Home buyers could save "hundreds of dollars a month" by doing one simple task, according to a housing expert.
As mortgage rates climb above 7% this week, many home buyers are seeking ways to afford homeownership. However, housing experts warn that a common oversight is costing buyers thousands in potential savings: not shopping around for their mortgages.
A recent survey by LendingTree reveals that 54% of recent home buyers only obtained one mortgage quote from a lender. However, those who took the extra step to shop around found their best offer did not come from the first lender they contacted.
“The exact amount that a borrower can save by shopping around for a mortgage will vary based on factors such as the rates they’re offered and the size of their loan,” explains Jacob Channel, LendingTree’s senior economist. “That said, it’s not out of the realm of possibility for someone who received multiple offers and then picked the one with the lowest rate to save hundreds of dollars a month, thousands of dollars a year, and tens, if not hundreds, of thousands of dollars over the lifetime of their loan.”
Supporting this, a study from Freddie Mac found that borrowers who received multiple lender rate quotes saved between $600 and $1,200 annually on their home loans. Another survey by LendingTree suggested potential lifetime savings of up to $84,000 or even $234 a month by comparing multiple quotes.
Despite these potential savings, only 22% of recent home buyers gathered offers from two lenders, 14% from three lenders, and a mere 2% received offers from four lenders, according to LendingTree's survey.
Those who only sought one quote often felt confident they were getting the best rate, or simply chose a lender recommended by their real estate agent. Many also felt pressured to secure financing quickly due to the competitive housing market. Additionally, 54% of buyers ended up with a mortgage from a lender with whom they already had a financial relationship, such as a checking account, auto loan, or credit card.
Older generations are most likely to accept the first mortgage offer without shopping around, with 72% of baby boomers (ages 60 to 78) doing so, compared to 59% of Generation X (ages 44 to 59) and 38% of millennials (ages 28 to 43).
Although calling multiple lenders may seem daunting, it can lead to significant savings, especially for those stretching their budgets. Experts recommend obtaining quotes from various types of lenders, such as banks, mortgage brokers, and mortgage banks. The Mortgage Reports advises gathering quotes from at least three to five lenders and comparing interest rates and lender fees to secure the best deal.