Homebuyers spend time finding the perfect home, but many don’t bother spending time finding the perfect mortgage.
Mortgage shopping, or comparing rates between several lenders, can potentially mean significant savings each month and over the life of the loan.
Mortgage rates are near historic lows, but rates vary widely from lender to lender.
“Every mortgage lender has their own formulas and underwriters assessing the creditworthiness of borrowers. They also have different costs of funding, so that can help some of them be more aggressive in offering lower rates,” Zillow economist Jeff Tucker told WTOP.
Borrowers can compare rates with online tools (Zillow has one).
You can also often get an idea of what rate different lenders may offer you by supplying a few details about yourself and your purchase. But you won’t get a guaranteed rate until you jump through the lengthy, formal mortgage application process.
Formally applying for a mortgage with several lenders is time consuming, and it will impact a borrower’s credit score, but probably not much.
“Unfortunately, if you want to get a real binding loan offer from a lender, you need to give them a real loan application,” Tucker said.
“It is possible to submit a few of those in a short period of time without dinging your credit score too much. The credit agencies recognize that this is all part of a single home shopping event,” he said.
The difference between the rates borrowers are offered also depends on their credit scores. Those with stellar credit will see a smaller variation between lenders than those with less-than-perfect credit.
Based on the median home price in the Washington metro area, Zillow estimates a borrower with a high credit score may see a range in rates offered that could make his monthly mortgage payment on the same home vary by $160 a month, or nearly $58,000 over the life of a 30-year loan.
Borrowers with a credit score below 680 in the D.C. area could see mortgage rates that would vary their monthly payment by up to $230, or nearly $83,000 over the course of 30 years.
Another reason to shop around for a mortgage are origination fees.
“Borrowers should also check out origination fees to see if there is a short-term/long-term trade-off between the one-time fees versus the monthly mortgage payments they are making,” Tucker said.