March 21st, 2018 6:19 AM by Jackie A. Graves, President
It’s one of the weirder documented facts about homebuying 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 gas price. But for some reason, many go
limp when it’s time to make a really high-dollar purchase — getting a mortgage
to purchase a house, often the biggest expenditure of their lives.
Maybe they’re shell-shocked 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 homebuyer 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 only to one.
CFPB researchers also found that rate quote variations among
competing lenders for the same prime borrower — with a high credit score, 20
percent down payment, seeking the same mortgage amount — frequently vary by
one-half of 1 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 — even increasing. LendingTree, an online
network with more than 300 mortgage companies competing for homebuyers’
business, found that the median spread between annual percentage rate, or 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 likely see a high-low spread of
nearly six-tenths of a percentage point in quoted APRs. (The annual percentage
rate measures the cost of the loan when fees are added into the quoted interest
rate, thereby giving a more accurate picture of the true cost per year.) That
spread in the case of a $300,000, 30-year fixed-rate mortgage 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 1 percent
on a 30-year fixed loan with 20 percent down.
Erin Lantz, vice president of mortgages at Zillow Group, says
homebuyers’ 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.
Though there are other online shopping platforms, LendingTree
and Zillow are major players, easy to use and free. There are noteworthy
differences, however. LendingTree 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
only become firm 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.
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