Despite the sizable potential cost savings, more than one-third of 2018 homebuyers say they did not shop around before selecting their mortgage lender, according to our latest findings from the National Housing Survey®. The good news is that two-thirds of homebuyers did comparison shop and, in turn, said they experienced more financially favorable terms than those who didn’t obtain multiple quotes. The choice to not compare quotes among different lenders appears to be explained in part by the influence of non-financial priorities. 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.
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.1 When it comes to getting a mortgage, the stakes are generally much higher, as it is one of the biggest expenses most people will ever incur and shopping for multiple quotes can save borrowers thousands of dollars.2
Unfortunately, comparison shopping for a mortgage can be a much more complicated and time-consuming endeavor. Simply evaluating the “price” of a mortgage involves looking at several interrelated components – including rates, fees, and points – and making an assumption about how long a borrower will stay in that mortgage. While it’s easy to find “teaser” rates advertised online, a true mortgage quote is based on a handful of variables that are unique to each buyer and evaluated differently by each lender. Credit history, down payment, and the ratio of monthly debt payments to income are typically given the most weight in determining a mortgage offer. While some online sites bill themselves as one-stop-comparison-shopping tools, a homebuyer’s unique information needs to be provided to a lender to get a true quote, and each lender’s pricing can vary daily. On top of all this, many homebuyers have the added time pressure of a home purchase contract.
Many recent homebuyers who received only one quote reported doing so because they were more comfortable with that particular lender. Non-shoppers also reported much less concern with competitive terms when selecting a lender, citing other non-financial priorities, such as customer service/responsiveness and having a preexisting account with a lending institution. Individual households may have good reason for accepting that tradeoff.
We see very little variation in comparison shopping by source of information (e.g., online resources). However, homebuyers who did get multiple quotes were more likely than others to say that online resources were an influential source of advice for them.
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. 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.
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