Why do so few homebuyers 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?Click to see today's rates (Jul 21st, 2017)
Thatâ€™s like choosing an electronics store because it's the shortest drive away, and then paying sticker price to buy whichever home theater system the part-time teenage salesperson suggests (possibly because it's old stock and the kid gets bonus commission on it).
Seriously, if someone you loved or liked told you they'd done that, you'd think they were crazy.
And yet a 2015 report of a survey conducted by federal regulator the Consumer Financial Protection Bureau (CFPB) revealed a staggering 47 percent of homebuyers don't compare lenders.
Pay too much for your smartphone or home theater system, and you stand to lose tens or 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 youâ€™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 saving would see you ultimately Â $21,600 better off, leaving aside the benefits of the 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.
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.
There is a condition attached to this. FICO counts multiple hard inquiries for a single mortgage as one event ifÂ 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.Click to see today's rates (Jul 21st, 2017)
The Federal Trade Commission suggests, "Different lenders may quote you different prices, so you should contact several lenders to make sure youâ€™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.
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.
Mortgage quotes go off faster than week-old fish. 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.
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.
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.
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.Click to see today's rates (Jul 21st, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)