A new Zillow survey shows a large majority of homebuyers aren’t shopping around for their mortgage—an oversight that could cost them hundreds of dollars a month.
According to the survey, prospective buyers spend more time researching their next vacation or car purchase than they do researching mortgage lenders.
A whopping 72% of prospective buyers have not shopped around for a mortgage lender, nor do they have any plans to do so.
Since homebuyers who don’t research their options could end up spending tens of thousands of dollars more on their mortgage, this is an expensive mistake.
Mortgage lenders vs. fun purchases
We know it’s more fun to research things like new cars and vacation options. And Zillow’s survey backs that up:
- 28% of buyers spent at least a month researching vehicles for their next purchase
- 23% spent at least a month researching vacation options before booking
- Only 13% said they spent that much time researching a mortgage lender
Also, 12% spent at least a month researching TVs before buying one, putting TVs almost on the same level as mortgage lenders. Buyers could end up paying more every month and over the term of their mortgage by choosing the wrong lender.
The cost of not shopping around
Almost half (46%) of prospective homebuyers who applied for mortgage pre-approval submitted only one application.
With housing affordability at its lowest level in decades—and mortgage rates doubled since the beginning of the year—it’s more important than ever for homebuyers to understand and research their mortgage options to find a loan that meets their personal financial needs.
Zillow research confirms that buyers who don’t shop around—who expect one mortgage lender to offer the same options as any other—could end up paying tens of thousands of dollars more on their mortgage than buyers who do.
Home buyers should take the time necessary to make an educated decision on their mortgage. It’s often the largest financial decision someone makes. Taking time to understand their credit report, repair any issues and consult with a qualified mortgage professional can make a significant difference in a home shopper’s experience. Buyers often don’t understand that a loan officer can be a partner in the home-buying process. They help discuss options and find the right fit for a customer’s personal financial situation.
Reasons why buyers don’t shop around for mortgage lenders
So, why don’t more buyers spend time researching mortgage lenders? According to Zillow’s survey, the biggest reason (30%) was the fear that too many credit inquiries by mortgage lenders could hurt their credit score.
But while applying for mortgage pre-approval can impact a credit score, buyers can submit multiple applications over 45 days with only one hit to their credit rating.
Other buyers surveyed were less likely to shop around because it’s a time-consuming hassle, and they don’t see the potential for massive savings based on their choice of mortgage lender.
What can buyers do?
So, what can agents encourage homebuyers to do to find the best mortgage lender for them?
You’ve probably heard the saying, “An ounce of preparation is worth a pound of cure.” The same applies here.
Once a buyer is stuck with a mortgage they can barely afford to pay each month, it’s tough to find a way out—especially when that higher monthly payment drives the buyer to use credit cards for monthly expenses like groceries and gas, affecting their debt-to-credit ratio.
According to Zillow’s survey, 34% of prospective homebuyers did not spend any time on preparation before applying for mortgage pre-approval, mortgage pre-qualification, or an actual mortgage. Nearly half (49%) spent less than a year preparing.
Buyer preparation can include taking steps like the following:
- Gain a better understanding of their credit profile. The better a buyer understands their credit profile, the more clearly they see what they can do to improve it.
- Improve their credit score. The sooner a buyer takes action to improve their credit score, the sooner they’ll be in a better position to apply for a mortgage with a lower rate.
- Pay off debt – without closing accounts. Paying off debt improves debt-to-credit and debt-to-income ratios, improving buyers’ credit scores and mortgage options.
- Save money for a larger down payment. The more a buyer can put down toward purchasing a home, the more they can reduce their monthly mortgage payment.
- Hold off on purchases that need to be financed. It’s best to hold off on large purchases (like a new car) before applying for a mortgage, because that financing negatively impacts the debt-to-credit and debt-to-income ratios.
- Determine what they can actually afford. Using a mortgage affordability calculator can help the buyer better understand what they can afford so they can focus on the right price points while shopping for a home.
Top takeaways for real estate agents
If you have a buyer who has yet to apply for mortgage pre-qualification or pre-approval, do what you can to help them prepare for that application and to shop around for the best mortgage lender.
As an agent, the more relationships you build with mortgage lenders in your area, the better you’ll know which ones you’re willing to trust to give your clients the best possible options.
You’ll also learn more about what your buyers can do before applying for a mortgage to improve their options.
Be the agent who cares enough about their clients to help them get the best deal possible—at closing and for the entire course of their mortgage.