When it comes to shopping around for a new home, buyers should also shop around for the right mortgage lender, say Fannie Mae [1] economists Qiang Cai and Sarah Shahdad.
In the latest Fannie Mae National Housing Survey [2], studying the mortgage shopping experience homebuyers navigate these days, the authors found that two-thirds of buyers‒‒particularly the young and those who’ve already bought homes‒‒obtain multiple mortgage quotes, though newbies to the process typically rely on friendly advice to find a suitable lender and terms.
“Higher-income, younger-aged, and minority borrowers are more likely to obtain multiple quotes when shopping for a mortgage,” the report stated. “First-time homebuyers and lower-income borrowers are more likely to say that referrals from friends, family, or co-workers had a major influence on their choice of lender.”
According to the report, about 16 percent of buyers under age 30 shop around for quotes, compared to 5 percent of those above 50. Nearly a third of buyers earning at least $75,000 per year shop around, compared to just 1 percent of those who make less. About 20 percent of minority buyers seek multiple quotes.
Experienced homebuyers are unlikely to say that a referral from a real estate agent or a mortgage specialist influenced their choice of lender, unless they earn less than $75,000 a year. The authors found that about 31 percent of first-time buyers took such advice, regardless of income, while more than half of those who earn less than $75,000 a year sought referral advice. About 7 percent above that income line sought advice.
The authors also found that first-time and minority homebuyers are more likely to report unexpected changes at the closing table. A third of first-time buyers and a third of minority buyers say that they had some type of surprise at the closing table. Half of all buyers making less than $50,000 a year reported surprises.
The authors wrote that consumers may benefit from better tools and advice from knowledgeable, objective third parties when looking for good mortgage terms, saying this would allow buyers to balance any tradeoffs.
“As large and infrequent as the mortgage transaction is in most people’s financial lives, borrowers may be leaving money on the table by not shopping around and negotiating for the best terms they can get,” Cai and Shahdad wrote. “Encouraging homebuyers to seek multiple sources of information, determine the key criteria that are important to them, and ask detailed questions about the basis for a lender recommendation when shopping for a mortgage may help them find a lender that best meets their individual needs.”