Recent research from Zillow Home Loans suggests that only 13% of prospective homebuyers shop around for a mortgage before applying. In fact, people spend more time researching vehicles and vacation destinations than a mortgage loan.
This lack of research could be costing mortgage borrowers thousands of dollars. It’s always important to shop around for the best mortgage deal and understand how to improve your credit score before you apply. But at a time when mortgage rates are at record highs, it’s more important than ever.
- Recent research from Zillow Home Loans suggests that only 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 negatively affect their credit score. Generally it won’t
- Paying off existing debts, paying your bills on time, and regularly reviewing your credit report for errors can increase your credit score and ultimately lower the cost of your mortgage.
Home buyers don’t buy
It’s long been known that prospective homebuyers don’t spend much time researching mortgage options, but recent research from Zillow Home Loans 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 only 13% said they spent at least a month researching mortgage lenders. To put that number into perspective, 28% of people said they spent at least a month researching vehicles before buying one, and 23% said they spent at least that much time researching vacation options. In fact, respondents spent as much time researching a new TV as they did their mortgage.
The main reason for this lack of research? Concern that applying for multiple mortgages could hurt borrowers’ credit scores. 30% of prospective homebuyers in Zillow’s survey said they feared that making multiple mortgage applications would negatively affect their credit score. You generally won’t, although being pre-approved for a mortgage can affect your credit score, buyers can shop and submit multiple applications for 45 days with just one access to your credit score.
Why you should buy a mortgage
The low level of research that most buyers complete before applying for a mortgage could be costing them thousands of dollars. The average mortgage in the United States is now over $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, notes that a mortgage is often the biggest financial decision someone makes. “Taking the time to understand your credit report, repair any issues, and consult with a qualified mortgage professional,” he adds, “can make a significant difference in a homebuyer’s experience.”
However, as Zillow’s research indicates, many people don’t fully understand how credit scores work. This prevents them from buying a good deal, but it can also mean 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 in 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. Of course, different lenders offer different rates, but they also usually offer better rates if you have a good credit score. Paying off existing debts, paying your bills on time, and regularly reviewing your credit report for errors can increase your credit score and ultimately lower the cost of your mortgage.