You should spend at least five times as long researching your mortgage options than you should studying up on new cars and at least 100 times as long as you spend looking at potential computer purchases.
But that’s not how many Americans treat such important decisions, according to a Zillow study. The typical U.S. consumer spends four hours researching before buying a new computer, 10 hours studying before driving off in a new car, and a surprisingly low five hours looking into options before deciding on a mortgage. In fact, mortgages rated the lowest in minutes spent per dollar of the seven items Zillow tracked in the survey.
“Mortgages continue to be something that most people don’t want to spend time thinking about,” Zillow chief economist Dr. Stan Humphries said. “Not understanding a home loan can have catastrophic consequences.”
How to successfully shop around
Comparing mortgage rates doesn’t have to be difficult, but you should spend more time on it than you did picking out your last laptop.
Zillow recommended two steps every homebuyer should take while researching mortgages:
1. Shop around for different kinds of loans and make sure to consult multiple lenders.
2. Do enough reading on mortgages to gain a thorough understanding of how they work.
Plenty of Online tools exist to help in the search for a mortgage. Zillow runs its own Mortgage Marketplace, where you can submit an anonymous request and view unlimited quotes. MyBankTracker offers a simple mortgage calculator, which could steer you in the direction of the lender that fits you best.
Remember, you’ll be paying off your home far longer than you’ll be paying off your car. So be sure to spend an adequate amount of time studying mortgages before making such a big investment.
The importance of doing your mortgage homework
Zillow’s findings were especially surprising in the post-mortgage meltdown world. After the mortgage market collapsed — and helped pull the entire economy with it — beginning in 2007, it appeared Americans might begin paying more attention to their home loan decision-making.
A bad mortgage can be especially damaging to a homeowner. If you do not choose your home and your mortgage terms carefully, you could end up with an underwater mortgage, meaning you owe more than your home is worth. Simply walking away from, or defaulting on, an underwater mortgage could result in huge hits to your credit score. The overwhelming number of mortgage defaults was one of the most prominent factors in the downturn of America’s housing market.
“The last few years should have driven home the lesson that understanding one’s home loan is critically important,” Humphries said.
The average homebuyer in 2009 only received an average of three quotes before deciding on a mortgage. A homebuyer would ideally get quotes on two kinds of mortgage products from at least four different lenders.