According to the Consumer Financial Protection Bureau, “nearly half of all mortgage borrowers do not shop around when buying a home.” Some homebuyers make a lending decision based off a single loan quote, and they assume every lender will offer the same rate and terms. This couldn’t be farther from the truth.
When looking for a mortgage, you should comparison shop as you would with any other purchase. Mortgages vary from bank to bank, and if you don’t know your options, you could end up paying more than necessary for a loan.
1. You Could Pay a Higher Mortgage Rate
Shopping around and comparing rate information helps you gauge whether you’re getting a fair mortgage rate. Your interest rate affects your monthly payment and determines how much you pay over the life of the loan. The lower your mortgage rate, the lower your housing costs. Let’s say you borrow $200,000 for a home purchase. The difference between an interest rate of 3.98% and 4.3% is about $40 a month.
Getting a mortgage quote will involve providing the bank with information about your income and assets, and the bank will check your report history. Although rate shopping can trigger multiple credit report inquires, these inquiries have little impact on your credit score.
Credit scoring models are able to recognize a pattern of rate shopping. Multiple mortgage inquires that occur within a 45-day window count as one inquiry on your credit report.
2. You Could Pay Higher Closing Costs
Buying a house also involves closing costs, which can run between 2% and 5% of the loan balance. There is no set fee for closing, hence the importance of shopping around. Closing costs include a variety of fees, such as the loan origination, discount points, the appraisal, title search and the attorney fee. Some fees are a flat rate and you’ll pay roughly the same regardless of lender. But other fees vary by lender. Take the loan origination fee for example. One mortgage lender may charge 1% of the loan balance, whereas another lender charges 2% of the loan balance. Higher origination fees result in higher closing costs.
3. You Could Miss Out on Financing Specials
Meeting with different lenders gives you an opportunity to learn about different loan options and special financing programs. If you request a rate quote from only one lender, this lender may not offer any type of closing costs or down payment assistance, which means you’ll have pay these expenses out of your own funds. But if you shop around, you may find a lender offering programs that help with mortgage-related expenses, thus reducing your upfront costs.
