New data from Fannie Mae shows that taking the time to shop around for mortgages ultimately rewards consumers with more affordable quotes.
With all the fees and rates that are associated with purchasing a property, buying a house can be a costly process. However, around a third of homeowners are not taking the time to look around for the best mortgage loans on the market, Fannie Mae’s survey found — which is costing them more than it should.
“Typically, consumers are keen to compare prices before buying ordinary goods or services – about three-in-four say they like to shop around before making a purchase. When it comes to getting a mortgage, the stakes are generally much higher,” wrote Doug Duncan, senior vice president and chief economist in his report for Fannie Mae.
“Unfortunately, comparison shopping for a mortgage can be a much more complicated and time-consuming endeavor,” Duncan added.
In the first quarter of 2019, only 28% of buyers measured three mortgage quotes, Fannie Mae’s survey said. And the numbers drop dramatically for those who compared four loans (7%) and five loans (2%).
The report’s data reinforced Fannie Mae’s prior findings, which showed that many consumers “lack knowledge about mortgage basics.” A 2018 survey revealed that many consumers overestimated the minimum credit score and down payment needed to qualify for a mortgage.
While searching for the best loans could make matters more overwhelming, Fannie Mae believes that educating consumers about the mortgage process would help them actually get credit — and save them money.
“The choice to not compare quotes among different lenders appears to be explained in part by the influence of non-financial priorities,” Duncan explained.
“Real estate agents and family and friends were listed among the most influential sources of advice regarding lender selection; however, our data do not reveal whether that advice includes encouragement to seek multiple quotes,” he added.
Knowledge is power
Not having a clear sense of the housing market has shown to hurt one’s ability to negotiate several factors of a mortgaging contract.
According to Fannie Mae, two thirds of homebuyers from sought multiple mortgage quotes in the first quarter. Breaking down those numbers showed how rate-shopping helped a significant portion of consumers to get more favorable outcomes.
Of that number, 47% of homeowners were able to negotiate their interest rates—and 36% were successful in that regard. Mortgage loan searchers also found success in negotiating discount points, with 20% engaging in negotiations while 13% successful.
“Although homebuyers who received only one quote didn’t usually express regret, most still reported trying to negotiate mortgage terms with somewhat less success than those who did shop around,” Duncan said.
“By not shopping around to give themselves leverage when negotiating their mortgage, some homebuyers are leaving money on the table. Competition only works if consumers assess their options,” the economist added.
Fannie Mae stressed that doing the homework is necessary for consumers when searching for a home. A simple online search can help illuminate key ideas, and may even “encourage homebuyers to get multiple quotes, thereby achieving better outcomes,” Duncan said.
Donovan Russo is a writer for Yahoo Finance. Follow him @Donovanxrusso.