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.

News provided by

Zillow

Sep 17, 2019, 08:00 ET

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.

ⁱData 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.

SOURCE Zillow