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It Pays to Shop for a Mortgage (More Than You Might Think)

In nearly every market, home buyers with lower credit scores stand to see the greatest savings from shopping around for the best mortgage rate

-- Just because rates overall are historically low doesn't mean there's no need to shop around.

-- Buyers in most markets could save tens of thousands of dollars on a 30-year mortgage by soliciting quotes from multiple lenders.

-- Bay Area buyers could save more than $500 a month, but even in the least expensive markets typical buyers could pocket a savings of around $60 a month.

SEATTLE, Sept. 17, 2019 /PRNewswire/ -- The typical home buyer spends more than four months shopping for the perfect place. They tour an average of more than four homes, attend two open houses and make two offersi. That's not to mention the hours spent browsing online listings.

But most buyers don't shop around for the best mortgage rateii. And buyers who don't – especially those with lower credit scores – are missing out on significant potential savings or the chance to make fewer sacrifices as they decide on a home, perhaps affording that extra bedroom they need or being able to buy in a preferred school district.

A hypothetical buyer looking to purchase the median-valued U.S. home (about $229,000) with a 20% down payment and a standard, 30-year, fixed-rate mortgage at a 4% annual percentage rate would pay about $1,102 per month, including taxes and insurance. Keeping all else the same, but upping the rate to 5%, the monthly payment increases to $1,211 – an almost 10% bump that would cost the homeowner nearly $40,000 over the lifetime of the mortgage.

Rates are historically low now, but there's more to being a smart home shopper than simply buying when rates are low. A new Zillow® analysis shows that seeking out the best rates among lenders can make a significant impact, especially for those with lower credit scoresiii.

Because they're perceived as riskier, prospective buyers with lower credit scores are generally offered higher interest rates, and ultimately pay higher costs – a way for lenders to offset their risk by getting paid more to take it on. The median rate offered to those with credit scores of 760 or higher (generally regarded as excellent/low-risk) was 4.54%, according to a recent Zillow analysis of rates offered to borrowers seeking 30-year fixed-rate mortgages. For those with credit scores in the 620-to-639 range, the median rate quoted was 5.48% -- a difference of nearly a full percentage point.

Zillow also found a wider spread between the best and worst rates offered to borrowers with lower credit scores, making it even more important for buyers with lower credit scores to shop around for a mortgage. The range for those with credit scores above 760 was 92 basis points, while those with scores between 620 and 639 saw a range of 133 basis points.

In an expensive market like San Francisco, where the range for those with credit scores below 680 is 120 basis points, the monthly savings gained from mortgage shopping could be about $550 per month on a median-priced home. That's compared to a potential savings of about $480 for buyers with better credit. In Baltimore, where buyers with lower credit scores saw a range of 155 basis points, they could save about $200 a month, even though home values are less than one-third what they are in San Francisco. That's about twice what buyers with better credit could save there.

"Finding the right home and neighborhood, and agonizing over how much you can actually afford to bid, can be so overwhelming that optimizing the nuts and bolts of your mortgage, admittedly the driest and arguably the murkiest part of the process, can be overlooked at a big eventual cost," said Skylar Olsen, Zillow's director of economic research. "It's no wonder it happens. The experience of the borrower facing a hard sell differs from place to place, and each time you reach out you're rehashing sensitive, personal financial information with a new person over the phone, over email, or through yet another on-line application. It can be confusing and exhausting. But really, for the years you're locked into this loan, the rewards are likely to be well worth it."

Metropolitan Area

Median
Home Value

Basis point
range for
credit
scores
above 680

Potential
monthly
savings from
mortgage
shopping

Basis point
range for
credit
scores
below 680

Potential
monthly
savings from
mortgage
shopping

New York, NY

$442,800

85

$177

122

$263

Los Angeles, CA

$650,600

103

$317

140

$446

Chicago, IL

$225,200

82

$88

125

$137

Dallas-Fort Worth, TX

$243,500

95

$109

127

$152

Philadelphia, PA

$233,300

91

$101

93

$105

Houston, TX

$206,400

100

$98

119

$119

Washington, DC

$407,700

83

$160

116

$230

Miami-Fort Lauderdale, FL

$284,300

90

$121

125

$173

Atlanta, GA

$220,300

87

$91

116

$125

Boston, MA

$463,300

98

$216

119

$269

San Francisco, CA

$938,100

108

$482

120

$550

Detroit, MI

$162,900

93

$72

113

$89

Riverside, CA

$371,500

92

$162

122

$222

Phoenix, AZ

$267,500

101

$129

110

$144

Seattle, WA

$489,500

103

$241

129

$309

Minneapolis-St Paul, MN

$272,000

92

$119

105

$139

San Diego, CA

$591,500

100

$280

95

$273

St. Louis, MO

$167,700

94

$75

107

$87

Tampa, FL

$216,400

82

$84

110

$116

Baltimore, MD

$267,100

78

$98

155

$204

Denver, CO

$409,200

98

$190

102

$203

Pittsburgh, PA

$144,700

95

$65

121

$85

Portland, OR

$396,700

98

$184

96

$185

Charlotte, NC

$210,600

101

$102

109

$111

Sacramento, CA

$411,300

97

$190

98

$196

San Antonio, TX

$195,600

90

$83

112

$107

Orlando, FL

$240,000

87

$99

123

$144

Cincinnati, OH

$170,400

88

$71

130

$109

Cleveland, OH

$147,100

91

$64

109

$78

Kansas City, MO

$191,900

92

$83

125

$117

Las Vegas, NV

$279,100

84

$110

118

$160

Columbus, OH

$193,800

89

$81

105

$99

Indianapolis, IN

$167,300

73

$58

114

$93

San Jose, CA

$1,144,800

100

$542

102

$566

Austin, TX

$312,300

99

$147

107

$163

Virginia Beach, VA

$229,800

75

$81

113

$126

Nashville, TN

$255,700

100

$121

150

$188

Providence, RI

$295,100

96

$135

165

$240

Milwaukee, WI

$232,500

100

$110

112

$127

Jacksonville, FL

$214,400

84

$85

133

$140

Memphis, TN

$141,000

107

$72

98

$67

Oklahoma City, OK

$148,400

93

$66

134

$98

Louisville, KY

$164,400

92

$72

119

$95

Hartford, CT

$229,100

79

$85

124

$139

Richmond, VA

$232,000

76

$83

126

$142

New Orleans, LA

$176,000

100

$84

110

$94

Buffalo, NY

$161,400

83

$64

75

$59

Raleigh, NC

$269,100

101

$130

120

$158

Birmingham, AL

$148,700

95

$67

144

$105

Salt Lake City, UT

$373,200

91

$160

131

$239

(Calculation assumes median rates of buyers with credit scores above 680 are 0.5% lower than median rates of buyers with credit scores below 680. Based on a low rate of 4% for buyers with higher credit scores.)

About Zillow

Zillow® is transforming how people buy, sell, rent and finance homes by creating seamless real estate transactions for today's on-demand consumer. Zillow is the leading real estate and rental marketplace and a trusted source for data, inspiration and knowledge among both consumers and real estate professionals. 

Zillow's proprietary data, technology and industry partnerships put Zillow at nearly every major point of the home shopping experience, helping consumers search for and get into their new home faster. Zillow now offers a fully integrated home shopping experience that includes access to for sale and rental listings, Zillow Offers®, which provides a new, hassle-free way to buy and sell eligible homes directly through Zillow; and Zillow Home Loans, Zillow's affiliated lender that provides an easy way to receive mortgage pre-approvals and financing. Zillow Premier Agent instantly connects buyers and sellers with its network of real estate professionals to help guide them through the home shopping process. For renters, Zillow's innovations are streamlining the way people search, tour, apply and pay rent for leased properties. 

In addition to Zillow.com, Zillow operates the most popular suite of mobile real estate apps, with more than two dozen apps across all major platforms. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and ZG) and headquartered in Seattle.

Zillow and Zillow Offers are registered trademarks of Zillow, Inc.

i Data from Zillow's 2018 Consumer Housing Trends Report.

ii Data from Zillow's 2018 Consumer Housing Trends Report.

iii Zillow's affiliate lender, Zillow Home Loans, LLC, was not involved in this analysis.

 

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