THE BASIS POINT

WTF is up with 72% of homebuyers not shopping around for their mortgage?

 
 

Zillow just released some crazy stats I’m grouping into three categories below. This shows how homebuyers think, and whether this thinking makes you smarter dealmakers than the sellers you’re negotiating with for your dream homes.

CRAZY HOMEBUYER STAT 1

Respectively, 28%, 23%, and 12% of people spend one month or more researching cars, vacations, and TVs. But only 13% do the same for mortgages.

How is it that only 1 in 8 people spend even a reasonable amount of time researching the mortgage process? It’s likely because the loan is no fun. The home is.

So, an easy argument is that comparing car or vacation shopping to mortgage shopping is apples and oranges, and that Zillow should compare car/vacation shopping to home shopping.

But if you don’t get the loan, you don’t get the home, right?

Right. Which brings us to the next stat.

CRAZY HOMEBUYER STAT 2

An 86% majority of home sellers prefer a buyer who’s been fully pre-approved for a mortgage, yet 34% of buyers spent no time optimizing credit scores or down payment savings before applying for mortgage pre-approval.

Two things here.

First, home sales have slowed nine straight months so home sellers are nervous. This is good for you as a buyer, and you’ll get your way on price.

But the key thing to hold over a seller’s head when making an offer is an airtight mortgage pre-approval letter from your lender that says you can close fast and with no surprises.

You don’t get this by playing with an online mortgage calculator. You’ll only get this if you actually get pre-approved by a lender.

Second, in a market where higher rates make affordability more challenging, the mortgage pre-approval process is where you work out all of the nuance. And you’d be surprised how much you can afford once you do the math with a lender.

To approve loans, lenders divide your total proposed housing cost plus your other monthly obligations by your income. This gives them a percentage of how much of your income you spend on bills, and they’ll allow this percentage to go up to 43% — and sometimes higher. If you’re already at this percentage as a renter, then buying a home might be the better play.

You’ll never know by playing with an online mortgage calculator. You’ll only know if you actually get pre-approved by a lender.

Which brings us to the final stat.

CRAZY HOMEBUYER STAT 3

A full 72% of homebuyers have no plans to shop around for their mortgage, and 46% of buyers who submitted pre-approval applications only submitted one.

The first part of that stat set does sound crazy, hence my headline for this story. But on the second part of that stat set, lenders deserve some credit.

It implies that almost half (46%) of people applying for loans are happy with the first lender they connect with. Props to loan officers giving more attentive service and smart advice to buyers right now.

Also any loan officers who are active in this near-zero refi market have survived because they know their stuff on purchases — including the critical importance of great pre-approval letters to go with each offer buyers are making.

As for the 72% people who don’t plan to shop for mortgages, here’s why:

– Worried about damaging credit score (30%)

– Happy with first lender contacted (24%)

– Too much time and effort (19%)

– Belief that all lenders have same rates (15%)

– Embarrassed to share financial info with lenders (14%)

You can see that a quarter of them were in fact happy with the first lender they talked to.

And please note that lenders do compete and have different rates, especially right now when there are no refis. If you shop rates, you’ll find better deals.

As for those who believe it hurts your credit score or are too embarrassed to share your info, I get the hesitancy. But scoring models know people shop so your score remains steady if you’re talking to a few lenders in a specific time window. And lenders are Federally required to keep your data private, so it’s not embarrassing; they’ll use your data to enlighten you.

And finally, if you think it’s too much time and effort to shop, that’s cool. But is it really, though?

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Reference:

Homebuyers spend about as much time researching new TVs as they do mortgage lenders

 
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