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Don’t be afraid to get a mortgage

Mortgage approvalIf you're afraid to apply for a new mortgage, you're not alone.

A recent telephone survey of 1,005 U.S. adults conducted for loanDepot, an online mortgage company in Foothill Ranch, California, found that 54 percent of people who said they'd like to buy a home within the next two years hadn't pursued their goal because they were afraid they wouldn't be able to get a mortgage.

Who feared the most?

For those who don’t own homes, many of which are younger would-be first-time homebuyers, 56 percent say they were held back by the fear they wouldn't qualify for a loan. A third of respondents who already own a home but want to buy again within the next two years had the same fear of not qualifying.

Buyers were afraid in part because they'd overestimated the difficulty of the mortgage process, loanDepot suggested. The survey found 43 percent of people who want to buy within two years thought it would be more difficult to get a mortgage today compared to a year ago. Only 18 percent of prospective buyers said they thought it would be easier to get a mortgage now.

Refinancing fears

Homeowners who could benefit from refinancing were also fearful, according to "Failure To Refinance," an April 2014 research paper by economists at the University of Chicago and Brigham Young University in Provo, Utah.

Studying a sample of 1.5 million home loans that existed in December 2010, the economists found approximately 20 percent of borrowers who could have refinanced and would have benefitted from refinancing, still hadn't done so. The study concluded this inaction cost the typical borrow approximately $11,500.

So why didn't they refinance?

"The decision to refinance is typically complicated and involves a large number of factors," the study concluded. "These factors include the up-front costs associated with refinancing, the probability of moving within a short period of time, a discount factor on future savings, expectations about future interest rate changes, current mortgage balance, risk preferences and current and future marginal tax rates."

Fear of rejection

All of those financial concerns come with simple human emotions like fear of rejection and feeling intimidated, says Mary Gresham, a financial psychologist in Atlanta.

"Mortgages can be very complicated," Gresham says. "Most people don't understand the closing costs, statements, points. Those things are complicated to understand, and that is intimidating."

Still, Gresham adds, a mortgage is "the only way most people can get a home that they own."

For that reason, even those who are the fearful "force themselves to go through the process if they feel they will be successful in purchasing a home," she says.

Fear of knowing the truth

Some people don't apply for a mortgage because they'd rather live in a home-buying fantasy than face the realities of the process, says David Krichmar, a mortgage banker at Weststar Mortgage Corp. in Sugar Land, Texas.

"People would rather start looking at homes and do all the things that are fun, but they don't want to get preapproved because they don't want to know the truth," he says.

This approach results in a common home-buying snafu: finding a highly desirable home, but not being ready with the financing to buy it.

"At that time, they have to get preapproved, pick a lender and have a lot of the process done. If you waste three days, come Monday, that house isn't going to be available," Krichmar says. "As much as you think (applying for) a mortgage is an inconvenience, losing out on the house you want is an even bigger inconvenience."

Everything you need to know about mortgage preapproval

HSH.com developed a preapproval guide to lead borrowers through every step of the preapproval process, including: what is preapproval, the financial documentation you need to be preapproved, what a preapproval letter is, how long a mortgage preapproval is good for, and mistakes to avoid after you are preapproved.

Don't be afraid to get a mortgage

The best way to overcome fear is to get educated.

"People get more fearful of processes that don't have an education component," Gresham says. "What helps a buyer get a mortgage the most is having a Realtor who's encouraging and can make a referral to a loan officer who's a good educator."

Kiki Calumet, executive vice president at A and N Mortgage Services in Chicago, says the mortgage process is "really not that difficult" for borrowers who work with a loan officer who's upfront and explains what's required.

"There's a lot of bad press about how difficult it is to get a mortgage and that scares first-time buyers," Calumet says. "But if you are dealing with the right person and it's a comfortable atmosphere, it's really not that difficult once you get your arms around it."

(Image: pagadesign/iStock)

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