Shopping for a mortgage: How many mortgage quotes do I need?
Your mortgage: It pays to shop
Why do so few home buyers bother to get multiple mortgage quotes?
Why do so many people who wouldn’t dream of buying a car or smartphone without hours of online research just accept the first offer their mortgage lender or broker makes?
Maybe because consumers think that prices for mortgages don’t vary that much. Or maybe it’s just the amount of numbers to comb through to compare lenders.
Whatever the reason, a little effort can save home buyers thousands up front and over the life of their loan.
And, with today’s technology, you can get many quotes with minimal effort.Get quotes from multiple lenders here. (Jan 18th, 2019)
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There is no limit to the number of mortgage quotes you can get. A general rule of thumb is to get at least four quotes, in addition to a quote from your own bank or broker. By getting multiple quotes you can:
- Save money on closing costs
- Negotiate to get a lower rate from your preferred lender
- Gather information to ensure you’re choosing a company with a good reputation for efficiency and fair dealing
You wouldn’t choose an electronics store because it’s the shortest drive away, and pay sticker price for whichever home theater system the salesperson suggests.
And yet a 2015 report of a survey conducted by federal regulator the Consumer Financial Protection Bureau (CFPB) revealed a staggering 47 percent of home buyers do something much worse: skip shopping for lenders.
We’re talking serious money here
Pay too much for your smartphone or home theater system, and you stand to lose hundreds of dollars. But pay too much for your mortgage and you could easily be looking at thousands, or maybe tens of thousands.
That CFPB report gives an example based on a $200,000 loan:
“… our research showed that a borrower taking out a 30-year fixed rate conventional loan could get rates that vary by more than half a percent. Getting an interest rate of 4.0% instead of 4.5% translates into approximately $60 savings per month. Over the first five years, you would save about $3,500 in mortgage payments. In addition, the lower interest rate means that you’d pay off an additional $1,400 in principal in the first five years, even while making lower payments.”
That’s a $4,000 difference over just the first five years. If your 30-year fixed-rate mortgage runs its term, that’s 360 months. So a $60-a-month savings would save $21,600, plus give you a faster paydown of your principal debt.
A $21,000+ benefit for a few hours work? Unless you’re Warren Buffet, that’s likely to be the highest hourly rate you’re ever going to earn.
Won’t comparison shopping mess up my credit score?
As a rule, your credit score takes a small hit every time a company checks your score when making a lending decision (a “hard inquiry,” in industry jargon). But both the two biggest companies that design credit-scoring systems (FICO and VantageScore) allow you to shop around for mortgages and auto loans.
They treat multiple hard inquiries for these as a single event, so you take just one small hit whether you get one or two mortgage quotes or a whole pile of them. And, providing everything else in your credit report remains good, that small hit should typically fade away to nothing within a few months.
But there is one caveat. FICO counts multiple hard inquiries for a single mortgage as one event if they’re made within a 45-day period. VantageScore does so over a two-week rolling window.
So make sure you do your research in a focused way, close to the time when you’re going to make an application. You’ll want to do that anyway, because mortgage rates change so quickly that quotes have a very short shelf life.
That’s easy to do online.Start mortgage rate shopping online here. (Jan 18th, 2019)
How many mortgage quotes is too many?
The Federal Trade Commission suggests, “Different lenders may quote you different prices, so you should contact several lenders to make sure you’re getting the best price.”
But what does “several” mean? And how many is too many?
The short answer is there’s no such thing as too many. It’s so easy to get mortgage quotes online nowadays, your personal limit will largely be governed by your perseverance and boredom threshold, and your fear of getting repetitive strain injury in your clicking finger.
Your goal is to be confident you’re getting an exceptional deal. If you don’t want to go nuts comparing offers, know that four is probably a reasonable number, plus your own bank and existing mortgage lender or broker, if you have one.
A 2012 Stanford University study found that borrowers who obtained four quotes saved almost $2,700 in loan costs over those who only got one or two quotes.
How to compare mortgage quotes
Clearly, your main priority is to save money, so by all means organize your quotes in order of the mortgage rate offered, with the lowest rate on top of the pile. But, unfortunately, that’s not the end of it.
Don’t hang around
Mortgage quotes expire quickly. That’s because mortgage rates constantly change, and a quote you got yesterday may already be out of date.
So get your quotes when you’re less busy than usual (yeah, that day) so you can follow up on them immediately. Remember the sum you’re likely to save and make the time.
Points the wrong way
Some lenders are sneaky, and offer you an ultra-low rate only by inflating the closing costs you’re going to pay when you finally buy your new home.
You may well find “discount points” buried in some quotes. These are simply a way to buy a lower mortgage rate through an upfront payment, and just about every lender will sell you those.
So, to find the best deal, you need to level the playing field by eliminating the impact of those discount points, and identifying the lowest rates without them.
There’s nothing wrong with these points, and you may ultimately choose to buy them, but if you compare one quote with them with another without, you’re in an apples and oranges situation.
Having multiple quotes doesn’t just give you information. It can give you leverage.
Don’t hesitate to play one lender off against another: “I like your company, but I’ve got a quote here with a lower rate/closing costs. Can you beat/match it?”
You may get some movement on closing costs, and might even whittle a bit off your rate.
Efficiency and fair dealing
Your relationship with your lender is going to last years — maybe three decades. So you want to choose a company with a good reputation for efficiency and fair dealing.
Of course, your priority is to save money. But you might legitimately decide to pay slightly more each month for one that answers calls quickly and handles inquiries well, and that’s likely to stand with you if you need help sometime in the future.
What are today’s mortgage rates?
To find out what your best deal on a mortgage today is, get multiple quotes quickly. Then compare them slowly, making sure each loan has comparable terms and the same lock period. That’s easy to do online.Verify your new rate (Jan 18th, 2019)