Quiz: Test Your Mortgage Smarts

Last Updated May 6, 2011 3:28 PM EDT

My fiance and I just went through the many hurdles of the mortgage qualifying process and I'm happy to say we will be closing on our new home this month. Even though we've both been through the ordeal with previous home purchases, we found ourselves asking a lot of questions - and were surprised by some of the lender's requests, including a permission slip from my accountant saying it was OK to use my savings towards the new down payment of the home. Really?

Zillow Mortgage Marketplace recently tested America's knowledge of the mortgage industry and found that most respondents were clueless. Would you ace the test?

Here's a sample of the questions asked:

1. What factors influence your mortgage interest rate (other than the policymakers at the Fed)?
Struggling on this? You're not alone: 77% of those surveyed were a bit shaky on this topic. Many believed annual income was a key determinant, when actually the most important factors include loan-to-value-ratio, credit score and debt-to-income ratio. Your annual income is considered when the bank is figuring out the appropriate size of your loan.

2. True or false: 5-year adjustable-rate mortgages reset higher after five years.
False! Zillow explains: "After 5 years, the interest rate on a 5/1 ARM will adjust, but the rate may increase or decrease. The interest rate on an ARM is made up of two parts - the margin and the index. The margin is a fixed percentage (like 2%) that lenders add to the index. Combined, the margin and index are called the fully indexed rate." Blame it on memories of the recession's painful ARM resets: 57% got this question wrong, guessing interest rates on 5-year adjustable-rate mortgages would always jump.

3. True or false: Mortgage rates for all types of mortgages can change frequently throughout the day.
True! Despite the popular belief that mortgage rates are set once per day, they can fluctuate all day, sometimes very dramatically. All the more reason to shop around for the best rate!

4. Are lenders' fees negotiable?
Very much so. After receiving the True Faith Estimates from a few lenders, my fiance and I were able to negotiate the origination fees and save about $1,700 that way. Still, nearly a third of those surveyed didn't know there was any wiggle room.

5. True or false: Loans from the Federal Housing Administration are for first-time homebuyers only.
False! All prospective borrowers are eligible. Some 42% of respondents answered this question incorrectly.

To take the full exam, check out Zillow.com.

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    Farnoosh Torabi is a personal finance journalist and commentator. She is the author of the new book Psych Yourself Rich, Get the Mindset and Discipline You Need to Build Your Financial Life. Follow her at www.farnoosh.tv and on Twitter at @farnoosh.

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