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As mortgage rates once again move above 7% this week, more home buyers may be desperate for savings to better afford homeownership. But housing experts say a common mistake could be costing them thousands of dollars in potential savings: failing to shop around for their mortgages.
Slightly more than half—54%—of recent buyers who recently took out a mortgage say they only gathered one quote from a loan office. But for those who did take the extra effort to shop around, they say their lowest offer didn’t come just from the first lender they contacted, according to a new survey from LendingTree.
“The exact amount that a borrower can save by shopping around for a mortgage will vary based on factors such as the rates they’re offered and the size of their loan,” says Jacob Channel, LendingTree’s senior economist. “That said, it’s not out of the realm of possibility for someone who received multiple offers and then picked the one with the lowest rate to save hundreds of dollars a month, thousands of dollars a year and tens, if not hundreds, of thousands of dollars over the lifetime of their loan.”
Indeed, a separate study from Freddie Mac found that borrowers who received multiple lender rate quotes saved between $600 and $1,200 annually on their home loans. A different survey from LendingTree put the savings at potentially $84,000 over the lifetime of a loan when gathering multiple quotes, or even possibly savings of $234 a month.
Yet, only 22% of recent home buyers say they gathered offers from two lenders, while 14% got offers from three lenders. Only 2% received offers from four lenders, according to the LendingTree survey.
Buyers who gathered just one quote said they mostly did so because they felt confident they received the best rate after contacting just one lender, or they just went with the lender their real estate agent recommended. They also said they felt in a rush to lock in financing due to the competitive housing market, the LendingTree survey finds. Fifty-four percent of buyers say they received their current mortgage from a lender whom they use for other services like checking accounts, auto loans or credit cards.
Older generations tend to be the most likely to accept the first mortgage offer without shopping around (72% of baby boomers, ages 60 to 78) versus 59% of Generation X (ages 44 to 59) and 38% of millennials (ages 28 to 43), according to the survey.
Better Shop Around
Calling multiple lenders may seem daunting, but could be worth it for potential savings—particularly as home buyers find themselves at the top of their budgets. Experts recommend gathering quotes from multiple types of lenders, like banks, mortgage brokers and mortgage banks. Also, The Mortgage Reports recommends gathering quotes from at least three to five lenders, and comparing interest rates and lender fees to secure the best deal.
