72% of potential buyers don’t plan to shop around for a mortgage, a possible thousands-of-dollars mistake. They spend more time planning new cars and vacations.
SEATTLE – A survey finds prospective homebuyers spend about as much time researching their next TV purchase and more time researching their next vacation or car purchase than they do their mortgage lender: 72% of prospective buyers in a study by Zillow Home Loans haven’t shopped around for a mortgage and have no plans to do so.
According to the survey, 28% of prospective buyers spent at least one month researching vehicles for their next car purchase, but only 13% said they spent a month researching mortgage lenders before submitting an application. For vacation planning, 23% spent at least a month researching options before booking, and 12% spent at least a month researching a new TV before purchasing.
Nearly half of the prospective buyers (46%) who submitted applications for mortgage pre-approval only submitted one application.
Not all lenders offer the same mortgage rate, and since they operate with different origination criteria, a great lender for Buyer A may be different than for Buyer B. By shopping around, a homebuyer may save tens of thousands of dollars over the course of their loan.
While true all the time, mortgage shopping is even more important during times when rates fluctuate rapidly – and last week’s average mortgage rate dropped almost half a percentage point.
The top reason buyers don’t shop for a loan? They don’t understand the process.
The No. 1 reason cited for not getting a mortgage preapproval was that prospective homebuyers worried it would hurt their credit score (30%). While that’s true, it’s true only once in a 45-day period. Buyers can submit multiple applications over 45 days with only one hit to their credit score, so asking for information requests from five lenders doesn’t have any more of an impact than talking to only one lender.
Before buyers prepare to prequalify for a mortgage and actively home shop, they should take some time – ideally months before – to analyze their credit score.
While it’s new territory for many buyers, they should request free copies of their credit reports (AnnualCreditReport.com), understand what it says and fix any errors. A Zillow analysis found that buyers with a “fair” credit could be paying hundreds more on their monthly mortgage payment than those with “excellent” credit.
In the study, one out of three prospective buyers (34%) did not spend time preparing before they applied for a mortgage loan, and half spent less than a year. “Preparations” included things like improving credit scores or saving for a down payment.
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