As reported by the Consumer Financial Protection Bureau (CFPB), homebuyers spend less time looking for a mortgage loan than they do shopping for shoes. In fact, the organization estimates that fewer than 50 percent of potential buyers shop for a loan. Because of this, people end up paying more interest than necessary. For instance, someone who locks into a 30-year mortgage on a $200,000 home without shopping around could actually pay .5 percent more, which equates to an additional $60 a month.
Along with paying more, homeowners with the higher interest rates will not build valuable equity as quickly. For these two reasons alone, it makes sense to spend time looking at not just different lenders but also different mortgage loans and special programs currently available.
Helpful Initiative for Mortgage Shopping
People in the United States spend significant time looking for the perfect home but little time, if any, comparing mortgages. To help buyers get through the long and complicated process of finding the right mortgage, Richard Cordray, Director with CFPD announced a new information initiative called “Know Before you Owe”. Based on the information provided, buyers have the ability to take more control over the loan process while maximizing benefits associated with investing in a home.
In 2014, data from a survey conducted showed that most people buying homes look for information about different mortgage choices using sources that have an interest in the decision-making process. In other words, they get information from lenders and real estate professionals who might not always lend a subjective point of view.
Approximately 70 percent of the people who participated in the survey said they heavily relied on those two sources in particular. The 20 percent remaining respondents said the main source of information was websites while just 2 percent claimed to get significant information from professional counselors in the housing industry.
Because mortgage shopping is not something that many buyers go through, most will gravitate to the first individual who seems to have knowledge, assuming that person is looking out for their best interest, which is not always the case.
Changing Mortgage Shopping
Because there are a lot of uninformed homebuyers who ultimately pay too much in interest or end up with the wrong loan, CFPB is working on changing the way that mortgages are obtained. The same group of people surveyed admitted that if they had better knowledge, they would feel empowered when it comes to shopping for the right lender, interest rate, and loan.
The goal of CFPB is to improve disclosures with the “Know Before you Owe” form. This, along with in-depth information provided on the organization’s website, homebuyers are walked through the entire process of buying a home.
As a result, people will end up with a reputable lender, someone they can trust. CFPB feels strongly that with better information and step-by-step guides, buyers will take the time to shop around for mortgage loans. While this is highly beneficial to everyone, it is an exceptional tool for people purchasing a first home.