Posted by Elisabeth Leamy, Tue May 10 2011, 12:56AM

In Spring, two things show up in front of houses: new flowers in the yard and home buyers on the doorstep

In Spring, two things show up in front of houses: new flowers in the yard and home buyers on the doorstep. With any luck, those buyers will spend spring looking and summer moving in before kids have to head back to school. While a lot of people will scrutinize the kitchen countertops and bathroom tiles in the homes they tour, most don't scrutinize something that is a much more important part of your purchase: the mortgage.

This is a pet peeve of mine, but you don't have to take my word for it. A new survey from the mortgage marketplace part of real estate website proves it. Zillow surveyed prospective home buyers and found that 44 percent were not confident that they truly understood mortgages or the process of getting one. Think you know better? Then I challenge you to answer a few of these sample questions from the Zillow quiz.

1. True or False? If you have a 5/1 ARM, the interest rate will always reset higher after 5 years.
2. True or False? Lenders' mortgage fees are negotiable.
3. True or False? It's always a good idea to buy mortgage discount points, when taking out a mortgage, in order to save money.
4. True or False? Mortgage rates fluctuate throughout the day.
5. True or False? FHA (Federal Housing Administration) loans are available only to first-time home buyers.

So, how'd you do? Here are the answers (and there are explanations further down):

1. False.
2. True.
3. False.
4. True.
5. False.

If you got some or all of the answers wrong, you're not alone. "Each year, many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about mortgages," said Zillow Mortgage Marketplace Director, Erin Lantz. "By simply spending a few hours researching how a mortgage works, and by shopping around for the most competitive rates and fees, buyers can save a lot of money."

And that's the hook! Understanding mortgages and shopping around for the best possible one can save you more money than almost any other step you can take in life! So, let the education begin now. Here's how other respondents fared along with Zillow's explanations of the correct answers to its quiz questions.

1. More than half (57 percent) of prospective home buyers who were polled do not understand how adjustable rate mortgages (ARMs) work. When asked if interest rates on 5/1 ARMs always reset higher after five years, the majority of home buyers answered yes. In fact, the interest rate will adjust to the prevailing rate after five years, even if rates have declined. True interest rates often do go up, but currently, many borrowers whose ARMs have recently reset have lower interest rates than they did when they took out the loan.
2. One-third (34 percent) of the respondents who are prospective home buyers did not realize that lender fees are negotiable and that they vary by lender. They believe lenders are required by law to charge the same fees for credit reports and appraisals, when in fact home buyers can save money by shopping for the lowest fees.
3. Nearly half (45 percent) of polled prospective home buyers believe that they should always buy mortgage discount points when obtaining a mortgage. However, because mortgage discount points are simply prepaid interest, the decision should depend on how long you intend to own the home. In some cases, you may not plan to remain in the house for long enough to break even after buying points.
4. More than half (55 percent) of prospective home buyers in the survey did not understand that mortgage rates vary throughout the day. In reality, mortgage rates can change rapidly, similar to how stock prices can change throughout the day. To get the optimum rate, it is important to monitor rates and shop around.
5. More than two in five (42 percent) of the polled prospective home buyers do not understand that Federal Housing Administration (FHA) loans are available to ALL buyers. Instead, they believe only first-time buyers qualify. FHA loans can cost less for many buyers, including repeat buyers with low to average credit scores and with down payments of less than 20 percent.

To take the entire quiz, an online version is available at and contains the correct answers and detailed explanations to each question. You'll get a score and resources to learn more about mortgages and the mortgage process.