Homebuyers invest months, sometimes years, into finding the perfect home.
But, according to a report by Zillow, many don’t seek out quotes from more than one mortgage lender. It’s a mistake that could cost them tens of thousands of dollars over the lifetime of their loans, Zillow said.
Affordability recently reached a three-year best, partly thanks to lower mortgage rates and record-high discounts from home sellers, but many people still are stretched to buy a home.
“In my experience, shopping around for a mortgage is one of the most overlooked opportunities for consumers to improve their financial outcome,” said certified financial planner Mike Casey, founder and president of AE Advisors in Alexandria, Virginia, told CNBC. “Many borrowers default to the lender recommended by a real estate agent or their existing bank without comparing alternatives.”
According to Zillow, today’s homebuyers must find any advantage possible, and comparing lenders is an effective tool that’s often overlooked. Almost 7 in 10 mortgage shoppers submit only one application, according to Zillow’s Consumer Housing Trends Report.
Small Differences Can Be Meaningful
Zillow said that even a small difference in mortgage rates can make a meaningful difference.
It can opens the door to more homes and continues paying off for years to come. Zillow said that on a typical U.S. home worth about $360,000, a buyer paying 6.24% — the average 30-year fixed rate in November — would owe roughly $2,345 each month. At 5.74% — within the typical range for shoppers who compare multiple offers — the payment drops to $2,253, saving roughly $1,100 a year.
Zillow noted that in November, that savings would have been enough to make 22,000 more homes nationwide affordable to a median-income household.
In higher-cost markets, Zillow said the differences were even more noticeable.
It said that in In San Jose, for example, getting the lower rate would save a buyer about $4,750 a year, and annual savings would exceed $2,000 in six other expensive metros. When looking at homes on the market in November, Zillow said the potential savings from rate shopping would bring more than 1,200 additional listings within a typical buyer’s budget in Dallas, the most in the country.
Because lenders weigh credit profiles, loan types, and market conditions differently, it means the same borrower can receive materially different offers. In a 2019 analysis, Zillow said it found spreads of from 90 to 130 basis points between the best and worst quotes for borrowers, depending on their credit profile.
It said that a more recent analysis from Freddie Mac showed homebuyers can see rates move 50 basis points either way when receiving quotes from different lenders.
The post Zillow: Rate Shopping Can Save Homebuyers Hundreds a Month first appeared on The MortgagePoint.