Getting preapproved for a mortgage can feel like a huge deal. As soon as you do, you might think you can cross that item off your list and move forward with your home search. But stopping at just one lender could end up costing you.
It’s estimated that “borrowers could save an average of $80,024 over the life of a 30-year, fixed-rate mortgage by shopping around,” which breaks down to savings of “$222 a month or $2,667 a year,” said LendingTree, citing its recent study. Among rising home prices and other inflation-driven cost increases, that is certainly not an insignificant chunk of change.
Put simply: the potential savings. While you may imagine you would get more or less the same rate from different lenders, there can actually be significant variation — as much as a “full percentage-point difference,” said CNBC, citing a 2023 study from Freddie Mac.
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So just how much of a difference can a percentage point make, or even just half a percentage point? Take a “$360,000 30-year mortgage with a 6.25% fixed rate,” said CNBC: “A loan with a rate just a half-percentage point lower — at 5.75% — would mean a monthly principal and interest payment of $2,100.86 — a $115.72 difference,” and total “savings of $41,659” over the life of the loan.
What should you look for when comparing mortgage offers?
When comparing mortgage offers, the key figure to look for is not the interest rate but the APR. This “represents how much you’ll pay for the loan, including any additional fees charged by the lender,” and it is “calculated on the assumption that you’ll keep the loan for the entire term,” providing a more complete picture, said Investopedia.
Another major thing to note when reviewing loan estimates is the closing costs. Some lenders “promise low interest rates but also charge excessive fees and closing costs,” which can mean that the “difference in closing costs might turn out to be more important than small differences in the interest rate,” said Bankrate.
How many offers should you compare?
The recommended number of mortgage lenders to compare is at least three. But what three you compare also matters. “Don’t just compare the big megabanks. You’re doing yourself a disservice if you don’t look at offers from smaller banks, credit unions, independent mortgage companies and others,” said Matt Schulz, a chief consumer finance analyst at LendingTree, to the outlet.
Remember: If you are not thrilled with the offers you get, you do not have to settle for any of them — and you can even go back to the drawing board. Given how big a role your credit score plays in the rates you are quoted, pausing your search to boost your score can also make a major difference, and possibly account for sizable savings.
