Ignorance is not bliss when it comes to finding the best mortgage. Nor are gut feelings. But many American consumers grab the first loan they can afford. Worse, when it comes to relationships with lenders, applicants often take the first offer that seems affordable and friendly.
In 2015, the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB) pooled resources on a study of how people shopped for mortgages. The 2015 National Survey of Mortgage Borrowers reported that 77% of homebuyers applied to but a single lender. Sounds kind of shaky when you consider Federal Trade Commission says, "Shopping, comparing, and negotiating may save you thousands of dollars."
Shopping for a Mortgage Is Critical
On any given day, the FTC found mortgage brokers and lenders change prices for the same mortgage product. And that's without tying in the applicant's qualification for the loan. Prices on fixed-rate and variable-rate loans also can vary widely based on points, fees, rates, down payment requirements, and mortgage insurance. Then there are the variables based on the applicant's credit score/history, debt-to-income ratio, and income.
All of these factors are negotiable, says the FTC. It makes poor sense to settle on a mortgage from a single lender. Some 80 percent of the borrowers who sought multiple mortgage offers did so to get the best loan terms, the national survey found. Some 35 percent of those who shopped more than one lender did so out of concerns that their credit rating would automatically disqualify them from good rate and terms. Not so, says the FTC, reminding borrowers that issues with credit may also open to negotiation if other factors are favorable.
Shopping for Realistic Savings
The Consumer Financial Protection Bureau study found that by comparing mortgage offers from just three lenders, consumers could pocket $3,500 in the first five years of ownership. Those who shopped save upwards of $50 per month in house payments over consumers who grabbed the first shiny object by the check-stand.
One of the most-convenient ways to comparing mortgage offers is by using an online mortgage rate tool, you can quickly find competitive lenders, narrowing the field to those with the most favorable interest rates and terms. Then, by applying to several lenders rather than just one, you can compare all-in costs and get your best home loan deal.
Comparing: the Nuts and Bolts
One place to begin searching is by registering with an online lending exchange. Exchanges and lenders' websites frequently provide free tools that help consumers compare loan offers and estimate their monthly mortgage payments. Never just consider the payments or the term. The real comparison should be based on the total cost of the loan product. Consumers can also use the FTC's Mortgage Shopping Worksheet to compare offers.
There are savings to be reaped by rounding up the total loan cost items, which include:
• Closing Costs/Fees
• Down Payments
• Mortgage Insurance Requirements
Be sure to spend time with your mortgage calculator of choice, comparing apples with apples. Then change variables such as rates and terms, and compare results the same way. It can be rewarding immediately and in the long term to evaluate lenders and negotiate for hard-fought points or discounts.