Looking for the best mortgage deal? You better shop around
Too many homebuyers don’t hunt for the lowest mortgage rate. They spend weeks, sometimes months, looking for a house. But when it comes to shopping around for a loan, they don’t bother.
More than a third of all borrowers — both first-timers and repeat buyers — don’t look beyond the first lender they consult, according to a recent survey by Fannie Mae. They either feel most comfortable with that lender or they are satisfied with that lender’s quote. That’s too bad, because they might have saved some serious money had they shopped around.
LendingTree, the lender-matching service, says borrowers who search for the best rate and terms save an average of $63,151 over the life of a 30-year loan. That savings works out to $175 a month. Even if you don’t actually hold the loan for 30 years, which most people don’t, you’d save $21,000 over a decade.
LendingTree’s research also finds that 56% of all borrowers accept the first offer they receive from a lender, and of those, 48% believe they received the best rate available. At the same time, of those who did compare rates, 46% said the first quote they received was not the lowest.
But the mortgage is only the half of it. Other Fannie Mae research shows that the mortgage payment only represents about 50% of homeowners’ monthly housing costs. Costs like utilities, property taxes, insurance, maintenance and improvement expenses collectively account for the other half.
To get precise, the loan itself is about 30% of your monthly payment, Fannie Mae found, with the other 20% relating to transaction fees paid at closing. Those are largely made up of commissions, but also include loan origination fees, appraisals, credit reports, title reports, title insurance, settlement charges and local transaction taxes and recordation fees.
For what it’s worth, many transaction fees are negotiable. Savings are available if you are willing to do the legwork. But what about those ongoing costs? The typical owner spends $15,405 a year on them, Clever Real Estate reported about a year ago — and undoubtedly, these costs have gone up since the study was released. An update is due out in a month or so, but for now, let’s break down Clever’s most recent findings:
▪ Property taxes. These are the main source of revenue for most jurisdictions. What you pay depends on the value of your house and where you live. They run from a high of $8,432 in New Jersey to a low of $609 in Alabama. The average nationally is $2,578, or almost $215 a month.
▪ Utilities. This is the biggest subcategory of an owner’s monthly outlay, adding up to $4,829 a year. That’s much more than renters, largely because some landlords cover at least some of their occupants’ utilities. Another reason: Houses tend to be larger than apartments, so they are more expensive to heat, cool and energize. Monthly, the average cost of utilities is $402 a month.
▪ Maintenance. This broad category covers almost everything: from painting to plumbing, electrical work to appliance repair. And some repairs, like replacing a roof or addressing structural deficiencies, cost far more than changing out a water heater. Overall, the average spent on maintenance and repairs is $3,018, Clever found. But probably 33% of the respondents paid more than that — $5,000 or more. There are also recurring maintenance services to consider. Many owners do their own cleaning and mowing, but 4 out of 5 hire help for at least some ongoing services.
The most common are pest control, landscaping, housekeeping and tree trimming. Another aspect of this is time. Only you know what your time is worth, but on average, owners spend 230 hours a year taking care of their homes. That’s about 19 hours a month — almost a full day. — Insurance. Every lender requires borrowers to carry homeowner’s insurance, and some even demand they take out another policy to cover floods. Even if you aren’t compelled to carry both, you should. Clever says the average is $1,680 annually for an owner’s policy, or $140 a month. That’s a small price to pay to protect what’s likely your greatest asset. Flood insurance is extra, but also worth the cost. If you put down less than 20% of the purchase price, you’ll also have to pay for mortgage insurance to protect the lender in case you default.
▪ Association fees. Nearly 80% of the new houses built in 2021 were in communities run by the homeowners who live there. If you live in a place governed by an association, you’ll pay a membership fee that covers the cost of maintaining amenities, streets, landscaping and other public features. Depending on the facilities — golf, pools, tennis courts — the cost is up there.
▪ Improvements. Not everyone takes on a remodel or an addition, but those who do tend to spend big. Clever found that 35% spend more than $5,000 a year on flooring, windows and other alterations.
▪ Emergencies. Everyone, homeowner or not, should have something tucked away for a rainy day. Unfortunately, more than half of the owners queried would have to borrow money to cover a $5,000 emergency. About a third of those would have to use a credit card. About 20% of those surveyed had put away $1,000 or less in an emergency fund. But 43% had enough on hand to cover a $5,000 calamity.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
