Buying a new TV? Chances are you’re going to scour customer reviews, compare prices across multiple sites and tack on whatever discounts you can find.
Buying a new house? It is much more likely that you’ll go with the first offer you find.
Almost half of consumers don’t shop around or only seriously consider one lender before they apply for a mortgage, according to a report released by the Consumer Financial Protection Bureau.
That laziness is costly – about the same as turning down a check worth thousands of dollars. Borrowers with good credit scores can see interest rates for a mortgage vary by more than half a percentage point. On a 30-year fixed-rate loan worth $200,000, someone with a 4.5 percent rate would pay $60 more a month, or $3,600 over five years, than someone with a 4 percent rate.
Even a difference of 0.25 percentage points on a similar loan could add up to an additional $10,000 in interest charges over 30 years, estimates Keith Gumbinger, vice president of HSH.com, a mortgage information website.
“That’s $10,000 more toward your retirement,” Gumbinger said. “That fills the gas tank a lot over the years, too.”
Shopping for a mortgage has become even more important given the recent volatility in rates.
It feels a little counterintuitive that people don’t use more precaution with the kind of purchase they might only make once or twice in their lifetimes. But the main reason buyers gave for not shopping around isn’t too far from the reasons people give for procrastinating with any decisions having to do with money: They’d rather have someone else take care of it.
The majority of homebuyers – 70 percent – said they rely on their lender or mortgage broker for tracking down information about mortgages. It can be tempting to have someone hold your hand throughout the process, but that person may not have your best interests in mind. Lenders and mortgage brokers also have a stake in the sale, the CFPB points out.
“There’s a tendency to latch on to somebody who they see as an ally, even if that party has some underlying conflicts of interest,” said Greg McBride, senior financial analyst for Bankrate.com.
Shopping around before you sign on the dotted line doesn’t have to take a lot of work, McBride said.
Know where you stand. Before you apply for a loan, you should know your credit score, the three-digit number lenders will look at as a measure of your creditworthiness. Consumers have typically paid a small fee to get their FICO score, but more credit-card companies and banks are beginning to offer FICO scores to consumers for free.
Ask around. Use your credit score, the size of the loan and the amount of your down payment to get quotes from five or six financial institutions in your market, Gumbinger said. Your real estate agent might recommend a lender with which he or she has a relationship, but you should also check with other banks, credit unions and mortgage brokers in the area, he says. Don’t forget to check with your own bank and with small banks, which may offer more competitive rates, McBride said.
Apply more than once. Once you have a list of three lenders offering favorable rates, some buyers should fill out applications with all three on the same day, McBride said. It’s important to apply on the same day because rates change daily, he said. Plus, if one lender doesn’t come through, “you’re not starting over from scratch,” he said. “You’ve got two others waiting in the wings.”
Compare and negotiate. Print out your offers and lay them out side-by-side, McBride says. Start by checking for which loan will charge the lowest interest rate. Then eliminate offers by comparing how much they charge in closing costs, appraisal fees and other mortgage fees. Negotiate with lenders to see if they will drop fees they charge that the other lenders didn’t, McBride said.
Ask how long it might take to close a loan like the one you’re seeking because timing issues and delays can sometimes cause you to lose the sale, Gumbinger said. “The responsibility for getting the best deal falls squarely on you.”
