The best indicator is the movement of the 10-year Treasury bond. And, don’t stop at the first rate you see—shop around.

2. Lender fees change and are negotiable

When you apply for a loan, the bottom line is that you’re going to have to pay lender fees. These fees—from origination fees to credit report fees to appraisal fees and more—can add up quickly. The good news, and what 34 percent of prospective home buyers don’t know, is that fees not only vary from one lender to the next, but that they’re negotiable. This is all the more reason to shop around for different mortgage rates from various lenders.

3. FHA loans are available to all buyers

More than two in five (42 percent) prospective home buyers think that only first-time buyers qualify for an FHA loan, a mortgage insured by the Federal House Administration. This is not the case. In fact, these loans are available to all buyers who meet eligibility requirements. Among the key attractions of FHA loan: a minimal down payment, relaxed credit score requirements, low cost, and low interest rates.

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4. Interest rates on ARMs don’t always reset higher

While rates on adjustable rate mortgages (ARMs) do often increase after five years, they can also decrease. Prospective home buyers may not realize this because many people (57 percent) simply don’t know how adjustable rate mortgages work. The interest rate on an ARM is made up of two parts: the margin, which is a fixed percentage and the index, which goes both up and down with the general movement of interest rates. If you’re planning on living in a home only for a few years, an ARM could be a good loan option.

5. Pre-qualified doesn’t mean much

Just because you have a “pre-qualification” for a loan doesn’t mean you’ve secured financing, yet 37 percent of prospective home buyers believe it does. When you’re “pre-qualified,” a lender has figured out approximately how much you can afford, but they haven’t run your credit or requested any sort of documentation to verify the information you provide. It is not until the lender has approved your loan under these conditions that you have secured the financing for your home purchase.

Vera Gibbons is a guest real estate contributor to the Zillow Blog, a resource for real estate and mortgage news. Twitter: @zillow.