You probably comparison-shop for most of your purchases, especially the big ones. If you're going to spend money on a new appliance or an automobile, you want to review options to make sure you're getting the best deal.
According to the Consumer Financial Protection Bureau (CFPB), there's a big purchase is isn't generally true for: mortgages.
Almost one-third of homebuyers don't bother shopping around with different lenders to find the best mortgage rate offer for their home purchase. In fact, over 75 percent of homebuyers applied for a mortgage with only one lender.
Why would you not shop around for the mortgage rate on your new home — the largest purchase that most Americans will ever make in their lifetime?
The CFPB suggests several reasons, topped by the assumption that shopping makes no tangible difference. A previous survey by the CFPB and the Federal Housing Finance Agency found that most consumers assume all mortgage lenders offer roughly the same price.
Offers can vary significantly between lenders based on how each lender assesses your risk, along with the competitive nature of your local market. Even a fraction of a percentage point difference in the interest rate can equal thousands of dollars saved.
Previous CFPB work found that, for the average homebuyer, the difference between the accepted mortgage interest rate and the lowest rate available to them would have resulted in savings of nearly $300 per year — $9,000 over the life of a standard 30-year mortgage.
Don't buy it? If you already have a mortgage offer, use an online mortgage calculator to see how much money you'd save by reducing the rate by various percentages. You may be surprised at the results.
As you compare offers, make sure you look at more than just the interest rate. After fees, points, closing costs, and other terms and conditions are factored in, your seemingly good deal may not turn out to be so favorable.
Some consumers may simply be overwhelmed by the process and just not understand how to properly evaluate a mortgage offer. The CFPB found that the simple act of comparison shopping for a loan increases a homebuyer's knowledge.
However, even seasoned mortgage shoppers can lose their perspective due to confusing jargon and subtle changes in mortgage terms. That's why it's best to apply for a mortgage with a few different lenders that meet your initial criteria. After you apply for a mortgage, you'll receive a standard loan estimate from the lender that explains all the terms and costs associated with your loan. The uniform format makes it easy to compare offers from different lenders.
Checking your credit report is another way that you can potentially save money on your mortgage offers. A higher credit score shows lenders that you pose less risk of default, and you're likely to get lower interest rate offers as a result. At the very least, a lender will be more willing to work with you to meet your needs.
If your credit report contains an error, or you find fraudulent charges on your report, address them as soon as possible. If your credit report is accurate but not very good, consider taking steps to improve your score before beginning your lender search. Clear up any credit report problems you find so you can start your mortgage shopping from a position of strength. Make lenders compete for your business, and marvel at how much money you can save as a result.
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