There’s so much to think about when buying a place of your own. From the house-hunting process itself to the price negotiations to the inspection, it’s almost instinctive to cut corners and take shortcuts wherever you can. But there’s one place where a little extra effort in your house hunt could pay off in major dollars.
It’s a fact: 47 percent of homebuyers don’t shop around for mortgage lenders, and it costs Americans a collective 9 billon dollars per year.
How Shopping Around for Lenders Saves Money
If you’re getting a new TV, you might scour the internet and store sales flyers to see who has the best price—all to save maybe a couple hundred dollars. Why wouldn’t you practice that same diligence when you’re buying a home?
Getting multiple quotes from multiple lenders is just like comparison shopping—but instead of looking at a price tag, you’re looking at an interest rate. You see, each lender is going to consider your application—with your credit score, debt history, income, etc.—and offer you a mortgage rate. When you shop around and get quotes from different lenders, you might be offered wildly different interest rates.
What’s a “wildly” different rate? It might be just a fraction of a percent. But when we’re talking about a 30-year mortgage, a fraction of a percent could mean thousands and thousands of dollars. The Consumer Financial Protection Bureau did the math:
Getting an interest rate of 4.0% instead of 4.5% translates into approximately $60 savings per month. Over the first five years, you would save about $3,500 in mortgage payments. In addition, the lower interest rate means that you’d pay off an additional $1,400 in principal in the first five years, even while making lower payments.
If your credit score is in good shape, lenders are going to want your business. And they’re going to want to give you an appealing offer so you choose them. You can even parlay your different quotes into a negotiation strategy, kind of like you’re shopping for a car. If you get a great offer from one lender or broker, but you like the personality of another one, show them the competitor’s offer. It’s likely they’ll be willing to work with you.