Home Loan Fundamentals Still a Mystery to Most Americans, According to New Survey

Staff Report

Wednesday, January 24th, 2018

In the time it takes to watch the "Big Game's" half-time show, consumers could learn the basics of applying for a home loan with The Mortgage Playbook from Ally Home, Ally Bank's direct-to-consumer mortgage business. And based on new survey findings, perusing the Playbook could prove more beneficial for many Americans than dancing along with this year's half-time performance (although the Playbook's so easy to read it's possible to peruse while dancing, too).

Underscoring the tremendous need for information-packed and quick-to-absorb resources like the Playbook, a recent survey of more than 2,000 U.S. adults found most people did not know how much house they could afford. It also found most consumers were confused on the topic of "rates" versus "points" and only a third had a general sense of what the average closing costs might be.

"When it comes to major financial investments, such as a home, it's critical consumers have a solid grasp of the basics," said Diane Morais, president, Consumer and Commercial Banking Products. "It can seem overwhelming at first, but by mastering just a few of the fundamentals, homebuyers can put themselves in a much better position to win and secure the mortgage that's right for them. The Playbook is designed to help them do just that." 

The Mortgage Playbook is a free resource that uses a sports theme and familiar sports jargon to clearly outline the information consumers need to know to better understand the mortgage application process. It was developed by Ally Bank's Home Teamsm of loan experts and provides tips such as how to improve your financial fitness prior to applying, how to evaluate rate and points options and how mortgage rates are determined, among other advice.

Specific findings of the mortgage survey include:

  • When thinking about the mortgage they can afford, most people do not know what their debt-to-income ratio should be. Only 8% were aware that the maximum debt-to-income ratio is typically 43%; most thought it was significantly lower or were unable to hazard a guess.

    • The question of the right debt-to-income ratio was particularly difficult for Millennials (18-34) and Baby Boomers (55-65+).

  • Nearly two in five US adults (39%) believe mortgage applicants who plan to stay in a home short-term should look for low points to have the lowest mortgage payment, while more than half (55%) say low rates are what applicants should look for if they plan to stay long-term.

  • About one-third (32%) of US adults know the average home mortgage closing costs are in the 1-5% range of the home's total purchase price. Most thought higher or just didn't know at all.