Recent research by Zillow Home Loans suggests that just 13% of prospective homebuyers shop around for a mortgage before applying. In fact, people spend more time researching vehicles and vacation destinations than they do a home loan.
This lack of research could be costing mortgage borrowers thousands of dollars. It has always been important to shop around for the best mortgage deal, and to understand how to improve your credit score before applying. But at a time when mortgage rates are at record highs, it’s more important than ever.
- Recent research by Zillow Home Loans suggests that just 13% of prospective homebuyers shop around for a mortgage before applying.
- 30% of prospective homebuyers in Zillow’s survey said they feared that making multiple mortgage applications would adversely affect their credit score. It generally won’t
- Paying down existing debts, paying your bills on time, and regularly reviewing your credit report to spot errors can all increase your credit score, and ultimately reduce the cost of your mortgage.
Homebuyers Don't Shop Around
It’s long been known that prospective homebuyers don’t spend much time researching mortgage options, but recent research from Zillow Home Loans has put some numbers on the scale of the problem.
Zillow’s survey shows that 72% of prospective homebuyers don’t shop around for a mortgage before applying, and just 13% said they spent at least a month researching mortgage lenders. To put that number in perspective, 28% of people said they spent at least a month researching vehicles before buying one, and 23% said they spent at least this long looking at vacation options. In fact, respondents to the survey spent about as much research time looking for a new TV as they did their mortgage.
The primary reason for this lack of research? A concern that applying for multiple mortgages could hurt a borrowers credit score. 30% of prospective homebuyers in Zillow’s survey said they feared that making multiple mortgage applications would adversely affect their credit score. It generally will not – while mortgage pre-approval can impact a credit score, buyers can shop and submit multiple applications over 45 days with only one hit to their credit score.
Why You Should Shop Around For a Mortgage
The low level of research that most homebuyers complete before applying for a mortgage could be costing them thousands of dollars. The average mortgage in the USA is now more than $400,000, so saving just 1% on your interest rate can mean significant savings over the life of your loan.
Libby Cooper, vice president of Zillow Home Loans, points out that a mortgage is often the largest financial decision someone makes. “Taking time to understand their credit report, repair any issues and consult with a qualified mortgage professional,” she adds, “can make a significant difference in a home shopper's experience.”
As Zillow’s research indicates, however, many people don’t fully understand how credit scores work. This prevents them from shopping around for a good deal, but could also mean that they are paying more than they need to for a mortgage. Another recent Zillow analysis shows that buyers with "fair" credit could be paying hundreds more on their monthly mortgage payment than those with "excellent" credit.
Because of this, the best approach to negotiating a mortgage is often to focus on your credit score first, and only then approach mortgage lenders. Different lenders offer different rates, of course, but they also typically offer better rates if you have a good credit score. Paying down existing debts, paying your bills on time, and regularly reviewing your credit report to spot errors can all increase your credit score, and ultimately reduce the cost of your mortgage.