Monthly Archives: May 2018

Study Shows Getting Mortgage Quotes Saves You Money

At FREEandCLEAR we are strong advocates for shopping multiple lenders to find the lowest mortgage rate and best loan terms.  Lowering your interest rate by just a small amount can save you hundreds or even thousands of dollars over the life of your mortgage and now there is a new study that proves it.  

 

According to a report by mortgage industry leader Freddie Mac, borrowers can save an average of $1,435 by comparing two mortgage quotes and almost $3,000 by comparing five mortgage quotes.  Freddie Mac is not a lender but rather buys loans from lenders and helps shape mortgage policy. It is an important and impartial player in the mortgage industry which makes the report all the more meaningful. The findings of the study reinforce that just like any other product, shopping for a mortgage and comparing several lenders saves you money.

 

The chart below shows the average borrower savings depending on the number of mortgage quotes you compare.  The more quotes you compare, the more money you save on your mortgage.

 

comparing mortgage quotes saves borrowers money

Average borrower savings based on number of mortgage quotes reviewed (Source: Freddie Mac)

 

It is important to highlight that the above analysis is based on a $250,000 loan amount.  The larger the mortgage, the more money you save and vice versa. Another point to emphasize is that the chart above shows the average borrower savings and your actual savings may be much higher.  The chart below reflects more of a best case scenario when you compare mortgage quotes — basically how much money borrowers would save if they compared lenders offering the lowest mortgage rates among the thousands of lender options.

 

best case mortgage savings based on number of mortgage quotes compared

Best case scenario borrower savings based on number of mortgage quotes (90th percentile; source: Freddie Mac)

 

As the above chart demonstrates, borrowers that shop lenders that offer lower mortgage rates save even more money over the life of their loan.  In this best case, borrowers that compare two lenders save $2,086 while borrowers that get five mortgage quotes save a whopping $3,904. Again, this analysis is for a $250,000 mortgage and you save more with a higher loan amount.  The study is valuable because it quantifies how much money borrowers save when they shop for a mortgage as well as how much money they leave on the table by not shopping.

 

In light of how much money is at stake you would think that everyone shops for a mortgage but unfortunately that is not the case.  According to a recent survey by FREEandCLEAR, 36% of mortgage borrowers said they only received one mortgage quote when they got a mortgage.  That means over a third of borrowers failed to shop multiple lenders which could end up costing them thousands of dollars over the course of their mortgage.

 

The question becomes why don’t people shop for a mortgage?  After all, people shop multiple stores to find the best deal on a television and multiple dealerships to find the lowest price on a car.  How come this approach does not apply to mortgages as well?

 

There are several factors including the complexity of the mortgage process and the tight time frame many borrowers are under when they buy a home or refinance.  Additionally, most people only get a mortgage a handful of times during their lifetime so they may not be accustomed to comparing mortgage quotes like they would compare airline ticket prices.      

 

These days, however, it is easier and faster than ever to shop for a mortgage so there are no excuses for borrowers.  Our Personalized Mortgage Quote form enables you to receive free quotes from multiple lenders based on your specific situation.

 

You can also compare mortgage rates and fees for lenders without providing any personal information by using our lender tables.  Our lender tables feature updated rates for multiple lenders and enable you to customize your mortgage shopping based on loan amount, loan-to-value (LTV) ratio, term, program and other factors.

 

mortgage lender table

Lender table on FREEandCLEAR

 

Whether you use the resources available on FREEandCLEAR or another service, we highly recommend that you compare multiple quotes before selecting a lender.  As the Freddie Mac study underscores, a little shopping goes a very long way when you get a mortgage.

New Regulations Allow Lenders to Offer Closing Cost Assistance

Fannie Mae, the organization that is responsible for helping to shape mortgage program guidelines, recently announced a new policy that enables lenders to offer closing cost assistance directly to borrowers.  Fannie Mae is not a lender but its policies and regulations have a significant impact on lenders and the mortgage programs they offer directly to borrowers.

 

This announcement is significant because many borrowers struggle to save the funds to pay for closing costs, especially if they are focused on saving for their down payment.  Although closing costs vary depending on your lender, loan amount, mortgage program and property value, they are generally 1% to 2% of your loan amount which equates to thousands of dollars for borrowers.  In many cases borrowers are surprised at both the amount of closing costs as well as the items included. For example, in addition to paying numerous one-time, non-recurring costs such as lender, settlement agent, title insurance and appraisal report fees, borrowers are also required to pay a portion of ongoing, or recurring, closing costs such as partial interest expense, property tax and homeowners insurance.

 

 

Needless to say, these expenses can add up quickly and catch borrowers off guard.  The last thing a prospective homeowner wants to hear is that they need to come up with thousands of dollars to close their loan and complete their property purchase.  Fannie Mae’s new policy addresses this borrower challenge by enable lenders to provide closing cost assistance to borrowers.

 

mortgage closing costs

Mortgage closing costs can run thousands of dollars

 

There are several provisions to the new policy that are highly beneficial to borrowers.  First, the lender closing costs assistance must be offered as grant that is not subject to repayment, so it is basically a gift from the lender.  With some closing cost assistance programs, you may be required to repay part or all of the grant depending on how long you live in the property. With lender closing costs assistance, you are never required to repay the money.

 

It is also important to highlight that the assistance can only be used to pay closing costs and not your down payment or other transaction expenses.  Additionally, the amount of the assistance cannot exceed the amount of closing costs. Finally, lenders should not increase their mortgage rate to pay for the assistance they are providing you.  This is called premium pricing and borrowers should make sure that their mortgage rate remains the same whether or not they are receiving closing cost assistance.

 

Lender closing cost assistance provides another option for borrowers with limited financial resources.  Borrowers can also apply for closing cost assistance grants with their state or local housing agencies or departments but this can be time consuming and limited funds are available.  Some larger companies also offer homebuyer assistance programs to employees. Both of these programs, however, usually impose certain restrictions on participants, such as living in the home or working for the company for a certain amount of time.

 

 

Lender closing cost assistance programs are promising because they are more flexible for borrowers and easier to access because they are offered directly by the lender.  While it is too soon to tell how many lenders will implement these programs, this is a positive development for both lenders and borrowers. Assisting with closing costs is another tool lenders can use to help more people qualify for mortgages and buy homes.

 

FREEandCLEAR will keep you abreast as lenders launch closing cost assistance programs so be sure to check back for future updates on this important topic.