It’s one of the weirder documented facts about home-buying in America: Surprising numbers of consumers don’t bother to shop for mortgage money, even though they could save tens of thousands of dollars through lower interest payments by doing so.
People search incessantly online to find the best deals on hotel rooms, kitchen appliances, furniture, clothing and tons of other stuff. Or they drive out of their way for the lowest price on gas. But for some reason, many go limp when it’s time to make a really high-dollar purchase — a home mortgage, often the biggest expenditure of their lives.
Maybe they’re shellshocked from the home-search process. Maybe they assume that lenders quote roughly the same rates and fees, so why bother? Maybe their real estate agents whispered in their ears that their brokerage enjoys a special relationship with a particular lender — in fact, they’re partners, sharing profits generated from clients — and will give them the best deal around, guaranteed. Uh-huh.
When the Consumer Financial Protection Bureau surveyed 5,000 recent home purchasers several years ago in the first national study of its type, it found that fully 47 percent of buyers didn’t even “seriously consider” more than one lender; 77 percent applied to only one.
CFPB researchers also found that rate-quote variations among competing lenders for the same prime borrower — with a high credit score, a 20 percent down payment, seeking the same mortgage amount — frequently vary by half of one percentage point. That may not sound like much, but the bigger the loan and the longer it continues, the heftier the dollar savings for borrowers who shop and nail down the best-priced money. Even on a $200,000, 30-year fixed-rate loan, choosing a lender quoting a 4.5 percent rate, compared with a lender who’ll do the loan at 4 percent, can cost you $3,500 in the first 60 months alone. Compare that with saving a few bucks filling up on gas.
New studies suggest that the spread between high and low quotes available to borrowers may be higher — and may even be increasing. Lending Tree, an online network with 342 mortgage companies competing for home buyers’ business, found that the median spread between annual percentage rate (APR) quotes to individual borrowers for each loan request on its platform was six-tenths of a percentage point during the week ending March 11. That was up by more than a tenth of a percentage point from a year ago.
What that means is that you as a potential applicant, presenting the identical characteristics to each competing lender — same credit score, same loan amount, same everything — would probably see a high-low spread of nearly six-tenths of a percentage point in quoted APRs. (The APR measures the cost of the loan when fees are added into the quoted interest rate, thereby giving a fuller picture of the true cost per year.) In the case of a $300,000, 30-year fixed rate mortgage, that spread translates into $26,780 over the life of the loan.
Another online platform that allows lenders to make competing offers, Zillow Mortgage, conducted a data analysis exclusively for this column that showed the median high-low APR spread in offers on its network of hundreds of lenders and brokers to be even wider: just under seven-tenths of a percentage point on a 30-year fixed loan with 20 percent down.
Erin Lantz, vice president of mortgages at Zillow Group, says home buyers’ willingness to forgo shopping among multiple lenders “is a head scratcher.” A “fear bar” may be part of the problem, Lantz believes. There “are a lot of numbers, a lot of terms that are foreign” in mortgages, she says, which for some buyers can be intimidating.
Although there are other online shopping platforms, Lending Tree and Zillow are major players, easy to use and free. There are noteworthy difference, s however. Lending Tree promises you up to five firm offers from competitors but requires you to submit personal identifying information so lenders can evaluate your application. Zillow Mortgage does not require personal information and says it averages 30 return quotes per inquiry, but the quotes become firm only when you actually apply to a specific lender, and that requires submission of the usual personal information needed for underwriting.
Bottom line: Don’t go limp. Get active, shop for your mortgage money, and save a bunch when it really counts.
Ken Harney’s email address is firstname.lastname@example.org.