You're Not Spending Enough Time Searching for a Mortgage Lender

A number of misconceptions can prevent homebuyers from shopping for a lender—but here's why you should.

Buying a home is one of the biggest financial investments anyone can make, and it doesn't happen overnight. Rushing through the home-buying process and not being diligent at every step of the way can lead to homebuyer regret and financial fallouts later on. However, there's one crucial step in the process that many people don't spend nearly enough time on: choosing a mortgage lender.

In fact, a recent survey by Zillow Home Loans sheds light on exactly how much time homebuyers don’t spend searching for a lender compared to their time spent on other big purchases. The survey found that only 13 percent of prospective homebuyers spent at least a month researching mortgage lenders, while far more homebuyers, (28 and 23 percent, respectively) spent at least that much time researching for their next car purchase or vacation.

Additionally, the survey found that 72 percent of prospective homebuyers haven't shopped around for mortgage lenders at all—and have no plans to do so. But this is a step homebuyers shouldn't skip. The right mortgage could make the difference of tens of thousands of dollars over the life of the mortgage.

We asked Zillow’s personal finance expert, Amanda Pendleton, why prospective buyers seem rather lackadaisical as it relates to researching who will hold their mortgage for the next 15 or 30 years.  “Mortgage shopping can feel overwhelming and confusing—after all, it’s something most people only do a few times in their lifetime,” she explains. “Plus, there are a lot of myths and misconceptions about the process.”

The Zillow survey identified the top five reasons why 72 percent of homebuyers haven’t and don’t plan to shop for a mortgage lender. Below, learn about these reasons and why experts say it's important to find the right lender.

:What's the Difference Between a Mortgage Broker, Lender, and Loan Officer?

Reason 1: "I’m worried about hurting my credit score."

Pendleton tells us that the top reason prospective homebuyers aren’t shopping around for a mortgage is that they don’t want to hurt their credit score. “Buyers may not realize that they can shop and submit multiple applications over a 45-day period with only one hit to their credit score,” she says.

And, according to Jennifer Beeston, SVP of mortgage lending at Guaranteed Rate in San Francisco, you can actually have multiple lenders run your credit in a 30-day period without it adversely affecting your credit score at all. “The credit bureaus understand you are shopping lenders,” she explains. Beeston also encourages potential buyers to talk with the individual lender first to ensure that you “vibe” with them before filling out an application. “You should feel comfortable with your lender and feel like they have your back,” she says.

However, Al Murad, the executive vice president of consumer direct sales for AmeriSave Mortgage in Atlanta, explains that the time-frame can be a little tighter and vary by credit-scoring model.  With some older FICO scores, for example, “you can get as many mortgage-rate estimates as you would like with minimum impact to your credit score if you do it within a 14-day window,” he says, adding that this is referred to as the “mortgage credit pull window.”

Reason 2: "I was happy with the first lender I contacted."

It’s important to like your lender, but that should be the starting point, not the sole criterion. If they have positive third-party reviews on Yelp, Zillow, etc., Beeson says that’s truly a great sign because you want expertise—as well as people raving about how great their service is. “However, it’s important to remember lenders are salespeople and just because they are charming does not mean you are getting a great deal,” she warns.

This view is also shared by Jim Black, executive director of lender strategy at Calque in San Francisco, and 20-year mortgage originator veteran. “Prospective homebuyers do not spend enough time making sure they are working with the right lender in one of the largest financial decisions that can impact the wealth of a family for decades,” he says. He recommends finding someone who can create a custom solution suited to your goals. “Spending quality time asking the important questions to a lender and a mortgage loan officer should be the focus in deciding the best choice for the needs of the buyer.”

Reason 3: "It takes too much time and effort."

We get it: You’re excited and want to get approved ASAP so you can close on your home. However, Murad says, shopping for rates isn’t nearly as complicated and time-consuming these days. “Most major lenders now provide free rate quotes online or by phone after you’ve provided a few details, like your credit score range, loan amount, loan term, and the type of mortgage you’re interested in,” he explains.

In fact, Murad says it’s borrowers who tend to make the process longer. “The most common cause of delays is from borrowers needing extra time to locate and share the required documents, so it’s smart to gather them before you begin to contact lenders, so you can share everything at once without wasting time,” he says.

Reason 4: "All lenders offer the same rates."

This myth can cost you thousands of dollars, and Beeson says it couldn’t be further from the truth. “The stuff I see as a lender who reviews other lenders’ estimates is terrifying," she says. "I have seen buyers save $10,000+ in lender fees by switching lenders and getting a lower rate." In fact, if a lender tells you that all rates are the same, Beeston says they’re only saying that so you won’t shop around—and you should take that comment as a major red flag.

Now this doesn’t meant that lenders are just pulling rates out of thin air. Murad explains that all lenders use risk-based pricing. “This means they offer different consumers different interest rates and loan terms based on the estimated risk that the consumers will fail to pay back their loans,” he says. However, he adds that each lender has a different formula for assessing risks. “They also have varying appetites for assuming risk, and since no two mortgage companies are alike, this is what leads to the variability in the rates that they’ll offer,” he explains.

Murad also agrees with Beeston that the lender you choose could lead you to potentially lose or save hundreds of dollars a month and tens of thousands of dollars over the loan’s term.

Reason 5: "I’m embarrassed to share my financial information with lenders."

If you have less-than-perfect credit, you may be trying to limit who can view your financial details. “I can understand the hesitancy in sharing private information and feeling a sense of vulnerability in exposing personal financial decisions,” says Black. However, he says, there’s no need to be ashamed or embarrassed. “We all have life events, and no one is perfect, which makes the need for an experienced and professional loan officer even more important,” Black says.

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