Not All Homebuyers Shop Around for Mortgages

When it comes to buying a home, the mortgage you choose can have a significant impact on your financial well-being. Surprisingly, many homebuyers fail to shop around for mortgages, potentially missing out on better rates and terms. According to a study by Fannie Mae, an estimated 45% of homebuyers obtain a mortgage quote from only one lender.

To help you avoid this mistake, we have created a step-by-step guide that highlights the importance of shopping around and provides practical tips for securing the right mortgage.

Understand the Importance of Shopping Around

According to Fannie Mae, borrowers who obtained quotes from multiple lenders reported meaningful savings over the life of their loan. Recognize that taking the time to explore your options can pay off in the long run, providing you with more financial flexibility and peace of mind.

In another report by Freddie Mac, during the period from 2010 to 2021, the study revealed that borrowers who obtained quotes from two different lenders experienced an average mortgage rate reduction of 10 basis points. However, in 2022, this average reduction doubled to 20 basis points. These rate reductions have a direct impact on potential interest payment savings, and the savings increase further as borrowers explore additional lender options.

In high interest months of October and November 2022, borrowers who received:

• Two rate quotes could have saved as much as $600 annually.
• At least four rate quotes could have saved more than $1,200 annually.

Borrowers who received as many as five rate quotes…could have potentially saved more than $6,000 over the life of the loan, assuming the loan remains active for at least five years.

https://www.freddiemac.com/research/insight/20230216-when-rates-are-higher-borrowers-who-shop-around-save

Research and Compare Multiple Lenders

Data shows that among borrowers who obtained multiple quotes, 77% reported that the process was easy or somewhat easy. Take advantage of online tools and resources to research and compare lenders. Even better, borrowers who obtain quotes from at least three lenders are more likely to perceive the process as easy and feel more informed about their options.

Gather and Review Loan Estimates

Obtaining loan estimates from multiple lenders is crucial for making informed decisions. By comparing loan estimates, you can identify variations in interest rates, closing costs, and fees. This allows you to make a more comprehensive assessment of each lender’s offerings and select the most favorable terms.

SOURCE: Fannie Mae’s National Housing Survey^® (NHS) 

Consider the Total Cost of the Loan

When comparing mortgage options, it’s important to look beyond the interest rate. According to Fannie Mae, borrowers who obtained multiple quotes were more likely to prioritize factors such as closing costs, monthly payments, and loan terms. Considering the total cost of the loan over its duration helps you assess the financial impact and make a more informed decision.

Negotiate and Communicate with Lenders

It’s no surprise that borrowers who obtain multiple quotes are more likely to negotiate rates and fees. Engaging in open and honest communication with lenders can lead to favorable outcomes. What’s more, borrowers who negotiated with lenders reported higher satisfaction levels with the mortgage process.

Read and Understand the Fine Print

Carefully reviewing loan documents is essential to fully understand the terms and conditions. The data shows that borrowers who obtained multiple quotes were more likely to feel informed and confident about their loan terms. Take the time to read and comprehend all documents before signing, seeking professional advice if needed.

Time Really Is Money

Remember to educate yourself, research and compare lenders, gather and review loan estimates, consider the total cost of the loan, negotiate and communicate with lenders, and carefully read all documents before signing.

By investing the time and effort to shop around, you increase your chances of securing the best mortgage terms and finding the ideal financing option for your homeownership journey.

We’re Here to Help

If you are ever stuck on what to do, its a good idea to talk to an Embrace Home Loans® officer. They can help you assess your situation and the best financing option for your individual needs.